Our Board’s independence standards are based on the principle that an Independent Director should be free of any relationship with KE or our senior management. With the exception of our CEO, all of our Board members are independent, extending accountability for our stakeholders beyond just our executive team. We have a Lead Independent Director who will become our independent Chairperson on March 1, 2023, separating the roles of Chairperson and CEO.
Our Board operates under formal corporate governance guidelines that define its composition, operations, and responsibilities, and each Board committee operates under a formal charter. The Board and its committees regularly review these governance guidelines and charters to ensure they are state of the art. See our governance guidelines and charters here. These policies and practices help the Board and our management achieve our long-term strategic plans and ensure we continue to serve our customers efficiently and effectively, all for the benefit of our Share Owners. This year, our Board reorganized its 100% independent committees, adding a Talent, Culture, and Compensation Committee with a focus on maintaining and enhancing our ability to create quality for life, and a Nominating and ESG Committee dedicated to overseeing and monitoring our goals, policies, procedures, initiatives, and disclosures related to sustainability and ESG matters.
Each Independent Director is required to maintain ownership of shares of our common stock equal to three times their annual retainer. Hedging or pledging our stock is prohibited.
Our Board has a culture of continuous evolution, and believes in the importance of new directors and fresh perspectives. We have tenure limits for Board membership of age 72 or four consecutive three-year terms. Our three-tiered classified board structure also ensures that the average tenure of our Board's Independent Directors does not exceed 10 years.
We are proud of and benefit from our diversity. Each year since we became a public company in 2014, we have been recognized by 50/50 Women on Boards for having a Board comprised at least 20% of women. Three of our Independent Directors are female. Our directors come from diverse backgrounds in terms of viewpoint, ethnicity, professional experience, education, background, and skill, all of which help to create a well-balanced and effective Board. To support our DEI&B objectives, we have an enterprise-wide expectation that 100% of the candidate slates for our Board include candidates from underrepresented groups in the technology and manufacturing industries (Women, Black, Latino/a, Asian, Indigenous, Multiracial, LGBTQ, People with Disabilities, and Veterans).
Performance evaluations are critical for continuous improvement in Board performance. Our Board conducts annual performance evaluations of itself and our CEO, utilizing an independent third-party evaluator as appropriate. Participation is a critical component of performance, and we expect all Board members to attend all Board and committee meetings.
Our Share Owners benefit from:
We believe that we best serve our Share Owners if the Board retains flexibility to decide what leadership structure works best for us under our current facts and in our present circumstances. With the February 28, 2023 retirement of Don Charron, our long-time CEO, the Board determined that it was in the best interests of the Company and its Share Owners to separate the roles of Chairperson of the Board and Chief Executive Officer effective March 1, 2023. Our CEO has primary responsibility for our day-to-day leadership and strategic direction, and our Chairperson, as he did as our Lead Independent Director, facilitates oversight of management, promotes communication among management and between management and the Board, presides over meetings of the Independent Directors, and helps to set and maintain Board culture.
The Board reviews its management succession and retention plans annually. Additionally, the Board oversees the risks and exposures associated with management succession planning. Our directors and executive officers collaborate on succession planning, and the entire Board is involved in the critical aspects of the management succession planning process, including establishing selection criteria that reflect our business strategies, identifying and developing internal candidates to ensure the continuity of our culture, and making key management succession decisions.
By-Laws are the operational rules for the legal organization of the Company and the Board and include items such as principal office location, officer and director roles and responsibilities, and meeting rules. We believe these types of matters are best managed by the Board to allow for flexibility and effective operation in an ever-changing business landscape. Our Share Owners play an important role in shaping these rules, too, which is why our Share Owners also have the right to amend our By-Laws by majority vote.
We believe our current three-tiered classified Board provides an appropriate balance between Company and Share Owner interests because it offers independence, stability, continuity, and long-term focus, and it promotes value creation while still providing full Share Owner accountability.
We believe a classified stock structure is a significant diminution of Share Owner rights, so we maintain a single-class structure. We adhere to the principle that all shareholders should have equal voting rights in public companies and each shareholder should have one vote.
Our Board and management team engage year round with a range of stakeholders, including not only our Share Owners, but also our workforce, our vendors, our customers, and our communities. In 2022, our Board held two additional, special meetings specifically to review and discuss ESG initiatives, challenges, and opportunities, and to hear from internal stakeholders, from the investor community, and from our industry. Our engagement program includes maintaining formal global councils and task forces within our Company on subject matters including human resources and employee engagement; safety, environmental, and facilities (SEF); enterprise information security and cybersecurity; materials management; supplier quality; quality systems; digital processes; community engagement/outreach; and business planning.
Each of our councils and task forces holds regular meetings and collaborates and engages with their own internal and external stakeholders. They each report back to our executive team and our Board. Our global councils provide us a system to consult and engage with our internal and external stakeholders formally and to offer them ongoing opportunities to provide feedback and to direct and influence our business in support of our sustainable growth.
Any performance-based compensation ultimately shown to be based on incorrect financial results or other criteria should be returned to the Company. We have a specific “clawback” policy that requires recoupment of any officer or director compensation earned if the Company’s financial statements must be restated due to material errors or omissions. Alignment with Share Owner Value
We do not lose sight of governance and market best practices when crafting fair compensation programs for our executives. We tie a large portion of both short- and long-term executive compensation to our company performance. Our executive compensation plans reward significant positive performance relative to our industry. We require a minimum one-year vesting period for performance shares granted under our stock plan, and our executives must retain 100% of all net shares (posttax) that vest until achieving their stock ownership requirements.
The Board reviews pay for our CEO and each of our executives annually, often with the assistance of a thirdparty compensation consultant. The Board develops and consults relevant data sources to ensure our pay is competitive and the incentives we provide management are relevant and aligned with our Company’s long-term interests.
Incentive compensation has been a bedrock principle of our compensation philosophy since our founding. We believe it is important for our salaried employees, especially our executive officers, to have a significant portion of their compensation based on our financial results and operational metrics. The incentivized nature of our compensation drives collaboration, cooperation, personal development, and continuous improvement to create long-term Share Owner value by rewarding performance, aligning with our Share Owners’ interest, retaining executive talent, and enhancing collaboration as employees achieve results as a team.
The Board has also incorporated ESG/ sustainability in the fiscal year 2023 annual incentive framework for our CEO, our Chief Legal & Compliance Officer, and our Vice President, Human Resources to more directly link ESG risk and performance to the remuneration of the executives most responsible for them. All three of these executives can earn a cash incentive of up to 8% of their base salaries linked to our achievement of specific qualitative and quantitative ESG goals and key performance indicators during fiscal year 2023. More information will be disclosed in our 2023 Proxy Statement.
At KE, our Guiding Principles are built around our core values of integrity, respect, and accountability. Transparent integrity is a principle driven by those values as part of our commitment to sustainability and corporate responsibility. Our commitment to transparent integrity fuels our public commitment to measure, report, and reduce our greenhouse gas emissions, energy and water use, and waste. We believe that by operating with transparency and honesty, we demonstrate our commitment to responsible corporate citizenship and build trust with our stakeholders.
Our belief in transparent integrity requires that we are open and honest about our environmental impact and that we are proactive in our efforts to reduce it. By regularly measuring and reporting on our environmental impact, we are able to identify areas for improvement, set goals, and track progress over time. This helps us to better understand our impact and make informed decisions that will help us to reduce our environmental footprint.
We instill the sense of personal integrity, responsibility, and ethics from our Guiding Principles in our employees, suppliers, vendors, contractors, and partners around the world. These principles ensure that we maintain a strong governance culture that works against corruption in all its forms. They are the foundation of our commitment to our ESG management systems, which meet or exceed applicable standards, including our environmental management systems under ISO 14001, occupational health and safety management systems under ISO 45001, and our reinforcing policies, procedures, training and culture. 100% of our employees in our global manufacturing facilities are covered by ISO 14001-certified systems, and approximately 94% of employees at Kimball Electronics manufacturing facilities are covered by ISO 45001-certified systems. Our comprehensive ESG standards include our Code of Conduct, our Global Human Rights Policy and Supply Chain Transparency Policy and Statement, our Responsible Sourcing Policy, our Safety, Environmental, and Facility (SEF) Policy, and our Diversity, Equity, Inclusion, and Belonging Statement. We make available—and apply—these policies to all of our employees; our suppliers, vendors, contractors, and partners globally; and to members of the public that interact with us.
Our public commitment to measure, report, and reduce our environmental impact is rooted in our belief that sustainability is not just about mitigating harm, but also about continuous improvement because the environment is our home. Clear, concise, and timely communication is also critical to our Share Owners’ understanding of our Company.
We adopted ESG reporting standards, such as SASB (using their Electronic Manufacturing Services & Original Design Manufacturing Standard) and TCFD, and report our alignment to the 17 UN Sustainable Development Goals and the 10 Principles of the UN Global Compact to further our commitment to transparency and sustainability. These reporting standards and alignment reports provide a standardized framework for reporting on our environmental, social, and governance performance and help us to effectively communicate our progress to stakeholders. By adhering to these reporting standards and reporting our alignment, we are able to demonstrate our commitment to responsible corporate citizenship, to encourage others to hold us accountable, and to invite all of our stakeholders to join us in our efforts to create a more sustainable future.
Our internal audit management services team regularly reviews and tests our internal controls, working closely with our outside auditors, Deloitte and Touche. We enjoy a positive working relationship with our external auditors, and Deloitte personnel are regularly rotated to provide fresh audit insights.
Using our internal learning platform that tracks and monitors completion and comprehension, we train our employees annually on our Code of Conduct, our Human Rights Policy, and other core human rights and ESG-linked policies to ensure that they understand and can comply with them. We also actively monitor and audit internal and external compliance through annual audits and training, including by conducting annual audits of our supply chain and of our own company and its subsidiaries to verify ongoing compliance with our ESG-linked policies.
We employ a formalized Enterprise Risk Management (ERM) process that helps us evaluate a broad range of operational, strategic, compliance, and reporting risks. Our senior leaders meet quarterly, and we also identify risks through interviews, surveys, and discussions with our leadership teams and others throughout our organization. Our leaders rank and prioritize our potential risks along the two continuums of “likelihood” and “impact,” and our team develops a specific remediation strategy for the significant risks. Individually and collectively, our leaders continually monitor, reassess, and validate risks and mitigation efforts throughout the year.
We consider creating quality for life for our customers, our people, and our communities as our top priority, so we follow the precautionary principle of the UN Global Compact in our business. For instance, we ensure the safe handling, storage, use and disposal of all substances, processes and materials, especially those considered as hazardous to health and safety at each of our sites. We are committed to the continuous development of best practices and expertise to support sustainable environmental discipline.
We are committed to the highest standard of financial integrity. We have never received an adverse auditor opinion, nor restated our financial statements. We maintain multiple procedures, standards, and audit checks to help ensure our financial integrity. These include our Disclosure Committee comprised of senior executives that meets with members of our finance and internal audit teams to carefully review our public filings and financial disclosures for accuracy, compliance, and consistency.
Audit Committee Financial Expertise The Board’s Audit Committee must have a “financial expert” under SEC rules to ensure proper Board oversight of our financial disclosures. All members of our audit committee are qualified financial experts and “financially sophisticated,” exceeding the minimum standards set by the SEC and Nasdaq.
World Headquarters
Kimball Electronics, Inc.
1205 Kimball Blvd.
Jasper, IN 47546