CORPORATE AND SUSTAINABILITY GOVERNANCE
At CNH Industrial, the integration of economic decisions with those of a social and environmental nature constitutes a fundamental commitment towards long-term stakeholder value creation.
To meet this commitment, CNH Industrial has adopted a robust Governance model. Firmly rooted in the Corporate culture of CNH Industrial, the model has evolved year on year, incorporating best practice benchmarking and implementing the recommendations of the major sustainability rating agencies.
The main elements of CNH Industrial’s Governance model are described below, while full disclosure on this aspect is available in the Annual Repor t, pages 94-114, as well as in the Governance section of the Company’s website, where all updates throughout the year are repor ted.
The Annual Report can be downloaded from the CNH Industrial website.
The Board of Directors
The criteria used to select and appoint members of the Board of Directors are contained in the relevant Guidelines, available on the Company website.
The Guidelines stipulate that, in consideration of the size of the Company, the complexity and specific characteristics of the segments in which it operates, and the geographic distribution of its businesses, the Board of Directors should be composed of individuals with: skills, experience, and cultural backgrounds, both general and specific, acquired in an international environment and relevant to an understanding of the macro-economy and global markets, more generally, as well as the industrial and financial sectors, more specifically. An appropriate and diversified mix of skills, professional backgrounds, and genders is fundamental to the proper functioning of the Board as a collective body.
There should also be an appropriate balance between the number of executive directors (i.e., those vested with representative and executive powers) and non-executive directors, with a majority of the directors being non-executive.
The independent directors have an essential role in protecting the interests of all stakeholders. Their contribution is also necessary for the proper composition and functioning of the Committees, whose advisory function includes preliminary examination and formulation of proposals relating to areas of potential risk.
Additionally, with regard to gender diversity, it is generally recognized that diverse boards are more effective in performing their monitoring and advisory activities, due to the variety of professional experience, perspectives, insights, skills, and connections to the outside world that gender diversity can add.
The independence requirements for members of the CNH Industrial Board of Directors were established with reference to the Dutch Corporate Governance Code, the NYSE Rules, and Rule 10A-3 of the U.S. Securities Exchange Act.
The composition of the Board of Directors, elected by the shareholders at the General Meeting on April 16, 2014, reflects these guidelines and international best practice:
- there are 11 directors, ensuring the effective functioning of the Board and its Committees
- the independence of directors is verified with reference to the criteria of the Dutch Corporate Governance Code, the Exchange Act, and the NYSE Listed Company Manual
- seven out of the 11 directors are independent, or 64% of the total
- the Board is composed of three women and eight men, women making up 27% of the total
- one Board member is in the thirty-to-fifty age group, and ten are in the over-fifty age group
- the roles of the Company Chairman and Chief Executive Officer are separated; both are executive directors, with responsibility for the day-to-day management of the Company.
To improve the performance of the Board of Directors, regular updates are provided at meetings on CNH Industrial’s operations, as well as training on the activities of the Board’s committees, including those relating to risk and sustainability. In 2014, in conjunction with the presentation of the new Business Plan to shareholders, the Directors held several meetings with management (brand, product, and segment managers) to examine the new Business Plan in detail and learn about changes to the operating environment and organizational aspects.
The Board of Directors is supported by three Committees:
- Governance and Sustainability Committee
- Audit Committee
- Compensation Committee.
For these Committees, a minimum number of meetings per year is stipulated in the relevant charter: once a year for the Governance and Sustainability Committee, four to six times for the Audit Committee, and once for the Compensation Committee.
Process for Evaluating the Performance of the Board of Directors
Among its functions, the Governance and Sustainability Committee assists the Board of Directors in its periodic assessments of the Board’s size and composition and of the performance of individual Board members, reporting on this to the Board of Directors itself. Specifically, it is the Committee’s responsibility to review the Board of Directors’ performance annually, and the performance of its Committees. The Committee is provided with the resources, funding, and authority, at its sole discretion and without requiring approval from the Board of Directors, to select, retain, and obtain the advice of external advisors as necessary or appropriate to assist with the execution of its duties and responsibilities.
In 2014, the Committee did not conduct such an evaluation but plans to do so in 2015.
The Governance and Sustainability Committee
Sustainability is a core element of CNH Industrial’s system of Governance, with top management playing a direct and active role. The Governance and Sustainability Committee is a subcommittee of the Board of Directors, and is the highest decision-making body on sustainability. Among other things, the Governance and Sustainability Committee is responsible for assisting the Board of Directors in monitoring and evaluating reports on the Company’s sustainable development policies and practices, management standards, strategy, global performance and Governance, and for reviewing, assessing, and making recommendations on strategic guidelines for sustainability issues, as well as for reviewing the annual Sustainability Report.
The Committee has three members, two of whom are women; two are in the over-fifty age group, and one in the thirty-to-fifty age group.
The Group Executive Council
The highest decision-making body after the Board of Directors is the Group Executive Council (GEC). The GEC is responsible for reviewing the operating performance of the Company and for making decisions on specific operational matters. It also advises the Board of Directors on certain key operational aspects. The activities of the GEC are subject to supervision, examination and, where necessary or appropriate, ratification or overruling by the Board.
The GEC reviews strategic approach, evaluates the Sustainability Plan’s alignment with business objectives, and receives regular updates on the Company’s sustainability performance. The GEC, as at December 31, 2014, is headed by the Company Chairman and its membership is composed of four main groupings. The first of these is the four Regional Operating Groups (EMEA, NAFTA, LATAM, and APAC) that oversee the production and sale of Agricultural Equipment, Construction Equipment, Commercial Vehicles, and Powertrain (engines and transmissions).
Each Regional Operating Group is headed by a Chief Operating Officer (COO) that drives the regional organization via a regional management team, and reports to the CEO. Alongside these, a COO for the Iveco brand and a COO for the Powertrain segment were appointed, on a temporary basis, in order to provide a single point of full-time leadership for all operations within each business. The second group reflects the Company’s focus on its brands: each manager is tasked with enhancing and developing an appropriate product portfolio for each brand and with implementing commercial and marketing strategies tailored to each of the Company’s operating Regions. The third group is composed of industrial leaders that drive a rigorous and consistent business approach across the four operating Regions, optimizing Company decisions on capital allocation. The fourth group is made up of Company support functions, including the Chief Financial Officer and the Chief Human Resources Officer.
The GEC (at December 31, 2014) has 19 members, including the Company Chairman; two members are women, representing 10.5% of the total. Ten members are in the thirty-to-fifty age group (53% of the total), nine members are in the over-fifty age group (47% of the total), while no member is under thirty years of age.
The GEC was directly involved in defining the materiality matrix approved by the CEO.
The Sustainability Team
The Sustainability Team consists of the Sustainability Unit, the Sustainability Business Points of Reference, and Regional Sustainable Development Owners.
The primary mission of the Sustainability Team is to contribute to the promotion of a Corporate sustainability culture that integrates social and environmental issues into ordinary business processes, thus contributing, in coordination with and in support of the business functions, to risk management and long-term value creation.
The Sustainability Unit has an operational role and reports to the Chief Financial Officer, who is a member of the GEC and is usually invited to attend the meetings of the Board of Directors. The Unit is responsible for regularly updating the sustainability management system by monitoring developments regarding its various aspects, implementing the recommendations of sustainability experts, sustainability rating agencies and investors, benchmarking the competition and, together with CNH Industrial’s segments, making adjustments to Key Performance Indicators (KPI). The Sustainability Unit plays a key role in promoting a culture of sustainability across the Company: through an analysis of the Company’s operations it identifies opportunities and risks arising from environmental management, defines actions and targets for the Sustainability Plan aimed at improving the Company’s sustainability performance, and monitors progress with respect to achieving these targets. In addition, it prepares the Sustainability Report and manages the sustainability section on the Company’s website. Together with Investor Relations, it also completes questionnaires required by sustainability rating agencies, responds to queries raised by Socially Responsible Investors (SRIs), and supports Company segments in their dealings with stakeholders on environmental and social aspects.
In March 2014, the Sustainability Business Points of Reference were appointed, as representatives from within the various operating areas, with the role of: ensuring the support and alignment required from across the Company, bringing expertise to specific issues relating to the Company’s reporting process, and formulating proposals for sustainability improvements. They provide a direct link between the Sustainability Unit and the various operating areas, giving both technical and organizational support.
In addition, a Regional Sustainable Development Owner was also appointed for each operating Region, to support and track activities having a social or environmental impact on local communities, employee welfare, and employee commuting.
In 2014, 392 targets, including social, environmental and climate change issues, were incorporated into the variable compensation system for specific sustainability project leaders, Energy and Environmental Health and Safety managers, and relevant staff at plant level.
THE ORGANIZATIONAL MODEL
CNH Industrial Compliance and Ethics Committees
The Company’s Global Compliance and Ethics Committee provides assistance to the Company’s management and the Company’s Audit Committee to enable the Company and its operating subsidiaries to continue to operate according to the highest ethical business standards and in accordance with applicable laws and regulations.
The activities of the Committee are: facilitate the development, implementation, and operation of an effective compliance and ethics program; promote an organizational culture that encourages law-abiding and ethical conduct; and consider and resolve any issues of interpretation regarding any aspect of the compliance and ethics program.
The Committee consists of the following members: the Chief Executive Officer, Chief Financial Officer, Chief Human Resources Officer, General Counsel, Chief Compliance Officer, Chief Internal Audit Officer and the heads of the Company’s Financial Services business and ICT function.
The Company’s Chief Executive Officer serves as the chair of the Committee. In the absence of the Chief Executive Officer, the Chief Compliance Officer serves as chair of the Committee.
The Committee meets at least quarterly, or more frequently as deemed necessary or appropriate by its members.
The Committee reports to the Audit Committee of the Board of Directors, at least quarterly, on: the operation, contents, and effectiveness of the Company’s compliance program any alleged material compliance and ethics violations, and the disposition (or proposed disposition) of material compliance and ethics violations which have been investigated.
The Company has also established Regional Compliance and Ethics Committees for each operating Region (EMEA, NAFTA, LATAM, and APAC). These regional committees are responsible for overseeing the Company’s compliance and ethics system in their respective Regions and for providing assistance to Company management in each Region and to the Global Compliance and Ethics Committee. The regional committees are composed of the regional counterparts of the members on the Global Compliance and Ethics Committee.
THE SUSTAINABILITY MANAGEMENT SYSTEM
The sustainability management system consists of the following tools:
- the Code of Conduct and related Corporate policies, approved by the Board of Directors (see also page 56), which set out the Company’s approach to key issues
- a set of guidelines to manage specific issues - the Human Capital Management Guidelines, Green Logistics Principles, and Sustainability Guidelines for Suppliers
- a set of approximately two hundred sustainability-related Key Performance Indicators (KPIs), designed to provide maximum coverage of all the key environmental, social, and governance aspects, in line with GRI-G4 requirements and those of the major sustainability rating agencies
- the Sustainability Plan, which identifies action priorities and confirms commitments undertaken
- the annual Sustainability Report, which discloses the Company’s performance on sustainability aspects, expanding on and completing the information provided in the Annual Report
- a summary included in the Annual Report of material sustainability-related issues, supplementing the financial data
- the CNH Industrial website, which includes a dedicated top-level sustainability area presenting the contents of the most recent Sustainability Report, along with regular updates throughout the various reporting cycles.
The Sustainability Unit also has a dedicated email address and phone number where stakeholders can make requests ask questions or provide feedback. Both can be found under the Contacts section of the Corporate website. Emails are checked daily and any requests that cannot be managed directly are forwarded to the appropriate office. Emails or calls may concern social or environmental aspects, or even violations. After assessing their importance and severity, they are submitted to the Governance and Sustainability Committee or to the Audit Committee of the Board of Directors.
SUSTAINABILITY PLAN PROCESS
The commitments, actions, and targets that make up the Sustainability Plan are initially deﬁned on the basis of areas for improvement identiﬁed by the Sustainability Unit in collaboration with the segments and Corporate functions (planning phase). To support this process, the Sustainability Unit performs continual benchmarking throughout the year and benefits from the feedback and assessments of the major sustainability rating agencies, international organizations, and socially responsible investors (SRIs) with whom CNH Industrial has established relations. The Sustainability Plan draft is then submitted for review and approval to the General Executive Council (GEC), which evaluates alignment with Company strategy and makes appropriate recommendations. Once approved by the GEC, the Plan is submitted to the Governance and Sustainability Committee, a subcommittee of the Board of Directors.
Responsibility for individual projects and achievement of agreed targets in the Sustainability Plan rests with the various operating and Corporate functions, which have the resources, tools, and expertise required for their implementation (management phase). To further ensure adherence to commitments made, the Sustainability Unit is periodically updated on the progress of projects (control phase).