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The following is an excerpt from a DEF 14A SEC Filing, filed by HUNTINGTON INGALLS INDUSTRIES, INC. on 4/3/2012.
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HUNTINGTON INGALLS INDUSTRIES, INC. - DEF 14A - 20120403 - ANNUAL_REPORT

ELECTRONIC ACCESS TO PROXY STATEMENT AND ANNUAL REPORT

You can elect to receive future proxy materials by email, which will save us the cost of printing and mailing documents to you. If you choose to receive future proxy materials by email, you will receive an email with instructions containing a link to the website where those materials are available as well as a link to the proxy voting website.

 

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General Information About the Annual Meeting and Voting (Continued)

 

 

 

If you are a stockholder of record, you may enroll in the electronic delivery service by going directly to www.envisionreports.com/HII . You may revoke your electronic delivery election at this site at any time and request a paper copy of the proxy statement and annual report.

If you are a street name stockholder, you may also have the opportunity to receive copies of the proxy statement and annual report electronically. Please check the information provided in the proxy materials mailed to you by your bank, broker or other holder of record concerning the availability of this service.

HOUSEHOLDING INFORMATION

We have adopted a procedure called “householding.” Under this procedure, stockholders of record who have the same address and last name and do not participate in electronic delivery of proxy materials will receive only one copy of the Notice of 2012 Annual Meeting and Proxy Statement and the 2011 Annual Report. This procedure reduces our printing costs and postage fees.

If you or another stockholder of record with whom you share an address are receiving multiple copies of the proxy statement and annual report, you can request to receive a single copy of these materials in the future by calling our transfer agent, Computershare, at 1-888-665-9610, or writing to us at Investor Relations, 4101 Washington Avenue, Newport News, VA 23607. If you or another stockholder of record with whom you share an address wish to receive a separate proxy statement and annual report, we will promptly deliver it to you if you request it by contacting Computershare in the same manner as described above.

Stockholders who participate in householding will continue to receive separate proxy cards. If you are a street name stockholder, you can request householding by contacting your bank, broker or other holder of record through which you hold your shares.

 

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Governance of the Company

 

 

 

OVERVIEW OF CORPORATE GOVERNANCE

Corporate governance addresses the relationships between the board of directors, company management, and its stockholders, with the objectives of fostering the company’s long-term success, improving corporate performance and representing the interests of our stockholders.

In planning for the spin-off from Northrop Grumman, which was effective March 31, 2011, and since HII has been an independent company, corporate governance has been a top priority of the board of directors and senior management. We believe that good governance is important not only to our stockholders, but also to our employees, customers, suppliers and others with whom we do business.

The following sections provide an overview of our corporate governance structure and processes. Among other topics, we describe the responsibilities of our board of directors, how our directors are selected and some key aspects of our board operations.

RESPONSIBILITIES OF THE BOARD OF DIRECTORS

We believe that the foundation for good corporate governance starts with a board of directors whose independence, experience and judgment will allow the board to oversee the work of management and to engage constructively with management to provide advice and counsel regarding all aspects of our business. Your Board and its committees perform a number of important functions for our company and stockholders, including:

 

   

Reviewing the corporate strategy developed by management and having input into that strategy;

 

   

Understanding and assessing the risks that our company is facing and monitoring the management of those risks;

 

   

Selecting the chief executive officer and evaluating the performance of the chief executive officer and other senior executive officers;

 

   

Reviewing development and succession plans for our senior executives;

 

   

Monitoring our company’s financial condition and reviewing and approving significant corporate actions; and

 

   

Overseeing policies to maintain the integrity of our company, including the integrity of our financial statements, our compliance with law and adherence to ethics and the integrity of our relationships with customers and suppliers.

Board oversight of management is also effected through the Board’s three standing committees—the Audit Committee, the Compensation Committee and the Governance and Policy Committee. Each of these committees operates under a separate written charter to promote clarity in their responsibilities and to ensure that the committees will work in a coordinated manner with each other and with the full board of directors. Our committees are discussed in greater detail beginning on page 14 of this proxy statement.

CRITERIA FOR BOARD MEMBERSHIP

Your Board believes that there are certain qualifications that are applicable to all directors, and that there are specific skills and experience that individual directors should bring to the Board. The Board

 

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Governance of the Company (Continued)

 

 

 

and the Governance and Policy Committee consider the qualifications of directors and director candidates individually and in the broader context of the Board’s overall composition and our company’s current and future needs.

Qualifications for All Directors . Your Board believes that all its members must possess the following qualifications:

 

   

High personal and professional integrity and ethical standards;

 

   

Substantial educational, business, military or professional accomplishments in leading organizations;

 

   

Ability to represent the best interests of all stockholders; and

 

   

Demonstrated leadership ability and sound judgment.

Prospective directors must also be willing to submit to a background check necessary for obtaining a security clearance (confidential, secret or top secret).

Selection of Individual Candidates . In addition to the qualifications that are applicable to all directors, your Board and the Governance and Policy Committee consider, among other things, an individual’s understanding of and accomplishments in areas such as complex manufacturing, heavy industry and engineering, government procurement and contracting, the defense industry, finance, regulatory compliance, and government and public policy. We also consider whether the individual has the ability to commit sufficient time and attention to the activities of the Board, and the absence of any potential conflicts with our company’s interests. We strive to have a combination of skills, experience and perspectives that will help create an outstanding, dynamic and effective Board, to contribute to the performance of our company and represent the interests of stockholders. All of our non-employee directors are expected to serve on Board committees, further supporting the Board by providing expertise to those committees. The needs of the committees will also be reviewed when considering nominees to the board. In selecting candidates, the Board and the Governance and Policy Committee take diversity into account, seeking to ensure a representation of varied experiences, backgrounds and perspectives.

Service on Other Boards . In accordance with our Corporate Governance Guidelines, the Board considers the number of boards of other public companies and audit committees of those boards on which a prospective director serves. Under our Corporate Governance Guidelines, directors should not serve on more than four other boards of publicly traded companies in addition to our Board, and directors who also serve as chief executive officers or in equivalent positions should not serve on more than two other boards of publicly traded companies, in each case without the approval of the chairman of the Governance and Policy Committee. A director who is a full-time employee of our company may not serve on the board of more than two other publicly traded companies unless approved by the Board. No member of the Audit Committee may serve on the audit committees of more than three publicly traded companies (including our company) without the approval of the Board, which must determine annually that such simultaneous service would not impair the ability of the member to effectively serve on our Audit Committee.

Retirement Policy . Under the retirement policy of our Corporate Governance Guidelines, a director will not be re-nominated at the annual meeting following the earlier of his or her 76th birthday or 15 years of service on the Board. In addition, when a director’s principal occupation or business association changes substantially during his or her tenure as a director, the Board expects that director to tender his or her resignation for consideration by the Governance and Policy Committee and the Board.

 

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Governance of the Company (Continued)

 

 

 

Conclusion . The satisfaction of these criteria for directors is implemented and assessed through ongoing consideration of directors and nominees by the Governance and Policy Committee and the Board, as well as through the Board’s self-evaluation process. The Board and the Governance and Policy Committee believe that, individually and as a whole, our company’s directors possess the necessary qualifications to provide effective oversight of management and our business and valuable advice and counsel to our company’s management.

DIRECTOR NOMINATION PROCESS

The Governance and Policy Committee is responsible for recommending nominees for election to the Board and for identifying one or more candidates to fill any vacancies that may occur on the Board. The Governance and Policy Committee may use a variety of sources in order to identify candidates. Candidates may be identified through recommendations from independent directors or members of management, search firms, discussions with other persons who may know of suitable candidates to serve on the board, and stockholder recommendations.

Although our Board has not yet nominated for election any persons who were not then serving on our Board, we expect that evaluations of prospective candidates who will be new to our Board will include a review of the candidate’s background and qualifications by the Governance and Policy Committee, interviews with the Chairman of the Board and the Governance and Policy Committee as a whole, one or more members of the Governance and Policy Committee, or one or more other Board members, and discussions of the Governance and Policy Committee and the full Board. We expect that the Governance and Policy Committee will then recommend candidates to the full Board, with the full Board selecting the candidates to be nominated for election by the stockholders or to be elected by the Board to fill a vacancy.

In determining to recommend to the Board the nominees for election at each annual meeting, the Governance and Policy Committee reviews the size of the Board and the criteria set forth above in order to assemble a group of nominees that, individually and as a group and together with directors who will continue to serve on the Board, the Governance and Policy Committee believes satisfies the needs of the Board. Accordingly, the Governance and Policy Committee will annually review the composition of the Board as a whole and make recommendations, if deemed necessary, to enhance the Board in order to achieve what it believes is the optimal mix of experience, expertise, skills, specialized knowledge, diversity and other criteria.

Stockholders who wish to recommend candidates for director for consideration by the Governance and Policy Committee must submit the name and relevant information about the candidate in writing to the Corporate Secretary. All candidates recommended by stockholders are required to meet the criteria for directors described above. Stockholder-recommended candidates who meet the criteria described above will be evaluated by the Governance and Policy Committee. In accordance with our Corporate Governance Guidelines, the Governance and Policy Committee will evaluate candidates recommended by stockholders in the same manner as candidates identified through other means. Stockholders who wish to nominate a director for election at an annual meeting must follow the procedures set forth in our Bylaws and described beginning on page 18 of this proxy statement.

DIRECTOR INDEPENDENCE

On an annual basis, the Board determines the independence of our directors, following a review and recommendation from the Governance and Policy Committee. Under our Corporate Governance

 

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Governance of the Company (Continued)

 

 

 

Guidelines, the Board determines independence on the basis of the definition of “independence” set forth in the corporate governance listing standards of the NYSE listed company manual.

The Board has reviewed relevant relationships between our company and each non-employee director to determine compliance with NYSE independence requirements. Based on that review, the Board has determined that Dr. Bruner, Mr. Davis, Admiral Fargo, Ms. Kelly, Admiral Miller, Mr. Schievelbein and Mr. von der Heyden, all of the Board’s non-employee directors, are independent. The Board has also determined that each current member of the Audit Committee satisfies the additional independence requirements of the Securities and Exchange Commission (“SEC”) and that each current member of the Compensation Committee satisfies the additional independence requirements of the SEC and the Internal Revenue Code.

BOARD LEADERSHIP STRUCTURE

The Board recognizes that one of its key responsibilities is to evaluate and determine its optimal leadership structure from time to time so that the Board will be able to provide effective oversight of management. Our Bylaws establish the position of Chairman, but our Corporate Governance Guidelines state that the Board believes it is in the best interests of the company and its stockholders for the Board to have the flexibility to determine the best director to serve as Chairman. The independent directors considered the Board’s leadership structure in connection with the spin-off and will consider this matter on at least an annual basis. This consideration includes the pros and cons of a combined chairman and chief executive officer role and separate chairman and chief executive officer roles in light of our operating and governance environment over time, with the goal of achieving the optimal model for effective oversight of management by the Board.

Non-Executive Chairman . Consistent with this analysis, the Board has determined that having an independent, non-executive chairman is optimal for our company at the present time. This structure provides the Board with independent leadership and allows the chief executive officer to focus on our company’s business operations. At the time of the spin-off, the independent directors selected Admiral Fargo as our non-executive Chairman of the Board.

Pursuant to our Corporate Governance Guidelines, our non-executive Chairman has the following responsibilities:

 

   

Chair all Board and stockholder meetings, including executive sessions of the independent directors;

 

   

Serve as a liaison between the chief executive officer and the independent directors;

 

   

Ensure the quality, quantity and timeliness of the flow of information from management sent to the Board; although management is responsible for the preparation of the materials for the Board, the non-executive Chairman may specifically request the inclusion of certain materials;

 

   

Prepare the agendas of the Board meetings and assist the chairman of each standing committee with preparation of agendas for the respective committee meetings, taking into account the requests of other Board and committee members;

 

   

Set an appropriate schedule for Board meetings to assure that there is sufficient time for discussion of all agenda items;

 

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Governance of the Company (Continued)

 

 

 

 

   

Along with the chairman of the Governance and Policy Committee, interview all Board candidates and make recommendations to the Governance and Policy Committee and the Board;

 

   

Have the authority to call meetings of the Board and meetings of the independent directors; and

 

   

If requested by the chief executive officer, be available for consultation and direct communication with stockholders.

Conclusion . All of our directors play an active role in overseeing our company’s business both at the Board and committee level. Our Board is comprised of one director who serves as our Chief Executive Officer and seven independent directors. Our independent directors are skilled and experienced leaders in business, education, government, military and public policy. Our independent directors are effective in collaborating with management as well as in thoroughly reviewing proposals made by management, and having an independent Board leader supports this relationship. Overall, we believe that having a non-executive Chairman of the Board along with six other strong independent directors is an appropriate and effective structure to oversee our business and to provide advice and counsel to the Chief Executive Officer and other senior officers of our company.

BOARD COMMITTEE FUNCTIONS AND MEMBERSHIP

Your Board has three standing committees: Audit, Compensation, and Governance and Policy. The Audit, Compensation, and Governance and Policy Committees are each constituted and operated according to the requirements of the SEC and the NYSE listed company manual. Each Board committee is governed by a written charter that can be viewed on our website at www.huntingtoningalls.com and is available in print to any stockholder requesting a copy. All members of each Board committee are independent as determined under the requirements of the NYSE listed company manual.

Audit Committee. The Audit Committee has the responsibility, among other things, to meet periodically with management and with both our independent auditor and internal auditor to review audit results and the adequacy of and compliance with our system of internal controls. In addition, the Audit Committee will appoint or discharge our independent auditor, and review and approve auditing services and permissible non-audit services to be provided by the independent auditor in order to evaluate the impact of undertaking such added services on the independence of the auditor. The responsibilities of the Audit Committee are more fully described in our Audit Committee Charter. The members of the Audit Committee are Mr. von der Heyden (chair), Dr. Bruner and Mr. Schievelbein. The Board has determined, in accordance with NYSE requirements, that each member of the Audit Committee is financially literate and that Mr. von der Heyden possesses accounting or related financial management expertise. The Board has also determined that Mr. von der Heyden qualifies as an “audit committee financial expert” as defined under applicable SEC rules.

Compensation Committee . The Compensation Committee oversees all compensation and benefit programs and actions that affect our elected officers. The Compensation Committee also provides strategic direction for our overall compensation structure, policies and programs and reviews top-management succession plans. The Compensation Committee reviews and recommends to the board of directors the compensation of directors. The responsibilities of the Compensation Committee are more fully described in the Compensation Committee Charter. The members of the Compensation

 

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Governance of the Company (Continued)

 

 

 

Committee are Admiral Miller (chair) and Admiral Fargo. None of our executive officers served as a member of the board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our Board or our Compensation Committee. Accordingly, there were no interlocks with other companies within the meaning of the SEC’s proxy rules during 2011.

Governance and Policy Committee . The Governance and Policy Committee is responsible for developing and recommending to the board of directors criteria for board membership; identifying and reviewing the qualifications of candidates for election to the board of directors; and assessing the contributions and independence of incumbent directors in determining whether to recommend them for reelection to the board of directors. The Governance and Policy Committee also reviews and recommends action to the board of directors on matters concerning transactions with related persons and matters involving corporate governance and, in general, oversees the evaluation of the board of directors. The responsibilities of the Governance and Policy Committee are more fully described in the Governance and Policy Committee Charter. The members of the Governance and Policy Committee are Ms. Kelly (chair), Mr. Davis and Admiral Fargo.

BOARD STRUCTURE

Our Board is divided into three classes that are, as nearly as possible, of equal size. Each class of directors is elected for a three-year term of office and until their successors are elected. The terms are staggered so the term of only one class of directors expires at each annual meeting.

EXECUTIVE SESSIONS OF NON-EMPLOYEE DIRECTORS

In accordance with our Corporate Governance Guidelines, our directors, with no members of management present (including directors who are also officers of our company), have the opportunity to meet in executive session in connection with each regularly scheduled Board meeting. In addition, the Corporate Governance Guidelines provide that at least one executive session of independent directors is held each year. In 2011, all of our directors, other than our Chief Executive Officer, were independent under NYSE listing standards. The independent directors met in executive session at each of the four regular Board meetings during the year. The non-executive Chairman presides over the executive sessions.

In addition, the Audit Committee regularly meets in executive session with management, our independent auditor and the appropriate representatives of our internal audit department. The Compensation Committee also meets in executive session on a regular basis.

THE BOARD’S ROLE IN RISK OVERSIGHT

Your Board’s responsibilities include oversight of risk management, which includes matters such as confirming that management is maintaining the appropriate financial and operational internal controls, that our business is conducted in compliance with applicable laws and regulations and that management has identified and is properly addressing other risks that may affect our business. To discharge these responsibilities, the Board must understand the various risks facing our company. While risks are considered in virtually every business decision and as part of our business strategy, the Board recognizes that it is neither possible nor prudent to eliminate all risk. Indeed, purposeful and appropriate risk-taking is essential for our company to be competitive and profitable. The Board’s objective in overseeing risk management is to satisfy itself that management is appropriately assessing and managing our risks.

 

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Governance of the Company (Continued)

 

 

 

The Board and its committees are responsible for evaluating our company’s risk management processes and determining whether they are functioning adequately. In order to satisfy this responsibility, the Board and its committees facilitate open communication between management and the directors and foster an appropriate culture of integrity and risk awareness. While the Board and its committees oversee risk management, management is charged with managing risk. We have internal processes, policies and procedures and an internal control environment that facilitate the continuous identification, evaluation and management of risks and regular communication with the Board and its committees. Important processes our company uses to identify, evaluate and manage risks include: regular and recurring meetings in which senior management is apprised of and provides guidance to identify, quantify and eliminate, mitigate or otherwise address program, financial or other risks; internal management disclosure committee meetings; a compliance program based on our Code of Ethics and Business Conduct, coupled with compliance education and training to promote compliance and encourage reporting of potential non-compliance; robust quality standards and processes; and a comprehensive internal and external audit process. Because overseeing risk is an ongoing process and inherent in our strategic decisions, the Board and its committees engage in continuous discussions throughout the year with management regarding risk assessment and risk management, and directors are free to and do communicate directly with senior management.

While the Board, as a whole, has responsibility for the oversight of risk management, Board committees also oversee the company’s risk profile and exposures relating to the matters within the scope of their authority and report back to the full Board. All committees play significant roles in carrying out the risk oversight function. The Audit Committee oversees risks related to the company’s financial statements, the financial reporting process, accounting and legal matters. The Audit Committee also oversees the internal and external audit functions and our Code of Ethics and Business Conduct. The Audit Committee meets separately with our General Counsel, Corporate Vice President of Internal Audit and representatives of the independent auditing firm and discusses with each of these persons our major risk exposures and the steps that management has taken to monitor and address such exposures.

The Compensation Committee evaluates the risks and rewards associated with our compensation philosophy and programs. As discussed in more detail under Compensation Discussion and Analysis beginning on page 30 of this proxy statement, the Compensation Committee evaluates and approves compensation programs with features that mitigate risk associated with compensation without diminishing the incentive nature of the compensation. The Compensation Committee also discusses with management the procedures that have been put in place to identify and mitigate potential compensation risks. At least annually, the Compensation Committee reviews, and reports to the Board on, the steps being taken to ensure the succession of qualified top-management. The Governance and Policy Committee monitors potential risks to the effectiveness of the Board, including director succession and committee composition, and the principal policies that guide our company’s governance. The Governance and Policy Committee also considers risks relating to our company’s policies and practices with respect to significant public policy and corporate responsibility matters.

BOARD AND COMMITTEE EVALUATIONS

In accordance with our Corporate Governance Guidelines, every year the Board and each committee (under the oversight of the Governance and Policy Committee) conducts an assessment of its performance and at the conclusion of the evaluation process discusses its results. The Board is also required to consider the performance of each individual director on a regular basis.

 

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Governance of the Company (Continued)

 

 

 

CODE OF ETHICS AND BUSINESS CONDUCT

Our board of directors has adopted a Code of Ethics and Business Conduct that applies to our directors, officers and employees. This code forms the foundation of a comprehensive process that includes compliance with corporate policies and procedures and a high level of integrity. Our policies and procedures cover all major areas of professional conduct, including employment policies, conflicts of interest, corporate opportunities and the protection of confidential information, as well as strict adherence to laws and regulations applicable to the conduct of our business. The Code of Ethics and Business Conduct includes the provisions that SEC regulations require for our senior financial officers. Employees are required to report any conduct that they believe in good faith to be an actual or apparent violation of the code.

The code is available on our website at www.huntingtoningalls.com and is available in print to any stockholder that requests it.

MEETINGS AND ATTENDANCE

After the spin-off on March 31, 2011, the Board held four meetings, with each of these meetings including an executive session of independent directors. In addition, the Board held 16 committee meetings, comprised of six Audit Committee, three Compensation Committee and seven Governance and Policy Committee meetings. Each director attended 75% or more of the meetings of the Board and the committees on which he or she served during 2011.

Our policy regarding directors’ attendance at the annual meeting is that all directors are expected to attend the annual meeting, absent extenuating circumstances.

INDEMNIFICATION

We indemnify our directors and our elected officers to the fullest extent permitted by law so that they will be free from undue concern about personal liability in connection with their service to HII. This is required under our Bylaws, and we have also entered into agreements with those individuals contractually obligating us to provide this indemnification to them.

 

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Communications and Company Documents

 

 

 

We welcome communications from our stockholders, and we make information that we believe is important to our stockholders available on our website. The following sections describe how stockholders can communicate with the Board, the information that we make available to our stockholders and where you can find that information, and the procedures that stockholders need to follow to propose matters for consideration at our annual meetings or to nominate directors for election at our annual meetings.

COMMUNICATIONS AND COMPANY DOCUMENTS

You may write to the Board, any director, any of the committee chairs or the non-employee directors as a group in care of the Corporate Secretary, Huntington Ingalls Industries, Inc., 4101 Washington Avenue, Newport News, Virginia 23607. At the direction of the Board, all mail received may be opened and screened for security purposes. The mail will then be logged in.

Stockholder communications are distributed to the Board, or to any individual director or directors, as appropriate, depending on the facts and circumstances outlined in the communication. The Board has requested that certain items that are unrelated to the duties and responsibilities of the Board be excluded or redirected, as appropriate, such as: business solicitations or advertisements; junk mail and mass mailings; resumes and other forms of job inquiries; and surveys. In addition, material that is unduly hostile, threatening or similarly unsuitable will be excluded; however, any communication will be made available to any director upon request.

Our website contains our Certificate of Incorporation, Bylaws, Corporate Governance Guidelines, Board committee charters and Code of Ethics and Business Conduct and a link to our SEC filings. To view these documents, go to www.huntingtoningalls.com , click on “Investor Relations” and click on “Corporate Governance”. We will post any amendments to our Code of Ethics and Business Conduct on our website. If we waive the Code of Ethics and Business Conduct with respect to our chief executive officer, chief financial officer or principal accounting officer, we will post information about the waiver at the same location on our website. To view our SEC filings and Forms 3, 4 and 5 filed by our directors and executive officers, go to www.huntingtoningalls.com , click on “Investor Relations” and click on “SEC Filings.”

We will promptly deliver free of charge, to any requesting stockholder, a copy of our Annual Report on Form 10-K for the year ended December 31, 2011 (without exhibits, when applicable), Corporate Governance Guidelines, Board committee charters and Code of Ethics and Business Conduct. Requests should be directed to: Corporate Secretary, Huntington Ingalls Industries, Inc., 4101 Washington Avenue, Newport News, Virginia 23607.

You can also print copies of these documents from our website at www.huntingtoningalls.com . The information on our website is not a part of this proxy statement.

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