IBM’s Corporate Governance Principles

IBM’s Board of Directors has long adhered to governance principles designed to ensure the continued vitality of the Board and excellence in the execution of its duties. Since 1994, the Board has had in place a set of governance guidelines reflecting these principles, including the Board’s policy of requiring a majority of the Board to be comprised of independent directors, the importance of equity compensation to align the interests of directors and stockholders, and the practice of regularly scheduled executive sessions, including sessions of non-management directors without members of management. The IBM Board Corporate Governance Guidelines reflect IBM’s principles on corporate governance matters. These guidelines are available at https://www.ibm.com/investor/governance/corporate-governance-guidelines.html.

IBM also has a code of ethics for directors, executive officers, and employees. The Business Conduct Guidelines are available on our website at https://www.ibm.com/investor/att/pdf/BCG_English_Accessible_2018.pdf. Any amendment to, or waiver of, the Business Conduct Guidelines that applies to one of our directors or executive officers may be made only by the Board or a Board committee, and would be disclosed on IBM’s website.

The process by which stockholders and other interested parties may communicate with the Board or non-management directors of IBM is available at http://www.ibm.com/investor/governance/contact-the-board.html.

(This information reflects the 2019 Proxy Statement)

Independent Board

Under the IBM Board Corporate Governance Guidelines, the Directors and Corporate Governance Committee and the full Board annually review the financial and other relationships between the independent directors and IBM as part of the assessment of director independence. The Directors and Corporate Governance Committee makes recommendations to the Board about the independence of non-management directors, and the Board determines whether those directors are independent. In addition to this annual assessment of director independence, independence is monitored by the Directors and Corporate Governance Committee and the full Board on an ongoing basis.

The independence criteria established by the Board in accordance with NYSE requirements and used by the Directors and Corporate Governance Committee and the Board in their assessment of the independence of directors is available at http://www.ibm.com/investor/governance/director-independence-standards.html.

Applying those standards to the non-management directors, including those not standing for election, as well as former nonmanagement directors who served during 2018, the Committee and the Board have determined that each of the following directors has met the independence standards: K.I. Chenault, M.L. Eskew, D.N. Farr, M. Fields, A. Gorsky, M.J. Howard, S.A. Jackson, A.N. Liveris, W.J. McNerney, Jr., H.S. Olayan, J.W. Owens, M.E. Pollack, J.R. Swedish, S. Taurel, P.R. Voser and F.H. Waddell. Mr. Eskew’s son is employed by IBM and is not an executive officer. He was hired over a year before Mr. Eskew joined IBM’s Board, and his compensation and other terms of employment are determined on a basis consistent with IBM’s human resources policies. Based on the foregoing, the Board has determined that this relationship does not preclude a finding of independence for Mr. Eskew.

(This information reflects the 2019 Proxy Statement)

Director Attendance

In 2018, the Board held nine meetings and the committees collectively met 19 times. The Board and the Directors and Corporate Governance Committee recognize the importance of director attendance at Board and committee meetings. In 2018:

  • Overall attendance at Board and committee meetings was over 95%; and
  • Attendance was at least 75% for each director.

In addition, each director nominee attended IBM’s 2018 Annual Meeting of Stockholders. IBM’s policy with regard to Board members’ attendance at annual meetings of stockholders is available at http://www.ibm.com/investor/governance/director-attendance-at-annual-meeting.html.

(This information reflects the 2019 Proxy Statement)

Executive Session

Regularly scheduled executive sessions, including sessions of independent directors without members of management, chaired by the Lead Director, are held at each Board meeting. Additionally, executive sessions of the independent directors are led by the Chairs of the Directors and Corporate Governance, Executive Compensation and Management Resources, and Audit Committees, respectively, at least once per year.

(This information reflects the 2019 Proxy Statement)

Independent Leadership Structure

The Directors and Corporate Governance Committee is responsible for the continuing review of the governance structure of the Board, and for recommending to the Board those structures and practices best suited to IBM and its stockholders. The Committee and the Board recognize that different structures may be appropriate under different circumstances. Mrs. Rometty serves as IBM’s Chairman and CEO and Mr. Eskew serves as IBM’s independent Lead Director, a structure that the Directors and Corporate Governance Committee and the full Board believe is currently in the best interests of IBM and its stockholders. A strong, independent Lead Director with clearly defined duties and responsibilities further enhances the contributions of IBM’s independent directors, which have been and continue to be substantial. Mr. Eskew, the Lead Director, has significant global business, technology, leadership, and oversight experience as the former chairman and chief executive officer of United Parcel Service, Inc.

The Board strongly believes that its leadership structure strikes the right balance of allowing our Chairman and CEO to promote a clear, unified vision for the Company’s strategy and to provide the leadership critical for effectively and efficiently implementing the actions needed to ensure strong performance over the long term, while ensuring robust, independent oversight by the Board and Lead Director.

Role of the Lead Director

Mr. Eskew, the Lead Director, has the following core responsibilities:

  • preside at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent directors, which are held at every Board meeting;
  • serve as liaison between the Chairman and the independent directors;
  • approve information sent to the Board;
  • approve meeting agendas for the Board;
  • approve meeting schedules in collaboration with the Chairman to ensure there is sufficient time for discussion of all agenda items;
  • authority to call meetings of the independent directors; and
  • if requested by major stockholders, ensure that he is available, as necessary after discussions with the Chairman and Chief Executive Officer, for consultation and direct communication.

In addition to these core responsibilities, the Lead Director engages in other regular activities, including:

  • one-on-one debriefs with the Chairman after each meeting;
  • analyze CEO performance in Executive Session in conjunction with the Executive Compensation & Management Resources Committee chair;
  • review feedback from the Board and committee evaluation process, working with the Directors and Corporate Governance Committee chair on enhancements to Board processes and practices;
  • spend time with senior management outside of Board meetings to ensure a deep understanding of the business and strategy of the Company; and
  • attend other Directors and Corporate Governance and Executive Compensation and Management Resources Committee meetings in addition to the committee he chairs.

The full Board reviews our leadership structure at least annually to ensure the allocation of responsibilities remains appropriate.

In 2019, following each of their self-assessments and annual reviews, the Directors and Corporate Governance Committee and the Board as a whole continue to believe that this leadership structure provides IBM with the benefits of combining the leadership role of Chairman and CEO and the unique strengths and capabilities of the Lead Director and the other independent Board members.

(This information reflects the 2019 Proxy Statement)

Board Evaluation Process

IBM’s Board utilizes a comprehensive, multi-part process for its ongoing self-evaluation to ensure that the Board is operating effectively and that its processes reflect best practices. Each year, IBM’s Directors and Corporate Governance Committee oversees the evaluation process to ensure that the full Board and each committee conduct an assessment of their performance and solicit feedback for enhancement and improvement.

1 - The Board conducts an annual self-evaluation to review the effectiveness of the Board and its committees, led by the Chair of the Directors and Corporate Governance Committee. In this comprehensive review, the self-evaluation focuses on:

  • The composition and performance of the Board, including the size, mix of skills and experience and director refreshment practices;
  • The quality and scope of the materials distributed in advance of meetings;
  • The Board’s access to Company executives and operations;
  • The promotion of rigorous decision making by the Board and the committees;
  • The effectiveness of the Board and committee evaluation processes; and
  • The overall functioning of the Board and its committees.

2 - Each committee also performs a self-evaluation in executive session on an annual basis.

  • The Audit Committee’s evaluation, for example, includes individual, one-on-one interviews between IBM’s internal General Auditor and each member of the Committee.

3 - The Chairman and CEO holds individual, one-on-one interviews with each IBM director to obtain his or her candid assessment of director performance, Board dynamics and the effectiveness of the Board and its committees.

4 - The Chairman shares insights from each of these meetings with the Lead Director, the Chair of the Directors and Corporate Governance Committee, and the full Board.

5 - The Board meets in executive session to discuss the results of the evaluation and any other issues that directors may want to raise.

6 - Self-evaluation items requiring follow-up and execution are monitored on an ongoing basis by the Board, each of the committees, and by IBM management. While this formal self-evaluation is conducted on an annual basis, directors share perspectives, feedback, and suggestions continuously throughout the year.

(This information reflects the 2019 Proxy Statement)

Succession Planning

IBM has long been recognized for its leadership and talent development. As part of this, one of the Board’s most important responsibilities is to ensure that IBM has the appropriate management to execute the Company’s long-term strategy. To fulfill this responsibility, the full Board meets at least annually to actively review and plan the succession of the CEO and other senior management positions.

During these reviews, at least annually, the Board discusses:

  • Succession process and timeline;
  • Profile and candidate assessments, both internal and external, for the CEO and other senior leadership positions;
  • Leadership pipeline and development plans for the next generation of senior leadership; and
  • Diversity, inclusion, and Company culture.

The Executive Compensation and Management Resources Committee also regularly reviews succession planning and the Company’s management resources programs.

(This information reflects the 2019 Proxy Statement)

Stockholder Rights and Accountability

At IBM, we routinely evaluate our governance practices to maintain strong Board and management accountability and to promote stockholder rights through transparent policies that enhance investor and public trust. We believe that sound corporate governance is critical to achieving business success and serves the best interests of our stockholders.

Highlights of our commitment to stockholder rights include:

  • Annual election of all Directors
  • Majority voting for Directors
  • Stockholder ability to call Special Meetings
  • Proxy access rights for stockholders owning at least 3% of outstanding shares for 3 years
  • Robust stockholder engagement program
  • No stockholder rights plan or poison pill provisions
  • No supermajority voting provisions
  • Confidential voting
  • NEW Signatory of Commonsense Principles 2.0
  • NEW Endorser of Investor Stewardship Group Principles

(This information reflects the 2019 Proxy Statement)

Political Contributions and Lobbying

IBM is committed to meaningful management, oversight, and accurate reporting with respect to our engagement with government officials, and we consistently seek to provide our stockholders with relevant data regarding our public policy engagement.

Political Contributions:

IBM has a long-standing policy not to make contributions of any kind (money, employee time, goods or services), directly or indirectly, to political parties or candidates, including through intermediary organizations, such as political action committees, campaign funds, or trade or industry associations. This policy applies equally in all countries and across all levels of government, even where such contributions are permitted by law.

IBM does not have a Political Action Committee and does not engage in independent expenditures or electioneering communications as defined by law.

Lobbying:

IBM engages in lobbying activities in accordance with applicable law and the requirements of IBM’s Business Conduct Guidelines. All IBM lobbying activities, including by third parties on behalf of IBM, require the prior approval of the IBM Office of Government and Regulatory Affairs.

IBM files periodic reports with the Secretary of the U.S. Senate and the Clerk of the U.S. House of Representatives detailing its U.S. federal lobbying activities and expenditures, with U.S. state and municipal governments, where required, and with the European Union Transparency Register.

Trade Associations:

IBM joins trade and industry associations that add value to IBM, its stockholders and employees. These groups have many members from a wide variety of industries, and cover broad sets of public policy and industry issues. As a result, there may be occasions where the views of a particular association on one or more specific issues are different than IBM’s views.

IBM conducts due diligence on trade associations before making contributions to be sure that the association is reputable and has no history of malfeasance. Company policy restricts trade and industry associations from using IBM funds to engage in political expenditures. IBM has procedures to ensure that IBM payments to trade or industry associations comply with this policy.

The IBM Board of Directors, as part of its oversight function, periodically receives reports from senior management relating to IBM’s policies and practices regarding governmental relations, public policy, and any associated expenditures.

IBM’s senior management, under the leadership of the IBM Office of Government and Regulatory Affairs, closely monitors all public policy advocacy efforts, as well as any lobbying activities.

The Center for Political Accountability’s 2018 Report on Corporate Political Disclosure and Accountability gave IBM a score of 98.6 out of 100, placing IBM in the “First Tier” of companies whose political disclosure and spending practices were evaluated.

IBM’s policies and practices with regard to public policy matters, including lobbying activities and expenditures, are available on its website: http://www.ibm.com/investor/governance/public-policy-matters.html.

(This information reflects the 2019 Proxy Statement)

Insurance and Indemnification

IBM has renewed its directors and officers indemnification insurance coverage. This insurance covers directors and officers individually where exposures exist other than those for which IBM is able to provide indemnification. This coverage runs from June 30, 2018 through June 30, 2019, at a total cost of approximately $4.9 million. The primary carrier is XL Specialty Insurance Company.

(This information reflects the 2019 Proxy Statement)

Strategy Oversight

The Board actively oversees IBM’s long-term business strategy and is actively engaged in ensuring that IBM’s culture reflects its longstanding commitment to integrity, compliance, and inclusion. The Board is continuously engaged with management on these topics. For example, each year, the Board holds a two-day strategy session, which includes presentations from many senior executives across the Company’s business units. Additionally, at Board meetings, the Board routinely engages with senior management on critical business matters that tie to the Company’s overall strategy. In addition, the Board periodically travels to key IBM facilities, both domestically and internationally, to obtain a first-hand look at the Company’s operations in strategically important business units and geographic areas. During this past year, the Board visited four different locations. Furthermore, the Board regularly meets with IBMers who represent the next generation of leadership at the Company to ensure that the Company’s leadership pipeline remains diverse and inclusive, and is linked to its long-term strategy.

(This information reflects the 2019 Proxy Statement)

Risk Oversight

In recent years, much attention has been given to the subject of risk and how companies assess and manage risk across the enterprise. At IBM, we believe that innovation and leadership are impossible without taking risks. We also recognize that imprudent acceptance of risk or the failure to appropriately identify and mitigate risk could be destructive to stockholder value.

In addition, an overall review of risk is inherent in the Board’s consideration of IBM’s long-term strategies and in the transactions and other matters presented to the Board, including capital expenditures, acquisitions and divestitures, and financial matters. The Board’s role in risk oversight of IBM is consistent with IBM’s leadership structure, with the CEO and other members of senior management having responsibility for assessing and managing IBM’s risk exposure, and the Board and its committees providing oversight in connection with those efforts.

The Board is responsible for overseeing management in the execution of its responsibilities and for assessing IBM’s approach to risk management. The Board exercises these responsibilities regularly as part of its meetings and also through the Board’s three committees, each of which examines various components of enterprise risk as part of their responsibilities. The full Board regularly reviews IBM’s enterprise risk management framework and processes.

The Audit Committee continuously reviews financial and audit risks identified through IBM’s enterprise management framework.

The Executive Compensation and Management Resources Committee is responsible for assessing risks relating to IBM’s compensation programs and employee engagement as an indicator of Company culture, as well as IBM’s evolving demands for talent.

The Directors and Corporate Governance Committee oversees risks associated with government and industry regulations, as well as corporate social responsibility, sustainability, environmental, and other societal and governance matters.

IBM’s senior management is responsible for assessing and managing IBM’s various exposures to risk on a day-to-day basis, including the creation of appropriate risk management programs and policies. IBM has developed a consistent, systemic and integrated approach to risk management, including the enterprise risk management framework, to help determine how best to identify, manage, and mitigate significant risks throughout IBM. Management regularly reports to the Board and the committees on a variety of risks.

Cybersecurity

Cybersecurity is a critical part of risk management at IBM. To more effectively address cybersecurity threats, IBM has a dedicated CISO whose team is responsible for leading enterprise-wide information security strategy, policy, standards, architecture, and processes. The CISO is part of IBM’s Enterprise   Technology Security group, which works across all of the organizations within the Company to protect IBM, its brand and its clients against cybersecurity risks.

Cybersecurity oversight consists of the Board and Audit Committee each receiving regular updates from senior management, including the CISO, as well as from cybersecurity experts in areas such as rapidly evolving cybersecurity threats, cybersecurity technologies and solutions deployed internally and with IBM clients, major cyber risks areas and policies and procedures to addresses those risks, and cybersecurity incidents.

Environmental and Climate Change Risk

Identification and management of environmental and climate-related risks is an aspect of IBM’s overall enterprise risk management processes. Environmental and climate-related risks are assessed and managed by IBM senior management, who provide regular updates to the Board and to the Directors and Corporate Governance Committee. In addition, IBM has established internal objectives and targets for energy conservation, procurement of renewable energy, carbon dioxide emissions reduction and other key environmental performance indicators. Performance against these objectives and targets is routinely monitored, and results are reviewed annually by the Directors and Corporate Governance Committee. Details on IBM’s performance against key environmental performance indicators can be found in our Annual Environmental Report at https://www.ibm.com/ibm/environment/annual/reporting.shtml.

For the past 28 consecutive years, IBM has voluntarily published a Corporate Environmental Report providing detailed information on our environmental programs and performance. IBM’s uninterrupted annual publication of this report since 1990 is unsurpassed across our industry. The most recent Corporate Environmental Report is available at: https://www.ibm.com/ibm/responsibility/2017/.

(This information reflects the 2019 Proxy Statement)

IBM’s Approach to Corporate Responsibility & Sustainability

Under the guidance and supervision of the Board, IBM pursues the highest standards of corporate responsibility by embedding IBM’s core values in all of its corporate responsibility policies, practices, and programs. A comprehensive look at all of IBM’s corporate responsibility policies, practices, and programs can be found at https://www.ibm.com/ibm/responsibility/.

IBM’s dedication to economic, environmental, and societal performance and leadership is an integral part of IBM’s long-term performance strategy. The Board, in conjunction with the appropriate committees, has oversight responsibility for each of these areas.

For example, the Directors and Corporate Governance Committee reviews the Company’s position and practices on significant issues such as the protection of the environment and Corporate Citizenship efforts, including philanthropic contributions and engagement with the communities in which the Company operates.

U.N. Sustainable Development Goals: IBM’s Contributions

A comprehensive look at IBM’s contributions to the U.N. Sustainable Development Goals can be found at https://www.ibm.com/ibm/ environment/news/ibm_unsdgs_2018.pdf.

(This information reflects the 2019 Proxy Statement)

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