Governance & Ethics
Risk-based Audits
Board of Directors
Organizational Structure
Transparent Communications
Corporate Governance
Committed to Being a Responsible Business
Our Commitment:
To instill confidence in ITT as a solutions provider, employer of choice and investment opportunity by promoting ideals of corporate fairness, transparency and accountability. To be a trusted partner to employees, customers, investors, regulators, suppliers and the people who live in the communities where we operate.
Progress to Date:
In 2007, ITT's board of directors recommended — and shareholders approved — a "majority vote" standard for the election of future directors in uncontested elections, giving shareholders greater influence in the outcomes of board elections. Also in 2007, we continued to show improvement in the average number of "gaps"-or control deficiencies-detected during our financial control audits. This has been a trend since we implemented Sarbanes-Oxley audit practices four years ago and elected to count even the smallest of issues as a finding.
Goals for 2008/2009:
In 2007, ITT made two significant acquisitions — International Motion Control (IMC) and EDO Corporation. We are currently auditing their operations to ensure necessary controls and processes are in place and that their operations are in line with generally accepted accounting principles and ITT policies. We are committed to ensuring these new additions meet the high standard of controls that are expected at all ITT sites. Another goal is to expand our testing in facilities in emerging countries.
In 2008, ITT's governance rating topped 95 percent of capital goods companies, our industry peers. This rating is based on corporate governance assessments compiled by Institutional Shareholder Services (ISS), an organization that monitors and compares corporate governance structures for leading publicly traded companies in the U.S.
Financial Controls
Putting Controls in Place for New ITT Companies
Acquisitions are a key component of ITT's growth strategy. Including the purchase of IMC and EDO Corporation, our largest acquisition ever, we added more than 25 businesses to the ITT family in 2007.
Integration of these companies into the ITT culture includes a comprehensive audit of the acquired sites' controls and operating effectiveness. Our ITT audit team reviews more than 100 individual internal control processes, including controls to keep accurate track of revenue dollars, purchasing transactions, inventory, property and equipment, payroll, computer usage and other vital operations.
In 2008, our internal audit team will visit new ITT sites in China, India, Poland and several countries in South America to ensure that they have implemented the proper controls and that they are operating effectively.
With these control reviews — which are also conducted at existing ITT sites on an annual basis — we can ensure that all ITT facilities are operating according to the applicable financial controls and principles.
Expanding Risk-Based Audits
ITT conducts risk-based assessments to analyze the level of risk our company faces at all levels of operation. In 2007, we nearly doubled the number of risk-based audits we conducted from 26 to 47, and we plan to conduct 60 such audits in 2008, assessing everything from IT security to contract compliance.
The ITT Board of Directors
The ITT board of directors is a group of experienced business leaders who ensure that shareholder interests are represented in our decisions, and also consider how our actions impact other stakeholders.
ITT has taken steps to ensure that its board of directors is independent in its thinking and actions. Only one board member — company CEO Steve Loranger — has an active role in the day-to-day management of ITT. While the other board members are compensated by ITT for the time they spend serving as directors, they have an independent role, separate from the company's operating management.
The board of directors meets five times each year. The typical agenda of these two-day work sessions includes a review of ITT's overall financial affairs, corporate governance issues, performance of ITT's business segments, considerations of possible acquisition or divestiture activities, and meetings of the various committees. At these meetings, ITT's active board members are more likely to be involved in probing discussions than listening to management presentations.
In 2007, among other activities, the ITT board of directors assessed and ultimately approved the acquisitions of EDO and IMC, and was actively involved in developing our new vision and values, ensuring that our company keeps ethics and values at the top of the agenda. They also discussed the strategic direction of the company and its business segments, approved the appointments of key ITT leaders, and recommended a majority vote standard for the election of future directors in uncontested elections — a decision that was approved by shareholders of the company.
ITT shareowners benefit from the company's independent and engaged board of directors.
In December 2007, board members visited the Jet Propulsion Laboratories (JPL) in California to get a close look at the Mars Rover and the Deep Space Network program, which relies on ITT engineers and technicians to manage communications between the spacecraft and JPL scientists.
ITT’s Reporting Structure
Transparent Communications
ITT provides stakeholders with a steady flow of communications about the company’s direction, decisions and priorities. Our corporate governance principles and charters and our Code of Conduct are accessible to anyone through the ITT website at www.itt.com.
Employees have access to company policies, Code of Conduct and much more through an intranet portal, and are informed of company decisions through regular print and web newsletters and memos. Shareholders and other external audiences can learn a lot about ITT through webcasts, investor conferences, earnings calls, the www.itt.com website, news releases, our annual report to shareholders and this annual Corporate Responsibility Report.
Interested parties can contact a Board member or the directors as a group by placing a sealed letter in a larger envelope and mailing it to the Corporate Secretary, ITT Corporation, 1133 Westchester Ave. White Plains, NY 10604. The corporate secretary will forward the sealed envelope to the designated recipient.
Board of Directors Independence: Our Criteria
ITT board members meet the independence standards set forth by the New York Stock Exchange. An independent director is one who is free of any relationship that would interfere with the exercise of independent judgment and, within the last five years:
- Has not been employed by ITT in an executive capacity.
- Has not been an advisor or consultant to ITT and has not been affiliated with a company or firm that is an advisor or consultant to ITT.
- Has not been affiliated with a significant customer or supplier of ITT.
- Has not had a personal services contract with ITT.
- Has not been affiliated with a tax-exempt entity that receives significant contributions from ITT.
- Has not been a familial relative to any person described above.
- Has not been part of an interlocking directorate in which an executive officer of ITT is a member of the compensation committee of the company that employs the director.
The Role of Board Committees
The five standing committees of the ITT board of directors are made up solely of independent directors and perform essential corporate governance functions. The post of committee chair rotates every four years and members of each committee are rotated periodically to assure that fresh points of view are reflected.
Audit Committee
The Audit Committee provides oversight on matters relating to ITT’s financial reporting process, assuring that adequate financial controls and procedures are present and operating effectively. The committee also determines the qualifications and independence of our independent auditors, reviews financial reports and other financial information provided by ITT, reviews our company’s overall risk management processes and monitors management’s response to significant audit findings.
Compensation and Personnel Committee
The Compensation and Personnel Committee makes sure that ITT’s executive compensation structure encourages transparent decision making. It provides oversight and review of compensation and benefits provided to ITT executives, evaluates senior management and chief executive officer performance, sets annual performance objectives for the CEO and approves individual compensation actions for all senior corporate officers. In addition, the committee evaluates ITT’s continuity and succession planning approaches and other key leadership programs.
Corporate Responsibility Committee
The Corporate Responsibility Committee makes recommendations concerning ITT’s role and responsibilities as a good corporate citizen. The committee reviews major claims and litigation, examines ITT’s programs and policies for legal and regulatory compliance, and regularly assesses the adequacy and effectiveness of ITT’s Code of Conduct.
Nominating and Governance Committee
The Nominating and Governance Committee is responsible for ITT’s overall governance and the selection of strong directors to lead our company. This group annually updates and develops corporate governance principles for ITT. In the event it is necessary to select a new chief executive officer, this committee leads the process for candidate evaluation, consideration and screening. It also evaluates and makes recommendations regarding the composition, governance and structure of the board of directors.
Strategy and Finance Committee
The Strategy and Finance Committee oversees all areas of strategy and corporate finance to assure the company maintains adequate financial liquidity and appropriate credit ratings. This committee also assures that ITT’s strategic initiatives are consistent with the company’s financial and strategic plans. The board of directors, however, retains the ultimate power and authority with respect to ITT’s strategic direction and major strategic and financial decisions.
Governance Controls
ITT has a system of processes and controls designed to help us operate according to the highest governance principles. Through self-assessments, internal controls and open channels of communication, we have created a series of checks and balances to ensure we aren’t taking any shortcuts on our road to premier performance.
Risk Assessment
ITT has a comprehensive risk assessment process that starts at the lowest level of the organization. Every location completes a risk scorecard that measures risk in 13 different categories. In addition, risk is analyzed at the value center level over both the short- and long-term horizons. Finally, risk assessment interviews are held with more than 50 leaders of the company. This information is consolidated and reviewed with the company’s top leaders on the strategic council and with the audit committee. The risk assessment is the basis for our Internal Audit plan.
Internal Controls and Audits
ITT management is responsible for establishing and maintaining adequate internal controls. The company’s internal controls over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
ITT has a team of internal auditors that assesses the design and tests the internal controls over several cycles, including revenue, purchasing, inventory, property and equipment, payroll, restricted access and general computer. In addition, management performs independent self tests. Self-testing and the testing by Internal Audit are designed to ensure the internal controls are operating effectively.
Disclosure Committee
ITT’s disclosure committee comprises management employees from various functional areas with responsibility for considering and evaluating the materiality of information and reviewing disclosure obligations on a timely basis. The committee meets regularly, reports to the general counsel and the CFO, and assists the CEO and CFO in designing, establishing, reviewing and evaluating the company’s disclosure controls and procedures.
Disclosure & Procedures Survey
Every quarter, the disclosure committee conducts a confidential survey of employees asking their assistance in raising any possible governance or compliance issues. The survey includes about a dozen questions pertaining to violations of code of conduct, conflicts of interest, questionable financial activities, etc. The survey results are forwarded to the Disclosure Committee, which recommend investigations as appropriate.
