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organization, the existence of a separate, small staff to obtain information for directors would be an undesirable duplication.

Therefore, we have concluded that without such a separate staff, it will be necessary for directors to rely upon individuals throughout the operating organization having the expertise needed to serve the needs of the committees of the board.

These individuals will be made available on a reasonable priority basis, but requests for their time which would require more than several hours will be coordinated with the individual's supervisor.

If we are to be able to retain and attract competent directors, it is of great importance to provide compensation beyond the conventional few hundred-dollars fee per meeting that most directors receive. General directors, that is, those who will commit to approximately 30 days per year, including attendance at board and planning meetings and committee assignments will be paid at the basic rate of $30,000, a rate comparable to that charged by consultants when serving corporate clients.

In addition, if more days of service are required and agreement with the individual director is reached, a fee structure has been established that goes beyond the basic rate for general directors, and which is computed by relating such fees to the compensation of the key officers of the company.

For those directors whose responsibilities include minimum attendance at monthly board meetings and annual planning meetings for a total of approximately 15 days per year, the fee is $15,000 per year.

If additional committee assignments are undertaken on days not including board meeting dates, a rate of $1,000 per day will be paid for such additional duties. Compensation for directors who are officers of the company, such as the chairman, president, and officers of the board, is determined taking into account their specific duties.

In evolving these principles and recognizing the scope of our longrange development programs, several vital concerns became more obvious. Not only must the organization possess a completely adequate staff of managers currently, but it must have available a succession of competent and trained individuals for the years ahead. A corollary and primary concern for both the board of directors and the company's top management is the need to provide the maximum opportunity for all tiers throughout the world to realize their desired potential.

As key steps in meeting these two vital concerns, in 1973 we adopted an early retirement policy which covers the chairman, president, executive vice presidents, and officers of the board.

Briefly stated, the chairman and president must retire at 62 but may retire as early as 55. Executive vice presidents are expected usually to retire at 55; this is the mandatory age for officers of the board.

One of the principles related to the election of officers of the board is to encourage them to develop a dispassionate and independent view of Texas Instruments operations. We therefore adopted additional policies to help them become independent in their judgment, including retirement at 55.

This, however, is not intended to preclude their continued service as a director, most likely as a general director, thereby retaining the value of their years of experience as executives with Texas Instruments, but such early retirement is to encourage and emphasize the independent viewpoint expected by terminating their previous employment and thus breaking sharply their relationship, both subordinate and superior, with Texas Instruments executives. Obviously, there is also great value to the corporation in retaining men with years of experience as Texas Instruments executives.

Now I do not presume to suggest we have the ideal solution. What we have added are (a) more precision to the distinction between the board and operating management; (b) more emphasis to the time required to perform the board job; (c) a pattern of compensation for board members which recognizes the value of their time commitment, and (d) a definite emphasis on the objective and independent viewpoint of the individual board member.

Mr. Chairman, my purpose here today has been to share with you my experience and that of Texas Instruments in determining the role of a corporate board of directors. In addition, I would like to comment briefly on a related matter.

Mr. Chairman, my purpose here today has been to share with you my experience and that of Texas Instruments in determining the role of a corporate board of directors. In addition, I would like to comment briefly on a related matter.

One of the purposes of these hearings is to determine the need, if any, for Federal chartering of corporations. A major drawback to Government regulation, even needed regulation intelligently executed, is that it tends to introduce rigidity in the structure and operation of the regulated entity and to stifle innovation and problem solving.

I believe that would be the result if federally mandated standards as to the composition or the duties of boards of directors of corporations were legislated.

At Texas Instruments our board of directors has been tailored to help Texas Instruments meet its unique goals and fulfill its unique responsibilities. The makeup of our board and its duties as we perceive them are the result of an evolutionary process. We have had specific goals in mind to be sure, and we have proceeded toward them in an orderly manner. But we have also made changes along the way and we have responded to new needs and new problems as they arose.

Further, the process is continual. No corporation can set its board in concrete for all time and ignore a changing environment.

The kev, obviously, is flexibility. Flexibility to respond to new situations and flexibility to adapt the role of a board of directors to a specific corporation. The existing, evolving legal system is suited for this. I greatly fear that Federal regulation would not be.

Thank you very much.
Mr. CUNNINGHAM. Thank you, Chancellor Smith.
Let me pursue the question we were discussing earlier a little further.

As you well know, the bars of most States, if not all States, have both a canon of ethics and a code of professional conduct, which has the sanction of law and is applied to all attorneys, and is somewhat specific governing the roles of lawyers as officers of the corporation.

Inasmuch as the largest corporations at least have the appearance of public institutions in the sense that they control great concentrations of capital, labor, and technological expertise, do you think it would be appropriate for board members to be required to meet such standards of ethics and professional conduct as are imposed upon lawyers, although the standards would be adjusted, of course, to meet the needs of the industrial corporation instead of the bar?

Mr. SMITH. Of course, I can't argue with the fact that it would be desirable to have directors meet very high standards of conduct. I think they should.

I question whether it is possible to put them down in a precise way, so that each and every circumstance is contemplated.

I think, in most situations, in fact in all situations with which I am familiar, the very highest standards are indeed followed. And that is what the effort of each and every board member is, and that is what the effort of the board as a whole is directed toward.

Senator HARTKE. Is Mr. Batten a member of the board of Texas Instruments ?

Mr. SMITH. Yes; he is.
Senator HARTKE. Is he going to stay there?
Mr. SMITH. Yes; he is.

Senator HARTKE. Even though he is president of the New York Stock Exchange?

Mr. SMITH. Yes.

Senator HARTKE. And he is going to be on the board of J. C. Penney, A.T. & T., Boeing, and American Retail Federation!

Mr. SMITH. I don't know whether he will stay on American Retail Federation.

Senator HARTKE. He will stay on most of the big ones; right?

Mr. Smith. Except City Bank; he has announced he will resign from City Bank's board.

Senator HARTKE. You don't see any problems with that?

Mr. SMITH. No; we have examined it very carefully from a legal standpoint, potential conflict of interest, as indeed has Mr. Batten, and I don't presume to speak for him, but I have discussed the matter with him personally as recently as yesterday.

Senator HARTKE. You don't see that consolidation of power in that fashion, that doesn't bother you?

Mr. SMITH. No; I don't regard it as a consolidation of power. In fact, he himself is very anxious that the board memberships continue in order to be able to give him an insight as to how the corporation is acting, and he thereby feels, I think, that he can better fulfill his role as the chairman of the New York Stock Exchange.

Senator HARTKE. I will say one thing, he will be more powerful than the President of the United States. Really, I have to admit I am rather shocked.

Mr. SMITH. I can't speak for Mr. Batten.

Senator HARTKE. No; I am shocked that anyone would not see that as a tremendous consolidation of power—it is not just a question of legality. We are not accusing anyone at this moment. The fact of the matter is that in the international bribery cases there is no illegality, because there is no law, unless we pass one. I mean that is one reason for passing one.

But my understanding is in the bribery cases, there is no law that has been violated in our country, or probably in their countries.

But I find it very difficult to see that as anything except abuse of power, don't you?

? Mr. SMITH. I don't consider it an abuse of power; no, Senator.

Senator HARTKE. You don't consider bribery of foreign officialsdo vou consider bribery of foreign officials an abuse

Mr. SMITH. I am sorry, I thought you were talking about something else.

Senator HARTKE. Do you consider that an abuse of power?
Mr. SMITH. I consider it to be wrong.

Senator HARTKE. I see you still have at least a recognition of the fact that some reformation is necessary. It is a question that you at least have a different problem here. You still have an insiders board, do you

not? Mr. SMITH. We have a board that

Senator HARTKE. I mean under this proposal of yours, it would be an insiders board, and it would have to depend on the insiders, really, even upon the management for any special help to obtain any information which would be contrary to the decisions which have been made by management, isn't that true?

Mr. SMITH. Well, it depends on the nature of the problem.

Senator HARTKE. The nature of the problem is whether or not there is a corporate responsibility, and how you are going to respond to it. What I am trying to do is to develop that type of social responsibility which avoids problems, rather than dealing with people who have been causing the problems.

I mean that is the ultimate goal here. We are not interested in trying to hurt the corporations or anything else, we are trying to make the corporations a viable operation which doesn't have to look back over its shoulder.

Mr. SMITH. I have no argument with that at all.

Senator HARTKE. In other words, to have the responsibility inside the board so that the corporation itself becomes a very responsible operating entity. That is the idea. How you reach that goal is open to serious debate. What we are doing is trying to avoid the ideas of what has happened here in the cases of notoriety, the Gulf and the Lockheed cases for example.

What we want to do is to provide an instrumentality-not to deal with these people after the fact, although that too must be done, but to prevent the actual occurrence of the incident in the first place. I think that you recognize that that should be done, but I don't

you can do it with an insiders board. Mr. Smith. Well, I have described, while you were out of the room, the actions that we have taken in order to try to enhance the independence of the board member who has come from inside of the corporation.

In addition to those people, we also have four people who are considered to be conventional outsiders. We have required the early retirement, the breaking of the company ties as an employee of these few insiders, and have restricted the number of operating officers to the chairman and the president as the only ones who are eligible to be board members.

Senator HARTKE. All right; thank you, sir.
Evelyn Y. Davis.

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Ms. Davis. Good morning, Senator Hartke. I am Evelyn Y. Davis, editor of "Highlights and" Lowlights." As a small stockholder in over 100 corporations, of which about 70 have the distinction of having their annual meetings attended by me each year, and where I do present resolutions carried in proxy statements, and many have lagged in their responsibility toward minority stockholders.

The prime abuse this year has been the deliberate effort by many corporations, including Bristol-Myers, J. C. Penney, Exxon, Chemical Bank, Citicorp., Chase, Charter N.Y., Pfizer, Bankers Trust, Loew's, Travelers, National Aviation, and Westinghouse, to have their annual meetings conflict in time and date with the annual meetings of other corporations for the sole purpose to prevent some questioning minority stockholders from attending.

In prior years these corporations with the exception of Exxonhave met on nonconflicting dates and times. If some say they need more time to compile their figures now to comply with new regulations, as the banks will say because of new Comptroller of the Currency regulations, they can still find nonconflicting times and dates.

Most of these corporations do have interlocking directorates amongst themselves and have directors on their boards who have been active in the New York City financial mess, and do not wish to answer questions from sophisticated investors.

I am also a municipal bond investor. For full disclosure as to my municipal bondholdings and stockholdings, do read Highlights and Lowlights. I have brought up and discussed the matter of conflicting meeting dates with SEC Chairman Roderick Hills in his office on April 16, 1976, and he promised me an inquiry would be made of the New York Stock Exchange and these corporations. So far nothing has been done. And what will the New York Stock Exchange do when its new chairman, Mr. Batten, is still on the boards of J. C. Penney, AT. & T., Boeing, Texas Instruments, and the American Retail Federation ?

You brought up Citicorp before. Of course Citicorp made him resign.

If this is not stopped now in a few years all corporations could meet on the same day.

Also many corporations have been meeting for years and years in far out places miles away from their corporate headquarters in areas where only a very small percentage of independent nonemployee stockholders live and in many instances have transported employees and pensioners to those meetings for the purpose of interrupting and harassing minority stockholders who dare to raise questions and present resolutions.

This is oppression of the minority by the majority and the IRS should no longer allow as business deductions the expenses incurred by such employees and pensioners. Why should the taxpayers in the long run have to pay for the oppression of the minority by the majority?

As to other matters: Interlocking directorates between banks, corporations, and charitable foundations should be abolished. In no case should a lawyer serve on a board of a corporation where his firm re

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