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List the four items that the company has identified as crucial to improving financial performance.

James Kilts, Chairman, President and CEO of the Gillette Company, stated that the four crucial items were bringing under control runaway costs, get a better return on invested capital, provide greater investment in Gillette’s existing brands, and also work on better returns throughout the entire life cycle of Gillette products. He cited that over the past two years the company has controlled runaway costs by reducing overhead expenses by about 2 percentage points of sales. He also pointed out that invested capital has provided a greater return from 14 percent in 2001 to 28 percent in 2003. Kilts also cited the increased investment in advertisement for Gillette’s products from 6.5 percent of sales in 2000 to 8.9 percent of sales in 2003 (23).

Comment of the “corporate governance” practices employed by the company.

According to the annual report, the Gillette Company prides itself on the effective corporate governance in place. The company has an Audit Committee, which has established a confidential, anonymous hotline for employees with integrity concerns in the company. The Board of Directors has non-employee board members that are proven independent of the company. The Board of Directors has also implemented a process for shareholders communicate to the non-employee directors if necessary (23).

(a) Shareholder Rights

According to the Bylaws of the Gillette Company each shareholder of record at every

shareholders meeting will be entitled to one vote per share of Gillette capital stock owned. Shareholders also have the right to express in writing consent or dissent to any corporate action (8). Not only do shareholders have the right to vote for board members; shareholders also have the right to recommend candidates for the Gillette Board of Directors. Shareholders are also entitled to submit proposals for the company to be approved or disapproved by the Board of Directors (23).

(b) Golden Parachute

The Golden Parachute provision for Mr. Kilts (Chairman, President and CEO) is if

employment is terminated or if Mr. Kilts leaves the company for good reasons, he will “receive a prorated annual incentive bonus for the year of termination and a lump sum equal to the sum of two years’ base salary and two times the target bonus for the year of termination” (23). For his pension, he will be entitled to vesting of any unvested options.

The Golden Parachute provision for Edward DeGraan,Vice Chairman of the Board of Directors, and the remaining members of the Board of Directors is if employment is involuntarily terminated or if they leave for good reasons, the members will be entitled to severance payments of two years’ salary and target bonus (23).

(c) Staggered Board

The Gillette Company’s Board of Directors is divided into three classes of four board

members each. Each member serves a three-year term. Every year, one of the three classes of members is up for election to the Board of Directors (23). This is what is known as a staggered board, so that only 1/3 of the members could potentially be new to the company at one time.

Explain each of the following documents / Rules / Guidelines

(a) Form 10-Q

A Form 10-Q is also known as a quarterly report. It is required by the Securities and

Exchange Commission for all public companies in the United States. The report contains quarterly financial information for the company along with any events considered material that occurred with the company (29).

(b) Form 10-K

The SEC for all public U.S. companies also requires a Form 10-K. The reports is

very similar to a company’s annual report, except it includes more detailed information about management and business finances. The report also contains bylaws of the company along with information about any existing lawsuits in which the company is involved (26).

(c) Form 8-K

Again a form required by the SEC for all public U.S. companies. This report is required to announce significant changes in the company. Such changes could be a merger, acquisition, name change, bankruptcy, change of auditors or any other information investors should be informed of (28).

(d) Section 16(a) of the Securities Exchange Act of 1934

Section 16 of the Securities Exchange Act