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2019 | Sustainability Report
Caterpillar's Environmental,
Social and Governance Approach

Approach
Corporate
Governance

We believe that a strong governance framework creates long-term value for our shareholders, strengthens board and management accountability and builds trust in the company and our brand. Our governance framework includes the following highlights:

2019
Size of Board 11
Number of Independent Directors 10
Average Age of Directors 64
Average Director Tenure (in years) 11
Annual Election of Directors Yes
Mandatory Retirement Age 74
Gender and Diversity 45%
Majority Voting in Director Elections Yes
Independent Presiding Director Yes
Code of Conduct for Directors, Officers and Employees Yes
Supermajority Voting Threshold for Mergers No
Proxy Access Yes
Shareholder Action by Written Consent No
Shareholder Ability to Call Special Meetings Yes
Poison Pill No
Stock Ownership Guidelines for Directors and Executive Officers Yes
Anti-Hedging and Pledging Policies Yes
Clawback Policy Yes

The Public Policy and Governance Committee of our board of directors oversees the company's sustainability efforts as well as efforts on environmental, health and safety activities, including Caterpillar's products and services that support sustainable development of global resources. This committee also reviews Caterpillar’s annual political contributions and recommends the amount the company should contribute to the Caterpillar Foundation. The committee provides regular updates to the board and may retain advisors and consultants as needed to assist it in fulfilling its responsibilities.

In addition, all Caterpillar employees are annually required to complete training on our Code of Conduct. As part of this training, employees must certify that they have read, understand and will comply with the Code of Conduct.

Risk Management

Risk is an inherent part of conducting global business. Caterpillar regularly identifies and monitors business risks through a robust internal management system and engages in constructive regulation and public policy discussions that benefit employees, customers and shareholders. We manage operational, strategic, financial and legal compliance risks in several ways, including Caterpillar’s Enterprise Risk Management (ERM) program and Compliance program.

Each year, we conduct a comprehensive enterprise risk assessment by reviewing risk information from multiple sources, including business units. To better inform our decision-making, Caterpillar evaluates risks at the business unit and enterprise levels on three dimensions:

  • Impact
  • Likelihood
  • Risk Trend

The results of this ERM risk assessment are incorporated into action plans to mitigate the identified risks. The importance of following the corporate ERM process is communicated throughout the organization from the CEO down. As a result, we have seen strong engagement among senior leaders. Operationally, our risk culture is embedded within the business through performance scorecards. The company’s officers share accountability for business risks, and the board has oversight of the enterprise process. The board implements its risk oversight function both as a board and through delegation to board committees, which meet regularly and report back to the board. The board has delegated the oversight of specific risks to board committees that align with their functional responsibilities. We integrate enterprise and business unit risk mitigation plans into individual performance goals of the Executive Office members. We compensate senior executives in part according to their ability to mitigate the risks as described in their performance goals.

We also review compliance risks as part of the ERM risk assessment process and manage them as part of Caterpillar’s Compliance program. These risks cover a broad range of issues, including legal and regulatory compliance.

The Compliance program establishes enterprise-level compliance expectations. Business unit personnel and compliance professionals implement controls and processes to meet those requirements with the support of compliance professionals, legal personnel and subject matter advisors with specific expertise. These efforts are enhanced by regular communications, training and annual assessment processes. Through these programs, Caterpillar can better manage risk and gauge the potential impact of various outcomes on our ability to achieve strategic goals.

Political Contributions

Caterpillar's products and services alone are not enough to ensure our success. The actions taken by governments around the world can have significant impact – both positive and negative – on Caterpillar, our employees, dealers, suppliers and customers. We advocate for policies, agreements, legislation and regulations that enable us to help our customers build a better world. Our global teams advocate on appropriate issues in a manner consistent with all governing laws and Our Values in Action.

Where allowable by law, Caterpillar may make corporate contributions to campaigns, individual candidates or political committees in order to support public policies we believe will promote our business interests. All political and advocacy activities at the state, federal and international levels are managed by the vice president of Global Government & Corporate Affairs, who coordinates and reviews with senior management the legislative and regulatory priorities that are significant to the company’s business as well as related advocacy activities. In addition, the board’s Public Policy and Governance Committee reviews Caterpillar’s significant legislative and regulatory priorities, policy on political activities and contributions, corporate political contributions, trade association participation and the political contribution activities of the Caterpillar Political Action Committee (CATPAC).

CATPAC contributions are made only in federal and state elections. CATPAC is funded through voluntary contributions by eligible individuals, who primarily are U.S.-based employees. A steering committee comprised of Caterpillar non-officer employees who represent a diverse mix of U.S. locations and business units oversees all CATPAC disbursements to ensure they promote the company’s business interests.

Caterpillar also maintains memberships in trade associations and business groups that may engage in advocacy on behalf of segments of the business community. We are committed to supporting these organizations, which champion public policies that contribute to the success and growth of the business community.

Additional information regarding Caterpillar’s corporate contributions, CATPAC contributions and trade association memberships is available on our political engagement website.

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