This excerpt taken from the PNC DEF 14A filed Mar 23, 2007.
Background. We have a long history of maintaining a Board of Directors with a majority of non-management directors. Under the NYSEs corporate governance rules, the majority of our Board must also be independent. For a director to qualify as independent, the NYSE rules require the affirmative determination by our Board that a director does not have a material relationship with PNC. A material relationship may include a direct relationship between a director and PNC, or a relationship between PNC and an organization affiliated with a director. In particular, the Board may not find a director to be independent if he or she has a relationship with PNC contemplated by one of five bright-line tests, as discussed below. The NYSEs corporate governance rules do not define every relationship that will be considered material for purposes of determining independence from our management, and the absence of a relationship contemplated by one of the bright-line tests does not automatically mean that a director is independent. Material relationships may include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationships, among others. As the concern is whether a director is independent from our management, however, the NYSE does not consider the ownership of even a significant amount of PNC stock, by itself, to prevent a finding of independence.
The NYSE bright-line independence tests. The NYSE has adopted five bright-line independence tests for directors. Each of these tests describes a specific set of circumstances that will impair a directors independence from PNC management. For example, a director who is also an employee of PNC, or whose immediate family member is an executive officer of PNC, is not independent until three years after the end of the employment relationship. The four other bright-line independence tests address circumstances involving the occurrence or existence of any of the following within the past three years:
For more information about the NYSEs bright-line director independence tests, including the commentary explaining the application of the tests, please go to the NYSEs website at www.nyse.com/pdfs/section303A_final_rules.pdf.
Categorical standards of director independence adopted by our Board of Directors. The NYSEs corporate governance rules permit a companys board of directors to adopt categorical standards of director independence. Categorical standards permit a board to determine in advance that specific categories of relationships between a listed company and a director do not, by themselves, render a director non-independent. Of course, categorical standards of independence cannot override the bright-line independence tests established by the NYSE. Categorical standards are intended to assist a board in making determinations of independence, and transactions or relationships falling within a categorical standard are deemed automatically to be non-material, and are not separately analyzed by our Board. The NYSE recognizes that the adoption and disclosure of categorical standards provide investors with an adequate means of assessing the quality of a boards independence and its independence determinations, while avoiding the excessive disclosure of immaterial relationships. Our Board, acting on the recommendation of its Nominating and Governance Committee, has adopted four categorical standards of independence and has applied these standards in determining the independence of the persons nominated for election as directors at the annual meeting. The standards describe categories of relationships that our Board has determined are not material to its determinations of director independence. We have included these categorical standards as Exhibit B to this proxy statement. We also post the categorical standards on the Corporate Governance section of the About PNCInvestor Relations page of our corporate website at www.pnc.com. As required by the NYSEs corporate governance rules, we disclose below if all of a directors relationships with us meet these categorical standards. In certain limited cases, a director may have a relationship that is described by a categorical standard and a bright-line independence test. In such a case, the bright-line test will determine whether the directors relationship is a material relationship that prohibits a determination of independence by our Board.
Independence determinations made by our Board. At its meeting on February 14, 2007, the Board made a determination as to the independence of each current director who is a nominee for election at the annual meeting, in accordance with the NYSEs corporate governance rules. Fifteen of the 18 nominees for election as directors at the annual meeting are currently directors. At its meeting on March 14, 2007, the Board made a determination as to the independence of the three directors who are being nominated for the first time. In making these determinations, our Board relied in part on the findings and recommendations made by its Nominating and Governance Committee. The Board considers all relevant facts and circumstances when making these determinations and no director participated in the final determination of his or her own independence. The independence determinations shown below were based on the information known to our Board and its Nominating and Governance Committee as of February 14, 2007 for current directors and as of March 14, 2007 for first-time director nominees. Our Board and its Nominating and Governance Committee will consider information relevant to these independence determinations as it is brought to their attention.
Directors determined by our Board not to be independent. Our Board has determined that, as an executive officer of PNC, Mr. Rohr is the only director who is not independent under the NYSEs corporate governance rules.
Directors determined by our Board to be independent and who have or may have one or more relationships meeting the Boards categorical standards of independence. Our Board has affirmatively determined that each of the following directors has no material relationship with PNC, either directly or as a partner, shareholder or officer of an organization that has a relationship with
PNC. Therefore, our Board has affirmatively determined that each of these directors is independent under the NYSEs corporate governance rules: Messes. James, Pepper and Steffes and Messrs. Bunch, Chellgren, Clay, Davidson, Kelson, Lindsay, Massaro, Shepard, Strigl, Thieke, Usher, Walls and Wehmeier. Each of these directors has or may have one or more relationships with PNC that meet the categorical standards of independence adopted by our Board. The Board had previously affirmed the independence of Mr. Milton A. Washington, who retired from the Board in April 2006 and Mr. J. Gary Cooper, who will retire from the Board in April 2007. The Board had previously determined that Mr. Thomas H. OBrien, the former Chairman and CEO of PNC who retired from the Board in September 2006, was not independent.
Director determined by our Board to be independent and who has a relationship with PNC that does not meet the categorical standards of independence. Mr. Berndt is the Managing Partner of the law firm of Gallagher, Evelius & Jones LLP. This law firm provided legal services in each of the last three years to Mercantile Bankshares Corporation, which we acquired in March 2007. These services do not meet our categorical standards of independence. Upon a review of this relationship, the Board concluded that Mr. Berndt is nonetheless independent, specifically noting that (1) the annual fees earned by the firm from its representation of Mercantile were less than 5% of the firms revenues in each of the last three years, (2) the legal services did not relate to strategic issues but rather involved ordinary course banking transactions, (3) Mr. Berndt did not participate actively in the legal services provided by his firm to Mercantile during this period and (4) there is no anticipation of a significant increase in the amount of legal services or change in the nature of legal services to be provided by his firm following the acquisition of Mercantile by PNC. Mr. Berndt may have other relationships that meet our categorical standards of independence.
The Board determined that no current nominee for director, other than Mr. Rohr, had a relationship that disqualified him or her from being independent under the NYSEs bright-line tests. See Transactions Involving Directors and Executive Officers on pages 66 to 69 for additional disclosure regarding relationships between PNC and our directors and other related persons, including regarding charitable donations and our policies governing related person transactions.