Corporate Governance

Corporate Governance Rankings

PG&E's corporate governance practices have been evaluated and rated by several institutional shareholder groups and corporate governance organizations. We have received ratings that are well above average compared with other utility companies, as well as general industry companies.

For example, as of mid-April 2008, RiskMetrics Group (formerly known as Institutional Shareholder Services), a leading provider of risk management and corporate governance products and services to financial market participants, ranked PG&E Corporation in the 93.1 percentile (i.e., the top 7 percent) of the utility companies that they track and in the 88.5 percentile (i.e., the top 12 percent) of all companies in the S&P 500 index, based on its Corporate Governance Quotient rating system.

In addition, in February 2008, GovernanceMetrics International (GMI), a corporate governance research and ratings agency, gave PG&E Corporation an overall governance rating of 9.0 using a scale of 1.0 (lowest) to 10.0 (highest).

The governance ratings issued by RiskMetrics Group and GMI are updated periodically and are determined relative to other utility and general industry companies rated by those organizations. Thus, PG&E Corporation's ratings may change during the course of the year as a result of changes in those other rated companies' governance practices, as well as changes in our own governance practices.

A public company must have the trust of the public in order to operate successfully. Transparency and integrity form the basis of this trust. Our many stakeholders want to understand what processes and procedures we have in place to ensure that we are operating our business ethically, are able to deliver on our promises and will be accountable for our actions.

Accordingly, PG&E places significant emphasis on adopting leading corporate governance policies and practices. In 2007, we took steps to further this commitment, including the following:

  • The Boards of Directors of PG&E Corporation and the Utility each adopted a majority voting standard in uncontested elections of directors when the number of nominees does not exceed the number of directors to be elected. Majority voting requires that nominees to the Board receive support from more than 50 percent of the shares voted in order to be elected. (Previously, PG&E Corporation and the Utility used a plurality voting standard, under which the nominees receiving the most votes were elected.) The Corporation and the Utility adopted majority voting through amendments to their respective Bylaws. The new majority voting Bylaw provisions may be amended or rescinded only by approval of a majority of the outstanding shares, and may not be amended by the company's Board acting alone.
  • We benchmarked the policies and practices of general industry and utility companies with respect to the lead director position and board committees. As a result, effective January 1, 2008, the Boards of PG&E Corporation and the Utility adopted various changes to the companies' respective Corporate Governance Guidelines and the structure of the companies' Board committees.
    • Specifically, each company's Board established a selection process and a tenure for the position of independent lead director.
    • The Boards also established a tenure for the independent chairs of our Board committees.
    • Additionally, the PG&E Corporation Board divided the former Nominating, Compensation, and Governance Committee into two separate committees—a Compensation Committee responsible for assisting the PG&E Corporation and Utility Boards on matters relating to employment, compensation, benefits policies and practices, director compensation and the development, selection and compensation of policy-making officers; and a Nominating and Governance Committee responsible for assisting the Boards on matters relating to the selection of directors and corporate governance matters, including the companies' governance principles and practices and evaluating the performance and effectiveness of the Boards.
    • Lastly, the Boards made changes to reflect recommended practices with respect to communications between shareholders and directors. The PG&E Corporation and Utility Corporate Governance Guidelines now provide that if requested by major shareholders, the lead director shall be available for consultation and direct communication with such major shareholders.

The Boards of Directors of PG&E Corporation and the Utility are also regularly engaged in other pertinent governance matters, including those related to environmental performance, corporate responsibility and political activities. For example, the Public Policy Committee of the PG&E Corporation Board of Directors has specific oversight of many of the areas addressed in this Corporate Responsibility Report, including, but not limited to, corporate philanthropy, supplier diversity, workforce diversity, climate change and environment. In addition, the Public Policy Committee oversees issues related to political contributions and related activities.

PG&E has structures in place to ensure that all activities related to the myriad aspects of corporate responsibility and our political activities are consistently measured and implemented and their related progress is reported to the PG&E Corporation and Utility Boards of Directors. For example:

  • As part of PG&E Corporation's revised Environmental Policy, a section was included outlining PG&E's Environmental Governance Procedures. These procedures can be viewed at www.pgecorp.com/corp_responsibility/environmental/policies.
  • PG&E's total charitable contributions budget and individual charitable commitments of more than $100,000 are approved by the PG&E Corporation Board of Directors, and smaller contributions are approved by staff executives within the Public Affairs Department, working with colleagues from throughout the company. To reduce the potential for conflicts of interest, no one may approve a charitable contribution from company funds to an organization in which they or family members have a financial interest, including serving on the organization's board of directors.

    Our contributions program also includes many grants that are approved and funded by the PG&E Corporation Foundation. The Foundation is expected to consider strengthening its existing Bylaws concerning conflict of interest to make them more consistent with those of the Corporation.

  • All political contributions made by PG&E are reviewed by outside counsel and approved by the Senior Vice President of Public Affairs and/or the Chairman of the Board. Individual contributions that exceed certain thresholds are approved by the PG&E Corporation Board of Directors.

The policies and practices described above and in our Corporate Governance Guidelines demonstrate PG&E's commitment to good corporate governance practices. These practices provide a framework within which the Boards of Directors and management of PG&E Corporation and the Utility can pursue the companies' business objectives. Their foundation is the independent nature of the Board and its fiduciary responsibility to the company's shareholders. The companies' Corporate Governance Guidelines set forth a policy that 75 percent of the directors of each company should be independent, as defined in the Guidelines. As of April 1, 2008, 9 out of 10 members of the PG&E Corporation Board were independent, and 9 out of 11 members of the Utility Board were independent.

Our Corporate Governance Guidelines are published annually in PG&E Corporation's and Pacific Gas and Electric Company's Joint Proxy Statement and are also posted at http://www.pgecorp.com/aboutus/corp_gov/, along with our Board Committee Charters, director and employee codes of conduct and the PG&E Corporation Disclosure Policy.