Code of Business Conduct and Ethics
Our Code of Business Conduct and Ethics, which was amended in 2019, reflects the Company’s commitment to honesty, integrity and the ethical behavior of Company employees, officers, and directors. The Code of Ethics governs the actions, interactions, and working relationships of Company employees, officers, and directors with customers, fellow employees, competitors, government and self-regulatory agencies, investors, the public, and anyone else with whom the Company has contact. The Code of Ethics sets forth the expectation that employees, officers, and directors will conduct business legally and addresses conflict of interest situations, international trade compliance, protection, and use of Company assets, corporate opportunities, fair dealing, confidentiality, human rights and reporting of illegal or unethical behavior. The Code of Ethics expressly prohibits paying, offering, accepting or soliciting bribes in any form, directly or indirectly. Only the Board of Directors or the Nominating and Corporate Governance Committee may waive a provision of the Code of Ethics with respect to an executive officer or director. Any such waiver will be promptly disclosed on the Company’s website and as otherwise required by rule or regulation. There were no such waivers in 2019.
Code of Ethics for Senior Financial Officers
Additionally, we have a Code of Ethics for Senior Financial Officers that applies to the chief executive officer, chief operating officer, chief financial officer, division presidents, controllers, treasurer, and director of internal audit (collectively, “Senior Financial Officers”). This code requires Senior Financial Officers to: act with honesty and integrity, endeavor to provide information that is full, fair, accurate, timely and understandable in all reports and documents that the Company files with, or submits to, the SEC and other public filings or communications made by the Company; endeavor to comply with all laws, rules and regulations of federal, state and local governments and all applicable private or public regulatory agencies; not knowingly or recklessly misrepresent material facts or allow their independent judgment to be compromised; not use for personal advantage confidential information acquired in the course of their employment; proactively promote ethical behavior among peers and subordinates in the workplace; and promptly report any violation or suspected violation of the code to the Audit Committee. Only the Audit Committee or the Board may waive a provision of the code with respect to a Senior Financial Officer. Any such waiver, or amendment to the code, will be promptly disclosed on the Company’s website and as otherwise required by rule or regulation. There were no such waivers in 2019.
We are committed to supporting fundamental human rights and believe in the dignity and worth of all individuals. As such, we treat all people around the world with fairness and respect. We do not use or allow the use of child, slave or forced labor, or human trafficking in our business activities. We condemn any degrading treatment of individuals and are committed to providing safe working conditions.
We encourage employees to disclose alleged wrongdoing that may adversely impact the Company, its customers, stockholders, fellow employees or the public, without fear of retaliation. Our Code of Ethics and Whistleblower Policy set forth procedures for reporting alleged financial and non-financial wrongdoing on a confidential and anonymous basis, a process for investigating reported acts of wrongdoing and a policy of retaliation. Reports may be made directly to a supervisor, Human Resources, operating unit management, executive management, the Chief Financial Officer or Chief Compliance Officer, the Audit Committee or to Convercent, a third-party service retained on behalf of the Audit Committee. The Audit Committee chair receives notices of complaints and oversees investigation of complaints of financial wrongdoing.
We continually assess our ethics program, including training opportunities, and modify as appropriate.
Our managers and supervisors play an important role in reinforcing our policies and commitment to ethics by setting the example of ethical conduct and providing employees with continuous training, education and resources that support the policies. Employees are encouraged to speak up if they have concerns and contact the identified ethics resources contacts
We pride ourselves on our strong leadership team and responsible corporate governance practices. We have adopted charters for our standing committees of the Board of Directors as well as Corporate Governance Guidelines to assist the Board in the exercise of its responsibilities and to serve best the interests of the Company and its stockholders.
Board Independence and Diversity
The Nominating and Corporate Governance Committee is responsible for reviewing with the Board, on an annual basis, the mix of skills and characteristics of Board members as well as the composition of the Board as a whole, including members’ independence, diversity, age, strategic and financial skills, international background and industry, and other experience in the context of the needs of the Board as a whole. When searching for new directors, the Board will seek out qualified women and individuals from minority groups to include in the pool from which Board nominees are chosen. Nominees for the Board will be selected by the Nominating and Corporate Governance Committee in accordance with the policies and principles in its charter, which requires the selection of prospective Board members with personal and professional integrity who have demonstrated appropriate ability and judgment and whom the Nominating and Corporate Governance Committee believes will be effective, in conjunction with the other Board members, in collectively serving the long-term interests of the Company and its stockholders. The Board recently adopted a change to its Corporate Governance Guidelines. In connection therewith, a director is generally required to retire when he or she reaches age 75 or at the annual meeting following his or her 75th birthday. On the recommendation of the Nominating and Corporate Governance Committee, the Board may waive this requirement as to any director if it deems a waiver to be in the best interest of the Company.
The Board is and will be comprised of a majority of directors who qualify as independent directors under the listing standards of the New York Stock Exchange. The Board reviews periodically the relationships that each director or nominee has with the Company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the Company), and only those directors or nominees whom the Board affirmatively determines have no material relationship with the Company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the Company) that would preclude independence under the listing standards of the NYSE will be considered independent.
Board Leadership Structure and Effective Governance
The Board leadership structure is comprised of an Executive Chair who was formerly Chief Executive Officer. The Board believes that having an Executive Chairman who is a longstanding employee and leader of the Company is appropriate for the Company because it ensures that the Board focuses on important strategic objectives and understands challenges facing the Company in its day-to-day operations. This is part of the Company’s Chief Executive Officer transition and is balanced by the independence of the other directors and the role of the presiding director described below.
The Board uses a presiding director, who is an independent director that leads regularly scheduled executive sessions of the non-management and independent directors. The Board designates the presiding director at each meeting on a rotating basis. The Board has discussed other structures but believes that given the quality of communication between the Executive Chair and the Board, the Board’s opportunity to interact directly with management, and the quality of robust discussion at the Board level, the current structure is appropriate for the Company.
The Board and each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee conduct a self-evaluation annually.
The Board oversees the process of risk management. Management regularly communicates with the Board regarding the Company’s risk exposure and its efforts to monitor and mitigate such risks. Specifically, in addition to regular reporting to the Board regarding the Company’s litigation, compliance, acquisitions and known risks, the Company’s executive officers meet annually to discuss the material risks facing the Company and ways to mitigate those risks and then provides a summary of its findings to the Board and the Board reviews and discusses such risks at a regularly scheduled Board meeting.
We value our employees as they are the talent that helps ensure our future success. As we grow and complete large acquisitions, like the Esterline acquisition this past year, our reliance on our employees and management and our succession planning become more critical. To support the advancement of our employees, we offer training and development programs encouraging advancement from within and continue to fill our team with strong and experienced management talent. We leverage both formal and informal programs to identify, foster, and retain top talent.
As a fast-growing company, we have a continuing need for strong leaders, and with a large workforce, we look internally for emerging leaders. We have established TransDigm University to satisfy this need. TransDigm University is a formal mentoring and education program with a formal curriculum and with established leadership serving as mentors. Participants learn and develop more advanced skills leading to higher contribution and satisfaction within their roles, while mentors enhance their leadership capabilities by helping others progress. This program helps in identifying top performers, improving employee performance and retention, increasing our organizational learning, and supporting the promotion of our current employees.
TransDigm’s Management Development Program (MDP) identifies new talent and prepares them for success within our organization. of the program hires recent MBA graduates who will work for three eight-month stints at a selection of operating units. Program participants gain experience in developing, manufacturing, and selling aerospace components with the intent of becoming fully immersed in the operations of our business. Once the program is complete, MDP participants will be better equipped with the knowledge and experience needed to excel as a manager at TransDigm. Our goal for successful MDP participants is to hire them on a full-time basis at an operating unit.
TransDigm’s executive team also mentors rising talent on a more informal basis. This informal mentorship achieves a number of goals, including accelerating the development of top performers, increasing organizational learning, and improving employee performance and retention. The executive team also commits substantial time to evaluating the bench strength of our leadership and working with our leadership to improve their performance.
TransDigm University, MDP, and informal mentoring demonstrate TransDigm’s ongoing commitment and initiatives towards accelerating our future leaders.
We are committed to being open, inclusive and supportive to all. Our workforce includes talented people from many backgrounds. We welcome and value new ideas, different experiences and fresh perspectives. Diversity and inclusion make us stronger as a business so we can effectively serve all our stakeholders. Our businesses that serve as government contractors develop and implement affirmative action plans which promote qualified minorities, women, persons with disabilities, and covered veterans. We are committed to high ethical standards, diversity, and inclusion, as well as equal employment opportunities in all personnel actions without regard to race, color, religion, gender, national origin, citizenship status, age, marital status, gender identity or expression, sexual orientation, physical or mental disability, or veteran status. All employees are prohibited from engaging in discrimination in the workplace based on gender, age, race, creed, national origin, religion, sexual orientation, gender identity, disability, or other personal characteristics protected by law.
At the Board of Directors level, the Nominating and Corporate Governance Committee recommends potential director candidates to the Board, taking into account independence, as well as diversity, age, strategic and financial skills and experience, in the context of the needs of the Board as a whole. The Committee’s charter requires the selection of prospective Board members with personal and professional integrity who have demonstrated appropriate ability and judgment and whom the Committee believes will be effective, in conjunction with the other Board members, in collectively serving the long-term interests of the Company and its stockholders. The Committee’s charter and the Company’s Corporate Governance Guidelines set forth the Board’s commitment to seek out qualified women and minorities to include in the pool from which Board nominees are chosen. Our 11-person Board of Directors contains one woman and one minority. At the executive level, our executive officers (of which there are eight) include two women and one minority.
Employee Equity Ownership
TransDigm’s stock compensation plans are designed to assist the Company in attracting, retaining, motivating, and rewarding key employees, directors, or consultants and promoting the creation of long-term value for stockholders by closely aligning the interests of these individuals with those of the Company’s stockholders. TransDigm’s equity compensation plans provide for the granting of performance based stock options.
The plans are important because equity compensation—and specifically stock options—is a significant component of TransDigm’s private equity-based compensation strategy and value-based culture and the continued use of performance-based stock options will help retain the Company’s key employees and recruit new employees. TransDigm has a history of providing, and intends to continue to provide, cash compensation to its top employees that is below the market median and cause the largest portion of their potential earnings to come from growth in the Company’s equity value. Additionally, the plans give the Company more flexibility in granting awards to new employees joining the Company as a result of future acquisitions, which are an essential part of TransDigm’s growth.
We are committed to ensure the health and safety of our employees, customers and users of our products. We are committed to building, designing, maintaining, and operating our facilities to effectively manage process safety and other hazards, and to minimize process and product risks. We expect our business units to operate in a diligent and responsible manner. We also seek to empower and support our employees to prevent accidents and promote a safe environment. We expect personnel to report and communicate risks, potential hazards, incidents and near hits so that they can be investigated and appropriate action can be taken.
As a supplier to the aerospace industry, quality, safety, and reliability are of utmost importance. We strive to provide products and services that meet or exceed our customers’ requirements for quality and reliability.
We maintain a consistent focus on innovation and quality to benefit our customers. We invest in our business and the businesses that we acquire with clear objectives in mind to create significant shareholder value: improving product quality and ensuring on-time delivery. Our business units deliver on those objectives by innovating not just across their product lines, but in all aspects of the business – from manufacturing equipment and processes to supply chain infrastructure to operations. As we has grown and evolved over the past 26 years, that commitment to innovation and service to our customers has remained unwavering. Our businesses seek to deliver reliable, best in-class products on time to our customers. Our company-wide culture of innovation makes it happen and drives our customers to continue to select us when new business opportunities arise.
Many of our operating units have obtained certifications, such as ISO 9001 and AS 9100, in furtherance of this objective. Our businesses strive to ensure the safety of their products through high inspection rates and monitoring and analysis of any quality concerns from our customers.
For more information surrounding our commitment to ensuring the quality of our products and services, please visit our operating units’ webpages.
The security of information pertaining to our customers, employees, suppliers, and other business partners is important to us. We are committed to ensuring that this information is adequately protected. Security measures employed to achieve this protection vary by operating unit and include third-party cybersecurity assessments, vulnerability assessments and penetration testing.
- We have a cybersecurity incident response plan.
- Each operating unit has one or more individuals responsible for data security and privacy. These individuals are encouraged to share ideas on topics like cybersecurity.
- All 50 operating units have undergone cybersecurity assessments conducted by a third party for conformance with NIST 800-171.
- Operating units implement a number of tools to help enhance data security and privacy including, for example, penetration testing and employee training.
We are committed to complying with the requirements regarding disclosure of the use of “conflict minerals” (i.e., tin, tungsten, tantalum and gold) under rules issued by the U.S. Securities and Exchange Commission. The rules require us to determine the extent to which our products contain conflict minerals originating from the Democratic Republic of the Congo and certain adjoining countries (“Covered Countries”) by analyzing the products we manufacture and the raw materials and components we purchase—through supply chain due diligence if conflict minerals are sourced from the Covered Countries. The purpose of these rules is to reduce the funding of armed groups engaged in conflict and human rights abuses. Accordingly, we commit to:
- work diligently to identify the presence of conflict minerals in our supply chain that are necessary to the functionality or production of our products.
- develop processes to determine whether conflict minerals in our supply chain originate from Covered Countries or are derived from recycled or scrap sources.
- if necessary, perform supply chain due diligence in accordance with the OECD due diligence framework, or other similar standard.
- inform our suppliers of the SEC reporting requirements related to conflict minerals.
In addition to the foregoing commitments, we expect our suppliers to perform similar due diligence on the sources of Conflict Minerals in their supply chains and make their findings available to us.
For more information on Conflict Minerals, please visit our Conflict Minerals site.