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Hormel Foods Corporate Responsibility

Presentation 2014

At Hormel Foods, corporate responsibility is not only about how we conduct our business every day, it’s present in everything we do. It’s not just about compliance; it’s about creating value for society — for our consumers, our stockholders, our employees and our communities.

Read more about our specific commitments in areas such as hunger, supplier partnerships, environmental initiatives, health and wellness, and reporting on our efforts in the 2013 Corporate Responsibility Report.

  • Our On Our Way to Ending Hunger program includes hunger relief efforts in the United States and abroad. Read more about our efforts to end hunger.
  • The Hormel Foods Supplier Responsibility Principles help ensure our commitments to responsible environmental and social practices are also upheld by our suppliers.
  • Hormel Foods aims to provide consumers with products that nourish their lives in a practical and healthy way. Read more about our nutrition and wellness initiatives.
  • Learn more about our annual reporting on these commitments by reading our corporate responsibility reports.

Ethics, Governance and Risk

Since the founding of Hormel Foods in 1891, strong ethics have been key to the way we operate, shaping our daily business decisions. While we aim to grow financially each year, we also acknowledge our duty to operate in an ethical manner each day. Throughout the years, we’ve accomplished strong financial performance, but we are equally as proud of the training and culture that reinforces ethical behavior in our employees’ day-to-day business actions.

Ethics and Conduct

At Hormel Foods, our top priority is maintaining the highest ethical standards throughout all levels and locations of the company. We are committed to providing all employees the framework to apply the highest ethical standards to all decisions and actions within the company.

Code of Ethical Business Conduct

In an effort to create a business environment where ethics is of utmost importance, we train all U.S.- based employees on our Code of Ethical Business Conduct. We provide the policy and third-party compliance reporting process for all employees globally. Our Code of Ethical Business Conduct serves as a guide for our employees, officers and directors in making business decisions. The code covers many of the topics discussed in our corporate responsibility report, including fair employment practices, harassment, safety, diversity, environmental responsibility and product integrity. Additionally, our code of conduct outlines our policies on conflicts of interest, gifts, illegal payments, illegal political contributions and disciplinary action.

All company policies at Hormel Foods follow local and national laws in the United States and other locations in which we operate.

  • One-hundred percent of our board members, subsidiaries, joint ventures and company locations are covered under our code of conduct, which includes attesting to compliance with the Foreign Corrupt Practices Act. When considering a company for merger or acquisition, we conduct due diligence and examine the suppliers of the prospective party, and we expect them to comply with our code.
  • To ensure adherence to our code of conduct, in 2002 we established a compliance program that upholds accountability through reporting, tracking and investigation of possible violations of the code.
  • The Audit Committee of the Board of Directors oversees the program, which includes a cross-functional Compliance Committee, training of new employees and a hotline and website for employees to report incidents that may violate our code.

The Compliance Committee is chaired by the manager of the company’s internal audit function and includes additional employees from the human resources and legal departments. This committee receives updated information about potential code of conduct violations on an as-needed basis. When a potential violation is reported, the committee promptly initiates an investigation that is deemed as the appropriate course of investigative action. If it appears that an infraction of the law has occurred, the committee refers the investigation to the general counsel and promptly provides a written report to management. This report outlines the information that was received and the investigative action that is being taken.

At the conclusion of the investigation, a final report is provided to management. If serious violations have been noted, the committee prepares a report to share with the Audit Committee to explain the course of action taken. Certain courses of disciplinary action will be taken depending on the type and severity of the violation. Hormel Foods also takes steps to respond appropriately to these violations to proactively prevent subsequent violations of the law, including modifying the compliance program as necessary.

More information about committees on our Board of Directors can be found in the 2013 Proxy Statement.

Communicating Our Way

To make sure the value system at Hormel Foods is understood across the company, we communicate Our Way – our values platform – to our employees in their native languages. In the United States, for example, we provide this information in Spanish as well as English.

Should our employees observe anything that does not comply with our code of conduct and the values outlined in Our Way, we provide a hotline number (1-800-750-4972) and website (www.hormelfoods.alertline.com) to facilitate anonymous employee feedback and address concerns. This hotline can be used to report a range of issues, including corruption and discrimination. To ensure accountability, the hotline and website are operated by an independent third-party organization.

Performance-Based Executive Compensation

To advance our principle of perpetuating financial sustainability throughout the organization, Hormel Foods maintains a compensation committee within our Board of Directors that is exclusively comprised of non-employee, independent directors. The committee establishes and administers the compensation and benefit programs and upholds two primary goals:

  • Attract and retain highly qualified executive officers; and
  • Incentivize the behavior of executive officers to create stockholder value.

In order to accomplish these goals and remain competitive within the industry, we also benchmark compensation compared to peer companies. Our incentive-based system considers individual performance, competitive market data and overall performance of the company. To help attract and maintain top talent and propel the company’s success into the future, Hormel Foods also provides executives with the opportunity to receive short- and long-term incentives. More information about compensation can be found in the 2013 Proxy Statement.

Engaging in Legislative Affairs Overview

There are a number of issues affecting the food industry today, and as relevant legislation evolves, Hormel Foods aims to participate in open, ongoing dialogue with elected officials and community members about our mission. We want to make sure our message is heard and to convey a clear understanding of how we conduct our business and the positive role our company plays. This dialogue entails:

  • Membership in trade organizations that conduct lobbying on behalf of the food industry. These organizations include the American Meat Institute, Grocery Manufacturers Association, North American Meat Association, National Restaurant Association and National Turkey Federation. Hormel Foods is also a member of the U.S. Chamber of Commerce.
  • Monitoring legislative and regulatory issues and conducting lobbying activity when the company determines it is vital to its operations.
  • Conducting one-on-one meetings and individual plant tours with members of Congress and regulatory agencies to help them better understand our company operations and policies.
  • Engaging in public forums by participating in panels on a variety of industrywide issues.

Our participation in public policy and lobbying through the previously mentioned trade organizations and relationships focuses on significant issues such as:

  • Food safety improvements;
  • U. S. Department of Agriculture-proposed rules and regulations;
  • Immigration reform;
  • Incentives for research and development; and
  • Balanced approach regarding subsidies, tariffs and mandates for biofuels. We have encouraged lawmakers to review the subsidy mandate and tariffs for biofuel policy so that all parties have fair access to the market availability of biofuels.

To learn how much we spent on our lobbying efforts in 2013, visit the 2013 Hormel Foods Corporate Responsibility Report.



Corporate Governance

At Hormel Foods, the Board of Directors oversees all company activities and assumes the ultimate responsibility of ensuring that company performance is based on strong ethical practices and aligned with the Code of Ethical Business Conduct. The Hormel Foods Board of Directors currently consists of 11 members, nine of whom are independent.

Hormel Foods president and chief executive officer Jeffrey M. Ettinger serves as chairman of the board. The Board of Directors has adopted the Hormel Foods Corporate Governance Guidelines, which outline key corporate governance principles. The guidelines establish that a lead director role must be held by an independent director. The board has established four committees – audit, compensation, governance and contingency. More information can be found about our board structure in the 2013 Proxy Statement.

Our Governing Principles

Each year, Hormel Foods stockholders select the members of the Board of Directors at the Annual Meeting. The Governance Committee of the Board of Directors is responsible for identifying and recommending individuals qualified to become members of the board; overseeing succession planning for the corporation’s CEO; ensuring personnel resources are being managed responsibly and effectively; and developing and recommending to the Board of Directors a set of corporate governance principles applicable to the company.

Board Independence and Evaluation

The New York Stock Exchange (NYSE) listing standards require that a majority of the company’s directors be independent and that the audit, compensation and governance committees be comprised entirely of independent directors.

To operate in accordance with the NYSE listing standards, the Board of Directors has created and employed standards to assist in making the annual determination of each director’s independence status (view the Director Independence Standards). A director is considered “independent” if he or she meets the requirements of the Director Independence Standards and the independence criteria in the NYSE listing standards.

In addition to policies outlined in the Hormel Foods Code of Ethical Business Conduct regarding conflicts of interest, we require that our board members submit a letter of resignation if they partake in any action that creates a conflict of interest with the company.

There is an annual self-evaluation of individual committees, and the Board of Directors additionally conducts its own self-evaluation. Stock ownership guidelines help to ensure that the interests of directors and executives are aligned with the interests of the stockholders.

Open Communication with Stakeholders

In addition to seeking feedback from our stakeholders about our corporate responsibility report each year, we also offer interested parties the opportunity to communicate with the Board of Directors by sending a letter directed to the Board of Directors, nonemployee directors or specified individual directors, addressed to: Brian D. Johnson, Vice President and Corporate Secretary, 1 Hormel Place, Austin, MN 55912. All communications, whether signed or anonymous, will be directed to the lead director or the chair of one of the committees based on the subject matter of the communication, or to the nonemployee directors or the specified directors, if so addressed. This information can be found on page 10 of the 2013 Proxy Statement.



Risk Management

ERM Overview

Supported by the Board of Directors, the Enterprise Risk Management (ERM) initiative at Hormel Foods aims to examine and manage potential risks to the company. ERM risk teams meet throughout the year to identify, measure and mitigate key risks across the company. ERM teams continually reassess risks to document changes to risk exposures, look for new and emerging risks and provide regular updates to senior management.

ERM teams have developed strategic plans to mitigate the risks identified. While many of the risks involve proprietary information, we can share information on those that have been reported in our Annual Report, along with certain steps we have taken in response.

As disclosed in our Annual Report, we are aware of the following risks to our business:

  • Food industry risks, including food spoilage; food contamination caused by disease-producing organisms and pathogens, such as Listeria monocytogenes; Salmonella and Pathogenic E. coli; food allergens; nutritional and health-related concerns; federal, state and local food processing controls; disruption to operations if government inspectors are unavailable due to furloughs; consumer product liability claims; product tampering; and the possible unavailability and/or expense of liability insurance.
  • Economic conditions, which could compromise the financial stability of our customers and suppliers and result in additional bad debts or declined value of our investments, including equity and trading securities.
  • Fluctuations in commodity prices, including prices of pork, poultry, feed ingredients, avocados and peanuts, which could harm the company’s earnings.
  • Outbreaks of disease among livestock and poultry flocks that could potentially harm the company’s revenues and operating margins.
  • Potential fluctuation in market demand for our products due to competition from other food processing companies, including price, product quality and attributes, brand identification, breadth of product line and customer service.
  • Acquisitions in recent years that could carry risks to our operations, such as the diversion of management’s attention from other business concerns and the potential loss of key employees.
  • General risks of litigation.
  • Government regulation, past, present and future, that could expose the company to potential sanctions and compliance costs.
  • Environmental proceedings and investigations.
  • Foreign operations risks, including fluctuations in currency values, foreign currency exchange controls, compliance with foreign laws and other economic or political uncertainties.
  • Deterioration of labor relations, which could adversely affect the approximately 5,600 of 20,500 Hormel Foods employees who are represented by labor unions.

Some activities to mitigate against risks include:

  • Audits according to the standards of the Global Food Safety Initiative (GFSI) required of all suppliers including those with preferred supplier status.
  • Validation of co-packer and joint venture food safety systems through annual Hormel Foods quality assurance audits.
  • Implementation of technology back-up systems to ensure operations are consistently connected.
  • Management of company expense volatility through hedging.
  • Implementation of the Mutual Agreement between Government and Employers (IMAGE) program for human resources and expansion of common human resources policies across all businesses, including subsidiaries.
  • Constant monitoring of animal diseases nationwide; continued implementation of bio-security measures at facilities.
  • Enhanced quality management system at company-owned farms.

Risks Due to Climate Change

Hormel Foods owns a number of live production facilities, which support our manufacturing operations. The output of these operations is affected by the cost and supply of feed grains, which fluctuate due to climate conditions, production forecasts and supply and demand conditions at local, regional, national and worldwide levels. 

We attempt to manage some of our short-term exposure to fluctuations in feed prices by forward buying, using futures contracts and pursuing pricing advances. However, we also recognize that these strategies may not be adequate to overcome sustained increases in market prices due to alternate uses for feed grains or other changes in these market conditions.



Supply Chain

Supply_Chain

At Hormel Foods, we appreciate the impact our supply chain can have on our company’s overall sustainability performance, and we have developed guidelines to help our suppliers align with our principles. While it is a complex undertaking to understand and measure the impacts of the supply chain, we took a first step by developing Supplier Responsibility Principles in 2010. We introduced them to our key suppliers in fiscal year 2011. Since then, we continue to review and update these principles to ensure that sustainability transcends through all levels of our business.

These principles define expectations for our suppliers within specific areas of corporate responsibility such as quality and product integrity, safe work environment standards, animal care processes and environmental management procedures. We require all participants in our business, just like everyone within Hormel Foods, to consistently meet our standards and demonstrate their commitment to transparency and honesty through ethical business practices.

We purchase the majority of our raw materials, equipment and services domestically within the regions where we manufacture our products. These components represent areas for which we have direct responsibility. Agricultural commodities fall outside our direct responsibility, since the majority of these items are purchased from independent farmers. We acknowledge that we can, however, exert influence over the procurement of these commodities. We believe that the development of the above-mentioned Supplier Responsibility Principles will help to uphold our values and principles throughout our supply chain.

Furthermore, we are beginning to develop a formal supplier assessment process and will report on our progress in future reports.

We additionally employ a supplier diversity program that gives diverse companies such as women-owned and minority-owned businesses the opportunity to supply quality product options that meet our company’s growing business needs. Working together, we provide the highest quality materials and services to our internal and external customers on a timely basis at the best economic value. Suppliers can submit their business for consideration at https://suppliers.hormelfoods.com.



Palm Oil Commitments

Hormel Foods recognizes the unique environmental and social risks associated with palm oil. These risks require additional due diligence in sourcing, education and training to ensure the palm oil in our supply chain is not associated with deforestation, child or forced labor, or plantation expansion on carbon-rich peatlands.

Hormel Foods shares the goal of our suppliers of developing a sustainable palm industry in order to:

  • Protect rainforests;
  • Protect ecosystems;
  • Protect peatlands;
  • Protect high carbon stock forests;
  • Protect human rights;
  • Improve social standards; and
  • Help feed the word in a sustainable way.

Hormel Foods supports the principles of the multi-stakeholder Roundtable on Sustainable Palm Oil (RSPO) and the RSPO efforts to set standards for the legal, economic, environmental and social requirements of sustainable palm oil production.

While Hormel Foods is a relatively minor user of palm oil, we realize that responsible sourcing of even small amounts of ingredients can make a difference. Therefore, we purchase 100 percent of our palm oil from RSPO certified sources.

We are committed to purchasing only fully traceable palm oil by the end of 2014 and will report our progress toward this goal in our corporate responsibility report.

Hormel Foods encourages and supports additional efforts of our suppliers to make a difference, such as wildlife conservation initiatives, community engagement, education programs and scholarships. We meet with our palm oil suppliers annually to discuss these efforts and receive updates on their progress.

Hormel Foods is a member of the Consumer Goods Forum, which has committed to mobilizing resources to achieve deforestation free supply chains by 2020. This will be made possible by initiatives introduced by individual businesses and by companies working together as partners of governments and non-governmental organizations.

Our Supplier Responsibility Principles state our expectations for all suppliers to uphold top standards related to food quality, product integrity, human and labor standards, environmental practices, business ethics and animal care. In the event an audit or other credible source reveals a supplier is in violation of this policy, Hormel Foods will implement corrective actions. If reasonable/appropriate corrective actions cannot be agreed to, Hormel Foods will suspend or discontinue purchases from the supplier.

To learn more about our supply chain, see the 2013 Hormel Foods Corporate Responsibility Report.