2017 GOVERNANCE GOAL AND PERFORMANCE SUMMARY

GOAL

Effective corporate governance to ensure long-term value creation.

PERFORMANCE

The Board has adopted corporate governance policies and programs, including the Principles of Corporate Governance, which reinforce our values and provide for effective management, oversight and responsible business practices.

See the Principles of Corporate Governance on the Northrop Grumman website.

HIGHLIGHTS OF OUR GOVERNANCE PRACTICES

  • Number of independent directors: 12 of 13 as of December 31, 2017.
  • All Board committees comprised entirely of independent directors.
  • Annual election of all directors.
  • Lead independent director with significant and clearly defined responsibility.
  • Majority voting for directors in uncontested elections.
  • Proxy access bylaw.
  • Annual Board and committee self-evaluations.
  • Ability of shareholders to act by written consent.
  • Ability of shareholders to call a special meeting.
  • Annual advisory vote on executive compensation.
  • Recoupment policy for incentive compensation.
  • Stock ownership guidelines for directors and executive officers.
  • Policy prohibiting hedging and pledging of Northrop Grumman stock by directors and executive officers.

BOARD COMPOSITION AND TENURE

As of December 31, 2017, the Board included 13 directors, 12 of whom are independent. The Board represents a diverse group of accomplished directors who bring a wide range of experience to the company. The average tenure is 6.8 years. Three of the directors are women, and three are People of Color. We believe our directors possess the reputation, education, professional background and skills highly beneficial to the Board and to our shareholders.

Each year the full Board, as well as each of its committees, conducts an assessment of performance and discusses in executive session the results and opportunities for improvement. In addition, the directors conduct an annual assessment of each individual director’s performance. The Lead Independent Director or Chairperson discusses the results of this assessment with each director individually.

Our directors are required to have a significant financial interest in Northrop Grumman through stock ownership to help reaffirm their interests align with those of the company’s shareholders.

AUDIT COMMITTEE

  • Focuses on risks that could affect financial performance.
  • Reviews management reports on material financial risks and how we respond to, and mitigate, these risks.
  • Reviews periodic Northrop Grumman reports filed with the Securities and Exchange Commission.
  • Annually reviews the company’s compliance program and discusses with management implementation of the company’s global compliance policies, practices and programs.

COMPENSATION COMMITTEE

  • Reviews risk assessment of Northrop Grumman compensation programs.
  • With input from its independent compensation consultant, evaluates the mix of at-risk compensation linked to stock performance and the alignment of compensation programs with shareholder value creation.

GOVERNANCE COMMITTEE

  • Regularly reviews corporate governance policies and practices.
  • Makes recommendations to the Board regarding Board composition and succession planning.

POLICY COMMITTEE

  • Assists the Board in identifying and evaluating global security; political, budgetary, environmental and sustainability issues; health and safety matters; and trends that could impact Northrop Grumman business.
  • Reviews management reports on ethics and corporate responsibility programs.

BOARD OVERSIGHT OF RISK

The Board has four standing committees*: audit, compensation, governance and policy. Among other duties, the Board oversees our risk management activities. Each of our Board committees assists the Board in this role. The Board also receives regular reports on the activities of our Enterprise Risk Management Council, which seeks to ensure effective mitigation programs are in place for each of the most significant risks to our business.

*Our 2018 Proxy Statement provides a summary of the duties of each committee. The committee charters are posted on the Northrop Grumman website.

HUMAN RIGHTS

At Northrop Grumman, our business practices reflect our strong commitment to human rights. Our Human Rights policy highlights our commitment to treat employees, suppliers, customers and competitors with dignity and respect and prohibits unlawful discrimination, harassment or retaliation. Additionally, our policy covers freedom of association, fair working conditions, ethical procurement practices, health and safety and protection of the environment. We also have established policies to combat human trafficking.

POLITICAL PARTICIPATION DISCLOSURE

Political activities at Northrop Grumman are consistent with Northrop Grumman principles of good governance and the highest standard of ethics. We publish an annual report detailing political contributions on the Northrop Grumman website.