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Governance Sustainability Report

< American Vanguard Sustainability Report

Tone at the Top
As stewards of the resources to which we have been entrusted by our stockholders, we believe that it is imperative to ensure that our corporate governance is clear, consistent and well ordered. This commitment begins at the top with our Board of Directors and carries on through all levels of management and operations. As an NYSE-listed public company, we are required to adopt and regularly certify that we are in compliance with the most rigorous listing standards of all the public exchanges. Over the past five years, we have consistently earned the highest possible rating for corporate governance from Institutional Shareholder Services. And for good reason. Seven of our eight directors are fully independent and are drawn from diverse professions, including federal governance at U.S. Environmental Protection Agency (USEPA), public accounting, corporate litigation, investment banking and agrichemicals. At present, there are no related party transactions involving our directors. Further, none of our directors serve on the board of three or more public companies; so they have the time to focus on American Vanguard. Not surprisingly, our directors consistently attend at least 75% of all board and committee meetings.

All of our board committees have charters that spell out the scope of their authority. Our Audit Committee contains two audit committee experts and has designated not only an independent registered public accounting firm to audit our financial performance (namely, BDO USA, LLC) but also a highly-regarded public accounting firm to serve as internal auditor (namely, Deloitte Touche). The Audit Committee also has specific responsibility for overseeing management’s handling and resolution of potential Code of Conduct violations.

Our Compensation Committee is committed to “pay for performance” in its role of designing and overseeing both executive and director compensation, which it regularly benchmarks through an independent compensation consultant. Over the past five years, we have received over 90% approval rating by our stockholders for our executive compensation practices, which are set forth in our annual proxy.

In addition, our Nominating & Corporate Governance Committee keeps board members and management current on best practices for self-evaluation, continuing education and tenure considerations, all of which are covered in the Company’s written Corporate Governance Guidelines. We have also formed a Finance Committee which reviews and oversees material acquisitions and divestitures, as well as changes to our credit agreement and capital raising activities.

In short, our board works with management across many fronts in ensuring that the Company is conducting its affairs ethically, prudently and strategically. While the Board does not manage the Company’s operations on a day-to-day basis, it does exercise well-informed oversight through regular communication, both formal (as in the case of regular and special meetings) and informal (as in the case of the Lead Director’s attendance at management’s executive committee meetings). We believe that the best way to ensure that good governance will take root in an organization is to maintain open communication, frequent reporting and calls to accountability. That, in a nutshell, is the culture of our governance.

Risk Management
Our board takes seriously its responsibility for overseeing risk management. It does so not only because it is a mandate of the SEC (U.S. Securities and Exchange Commission), but also because it is good business. Risks change over time and, as such, they require continual monitoring. To that end, several years ago the board established its own Risk Committee which meets at each regular board meeting. Although only three members of the board are formal members of the Risk Committee, all members attend meetings of that committee.

From time to time, management conducts a comprehensive risk assessment to identify areas of material risk, whether insurable or not. Working with the Risk Committee, the Risk Manager and CEO assign a senior executive to manage each risk, that is, to secure necessary resources, find and implement mitigation measures, and make persons accountable for implementing those measures. Further, mitigating the risk is one of the executive’s SMARTgoals and is included as part of his or her annual performance evaluation (which, in turn, is linked to that executive’s incentive compensation). Senior management regularly briefs the Risk Committee on such things as new legislation, legal proceedings, regulatory actions and the like. Through this process, management and the Board continuously work to make risk management a part of the Company’s culture.

Our most material risks include: an adverse regulatory climate; optimizing inventory levels while minimizing under-absorption manufacturing costs; succession planning/bench strength; maintaining competitiveness of product offerings; vulnerability to environmental event; undervaluation by the market; sustainable growth through licensing, acquisitions and current product lines; and cyber security.

Public Policy
Because we distribute and sell specialty chemicals, our industry tends to draw a great deal of attention from activist groups, policy-makers, legislators and litigants. Laws and regulations, both domestic and foreign are in a state of continual flux. Judicial and administrative proceedings at the local, state, federal and international levels continue to grow and change in number and in scope. Further, regulatory agencies review product registrations and petitions on an ongoing basis. All of these activities require the Company to be kept well informed and involved on many fronts. Accordingly, we participate in trade groups, such as CropLife America and the American Chemistry Society, where we can benefit from the shared understanding of other companies in our industry. At the core of our involvement, however, we stress one, consistent theme – namely, that of sound science. Our products are supported by GLP (good laboratory practice) studies to ensure product safety and efficacy before they ever get to market. We are committed to ensuring that regulatory agencies, legislators and NGOs (non-governmental organizations) should be guided by scientific principles, rather than solely by political agendas or rhetoric.

We believe further that advances in agriculture will come through science and not policy. For example, precision agriculture, which has taken hold of the industry within the past three years, calls upon companies like ours to find solutions for increasing crop health and yield while optimizing crop inputs. More than ever, growers and agronomists are looking for ways to use data – relating to yield, field conditions, crop pests, and the like – to improve their efficiency while honoring the environment by tailoring their solutions to meet specific conditions, rather than applying a single solution, e.g., a fixed application rate, for all conditions. As you will read in our section on Technology Innovation, we are actively working in prescriptive application technology by developing systems like SIMPAS™ and products for use in SIMPAS.