In 2010, we continued our corporate governance outreach program, which helps us understand and respond to shareholder concerns in a timely fashion. Through this initiative, senior management meets regularly with a variety of shareholders, proxy advisory groups and proxy solicitors to discuss the governance issues that are most important to them. Management then briefs the Board of directors and takes action as appropriate. To learn more about these discussions, please visit the Stakeholder Engagement section of this site.

We also continually monitor our business, our competition, legislative and regulatory changes and current developments in governance practices at other companies. When changes are in the best interest of Staples and our shareholders, we do not hesitate to update our practices. For example, in our 2011 proxy materials, we encouraged shareholders to vote for a proposal that would give them the right to cast a nonbinding advisory vote regarding executive compensation each year (rather than every two or three years). On the other hand, we openly oppose changes we believe are not in the best interests of our company or all our shareholders.

To learn more about our current corporate governance principles and to review our Corporate Governance Guidelines, committee charters, Corporate Political Contributions Policy Statement and other significant policies, please visit Staples' Corporate Governance Web page.

At Staples, we're committed to building a company culture of the highest integrity — one associate, one decision and one task at a time. It takes hard work and sustained focus. That's why we created our Global Ethics Office in 2004 and why we issued an updated, strengthened Global Code of Ethics in 2010.

The Global Code of Ethics empowers associates and holds them accountable by setting clear standards, describing the right way to do business and outlining a clear process for taking action when ethical questions or concerns arise.

The Staples Code of Ethics

Everyone working at or for Staples must follow our standards for ethical business conduct — all associates, officers and directors of Staples and our affiliates worldwide, as well as agents, consultants, joint venture partners and other third-party representatives when they are acting on our behalf. — from the Staples Global Code of Ethics

The Staples Global Code of Ethics is the foundation of our commitment to ethical business practices and conduct. Newly updated and translated, the Code is available in all 17 major languages spoken by Staples associates worldwide. It explains core expectations regarding ethical conduct and business practices. It also includes guidelines to help associates deal appropriately with a broad range of issues, from insider trading to customer privacy to discrimination or harassment. The Code also explains the many options available for asking questions and voicing concerns about ethics issues and how reported violations are handled.

Previously organized according to legal risk areas, the Code has been restructured to serve specific functions in a more user-friendly and relevant way. Associates can identify what they need to know and do, quickly and easily, according to their job responsibilities. Additionally, we have developed streamlined versions of the Code for particular functional areas — such as fulfillment, distribution and call centers — with a more limited set of possible ethical issues and situations.

The Staples Code of Ethics can be downloaded here.

Training, awareness and accountability

Associates receive ethics training early and often throughout their employment at Staples. New hires typically receive a copy of the Code of Ethics with their offer letter. In 2010, we also rolled out a live ethics training module as part of the new hire orientation. Managers across the company also receive additional training based on the particular situations they're most likely to face on the job.

Targeting training for maximum effectiveness

In 2010, we improved our ethics and compliance training programs for associates. We used a new risk-based approach to define minimum company-wide requirements based in part on the unique risks associated with particular geographies and levels within the organization. This approach enables us to focus the company's resources on the areas where we can have the greatest impact.

For example, we used Transparency International's Corruption Perception Index to identify those regions and operating areas that are most likely to face corrupt business practices. We now ensure that those locations and functional areas receive the most training in anti-corruption.

The importance of ethics and compliance is regularly reinforced company-wide through awareness campaigns, newsletters, internal Web sites and communications from company leaders. In 2010, we also developed the Leader's Guide to Ethics at Staples and an online ethics quiz to help executives and managers understand their roles in driving ethics awareness and accountability throughout the company. The guide concisely describes what leaders can do to instill an ethical culture at Staples.

In a global, multicultural organization like Staples, it's still an ongoing challenge to assess how thousands of associates from various backgrounds perceive and internalize the ethics training and information provided to them. To address this challenge, in 2011 we will develop and begin to roll out new, more detailed metrics and measurement systems to track our progress against specific benchmarks of an ethically informed, aware and engaged workforce.

Empowering associates to speak up

Company-wide ethics require company-wide accountability. Our approach to the challenge of ensuring consistent accountability is to make sure all associates feel comfortable speaking up; asking questions; and taking an active role in understanding, discussing and exploring ethics issues. In this way, we can be sure to flag and address minor issues or concerns before they grow into actual problems.

Additionally, open dialogue among associates and managers helps Staples to capture and act upon valuable ideas, suggestions and innovations. Speaking up benefits not only Staples' ethics performance, but also helps the company meet its overall objectives and create a winning culture.

That's why, company-wide, we put a premium on open, honest communication and work hard to maintain a culture where each person can feel comfortable asking questions and raising concerns.

Staples EthicsLink

Our Ethics Helpline, Staples EthicsLink, is available in multiple languages in every Staples location worldwide, online and by telephone. Hosted by a third party but administered by our Global Ethics Office, Staples EthicsLink serves as a 24/7 "ethics resource" for Staples associates. Through the Helpline, associates can ask for guidance on ethical and compliance issues and report suspected ethics violations. All reports are relayed to the Global Ethics Office for follow-up.

Where it is legally permitted, including in the United States, associates can report concerns and contribute to investigations anonymously. Many European Union countries, however, limit both the types of issues that can be reported to Staples EthicsLink and the rights of reporting individuals to remain anonymous. Staples complies with all applicable requirements.

In the wake of rolling out the revised Code of Ethics in 2010 and enhanced training efforts, we plan to continue to monitor the volume of calls to Staples EthicsLink carefully in 2011 and beyond. We expect — indeed, we hope for — an increase in call volume as an indication that associates are becoming more comfortable about speaking up, especially with regard to seeking advice and guidance.

For more information, please visit Staples EthicsLink.

Anti-Corruption Policy and Programs

The Staples Anti-Corruption Policy is designed to prevent corruption and promote compliance with anti-corruption laws that apply to our global operations, including the U.S. Foreign Corrupt Practices Act (FCPA), the UK Bribery Act, the Organization of Economic Cooperation and Development (OECD) Convention Combating Bribery of Foreign Officials and many others. While some people believe that corruption is inevitable in certain countries, Staples does not accept this as an excuse for behaving unethically, failing to comply with our policy or violating the law. Staples prohibits all bribes and kickbacks, whether offered or accepted directly by our associates or indirectly using a third party — period.

We've conducted anti-corruption training in many of our overseas locations since 2006. In 2009, after identifying corruption as a strategic risk to Staples' international growth, we established a more comprehensive Anti-Corruption Program, including a formal anti-corruption policy, risk-based training requirements and stronger internal controls. In addition to educating all senior leaders on our anti-corruption policy, we provide online training and/or instructor-led workshops for more junior associates, as needed, depending on their role and geographic location. In general, extra training is provided to those associates who work in or travel to countries deemed by Transparency International's Corruption Perception Index to have higher levels of risk for corruption. In 2010, online anti-corruption training was rolled out to high-risk international locations and specific functions within the United States and Canada that have a heightened need to know our requirements.

Staples is committed to providing customers reasonably priced Staples® brand products that not only meet or exceed performance expectations, but are also manufactured responsibly.

To produce Staples® brand products, we partner only with factories that meet Staples' standards for cost and quality on the one hand and labor rights, safety and environmental standards on the other. Requirements for responsible operation are outlined in the Staples Supplier Code of Conduct and serve as the basis for the Social Accountability audits we undertake at supplier sites. If a current or potential partner consistently fails to meet either Staples' quality or ethical requirements, Staples discontinues the relationship. For all other products, Staples strongly recommends that its vendors comply with the Staples Supplier Code of Conduct (or a similar code of its own), and Staples may terminate its relationship with that supplier if the supplier fails to do so. Finally, Staples requires suppliers to comply with applicable international (in the countries in which the parties are doing business) and U.S. laws and regulations and industry standards when selling us products.

The Supplier Code of Conduct is included as an appendix to each manufacturing agreement and forms an integral part of every contract we enter into.

In general, the Code outlines for Staples' suppliers our expectation that workers making Staples® brand products are treated fairly and with dignity and respect. The Code also helps ensure that the factories with which we contract operate in an environmentally sustainable manner. The Supplier Code of Conduct was recently updated with the addition of standalone environmental and business ethics sections. Several existing sections were also reinforced with additional material.

The Director of Product Quality and Compliance, along with his team, oversees supplier screening, monitoring and auditing — in short, ensuring compliance with the Supplier Code of Conduct. Team members are trained on the application of the Code, with all audits carried out by external, independent third parties. The Director of Product Quality and Compliance works closely with the Vice President of Sourcing, Product Development and Manufacturing, who is in charge of producing goods, and with the Vice President of Import Supply Chain, who is in charge of shipping goods from the supplier to the end destination and maintaining compliance with all security provisions. Both individuals report up to the SVP for the Staples® Brand Group.

The processes Staples uses for ensuring compliance with the Code continuously evolve as the company gains a greater understanding of the risks it faces, how to best minimize those risks and which corrective actions are most effective. As a result, the scope of suppliers being audited annually has narrowed in some respects while expanding in others. For example, Staples no longer audits factories that produce Staples® brand products in the United States, Canada or Europe. The company does, however, audit every factory producing goods in countries deemed to be "at risk" for noncompliance (i.e., suppliers located in Asia or Africa).

All Staples® brand suppliers located in "at-risk" regions were audited in 2010. These suppliers constitute approximately half of all Staples' own brand suppliers (233 of 489 suppliers making Staples® brand products).

Suppliers failing to meet minimum requirements are required to sign a Letter of Commitment, stating their intent to continuously improve and requesting a probationary period to implement the necessary changes. They are also required to complete a Corrective Action Plan documenting the timeline for the necessary improvements.

Follow-up audits are scheduled at regular intervals to ensure suppliers stay on track while on probation. In addition to initial certifications, all suppliers in at-risk geographies are required to be recertified every year. We plan to continue expanding the audit program as we grow our international presence.

100% Satisfaction Guarantee

Prior to Staples placing an order for a Staples® brand product, the product must undergo performance, safety and regulatory compliance testing by an independent testing lab. All products must pass testing before mass production can begin.

Between the time a supplier manufactures and ships the products, Staples has an independent agency inspect the products by sampling them to ensure that they meet material and performance specifications and all other requirements.

Finally, we have an independent lab retest Staples® brand products one to four times a year to make sure they continue to meet specifications as well as safety and performance requirements.

As no system is perfect, we have an established product recall process. In 2010, Staples updated and implemented a North American product recall process for all products sold at Staples. The process centralizes communication within the company for the recall of any product sold by Staples through any channel. The process also provides for a prompt and timely investigation of issues with Staples® brand products. Recall facilitators have been appointed in each business unit to ensure product recalls are executed quickly. The facilitators are responsible for keeping records regarding the execution of the product recall.

Staples posts all recalls to its Warranty & Recall Web page so that consumers have information readily available regarding products that have been subject to a recall — no matter the reason. Staples plans to update recall procedures globally in 2011.