Stewart & Stevenson Services, Inc.
Guidelines on Corporate
Nominating and Governance
The governing statute for the Company
states that the powers of Stewart & Stevenson Services, Inc. (the
“Company”) shall be exercised by or under the authority of the Board and
that the business and affairs of the Company shall be managed under the
Board’s direction. Within that broad grant of authority, the
principal responsibility of the Board is exercising governance as
representative of the Company’s shareholders so as to promote the
successful performance of the Company. The Board has five primary
functions: (i) to select,
compensate and evaluate the chief executive and other officers and review
succession planning; (ii) to review and evaluate the Company’s
performance against broad financial objectives, major strategies and plans
and actions of the Company; (iii) to provide direction, advice and
counsel to senior management; (iv) to select appropriate candidates
for election as Directors; and (v) to review the Company’s systems and
practices designed to bring about compliance with applicable laws and
regulations, including its accounting and financial reporting obligations.
The Board has established the following
Guidelines, which it intends to review, and reserves the right to change,
from time to time. The Guidelines are to assist the Board in the exercise
of its responsibilities. These Guidelines are not intended to change
or interpret any Federal or State law or regulation or the Certificate of
Incorporation or By‑laws of the Company.
of the Directors
Size of the Board: The
Board will range from 8 to 12 members. The size may vary from time to
time, depending on the availability of qualified candidates, retirements,
and other factors. The size will be set based on the Board’s ability
to function efficiently, but also to assure adequate representation for the
work of its Committees of independent Directors.
Mix of Outside and Inside Directors: The
Board shall maintain a substantial degree of independence from
management. It is the Board’s intention that no more than two
Directors shall be currently or previously employed as executive officers
of the Company. The Company’s Chief Executive Officer will be
expected to serve as a Director and, depending upon circumstances,
succession planning and other factors, it is expected that another senior
officer may serve as a Director from time to time.
Executive Sessions of Independent
Directors: The independent Directors of
the Company, as they are affirmatively determined by the Board from time to
time, in accordance with law and stock exchange rules, shall meet in
regularly scheduled executive sessions at such times and for such reasons
as they desire and shall set. The Chairman of the Board shall preside
at such executive sessions of the independent Directors provided the
Chairman of the Board meets the independence standards in accordance with
law and stock exchange rules. If the Chairman of the Board does not
meet the independence standards, the Lead Director shall preside at the
executive sessions of the independent Directors.
Assessing Board Procedures: The
Board shall review from time to time its procedures and processes,
including these Guidelines.
Director Compensation Review: Annually,
the Board shall receive a report of the Compensation and Management
Development Committee reviewing the compensation of Directors. This
review shall be based in part on surveys of director compensation among
other publicly traded U.S.
companies similarly situated, but shall take into account legal principles
and stock exchange rules as to the independence of directors.
Director Composition: Recognizing
that the contribution of the Board shall depend not only on the character
and capacities of the Directors taken individually but also on their
collective strengths, the Nominating and Governance Committee of the
Directors, as hereinafter provided for, shall seek out possible candidates
that bring experience and judgment to the Company and otherwise aid in
attracting highly qualified candidates as Directors.
Selection Criteria: The
benefit to shareholders of having independent Directors is derived from
their ability, judgment, objectivity and diverse experience and
background. In considering possible candidates for election as
independent Directors, including those submitted by shareholders, the
Nominating and Governance Committee and the Board shall be guided in
general by the composition guidelines established above and in particular
by the following:
1. Each Director
should be an individual of the highest character and integrity and have an
inquiring mind, experience at a strategy/policy‑setting level, or otherwise at a senior executive level of
experience, and the ability to work well with others.
Director should have sufficient time available to devote to the affairs of
the Company in order to carry out the responsibilities of a Director and no
director should be simultaneously serving on the board of directors of more
than 3 other entities, excluding non‑public companies such as those
related to personal or family business and charitable, educational or other
non‑profit entities. Directors are not qualified for service on
the Board unless they are able to make a commitment to prepare for, and
attend, meetings of the Board and its committees on a reasonably regular
3. Each independent
Director should be free of any conflict of interest that would interfere
with the independence and proper performance of the responsibilities of a
should not be chosen as representatives of a constituent group or
organization; each should utilize his or her unique experience and
background to represent and act in the best interests of all shareholders
as a group.
should have an equity ownership in the Company. Toward that end each
outside Director shall be paid a portion of his or her Director’s fees in
Company Common Stock to the extent permitted by law and stock exchange
Continuation of Service
1. It is the sense
of the Board when a Director’s principal occupation changes substantially
from the position the individual held when originally invited to join the
Board, the Director shall tender a letter of resignation to the Chairman of
the Nominating and Governance Committee. Such Committee will review
whether it is appropriate to accept the resignation based on the rationale
for originally selecting the individual.
2. Persons who have
attained the age of 73 will not be considered for election to the Board of
Directors. It is the sense of the Board that term limits for
Directors should be established and phased in over a period of 4
years. Beginning in 2008 a Director who has served for 12 years shall
not be considered for election to the Board of Directors.
3. At the time the
Nominating and Governance Committee develops its annual slate of Directors
for recommendation for election or reelection, it shall review and consider
all factors, including individual performance, related to continuation of
service for each Director.
4. Employee and non-employee
Directors should advise the Chairman of the Nominating and Governance
Committee in advance of accepting an invitation to serve on another board
of a public company.
Directors are required to own stock in the Company equal in value to three
times their annual cash retainer within the later of 5 years of joining the
Board or the adoption of this guideline.
III. Director Committees
The Nature of Committees: The
purpose of Board Committees is to help the Directors effectively and efficiently
fulfill their responsibilities. The Board has established four
standing Committees and may establish ad hoc committees for specific
purposes from time to time.
Committee: The Executive Committee has the
authority of the Board, subject to the limitations of law and those set
forth in the Company’s bylaws. The Executive Committee meets during
the intervals between meetings of the Board to consider matters that may
require action prior to the next Board meeting or to comply with or permit
certification of certain recurring technical or legal requirements.
Committee: The Audit Committee shall
consist entirely of independent Directors and in such regard shall consist
of Directors meeting not only the general requirements of independence
provided by law and stock exchange rules, but also any special rules thereunder applicable to audit committee members
specifically. The Audit Committee charter adopted by the Board shall
govern the responsibilities and activities of the Audit Committee.
and Management Development Committee: The
Compensation and Management Development Committee shall consist entirely of
independent Directors. The Compensation and Management Development
Committee charter adopted by the Board shall govern the responsibilities
and activities of such Committee.
and Governance Committee: The
Nominating and Governance Committee shall consist entirely of independent
Directors. The Nominating and Governance Committee is responsible for
administering these “Guidelines on Nominating and Governance” and develops
and makes recommendations to the Board with respect thereto. It
establishes the criteria for selection as nominees for election as
Directors of the Company and reviews the qualifications, as provided for
herein, of all candidates including those proposed by shareholders, for
recommendation to the Board. Any search firm used to identify
candidates for nominees as Directors shall report to such Committee, which
shall have sole authority as to the retention and compensation
thereof. The Nominating and Governance Committee recommends for Board
approval standards for determining whether or not a Director is
“independent.” A copy of the current standards are
attached as an Addendum hereto. The Nominating and Governance
Committee also recommends to the Board the composition of the Committees of
the Board. In addition, the Nominating and Governance Committee
reviews and makes recommendations as to the effectiveness of the Board as a
whole. It shall also conduct an annual performance evaluation of its
own activities. Such Committee shall also be responsible for
developing and recommending to the Board a code of conduct and ethics for
directors, officers, employees and agents of the Company, which shall
reflect all legal and stock exchange requirements in effect from time to
time and may contain other provisions reflective of current “best
practices”, including those suggested by Federal Sentencing Guideline
principles and other federal and state legal authorities and sources.
Ad Hoc Committees: Ad Hoc
Committees may be established from time to time by the Board with
responsibility for a particular matter of business or specific issue.
Committee Agenda: The
Chairman of each Committee, in consultation with the Secretary of the
Company, shall develop the Committee’s agenda. The Chairman of the
Board and other Committee members may also suggest the inclusion of items
on a Committee agenda.
Lead Director: The
Chairman of each Committee shall act as a Lead Director with respect to the
matters that fall under the jurisdiction of such Committee. The role
of a Lead Director shall be to act as a spokesman for the Committee and to
provide recommendations and guidance to the Board and the Chairman of the
Chairman of the Board, in consultation with the chief executive officer and
the Secretary of the Company, shall establish the agenda for each meeting
of the Board. Directors are free to suggest the inclusion of
additional items. The Board will meet at least four times during a
Board Meeting Materials Distributed in
Advance: Information and materials shall
be distributed in advance of Board meetings on a regular basis or where
otherwise useful to the Directors’ understanding or to facilitate
V. Director Oversight of
Selection of Officers: The
Board is responsible for the selection of the Chairman of the Board and the
Chief Executive Officer of the Company, as well as other elected officers,
and also for the members of its Committees. The Board is also
responsible for selection of the Lead Director when the Board determines
the Chairman of the Board does not meet the independence standards in
accordance with law and stock exchange rules.
Evaluation of Chief Executive Officer
Performance: Evaluation of the Chief
Executive Officer’s performance and succession planning for the Chief
Executive Officer shall be performed at least once per year by the
Compensation and Management Development Committee, shall be reported to the
independent Directors and shall then be discussed with the Chief Executive
Management Development and Succession
Planning: The Chief Executive Officer shall
review with the Compensation and Management Development Committee
management development and succession planning and shall make an annual
report to an executive session of the independent Directors. The
Board shall annually consider such matters.
Stock Ownership by Executive Officers:
The Chief Executive Officer is required to own stock in the Company’s
stock equal in value to one-half of base salary within the later of four
years of becoming Chief Executive Officer or the adoption of this
guideline. Executive Officers of the Company are required to own
stock in the Company equal in value to one-third their total annual cash
compensation within the later of four years of becoming an executive
officer or the adoption of this guideline.
Board shall annually conduct a self‑evaluation, focusing on whether
it and its Committees are functioning effectively and on any other matters
that it may determine are appropriate.
Director Education: The
Board shall develop procedures for orientation and continuing education of
its members and may request representatives of any Committee to assist
Outside Advisors: Each
Committee of the Board may retain its own legal or other advisors from time
to time as it may, in its discretion, believe appropriate and shall be
responsible for the terms of any such engagement and the compensation of
any such advisers.
Access to Management and Information: Directors
shall have reasonable access to management, and information therefrom, as may be necessary or appropriate for the
purpose of carrying out their duties and activities with respect to the
Directors serve as representatives and act on behalf of all the
shareholders of the Company.
Nominating Directors: The shareholders are encouraged to
submit recommendations for Directors to the Nominating and Governance
Committee, and the Nominating and Governance Committee shall consider such
recommendations using the criteria set forth herein. Recommendations
for Directors may be submitted by writing to the Secretary of the Company,
who shall assure that the Chairman of the Nominating and Governance
Committee receives such correspondence.
Correspondence with Directors: Shareholders
who desire to communicate to the Directors with respect to their views and
concerns are encouraged to do so by writing to the Secretary of the
Company, who shall assure that the Chairman of the Nominating and
Governance Committee receives such correspondence.
DIRECTOR INDEPENDENCE STANDARDS OF
STEWART & STEVENSON SERVICES, INC.
Adopted December 9, 2003
No director of
Stewart & Stevenson Services, Inc. (the “Company”) qualifies as
“independent” unless the Board affirmatively determines that the director
has no material relationship with the Company (either
directly or as a partner, shareholder or officer of an organization
that has a relationship with the Company). For the purposes of these
standards, the term “Company” includes any parent or subsidiary in a
consolidated group with the Company.
The following guidelines have been established to assist
the Board in its determination of director independence:
A director who is an employee, or whose immediate family member is an
executive officer, of the Company is not independent until three years
after the end of such employment relationship. (Note:
Employment as an interim Chairman or CEO shall not disqualify a director
from being considered independent following that employment.)
A director who receives, or whose immediate family member
receives, more than $100,000 per year in direct compensation from the
Company, other than director and committee fees and pension or other forms
of deferred compensation for prior services (provided such compensation is
not contingent in any way on continued service), is not independent until
three years after he or she ceases to receive more than $100,000 per year
in such compensation. (Note: Compensation received by a
director for former service as an interim Chairman or CEO need
not be considered in determining independence under this test.
Compensation received by an immediate family member for service as a
non-executive employee of the Company need not be considered in determining
independence under this test.)
A director who is affiliated with or employed by, or
whose immediate family member is affiliated with or employed in a
professional capacity by, a present or former internal or external auditor
of the Company is not “independent” until three years after the end of the
affiliation or the employment or auditing relationship.
A director who is employed, or whose immediate family
member is employed, as an executive officer of another company where any of
the Company’s present executives serve on that company’s compensation
committee is not “independent” until three years after the end of such
service or the employment relationship.
A director who is an executive officer or an employee, or
whose immediate family member is an executive officer, of a company that
makes payments to, or receives payments from, the Company for property or
services in an amount which, in any single fiscal year, exceeds the greater
of $1 million, or 2% of such other company’s consolidated gross revenues,
is not “independent” until three years after falling below such threshold.