REYNOLDS AMERICAN INC.
CORPORATE GOVERNANCE GUIDELINES

Preamble

The primary responsibilities of the Board of Directors (the "Board") of Reynolds American Inc. (the "Company") are to direct and oversee the exercise of corporate powers and to ensure that the Company's business and affairs are managed to meet its stated goals and objectives. The Board recognizes its responsibility to engage and provide for the continuity of executive management that possesses the exceptional character, skills and experience required to attain the Company's goals and to ensure that nominees for the Board possess appropriate qualifications and, subject to certain shareholder rights set forth in the Governance Agreement, dated as of July 30, 2004, as amended (the "Governance Agreement"), among British American Tobacco p.l.c., Brown & Williamson Tobacco Corporation and the Company, reflect a reasonable diversity of backgrounds and perspectives.

Directors will fulfill the following responsibilities and requirements:

The Board has the responsibility to organize its functions and conduct its business in the manner it deems most effective and efficient, consistent with its duties of independence, good faith, due care and loyalty. In that regard, the Board has adopted a set of flexible corporate governance guidelines to guide its governance practices in the future. These guidelines, set forth below, are regularly re-evaluated by the Board's Corporate Governance and Nominating Committee (the "Governance Committee") in light of changing circumstances in order to continue serving the best interests of the Company’s shareholders. Any changes to these guidelines must be recommended by the Governance Committee and acted upon by the full Board.

1.

Selection of Chairman of the Board and the Chief Executive Officer

The Board elects the Chairman of the Board and the Chief Executive Officer on an annual basis in the manner and based on the criteria that it deems appropriate and in the best interests of the Company given the circumstances at the time of such appointments, and subject to the applicable provisions of the Governance Agreement. An individual may serve as Chairman of the Board and/or Chief Executive Officer for more than one term in succession.

Similarly, the Board judges, in accordance with circumstances at any given time, whether the role of the Chairman of the Board and the Chief Executive Officer should be separate and whether the Chairman of the Board should be an independent director.

 

 

2.

Lead Director Concept

In the event that the positions of Chairman of the Board and Chief Executive Officer are held by the same person, after consultation with the Chairman of the Board, who shall individually discuss with each Director such Director’s preferences for appointment as Lead Director, the Governance Committee may recommend to the Board one or more of the independent directors as candidates for appointment as Lead Director. The Lead Director shall be elected by a majority of the independent directors of the Board. The Lead Director may, but need not be, the chairperson of a Board committee. Unless otherwise determined by a majority of the independent directors under special circumstances, the Lead Director shall serve for a one-year period, or until his or her earlier termination of service on the Board. A Director may be elected as Lead Director for more than one term in succession.

The Lead Director will:

  • preside over executive sessions of the non-management directors and the independent directors;
  • call meetings of the non-management directors and the independent directors as he or she deems necessary;
  • facilitate communications and serve as a liaison between the non-management directors and the Chairman of the Board and Chief Executive Officer; however, each director is free to communicate directly with the Chairman of the Board and Chief Executive Officer;
  • consult with the Chairman of the Board, the Chief Executive Officer and the Secretary on the agenda for Board meetings and on the need for special meetings of the Board;
  • together with the Chairperson of the Compensation and Leadership Development Committee, communicate to the Chief Executive Officer the results of the evaluation of his or her performance;
  • in conjunction with the Governance Committee, oversee the evaluation process of individual directors;
  • meet with any director who is not adequately performing his or her duties as a member of the Board or any Board committee; and
  • otherwise consult with the Chairman of the Board on matters relating to management effectiveness and Board performance.

The Lead Director is invited to attend all meetings of committees of the Board in which he or she is not a member. In the absence of the Lead Director, if one is elected, the Chairperson of the Governance Committee shall preside over executive sessions of the non-management directors and the independent directors. Similarly, if no Lead Director has been appointed, and the Chairman of the Board is an employee of the Company, the Chairperson of the Governance Committee will preside over executive sessions with only non-employee directors or independent directors present.

 

 

3.

Number of Committees

The present Board committees are: Audit and Finance(also designated the Qualified Legal Compliance Committee), Compensation and Leadership Development, and Corporate Governance and Nominating. The Board also may establish special committees from time to time to address specific matters assigned by the Board. Members of all committees are non-employees of the Company. The number and scope of committees may be revised, as appropriate, to meet changing conditions and needs and to comply with applicable provisions of the Governance Agreement.

 

 

4.

Assignment and Rotation of Committee Members

The Governance Committee is responsible for reviewing and recommending to the Board the assignment of directors to various committees. To assure diversity of Board member experience and variety of exposure to affairs of the Company, a staggered rotation of committee memberships and chairmanships is considered desirable. Accordingly, it is recommended that the chairperson of each committee of the Board rotate every five years on a staggered basis. Similarly, it is recommended that the Governance Committee recommend to the Board for its adoption at the first regular Board meeting following each Annual Meeting of Shareholders, a staggered rotation of three to five years for committee memberships to ensure director rotation of service on the Board’s various committees.

 

 

5.

Frequency and Length of Committee Meetings

Generally, committees meet in conjunction with regular Board meetings. Committee chairpersons and members may call meetings as they deem necessary. Committee meetings may be as frequent and as long as needed.

 

 

6.

Committee Agenda

The agenda for committee meetings is developed by committee chairpersons in consultation with appropriate members of management. The agenda for each meeting is circulated in advance, and committee members may suggest additional agenda items for consideration.

 

 

7.

Frequency of Board Meetings; Attendance

Board members expect a minimum of five meetings to be part of the regular annual Board calendar, with additional meetings as required. A calendar of Board meetings will be developed and circulated as far in advance as practicable. Members are expected to attend all meetings, barring unavoidable circumstances.

 

 

8.

Selection of Agenda Items for Board Meetings

The Chairman of the Board, the Chief Executive Officer and the Secretary of the Company develop the agenda for Board meetings, in consultation with the Lead Director, if one has been elected. The agenda is circulated in advance, and Board members may suggest additional items for consideration.

 

 

9.

Board Materials Distributed in Advance

As much information and data as practical on financial performance and the business agenda is sent to Board members in advance of meetings, including background materials for planned presentations. Detailed analyses of capital project proposals also are provided in advance.

 

 

10.

Regular Attendance of Non-Directors at Board Meetings

The Chief Executive Officer, the Chief Financial Officer, the General Counsel and the Secretary of the Company, and the President of R. J. Reynolds Tobacco Company, generally attend the regular business session of the Board meetings. The Board also extends invitations to other senior executives as appropriate to the occasion and business agenda.

 

 

11.

Executive Sessions of Outside Directors

Each Board meeting agenda shall include time for an executive session with only directors and the Chief Executive Officer present. Each Board meeting agenda also shall include time for an executive session with only non-employee directors present. In addition, at least once per year, the Board shall schedule an executive session including only independent directors.

Each agenda for meetings of committees of the Board shall include time for an executive session with only independent directors present.

 

 

12.

Board Access to Senior Management

All Board members have open access to senior management, with the expectation that such contact will be minimally disruptive to the business operation of the Company. The Chief Executive Officer is encouraged to invite to the Board meetings senior managers who can provide additional insight into business materials being discussed and those individuals with high future potential who should be given personal exposure to members of the Board.

 

 

13.

Board Compensation Review

Every three years, the Governance Committee conducts a full review of the level and structure of the Company's Board compensation. Each year, the Governance Committee reviews the Company's Board compensation in relation to other comparable corporations. Any changes in Board compensation are recommended by the Governance Committee and acted upon by the full Board.

 

 

14.

Size of the Board

As of July 18, 2008, the Board of the Company has 13 members. The size of the Board will be determined as provided in the Company's articles of incorporation and the Governance Agreement.

 

 

15.

Mix of Inside and Outside Directors

A significant majority of the Board are and will continue to be outside directors, and the Executive Chairman of the Board and Chief Executive Officer normally will be the only management directors.

 

 

16.

Determination of Independence of Outside Directors

A majority of the directors will be independent directors in accordance with the New York Stock Exchange ("NYSE") listing standards. For a director to qualify as "independent" under the NYSE listing standards, the Board must affirmatively determine that the director has no material relationship with the Company or its affiliates, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company. In accordance with the NYSE listing standards, the Board has adopted the following guidelines or standards to assist it in its determination of director independence A director will be determined not to be independent under the following circumstances:

  • The director is, or has been within the last three years, an employee of the Company, or an immediate family member is, or has been within the last three years, an executive officer, of the Company.
  • The director has received, or has an immediate family member who has received, during any twelve-month period within the last three years, more than $120,000 per year in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service.
  • (a) The director is a current partner or employee of a firm that is the Company’s internal or external auditor; (b) the director has an immediate family member who is a current partner of such a firm; (c) the director has an immediate family member who is a current employee of such a firm and personally works on the Company's audit; or (d) the director or an immediate family member was within the last three years a partner or employee of such a firm and personally worked on the Company’s audit within that time.
  • The director or an immediate family member is, or has been within the last three years, employed as an executive officer of another company where any of the Company’s present executive officers at the same time serves or served on that company’s compensation committee.
  • The director is a current employee, or an immediate family member is a current 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 of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company's consolidated gross revenues.

For purposes of this guideline, the following definitions shall apply:

  • "Company" means Reynolds American Inc. and any affiliate or subsidiary.
  • "Executive Officer" means an entity’s president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice president of the entity in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the entity. Officers of the entity’s parent(s) or subsidiaries shall be deemed officers of the entity if they perform such policy-making functions for the entity. In addition, when the entity is a limited partnership, officers or employees of the general partner(s) who perform policy-making functions for the limited partnership. When the entity is a trust, officers or employees of the trustee(s) who perform policy-making functions for the trust are deemed officers of the trust.
  • "Immediate family member" means spouse, parents, children, siblings, mothers-and fathers-in-law, sons-and daughters-in-law, brothers-and sisters-in-law and anyone (other than domestic employees) sharing a person’s home.

 

 

17.

Former Chief Executive Officer's Board Membership

Unless otherwise agreed by the Board, the Board expects that the Chief Executive Officer, if a member of the Board, will resign from the Board upon his or her retirement, resignation or termination of employment by the Company.

 

 

18.

Board Member Criteria

The Governance Committee is responsible for reviewing the appropriate skills and characteristics required of directors in the context of prevailing business conditions and the then-existing composition of the Board. The qualifications to be considered in the selection of director nominees include the extent of experience in business, trade, finance or management; extent of knowledge of regional, national and international business affairs; prior public company board experience; and the overall judgment to advise and direct the Company in meeting its responsibilities to shareholders, customers, employees and the public. The objective is a diverse Board which brings to the Company variety of perspectives and skills derived from high quality business and professional experience.

 

 

19.

Procedure for Selecting New Director Candidates

The Board is responsible for selecting its members, subject to shareholder approval and the relevant provisions of the Governance Agreement, but delegates the screening process to the Governance Committee, with input from the Lead Director, the Chairman of the Board and the Chief Executive Officer. Members of the Board are expected to advise the Chair of the Governance Committee of any individual recommended for consideration as a potential new member of the Board.

Shareholders may recommend candidates for Board membership by submitting their recommendations in writing to the Secretary of the Company. The written recommendation must provide the following information:

  • the candidate’s name, age, business address and, if known, residence address,
  • the candidate’s principal occupation or employment,
  • the number of shares of the Company’s common stock owned by the candidate,
  • the written consent of the candidate to be named in the proxy statement as a nominee, if applicable, and to serve as a director if elected, and
  • a description of all arrangements or understandings between the shareholder, the candidate and any other person or persons (naming such person or persons), pursuant to which the recommendation is being made by the shareholder.

The Governance Committee will evaluate any director candidate recommended by a shareholder based upon the facts and circumstances at the time of the receipt of such recommendation. Applicable considerations would include:

  • whether the Governance Committee currently is looking to fill a new position created by an expansion of the number of directors, or a vacancy that may exist on the Board,
  • whether nomination of a particular candidate would be consistent with the Governance Agreement,
  • whether the current composition of the Board is consistent with the criteria described in these Corporate Governance Guidelines,
  • whether the candidate submitted possesses the requisite qualifications that are the basis for selection for candidates to the Board, as described under item 18 of these Corporate Governance Guidelines, and
  • whether the candidate would be considered independent under these Corporate Governance Guidelines and the NYSE listing standards.

The Governance Committee will not alter the manner in which it evaluates a candidate based on whether the candidate was recommended by a shareholder or otherwise.

 

 

20.

Extending the Invitation to a Potential New Director to Join the Board

Upon concurrence of the members of the Board, invitations to join the Board generally are extended on behalf of the Board by the Chair of the Governance Committee. The Chairman of the Board, the Lead Director, if one has been elected, and other Board members may participate as appropriate.

 

 

21.

Board Member Orientation

The Governance Committee oversees the process for the orientation of new directors. The Chief Executive Officer, Chief Financial Officer and General Counsel are responsible for providing a comprehensive orientation for new directors, and for periodically providing materials or briefing sessions for all directors on subjects that would assist them in discharging their duties. The orientation is designed to brief new directors on the Company’s management, business, history, strategic plans, financial matters, corporate governance practices and other key policies and practices through a review of background materials, meetings with senior management and visits to corporate facilities.

Directors also are encouraged to take advantage of continuing education opportunities that will enhance their ability to fulfill their responsibilities and requirements. Directors who sponsor, attend or speak at seminars, conferences, panel discussions or similar continuing director education programs report their participation in such events to the Secretary of the Governance Committee. At least once per year, the Governance Committee assesses the adequacy of and need for additional continuing director education programs and makes proposals for action as required.

 

 

22.

Assessing the Board's Performance

The Governance Committee conducts an annual evaluation of the Board's performance of its governance responsibilities using a questionnaire completed by Board members and individual discussion as needed. The Committee analyzes and synthesizes questionnaire responses, and reports its findings to the whole Board for discussion.

Each Board committee also conducts an annual self-evaluation of its performance using a questionnaire developed by the committee members and individual discussion as needed. Each committee reports its findings to the whole Board.

The Lead Director, in conjunction with the Governance Committee oversees the annual evaluation process of individual directors, and communicates the results of the evaluations to each director, as appropriate. In addition, the Governance Committee conducts an annual evaluation of the performance of the Lead Director using a questionnaire completed by all Board members, and communicates the results of the evaluation to the Lead Director.

 

 

23.

Directors Who Change Their Job Responsibilities

A Board member, other than a non-independent designee of British American Tobacco p.l.c. ("BAT") pursuant to the Governance Agreement, who ceases to be active in his or her principal business or profession, or experiences other changed circumstances that could diminish his or her effectiveness as a Board member, is expected to offer his or her resignation to the Board, which will determine whether such member should continue to serve as a director.

A Board member, other than a non-independent designee of BAT pursuant to the Governance Agreement, who accepts a directorship on another public company board or appointment to an audit or compensation committee of another public company board, is expected to notify the Chairperson of the Governance Committee. A member of the Audit and Finance Committee shall not serve on more than three audit committees of public companies (including the Company).

A Board member who plans to resign, retire or refuse to stand for re-election to the Board must provide written notice of such resignation, retirement or refusal to stand for re-election to the Corporate Secretary of the Company.

 

 

24.

Term Limits/Retirement Age

No term limits for directors have been established. The Board expects that no director will be nominated for election to the Board following his or her 70th birthday.

 

 

25.

Formal Evaluation of the Chief Executive Officer

The Compensation and Leadership Development Committee is responsible for ensuring the annual evaluation of the Chief Executive Officer's performance is based on appropriate quantitative and qualitative criteria. This evaluation should be a significant factor in determining the Chief Executive Officer's compensation.

 

 

26.

Succession Planning

The Chief Executive Officer regularly reviews succession planning with the Governance Committee and with the Board, and provides the Chairperson of the Governance Committee with a continuing current recommendation as to succession in the event of the Chief Executive Officer's disability or death.

 

 

27.

Board Interaction with Institutional Investors, the Media and Customers

The primary responsibility for communications and relationships on behalf of the Company with institutional investors, the media and customers should be management's. The Board may participate occasionally in such interaction at the request and with the knowledge of management.

 

 

28.

Director Equity Ownership

After completion of five years of service as a member of the Board, the Board expects that each director shall hold and retain a minimum of 10,000 shares of Company Stock. It is generally expected that a director will not dispose of the Company Stock during the first five years of service on the Board, unless the director holds and retains Company Stock in excess of the minimum threshold level of 10,000 shares.

"Company Stock" shall mean:

  • shares of the Company’s common stock beneficially owned by the director;
  • deferred stock units (based on shares of the Company’s common stock) or shares of the Company’s common stock granted to the director under the Equity Incentive Award Plan for Directors of Reynolds American Inc. and Subsidiaries; and
  • deferred stock units (based on shares of the Company’s common stock) received by the director as deferred compensation under the Deferred Compensation Plan for Directors of Reynolds American Inc. "Company Stock" shall not include any option (or portion thereof) to purchase shares of the Company’s common stock that has not been exercised by the director.

These requirements shall not apply to any director who is also an officer or employee of BAT for so long as such director is required to forfeit his or her equity compensation as a Director to BAT and for five years thereafter.

 

 

29.

Director Attendance at Annual Meetings

Board members are expected to attend annual meetings of shareholders, barring unavoidable circumstances that prevent attendance. The name of any director who is unable to attend an annual meeting will be disclosed in the Company's proxy statement the following year.

 

 

30.

Confidentiality

Each Director has the responsibility to respect the confidentiality of all written materials provided to the Board and all discussions that take place during all Board and Board committee meetings. The Board believes that confidentiality is essential for an effective Board process. Directors shall not engage in discussions with outsiders regarding matters presented or discussed at Board or Board committee meetings, unless specifically requested to do so by the Chairman of the Board, the Chief Executive Officer, the Lead Director or the Board. Where it is necessary for independent directors to speak on behalf of themselves or the Company on matters discussed during Board or Board committee meetings, the Board shall designate one or more independent directors as spokesperson(s). In all cases regarding suspected breaches of the obligation of boardroom confidentiality, the Board shall decide, with the advice of counsel, on an appropriate course of action.

 

 

31.

Communications with the Directors

Shareholders and other constituencies may communicate directly with the Board or individual members of the Board by addressing written correspondence to Reynolds American Inc., P. O. Box 2990, Winston-Salem, North Carolina 27102-2990. Shareholders and other constituencies may communicate directly with the non-management directors as a group by writing to the Lead Director, if one has been elected, or to the Chairperson of the Governance Committee, if a Lead Director has not been elected, at the above address.

The Directors have established the following procedures for the handling of communications from shareholders and other constituents and have directed the Corporate Secretary to act as their agent in processing any communications to them. Communications will be distributed to any or all Directors as appropriate, depending upon the individual communication. All communications that relate to matters that are within the scope of the responsibilities of the Board and its Committees will be forwarded to the Lead Director. Communications that relate to matters that are within the responsibility of one of the Board Committees also will be forwarded to the Chair of the appropriate Committee. Communications that relate to ordinary business matters that are not within the scope of the Board’s responsibilities, such as individual product inquiries or customer complaints, will be sent to the appropriate operating company. Solicitations, advertisements, surveys and obviously frivolous communications, as well as communications that appear to be unduly hostile, intimidating, threatening, illegal or similarly inappropriate, will not be forwarded. Any omitted communication will be made available to any Director upon request.

 

 

 

 

 

Adopted: July 28, 2004
Last Revised: December 4, 2008