RiskMetrics Group, Inc.
Governance Principles and Board Guidelines
The Board of Directors (the "Board") of RiskMetrics Group, Inc. ("RMG" or the "Company") maintains this set of Corporate Governance Principles and Board Guidelines ("Principles") for several reasons:
o To ensure that the Company is managed in the best long term interests of its shareholders;
o To promote the long term value and enhance the long term performance of the Company;
o To minimize the risk of value and reputational damage arising from inappropriate or misguided management actions;
o To ensure the Company is managed consistent with the legal obligations that a public company has to its shareholders, employees, clients and the government; and
o To promote the effective functioning of the Board and its committees.
The Company's primary objective is to maximize shareholder value over the long term while observing the highest professional and ethical standards and adhering to the laws of the jurisdictions within which it operates. The Board recognizes that the long-term interests of the shareholders will be advanced by responsibly addressing the concerns of other constituents and interested parties including employees, customers, suppliers, government officials and the public at large.
The roles of the Board and senior management are related, but distinct. The Board delegates authority to senior management to pursue the Company's mission. Senior management, not the Board, is responsible for managing the day-to-day affairs of the Company.
In performing its general oversight function, the Board periodically approves, reviews and assesses RMG's strategic and business planning as well as senior management's approach to addressing significant risks. In performing its oversight function, the Board and its members will maintain frequent, active and open communication and discussions with the CEO and other senior managers of RMG.
The Board expects that there will be frequent opportunities for directors to meet with the CEO and other members of senior management in Board and committee meetings, or in other formal and informal settings.
Further, the Board encourages senior management to bring managers into Board meetings who (a) can provide additional insight into the items being discussed because of personal involvement or substantial knowledge in those areas and/or (b) are managers with future potential that the senior management believes should be given exposure to the Board.
Given the complexity of the businesses in which RMG is engaged, as well as the value of diversity of experience and views among directors, the Board currently believes that it will be desirable over time to have a Board of between six (6) and twelve (12) members allowing that a larger or smaller number may be advisable in periods of transition or other particular circumstances. The Board's Nominating & Corporate Governance Committee (the "NCG") will, from time to time, make recommendations concerning the appropriate size and needs of the Board.
No director is deemed independent unless the Board affirmatively determines that the director has no "material" relationship with the Company. To assist in meeting this objective, the Board has adopted certain categorical standards to ascertain whether a director has a "material" relationship with the Company (see Appendix A). These standards either meet or exceed the independence requirements of the corporate governance listing standards of the exchange or market on which RMG stock is listed.
In addition, the Board will consider all relevant facts and circumstances in making an independence determination, and not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation.
The Independent Chair will have the duties assigned by the Board. Under current policy, the Independent Chair's duties include:
o Chairing meetings of the Board as well as Executive Sessions of the Independent Directors;
o Preparing agendas for meetings of the Board in consultation with the CEO and the other Board members;
o Preparing agendas for Executive Sessions of the Independent Directors;
o Leading the Independent Directors in periodic reviews of the performance of the CEO, as well as in discussions regarding the CEO's reports on senior management performance and senior management succession issues and plans;
o Keeping the directors informed through timely distribution of information and reports;
o Overseeing the annual Board and Committee evaluations;
o Serving as liaison between Independent Directors and the CEO on sensitive issues;
o Serving as the Board's liaison for consultation and communication with shareholders; and
o Recommending independent outside advisors and consultants who report directly to the Board on critical issues.
The selection of the Independent Chair will be reviewed annually. In connection with this review, the NCG Committee will conduct an evaluation of the Independent Chair.
The Lead Director will have the duties assigned by the Board. Under the Board's current policy, the Lead Director's duties include:
o Presiding at all meetings of the Board at which the Chair is not present, including Executive Sessions of the Independent Directors;
o Calling Executive Sessions of the Independent Directors;
o Serving as liaison between the Chair and the Independent Directors;
o Approving information sent to the Board;
o Approving meeting agendas for Board meetings;
o Preparing agendas for Executive Sessions of the Independent Directors;
o Approving Board meetings schedules to assure that there is sufficient time for discussion of all agenda items; and
o Serving as the Board's liaison for consultation and communication with shareholders.
The Independent Directors will review the selection of the Lead Director on an annual basis. In connection with this review, the NCG Committee will conduct an evaluation of the Lead Director.
Among the topics that will be covered each year during these Executive Sessions are:
o A review of the report of the Audit Committee regarding the work of the independent auditor;
o A review of the report of the Compensation and Human Resources Committee regarding its assessment of the criteria upon which the performance of the CEO and other senior managers is based;
o A review of the report of the Compensation and Human Resources Committee regarding its evaluation of the performance of the CEO and other senior managers against such criteria; and
o Approval of the compensation of the CEO and other senior managers as recommended by the CHR Committee.
If the Independent Chair (or Lead Director) is unable to attend or is the subject of discussion at the Executive Session, the Independent Directors will designate a director from their ranks to preside.
The Independent Directors—led by the Independent Chair (or Lead Director) and the chairs of the Standing Board Committees—have the sole authority to select, retain, terminate and approve the fees and other retention terms of these independent advisors.
The Board currently maintains three (3) standing committees (collectively, the "Standing Committees"):
o The Audit Committee,
o The Compensation and Human Resources Committee (the "CHR Committee"), and
o The Nominating and Corporate Governance Committee (the "NCG Committee").
The membership of each of these Standing Committees will be limited to Independent Directors.
The Independent Directors will appoint Committee members based on the advice and recommendations of the NCG Committee, and each Committee member will serve until a successor is appointed or until the member's resignation, death, or removal from the Board.
The Board delegates the screening process for identifying candidates to the NCG Committee. The Committee is responsible for identifying and recruiting individuals who are qualified to become Board members, consistent with criteria approved by the Board. The Committee may, at its discretion, seek independent third-party advisers to assist in the process of identifying candidates.
The Committee will recommend to the Board the names of prospective Board members. The Board will consider these recommendations in the context of the perceived needs of the Company at the time. The Board will review and act on these recommendations.
The Committee will review the composition of the Board for the appropriate skills and characteristics required of members of the Board in the context of the then current make-up of the Board. This assessment should include consideration of issues of judgment, integrity, diversity and skills, including, but not limited to, understanding the business of the Company and possessing a relevant background—all in the context of an assessment of the perceived needs of the Board at that point in time.
In order for any incumbent director to become a nominee of the Board for further service on the Board, such person must tender an irrevocable resignation, which will be effective contingent on (i) that person not receiving a majority of the votes cast, and (ii) acceptance of the resignation by the Board (all as further set forth in the Company's Bylaws).
o The highest personal and professional ethics, values and integrity;
o Proven ability to work as part of an effective, cohesive team;
o Commitment to representing RMG's long-term interests;
o Skills, expertise, diversity, background, and experience with businesses and other organizations that the Board deems relevant; and
o The ability and willingness to commit adequate time to RMG.
In addition, the NCG Committee will also be responsible for initially assessing whether a candidate would be an Independent Director. The Board, taking into consideration the assessment of the Committee, will determine whether a nominee or appointee would be an Independent Director.
The RMG Bylaws also set forth the circumstances under which the Company will include in its proxy materials the name of a person nominated for election as a director by a person (or group of people) who meets certain requirements. Generally the nominating person must have owned at least 4% of the Company's outstanding common stock continuously for at least 2 years and must provide notice to the Company as set forth in RMG's By-laws.
All shareholder recommendations as to possible Board members as well as the right to have a proposed director included in the proxy materials must comply with the information, timing and other requirements set forth in RMG's By-laws.
Such individual will not continue as a director of the Company after his or her resignation or retirement, except that the Board may choose not to accept such resignation on a case-by-case basis during periods of transition or where the Board determines that it is not in the best interests of the shareholders to do so.
When a director's principal occupation or business association changes substantially during his or her tenure as a director, that director will inform the Chair of the NCG Committee of the change and tender his or her resignation to the Committee for consideration. While not necessarily resulting in a resignation, the offer will provide the NCG Committee the opportunity to consider the appropriateness of continued Board membership and make a recommendation to the Board as to the director's continuation.
The NCG Committee will recommend to the Board the action, if any, to be taken with respect to the resignation.
The Board, with the assistance of the CHR Committee, coordinates with the CEO to seek to ensure that a successor for emergencies is designated at all times and that a formalized process governs long-term senior management development and succession.
The CEO provides an annual report on succession planning and related development recommendations to the Board and the CHR Committee, including a short-term succession plan delineating temporary delegation of authority in the event that the CEO or any other executive officer is unexpectedly unable to perform his or her duties.
In light of that report and other factors they determine are appropriate, the Board and CHR Committee will establish and from time to time review formal or informal policies and procedures regarding succession to the CEO or other executive officers.
The Board and the CHR Committee commit to the full, fair and transparent disclosure of executive compensation. This commitment will drive the production of RMG's public disclosures regarding executive compensation.
The CHR Committee sets annual and long-term performance goals for the CEO after meeting with the CEO to receive his or her input concerning such goals. At the end of the relevant period, the Committee evaluates the CEO's performance against these goals. Those goals are submitted for timely consideration by the Independent Directors during Executive Sessions.
The Independent Directors, with the assistance of the CHR Committee, conducts an annual evaluation of the CEO. After the Independent Directors complete their evaluation, the CHR Committee or its Chair meets with the CEO to evaluate his or her performance against such goals.
The compensation for the CEO is determined on the basis of board approved compensation policies and plans, and the Board's independent review of the CEO's performance against the Company's agreed to annual and long term performance goals and objectives.
The following basic principles will be applied in determining the compensation for RMG's directors:
o Only non-management directors will receive compensation for services as a director. Board compensation will not include perquisites or retirement benefits.
o Directors should be fairly compensated for work required as a director and, as applicable, committee member for a public company of size and scope similar to the Company.
o Consistent with the Company's overall compensation philosophy, Board compensation should be designed to align directors' interests with the long-term interest of shareholders. To create a direct linkage, the Board believes that a significant portion (at least one-half) of a director's compensation should be provided in the form of RMG common stock.
The CHR Committee will review annually the form and amount of director compensation with independent outside assistance as deemed necessary, and make appropriate recommendations to the Board in light of the responsibilities assumed and the director compensation of similarly situated companies.
o Access to and review of information from senior management;
o Responsiveness to shareholder concerns;
o Performance in providing advice and guidance to RMG's senior management team; and
o Maintenance and implementation of these Principles.
The review will seek to identify specific areas in need of improvement and will conclude with a discussion by the full Board of the results and any actions to be taken.
Each year, the Board will report back to shareholders in the annual proxy statement on the results of this performance evaluation and any significant changes made to board practices and procedures as a result of this review.
o Legal or regulatory requirements;
o The materiality of the transaction to RMG's financial performance, risk profile or business;
o The terms of the transaction; or
o Other factors, such as entry into a new business or a significant modification of RMG's strategic plan.
The Board, in conjunction with senior management of RMG, will develop standards to be utilized by senior management in determining the types of transactions that should be submitted to the Board for review and approval or notification.
In addition, the Board has developed a number of other specific expectations of directors to promote the discharge of this responsibility and the efficient conduct of the Board's business.
In connection with the orientation process for new directors and annually thereafter, each director will be asked to acknowledge that they have received the Code of Business Conduct and Ethics and agree to be bound by its applicable provisions.
Additionally, directors will receive periodic training provided by the Company on evolving corporate ethics and integrity matters. In the event an issue arises under the Code of Business Conduct and Ethics, directors should consult with the Company's General Counsel.
Upon request, senior management will make appropriate personnel available to answer any questions a director may have about any aspect of RMG's business.
Senior management will also provide a continuing education program for directors regarding matters relevant to RMG, its business plan and risk profile, as well as other appropriate subjects.
The Board has adopted stock ownership guidelines for directors. Each director is expected to own shares of stock (including option holdings) with a market value of at least five times (5X) his or her annual base cash retainer. New directors have five (5) years to achieve this target ownership threshold. Directors in place at the time these Principles are first adopted will have four (4) years from the date of adoption to achieve this target ownership threshold.
All directors should advise the Chair of the NCG Committee and the Independent Chair (or Lead Director) before accepting membership on any other board of directors (or other significant committee assignment on another board) or establishing other significant relationships with businesses, institutions, governmental units or regulatory entities, particularly those that may result in significant time commitments or a change in the director's relationship to the Company.
It is the responsibility of the NCG Committee to review each director's and each potential director's overall commitments to help ensure that all directors have sufficient time to fulfill their responsibilities as directors. In considering its nominations of candidates for election to the Board, the NCG Committee may determine that a lesser number of Boards than indicated below is appropriate.
The Board requires non-employee directors to refrain from serving on the boards of directors of more than three (3) public companies (other than RMG or a company in which RMG has a significant equity interest), absent special circumstances.
The CEO and other members of senior management, whether or not they are members of the RMG Board, will seek the approval of the Board before accepting outside board memberships. The Board generally discourages employees from taking on more than one public company board. The CEO should not serve on the board of directors of more than one public company (other than RMG or a company in which RMG has a significant equity interest).
If a situation does arise in which it seems appropriate for a non-management director to act as a spokesperson on behalf of RMG, the Board expects members would do so with the knowledge of senior management. This policy does not preclude Independent Directors from meeting with constituents or the media, but it is suggested that in most circumstances any such meetings be held with senior management present.
The foregoing is not intended to preclude the Independent Chair (or Lead Director) from speaking on behalf of the Independent Directors, when necessary.
To this end, shareholders and interested parties may contact members of the Board by mail or email, as described below. Communications may be directed to the Board of Directors, any individual Director or any group or committee of Directors (including Non-employee Directors as a group). All such correspondence should be sent either via email (to RMGDirectors@riskmetrics.com), or via delivery to the Corporate Secretary of RiskMetrics Group, Inc., One Chase Manhattan Plaza, 44th Floor, New York, New York 10005.
All communications received as set forth in the preceding paragraph will be opened by the Corporate Secretary for the sole purpose of determining whether the contents represent a message to the Directors. The Board has instructed our Corporate Secretary to review such correspondence and, in his discretion, not to forward items only if he deems them to be of a commercial or frivolous nature or otherwise inappropriate for the Board's consideration. This process will assist the Board in reviewing and responding to stockholder communications in an appropriate manner.
Further, following a restatement of the Company's financial statements, the Company will recover any compensation received by the CEO and Chief Financial Officer that is required to be recovered by Section 304 of the Sarbanes-Oxley Act of 2002.
It will be the responsibility of any consultant employed by the Committee to ensure continuing compliance with the foregoing independence requirement. The consultant will provide a written report to the Committee at its first regularly scheduled meeting of each year providing appropriate assurances and confirmation of such consultant's independent status pursuant to this policy.
Matters considered at each Board meeting depend on the nature of the Company's business, but the Board expects its meeting agenda will regularly include reports summarizing the activities of the Board's committees as well as senior management reports on significant aspects of Company business.
The Board intends that regular senior management reports will include presentations on the Company's financial performance, overall business operations, merger and acquisition activity, significant business unit performance, and other topics important to the Company's overall condition.
Agenda items that fall within the scope of responsibilities of a Board committee are reviewed with the chair of that panel.
Senior management should try to make materials as focused as possible, but still provide necessary information so that meeting time may be conserved and discussion focused on questions that the Board has about the materials. The material should be available as far as reasonably possible in advance of the proposed or scheduled date of the meeting.
In rare instances where the sensitivity of subject matter makes prior dissemination inadvisable or the timing of transactions or events makes prior distribution impracticable, the Board will review and discuss the materials at their meeting.
A director may serve on more than one committee for which he or she qualifies.
The Board believes that the corporate governance process is facilitated by an active and involved committee structure. In that regard, the Board believes that periodic rotation of members of its committees is desirable. The Board does not believe, however, that fixed time periods for rotation are desirable.
The NCG Committee, in consultation with the Independent Chair (or Lead Director), will periodically review committee assignments and make recommendations to the Board for rotations of assignments and appointment of chairpersons, as appropriate.
Materials related to agenda items will be provided to committee members sufficiently in advance of committee meetings to allow the directors to prepare for discussion of the items at the meeting.
Accordingly, the Board believes that the Company should follow steps supporting the shareholders' role. These steps include:
o Equal voting rights and no multiple classes of common stock with disparate voting rights;
o Equal financial treatment for all shareholders; and
o Voting on disparate issues separately.
Through its periodic assessment of corporate governance, the Board will continue to evaluate other measures that will enable shareholders to have a voice in corporate governance.
To this end, the Company will generally require that all shareholder votes, whether by proxy card, consent, ballot or otherwise, be kept confidential. Documents evidencing a shareholder's vote will not be available for examination by the Company or its directors, officers or employees.
Exceptions to these general rules may occur in the following instances:
o To meet applicable legal requirements,
o To assert claims for, or defend claims against, the Company or its affiliates,
o To assist in resolving any dispute about the authenticity or accuracy of a proxy card, consent, ballot, authorization or vote,
o If there is a contested proxy solicitation,
o To allow the inspectors of election to certify the results of any vote to the Company and its directors, officers and employees,
o If a shareholder has made a written comment on such document,
o If contacting shareholders is necessary to obtain a quorum,
o Aggregate vote totals may be disclosed to the Company and its directors, officers and employees from time to time and publicly announced, or
o If disclosure is voluntarily made by a shareholder.
The Company will also retain independent inspectors of election to receive, certify and tabulate shareholder votes.
Appendix A: Director Independence Standards
No director will qualify 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 purposes of this director independence classification, "material" will be defined as a standard of relationship (financial, personal or otherwise) that a reasonable person might conclude could potentially influence one's objectivity in the boardroom in a manner that would have a meaningful impact on an individual's ability to satisfy requisite fiduciary standards on behalf of shareholders.
In making such determination, the Board will consider the factors identified below, as well as such other factors that the Board may deem relevant.
An "Independent Director" is defined as a director who:
o Has not been employed within the last five years by RMG, one of it affiliates or a firm acquired by RMG;
o Has not served as CEO of RMG at any time;
o Does not beneficially own more than 50 percent of RMG's voting power;
o Has not been employed by RMG's independent auditor in the last five years;
o Is not a relative of a current employee of RMG or its affiliates;
o Is not related to a former executive officer who served within the last five (5) years at RMG or its affiliates;
o Is not party to a voting agreement to vote in line with management on proposals being brought to shareholder vote;
o Does not have an "Interlocking Relationship" as defined by the SEC involving members of the board of directors or its Compensation Committee.
o Is not a "Founder" of RMG;
o Is not a trustee, director or employee of a charitable or non-profit organization that receives grants or endowments from RMG or its affiliates;
o Is not, and is not affiliated with a company that is, an adviser, or consultant to RMG or a member of RMG's senior management;
o Is not affiliated with a "Significant" customer or supplier of RMG;
o Has no personal services contract with RMG or with any member of RMG's senior management or Board;
o Does not provide "Professional Services" to RMG, to an affiliate of the company or an individual officer of the company or one of its affiliates;
o Receives no compensation from RMG other than compensation as a director;
o Does not have any "Significant" transactional relationship with the company or its affiliates excluding investments in the company through a private placement;
o Is not employed by a public company at which an executive officer of RMG serves as a director;
o Has not had any of the relationships described above with any affiliate of RMG;
o Is not a relative of any person with any relationships described above; and
o Would not be deemed to be "independent" under any exchange listing rule applicable to RMG.
A commercial relationship will be found to be "Significant," if the Company makes or receives annual payments exceeding the greater of $200,000 or two (2) percent of the recipient's gross revenues. (The recipient is the party receiving the financial proceeds from the transaction).
"Affiliate" includes a subsidiary, sibling company, or parent company.
"Relative" follows the SEC's definition of "immediate family members" which covers spouses, parents, children, stepparents, stepchildren, siblings, in-laws, and any person (other than a tenant or employee) sharing the household of any director, nominee for director, executive officer, or significant shareholder of the company.
"Professional Services" can be characterized as advisory in nature and generally include the following: investment banking / financial advisory services; commercial banking (beyond deposit services); investment services; insurance services; accounting/audit services; consulting services; marketing services; and legal services. The case of participation in a banking syndicate by a non-lead bank should be considered a transaction and hence subject to the associated materiality test rather than a professional relationship.
"Interlocking Relationships" include: (a) executive officers serving as directors on each other's compensation or similar committees (or, in the absence of such a committee, on the board) or (b) executive officers sitting on each other's boards and at least one serves on the other's compensation or similar committees (or, in the absence of such a committee, on the board).