Corporate Governance Guidelines

Adopted December 11, 2008

Guidelines
The following Corporate Governance Guidelines (the “Guidelines”) have been adopted by the Board of Directors (the “Board”) of Chesapeake Utilities Corporation (the “Company”). These Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision-making both at the Board level and at the management level, with the goal of enhancing the operational and financial performance of the Company over the long term for the benefit of the Company’s stockholders, employees, customers and the communities served by the Company. Among the responsibilities of the Board, which are discharged by the Board as a whole or through Board committees established by the Board, are:

Review and approval of the Company’s strategic and business plans, including financial targets, and monitoring the Company’s performance.
Review and approval of the Company’s financing plans and capital budget.
Review and approval of material transactions, including debt and equity financings and material asset acquisitions and dispositions.
Selection of the Company’s Chief Executive Officer (the “CEO”) and other senior executives, approval of their compensation, including incentive compensation, and monitoring their performance.
Approval of the Company’s long-term incentive compensation, retirement, and pension plans.
Monitoring the Company’s management succession plan.
Establishment or approval of policies and procedures to assure ethical business dealings and compliance with laws and regulations, auditing and accounting principles, and the Company’s governing documents.

BOARD COMPOSITION AND DIRECTOR QUALIFICATIONS

  1. Size. In accordance with the Company’s Certificate of Incorporation, the number of directors making up the entire Board may not be more than 15 or less than 5. The Board believes that this range is large enough to allow for diversity of experience and perspectives, without being so large as to impede Board discussion or effectiveness.

  2. Independence. The majority of the Company’s directors are required to qualify as independent directors in accordance with the criteria established by the New York Stock Exchange and to meet any other requirements imposed by law. At least annually, the Board will review the application of the independence criteria, in connection with its categorical standards established by the Board, to each director designated as an independent director to make sure that the director continues to qualify as independent.

  3. Selection of Directors. The Board as a whole is responsible for nominating candidates for election to the Board and for filling vacancies on the Board. The Corporate Governance Committee is responsible for screening and recommending candidates for consideration by the Board. Among the factors that the Board and the Corporate Governance Committee take into account in recommending and selecting Board candidates are the existing size and composition of the Board and the prospective candidate’s character, judgment, business experience or professional background, knowledge of the Company’s business, community involvement, and availability and commitment to carrying out his or her responsibilities as a director.

  4. Invitations to Join the Board. An invitation to join the Board shall be extended to the nominee by the entire Board itself through a corporate resolution.

  5. Selection of Chairman. The Company’s Bylaws provide that the Board annually shall elect a Chairman from among the directors.

  6. Change in a Director’s Employment. When a director retires from his principal employment or his principal employment or position materially changes, or when a previously independent director ceases to be independent, the director is expected to offer to resign from the Board. Likewise, when the Company’s CEO resigns or retires from that position, he is expected at the same time to offer to resign from the Board. While it is not the intention of the Board necessarily to accept the director’s resignation in these circumstances, the offer to resign provides the Board with the opportunity to review the appropriateness of the individual’s continuing service on the Board under the changed circumstances.

  7. Age Eligibility Requirement. The Company’s Bylaws provide that no person who has attained the age of 72 is eligible to be elected as a director of the Company.

  8. Director Stock Ownership. Within five (5) years after a director is first appointed or elected to the Board, such director shall acquire not less than 4,000 shares of the Company’s common stock (the “Minimum Director Share Amount”), and thereafter shall maintain record and beneficial ownership of at least the Minimum Director Share Amount during such director’s term of service on the Board.

  9. Availability. The Company has a policy that imposes a limit on the number of public company boards on which members of the Board are permitted to serve. Directors cannot hold more than two directorships of public companies in addition to Chesapeake. However, all directors are requested to advise the Chairman in advance of accepting an invitation to serve on the board of another public company and are expected not to accept the invitation if it would materially interfere with the director’s responsibilities as a member of the Board.

  10. Director Orientation and Continuing Education. Each new director participates in a director orientation program which includes the following topics:

    the Company’s strategic and business plans;
    the Company’s financial reporting and auditing policies and procedures;
    these Guidelines;
    the Company’s Code of Ethics
    the Company’s Code of Ethics for Financial Officers; and
    the individual’s legal responsibilities as a director of a public company, including reporting and disclosure requirements.
To provide for the continuing education of its directors, the Company arranges from time to time for presentations to the Board that address business, legal, and other matters of importance to directors in carrying out their responsibilities. The Company also sponsors the attendance of its directors at continuing education conferences for directors of public companies.

BOARD MEETINGS

  1. Frequency and Subject Matter. Board meetings are held with such frequency as the business of the Company requires. It is the current practice of the Company to hold not less than six regular meetings per year. The Board reviews and approves the meeting schedule for the ensuing year prior to final distribution to the directors. In accordance with the Bylaws of the Company, special meetings, including meetings held by telephone conference call, may be held between regular meetings as circumstances may require.

  2. Attendance. Each director is expected to attend in person all regularly scheduled meetings and special meetings of the Board and of each committee on which the director serves, and to spend the time necessary to prepare for meetings. Telephonic participation in Board meetings is permitted only as authorized in special or extenuating circumstances by the Chairman.

  3. Agenda. The Chairman is responsible for establishing and circulating the agenda for each Board meeting. Each director may suggest to the Chairman items for inclusion on the agenda.

  4. Advance Review of Meeting Materials. To the extent practicable, background materials relating to matters to be considered at a Board meeting will be circulated to directors at least one week in advance of the meeting. Directors are expected to review these materials in advance of the meeting in order to conserve the meeting time for questions and discussion. In situations where the subject matter is time-sensitive or highly confidential, the Chairman may elect to communicate information in advance of the meeting by telephone.

  5. Board Presentations by Management. The Board encourages the participation of management officials, in addition to the CEO, in Board meetings, at the invitation of the Board, for the purpose of (i) making presentations, (ii) responding to director questions, (iii) providing information on matters within their areas of expertise, and (iv) allowing them to gain Board exposure.

  6. Meetings of Non-Management Directors. The Company’s directors who are not officers of the Company (“non-management directors”) meet regularly, without the presence of any of the management directors, for the consideration of any matters concerning the Company that they deem appropriate. These meetings are presided over by the Company’s Chairman or, if the Chairman does not qualify as a non-management director, by the Chairman of the Corporate Governance Committee. Formal deliberations and decisions concerning the business and affairs of the Company occur only at regular or special meetings of the Board. The Company provides a means by which shareholders and interested parties may communicate directly with the presiding non-management director or with the non-management directors as a group.

  7. Meetings of Independent Directors. If the non-management directors include a director who does not qualify as independent in accordance with the criteria established by the New York Stock Exchange, the independent directors shall meet at least once a year in executive session, with the chairman of the Corporate Governance Committee presiding over such meeting.

BOARD COMMITTEES

  1. Establishment of Committees. While the general policy of the Company is that the Board as a whole is responsible for all major decisions, business circumstances or legal requirements make it necessary or desirable to carry out certain Board responsibilities through committees. The Board has the following three standing committees:

    Audit Committee
    Compensation Committee
    Corporate Governance Committee

    The Board reviews the committee structure and the membership of each committee at least annually and implements any changes that are appropriate. The Board may, from time to time, establish any other standing or special committees that it determines are necessary or desirable to carry out its responsibilities, and subsequently may disband any committee so established.

  2. Committee Membership. The members of each committee, and the committee chairman, are appointed annually by the Board. Each member of the three standing committees is required to qualify as an independent director in accordance with the criteria established by the New York Stock Exchange and to meet any other requirements imposed by law.

  3. Committee Charters. Each standing committee has a charter that is approved annually by the Board. The charter sets forth the duties and responsibilities of the committee, including those duties and responsibilities imposed by applicable regulatory requirements and the rules of the New York Stock Exchange.

  4. Committee Meetings. Meetings of each committee are held at such times and with such frequency as the business and responsibilities of the committee require. The committee chairman is responsible for scheduling committee meetings and setting the agenda. A report of all actions taken by each committee is presented at the next regular Board meeting, and minutes of all committee meetings, if requested, are available to the entire Board.

BOARD ACCESS TO MANAGEMENT AND ADVISORS

  1. Access to Senior Management. Each director has full access to the senior management of the Company. Directors are expected to exercise their best judgment to ensure that such contacts are not disruptive of the business operations of the Company and, to the extent appropriate, to arrange for such contacts through the CEO and to copy the CEO on all written communications.

  2. Access to Independent Advisors. The Board has the authority to hire, at the expense of the Company, outside consultants and advisors, including legal and accounting advisors, to assist it in the discharge of its duties.

BOARD RELATIONSHIP TO SENIOR MANAGEMENT

  1. Chief Executive Officer Evaluation. The Board, with the assistance of the Compensation Committee, reviews the performance of the CEO at least annually. The evaluation is based on objective and subjective criteria, including the performance of the business, the establishment and accomplishment of strategic objectives, and the development of management.

  2. Management Succession. The Compensation Committee reports annually to the Board on its review, made in conjunction with the CEO, of the Company’s senior management development program and its senior management succession plans, including succession in the event of an emergency or other unforeseen circumstances.

  3. Board and Management Responsibilities for Communication with Company Constituencies and the Public. The Board believes that the Company’s management speaks for the Company. Accordingly, all discussions with and communications to the press, commercial partners, stockholders and the general public relating to the Company shall be made by management and all inquiries or requests for information received by individual directors should be referred to the CEO or other appropriate company officer. If requested by the CEO, an individual Board member may meet or communicate with any of the Company’s constituencies or the public.

DIRECTOR COMPENSATION

  1. Compensation Standards. The Board as a whole is responsible for approving all compensation arrangements for directors. The Board believes that, in order to attract experienced directors of a high caliber, the compensation paid to non-employee directors should be comparable to that paid by competing companies of a similar size. To align director compensation with corporate performance, a portion of a director’s compensation should be paid in Company common stock. A director who is employed as an executive of the Company is not entitled to receive any additional compensation for services as a director.

  2. Periodic Compensation Review. The Compensation Committee is responsible for periodically conducting a review of non-employee director compensation and reporting its evaluation and any recommended changes to the Board.

  3. Charitable Contributions. Any charitable contribution made by the Company on behalf of any director or to any organization with which a director is affiliated must be approved in advance by the Board.

ANNUAL PERFORMANCE REVIEW

  1. Annual Review of Board Effectiveness. Following the end of each fiscal year, the Corporate Governance Committee performs an evaluation of the quality of the performance of the Board during the preceding year and reports to the Board its findings and any recommendations to improve Board effectiveness. This evaluation includes a review of the delineation of Board and management powers and the effectiveness of the interaction between the Board and management.

  2. Annual Review of Committee Effectiveness Following the end of each fiscal year, the Board, based on criteria and procedures developed by the Corporate Governance Committee, performs an evaluation of the quality of the performance of each standing Board committee during the preceding year, and following its evaluation may implement changes it may deem necessary or desirable to improve the effectiveness of any committee.