(Adopted November 1, 2005; as amended through January 16, 2009)
These Corporate Governance Guidelines (the “Guidelines”) set forth the framework for the governance of CNX Gas Corporation (the “Company”).
1. Role of the Board and Management. The business of the Company is conducted by its employees under the management and direction of the Company’s Chief Executive Officer (the “CEO”) and the CEO’s senior management team. The role of the Company’s Board of Directors is to provide effective oversight of and strategic direction to the management of the Company, with a view to enhancing the long-term value of the Company.
2. Duties and Responsibilities of the Board.
a. Oversight. In exercising its oversight function, the Board shall:
(i) Strive to ensure that the Company operates in a legal, ethical, and socially responsible manner;
(ii) Select, evaluate, and offer substantive advice and counsel to the CEO and work with the CEO to develop effective measurement systems that will evaluate and determine the Company’s degree of success in creating long-term economic value for its stockholders;
(iii) Review, approve, and monitor fundamental financial and business strategies and major corporate actions;
(iv) Oversee the Company’s capital structure and financial policies and practices;
(v) Assess major risks facing the company and review options for their mitigation; and
(vi) Provide counsel and oversight on the selection, evaluation, development, and compensation of executive officers and provide critical and candid feedback on their successes and failures.
b. Corporate Governance. The Board will review and, if it deems appropriate, approve (i) changes to these Guidelines that are recommended to the Board by any other stakeholder of the Company, and (ii) changes to the Charter of the Company’s Audit Committee as it deems appropriate.
c. Board Education. The Company provides an education program for directors that includes written materials, meetings with key management, and visits to Company facilities. Each director will seek to attend each year at least one educational program that is designed to enable them to better perform their duties as a director. The directors are encouraged to visit the Company’s operations at least once each year to familiarize themselves with the business of the Company.
d. Assessing Board and Committee Performance. The Board will annually conduct a self-evaluation to determine whether it and its Committee are functioning effectively. Such evaluations may be conducted with the assistance of appropriate internal and external advisors.
e. Assessing CEO Performance. Each year, the Board will conduct an assessment of the CEO’s performance regarding the preceding year. Concurrently, the CEO will provide a self-evaluation of his or her performance to the Board.
f. Succession Planning. The Board plans for the succession to the positions of CEO and other executive officers of the Company. To assist the Board, the CEO will annually provide the Board with an assessment of the executive officers and their potential to succeed him or her. The CEO also will provide the Board with an assessment of persons considered to be potential successors to executive officer positions and a review of any development plans recommended for such potential successors.
g. Business Conduct and Ethics. In order to maintain the highest ethical, legal, and socially responsible conduct, the Company will maintain appropriate codes of business conduct and ethics regarding: (i) conflicts of interest, (ii) corporate opportunities, (iii) confidentiality, (iv) fair dealing, (v) protection and proper use of company assets, (vi) compliance with laws, rules, and regulations, and (vii) such other matters as the Board deems appropriate. Such codes also will include standards of conduct reasonably applicable to designated persons, including the CEO and all officers, designed to promote: (i) honest and ethical conduct, (ii) full, fair, accurate, timely, and understandable disclosure in the periodic reports, proxy statements, and other filings under the Exchange Act, that are required to be filed by the Company, and (iii) compliance with applicable governmental rules and regulations.
3. Board Composition and Structure
a. Size of Board. The Board will periodically consider the number of directors that is appropriate for the effective operation of the Board. In general, the Board believes that there should be less than 10 directors.
b. “Independent” Directors. The Company intends to rely on the “controlled company” exemption under New York Stock Exchange (“NYSE”) Listing Standards, and therefore the Board will not necessarily be comprised of a majority of independent directors. No director will be independent unless the Board affirmatively determines that the director has no material relationship with the Company (either directly or as a partner, stockholder, or officer of an organization that has a relationship with the Company). The Board will make this determination at least annually. In making this determination, the Board shall consider all relevant factors, including any transactions required to be disclosed under Item 404 of Regulation S-K of the Exchange Act. Consistent with NYSE Listing Standards, the Board has established the following standards for determining director independence:
(i) Per Se Exclusions. A director will not be deemed independent if, (A) 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; (B) 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 in direct compensation from the Company (other than director and committee fees and pension or other forms of deferred compensation for prior service, provided such compensation is not contingent in any way on continued service); (C) (1) the director or an immediate family member is a current partner of a firm that is the Company’s internal or external auditor, (2) the director is a current employee of such a firm, (3) 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 (4) the director or an immediate family member was within the last three years (but is no longer) a partner or employee of such a firm and personally worked on the Company’s audit within that time; (D) 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; or (E) the director is a current employee, or an immediate family member is a current executive officer, of a company that has made payments to, or received 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.
(ii) Categorical Standards. The following commercial or charitable relationships will not be considered to be material relationships that would impair a director’s independence (other than a member of the Audit Committee, whose independence is subject to additional restrictions set forth in the Audit Committee Charter): serving as a director of CONSOL Energy Inc., the Company’s controlling stockholder.
c. Selection of Directors. Each year at the Company’s annual stockholders’ meeting, the Board will recommend a slate of nominees for election by the stockholders. In addition, the Board may fill vacancies on the Board when necessary or appropriate. The Board’s recommendations or determinations are based on the suitability of each individual and, where applicable, the slate as a whole, to serve as directors, taking into account the criteria described below and other factors, including the requirements for Board committee membership.
d. Nomination of Proposed Directors by Stockholders. The Company’s By-laws contain a procedure allowing for the nomination by stockholders of proposed directors.
e. Board Membership Criteria. The Board is responsible for reviewing, on an annual basis, the size, function, and needs of the Board and in doing so will take into account that the Board as a whole will have competency in the following areas: (i) industry knowledge; (ii) accounting and finance; (iii) the ability to make sound business decisions; (iv) management; (v) leadership; (vi) international markets; (vii) business strategy; (viii) crisis management; (ix) corporate governance; and (x) risk management. The Board also seeks members from diverse backgrounds so that the Board consists of members with a broad spectrum of experience and expertise and with a reputation for integrity. Directors should have experience in positions with a high degree of responsibility, be leaders in the companies or institutions with which they are affiliated, and be selected based upon contributions that they can make to the Company. In determining whether to recommend a director for re-election, the Board also considers the director’s past attendance at meetings and participation in and contributions to the activities of the Board.
f. Term Limits; Resignation.
(i) Term Limits. The Board has not established term limits. While term limits could help ensure that there are fresh ideas and viewpoints available to the Board, they have the disadvantage of causing the loss of the contribution of directors who have been able to develop, over a period of time, increasing insight into the Company and its operations, and therefore provide an increasing contribution to the Board as a whole.
(ii) Resignation Policy. Non-management directors who change their primary job responsibilities that they held at the time of their election to the Board shall notify the Board of such change. Management directors will offer to resign from the Board upon their resignation, removal, or retirement as an officer of the Company or CONSOL Energy Inc. The Board will, in its sole discretion, determine whether or not to accept such resignation.
g. Additional Directorships. Directors are encouraged to limit the number of other boards of directors (excluding non-profit boards of directors) on which they serve, taking into account potential meeting attendance, participation, and effectiveness on these boards of directors. The Board will take into account the nature of and the time involved in a director’s service on other boards of directors in evaluating the suitability of individual director candidates. Every director must seek the consent of the Board to confirm the absence of any actual or potential conflict prior to accepting any invitation to serve on another corporate or not-for-profit board of directors or with any government or advisory group.
h. Compensation of Non-Employee Directors. The Board shall report annually as to how the Company’s non-employee director compensation practices compare with those of other similarly situated public corporations. The Board should make changes in its non-employee director compensation practices after discussion and unanimous concurrence by the full Board and with the advice of qualified independent advisors. In discharging this duty, the Board should be guided by the following principles: compensation should fairly pay directors for the work required; compensation should align directors’ interests with the long-term interests of stockholders; and the structure of the compensation should be simple, transparent and easy for stockholders to understand. The Board believes these goals would be served by providing non-employee director compensation in the form of cash (which may be meeting fees and/or annual fees) and equity, with a significant portion of the compensation being paid in the form of equity.
4. Board Meetings and Procedures.
a. Board Meetings.
(i) Number of Meetings; Attendance and Preparation. The Board will hold at least four regularly scheduled meetings per year with additional meetings called by the Chairman of the Board as appropriate. Directors are expected to attend all regularly scheduled meetings and to have, prior to the meetings, reviewed all written meeting materials distributed to them in advance. Directors are expected to be physically present at all regularly-scheduled meetings, and a director who is unable to attend a meeting is expected to notify the Chairperson of the Board in advance of such meeting. Attendance at a meeting by telephone, videoconference or other means of communication is permissible.
(ii) Selection of Agenda Items. The Chairperson of the Board and CEO should establish the agenda for Board meetings; directors may at any time suggest that particular items be placed on the agenda. The Chairperson of the Board, and the CEO, with input from each director, will annually prepare a “Master Agenda” that will set forth a general list of items to be considered at each of the Board’s regularly scheduled meetings during the year. Thereafter, the Chairperson of the Board and CEO will adjust the agenda for each specific meeting, if necessary, to include special items that had not been contemplated during the initial preparation of the Master Agenda. The Master Agenda will be provided to the entire Board.
(iii) Distribution of Materials. The Company will distribute written materials, including the agenda, for use at Board meetings sufficiently in advance of meetings to permit meaningful review. The Board will periodically review the information flow to its members to strive to ensure that directors receive the right kind and amount of information in sufficient time to prepare for meetings.
(iv) Attendance of Non-Directors. The Board believes that attendance of key executive officers augments the meeting process by providing certain expertise and insight into items that are open for discussion at certain meetings. Therefore, key executive officers may be invited to attend Board meetings when the Chairperson of the Board or the CEO believes such officers can meaningfully contribute to Board discussion.
(v) Executive Sessions of Non-Employee Directors. The non-employee directors of the Board will meet in executive session at each regularly scheduled Board meeting, without any management directors and any other members of the Company’s management who may otherwise be present, to (i) evaluate the CEO; (ii) review management succession planning; and (iii) consider such other matters as they may deem appropriate. The Chairperson of the Board, or if such person is the CEO, another member of the Board, shall preside over such executive sessions. The directors may meet in executive session at any time to consider issues that they deem important to address without management present. At least once each year, only the independent directors will meet in executive session.
b. Access to Senior Management/Advisors. Board members have complete and open access to members of management and the Company’s advisors. The Board, including the independent members of the Board, has the authority, in their discretion, to retain independent advisors, which advisors will be compensated by the Company.
c. Access to Stockholders and Other Interested Parties. The Chairperson of the Board and the CEO are responsible for establishing effective communications with the Company’s stockholders, customers, associates, communities, suppliers, creditors, and corporate partners. Directors may meet with such parties, but any such meetings generally should be held with management present.
d. Confidentiality. The Board believes that maintaining confidentiality of information and deliberations is an imperative and each director is expected to recognize that imperative.
5. Board Committees
a. Board Committees; Committee Charters. Except where the Audit Committee has the sole authority to act as required by applicable law or NYSE Listing Standards, it is the policy of the Company that major decisions be considered by the Board as a whole. The Board has determined to constitute only those committees required by applicable law or a NYSE Listing Standard. The Board currently has one standing Committee: the Audit Committee. The Board has the authority to establish such other committees, temporary or permanent, as the Board deems advisable. The Audit Committee will consist of three or more directors, each of whom will satisfy the independence requirements set forth herein and any additional requirements set forth in its charter and any other listing or regulatory requirement.
(i) The Audit Committee will have the opportunity to meet in executive session in conjunction with each of the Board’s regularly scheduled meetings.
(ii) The Audit Committee will have an appropriate written charter that will be reviewed annually by the Board and the Audit Committee. The charter will be made available on the Company’s website.
b. Audit Committee Agenda. The chairperson of the Audit Committee, in consultation with the appropriate members of the committee and management, will develop the committee’s agenda. The Audit Committee will issue a schedule of agenda subjects to be discussed for the ensuing year at the beginning of each year. This forward agenda also will be shared with the Board.
c. Rotation of Committee Members. The Board does not believe in mandating fixed rotation of committee members and/or committee chairpersons, since there may be reasons at a given point in time for maintaining continuity.
d. Board Oversight; Committee Reports. The Board is responsible for overseeing the activities of the Audit Committee (except where it has sole authority to act pursuant to applicable law or a listing standard) and for ensuring that the committee is fulfilling its duties and responsibilities. The Board will regularly receive reports from the Audit Committee regarding its activities and will take such actions as it deems necessary and appropriate in response to these reports.
6. Other Principles
a. Confidential Voting. The Board has adopted a policy whereby stockholders’ proxies are received by the Company’s independent tabulators and the vote is certified by independent inspectors of election. Proxies and ballots that identify the vote of individual stockholders will be kept confidential from the Company’s management and directors, except as necessary to meet legal requirements, in cases where stockholders request disclosure, or in a contested election.
b. Disclosure Policy. The Board believes that it is imperative that the Company make full, fair, accurate, timely and understandable disclosure in the periodic reports and other statements required to be filed by the Company.
c. Disclosure and Review of Corporate Governance Guidelines. These Guidelines will be made available on the Company’s website.
d. Attendance at Annual Meeting of Stockholders. Each member of the Board is encouraged, but not required, to attend the Company’s Annual Meeting of Stockholders.