August 2004

 

 

CORPORATE GOVERNANCE PRINCIPLES

A. Role of the Board of Directors.

The business and affairs of the Company shall be managed by or under the direction of the Board of Directors, except as may otherwise be provided by law, the Certificate of Incorporation or the Bylaws. The basic responsibility of the directors is to exercise their reasonable business judgment on behalf of the Company. In discharging that obligation, directors should be entitled to rely on the honesty and integrity of the Company’s senior executives and its outside advisors and auditors. The directors shall be entitled to have the Company purchase directors’ and officers’ liability insurance on their behalf, to the benefits of indemnification to the fullest extent permitted by law and to exculpation as provided by state law and the Company’s charter.

B. Board Membership.

1. Size of the Board.

Our general expectation is that the Board of Directors will consist of between ten and twelve members. The Nominating and Corporate Governance Committee shall periodically review the appropriate size of the Board, with the objective of maintaining the necessary experience, expertise and independence, without becoming too large to function efficiently.

2. Independent Directors.

A substantial majority of the Board shall be composed of "independent" directors, as that term is defined from time to time by the listing standards of the New York Stock Exchange (NYSE). As required by such listing standards, in assessing independence, the Board shall make an affirmative determination of whether a director has any material relationship with the Company (directly or as a partner, shareholder or officer of an organization that has a relationship with the Company). The term “Company,” for purposes of determining independence, shall have the meaning ascribed to such term by the listing standards of the NYSE. In making its determination of independence, absent other considerations, the Board will deem a director to be independent if:

  • neither the director nor a member of the director's immediate family, has been employed by, or received direct compensation (other than director's fees, pension payments or other form of deferred compensation for prior service, provided such compensation is not contingent in any way on continued service) from the Company or any of its affiliates during the past three years (compensation received by an immediate family member for service as a non-executive employee is not considered in determining independence under this test);
  • neither the director nor a member of the director's immediate family, is, or in the past three years has been, affiliated with or employed (or, in the case of an immediate family member, employed in a professional capacity) by a present or former internal or external auditor of the Company or any of its affiliates;
  • neither the director nor a member of the director's immediate family is, or in the past three years has been, part of an interlocking directorate in which an executive officer of the Company serves on the compensation committee of another company that concurrently employs such director of the Company, or a member of such director's immediate family, as an executive officer;
  • neither the director nor a member of the director's immediate family, is, or in the past three years has been an executive officer (or, in the case of the director, an employee) of a company that makes payments to, or receives payments from, the Company for property or services in an annual amount which exceeds 1% of such other company's consolidated gross revenues; and
  • neither the director nor a member of the director's immediate family, is, or in the past three years has been, an officer or director of a non-profit organization that has received charitable contributions from the Company or any of its subsidiaries or affiliates in an annual amount in excess of the greater of $100,000 or 1% of such organization's gross revenues.

An "immediate family member" shall include the director’s spouse, parents, children, siblings, and in-laws, and anyone (other than domestic employees) who shares the director's home.

3. Retirement Age for Directors.

A director cannot stand for re-election following his or her 72nd birthday.

4. Change in Principal Occupation.

Company officers who also serve as directors must tender their resignations from the Board at the same time that they retire or resign from the Company.

A non-employee director must tender his or her resignation from the Board when the non-employee director terminates or changes his or her principal occupation for any reason. The Nominating and Corporate Governance Committee, in its discretion, shall determine whether any such resignation is accepted.

5. Term Limits

The Board does not believe it should establish term limits. The advantage of potentially providing new ideas and viewpoints from new directors is offset by the significant disadvantage of losing the experience and insight into the Company and its operations gained by directors over time.

6. Limitation on Board Memberships

Directors who are employed full-time shall not serve on the boards of more than four public companies, being companies with publicly traded equity securities. Directors who are not employed full-time, shall not serve on the boards of more than six public companies.

To enable the Nominating and Corporate Governance Committee to assess the director’s ability to fully discharge his or her duties, each director must notify the Nominating and Corporate Governance Committee in advance of accepting an invitation to serve as a member on another board of directors or taking on a significant committee assignment on another board of directors.

7. Selection of Director Nominees.

The Nominating and Corporate Governance Committee shall evaluate candidates for election to the Board and recommend all nominees to the Board of Directors (other than those individuals nominated by shareholders in accordance with the procedures set forth in the Bylaws).

The Nominating and Corporate Governance Committee is responsible for establishing the selection criteria for candidates including the appropriate skills and characteristics required of directors in the context of the current make-up and needs of the Board and reviewing with the Board such criteria.

The Nominating and Corporate Governance Committee must be satisfied that each candidate meets the following minimum qualifications:

  • well regarded in the community, with a long term, good reputation for highest ethical and moral standards;
  • good common sense and judgment;
  • a positive record of accomplishment in present and prior positions;
  • if on other boards, an excellent reputation for preparation, attendance, participation, interest and initiative;
  • business and/or professional knowledge and experience applicable to Company and shareholder goals and perspectives;
  • the time, energy, interest and willingness to become involved in the Company and its future; and
  • the limitations on board memberships, the age limit and the willingness to meet the minimum equity interest holding guidelines, all as described in these Principles.

In evaluating prospective nominees, the Nominating and Corporate Governance Committee shall also consider:

  • the extent to which the prospective nominee helps the Board reflect the diversity of the Company's shareholders, employees and customers
  • the ability of the prospective nominee to work positively with the Chief Executive Officer and other members of senior management;
  • the ability of the prospective nominee to contribute positively to collaboration among Board members and the ability of the Company to achieve its goals; and
  • the extent to which the prospective nominee contributes to the range of talent, skill and expertise of the Board.

8. Re-nomination of Directors

The Nominating and Corporate Governance Committee is also responsible for determining whether incumbent directors shall be nominated for additional terms.

9. Individual Director's Responsibilities.

All directors are expected to allocate sufficient time in their schedules to fulfill their fiduciary duties to the Company and its shareholders. All directors are expected to attend the meetings of the Board and of Committees of which they are members on a regular basis. They are expected to be prepared for each meeting, by reviewing the advance materials, and otherwise to participate actively in the Board’s or relevant Committee’s deliberations.

All directors are expected to comply with the Company's Code of Conduct.

All directors are expected to attend the Annual Meeting of Shareholders.

10. Evaluations of Board and Director Performance.

The Nominating and Corporate Governance Committee shall develop the procedures for evaluating the performance of the Board and its Committees and shall oversee the evaluation of the performance of the Board and each Committee annually and of individual directors prior to their re-nomination.

11. New Director Orientation.

The Secretary shall arrange an orientation for all new directors that shall familiarize each new director with, among other things:

  • the Company's Board and governance practices,
  • the independent auditor and internal auditors,
  • major business units and lines of business,
  • key employees,
  • significant financial, accounting, controls and risk management issues, policies and procedures and compliance programs, conflict policies, the Code of Conduct and the Code of Ethics,
  • the Company's Strategic Business Plan, and
  • the Company's headquarters and significant facilities.

All directors are encouraged to attend the orientations, but newly elected directors must attend in the year of their election.

12. Director Education.

The Company shall make external and internal educational opportunities available for its directors in the areas of corporate governance, financial reporting, executive compensation and other areas of interest to the Board.

13. Key Board Responsibilities.

Among other responsibilities, the Board shall be responsible for:

  • hiring and terminating the CEO;
  • developing a Succession Plan for the CEO and other senior executive officers;
  • reviewing the Strategic Business Plan and measuring progress against the Plan; and
  • setting the ethical tone for the Company.

C. Board Leadership.

The Chairman of the Board shall chair each Board meeting. In his or her absence, the Lead Director shall chair the Board meeting. In the absence of both the Chairman of the Board and the Lead Director, a director shall be chosen by a majority vote of the directors present to chair the Board meeting.

The Lead Director shall chair executive sessions of the non-management directors. In his or her absence, the Chairman of the Nominating and Corporate Governance Committee shall chair the executive session. In the absence of both the Lead Director and the Chairman of the Nominating and Corporate Governance Committee, a director shall be chosen by a majority vote of the directors present to chair the executive session.

D. Board Meetings.

1. Schedule.

The Board of Directors believes that regular meetings at appropriate intervals are desirable for the performance of their responsibilities. The Secretary shall prepare a schedule of regular Board meetings on an annual basis and timely notify the Board of any changes in the schedule.

Special meetings of the Board may be called by a majority of the Board, the Chairman of the Board, the President, Treasurer or Secretary.

2. Agendas.

The Secretary, subject to the approval of the Chairman of the Board, shall establish the agenda for each Board meeting and distribute the agenda in advance to the Board. Board members may suggest items to be included on the agendas and raise at any board meeting subjects that are not on the agenda for that meeting.

3. Advance Materials.

To the extent practicable, the Secretary shall generally deliver to the Board in advance of each meeting materials and information important to the Board’s understanding of the matters to be considered by the Board. Directors should review in advance any materials and information sent to them before the meeting.

4. Executive Sessions.

The Secretary shall schedule executive sessions of the non-management directors after each regular meeting of the Board. The non-management directors may request Company personnel, consultants and other advisors to make presentations or participate in discussions at such meetings. If any of the non-management directors are not independent, the Company shall schedule an executive session including only independent directors at least once a year.

E. Committees.

1. Standing Committees

The Board has four standing Committees: Audit, Compensation and Human Resources, Finance, and Nominating and Corporate Governance. The Board of Directors may create other committees to facilitate and assist in the execution of its responsibilities to the extent consistent with law, the Company’s Certificate of Incorporation and Bylaws and the New York Stock Exchange Listing Standards. The committees shall consider issues that, because of their complexity, technical nature or time requirements or because of independence considerations, cannot be adequately or appropriately addressed at meetings of the entire Board. The Board may dissolve a committee at any time to the extent consistent with law, the Company’s Certificate of Incorporation and Bylaws, and the New York Stock Exchange Listing Standards.

2. Responsibilities of Committees.

Each Committee shall promptly inform the Board of the actions taken or issues discussed at their meetings. This will generally take place at the Board meeting following a Committee meeting.

The purposes, goals and responsibilities of each Committee are set forth in committee charters approved by the Board.

3. Evaluation and Compensation of Chief Executive Officer and Succession Planning.

  • The Nominating and Corporate Governance Committee, based on input from the entire Board, shall annually evaluate the performance of the Chief Executive Officer and share their evaluation with the independent directors. The evaluation shall be based on the criteria and principles established by that Committee including, among other things: (a) personal qualities such as leadership, statesmanship and responsiveness, (b) general management qualities, such as a global perspective on the business, (c) financial performance, (d) strategic thinking and planning, (e) knowledge of the business, (f) preparedness, (g) financial expertise such as value creation, capital planning and communications with the financial and investment communities and (h) qualities relating to the use of human resources such as developing management talent and creating an effective organization.
  • The Compensation and Human Resources Committee shall annually review and recommend to the independent directors the appropriate compensation to be paid to the Chief Executive Officer. When making its recommendation, the Committee will consider, among other things, (a) the Nominating and Corporate Governance Committee’s evaluation of the CEO’s performance, and (b) a peer group analysis conducted by independent consultants and recommendations of independent consultants, in each case, if requested by the Committee.
    The Succession Plan with respect to other senior executives shall include the policies and principles underlying the succession of the CEO. The CEO should at all times make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.
  • The Compensation and Human Resources Committee shall recommend a Succession Plan for the CEO and other senior executives. The Succession Plan with respect to other senior executives shall include the policies and principles underlying the succession of the CEO. The CEO should at all times make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.

4. Qualifications of Members.

The members of the Audit, Compensation and Human Resources, and Nominating and Corporate Governance Committees shall consist of directors who are “independent,” as defined from time to time in the rules of the NYSE. The committee charters shall set forth any additional requirements for their members.

5. Committee Assignments.

The chairmen and members of Committees shall be recommended by the Nominating and Corporate Governance Committee for approval by the Board. In the event the Board does not approve the chair of any Committee, the members of such Committee shall elect their chair. It is generally expected that each Committee chair will have had previous service on the applicable Committee.

When recommending Committee assignments, the Nominating and Corporate Governance Committee will consider, where appropriate, the rotation of committee memberships. The Board does not believe that such a rotation should be mandated as a policy, as there may be reasons to maintain an individual director’s committee membership.

6. Committee Meeting Schedules.

The Secretary shall prepare an annual schedule of Committee meetings. Special committee meetings may be called in the manner provided for in the Bylaws of the Company.

7. Meeting Agendas.

The Secretary shall send agendas to each Committee member in advance of a Committee meeting.

F. Access to Management.

Every Board member shall have full and free access to the management and employees of the Company. The Chairman of the Board or the Secretary will assist Board members in contacting the appropriate Company. The directors will use their judgment to ensure that any such contact is not disruptive to the business operations of the Company and will, to the extent not inappropriate, copy the CEO on any written communications between a director and an officer or employee of the Company.

The Board welcomes regular attendance at each Board meeting of senior officers of the Company. If the CEO wishes to have additional Company personnel attendees on a regular basis, this suggestion should be brought to the Board for approval.

G. Access to Advisors.

The Board and each of its Committees shall have the authority, at the expense of the Company, to retain such independent accounting, legal and other advisors as they deem necessary or appropriate without management approval or consultation.

H. Compensation of Non-Employee Directors.

The compensation of non-employee directors shall be recommended by the Compensation and Human Resources Committee and approved by the Board from time to time. The Compensation and Human Resources Committee will consider that directors’ independence may be jeopardized if director compensation and perquisites exceed customary levels, if the Company makes substantial charitable contributions to organizations with which a director is affiliated, or if the Company enters into consulting contracts with (or provides other indirect forms of compensation to) a director or an organization with which the director is affiliated. Non-employee director compensation will consist of a combination of cash and stock-based awards designed to balance current compensation with longer-term equity incentives. Under the Deferred Compensation Plan, non-employee directors receive an annual retainer, 50% of which is automatically deferred into stock equivalent units that become payable in cash when the director leaves the Board, or upon a change of control. Directors may choose to defer all or a portion of the remaining retainer as cash and/or stock equivalent units. Each year, the directors also receive an equity award that vests over time.

Any stock-based compensation to directors must be approved by the shareholders of the Company to the extent required by the NYSE rules.

The Compensation and Human Resources Committee shall review the compensation of the non-employee directors every other year.

I. Ownership of Company Stock.

Each non-employee director shall, within his or her first year of membership, beneficially own at least 1000 shares of Company stock. Deferred stock units held in the accounts of directors under the Deferred Compensation Plan for Directors, but not stock options, shall be considered in determining such ownership.

J. Review of These Principles.

The Nominating and Corporate Governance Committee shall periodically review these principles and recommend appropriate changes to the Board.