HOUSEHOLD INTERNATIONAL, INC.
BOARD OF DIRECTORS
In 1980, and again in 1982, the Board appointed a special Ad Hoc Committee to review the Boards duties, effectiveness, procedures, and structure. Each separate Ad Hoc Committee issued a report containing numerous comments and recommendations on these issues. These recommendations were generally adopted by the Board and codified in a statement titled "Household International, Inc. Policies and Procedures of the Board of Directors", which statement was distributed to each new Director of Household in the Household permanent Board Notebook.
In 1999, management undertook a comprehensive review of the responsibilities, policies and procedures of the Board in effect at that time with the goal to benchmark those responsibilities, policies and procedures against current "best practices" to ensure that Household's Board of Directors is maintaining the highest corporate governance standards. Certain recommendations were made to the full Board. These recommendations were reviewed and adopted by the full Board on November 9, 1999.
HOUSEHOLD INTERNATIONAL BOARD OF DIRECTORS
1) Bylaws, Article II - Section 1 (amended February 6, 1981):
'General Powers. The business and affairs of this Corporation shall be managed under the direction of the Board."
2) The primary responsibility of the Board shall be to represent the interests of the shareholders as a whole, as the owners of the Corporation, in directing the management of the Corporation so as to build long-term shareholder wealth. To fulfill this responsibility, the Board must follow and periodically review its Corporate Governance Standards.
CORPORATE GOVERNANCE STANDARDS
Household, believes its Corporate Governance Standards support its primary responsibility of building long-term shareholder wealth. The cornerstones of Household's corporate governance system are:
o The Board has ultimate responsibility for governing the affairs of the Corporation, including the selection of executive management, determining business strategy and fulfilling a fiduciary obligation to shareholders to maximize the value of their investment.
o Management of Household is expected to be loyal to the corporation, implement approved business strategy, appropriately resolve day-to-day operational issues, keep the Board informed, and maintain and promote high ethical standards while seeking to attain the maximum benefit or return to Household in all business dealings.
o The interests of shareholders in Household are to be protected. Shareholders are to he kept informed of all material developments within Household. Shareholders have formal input to the Board through their votes on matters affecting the Corporation when such issues are brought before shareholders for a vote, in accordance with law or the governing documents of the Corporation.
Specific guidelines follow.
1) All Directors will stand for election every year.
2) Personal attendance of the Director at a Board or committee meeting is expected. The use of teleconference to facilitate such attendance should only be requested by the Director in extraordinary situations.
3) The election of "Directors Emeriti" is not recommended. However, former Directors should he invited to special events from time to time.
4) There will be five regularly scheduled meetings of the Board each year to be generally held on the second Tuesday in January, March, September and November, and the second Wednesday in May. At the January meeting, a detailed strategic focus of the Corporation's businesses will be discussed and the Board will approve the annual Operating Plan and Capital Expenditure Budget.
5) Each standing committee of the Board shall adopt and approve a charter, which must be approved by the Board. Each committee will review the appropriateness of its charter at least annually. Other than the Executive Committee who will be acting in place of the full Board, no committee shall exercise any power and authority specifically delegated to any other committee of the Board.
6) Annually, all Directors shall be provided with a schedule identifying all regularly scheduled Board and committee meetings for the current and the next succeeding year.
7) Director compensation shall be a combination of cash and stock options in the Corporation. The stock option component shall be a significant portion of the total compensation. All Directors shall be encouraged to acquire a significant economic investment in common equity related instruments of the Corporation and to increase that investment over time. An appropriate goal for such investment will be three times the Director's annual cash retainer.
8) The Chairman and the Chief Executive Officer, in consultation with the Chair of the Executive Committee, will establish the agenda for each Board meeting. The Chair of a committee in consultation with committee members and senior management will develop the agenda for each committee meeting. Directors are encouraged to suggest, to the Chairman, topics for inclusion on any future agendas.
9) Minutes of all Board and committee meetings shall be sent to all Directors unless it is legally required that such minutes be kept confidential.
10) A quorum and the vote required at any committee meeting shall be determined in the same manner as a quorum for a meeting of the Board as set forth in the by-laws of the Corporation.
11) At every regularly scheduled Board meeting, the Chief Executive Officer or his/her designee shall advise the Board of the operating performance of the Corporation, focusing on important trends, achievements, plans and developments, and how those matters may affect the annual Operating Plan approved by the Board.
12) At every regularly scheduled Board meeting, the Chief Financial Officer or Controller shall present the latest available financial detail with respect to the Corporation, focusing on significant variances from the annual Operating Plan or Capital Expenditure Plan approved by the Board and from prior Year/quarter results.
13) Information with respect to any Board or committee meeting should be sent to Directors at least five (5) days in advance of the meeting, if possible. Financial statements included in this information should be condensed with commentary focused on important issues, trends or variances, noting the perceived reasons therefor and the opportunities or risks, if any, that may result therefrom.
14) The Chief Executive Officer will report annually to the Nominating and Governance Committee and the Board on the plans or programs implemented by the Corporation for management succession and development. Annually, all Independent Directors will meet in a separate session, led by the Chair of the Executive Committee, to review the performance of the Chairman, Chief Executive Officer and President, if any, including a discussion of the perceived effectiveness of the processes implemented for management succession and development.
1) The size of the Board shall generally consist of between twelve to fifteen Directors. The Chairman and President (if any) of the Corporation shall be Directors of the Corporation and, absent special circumstances approved by the Board, shall be the only NonIndependent Directors. An "Independent Director" shall meet the criteria set forth on Appendix A to these Standards.
2) The committee structure of the Board shall be reviewed annually, usually after the Annual Meeting of Stockholders. Initially, the Board will have five standing committees. The Chairman, in consultation with the Chair of the Executive Committee, shall make recommendations to the Nominating and Governance Committee regarding membership on the committees. The Board will appoint all committee members. These committees shall be:
Audit Compensation Executive Finance Nominating and Governance
No Director should serve on more than two of the standing committees. The Audit, Compensation and Nominating and Governance Committees shall consist entirely of Independent Directors. Membership of the Executive Committee shall consist of Independent Directors, the Chairman and the Chief Executive Officer of the Corporation.
3) The Chair of the Executive Committee shall be deemed the "lead director" for the Board and shall perform the duties set forth on Appendix B to these Standards. The Chair of the Executive Committee shall be an "ex officio" member of all other standing committees.
4) Periodically (at least every two (2) years), the Board shall discuss the effectiveness of the Board and its various committees as compared to other public corporations. The Nominating and Governance Committee shall determine the process to be followed in connection with this evaluation.
5) The Chair of each committee, in consultation with committee members and senior management of the Corporation will determine the frequency and length of the meetings of the committee.
6) A majority of the Independent Directors should be active or retired senior executives (or its equivalent) of other large companies, educational institutions, governmental agencies, service providers or non-profit organizations. Independent Directors shall not be a director, consultant or employee of or to any competitor of the Corporation (i.e., a company that has a business segment offering products or seeking customers that are similar to the products offered or customers served by a business segment of the Corporation).
7) Household does not believe it should establish term limits for Directors. Absolute term limits present the disadvantage of losing Directors who have been able to develop, over a period of time, increasing insight into the Corporation and its operations and therefore, provide an increasing contribution to the guidance of the Corporation. Unreasonable entrenchment should not be an issue as all Directors are elected annually and a mandatory retirement policy for Directors is maintained. The retirement policy for Directors (excluding the Chairman and/or President of the Corporation) is the annual meeting of shareholders after a Director attains age 70. However, Directors who have continuously served on the Board since January 1989 shall remain subject to the old policy requiring retirement as of the annual meeting of shareholders after such person attains age 72. Non-Independent Directors (such as the Chairman and the President) are expected to retire from the Board when they retire from the position that entitles such individual to be a Director of the Corporation. With respect to Non-Independent Directors, the Board may delay any retirement from the Board to the annual meeting of shareholders after the Non-Independent Director attains age 70 if business conditions, in the opinion of the Board, so warrant such action.
8) Independent Directors are expected to offer to resign from the Board whenever there is (a) a major change in their career position or status (unless such change in position or status results from normal retirement) or (b) a change in the status as an "Independent Director". The Chairman, the Chair of the Executive Committee and the Chair of the Nominating and Governance Committee shall consult and determine whether to present the offer of resignation to the Board for action. If presented, the Board has complete discretion to either accept or reject such resignation.
9) To avoid potential conflicts of interest, interlocking directorships will not be allowed. Interlocking directorships shall be deemed to occur if a senior executive officer of the Corporation (i.e., the Chairman, Chief Executive Officer, President or any direct report to the Chief Executive Officer) serves on the board or as a trustee of the company or institution that employs the Independent Director (i.e., reciprocal directorship).
A Director must:
o Represent the best interests of all shareholders and the Corporation, not any particular interest group.
o Have the ability to spend the necessary time required to function effectively as a Director.
o Develop and maintain a sound understanding of the strategies, business and succession planning of the Corporation, including those of the competitors to the Corporation.
o Carefully study all Board materials and provide active, objective and constructive participation at meetings of the Board and committees.
o Provide assistance in representing Household to the world.
o Be available to advise and consult on key organizational changes and to counsel on corporate issues.
Develop and maintain a good understanding of global economic issues and trends.
o Seek clarification from experts retained by the Corporation (including employees of the Corporation) to better understand legal, financial or business issues affecting the Corporation.
I) It is recognized that shareholders, lenders, customers, employees, communities and vendors are all interested in the long-term viability of the Corporation. To that end, superior financial performance and the building of long-term shareholder wealth will be the goals of the Corporation. The Board will use its best judgment to balance the needs of all stakeholders in the pursuit of these goals.
2) All common shareholders will have equal voting rights.
3) The Corporation shall maintain a policy to treat confidentially all proxies, comments, ballots and voting materials. Such a policy was adopted by the Board on March 10, 1992.
4) The Board will not agree to "greenmail". The Board will require that all common shareholders be treated equally in connection with any transaction affecting the rights of common shareholders. The Board will protect its stakeholders from any abusive takeover attempts.
5) The Corporation is committed to developing and maintaining open lines of communication with its stakeholders. Household will strive to maintain an active, consistent and credible investor relations program, including providing adequate opportunities for dialogue with senior executive officers. Household will consider, on a case by case basis, the concept of meetings, either as a group or on an informal one-on-one basis, between Directors and its larger institutional investors.
6) Any proposal that is approved by the majority of shareholders at any shareholder meeting which is not implemented by the Board will be discussed in the next annual proxy statement of the Corporation and will contain an explanation of the Board's reason for not implementing such proposal.
7) Shareholders entitled to vote for Directors shall have access to the Director nomination process.
I) The Board will not be surprised.
2) All Directors should have access to senior management. All Directors are encouraged to ask questions of senior management.
3) Directors shall be fully advised with respect to:
* business strategies developed by Management that should be designed to create strong market positions and to consistently build shareholder wealth;
* the annual Operating Plan and Capital Expenditure Plan;
* performance of the Corporation against its peers; status of key initiatives, including any proposed acquisition or disposition of a business unit;
* all significant legal, accounting, regulatory, marketing and human resource development issues that are likely to impact the Operating Plan approved by the Board.
4) Management should provide the Board and/or its committees (if appropriate) with periodic reports on subjects that are significant to the Corporation or the industry in which the Corporation operates. These reports may be presented at meetings or be provided as written material to all Directors.
5) Special presentations should be made on a regular basis to the Board or committees thereof by executives of the Corporation who are viewed to be successor candidates to any of the senior executive officers of the Corporation.
6) Management will provide strong, principled and ethical leadership. They will clearly articulate to all employees the business focus approved by the Board and implement and maintain sound succession plans, employee developmental programs and organizational structure.
7) Household will be a pay for performance company. Compensation for management will be strongly linked to objectively measured financial goals set in advance by the Compensation Committee. The Compensation Committee will, however, retain full discretion to use its best judgment to adjust compensation upward or downward whether or not the objective financial goals are met.
8) Stock options will not be repriced or the exercise price reduced even if the current market price of Household common stock is below the exercise price.
9) The Corporation shall require that executive officers and key employees own Household common stock. Stock ownership goals shall be established for such employees and communicated annually to the employee. Restricted stock rights and stock options shall not count toward the satisfaction of this requirement.
Independent Director means a Director who:
has not been retained by the Corporation or any of its subsidiaries in the capacity of an officer (including non-employee executive officers) within the last 3 years and is not currently receiving any compensation from the Corporation or any of its subsidiaries (other than for Board service or benefits under a tax-qualified retirement plan);
is not, and is not affiliated with an organization (as a partner, employee or 10% or more shareholder) that is an advisor or consultant to the Corporation, any of its subsidiaries, any of the senior executives of the Corporation, or any pension, profit sharing or employee benefit plan sponsored by the Corporation;
is not an employee, partner or 10% or more shareholder of any significant vendor (other than those that provide a common service at independently established rates, such as common carriers, electricity, telephone, etc.) or customer of the Corporation, any of its subsidiaries or any pension, profit sharing or employee benefit plan sponsored by the Corporation;
has no interest in any significant transactions or business relationships with the Corporation or its subsidiaries that are required to be disclosed by the rules and regulations of the Securities and Exchange Commission;
is not a member of the immediate family of any person described above.
Notwithstanding the foregoing, in accordance with the rules of the NYSE the Board of Directors may determine, in its business judgment, that the relationships noted above do not interfere with the individuals exercise of independent judgment. In such an event the individual may be deemed to be an "Independent Director".
LEAD DIRECTOR DUTIES
The duties and responsibilities of the Chair of the Executive Committee (as the Lead Director) shall be as follows:
1) The Chair of the Executive Committee shall be informed by, and counsel with, the Chairman and Chief Executive Officer on material strategy, policy, and management matters and shall be informed of major problems of the Corporation.
2) The Chair of the Executive Committee shall be available to advise and counsel the Chief Executive Officer on any matter relating to the Corporation.
3) The Chair of the Executive Committee shall offer the Chief Executive Officer counsel as to special interests and concerns of Directors and will act as the principal liaison between the Independent Directors and the Chairman.
4) The Chair of the Executive Committee shall counsel with the Chairman in the development of Board membership, and together they will make recommendations to the Nominating and Governance Committee.
5) In the absence or inability of the Chairman to act, the Chair of the Executive Committee shall perform those duties of the Chairman pertaining to Board functions.
6) The Chair of the Executive Committee shall recommend to the Chairman the retention of consultants or other experts who would report directly to the Board.
7) The Chair of the Executive Committee shall advise the Chairman as to the quality, quantity and timeliness of the flow of information from the Corporation that is necessary for the Directors to effectively and responsibly perform their duties.