R.J. Reynolds Tobacco Holdings, Inc.

CURRENT BOARD OF DIRECTORS PRACTICES
ON CERTAIN CORPORATE GOVERNANCE ISSUES

Preamble

 

 

The primary responsibilities of the Board of Directors of R.J. Reynolds Tobacco Holdings, Inc. (the "Company") are to direct and oversee the exercise of corporate powers and to ensure that the Company's business and affairs are managed to meet its stated goals and objectives. The Board recognizes its responsibility to engage and provide for the continuity of executive management that possesses the exceptional character, skills and experience required to attain the Company's goals and to ensure that nominees for the Board of Directors possess appropriate qualifications and reflect a reasonable diversity of backgrounds and perspectives.

Directors will fulfill the following responsibilities and requirements:

 

  • represent the collective interests of all stockholders of the Company;
  • discharge Board duties in good faith, with the care of an ordinarily prudent person in a like position under similar circumstances, and in a manner he or she reasonably believes to be in the best interests of the Company;
  • display commitment to the objectives of the Company and its dedication to excellence, corporate integrity and sound business practice;
  • possess independence, objectivity and the highest degree of integrity on an individual and collective basis;
  • be dedicated to understanding the business of the Company and issues presented to the Board;
  • review and update, as needed, the overall basic mission, objectives and goals of the Company;
  • be committed to active, objective, thoughtful, constructive and independent participation at meetings of the Board and its committees;
  • bring to the Board's deliberations their collective breadth of business, professional and personal experience to represent the interests of stockholders and in doing so, to take into account the interests of Company employees and the communities in which they live and work;
  • evaluate on a regular and timely basis the qualitative and quantitative performance of the Company;
  • assure the integrity and proper communication by management of appropriate financial and operational information, internally and externally;
  • adopt proper policies of corporate conduct, including compliance with applicable laws, regulations, business and ethical standards; and
  • assure maintenance of proper accounting, financial, and other appropriate controls.

The Board has the responsibility to organize its functions and conduct its business in the manner it deems most effective and efficient, consistent with its duties of independence, good faith, due care, loyalty and stewardship of stockholder interests. In that regard, having evaluated its current governance structure, the Board has adopted a set of flexible practices to guide its governance practices in the future. These practices, set forth below, will be regularly re-evaluated by the Board's Corporate Governance and Nominating Committee in light of changing circumstances in order to continue serving the best interests of stockholders. Accordingly, the statement of current practices is subject to continuing assessment and change.

 

1. Selection of Chairman of the Board and the Chief Executive Officer

The Board elects the Chairman of the Board and the Chief Executive Officer in the manner and based on the criteria that it deems appropriate and in the best interests of the Company given the circumstances at the time of such appointments.

Similarly, the Board judges, in accordance with circumstances at any given time, whether the role of the Chief Executive Officer and the Chairman should be separate and whether the Chairman should be a non-employee director.

 

2. Lead Director Concept

The Board does not have a formal "lead director." When only non-employee directors are meeting, the director whose committee chairmanship makes him or her most appropriate to lead a discussion of the subject matter at hand presides. Otherwise, the Chairperson of the Corporate Governance and Nominating Committee shall preside.

Board members should raise any issues regarding the performance of the Chief Executive Officer or executive compensation with the Chairperson of the Compensation Committee. All other issues should be raised with the Chairperson of the Corporate Governance and Nominating Committee.

 

3. Number of Committees

The present Board committees are: Audit, Compensation and Corporate Governance and Nominating. Members of all committees are non-employees of the Corporation. The Board considers its current committee structure to be appropriate, but the number and scope of committees may be revised, as appropriate, to meet changing conditions and needs.

 

4. Assignment and Rotation of Committee Members

The Corporate Governance and Nominating Committee is responsible for reviewing and recommending to the Board the assignment of directors to various committees. To assure diversity of Board member experience and variety of exposure to affairs of the Company, a staggered rotation of committee memberships and chairmanships every three to five years is considered desirable.

 

5. Frequency and Length of Committee Meetings

Generally, committees meet in conjunction with regular Board meetings. Committee chairpersons and members may call meetings as they deem necessary. Committee meetings may be as frequent and as long as needed.

 

6. Committee Agenda

The agenda for committee meetings is developed by committee chairpersons in consultation with appropriate members of management. The agenda for each meeting is circulated in advance, and committee members may suggest additional agenda items for consideration.

 

7. Frequency of Board Meetings; Attendance

Board members expect a minimum of five meetings to be part of the regular annual Board calendar, with additional meetings as required. A calendar of Board meetings will be developed and circulated as far in advance as practicable. Members are expected to attend all meetings barring unavoidable circumstances.

 

8. Selection of Agenda Items for Board Meetings

The Chairman of the Board, the Chief Executive Officer and the Secretary of the Company develop the agenda for Board meetings. The agenda is circulated in advance, and Board members may suggest additional items for consideration.

 

9. Board Materials Distributed in Advance

As much information and data as practical on financial performance and the business agenda is sent to Board members in advance of meetings, including outlines of planned presentations. Detailed analyses of capital project proposals also are provided in advance.

 

10. Regular Attendance of Non-Directors at Board Meetings

The executive officers of the Company reporting to the Chief Executive Officer generally attend the regular business session of the Board meetings. The Board also extends invitations to other senior executives as appropriate to the occasion and business agenda.

 

11. Executive Sessions of Outside Directors

Each Board meeting agenda shall include time for an executive session with only non-employee directors and the Chief Executive Officer present. Each Board meeting agenda shall also include time for an executive session with only non-employee directors present.

 

12. Board Access to Senior Management

All Board members have open access to senior management, with the expectation that such contact will be minimally disruptive to the business operation of the Company. The Chief Executive Officer is encouraged to invite to the Board meetings senior managers who can provide additional insight into business materials being discussed and those individuals with high future potential who should be given personal exposure to members of the Board.

 

13. Board Compensation Review

Each year, the Corporate Governance and Nominating Committee of the Board reviews the Company's Board compensation in relation to other comparable corporations. Any changes in Board compensation are recommended by the Corporate Governance and Nominating Committee and acted upon by the Board.

 

14. Size of the Board

The Board of the Company currently has ten members. The Board believes that the preferable size is in the range of 9 to 12 members. The number will vary from time to time depending on circumstances.

 

15. Mix of Inside and Outside Directors

A significant majority of the Board are and will continue to be outside directors, and the Chief Executive Officer normally will be the only management director.

 

16. Board Definition of What Constitutes Independence for Outside Directors

No relationship between any non-employee director and the Company should be of a nature that could compromise the independence of any Board member in governing the affairs of the Company.

 

17. Former Chief Executive Officer's Board Membership

Unless otherwise agreed by the Board of Directors, the Board expects that the Chief Executive Officer, if a member of the Board, will resign from the Board of Directors upon his or her retirement, resignation or termination of employment by the Company.

 

18. Board Member Criteria

The Corporate Governance and Nominating Committee is responsible for reviewing the appropriate skills and characteristics required of directors in the context of prevailing business conditions and the then-existing composition of the Board. The qualifications to be considered in the selection of director nominees include the extent of experience in business, trade, finance or management; extent of knowledge of regional, national and international business affairs; and the overall judgement to advise and direct the Company in meeting its responsibilities to stockholders, customers, employees and the public. The objective is a diverse Board which brings to the Company variety of perspectives and skills derived from high quality business and professional experience.

 

19. Procedure for Selecting New Director Candidates

The Board is responsible for selecting its members, subject to stockholder approval, but delegates the screening process to the Corporate Governance and Nominating Committee, with input from the Chairman of the Board and the Chief Executive Officer.

 

20. Extending the Invitation to a Potential New Director to Join the Board

Upon concurrence of the members of the Board, invitations to join the Board are generally extended on behalf of the Board by the Chairman of the Board and the Chief Executive Officer. Other Board members may participate as appropriate.

 

21. Board Member Orientation

An orientation program developed by the Corporate Governance and Nominating Committee is available to acquaint new directors with the businesses, history, current circumstances, key issues and top managers of the Company.

 

22. Assessing the Board's Performance

Once a year, the Corporate Governance and Nominating Committee conducts an evaluation of the Board's performance of its governance responsibilities using a questionnaire completed by Board members and individual discussion as needed. The Committee analyzes and synthesizes questionnaire responses, and reports its findings to the whole Board for discussion.

 

23. Directors Who Change Their Job Responsibilities

A Board member who ceases to be active in his or her principal business or profession, or experiences other changed circumstances that could diminish his or her effectiveness as a Board member, is expected to offer his or her resignation to the Board, which will determine whether such member should continue to serve as a director.

 

24. Term Limits/Retirement Age

No term limits for directors have been established. The Board expects that no director will continue to serve as a member of the Board after the Annual Meeting of Stockholders following his or her 70th birthday.

 

25. Formal Evaluation of the Chief Executive Officer

The Compensation Committee is responsible for ensuring the annual evaluation of the Chief Executive Officer's performance based on appropriate quantitative and qualitative criteria. This evaluation should be a significant factor in determining the Chief Executive Officer's compensation.

 

26. Succession Planning

The Chief Executive Officer annually reviews succession planning with the Compensation Committee and with the Board, and provides the Chairperson of the Committee with a continuing current recommendation as to succession in the event of the Chief Executive Officer's disability or death.

 

27. Board Interaction with Institutional Investors, the Media and Customers

The primary responsibility for communications and relationships on behalf of the Company with institutional investors, the media and customers should be management's. The Board may participate occasionally in such interaction at the request and with the knowledge of management.

 

28. Director Equity Ownership

After completion of five years of service as a member of the Board, the Board expects that each director shall hold and retain a minimum of 10,000 shares of Company Stock. "Company Stock" shall mean (i) shares of RJR common stock beneficially owned by the director; (ii) deferred stock units (based on shares of RJR common stock) or shares of RJR common stock granted to the director under RJR's Equity Incentive Award Plan for Directors; and (iii) deferred stock units (based on shares of RJR common stock) received by the director as deferred compensation under RJR's Deferred Compensation Plan for Directors. "Company Stock" shall not include any option (or portion thereof) to purchase shares of RJR common stock that has not been exercised by the director. It is generally expected that a Director will not dispose of Company Stock during the first five years of service on the Board, unless the Director holds and retains Company Stock in excess of the minimum threshold level of 10,000 shares.

Last Revised April 30, 2003