The Black & Decker Corporation
Corporate Governance
Policies and Procedures
Statement
A. Introductory Statement
This Statement is adopted by the Board of Directors of The Black & Decker
Corporation to set out the policies and procedures by which the Board performs
its duties to direct the management of the Corporation as provided in the laws
of Maryland, to assure compliance with state and federal laws and regulations
and applicable rules of the New York Stock Exchange (NYSE), and to assure that
the Corporation acts effectively and efficiently in the best interests of its
stockholders and other constituencies.
B. Board of Directors
1. Membership
a. Number. As provided in the Bylaws, there shall be not more that
14 Directors and not less than 8 as the Board may provide by
resolution from time to time.
b. Independent Directors. Not less than three-quarters of the
Directors shall be "independent Directors" as defined in this section.
(1) A Director is not independent unless the Board affirmatively
determines that the Director has no material relationship with
the Corporation, either directly or as a partner, shareholder, or
officer of an organization that has a relationship with the
Corporation. The Corporation will identify in its annual meeting
proxy statement which Directors are independent and disclose the
basis for the determination.
(2) A Director is not independent if the Director is, or within
the last three years has been, an employee of the Corporation or
an immediate family member is, or within the last three years has
been, an "executive officer" (as defined in Rule 16a-1(f) under
the Securities Exchange Act of 1934) of the Corporation. A
Director who serves as an interim Chairman, Chief Executive
Officer (CEO) or other executive officer, however, may be deemed
independent immediately following that employment.
(3) A Director is not independent if the Director or an
immediate family member has received from the Corporation, during
any twelve-month period within the last three years, more than
$100,000 in direct compensation other than Director and committee
fees and pension or other
forms of deferred compensation for prior service that is not
contingent on continued service. Compensation received by the
Director for former service as an interim Chairman, CEO, or other
executive officer and compensation received by an immediate
family member for service as an employee (other than an executive
officer) is excluded when determining independence under this
subsection.
(4) A Director is not independent if (a) the Director or an
immediate family member is a current partner of the Corporation's
internal or external auditor, (b) the Director is a current
employee of the Corporation's internal or external auditor, (c)
an immediate family member is a current employee of the internal
or external auditor and participates in the auditor's audit,
assurance, or tax compliance (but not tax planning) practice, or
(d) the Director or an immediate family member was within the
last three years (but is not currently) a partner or employee of
the internal or external auditor and personally worked on the
Corporation's audit within that time.
(5) A Director is not independent if the Director or an
immediate family member is, or within the last three years has
been, employed as an executive officer of another company where
any of the Corporation's current executive officers at the same
time serves or served on that company's compensation committee.
(6) A Director is not independent if 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 Corporation for property or services in an
amount that, in any of the last three fiscal years, exceeds the
greater of $1 million or 2% of the company's consolidated gross
revenues.
(7) The term "immediate family member" includes a Director's
spouse, parents, children, siblings, mothers and fathers-in-law,
brothers and sisters-in-law, sons and daughters-in-law, and
anyone (other than domestic employees) who shares the Director's
home.
c. Eligibility.
(1) A Director shall not stand for re-election as a Director
after attaining the age of 72 years.
(2) Unless requested by the Corporate Governance Committee to do
so, a Director shall not stand for re-election if there is a
change in the Director's employment or principal business
association.
2
(3) A Director who is a full-time employee of the Corporation
may not serve on the board of directors of more than two other
publicly held for-profit corporations unless approved by the
Board.
d. Orientation.
(1) Each newly elected Director who has not served previously on
the board of directors of a for-profit corporation listed on the
NYSE will be afforded an opportunity to attend, at the
Corporation's expense, an orientation course provided by the NYSE
when it becomes available.
(2) Each newly elected Director shall be provided with a copy of
the Corporation's Directors Handbook, which includes this
Statement, financial information, and other written materials
appropriate to inform the Director about the duties and
responsibilities of being a Director and the nature of the
Corporation's operations and businesses.
(3) Each newly elected Director shall also be afforded an
opportunity (a) to meet with the CEO, the Chief Financial Officer
(CFO), and the president of each major business group to discuss
the Corporation's structure and operations and (b) to visit the
Corporation's major facilities.
e. Stock Ownership. Within the later of three years of joining the
Board or three years of the adoption of this Statement by the Board, a
Director is expected to own shares of the Corporation's common stock
having a market value of at least $150,000.
2. Selection of Directors.
a. Qualifications and Standards. Although there are no specific
minimum qualifications that must be met by a candidate to be
recommended to the Board nor any specific qualities or skills that the
candidate must possess, the following are desirable.
(1) Integrity. A Director candidate should have proven integrity
and a record of substantial achievement.
(2) Age. A Director candidate should be old enough to exercise
mature judgment, but young enough to serve for several years.
Ordinarily, the candidate should be between 45 and 60 years of
age.
(3) Experience. Preferably, a candidate should be the active or
retired chief executive officer of a corporation that is publicly
held and of comparable size. Presidents, chief operating
officers, chief financial officers, and other qualified and
prominent individuals who have business acumen and whose relevant
background, training, and experience can be expected to benefit
the Corporation should also be considered.
3
(4) Judgment. A candidate should have a reputation for sound
business judgment. It is important that a candidate understands
the role of the Board and the workings of the Corporation in the
current business environment. A candidate should be able
objectively to appraise management's plans, programs,
achievements, and shortcomings.
(5) Character. Candidates must inspire trust and confidence in
other Directors so that the Board can discharge its duties
smoothly and efficiently.
(6) Prestige. A candidate should add to the prestige of the
Board. This will enhance the Corporation's reputation and make
future recruiting easier.
(7) Commitment. A candidate should be able and willing to devote
the required amount of time to the Corporation's affairs,
including preparing for and attending meetings of the Board and
its committees and attending annual meetings of stockholders.
(8) No Conflicts. A candidate may not have a conflict of
interest with the Corporation. For this purpose, a candidate has
a conflict of interest if the candidate has a business
relationship that would be required to be disclosed in the
Corporation's proxy statement. In addition, it is preferable that
the candidate qualify as an independent Director as defined in
section B.1.b of this Statement.
(9) Representation. A candidate must be committed to
representing the interests of stockholders generally and not the
interests of a particular stockholder or group of stockholders
nor the interests of a particular group whose interests are
primarily non-economic or involve a social agenda.
b. Procedure.
(1) When a vacancy occurs on the Board or when the Board
increases the number of Directors, the Corporate Governance
Committee will identify potential candidates to fill the vacancy.
(2) Background information on each candidate will be distributed
to the members of the Corporate Governance Committee.
(3) The Corporate Governance Committee will screen recommended
candidates, and, if appropriate, make discreet inquiry to
determine the candidate's interest and availability.
(4) Unless eliminated by the screening, the candidate's name
will be reported to the Board and the Board members will be asked
for comments.
4
(5) One or more members of the Committee will meet with the
candidate and determine the candidate's suitability for the
Board.
(6) The approved candidate's name and biographical information
will be distributed to the other Directors at or in advance of
the meeting preceding the meeting at which the candidate will be
proposed for election.
(7) The full Board will act on the nomination.
(8) The Committee will consider candidates proposed by one or
more substantial, long-term stockholders. Generally, stockholders
who individually or as a group have held 5% of the Corporation's
common stock for over one year will be considered substantial,
long-term stockholders.
(9) In considering candidates proposed by stockholders, the
Committee will apply the qualifications and standards stated in
section B.2.a.
3. Duties and Responsibilities.
a. General.
(1) Within limits defined by statute and the charter and bylaws
of the Corporation, the Board of Directors shall exercise general
powers as the governing body of the Corporation. The Board is the
final authority with respect to the overall policies of the
Corporation and with respect to the approval of objectives and
goals for the Corporation and the evaluation of management's
performance in relation to those policies, objectives, and goals.
(2) The day-to-day management of the business is delegated to
the CEO of the Corporation.
(3) As trustees of the business, the Directors have a fiduciary
responsibility to the Corporation's stockholders. The Directors
may also consider the interests of the Corporation's other
constituencies such as its employees, customers, and the
communities in which the Corporation operates, provided there are
rationally related benefits accruing to the Corporation's
stockholders.
(4) Management has the responsibility to provide to the
Directors all information necessary or appropriate to enable the
Directors to discharge their duties and responsibilities.
Directors must be aware, at all times, that
5
the information that is presented to them is confidential pending
its release to the public.
b. Statutory Duties.
(1) A Director shall perform his or her duties as a Director,
including duties as a member of a committee of the Board, (a) in
good faith, (b) in a manner that the Director reasonably believes
to be in the best interests of the Corporation, and (c) with the
care that an ordinarily prudent person in a like position would
use under similar circumstances.
(2) In performing his or her duties, a Director is entitled to
rely on any information, opinion, report, or statement, including
any financial statement or other financial data, prepared or
presented by (a) an officer or employee of the Corporation whom
the Director reasonably believes to be reliable and competent in
the matters presented, (b) a lawyer, certified public accountant,
or other person, as to a matter that the Director reasonably
believes to be within the person's professional or expert
competence, or (c) a committee of the Board on which the Director
does not serve, as to a matter within its designated authority,
if the Director reasonably believes the committee merits
confidence. A Director is not acting in good faith if the
Director has any knowledge concerning the matter in question that
would cause the reliance to be unwarranted.
c. Specific Duties.
Specific duties include:
(1) Acquisitions and Mergers. With the advice of the Finance
Committee, authorize significant acquisitions and mergers,
subject to approval by the stockholders when necessary.
(2) Budgets. With the advice of the Finance Committee, review
and approve annual capital expenditure and charitable
contributions budgets.
(3) Bylaws. With the advice of the Corporate Governance
Committee, review and approve changes in the Corporation's
Bylaws.
(4) Committees. With the advice of the Corporate Governance
Committee, elect or appoint, define the powers of, and dissolve
committees of the Board.
(5) Dividends. With the advice of the Finance Committee,
determine dividend policy and authorize the payment of dividends.
(6) Employee Benefits. With the advice of the Compensation
Committee, approve major compensation plans, including stock
option plans and other equity-based plans, and any significant
changes to any of
6
these, and, in the case of equity-based plans, submit them to the
stockholders for approval if required by the rules of the NYSE.
(7) Ethical and Professional Standards. With the advice of the
Corporate Governance Committee, adopt ethical and professional
standards for the Corporation and assure, through continuing
review, that Directors, officers, and employees act in accordance
with established and accepted ethical and business standards,
including compliance with the Corporation's Code of Ethics and
Standards of Conduct, a copy of which as amended from time to
time is attached to this Statement as Appendix 1, and, with the
advice of the Audit Committee, the Code of Ethics for Senior
Financial Officers, a copy of which as amended from time to time
is attached to this Statement as Appendix 2.
(8) Financial Transactions. With the advice of the Finance
Committee, review and approve financial transactions as provided
in the Board's standing resolution on Approval of Financial
Transactions and the Corporation's Short-Term Investment Policy
and review and approve registration statements and other
documents relating to the public sale of the Corporation's
securities.
(9) Officers. With the advice of the Compensation Committee,
elect and, when appropriate, remove the CEO and other principal
officers of the Corporation, delegate management responsibility
and authority to them, and, through the Compensation Committee,
monitor their performance and establish their compensation.
(10) Stockholders. With the advice of the Corporate Governance
Committee, fix the date, time and place of all meetings of
stockholders, fix the record date for stockholders entitled to
vote at each meeting of stockholders, appoint management proxies
and proxy solicitors, and call special meetings as required.
(11) Audit Committee Funding. Cause the Corporation to provide
appropriate funding, as determined by the Audit Committee, for
payment of compensation to the Corporation's independent auditor,
compensation to any advisors employed by the Audit Committee, and
the administrative expenses of the Audit Committee that are
necessary or appropriate in carrying out its duties.
4. Organization.
a. Chairman. At the first Board meeting following a meeting of
stockholders at which Directors were elected, the Board will elect a
Chairman from among its members who shall preside at all meetings of
the Board and the stockholders.
7
b. Secretary. The Secretary or an assistant secretary of the
Corporation will record the proceedings at all meetings of the Board
except that, during executive sessions of the Board from which the
Secretary is excluded, another person present shall be designated by
the Chairman or Presiding Director to act as secretary of the meeting.
c. Presiding Director. Each chairman of a standing committee who is
a non-management Director shall serve in rotation in order of
seniority as Presiding Director. The Presiding Director shall preside
at all executive sessions of the Board from which management Directors
are excluded. Directions as to how interested parties may make their
concerns known to the Presiding Director will be disclosed in the
Corporation's annual meeting proxy statement.
5. Meetings.
a. Attendance. Each Director has a duty to attend, whenever
possible, all meetings of the Board and of each committee of which the
Director is a member.
b. Regular Meetings. The Board will meet, without notice,
immediately after each annual meeting of stockholders, and, subject to
the notice provisions of the Bylaws, in the months of February, July,
October, and December on a day and at a time designated by the CEO.
c. Special Meetings.Special meetings may be called, subject to the
notice provisions of the Bylaws, at any time by the CEO or any two
Directors.
d. Executive Sessions. To allow full and candid discussion among
non-management Board members of matters important to the Corporation,
the non-management Directors (i.e., Directors who are not officers)
shall meet in executive session without management following the
regular Board meetings in February, July, and December. (If there are
one or more non-management directors who are not also independent
directors, the independent directors shall meet in executive session
at least once each year.) The Presiding Director shall preside, and,
in the absence of the Presiding Director, the non-management Directors
present will choose a Presiding Director pro tem to preside over the
executive session. Directions as to how interested parties may make
their concerns known to the non-management Directors as a group will
be included in the Corporation's annual meeting proxy statement.
e. Meeting Materials. Agendas and meeting materials will be
distributed in advance of Board and committee meetings, and each
Director has a duty to review the materials prior to the meetings.
8
6. Committees.
a. General.
(1) The Board, at its discretion, may appoint or elect from
among its members committees of one or more Directors to deal
with particular areas of the Corporation's activities and
interests. All members of committees serve at the pleasure of the
Board and may be removed by the Board at any time.
(2) To the extent practicable, any matter requiring action by
the Board shall first be presented to the appropriate committee
for consideration and recommendation.
(3) To the extent practicable, the CEO shall attend each
committee meeting unless the committee is meeting in executive
session.
(4) The CEO shall designate an officer, employee, or agent of
the Corporation to provide staff support to each committee.
(5) Charters of the standing committees will be published from
time to time as required by rules of the Securities and Exchange
Commission (SEC) or the NYSE.
b. Standing Committees. There are five standing committees of the
Board:
(1) Executive Committee,
(2) Audit Committee,
(3) Compensation Committee,
(4) Corporate Governance Committee, and
(5) Finance Committee.
c. Special Committees. Special committees may be appointed from time
to time by the Board to act upon such matters as the Board may commit
to them.
d. Membership.
(1) The members of each standing committee are appointed (or, in
the case of the Executive Committee, elected) annually by the
Board at its first meeting following the annual meeting of
stockholders.
(2) A majority of each standing committee (and all of the
members of the Audit Committee, the Compensation Committee, and
the Corporate
9
Governance Committee) shall be independent Directors as defined
in section B.1.b of this Statement.
(3) The chairman of each committee is designated by the Board at
the time the committee is elected or appointed.
(4) Special committees may be created by resolution of the Board
or appointed by the Chairman of the Board. They shall consist of
the number of Directors that the resolution creating the
committee or the Chairman of the Board in creating the committee
shall provide.
(5) Under normal circumstances, each Director shall serve on at
least one standing committee, and no Director shall serve as
Chairman of more than one standing committee.
(6) Consideration should be given to rotating committee
assignments at approximately five-year intervals, but the Board
recognizes that there may be reasons to retain a particular
Director on a particular committee for a longer period.
e. Committee Service Compensation. In addition to the annual
retainer for serving as a Director, each Director who is not a
full-time employee of the Corporation receives:
(1) An annual retainer of $10,000 for service on the Audit
Committee and $10,000 for service as chairman of a standing
committee other than the Executive Committee, prorated as of the
date of appointment if the appointment is made at other than an
annual meeting of the Board; and
(2) Reimbursement for reasonable expenses incurred in attending
committee meetings.
f. Operation. Each Committee:
(1) Shall appoint a secretary who may, but need not, be a member
of the Committee;
(2) Shall keep minutes of its proceedings;
(3) May determine its own procedures;
(4) May call upon the Corporation's officers, employees,
counsel, auditors, and consultants and may retain at the
Corporation's expense other professional advisers and consultants
as it may choose;
(5) May appoint subcommittees of its members to perform
particular functions on behalf of the Committee; and
10
(6) May meet by telephone conference call or similar
communications equipment if all persons participating in the
meeting can hear each other at the same time.
7. Director Compensation.
a. General. Compensation of Directors is authorized from time to
time by resolution of the Board with the advice of the Corporate
Governance Committee. Directors who are full-time employees serve
without additional compensation. Compensation, including compensation
for service on a committee, may be deferred as provided in The Black &
Decker Non-Employee Directors Stock Plan.
b. Annual Retainer. Directors who are not full-time employees of the
Corporation receive, as of the date of election or re-election to the
Board, an annual retainer of $150,000 payable one-half in shares of
stock under the Non-Employee Directors Stock Plan and the balance in
cash. A Director may elect to receive all or any part of the cash
portion in shares of stock. A Director who elects to receive all or
any part of the cash portion in shares of stock and defer receiving
the shares under The Black & Decker Corporation Deferred Compensation
Plan for Non-Employee Directors shall be credited with shares having a
Fair Market Value (as defined in The Black & Decker Non-Employee
Directors Stock Pan) equal to 120% of the amount of cash deferred. If
a person is elected a Director other than at an annual meeting of
stockholders, the compensation will be prorated as of the date when
the Director was elected.
c. Expenses. The Corporation will reimburse Directors for travel on
behalf of the Corporation, including travel to attend meetings of the
Board or Board committees, and travel-related expenses.
d. Insurance. The Corporation provides $100,000 of term life
insurance for each non-employee Director. The Corporation also
provides $200,000 of accident insurance coverage during each day that
a non-employee Director is traveling in connection with Corporate
business.
8. Access to Management and Independent Advisors. The Board and each
Director shall have direct access at all times to members of management
and, preferably through the Audit Committee, to the Corporation's
independent auditor. The Board may retain at the Corporation's expense such
independent consultants and advisors as it may choose.
9. Annual Performance Assessment. Under the oversight of the Corporate
Governance Committee, the Board shall conduct annually a self-evaluation to
determine whether it and its committees are functioning effectively and
take any action that it deems appropriate to improve its ability to oversee
and guide the Corporation.
11
10. Communications from Stockholders. In addition to the procedures
provided for any interested party to communicate with the Presiding
Director (section B.4.c) and the non-management Directors as a group
(section B.5.d), stockholders also may communicate with individual
Directors or the whole Board by sending communications, marked to show that
they are stockholder communications, in care of the Corporate Secretary. If
addressed to individual Directors, the communications will be forwarded,
unopened, to those Directors, and if addressed to the whole Board, will be
forwarded, unopened, to the Chairman of the Corporate Governance Committee
for review and appropriate dissemination.
C. Charters of Standing Committees.
1. Executive Committee Charter.
a. Members. The Executive Committee is composed of not less than
five members elected annually by the Board of whom the Chairman shall
be one. A majority of the members shall be independent Directors as
defined in section B.1.b of this Statement. Normally, the chairman of
each of the other standing committees will be elected a member of the
Executive Committee. The Bylaws provide that in the absence of any
member of the Executive Committee, the members who are present at any
meeting, whether or not they constitute a quorum, may appoint a
Director who is present to act in the place of the absent member.
b. Functions. During the intervals between the meetings of the
Board, the Executive Committee may exercise all of the powers of the
Board in the management and direction of the affairs of the
Corporation subject to (1) specific directions of the Board and (2)
the Maryland General Corporation Law, which provides that such a
committee may not (a) declare dividends or other distributions on
stock, (b) issue stock other than pursuant to general authority
granted by resolution of the Board, (c) recommend to the stockholders
any action requiring stockholders' approval, (d) amend the Bylaws, or
(e) approve any merger or share exchange that does not require
stockholder approval. The Executive Committee will also act in a
general and advisory capacity to management.
c. Staff Support. General Counsel; Corporate Secretary.
2. Audit Committee Charter.
a. Members. The Audit Committee is composed of not less than three
members, appointed annually by the Board, each of whom (1) is an
independent Director as defined in section B.1.b of this Statement,
(2) meets the requirements of Section 303A(2) of the NYSE Listed
Company Manual and Rule 10A-3(b)(1) of the SEC, (3) except fees for
service as a Director or as a member of a committee of the Board,
accepts no other consulting, advisory, or other compensatory fee from
the Corporation, and (4) is not an affiliated person of the
12
Corporation or any subsidiary of the Corporation. All members shall be
able to read and understand fundamental financial statements,
including the Corporation's balance sheet, income statement, and cash
flow statement. In addition, at least one member shall qualify as an
"audit committee financial expert" as defined by the SEC. A member may
not serve simultaneously on the audit committee of more than three
public companies unless the Board determines that the additional
service will not impair the member's ability to serve effectively on
the Corporation's Audit Committee and discloses the determination in
the Corporation's annual meeting proxy statement.
b. Purpose. The Audit Committee, among other things, assists the
Board in overseeing the integrity of the Corporation's financial
statements, the Corporation's compliance with legal and regulatory
requirements, the independent auditor's qualifications and
independence, and the performance of the Corporation's internal
auditors and independent auditor. The Committee is directly
responsible for the appointment, compensation, retention, and
oversight of the work of the independent auditor, who shall report
directly to the Committee. The Committee also prepares a report to be
included in the Corporation's annual meeting proxy statement as
required by the rules of the SEC.
c. Functions. The Audit Committee will:
(1) Retain and terminate, on its sole authority, the
Corporation's independent auditor and approve all audit
engagements and the scope, fees, and terms of each engagement.
(2) Approve in advance any non-audit engagements of the
independent auditor permitted by Section 201 of the
Sarbanes-Oxley Act of 2002 and assure that the approval is
disclosed in the Corporation's periodic reports as required by
law.
(3) At least annually, obtain and review a report by the
independent auditor describing the auditor's internal
quality-control procedures, any material issues raised by the
most recent internal quality-control review or peer review of the
auditor or by any inquiry or investigation by governmental or
professional authorities within the preceding five years with
respect to one or more independent audits carried out by the
auditor, and any steps taken to deal with any such issues, and
(to assess the auditor's independence) all relationships between
the independent auditor and the Corporation.
(4) Require the independent auditor to provide a written
statement of all relationships between the auditors and the
Corporation consistent with Independence Standards Board Standard
No. 1.
13
(5) Evaluate the independent auditor's qualifications,
performance, and independence, including review and evaluation of
the lead partner of the independent auditor, taking into account
the opinions of management and the Corporation's internal
auditors, and assure the rotation of the lead audit partner, the
reviewing audit partner, and other audit personnel as required by
law.
(6) Receive and review reports of the independent auditor
regarding critical accounting policies and practices to be used,
all material alternative treatments of financial information
within GAAP that have been discussed with management, the
ramifications of using the alternative disclosures and treatments
and the treatment preferred by the independent auditor, and other
material written communications between the independent auditor
and management, including any management representation letter,
report on observations and recommendations on internal controls,
schedule of unadjusted differences, and a listing of adjustments
and reclassifications not recorded.
(7) Present to the Board the Audit Committee's conclusions with
respect to the independent auditor.
(8) Meet to review and discuss the Corporation's annual audited
financial statements and quarterly financial statements,
including reviewing the Corporation's specific disclosures under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," with management and the independent
auditor.
(9) Review and discuss with management the financial statements
in the Corporation's Annual Report on Form 10-K, discuss with the
independent auditor the matters required to be discussed by
Statement on Auditing Standards No. 61, and based on the review
and discussion, recommend to the Board that the audited financial
statements be included in the Annual Report on Form 10-K.
(10) Discuss earnings press releases and the general types of
information to be provided to securities analysts and rating
agencies. The discussion of earnings press releases may be
conducted without a meeting of the Committee by the Chairman or
the Chairman's designee and any available members.
(11) Discuss policies with respect to risk assessment and risk
management, including guidelines and policies that govern the
process by which risk assessment and risk management is
undertaken and the steps management has taken to monitor and
control the exposures.
14
(12) Periodically, meet separately with the CFO, the General
Counsel, the Controller, the General Auditor, and the independent
auditor.
(13) Review regularly with the independent auditor any audit
problems or difficulties, including any restrictions on the scope
of the independent auditor's activities or access to requested
information, any significant disagreements with management and
management's response.
(14) Set clear hiring policies for employees and former employees
of the independent auditor.
(15) Establish procedures for (a) receiving, retaining, and
handling complaints received by the Corporation regarding
accounting, internal accounting controls, or auditing matters,
and (b) the confidential, anonymous submission by employees of
the Corporation of concerns regarding questionable accounting or
auditing matters.
(16) Serve as a channel of communication between the Board and
the independent auditor.
(17) At least annually, meet with the General Auditor to review
the internal audit organization, the adequacy of resources
committed to the function, the adequacy of the system of internal
controls, procedures, and programs, the results of activities,
and the responsibilities, budget, and staffing of the
Corporation's internal audit function.
(18) Review significant accounting principles and financial
statement presentations, including any material changes in the
Corporation's selection or application of accounting principles.
Review significant judgments made in connection with the
preparation of the financial statements, including any material
exposures and related reserves and any off-balance sheet
structures.
(19) Assess compliance of the Corporation's CEO, CFO and
Controller with the Code of Ethics for Senior Financial Officers
set out in Appendix 2 to this Statement, report material
violations to the Board, and recommend to the Board appropriate
action.
(20) Review the expenses of the executive officers.
(21) Report the Audit Committee's charter, charter amendments,
and activities in the Corporation's annual meeting proxy
statement as required by the rules of the SEC.
15
(22) Review the certificates of the CEO and the CFO relating to
the annual and quarterly reports and monitor the establishment,
maintenance, and evaluation by the CEO and the CFO of the
disclosure controls and procedures and internal control over
financial reporting required by the SEC.
(23) Quarterly, receive a report from the General Auditor
regarding any transactions that are out of the ordinary course of
business between Directors or executive officers and the
Corporation.
(24) Annually, adopt a schedule for discharge of the Committee's
duties and responsibilities.
(25) Review compliance with the provisions of the Corporation's
Code of Ethics and Standards of Conduct (Appendix 1) dealing with
conflicts of interest, improper payments, and secret accounts.
(26) As appropriate and at the expense of the Corporation, retain
and obtain advice and assistance from outside legal, accounting,
or other advisors without seeking Board approval.
(27) Annually, review and reassess the adequacy of the charter of
the Audit Committee.
(28) Annually, conduct an evaluation of the Audit Committee's
performance.
(29) Report regularly to the Board.
d. Staff Support. CFO; Controller; General Counsel; General Auditor.
3. Compensation Committee Charter
a. Members. The Compensation Committee is composed of not less than
three members appointed annually by the Board. All members shall be
independent directors as defined in section B.1.b of this Statement.
b. Purpose. The Compensation Committee, among other things, assists
the Board in matters relating to executive compensation, establishes
goals for the award of incentive or performance-based compensation,
administers the Corporation's stock option and similar plans, and
monitors the performance of the executive officers.
16
c. Functions.
(1) Annually, review and approve goals and objectives relevant
to compensation of the CEO, evaluate the CEO's performance in
light of those goals and objectives, and recommend to the
independent members of the Board the CEO's compensation level
based on that evaluation.
(2) On a continuing basis, review the Corporation's
organizational structure.
(3) On a continuing basis, maintain plans for succession in the
officer ranks to cover losses both by normal attrition and by
premature death, incapacity, or retirement.
(4) Review and recommend to the Board the election and removal
of elected corporate officers.
(5) Review annually the job objectives and job performance of
the executive officers.
(6) In addition to (1) above, review and recommend to the Board
salaries and benefits for the executive officers.
(7) Review and make recommendations to the Board with respect to
incentive compensation plans and equity-based compensation plans.
(8) Administer all short-term and long-term incentive
compensation plans and all equity-based plans, including acting
as the stock option committee under all of the Corporation's
stock option plans.
(9) Monitor compliance with the Corporation's policy regarding
stock ownership by executives.
(10) If a compensation consultant is to assist in the evaluation
of CEO or other senior executive compensation, retain and
terminate the consulting firm and approve the firm's fees and
other retention terms, all on the Compensation Committee's sole
authority.
(11) Produce a report on executive officer compensation for
inclusion in the Corporation's annual meeting proxy statement in
accordance with applicable rules and regulations.
(12) Annually, conduct an evaluation of the Compensation
Committee's performance.
17
(13) Report all significant actions to the Board at the next
regular Board meeting.
d. Staff Support. Senior Vice President--Human Resources; General
Counsel.
4. Corporate Governance Committee Charter.
a. Members. The Corporate Governance Committee is composed of not
less than three members appointed annually by the Board. All members
shall be independent directors as defined in section B.1.b of this
Statement.
b. Purpose. The Corporate Governance Committee, among other things,
identifies individuals qualified to become Directors, recommends to
the Board a slate of Director-nominees for the next annual meeting of
stockholders, recommends members of the standing committees, and
develops and recommends to the Board corporate governance principles.
c. Functions.
(1) Develop and recommend to the Board a set of corporate
governance principles to be set forth in this Statement, review
this Statement on a continuing basis, and recommend to the Board
appropriate changes in this Statement.
(2) Propose to the Board at its December meeting a slate of
Directors for submission to the stockholders at their annual
meeting.
(3) Monitor Directors for independence as defined in section
B.1.b. of this Statement and report to the Board at its February
meeting any relationships that require a determination by the
Board of materiality for reporting purposes.
(4) Handle problems regarding Directors who because of physical
or mental condition or for other reasons become unfit to serve.
(5) Review and recommend to the Board any appropriate changes in
the Corporation's criteria for selecting new directors.
(6) Consistent with the Qualifications and Standards stated in
section B.2.a, recommend candidates for election to the Board to
fill vacancies and participate in interviewing prospective
candidates. The Committee shall have sole authority to retain,
terminate, and approve the compensation of search firms to assist
it in performing this function.
18
(7) Review for compliance with Section 3 of Article II of the
Bylaws the nominations of director candidates made by
stockholders and determine the eligibility of each proposed
nominee.
(8) Nominate annually members of the standing committees for
presentation to the Board at its annual meeting and, on a
continuing basis, recommend changes as appropriate.
(9) Annually, review the Corporation's Code of Ethics and
Standards of Conduct and compliance with the Code.
(10) Review and recommend changes in compensation and benefits
for service on the Board and committees of the Board.
(11) Monitor compliance with the Corporation's policy regarding
stock ownership by Directors.
(12) Oversee the annual self-evaluation of the Board and the
evaluation of management.
(13) Conduct an annual evaluation of the Corporate Governance
Committee's performance.
(14) Report all significant actions to the Board at the next
regular Board meeting.
d. Staff Support. General Counsel; Corporate Secretary.
5. Finance Committee Charter.
a. Members. The Finance Committee is composed of not less than three
members, appointed annually by the Board. A majority of the members
shall be independent Directors as defined in section B.1.b of this
Statement.
b. Purpose. The Finance Committee, among other things, monitors
generally the financial performance of the Corporation, recommends
dividends, reviews and recommends offerings of the Corporation's
securities, and reviews the Corporation's investments.
c. Functions.
(1) Review the Corporation's financial policies and procedures.
(2) Review operating and financial results.
(3) Give financial advice to management.
19
(4) Consider and make recommendations to the Board regarding
corporate financing and the issuance and sale of the
Corporation's securities.
(5) Review annual operating budgets and review and recommend to
the Board annual capital expenditure budgets and charitable
contributions budgets.
(6) Review purchases of fixed assets (including capital leases)
and sales of fixed assets (including land and buildings) and act
upon them in accordance with the Board's standing resolution on
Approval of Financial Transactions.
(7) Consider and make recommendations to the Board on dividends.
(8) Review and act upon borrowings and prepayment of borrowings
in accordance with the Board's standing resolution on Approval of
Financial Transactions.
(9) Review mergers, acquisitions, divestitures, and similar
transactions in accordance with the Board's standing resolution
on Approval of Financial Transactions.
(10) Annually review and ratify all investments (defined as total
assets less inter-company accounts receivable and non-guaranteed
third party accounts payable) in "high risk" countries, and
review and recommend to the Board investments in "high risk"
countries in accordance with the Board's standing resolution on
Approval of Financial Transactions.
(11) Oversee generally the provisions of and operations of the
various pension plans and similar benefit programs and operating
pension committees of the Corporation and its subsidiaries.
Specifically:
(a) Periodically review the investment policies and
management of major pension funds.
(b) Annually, review funding levels of non-insured defined
benefit plans.
d. Staff Support. CFO; Treasurer.
D. Officers.
1. Evaluation of the CEO. With the advice of the Compensation Committee,
the Board will conduct annually, in executive session, a formal evaluation
of the CEO. The review will be based on the accomplishment of goals and
objectives established by the
20
Compensation Committee. The evaluation will be communicated to the CEO by
the Chairman of the Compensation Committee.
2. Management Development and Succession Planning. With the advice of the
Compensation Committee, the Board will review annually the Corporation's
plans for management development and succession planning for key executive
positions.
3. Communications with Media and Others. The CEO is responsible for all
communications with the media, the financial community, and similar
external entities pertaining to the affairs of the Corporation. Directors
should refer all inquiries from such entities to the CEO.
4. Stock Ownership by Executives.
a. Policy. The Corporation encourages stock ownership by its
principal elected corporate officers to more closely align their
interests with those of the Corporation's stockholders.
b. Goal. Each of the following officers is expected to own stock of
the Corporation having a market value equal to the multiple of his or
her annual salary as follows:
(1) CEO: 5
(2) Executive, Senior, and
Group Vice Presidents: 3
(3) Vice Presidents: 2
c. Intermediate Goal. Until the applicable goal is achieved, each
officer is expected to retain 50% of the "net shares" received under
the Corporation's stock-based compensation plans. "Net shares" are the
shares remaining after deducting shares for the payment of taxes and
the exercise price of stock options.
d. Exception. This policy does not apply to officers who have
attained 60 years of age.
E. Business Practices.
1. Code of Ethics and Standards of Conduct. The Board has adopted a Code
of Ethics and Standards of Conduct, a copy of which, as amended from time
to time, is attached as Appendix 1.
2. Code of Ethics for Senior Financial Officers. The Board has adopted a
Code of Ethics for Senior Financial Officers, a copy of which, as amended
from time to time, is attached as Appendix 2.
21
Adopted by the Board of Directors February 13, 2003
Amended February 12, 2004.
Amended October 21, 2004.
Amended December 9, 2004
22