As Adopted by the Board of Directors on
The following Corporate Governance Principles and Guidelines have been adopted by the Board of Directors (the "Board") of Refco Inc. (the "Company") to assist the Board in the exercise of its responsibilities. These Corporate Governance Principles and Guidelines are not intended to change or interpret any Federal or state law or regulation, including the Delaware General Corporation Law, or the Certificate of Incorporation or By-laws of the Company. These Corporate Governance Principles and Guidelines are subject to modification from time to time by the Board.
Role of Directors
The business and affairs of the Company shall be managed by or under the direction of the Board. A director is expected to spend the time and effort necessary to properly discharge such director's responsibilities. Accordingly, a director is expected to regularly attend meetings of the Board and committees on which such director sits, and to review prior to meetings material distributed in advance for such meetings. A director who is unable to attend a meeting (which it is understood will occur on occasion) is expected to notify the Chairman of the Board or the chairman of the appropriate committee in advance of such meeting.
The Board's Goals
The Board's goal is to build long-term value for the Company's stockolders and to assure the vitality of the Company for its customers, employees and the other individuals and organizations that depend on the Company.
To achieve these goals the Board will monitor both the performance of the Company (in relation to its goals, strategy and competitors) and the performance of the Chief Executive Officer, and offer him or her constructive advice and feedback. When it is appropriate or necessary, it is the Board's responsibility to remove the Chief Executive Officer and to select his or her successor.
Selection of the Chairman of the Board
The Board does not require the separation of the offices of the Chairman of the Board and the Chief Executive Officer. The Board shall be free to choose its Chairman of the Board in any way that it deems best for the Company at any given point in time. The Board shall appoint, upon the recommendation of the non-management and Independent Directors, a Lead Director if (i) the roles of Chief Executive Officer and Chairman are not separated, or (ii) the Chairman is not otherwise independent.
Size of the Board
The Board believes that it should generally have no fewer than 5 and no more than 12 directors. This range permits diversity of experience without hindering effective discussion or diminishing individual accountability. The size of the Board could, however, be increased or decreased if determined to be appropriate by the Board. For example, it may be desirable to increase the size of the Board in order to accommodate the availability of an outstanding candidate for director.
Selection of New Directors
The Board shall be responsible for nominating members for election to the Board and for filling vacancies on the Board that may occur between annual meetings of stockholders. The Nominating and Corporate Governance Committee is responsible for identifying, screening and recommending candidates to the Board for Board membership. When formulating its Board membership recommendations, the Nominating and Corporate Governance Committee shall also consider advice and recommendations from others as it deems appropriate.
The Nominating and Corporate Governance Committee will consider candidates recommended by stockholders. In considering candidates submitted by stockholders, the Nominating and Corporate Governance Committee will take into consideration the needs of the Board and the qualifications of the candidate. The Nominating and Corporate Governance Committee may establish procedures, from time to time, regarding stockholder submission of candidates.
Board Membership Criteria
The Nominating and Corporate Governance Committee shall be responsible for assessing the appropriate balance of criteria required of Board members.
The Nominating and Corporate Governance Committee may apply several criteria in selecting nominees. At a minimum, the Committee shall consider (a) whether each such nominee has demonstrated, by significant accomplishment in his or her field, an ability to make a meaningful contribution to the Board's oversight of the business and affairs of the Company and (b) the nominee's reputation for honesty and ethical conduct in his or her personal and professional activities. Additional factors which the Committee may consider include a candidate's specific experiences and skills, relevant industry background and knowledge, time availability in light of other commitments, age, potential conflicts of interest, material relationships with the Company and independence from management and the Company.
Other Public Company Directorships
The Company does not have a policy limiting the number of other public company boards of directors upon which a director may sit. However, the Nominating and Corporate Governance Committee shall consider the number of other public company boards and other boards (or comparable governing bodies) on which a prospective nominee is a member.
Although the Company does not impose a limit on outside directorships, it does recognize the substantial time commitments attendant to Board membership and expects that the members of its Board be fully committed to devoting such time as is necessary to fulfill their Board responsibilities, both in terms of preparation for, and attendance and participation at, meetings.
In addition, in recognition of the enhanced time commitments associated with membership on a public company's audit committee, the Board has adopted a policy that no member of the Audit Committee may serve simultaneously on the audit committees of more than two (2) other public companies.
The Board shall comply with the listing standards of the New York Stock Exchange (the "NYSE") with respect to the directors who qualify as independent directors ("Independent Directors").
The Board shall review annually the relationships that each director has with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company). Following such annual review, only those directors whom the Board affirmatively determines have no material relationship with the Company (either directly or as a partner, stockholder or officer of an organization that has a relationship with the Company) will be considered Independent Directors, subject to additional qualifications prescribed under the listing standards of the NYSE or under applicable law. The Board may adopt and disclose categorical standards to assist it in determining director independence. In the event that a director becomes aware of any change in circumstances that may result in such director no longer being considered independent under the listing standards of the NYSE or under applicable law, the directors shall promptly inform the Chairman of the Nominating and Corporate Governance Committee.
Directors Who Change Their Present Job Responsibility
The Board does not believe that directors who retire or change the position they held when they became a member of the Board should necessarily leave the Board. Promptly following such event, the director must notify the Nominating and Corporate Governance Committee, which shall review the continued appropriateness of the affected director's remaining on the Board under the circumstances. The affected director is expected to act in accordance with the Nominating and Corporate Governance Committee's recommendation following such review.
It is the general policy of the Company that no director having attained the age of 72 years shall be nominated for re-election or reappointment to the Board. However, the Board may determine to waive this policy in individual cases.
In connection with each director nomination recommendation, the Nominating and Corporate Governance Committee shall consider the issue of continuing director tenure and take steps as may be appropriate to ensure that the Board maintains an openness to new ideas and a willingness to critically re-examine the status quo. An individual director's renomination is dependent upon such director's performance evaluation, as well as a suitability review, each to be conducted by the Nominating and Corporate Governance Committee in connection with each director nomination recommendation.
A director who is also an officer of the Company shall not receive additional compensation for such service as a director.
The Company believes that compensation for non-employee directors should be competitive and should encourage increased ownership of the Company's stock through the payment of a portion of director compensation in Company stock, options to purchase Company stock or similar compensation. The Compensation Committee will periodically review the level and form of the Company's director compensation, including how such compensation relates to director compensation of companies of comparable size, industry and complexity. Such review will also include a review of both direct and indirect forms of compensation to the Company's directors, including any charitable contributions by the Company to organizations in which a director is affiliated and consulting or other similar arrangements between the Company and a director. Changes to director compensation will be proposed to the full Board for consideration.
Separate Sessions of Non-Management Directors
The non-management directors of the Company shall meet in executive sessions without management on a regularly scheduled basis, but not less frequently than quarterly. The Chairman, if an Independent Director, shall lead such sessions. Otherwise, an Independent Director designated by the non-management directors on the Board (the "Lead Director") shall preside at such executive sessions, or in such director's absence, another Independent Director designated by the non-management directors shall preside at such executive sessions.
In the event that the non-management directors include directors who are not independent under the NYSE listing standards, the Company shall, at least once a year, schedule an executive session including only Independent Directors.
Any interested parties desiring to communicate with the Lead Director and the other non-management directors regarding the Company may directly contact such directors by writing to the desired member of the Board at the following address: c/o Corporate Secretary, Refco Inc., One World Financial Center, 200 Liberty Street, New York, New York 10281, or by sending an e-mail to the e-mail address established by Refco and posted on the Investor Relations page of Refco's website at www.refco.com.
Self-Evaluation by the Board
The Nominating and Corporate Governance Committee will sponsor an annual self-assessment of the Board's performance as well as the performance of each committee of the Board, the results of which will be discussed with the full Board and each committee. The assessment should include a review of any areas in which the Board or management believes the Board can make a better contribution to the Company. The Nominating and Corporate Governance Committee will utilize the results of this self-evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and making recommendations to the Board with respect to assignments of Board members to various committees.
Strategic Direction of the Company
Normally it is management's job to formalize, propose and implement strategic choices and the Board's role to approve strategic direction and evaluate strategic results. However, as a practical matter, the Board and management will be better able to carry out their respective strategic responsibilities if there is an ongoing dialogue among the Chief Executive Officer, other members of top management and other Board members. To facilitate such discussions, members of senior management who are not directors may be invited to participate in Board meetings when appropriate.
Board Access to Management and Advisors
Board members shall have access to the Company's management and, as appropriate, to the Company's outside advisors. Board members shall coordinate such access through the Chairman of the Board or the Chief Executive Officer and Board members will use judgment to assure that this access is not distracting to the business operation of the Company.
The Board may retain, at the expense of the Company, its own advisors to assist the Board in carrying out its duties where appropriate.
Attendance of Management Personnel at Board Meetings
The Board encourages the Chief Executive Officer to bring members of management from time to time into Board meetings to (i) provide management insight into items being discussed by the Board which involve the manager; (ii) make presentations to the Board on matters which involve the manager; and (iii) bring managers with significant potential into contact with the Board. Attendance of such management personnel at Board meetings is at the discretion of the Board. Should the Chief Executive Officer desire to add additional members of management as attendees on a regular basis, this should be suggested to the Board for its concurrence.
Board Materials Distributed in Advance
Information and materials that are important to the Board's understanding of the agenda items and other topics to be considered at a Board meeting should, to the extent practicable, be distributed sufficiently in advance of the meeting to permit prior review by the directors. In the event of a pressing need for the Board to meet on short notice or if such materials would otherwise contain highly confidential or sensitive information, it is recognized that written materials may not be available in advance of the meeting.
Board Interaction with Institutional Investors, Analysts, Press and Customers
The Board believes that management generally should speak for the Company, and that a non-management director, designated by the Board, generally should speak for the Board. It is suggested that each director shall refer all inquiries from institutional investors, analysts, the press or customers to the Chief Executive Officer or his or her designee.
Board Orientation and Continuing Education
The Company shall provide new directors with a director orientation program to familiarize such directors with, among other things, the Company's business, strategic plans, significant financial, accounting and risk management issues, compliance programs, conflicts policies, code of business conduct and ethics, corporate governance principles and guidelines, principal officers, internal auditors and independent auditors. Each director is expected to participate in continuing educational programs to maintain the necessary level of expertise to perform his or her responsibilities as a director. Participation in education programs approved by the Nominating and Corporate Governance Committee shall be at the Company's expense.
Director Attendance at Annual Meetings of Stockholders
Directors are expected to attend the Company's annual meeting of stockholders. A director who is unable to attend the Company's annual meeting of stockholders (which it is understood will occur on occasion) is expected to notify the Chairman of the Board.
Frequency of Meetings
There shall be four regularly scheduled meetings of the Board each year. At least one regularly scheduled meeting of the Board shall be held quarterly.
Selection of Agenda Items for Board Meetings
A "Board of Directors Master Agenda" shall be prepared annually by (i) the Chairman of the Board in consultation with the Chief Executive Officer, if the roles of Chairman and Chief Executive Officer are separated, or (ii) the Lead Director, if the roles of Chairman and Chief Executive Officer roles are not separated or the Chairman is not otherwise independent. This Master Agenda shall set forth a general agenda of items to be considered by the Board at each of its specified meetings during the year. Thereafter, and prior to each meeting, (i) the Chairman of the Board, in consultation with the Chief Executive Officer, if the roles of Chairman and Chief Executive Officer are separated, or (ii) the Lead Director, if the roles of Chairman and Chief Executive Officer are not separated or the Chairman is not otherwise independent, shall discuss and adjust the agenda items, including special items not contemplated during the initial preparation of the annual Master Agenda.
A copy of the Master Agenda shall be provided to the entire Board. Each Board member is encouraged to suggest, prior to meetings, inclusion of items for Board and Committee agendas. Board members may also raise additional subjects for agendas at a meeting, subject to relevancy and time constraints.
Number and Names of Board Committees
The Company shall have three standing committees: an Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee. The purpose and responsibilities for each committee shall be outlined in committee charters adopted by the Board. The Board may want, from time to time, to form a new committee or disband a current committee depending on circumstances. In addition, the Board may determine to form ad hoc committees from time to time, and determine the composition and areas of competence of such committees.
Each of the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee shall comply with applicable legal, regulatory and stock exchange requirements necessary for an assignment of a director to serve on any such committee.
Assignment and Rotation of Committee Members
The Nominating and Corporate Governance Committee shall be responsible, after consultation with the Chairman of the Board, for making recommendations to the Board with respect to the assignment of Board members to various committees. After reviewing the Nominating and Corporate Governance Committee's recommendations, the Board shall be responsible for appointing the Chairman and members to the committees.
The Nominating and Corporate Governance Committee shall annually review the Committee assignments and shall consider the rotation of the Chairman and members with a view toward balancing the benefits derived from continuity against the benefits derived from the diversity of experience and viewpoints of the various directors.
Selection of the Chief Executive Officer
The Board shall be responsible for identifying potential candidates for, and selecting, the Company's Chief Executive Officer. In identifying potential candidates for, and selecting, the Company's Chief Executive Officer, the Board shall consider, among other things, a candidate's experience, understanding of the Company's business environment, leadership qualities, knowledge, skills, expertise, integrity, and reputation in the business community.
Evaluation of Chief Executive Officer
The Nominating and Corporate Governance Committee shall be responsible for providing the Chief Executive Officer with an annual performance review and shall report to non-management directors in executive session on its evaluation of the Chief Executive Officer.
The Board shall plan for the succession to the position of the Chief Executive Officer, including succession in the event of the sudden resignation, retirement or disability of the Chief Executive Officer. To assist the Board, the Chief Executive Officer shall prepare an annual report on succession planning for all senior officers of the Company with an assessment of senior managers and their potential to succeed the Chief Executive Officer and other senior management positions.
The Board shall determine that a satisfactory system is in effect for education, development, and orderly succession of senior and mid-level managers throughout the Company.
Communicating With the Board
Stockholders are invited to communicate to the Board or its committees by writing to:
Board of Directors
c/o Corporate Secretary
One World Financial Center
or by sending an e-mail to the e-mail address established by Refco and posted on the Investor Relations page of Refco's website at www.refco.com.