The Board of Directors of AT&T Corp. has adopted the following guidelines to reflect the principles by which the Company operates. The Board will review these guidelines from time to time and make such changes as it deems necessary and appropriate.
1. Role of the Board of Directors.
The Board of Directors is elected by shareholders to provide oversight and strategic guidance to senior management. The core responsibility of the Board of Directors is to exercise their fiduciary duty to act in the best interest of the Company and its shareholders. In discharging that obligation, the directors should be entitled to rely on the honesty and integrity of the Company's senior management and its outside advisors and auditors. The Board selects and oversees the members of senior management, to whom the Board delegates the authority and responsibility for the conduct of the day-to-day operations of the business.
Directors are expected to attend Board meetings and meetings of committees on which they serve, as well as the Company's annual meeting of shareholders, to ask questions and engage in discussion, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities.
2. Code of Conduct
Each member of the Board of Directors shall at all times exhibit high standards of integrity and ethical behavior. Each director shall adhere to the applicable Company policies concerning integrity and ethical behavior which the Company's management and employees are subject, including the AT&T Code of Conduct and its policies on competition and insider trading. Directors shall promptly notify the CEO and Corporate Secretary if any actual or potential conflict of interest arises between the director and the Company. If a significant conflict exists and can not be resolved, the director should resign. Directors will recuse themselves from any Board discussion or decision affecting their personal, business or professional interests. The Audit Committee will consider, and the Board will resolve, any conflicts of interest or code of conduct questions concerning directors or senior management, and the CEO will resolve any such questions involving any other officer of the Company. The Governance and Nominating Committee shall consider issues involving possible conflicts of interests of directors.
3. Selection of Board Members
All Board members are elected each year by the Company's shareholders at the annual meeting of shareholders. The Board recommends to the shareholders a slate of nominees for election at the annual meeting. Between annual meetings of shareholders, the board may elect directors to serve until the next annual meeting. Nominees for directorship will be selected by the Governance and Nominating Committee, in accordance with the policies and principles in its charter, and nominated for election by the Board. The Chairman of the Board should extend the Board's invitation to join the Board.
4. Board Membership Criteria
The Governance and Nominating Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of individual Board members, as well as the composition of the Board as a whole, in the context of the needs of the Company. The Governance and Nominating Committee will review all nominees for director in accordance with its charter and select those nominees whose attributes it believes would be most beneficial to the Company. This assessment will include such issues as experience, integrity, competence, diversity, skills, and dedication in the context of the needs of the Board.
5. Board Size
The Board presently has 10 members. The Company's by-laws permit the Board to vary in size from 9 to 25. The Board periodically reviews the appropriate size of the Board, which may vary to accommodate the availability of suitable candidates.
6. Directors with Job Changes
The Board believes that directors who retire from their present employment, or materially change their position, should volunteer to resign from the Board concurrent with the next annual meeting of shareholders. The Board, through the Governance and Nominating Committee, would then evaluate whether the Board should accept the resignation or whether the director should be renominated based on an assessment of whether the director continued to meet the Board's membership criteria under the circumstances.
7. Term Limits
The Board does not believe it should limit the number of terms for which an individual may serve as a director. Directors who have served on the board for an extended period of time are able to provide valuable insight into the Company's operations and prospects based on their experience with the and understanding of the Company's history, policies and objectives. The Board believes that it can obtain new ideas and viewpoints through the application of the nominating process described above.
8. Other Board Service
The Board does not believe that its members should be prohibited from serving on the Boards of other companies so long as those commitments do not create material actual or potential conflicts and do not interfere with the director's ability to fulfill his or her duties as a member of the Board. The Governance and Nominating Committee will take into account the nature and time involved in the director's service on other boards in assessing director nominees. Directors should advise the Chairman of the Board, the Chairman of the Governance and Nominating Committee and the Corporate Secretary in advance of accepting an invitation to serve on another public company board.
9. Retirement Policy
No director may be nominated to a new term if he or she would be age 70 or older at the time of the election. A retiring or resigning CEO of the Company or other management director shall generally not continue to serve as a Board member.
10. Director Independence
At least three-quarters of the Board will at all times be comprised of directors who meet the criteria for independence required by the New York Stock Exchange and the Securities and Exchange Commission. It is the objective of the Board that all non-management directors be independent directors. Under proposed New York Stock Exchange rules, the Board must determine that a director does not have any material relationship with the Company. The proposed NYSE rules also provide that a director shall be considered independent if: (1) the director has no material relationship with the Company, either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company; (2) the director, and each of the director's immediate family members, is not and has not been during the last five years employed by the Company; (3) the director has not received any compensation in excess of $100,000 annually from the Company in any capacity other than as a director, and none of the director's immediate family members has received more than $100,000 annually in compensation from the Company, in any of the last five years; (4) the director, and each of the director's immediate family members, is not and has not been during the last five years affiliated with or employed by a present or former auditor (or an affiliate of such auditor) of the Company; (5) the director, and each of the director's immediate family members, is not employed as an executive officer of another company where any of the Company's listed executive officers serves on such other company's compensation committee; and (6) the director is not and has not been during the last five years employed by, and each of the director's immediate family members is not and has not been during the last five years an executive officer of, another company (a) that accounts for the greater of 2% or $1 million of the Company's revenues or (b) for which the Company accounts for the greater of 2% or $1 million of such other company's consolidated gross revenues. Under proposed Securities and Exchange Commission rules a director who is a member of the Audit Committee shall not be considered independent if he or she is affiliated with the Company or if he, she or any member of his or her immediate family, or any law firm, accounting firm, consulting firm, investment bank or similar entity with which any of them are affiliated, has accepted any consulting, advisory or other compensatory fee from the Company or an affiliate, other than for service on the Board or a committee. The Company will not consider as independent any director who is employed by a non- profit organization, a substantial portion of whose funding comes from the Company. The Board will from time to time and no less often than annually make a determination as to which members are independent under applicable requirements.
11. Chairman and CEO
The Company's by-laws provide that the Company's Chief Executive Officer shall also serve as the Company's Chairman of the Board. The Board believes this policy has served it well in the past and continues to serve it well at present.
12. Board Meeting Schedule and Agenda
At the beginning of the year the Chairman will establish a schedule and agenda of subjects to be discussed during the year (to the degree this can be foreseen). The Board of Directors shall have at least six regularly scheduled meetings each year. Additional unscheduled Board meetings may be called upon appropriate notice at any time to address specific needs of the business. The Chairman will establish the agenda for each Board meeting. Each Board member is encouraged to suggest the inclusion of items on the agenda at any time. The Board will review the Company's long-term strategic plan and the principal issues facing the Company during at least one meeting each year. The CEO and Corporate Secretary shall attend all non-executive sessions of the Board, and other members of management may attend non-executive sessions of the Board at the invitation of the CEO or the Board.
13. Advance Distribution of Materials
Information and data that are important to the Board's understanding of the business to be conducted at a Board or committee meeting should generally be distributed in writing to the directors before the meeting. Directors should review these materials in advance of the meeting to preserve time at the meeting and to provoke questions and discussion about the material. On certain occasions where the subject matter is too sensitive to put in writing, the matter will be discussed at the meeting.
14. Executive Session
The non-management directors of the Board will meet in executive session at least quarterly. Executive session discussions may include such topics as the non-management directors determine, but actions of the Board should be taken separately at a Board meeting. The chairman of the Governance and Nominating Committee shall serve as chairman for any executive session of the Board.
15. Number of Committees
The Board will have at all times an Audit Committee, a Compensation and Employee Benefits Committee and a Governance and Nominating Committee. All of the members of these committees will be independent directors. The Board may have additional committees as it determines from time to time are necessary or appropriate.
16. Committee Membership
Committee members will be appointed by the Board upon recommendation of the Governance and Nominating Committee after taking into account the desires, experiences and expertise of individual directors. The Board believes that consideration should be given to rotating committee members periodically, but the Board does not believe that rotation should be mandated as a policy.
17. Committee Structure
Each committee will have its own charter. The charters will set forth the purposes, goals and responsibilities of the committees as well as qualifications for committee membership, procedures for committee member appointment and removal, committee structure and operations and committee reporting to the Board. The charters will also provide that each committee will annually evaluate its performance.
18. Committee Meetings
The Chairman of each committee, in consultation with the committee members, will determine the frequency and length of the committee meetings consistent with any requirements set forth in the committee's charter. The Chairman of each committee, in consultation with the appropriate members of the committee and management, will develop the committee's agenda.
19. Director Access to Officers and Employees
Directors have full and free access to officers and employees of the Company. Any meetings or contacts that a director wishes to initiate may be arranged through the CEO or the Corporate Secretary or directly by the director. Any such contact should be done in a way that is not disruptive to the business operations of the Company. Any non-routine written communications between a director and an officer or employee of the Company should be copied to the CEO. The Corporate Secretary advises the Board on appropriate procedures for the conduct of meetings and on corporate governance matters, and all Board members shall have access to his advice and services.
20. Director Access to Outside Advisors
The Board and each committee have the power to hire independent legal, financial or other advisors as they may deem necessary, without consulting or obtaining the approval of any officer of the Company in advance.
21. Board's Interaction with Third Parties
The Board believes that the management speaks for the Company. At the request of management, individual Board members may, from time to time, meet or otherwise communicate with various constituencies that are involved with the Company. If comments are appropriate, they should in most circumstances come from the Chairman of the Board.
22. Director Orientation and Continuing Education
All new directors must participate in the Company's Orientation Program, which should be conducted once each year following the annual meeting at which new directors are elected. This orientation will include presentations by senior management to familiarize new directors with the Company's strategic plans, its significant financial, accounting and risk management issues, its compliance programs, its Code of Business Conduct and Ethics, its principal officers, and its internal and independent auditors. All other directors are also invited to attend the Orientation Program.
23. Director Compensation
The form and amount of director compensation will be determined by the Governance and Nominating Committee in accordance with the policies and principles set forth in its charter and then recommended to the full Board. Management shall report to the Governance and Nominating Committee annually on an assessment of the Company's director compensation measured against comparable companies. Independent directors will receive no additional compensation, in the form of consulting fees or other specific benefits, beyond that provided for service on the Board.
The directors shall be entitled to have the Company purchase reasonable directors' and officers' liability insurance on their behalf, to the benefits of indemnification to the fullest extent permitted by law and the Company's charter, by-laws and any indemnification agreements, and to exculpation as provided by state law and the Company's charter.
25. CEO Evaluation and Management Succession
The Board of Directors will conduct an annual review of the CEO's performance. The Board of Directors will evaluate whether the CEO is providing the best leadership for the Company in the long- and short- term. The Compensation and Employee Benefits Committee will then conduct a review of and make a recommendation regarding the CEO's compensation as set forth in its charter, which it will present to the Board. The Board will determine the CEO's compensation.
The Board should make an annual review of management succession planning. The entire Board will work with the Governance and Nominating Committee to nominate and evaluate potential successors to the CEO. The CEO should at all times make available his or her recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.
26. Annual Performance Evaluation
The Board of Directors will conduct an annual self- evaluation to determine whether it and its committees are functioning effectively. The Governance and Nominating Committee will receive comments from all directors and report annually to the Board with an assessment of the Board's performance. The assessment will focus on the Board's contribution to the Company and specifically focus on areas in which the Board or management believes that the Board could improve.
March 1, 2004