Corporate Governance Guidelines
The Bear Stearns Companies Inc. and its affiliates and subsidiaries (collectively, the "Company") is committed to the highest level of honesty, integrity and ethics. In accordance with these standards, the Company has adopted Corporate Governance Guidelines, to not only reiterate long-standing corporate policies, but to also further expand upon such practices in light of legal, regulatory and corporate governance changes. One of the key elements in achieving these goals is an effective and qualified Board of Directors (the "Board"). The Board is responsible for overseeing the Company, its employees, officers and directors; fostering the integrity and prosperity of the Company; assisting in the Company's compliance with laws, rules and regulations; and overseeing the Company's businesses and affairs.
I. Board Composition
The Board shall consist of not fewer than eight or more than forty members, each of whom shall be recommended to the Board by the Nominating Committee for election at the Company's annual meeting of stockholders. The number of Board members may be adjusted when appropriate or necessary by Board resolution approved by the affirmative vote of a majority of the whole Board.
II. Director Qualification Standards
The Corporate Governance Committee shall be responsible for assisting the Board with the establishment of the criteria for Board membership, which shall be approved by the Board. The Nominating Committee shall be responsible for considering, recruiting and recommending candidates to fill new or vacant positions on the Board and for considering Board candidates recommended by stockholders who satisfy the Company's policy regarding stockholder-recommended director-candidates. The Nominating Committee shall recommend director candidates to the Board, recommend such candidates to the stockholders at the Company's annual meeting.
In considering Board candidates, the Nominating Committee and the Board shall take into consideration the Board Candidate Guidelines, as set forth below, and the Company's policy regarding stockholder-recommended director-candidates. In addition, the Nominating Committee and the Board shall take into consideration all other factors that they deem appropriate, including, but not limited to, the candidate's character, education, experience, knowledge and skills. The Company believes that a candidate's professional and personal background should have enabled him or her to acquire the wisdom and insight necessary to effectively fulfill a director's duties. The Nominating Committee and the Board shall also consider the number of boards that the candidate already serves on when assessing whether the candidate has the time to devote to Board service.
(a) Board Candidate
The following are the criteria that the Nominating Committee and the Board shall utilize when evaluating a Board candidate:
The Board of Directors should be composed of individuals who have demonstrated significant achievements in business, education or public service. Director-candidates should possess the requisite character, knowledge, education and experience to make a significant contribution to the Board and bring a range of skills, perspectives and backgrounds to the deliberations of the Board. Significantly, a director-candidate must have high ethical standards, a strong sense of professionalism and a willingness to serve the interests of the stockholders. For those director-candidates who are also employees of the Company, such individuals should be members of the executive management team of the Company who have, or are in the position to acquire, a broad base of information about the Company and its businesses.
The Board should conclude that the professional and personal background of each director-candidate has enabled him or her to acquire the wisdom, insight and perspective necessary to effectively fulfill a director's duties. In addition, the following specific attributes and qualifications should be considered in evaluating the candidacy of an individual as a director on the Board of Directors:
Management and Leadership Experience — The director-candidate must have extensive experience in business, education or public service.
The experience of candidates from the different fields of business, education, or public service should be assessed and evaluated as follows:
Candidates from the Field of Business. The director-candidate is or has been the chief executive officer, chief operating officer or chief financial officer, or holds or has held a senior managerial position in one of the following: a major public corporation; a recognized privately held entity; or a recognized money or investment management firm.
Candidates from the Field of Education. The director-candidate holds or has held a position at a prominent educational institution comparable to the position of university or college president and/or dean of a school within the university or college, or holds or has held a senior faculty position in an area of study important or relevant to the Corporation.
Candidates from the Field of Public Service. The director-candidate has held one or more elected or appointed senior positions in the federal government or any federal agency, any state or municipal government or agency, or holds or has held one or more elected or appointed senior positions in a nonprofit organization.
Skills and Diverse Background – The director-candidate must bring a desired range of skills, diverse perspectives and experience to the Board.
The following attributes should be considered in assessing the contribution that the director-candidate could make as a member of the Board:
Financial Literacy. Director-candidates having a sufficient understanding of financial reporting and internal control principles, or financial management experience, would bring desirable knowledge and skills to the Board.
International Experience. International experience would be a positive characteristic in a director-candidate's profile. Having an understanding of the culture of English and non-English speaking foreign countries would also be considered beneficial.
Knowledge of the Duties of a Director. The director-candidate's capacity and/or experience to understand fully the legal responsibilities of a director and the governance processes of a public company is an essential factor.
No Interlocking Directorships. The director-candidate should not have any prohibitive interlocking relationships or conflicts of interest.
Integrity and Professionalism — The director-candidate must have high ethical standards, a strong sense of professionalism and be capable of serving the interests of stockholders.
Personal Experience. The director-candidate should be of high moral and ethical character. The candidate must exhibit independence, objectivity and willingness to serve as a representative of the Corporation's stockholders.
Individual Characteristics. The director-candidate should possess personal qualities that would enable him or her to be able to make a contribution to Board deliberations. These qualities include, for example, intelligence, self-assuredness, high ethical standards, interpersonal skills, independence, a willingness to ask difficult questions, strong communication skills and commitment. In considering candidates for Board membership, the diversity of individual experiences and backgrounds will be considered in looking at the composition of the Board.
Availability. The director-candidate must have, and be willing to commit, the required hours necessary to discharge the duties of Board membership.
Compatibility. The director-candidate should be able to develop a good working relationship with other Board members and contribute to the Board's working relationship with the senior management of the Corporation.
(b) Director Independence
A majority of the Board must be "independent" as that term is defined by the rules of the New York Stock Exchange ("NYSE") and any other applicable law, rule or regulation. The Board shall be responsible for making an affirmative determination that a director is independent under such standards. Thereafter, the Corporate Governance Committee shall review Board members when appropriate or necessary to assure that a majority of the Board is independent. In making the aforementioned determination, the Board and the Corporate Governance Committee must ensure that the director satisfies the criteria of independence as defined under the rules of the NYSE, any other condition that may be required by applicable law, rule or regulation and the Company's Director Independence Standards, as set forth below. The Board and the Corporate Governance Committee shall also take into consideration substantial contributions by the Corporation to any organizations, charitable or otherwise, with which a director is affiliated; payments or contracts that the director, or any other person or entity with which a director is affiliated, receives or has with the Corporation (consulting or others); and other direct or indirect forms of compensation that might affect the independence of the director.
To be considered "independent," a director must satisfy the standards set forth below and an affirmative determination of independence must be made by the Board. The Board has established the following guidelines to assist it in determining director independence in accordance with NYSE corporate governance listing standards:
(1) The director does not have a material relationship with the Company (either directly or indirectly as a partner, stockholder or officer of an organization that has a relationship with the Company).
(2) The director is not and has not been an employee of the Company or an immediate family member is not and has not been an executive officer of the Company within the last three years.
(3) The director or an immediate family member has not received more than $100,000 in direct compensation from the Company during any twelve-month period within the last three years, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).
Compensation received by a director for former service as an interim Chairman, CEO or other executive officer or compensation received by an immediate family member for services as an employee (other than an executive officer) of the Company need not be considered in determining independence under this test.
(4) The director or an immediate family member is not a current partner of the Company's internal or external auditor; the director is not a current employee of the Company's internal or external auditor; an immediate family member of the director is not a current employee of the Company's internal or external auditor and participates in the Company's audit, assurance or tax compliance (but not tax planning) practice; or the director or an immediate family member has not been within the last three years (but is no longer) a partner or employee of the Company's internal or external auditor and personally worked on the Company's audit within that time.
(5) The director or an immediate family member is not, and has not been within the last three years, employed as an executive officer of another company where any of the Company's present executive officers at the same time serves or served on that company's compensation committee.
(6) The director is not a current employee or an immediate family member is not a current executive officer, of a company that has made payments to, or receives payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million or 2% of such other company's consolidated gross revenues.
For purposes of these standards, the term "immediate family member" shall include a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who shares such person's home. Individuals who are no longer immediate family members as a result of legal separation or divorce, or who have died or become incapacitated, need not be considered.
Directors shall be reviewed periodically, or as appropriate or necessary, by the Corporate Governance Committee to make certain that the directors satisfy the Board Candidate Guidelines and, if applicable, the independence requirements. Thereafter, the Corporate Governance Committee shall make recommendations based upon its review to the Board as the Corporate Governance Committee deems appropriate. The Corporate Governance Committee shall review annually, or as appropriate or necessary, the Board Candidate Guidelines and the Company's Director Independence Standards and make recommendations to the Board with respect to any changes to the Board Candidate Guidelines and the Director Independence Standards that the Corporate Governance Committee deems appropriate.
(ii) Independence of
Audit Committee Members
In addition to the foregoing, each Audit Committee member must satisfy the independence requirements set forth in the Sarbanes-Oxley Act of 2002 (the "Act") and the final rules promulgated thereunder.
(c) Director Tenure and
The Board does not believe that a policy mandating director tenure or retirement is appropriate for the Company. A director's experience as a director of the Company allows him or her to acquire insight to the Company and knowledge of the Company's significant businesses and processes and makes him or her a valuable resource to the Company.
The Company shall make all disclosures regarding the Board and its committees as required by law, rule or regulation.
III. Appointment, Election and Term of Directors
(a) Appointment and
The Nominating Committee shall be responsible for recommending qualified Board candidates to the Board, and the Board, in turn, shall make director-candidate recommendations to the Company's stockholders. Each candidate, except as otherwise required by law or by the Company's Certificate of Incorporation (including applicable Certificates of Designation relating to preferred stock) or By-laws, must be elected by the affirmative vote of a plurality of the outstanding shares of common stock of the Company present in person or represented by proxy and entitled to vote, except for vacancies as set forth below.
(b) Term of Office
Each director nominee shall be elected annually at the stockholders' meeting and shall serve as a director until the next annual meeting of stockholders in accordance with the By-laws of the Company, or until his or her successor is duly elected and qualified. Directors serve at the will of the Board and may be removed at any time with or without cause by the holders of a majority of the shares then entitled to vote in an election of directors. Each director shall remain in office until his or her successor is elected and qualified or until his or her death, resignation or removal. Any vacancy in the Board caused by death, resignation, removal or disqualification may be filled by the affirmative vote of a majority of the directors then in office or by a sole remaining director, unless otherwise provided in the Company's Certificate of Incorporation. A director elected to fill a vacancy shall be elected to hold office until the earlier of the election and qualification of his or her successor or until a director's death, resignation or removal.
IV. Director Responsibilities, Duties and Powers
Directors are expected to use their best efforts to attend all meetings of the Board and any committees on which they serve, either in person or telephonically. Directors are also expected to review all meeting and other pertinent materials forwarded to them in advance of a meeting. Directors are expected to have knowledge of the Company and its significant businesses and practices in order to act in an informed manner and in the best interests of the Company. Directors are expected to exercise sound business judgment when making decisions concerning the Company. Directors are required to devote the time and attention necessary to fulfill their Board responsibilities. Serving on multiple boards may preclude a director from effectively fulfilling his or her duties. Therefore, if a director wishes to serve on an additional board, he or she is expected to inform, and receive the approval of, the Corporate Governance Committee in advance of accepting such position.
Moreover, directors are expected to adhere to the Company's Code of Business Conduct and Ethics (the "Code"). Accordingly, they are expected to, among other things: comply with all applicable laws, rules and regulations; avoid any actual or potential conflicts of interest; maintain the confidentiality entrusted to them in their position; and refrain from usurping corporate opportunities. As directors of a corporation, they owe a duty of care and loyalty to the Company and are expected to follow the Company's policies and practices. In addition, any director involved in the Company's financial reporting shall endeavor to ensure that such information is complete, accurate and correct. It is the responsibility of the Company's directors to diligently oversee the affairs of the Company while conducting themselves in a manner that promotes the values of the Company.
If a director has any questions about a potential conflict of interest or corporate opportunity, it is his or her responsibility to contact the Company's Ethics Compliance Officer.
(a) Members of the Audit
In the event that an Audit Committee member serves on the audit committee of more than three public companies, it is the responsibility of the Board to determine that such simultaneous service will not impair the member from effectively fulfilling his or her responsibilities as a director of the Company and a member of the Company's Audit Committee.
(b) Executive Sessions
Non-management directors of the Company are expected to meet not less than quarterly in regularly scheduled executive sessions without management present in order to be able to openly and critically discuss and evaluate the performance of the Company's management.
(c) Policy on
It is the policy of the Company that a director may not serve on more than six public boards.
(d) Stock Ownership
In order to further align the interests of the Board members and the Company's executive officers to the stockholders, the Company has established minimum stock ownership requirements for its non-management directors and executive officers. Non-management directors are required to hold 500 shares of the Company's common stock or common stock equivalents. Executive officers are required to hold 5,000 shares of the Company's common stock or common stock equivalents. Common stock equivalents include all vested CAP units, vested options or vested restricted stock units. Non-management directors and executive officers shall have three years to acquire such holdings.
(e) Change in Job
Non-management directors are required to submit a letter of resignation to the Nominating Committee in the event of any significant change in their primary job responsibilities. The Nominating Committee shall review the director's continuation on the Board in light of all circumstances and recommend to the Board whether the Board should accept such proposed resignation or request that the director continue to serve on the Board.
(f) Attendance at the
Corporation's Annual Meeting of Stockholders
It is the policy of the Company to encourage all directors to attend annual meetings of the Company's stockholders.
(g) Lead Director
The independent Board members shall appoint a lead director of the Board. The responsibilities of the lead director shall be to:
(i) preside at all meeting of the Board at which the chairman is not present, including executive sessions of the independent directors;
(ii) serve as liaison between the chairman and the independent directors;
(iii) approves information sent to the Board;
(iv) approve meeting agendas for the Board;
(v) approve meetings schedules;
(vi) have the authority to call meetings of the independent directors; and
(vii) if requested by major shareholders, be available for consultation and direct communication.
(h) Board Powers and
Directors shall have all powers and resources allowed by law and by the Company's Certificate of Incorporation and By-laws which are necessary for them to fulfill their duties. Directors are to have access to management and, when necessary and appropriate, independent advisors and legal counsel paid for by the Company.
V. Director Compensation
Each director who is not an officer or employee of the Company, in consideration of his or her services, is to receive an annual stipend, as well as a fee for each Board meeting attended, reasonable expenses relating to attending such meetings and reasonable expenses incurred in connection with the performance of the director's duties. Directors who are members of Board committees are to receive additional compensation and reasonable expenses for each committee meeting attended.
Directors who are not officers or employees of the Company may also be granted options to purchase shares of common stock of the Company and a number of restricted stock units pursuant to the Company's Non-Employee Directors' Stock Option and Stock Unit Plan (the "Plan"). The Plan also gives a non-employee director the opportunity to receive options or shares of common stock in lieu of up to one-half of his or her annual director's fee. By granting stock options, common stock or restricted stock units as part of directors' fees, directors' compensation becomes linked to the performance of the Company and thus aligns directors' interests with those of the stockholders.
Directors' fees shall be determined by the Board and shall be reviewed annually or as necessary or appropriate by the Corporate Governance Committee and the Compensation Committee. In determining director compensation, the Board may consider: the recommendations of the Compensation Committee and the Corporate Governance Committee; the responsibilities of the directors; and what is customary, reasonable and competitive in terms of such compensation.
The only compensation that an Audit Committee member may receive from the Company is standard compensation for his or her service as a director and a member of the Audit Committee.
VI. Director Orientation and Continuing Education
The Company shall establish an orientation process for newly appointed directors. The orientation process shall consist of familiarizing the director with the Company and its significant businesses, practices and personnel. It shall also include educating the director on the Company's financial reporting processes and requirements, the Company's risk management processes, any material litigation and the Company's Code of Business Conduct and Ethics. Supplemental continuing educational information for directors will be prepared by management when necessary and appropriate.
VII. Management Succession and Performance Review
The Corporate Governance Committee shall periodically review with the Chief Executive Officer ("CEO") the succession plans relating to positions held by elected corporate officers and other Senior Executives, as that term is defined in the Company's Code and shall make recommendations to the Board with respect to the selection of individuals to occupy these positions. In addition, the Compensation Committee shall conduct an annual performance review of the CEO and shall review annually with the Chairman and CEO the job performance of directors, corporate officers and selected other senior officers.
VIII. Board Meetings and Committee Meetings
Each of the Board and its committees shall meet in person or telephonically at least once a year, with additional meetings, if any, as deemed necessary. Currently, the Board has five committees consisting solely of members of the Board: the Audit Committee, the Compensation Committee, the Corporate Governance Committee, the Nominating Committee and the Qualified Legal Compliance Committee. The Board may establish additional committees, if necessary and appropriate and in accordance with the Company's By-laws.
IX. Board Powers and Responsibilities
(a) Board Powers
The Board shall have any and all powers granted to it under the Company's By-laws and Certificate of Incorporation and may exercise all powers and perform all acts that by law, by the Company's Certificate of Incorporation and By-laws, by the Constitution and rules of the NYSE are not required to be acted upon by the stockholders. The Board may adopt policies that it deems necessary and proper for the Company and which are not in conflict with the Company's Certificate of Incorporation or By-laws.
The Board may establish one or more committees of the Company by Board resolution, which requires passage by a majority of the whole Board.
The Board shall elect a Chairman of the Board, a CEO, one or more Presidents, one or more Chief Operating Officers, a Chief Financial Officer, a Secretary, a Treasurer and a Controller and may elect one or more Vice Presidents and one or more Managing Directors, who need not be members of the Board, and such other officers as the Board may from time to time determine. The Board may delegate to any one or more officers the power to appoint such other officers as may be necessary or in the best interests of the Company.
Officers shall have such authority and perform such duties incident to their office and as provided in the Company's By-laws and as may be modified from time to time by the Board, the By-laws or any duly authorized appointing authority. The compensation of officers shall be determined from time to time by the Board in consultation with the Compensation Committee.
The Chairman of the Board shall preside at each stockholder and Board meeting. The Chairman shall perform all duties incident to the office of Chairman of the Board and any other duties that the Board from time to time may assign to the Chairman.
The Board's responsibilities shall include, but are not limited to, the following:
(1) overseeing the Company, its businesses and management;
(2) overseeing of the integrity of the financial statements of the Company;
(3) overseeing the compliance of the Company with legal and regulatory requirements;
(4) making the affirmative determination that a director is independent pursuant to the aforementioned standards;
(5) making the determination, along with any other Board committee, that members of the Board and its committees satisfy all requisite criteria necessary to serve on the Board or such committee, including any criteria required by applicable law, rule or regulation;
(6) making the determination as to whether an audit committee member may serve on the audit committee of more than three public companies and that such simultaneous service will not impair the member's ability to effectively fulfill his or her duties as a member of the Company's Audit Committee;
(7) designating at least one member of the Audit Committee as an "audit committee financial expert";
(8) designating an Ethics Compliance Officer for the Company;
(9) granting, in conjunction with any other Board committee, waivers of the Code for Senior Executives;
(10) determining, in conjunction with the Compensation Committee, the compensation of officers of the Corporation;
(11) recommending Board candidates to be voted upon by the stockholders at the Company's annual meeting of stockholders after taking into account the recommendations of the Nominating Committee;
(12) establishing Board committees to assist in the business and affairs of the Company and designating directors to serve on such Board committees, including the designation of a chairman for each committee, after taking into account the recommendations of the Nominating Committee and/or Corporate Governance Committee;
(13) adopting and amending, if appropriate, charters for the Board committees;
(14) adopting and amending, if appropriate, a set of corporate governance principles for the Company, after taking into account the recommendations of the Corporate Governance Committee; and
(15) conducting an annual self-evaluation of itself and its committees.
(c) Communications with
It is the policy of the Company that stockholders may communicate with the Company's Board of Directors or to one or more members of the Board by writing to such director(s) or to the whole Board in care of the Corporate Secretary. The Corporate Secretary will thereafter distribute the communications specifically addressed to one or more directors to such director(s) or to all directors if addressed to the whole Board.
It is the policy of the Company that interested parties may communicate directly with the presiding director of the executive sessions of the Board (the "Presiding Director") or with the non-management directors as a group by writing to the non-management director(s) or to the Presiding Director in care of the Corporate Secretary. The Corporate Secretary shall thereafter distribute the written communications to the non-management director(s) or to the Presiding Director in accordance with the manner in which the written communications are addressed.
X. Board Committees and Powers
Each of the Audit, Compensation, Corporate Governance, Nominating and Qualified Legal Compliance Committees shall be comprised of at least three directors of the Corporation. Each of the members of these committees shall be an independent director as that term is defined under the rules of the NYSE, any other applicable law, rule or regulation, the Company's Director Independence Standards and as determined by the Board. Each committee member must also satisfy the membership requirements set forth in their respective charters. The number of members of each committee shall be determined by the Board and may be adjusted from time to time as the Board deems appropriate. A member of any committee may be removed at any time with or without cause by action taken by the majority of the whole Board.
Each committee shall have and may exercise such powers, authority and responsibilities as the Board shall determine and as may be properly granted to such committee under the laws of the State of Delaware and by the Company's Certificate of Incorporation and By-laws.
Each committee shall have a written charter that sets forth the committee's purpose, goals and responsibilities and any other responsibilities required to be included therein by the rules of the NYSE, the Securities and Exchange Commission and any other applicable law, rule or regulation. Each charter should also address committee member qualifications, appointment and removal, committee structure and operations, and reporting to the Board.
XI. Annual Performance Evaluation of the Board
The Board shall conduct an evaluation, not less than annually, of itself and its committees to ascertain whether they are functioning effectively and to determine whether any changes or modifications are necessary. Moreover, each Board committee shall conduct its own annual self-evaluation.
XII. Disclosure on Corporate Website
Copies of these Corporate Governance Guidelines, the Company's Code of Business Conduct and Ethics, the charters of the Audit Committee, Compensation Committee, Corporate Governance Committee, Nominating Committee and Qualified Legal Compliance Committee are posted on the Company's corporate website.
January 10, 2006