The Board of Directors of Hanger Orthopedic Group, Inc. (the
"Company"), acting together with its Corporate Governance and
Nominating Committee, has developed and adopted certain corporate governance
guidelines (these "Guidelines") establishing a common set of
principles to assist the Board and its committees in fulfilling their
responsibilities to the Company’s shareholders to oversee the work of
management and the Company’s results. These Guidelines are intended to ensure
that the Board will have the necessary authority and practices in place to
review and evaluate the Company’s business operations as needed. In recognition
of the continuing discussions about corporate governance, the Board will review
and, if appropriate, revise these Guidelines from time to time.
Role of the Board of Directors and Management
The Company’s business is conducted by its employees, managers and officers, under the direction of the Company’s Chairman of the Board of Directors and Chief Executive Officer (“CEO”) and the oversight of the Board of Directors, to enhance the long-term value of the Company for its shareholders. The Board of Directors is elected by the Company’s shareholders to oversee management and to assure that the long-term interests of the shareholders are being served.
Responsibilities of the Board of Directors
The Board of Directors reviews and discusses reports by management on the performance of the Company, its plans and prospects, as well as immediate issues facing the Company. Directors are expected to attend all scheduled meetings of the Board and the committees on which they serve. In addition to its general oversight of management, the Board (either directly or through its committees) also performs a number of specific functions, including:
Representing the interests of the Company’s shareholders in maintaining and
enhancing the success of the Company’s business, including optimizing long-term
returns to increase shareholder value;
2. Selecting, evaluating and compensating a well-qualified CEO of high integrity, and overseeing CEO succession planning;
3. Providing counsel and oversight on the selection, evaluation, development and compensation of senior management;
4. Reviewing, approving and interacting with senior management with respect to the Company’s fundamental financial and business strategies and major corporate actions, including strategic planning, management development and succession, operating performance and shareholder returns;
5. Assessing major risks facing the Company and reviewing options for their mitigation;
6. Ensuring processes are in place for maintaining the integrity of the Company, the integrity of its financial statements, the integrity of its compliance with law and ethics, the integrity of its relationships with customers and suppliers and the integrity of its relationships with other stakeholders; and
7. Providing general advice and counsel to the Chairman of the Board, CEO and other senior management personnel.
Board Composition and Selection; Director Independence
Board size and composition will be set so that the Board will possess, in the aggregate, the strategic, managerial and financial skills and experience necessary to fulfill its duties and to achieve its objectives. The Board shall consist of no more than nine members. The specific number of Board members will be reviewed from time to time and adjusted as necessary and appropriate to promote the best overall interests of the Company and its shareholders.
The Board of Directors shall elect a Chairman of the Board who shall have primary responsibility for scheduling Board meetings, calling special meetings when necessary, setting or proposing the agenda for each meeting, and conducting Board meetings, as well as for carrying out such other duties as are specified for such office in the Company’s By-laws. This responsibility does not, however, diminish the responsibilities of each Board member to raise appropriate agenda items, or to propose meetings. The CEO may also serve as the Chairman of the Board. In addition, the Chairperson of the Corporate Governance and Nominating Committee shall serve as the presiding director over each executive session of the non-management members of the Board of Directors. The Board of Directors will also maintain a procedure that will allow interested parties to communicate directly and confidentially with the presiding director.
Selection of Board Members
The Corporate Governance and Nominating Committee of the Board of Directors shall be responsible for establishing criteria for selecting potential directors, taking into account all factors it considers appropriate, which may include strength of character, mature judgment, career specialization, relevant technical skills or financial acumen, diversity of viewpoints and industry knowledge. The Corporate Governance and Nominating Committee will look for individuals who have displayed the highest personal and professional ethics, integrity and values and sound business judgment. The Corporate Governance and Nominating Committee, with the input of the Chairman of the Board and CEO, will recommend to the Board of Directors (i) nominees for Board membership to fill vacancies or newly created directorships, (ii) the persons to be nominated by the Board for election by the Company’s shareholders at the Company’s Annual Meeting of Shareholders, and (iii) committee assignments and rotation of committee members.
Independence of Directors
A majority of the directors shall be independent directors under the rules of the New York Stock Exchange, Inc. (the "NYSE"), as follows:
board must determine that the director has no material relationship with the
Company either directly or as a partner, shareholder
or officer of an organization which has a relationship with the Company.
• The director (and members of his or her immediate family) must meet certain technical independence rules. Within the last year (which "look-back" period will be increased to three years for independence determinations made on and after November 4, 2004):
• The director has not been employed by the Company nor had an immediate family member that has been an executive officer of the Company;
• The director or an immediate family member (other than an immediate family member who is a non-executive employee of the Company) has not received more than $100,000 in direct compensation from the Company (other than director and committee fees and pension or other forms of deferred compensation for prior service);
• The director (or an immediate family member) has not been employed in a professional capacity by the Company’s independent auditor;
• The director (or any immediate family member) has not been employed as an executive officer of another company where any of the Company’s present officers serve on that company’s compensation committee; and
• The director has not been an executive officer or an employee of another company (or had an immediate family member that has been an executive officer of another company) that made payments to or received payments from the Company for property or services in an amount, which, in any single fiscal year, exceeded the greater of $1 million or 2% of such other company’s total revenue. (Charitable organizations are not deemed to be companies for purposes of this requirement; provided, however, that the proxy statement must disclose any charitable contributions made by the Company to any charitable organization in which the director serves as an executive office if, within the prior three years, contributions in any single fiscal year exceeded the greater of 1 million or 2% of such charitable organization’s total revenue.)
For purposes of the foregoing, an "immediate family
member" shall be deemed to 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
The Board shall undertake an annual review of the independence of all non-employee directors. In advance of the meeting at which this review occurs, each non-employee director shall be asked to provide the Board with full information regarding the director’s business and other relationships with the Company and its affiliates and with senior management and their affiliates to enable the Board to evaluate the director’s independence.
Other Board Service
No director of the Company shall serve on the boards of more than four other publicly-held entities. The CEO shall not serve on the board of any for profit entity without the express consent of the Board of Directors.
Director Retirement Policy; No Term Limits
It is the policy of the Board of Directors that a director may serve on the Board of Directors until the date of the Annual Meeting of Stockholders following his or her 72nd birthday, and may not be nominated by the Board to serve as a director after reaching age 72, unless that requirement has been waived by the Board of Directors based on special circumstances. It is the policy of the Board of Directors that directors are not subject to term limits.
As a general policy, the CEO and other senior executives of the Company who are Board members will resign from the Board upon the termination of their employment with the Company. However, the Board may ask the former CEO to remain on the Board if it believes that an exception to this policy is in the best interests of the Company and its shareholders. A director who experiences a significant change in status (including retirement or a significant decrease in job responsibilities) from that when the director was most recently elected to the Board shall inform the Board of such change in status and offer his or her resignation as a member of the Board.
Executive and Private Sessions of the Board
Normally, members of senior executive management who are not members of the Board of Directors will participate in Board and committee meetings to present information, make recommendations, and be available for direct interaction with Board members.
However, the Board of Directors will have at least two regularly scheduled meetings a year for the non-employee directors without members of the Company’s management being present; such meetings may occur either independent of or in conjunction with regularly scheduled meetings of the Board of Directors. The non-employee directors may meet without management present at such other times as they determine appropriate.
The Board of Directors shall at all times have an Audit Committee, Corporate Governance and Nominating Committee and a Compensation Committee, each comprised solely of independent directors, as well as a Quality of Care and Technology Committee which shall include at least one independent director. The Board shall evaluate and determine the circumstances under which it will form or disband other committees.
In addition to the requirement that a majority of the Board satisfy the independence standards discussed above, members of the Audit Committee must also satisfy any additional independence requirements imposed by the NYSE or the Securities and Exchange Commission. Specifically, directors serving on the Audit Committee may not directly or indirectly receive any compensation from the Company other than the fees they receive for serving as directors.
Committee chairs shall be recommended by the Corporate Governance and Nominating Committee in consultation with the Chairman of the Board and CEO, and approved by the Board. Committee chairs will be responsible, in consultation with the Chairman of the Board, for scheduling committee meetings, setting meeting agendas, leading the conduct of each meeting, reporting the committee’s findings and making recommendations to the full Board, and presenting resolutions requiring Board action. Committee chairs will confer with the Chairman of the Board and CEO in performing these duties.
Committee Assignment and Rotation
The Corporate Governance and Nominating Committee, in consultation with the Chairman of the Board and the CEO, will recommend committee assignments and committee rotation to the entire Board for final approval. Board members will rotate between committees from time to time as the Board deems appropriate.
Number and Scope of Board and Committee Meetings
The Board of Directors will meet at least five times per year, including concurrently with the Annual Meeting of Shareholders. Committees of the Board will meet as needed. Each director is expected to attend all meetings of the Board of Directors and any committee(s) of which he or she is a member and to review all meeting materials circulated prior to each meeting.
Each Board meeting will include a financial and operating review. In addition, at least once annually, the Board will devote substantial time to reviewing the following matters: senior executive succession planning; the personal objectives and performance of the CEO; corporate controls and financial reporting policies and procedures (in consultation with the Audit Committee); the Board’s effectiveness; and the Company’s overall business strategy and strategic plan.
Non-employee directors and committee chairs shall receive reasonable compensation for their services, as may be determined from time to time by the Board of Directors upon recommendation of the Compensation Committee. Compensation for non-employee directors and committee chairs shall be consistent with the market practices of other similarly situated companies but shall not be at a level or in a form that would call into question the Board’s objectivity. The Compensation Committee of the Board shall periodically review and report to the Board with respect to director compensation and benefits.
Directors who are employees shall receive no additional compensation for serving as directors.
Directors who are members of the Audit Committee may receive no compensation from the Company other than the fees they receive for serving as directors.
Director Access to Management and Independent Advisors
The Board of Directors is expected to be highly interactive with members of the Company’s senior management, and the Board and its individual members have access to individual senior executives of the Company. The Company also maintains an environment that permits senior managers to contact Board members directly.
It is policy of the Board that executive officers and other members of senior management who report directly to the CEO be present at Board and/or committee meetings at the invitation of the Board or committee members. The Board encourages such executive officers and senior management to make presentations or to include in discussions at Board meetings managers and other employees who (i) can provide insight into the matters being discussed because of their functional expertise and/or personal involvement in such matters and/or (ii) are individuals with high potential whom such executive officers and senior management believe the directors should have the opportunity to meet and evaluate.
Directors are authorized to consult with independent advisors, as is necessary and appropriate, without consulting management.
Ethics and Conflicts of Interest
The Board of Directors expects the Company’s directors, as well as its officers and employees, to act ethically at all times. If an actual or potential conflict of interest arises for a director, the director shall promptly inform the CEO and the Chairman of the Board. If a significant conflict exists and cannot be resolved, the director should resign. All directors will recuse themselves from any discussion or decision affecting their personal, business or professional interests. The Board shall resolve any conflict of interest question involving any executive officer of the Company, and the CEO shall resolve any conflict of interest issue involving any other officer of the Company.
Director Orientation and Continuing Education
The Board of Directors shall ensure that an orientation program for newly elected directors is implemented. The Corporate Governance and Nominating Committee shall oversee and maintain the orientation program implemented by the Board.
Directors are required to continue educating themselves with respect to domestic and international markets, accounting and finance, leadership, crisis response, industry practices, general management, and strategic planning.
Management Succession and CEO Compensation
The Board of Directors shall develop and maintain an appropriate succession plan with respect to the position of CEO. The Corporate Governance and Nominating Committee is responsible for making recommendations to the Board about succession planning. The Corporate Governance and Nominating Committee also shall recommend to the Board succession plans in the event of an emergency or the retirement of the CEO.
The Compensation Committee is responsible for establishing annual and long-term performance goals for the CEO and for evaluating his or her performance against such goals.
Annual Performance Self-Assessment of the Board
The Board of Directors will conduct a self assessment at least annually to determine whether it and its committees are functioning effectively.
Nothing in these Guidelines is intended to expand the fiduciary obligations of Board members beyond those provided for under applicable law.