Corporate Governance Guidelines
Manor Care, Inc.
1. Director Qualifications
The Board shall have a majority of directors who meet the criteria for
independence required by the New York Stock Exchange. The Governance
Committee is responsible for reviewing with the Board, on an annual
basis, the requisite skills and characteristics of new Board members as
well as the composition of the Board as a whole. This assessment will
include members' qualification as independent, as well as consideration
of diversity, age, skills and experience in the context of the needs of the
Board. Nominees for directorship will be selected by the Governance
Committee in accordance with the policies and principles of its charter
and these guidelines.
The Board presently has 9 members. It is the sense of the Board that a
size of 9 to 11 is about right. It is also the sense of the Board
that individual directors who change the responsibility they held when
they were elected to the Board should volunteer to resign from the Board.
This will provide an opportunity for the Board through the Governance
Committee to review the continued appropriateness of Board membership
under the circumstances.
No director should serve on more than four other public company boards
unless specifically approved by the Governance Committee and the Board of
Directors. Directors should advise the Chairman of the Board and the
Chairman of the Governance Committee in advance of accepting an
invitation to serve on another public company board. 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.
The Board does not believe it should establish term limits for directors.
Term limits have the disadvantage of losing the contribution of directors
who have been able to develop, over a period of time, increasing insight
into the company and its operations and, therefore, provide an increasing
contribution to the Board as a whole. As an alternative to term limits,
the Governance Committee will review each director's continuation on the
Board each year to coincide with the expiration of the director's term.
This review will also afford each director the opportunity to confirm his
or her desire to continue as a member of the Board.
2. Director Responsibilities
Directors must exercise sound business judgment and act in
what they reasonably believe to be the best interests of the company and
its stockholders. In discharging that obligation, directors should be
entitled to rely on the honesty and integrity of the company's senior
executives and its outside advisors and auditors.
Directors are expected to attend Board meetings and meetings of
committees on which they serve, and to spend the time needed and meet as
frequently as necessary to properly discharge their responsibilities.
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,
and directors should review these materials in advance of the meeting.
The Chairman will establish the agenda for each Board meeting. Each Board
member is free to suggest the inclusion of items on the agenda. Each
Board member is free to raise at any Board meeting subjects that are not
on the agenda for that meeting. The Board will review the company's
long-term strategic plans and the principal issues that the company will
face in the future during at least one Board meeting each year.
The non-management directors will meet in executive session three times a
year at regularly scheduled meetings. The presiding director at such
meetings shall rotate among the committee chairmen. To the extent
required by applicable rules, the name of the presiding director shall be
disclosed in the annual proxy statement.
The Board believes that the management speaks for the company. Individual
Board members may, from time to time, meet or otherwise communicate with
various constituencies that are involved with the company. But it is
expected that Board members would do this with the knowledge of the
management and, absent unusual circumstances or as contemplated by the
committee charters, only at the request of management.
The directors shall also be entitled to have the company purchase
reasonable directors' and officers' liability insurance on their behalf,
and to indemnification to the fullest extent permitted by law and the
company's charter, by-laws and any indemnification agreements.
3. Board Committees
The Board will maintain an Audit Committee, a Compensation Committee, a
Governance Committee and a Quality Committee and such other committees as
the Board determines is appropriate. All of the members of the Audit,
Compensation and Governance committees will be independent directors
under the criteria established by the New York Stock Exchange. Committee
members will be appointed by the Board upon recommendation of the
Governance Committee with consideration of the desires of individual
directors. It is the sense of the Board that consideration should be
given to rotating committee members periodically, but the Board does not
feel that rotation should be mandated as a policy.
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, committee structure and
operations. The charters will also provide that each committee will
report directly to the Board and will annually evaluate its performance.
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
The Board and each committee shall 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
4. Director Access to Officers and
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 Secretary or directly by the director.
The directors will use their judgment to ensure that any such contact is
not disruptive to the business operations of the company and will, to the
extent not inappropriate, copy the CEO on any written communications
between a director and an officer or employee of the company.
The Board believes that the periodic attendance of selected senior
officers at Board meetings would be beneficial to the Board and to the
senior officers who attend the meetings. Accordingly, the CEO is
encouraged periodically to invite senior officers of the company to
attend and participate as appropriate.
5. Director Compensation
The form and amount of director compensation will be determined by the
Governance Committee in accordance with the policies and principles set
forth in its charter. The Governance Committee will conduct an annual
review of director compensation and may request senior management or
outside consultants to assist in this review process.
In order to maintain independence and to comply with NYSE Listing
Standards, members of the Audit Committee may not directly or indirectly
receive fees or other compensation from the company regardless of the
amount. As determined by the Board, committee chairmen may receive
additional fees for fulfilling that role.
6. Director Orientation and Continuing
All new directors must participate in a comprehensive
orientation within a reasonable time following appointment or election to
the Board. 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 Ethics for Directors, its principal
officers, and its internal and independent auditors. From time to time,
senior management will present continuing education information to the
directors on aspects of the company's business which are not routinely
discussed at Board meetings, as well as updates on legal and regulatory
developments that affect the company, its directors or its
7. CEO Evaluation and Management
The Compensation Committee will conduct an annual review of the CEO's
performance, as set forth in its charter. The Board of Directors will
review the Compensation Committee's report in order to ensure that the
CEO is providing strong and effective leadership for the company in the
long- and short-term.
The Governance Committee should make an annual report to the Board on
succession planning. The entire Board will work with the Governance
Committee to nominate and evaluate potential successors to the CEO,
including action which may be necessary in the event of an emergency. 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.
8. 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 Committee will receive comments from all directors and report
annually to the Board with an assessment of the Board's performance. This
will be discussed with the full Board following the end of each fiscal
9. Stockholder Proposals
If a stockholder proposal requesting action by the Board of Directors
receives the affirmative vote of the shares of at least a majority of the
votes cast (excluding abstentions) at any annual meeting, the Secretary
of the company shall solicit the sponsor of the proposal for any
additional information to provide to the Board of Directors for its
consideration of the proposal. Within four months of the annual meeting,
the company will make reasonable efforts to schedule a meeting (which may
be held telephonically) between the sponsor of the proposal and the
Governance Committee or its designated representative. Following such a
meeting, the Governance Committee shall present the subject of the
proposal to the full Board of Directors with the Committee’s recommendation.
The Board of Directors shall act upon the proposal consistent with the
company’s charter and by-laws and in accordance with its fiduciary
obligations, which shall necessarily include a consideration of the
interests of the stockholders. After the Board of Directors has taken
action on the proposal the Secretary of the company shall provide prompt
written notification of such action to the sponsor.
10. Stockholder Communications
Stockholders who desire to communicate directly with the Board of Directors
or with any non-management director may do so by directing correspondence
to the Secretary of the company whose name and address appear in the
public filings of the corporation. The Board has adopted a process for
collecting and organizing communications from stockholders. Summaries of
all correspondence will be forwarded periodically to the full Board along
with copies of specific correspondence which, in the judgment of the
Secretary, deals with the functions of the Board or its committees or
otherwise addresses material issues which, in the judgment of the
Secretary, should be brought to the attention of the full Board. The
directors may at any time review the summary of stockholder
correspondence and request copies of any such correspondence.
11. Nominating Process
The Governance Committee will consider candidates for board membership
suggested by committee members, other board members, stockholders and
management. A stockholder wishing to propose a nominee for our Board of
Directors should submit a notice in writing to the company’s Secretary,
setting forth the following information for each person whom the
stockholder proposes to nominate:
(1) the name, age, business address and residence address of the
(2) the principal occupation or employment of the person;
(3) the class and number of shares of capital stock of the company which
are beneficially owned by the person; and
(4) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant
to applicable SEC rules.
In addition, as to the stockholder giving notice and on whose behalf
the nomination is made, the following information should be provided:
(1) the name and record address of the stockholder and beneficial
owner, if any;
(2) the class and number of shares of the company owned of record and
(3) a representation that the stockholder giving notice is a holder of
record entitled to vote at the meeting and intends to appear in person or
by proxy at the meeting and propose the nomination; and
(4) a representation whether the stockholder intends or is part of a
group that intends to solicit proxies in support of the nomination.
The notice should comply with the timing requirements set forth in the
last paragraph of the most recent proxy statement of the company.
After the Committee has identified a prospective nominee, the Committee
will make an initial determination whether to conduct a full evaluation
of the candidate. This determination will be based primarily on the need
for additional board members to fill vacancies or expand the size of the
Board, and the likelihood that the individual will meet the minimum
qualification of prior senior management or equivalent experience in an
organization that is comparable to the company in size, scope of services
or other operating characteristics. If the Committee determines that
further consideration is warranted, it will undertake to gather
additional information about the prospective nominee’s background,
experience and skills. The Committee will evaluate the nominee based on a
variety of factors it deems appropriate which will include:
(1) the skills, talent and expertise of the nominee;
(2) the ability of the nominee to devote sufficient time, energy and
attention to the diligent performance of his or her duties on the Board;
(3) the independence of the nominee under applicable standards;
(4) the nominee’s reputation for integrity and honesty;
(5) the Board’s need for particular expertise, such as financial
expertise for the Audit Committee;
(6) diversity; and
(7) similar factors.
In making this evaluation, the Committee, through one or more of its
members or other directors, may interview the candidate in person or by
telephone. After completing this evaluation process, the Committee will
make a report and recommendation to the Board regarding the nominee. The
Board shall then determine the nominees after considering the report and
recommendation of the Committee.
12. Majority Vote Policy
The Company's by-laws provide for the election of directors in an
uncontested election by the vote of the majority of the votes cast with
respect to each director. A "majority of the votes cast" means
that the number of shares voted “for” a director must exceed the number
of votes cast “against” that director. In a contested election, the
by-laws provide for the election of directors by the vote of a plurality
of the shares represented and entitled to vote.
If a nominee for director in an uncontested election does not receive a
majority of the votes cast for that director, the director shall offer to
tender his or her resignation to the Board. The Governance Committee will
make a recommendation to the Board on whether to accept or reject the
resignation, or whether other action should be taken. If each member of
the Governance Committee does not receive a majority of the votes cast at
the same election, then the independent directors who did receive a
majority of the votes cast shall appoint a committee of independent
directors to consider the resignation offers and recommend to the Board
whether to accept or reject them, or whether other action should be
taken. The Board will act on the Governance Committee’s or, as
appropriate, such other committee's recommendation and publicly disclose
its decision and the rationale behind it within 90 days from the date of
the certification of the election results. Any director who tenders his
or her resignation in accordance with this policy will not participate in
the Board’s decision.
If a vacancy occurs on the Board as a result of the application of this
policy, such vacancy shall be filled in accordance with Article III,
Section 3 of the