A Great Place to Grow Shop Work Invest

Transcription

1 A Great Place to Grow Shop Work Invest CORPORATE GOVERNANCE POLICIES AND PROCEDURES 2002 Sears Canada Inc.

2 TABLE OF CONTENTS INTRODUCTION Mission, Vision and Values... 3 Corporate Governance... 4 BOARD OF DIRECTORS Board of Directors Mandate... 5 Mandate of the Chairman of the Board and Chief Executive 5 Officer... Board Composition and Proportionate Representation... 6 Independence from Management... 7 Eligibility Requirements/Director Selection Policy... 8 Director Education and Orientation... 9 Terms of Office and Tenure... 9 Director Compensation/Share Ownership Policy Indemnification and Liability Insurance Code of Business Conduct OPERATION OF BOARD/COMMITTEES Board Meetings Board Committees Board Information Needs Board Access to Management Disclosure, Confidentiality and Insider Trading Audit Services PERFORMANCE ASSESSMENT Board Assessment Chairman and CEO Assessment APPENDIX Board of Directors Responsibilities... i Individual Director Responsibilities... ii Chair and CEO Responsibilities... iv PAGE 2

3 INTRODUCTION The objective of good governance is to promote strong, viable and competitive corporations. Boards of directors are stewards of the corporation s assets and their behaviour should be focused on adding value to those assets by working with management to build a successful corporation and enhance shareholder value. 1 Sears Canada Inc. ( Sears or the Corporation ), its Board of Directors ( Board ) and management are committed to maintaining high standards of corporate governance. Sears believes that strong corporate governance practices are essential to the success of the Corporation, to effective corporate performance and to the best interests of shareholders. This booklet outlines the corporate governance policies and practices of Sears, including the composition, operation and assessment of its Board, as well as the Committees of the Board. It also contains, in an Appendix, a summary of the general duties and responsibilities of boards, directors, chairs of the board and chief executive officers. 1. MISSION, VISION AND VALUES Sears is a multi-channel retailer dedicated to providing its customers with quality merchandise and exceptional service, coast to coast. Sears vision is to be Canada s most successful retailer by providing its customers with total shopping satisfaction, its associates with opportunities for career advancement and personal growth, and its shareholders with superior returns on their investments. Sears has adopted a balanced approach to achieving its mission, vision and values by focusing on making Sears a great place to Grow, Shop, Work and Invest. The four key imperatives are: Grow Drive Profitable Growth In order for Sears to remain relevant to its customers it must constantly look for ways to continue to grow its business consistent with their evolving needs. To do this requires continually improving and reinventing Sears to meet the challenges of an ever-changing marketplace. This requires creativity, focus, persistence and a passion for results. Shop Relentlessly Pursue a Customer-Focused Approach Success will only be achieved by anticipating and delivering value to Sears customer needs. Keeping this focus and instilling a culture that centres on the customer is essential to business survival. 1 Beyond Compliance: Building a Governance Culture, Final Report, Joint Committee on Corporate Governance, November 2001 PAGE 3

4 Work Continue to Develop and Sustain a High Performing Organization Greatness can only be accomplished when people are able to contribute their talents, support one another, and are constantly creating better ways to add value to their work and for Sears customers. This requires leadership that fosters a supportive environment where people can do their best, have challenging work, build on their capabilities and actively contribute to Sears success. Invest Focus on Resource Productivity Ensuring Sears invests wisely to enable a sustainable return to its investors is a priority for Sears. This means actively seeking new opportunities as well as keeping an eye on the most efficient ways and means to deliver value to Sears customers. 2. CORPORATE GOVERNANCE Corporate governance means the process and structure used to direct and manage the business and affairs of the corporation with the objective of enhancing shareholder value, which includes ensuring the financial viability of the business. The process and structure define the division of power and establish mechanisms for achieving accountability among shareholders, the board of directors and management. The direction and management of the business should take into account the impact on other stakeholders such as employees, customers, suppliers and communities. 2 At Sears, the Board, the Audit Committee and the Human Resources and Compensation Committee are each responsible for certain corporate governance functions in accordance with their respective mandates/charters. However, the Nominating and Corporate Governance Committee ( Governance Committee ) has been assigned the responsibility for monitoring emerging trends in corporate governance and guiding the Corporation in its approach and practices in matters of corporate governance. It acts as the Lead Director for the Corporation and oversees, on behalf of the Board, corporate governance, including the methods and processes for evaluating Board effectiveness and performance. 2 Where Were the Directors?, Guidelines for Improved Corporate Governance in Canada, Draft Report of the Toronto Stock Exchange Committee on Corporate Governance in Canada, May 1994 PAGE 4

5 BOARD OF DIRECTORS 1. BOARD OF DIRECTORS MANDATE The Board is responsible for overseeing the business and the affairs of the Corporation, acting with a view to the best interests of the Corporation, and providing guidance and direction to the management of the Corporation in order to attain corporate objectives and to maximize shareholder value. The Board carries out its stewardship functions directly and through its Committees. In fulfilling its mandates, the objectives of the Board include: (a) (b) (c) (d) (e) (f) (g) adopting a strategic planning process and approving a strategic plan which takes into account the opportunities and risks of the business, and monitoring management s success in implementing the strategy; assessing operational performance; understanding the principal risks of all aspects of the business of the Corporation and ensuring that there are systems in place which effectively monitor and manage these risks; appointing of Officers, assessing the performance of the Chief Executive Officer ( CEO ) and ensuring that programs are in place for training and assessing Officers and for an orderly succession process for Officers; taking a leadership role in the development of effective two-way communication capabilities between the Corporation and its shareholders, other stakeholders and the public generally; assessing the integrity of the Corporation s internal control and management information systems; and appointing the appropriate Committees and delegating to them certain responsibilities to assist the Board in giving effect to the foregoing. 2. MANDATE OF THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER The mandate of the Chairman of the Board and Chief Executive Officer comprises the following responsibilities: (a) (b) The Chairman of the Board ( Chairman ) is responsible for providing leadership, direction and focus to the Board in carrying out its mandate. The CEO of the Corporation is responsible for the Corporation s financial, strategic and organizational performance (both short and long term) and for maximizing shareholder value. PAGE 5

6 In fulfilling the mandate, the objectives of the Chairman include: (i) (ii) (iii) (iv) playing a guiding role in the discharge of the Board s responsibilities; managing the Board s processes including setting the agenda for and chairing Board meetings and co-ordinating the activities of the Board; providing consultation and guidance to individual Directors and, where appropriate, engaging outside experts or advisors at the Corporation s expense; and overseeing the transmission of accurate and timely information from management to the Board on the state of affairs of the Corporation. In fulfilling the mandate, the objectives of the CEO include: (i) (ii) (iii) (iv) (v) providing leadership and effective management; facilitating effective communication between management and the Board; assessing the performance of the Officers of the Corporation and assisting the Human Resources and Compensation Committee in the development of a succession plan for Officers of the Corporation; acting as a liaison between the management of Sears, Roebuck and Co. ( Sears Roebuck ) and the management of the Corporation to facilitate the exchange of retail, financial and technological information, expertise and support; and providing timely and systematic communication to Sears Roebuck upon significant developments in Canada of a political, business, legal or financial (including US/Cdn tax issues) nature. 3. BOARD COMPOSITION AND PROPORTIONATE REPRESENTATION The Directors are elected annually by the shareholders of the Corporation. Sears Roebuck is the significant shareholder of the Corporation based on its beneficial holding of approximately 54% of the Shares. The remaining Shares are widely held by minority shareholders. PAGE 6

7 The Board is currently composed of ten Directors. Nine of the Directors are Unrelated Directors 3 and one Director is a Related Director, as he is an officer of the Corporation. Of the nine Unrelated Directors, three are Officers of Sears Roebuck and six Directors (or 60% of the total number of Directors) are Independent Directors. 4 The Board s composition fairly reflects the investment in the Corporation by minority shareholders and the independence of the Board from management. 4. INDEPENDENCE FROM MANAGEMENT The Governance Committee is responsible for reviewing, on a regular basis, the guidelines for improved corporate governance adopted by the Toronto Stock Exchange ( TSX ). From time to time, the position of Chairman and the position of CEO are held by the same person; however, Sears believes that this, per se, does not impair the ability of the Board to act independently of management because of the integrity of the Corporation s Board structure and Board process. Board Structure the entire Board is composed of Unrelated Directors, except for one Director, being the CEO; the Audit Committee is made up of five Unrelated Directors, four of whom, are Independent; the Human Resources and Compensation Committee is made up of four Unrelated Directors, three of whom are Independent; the Governance Committee is made up of four Independent Directors and one ex officio member, being the CEO; the Corporation has a significant shareholder, Sears Roebuck, which owns approximately 54% of the outstanding Shares of the Corporation. The Chairman, President and Chief Executive Officer of Sears Roebuck, Alan J. Lacy, is a member of the Board of the Corporation and is aligned with protecting the interests of all shareholders. He is also a member of the Human Resources and Compensation Committee and he participates, along with the other Committee members, in the evaluation of the performance of the Chairman and CEO of the Corporation; 3 Unrelated Director is a Director who is independent from management and free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the Director s ability to act in the best interests of the Corporation, other than interests and relationships arising from shareholding. 4 Independent Director: (a) is not a member of management and is free from any interest and any business or other relationship which in the opinion of the Exchange could reasonably be perceived to materially interfere with the director s ability to act in the best interest of the company; and (b) is a beneficial holder, directly or indirectly, or is a nominee or associate of a beneficial holder, collectively of 10% or less of the votes attaching to all issued outstanding securities of the applicant. PAGE 7

8 The Governance Committee is formally recognized by the Board as fulfilling the role of Lead Director ; 5 The Corporation has written Mandates for the Board and for the Chairman and CEO which set out their respective responsibilities; All Committees of the Board have written Charters which set out their roles and responsibilities; and The Corporation has written Corporate Governance Policies and Procedures. Board Process The Board schedules meetings in camera, that is, without the Chairman and CEO present, after each meeting, giving Unrelated and Independent Directors a forum for frank and open discussion; The Governance Committee is responsible for assessing Board effectiveness and conducts regular formal surveys of all Board members; the feedback forms the basis for action plans for continuous improvement; Adequacy of Independent Directors compensation is assessed by the Governance Committee with direct access to external advisors; As Lead Director, the Governance Committee can be approached by any Director on all matters of concern, including that of Board independence from management; The Audit Committee meets regularly with external auditors in camera, as well as with the senior internal audit manager in camera; and Board and CEO/Chair Mandates, all Committee Charters and the Corporate Governance Policies and Procedures are reviewed annually and updated as required. 5. ELIGIBILITY REQUIREMENTS/DIRECTOR SELECTION POLICY The Board s Nominating and Corporate Governance Committee is charged with, among other things, the responsibility of identifying, evaluating and recommending nominees for the Board, in consultation with the Board. The eligibility requirements for Directors of Sears are set out in the Canada Business Corporations Act. In addition to these requirements, the Nominating and Corporate 5 The TSX Company Manual, section 474(12) reads: Every board of directors should have in place appropriate structures and procedures to ensure that the board can function independently of management. An appropriate structure would be to (i) appoint a chair of the board who is not a member of management with responsibility to ensure the board discharges its responsibilities or (ii) adopt alternative means such as assigning this responsibility to a committee of the board or to a director, sometimes referred to as the lead director. Appropriate procedures may involve the board meeting on a regular basis without management present or may involve expressly assigning the responsibility for administering the board s relationship to management to a committee of the board. While the guideline contemplates an individual director in the lead director role, it also permits Sears current structure of having a committee function in a similar role. PAGE 8

9 Governance Committee refers to Sears Director Selection Policy. The selection criteria in the policy include such characteristics as regional representation, business and academic qualifications and Canadian residency. It also contains a guideline which requires that an incumbent director prepare a letter of resignation addressed to the Board if there is a material change in his/her principal occupation or residency status. The Board will decide whether or not to accept the resignation. 6. DIRECTOR EDUCATION AND ORIENTATION The Board recognizes the need to familiarize newly elected Directors with their role, responsibilities and liabilities and to provide them with an overview of the Corporation and its affiliates. This is customarily done by way of an orientation, which consists of meetings with various senior managers to consider matters such as: the nature of the business and the structure of the Corporation; its strategic plans; Board procedures and the Corporation s by-laws; the Corporation s marketing strategies and products; operations and capital expenditure programs; financial planning strategies and corporate services; human resources strategies; and new ventures, sales products and services. A new Director will also be provided with the opportunity to visit various facilities of the Corporation and to meet with corporate officers to discuss and better understand the business. Also, continuing education is provided to Directors through materials and regular presentations on key legislative, regulatory and governance initiatives and developments. 7. TERMS OF OFFICE AND TENURE The particulars of Sears Directors tenure include: (a) (b) (c) (d) each Director is nominated or re-nominated for election as a director each year by the shareholders of the Corporation at the Annual Meeting; there is no limit on the number of years a Director may serve on the Board; there is a policy adopted by the Corporation which provides that a Director shall not be nominated for election at the Annual Meeting following the Director s 70 th birthday; and if there is a material change in an incumbent Director s principal occupation or residency status, he or she should prepare a letter of resignation addressed to the Board. The Board will decide whether or not to accept the resignation. PAGE 9

10 8. DIRECTOR COMPENSATION/SHARE OWNERSHIP POLICY The Nominating and Corporate Governance Committee reviews compensation of the Directors on a bi-annual basis and makes recommendations to the Board regarding changes. The Corporation has designed the Directors compensation to align the Directors interest with corporate performance and the return to shareholders. The Corporation has adopted a Directors Share Ownership Policy. Independent Directors 6 are expected to acquire and own, within three years of being appointed/elected, common shares of the Corporation equal in value to three times their annual retainer. These common shares may be accumulated through share grants, direct purchases and/or deferred shares. Independent Directors receive an annual grant of common shares and stock options under plans established by the Corporation. In addition to equity compensation, Independent Directors receive cash compensation and an administration and expense allowance, as more particularly set out in the current Management Proxy Circular of the Corporation. All or part of the annual retainer may be taken in deferred common share units of the Corporation. All equity grants and deferred shares taken in lieu of the annual cash retainer must be held by each director until the end of their term. Directors and their eligible family members also receive a discount on purchases made at Sears in accordance with the Corporation s Discount Policy Agreement. After 10 years of service, this discount privilege continues for the life of the Director. 9. INDEMNIFICATION AND LIABILITY INSURANCE The Board has passed an Indemnification Resolution under which the Corporation indemnifies Directors, Officers and other persons from liability arising from the performance of their duties, as long as they acted lawfully and in good faith, and did not commit a dishonest, fraudulent, criminal or malicious act or omission. In addition, the Corporation carries, through Sears Roebuck, liability insurance coverage for Directors and Officers. 10. CODE OF BUSINESS CONDUCT The Corporation has adopted a Code of Business Conduct which applies to every Director, Officer and associate. The Code provides guidelines and sets out expectations regarding interactions with customers, investors, governmental authorities, suppliers of merchandise and services, and associates. It also sets out the ethical values and standards of behaviour that apply to all of the Corporation s business activities including such matters as fair dealing, conduct in the workplace, conflicts of interest, corporate property, records and compliance with the laws of all jurisdictions in which the Corporation conducts business. 6 Supra, 4 PAGE 10

11 OPERATION OF BOARD/COMMITTEES 1. BOARD MEETINGS The Board has five regularly scheduled meetings each year with additional meetings held as required. As mentioned earlier, the Board schedules meetings in camera (without management present) after each meeting. 2. BOARD COMMITTEES A key determinant of Board independence is the composition of its committees. One of the recommendations in the Final Report of The Joint Committee on Corporate Governance 7 was that Audit Committees should be composed solely of Unrelated Directors. It also recommended that all members of audit committees be financially literate, with at least one member having accounting or related financial experience. The Board has established the following committees, all of which have formal written charters which are reviewed annually to promote best practices. Audit Committee The Audit Committee currently consists of five Unrelated Directors 8, four of whom are Independent. All members are financially literate 9 and at least one member has accounting or related financial experience 10. The main objectives of the Audit Committee are to: assist the Board in assessing the principal risks of the business of the Corporation, including financial, accounting and legal matters; evaluate the adequacy of internal systems and controls; review and approve financial statements and other public disclosure documents; approve reporting and accounting policies; maintain direct lines of communication with the Directors and the Corporation s external auditors, internal auditors and financial management; 7 Supra, 1 8 Supra, 3 9 The TSX definition of financial literacy : the ability to read and understand a balance sheet, an income statement, a cash flow statement and the notes attached thereto 10 The TSX definition of accounting or related financial experience: the ability to analyze and interpret a full set of financial statements, including the notes attached thereto, in accordance with Canadian generally accepted accounting principles PAGE 11

12 meet with the Corporation s external auditors in camera (without management present), as well as with the senior internal audit manager; monitor independence of the external auditors; review compliance by the external auditors and management with the Corporation s external audit services policy regarding audit, audit related and non-audit services provided by the external auditors; and monitor and make recommendations to the Board in connection with the emerging legislative and regulatory initiatives and trends in best corporate governance practices relating to the Audit Committee s role and responsibilities; The Audit Committee meets five times each year with additional meetings held as required. Human Resources and Compensation Committee The Human Resources and Compensation Committee currently consists of four Unrelated Directors, three of whom are Independent. The main objectives of the Human Resources and Compensation Committee are to: review and ensure that the overall goals and objectives of the Corporation are supported by appropriate executive compensation philosophy and programs; review and approve the succession planning process for officers; review annually, and report to the Board on, the CEO s evaluation of the executives and the related compensation recommendations; review annually, and report to the Board on, the CEO s business objectives, performance against the business objectives and compensation; and oversee significant benefit programs for employees of the Corporation. The Human Resources and Compensation Committee meets four times each year with additional meetings held as required. Investment Committee The Investment Committee currently consists of six members. Four members are Unrelated and Independent Directors and two are management employees. The main objective of the Investment Committee is to monitor and provide direction for the investment of assets of specified benefit plans established by the Corporation for its employees. The Investment Committee is responsible for the selection and appointment of external investment managers. The Investment Committee meets four times each year with additional meetings held as required. PAGE 12

13 Nominating and Corporate Governance Committee The Nominating and Corporate Governance Committee currently consists of four Unrelated and Independent Directors and one ex officio member who is a Related Director. 11 The main objectives of the Nominating and Corporate Governance Committee are to: fulfil the role of Lead Director to the Board; consider annually the composition and size of the Board; propose nominees to the Board; implement a process for assessing the effectiveness of the Board and its Committees; consider the sufficiency of the orientation and education program for new Directors and ongoing educational presentations to incumbent Directors; act as a forum to receive any expression of concern from a Director, including a concern regarding the independence of the Board from management; make recommendations to the Board with respect to the adequacy and form of compensation for the Independent Directors; and monitor the emerging trends in matters of corporate governance, guide the Corporation in its approach and practices in all such matters and make recommendations to the Board in connection with best corporate governance practices. The Nominating and Corporate Governance Committee may engage outside experts or advisors at the Corporation s expense, where appropriate, in consultation with the Chairman of the Board. The Nominating and Corporate Governance Committee meets four times each year with additional meetings held as required. 3. BOARD INFORMATION NEEDS For each board meeting, each Director is provided with a binder containing a copy of the meeting agenda, together with supporting information on agenda items that will be discussed during the meeting, including general background material (for example, minutes, summary of capital expenditures, results, etc.) and specific presentation information. Selected materials are ordinarily sent to Directors several days prior to Board and Committee meetings. Directors also receive bi-weekly articles on selected topics, being Sears, its competition, the economy and corporate governance. 11 Related Director is a Director who is not an Unrelated Director (see Supra, 3) PAGE 13

14 4. BOARD ACCESS TO MANAGEMENT The Board has access to management at all times and for any reason. In addition, (a) (b) the Chairman and CEO arranges for executive officers and members of management to attend Board and Committee meetings as required to provide additional insight into the matters being considered and to expose the Directors to senior employees; and presentations are periodically made at Board and Committee meetings by executive officers and senior managers on new industry developments, products, and service offerings to keep the Directors informed of these matters. 5. DISCLOSURE, CONFIDENTIALITY AND INSIDER TRADING The Corporation has adopted a corporate Disclosure, Confidentiality and Insider Trading Policy (the Disclosure Policy ) which reflects its commitment to providing timely and accurate corporate information to the capital markets, including its shareholders, and to the general public. The Disclosure Policy provides direction and guidance to the Directors, Officers and associates regarding confidentiality and non-disclosure of corporate information and insider trading obligations. It requires prompt general disclosure of any material information. It sets out the rules which apply to trading in the Corporation s shares, including the obligation to comply with the Sears black-out periods. It also sets out the procedures to be followed in communicating with investors, analysts and the media, including press conferences and media briefings via webcast. The Disclosure Policy is reviewed annually and amended as required. 6. AUDIT SERVICES The auditors of the Corporation are appointed annually by the shareholders, at a remuneration which is fixed by the Directors. Deloitte & Touche LLP have served as auditors of the Corporation since They are required to communicate at least annually with the Corporation regarding all relationships between Sears and themselves which, in their professional judgement, may reasonably be thought to bear on their independence. In addition, as part of its mandate, the Audit Committee regularly examines the scope of all of the services the auditors have provided to the Corporation. In order to enhance such examination and assess the independence of the auditors, the Corporation has adopted a policy which establishes the scope of the auditor s services. This policy outlines the services which are audit and audit related, non-audit related and prohibited. Fees for non-audit related services rendered by the auditors shall not exceed 50% of the total audit and audit related fees per annum without the pre-approval of the Audit Committee. The auditors may not perform prohibited services, except with the pre-approval of the Audit Committee. PAGE 14

15 PERFORMANCE ASSESSMENT 1. BOARD ASSESSMENT Board assessment takes place through various means determined by the Nominating and Corporate Governance Committee including: surveys, interviews, group discussions and other similar methodology. A Board Effectiveness Questionnaire is completed by the Directors periodically and the results are reported to the Nominating and Corporate Governance Committee and to the Board of Directors. This survey solicits frank comments from the Directors to evaluate Board and Committee performance, timeliness and quality of materials and effectiveness of meetings. In addition, the Chairman of the Board periodically consults with each Independent Director to review Board effectiveness. The information gathered by the survey and consultations is used by Sears to develop action plans to improve its corporate governance practices. 2. CHAIRMAN AND CEO ASSESSMENT One of the roles of the Human Resources and Compensation Committee is to ensure there is an appropriate Chairman and CEO evaluation process in place. This Committee evaluates the performance of the Chairman and CEO against business objectives and reports to the Board on an annual basis. The Chairman and CEO is not a member of this Committee. A successful corporate governance culture is a journey; not a destination. Sears believes that a corporation s commitment to its corporate governance practices is a reflection of its commitment to its customers, employees and shareholders. Directors and Officers must, on an ongoing basis, reflect upon the focus and direction of the corporation, with careful attention to its mission, vision and values. Sears is dedicated to continuing its proactive approach to corporate governance practices, while nurturing, enhancing and evolving its strong corporate governance culture. For additional information or guidance, the reader is asked to contact: Corporate Secretary Sears Canada Inc. 222 Jarvis Street, Department 766, Toronto, Ontario, M5B 2B8 Telephone No. (416) Facsimile No. (416) This booklet, which is subject to amendment from time to time, is only a general overview of Sears corporate governance policies and practices and is not intended to be exhaustive. PAGE 15

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17 APPENDIX RESPONSIBILITIES This Appendix is a summary of the general duties and responsibilities of all Canadian boards, directors, chairs of the board and chief executive officers. 1. BOARD OF DIRECTORS RESPONSIBILITIES A corporation is owned by its shareholders who delegate supervision of management to its board of directors, which, in turn, delegate to management the responsibility of managing the corporation. The primary responsibility of the board is to foster the long-term success of the corporation, consistent with its fiduciary responsibility to the shareholders to maximize shareholder value. A board operates by delegating certain of its responsibilities, including spending authorizations, to management, while reserving certain powers to itself. A board must operate within the parameters of the applicable legislation and the corporation s constating documents which include articles, by-laws, directors and shareholders resolutions and any applicable shareholder agreements. A director s responsibility is that of a fiduciary and is both individually and collectively founded in legal imperatives. The board of directors as a whole is responsible for the stewardship of the corporation. The directors are also required to meet specific legal requirements in discharging the duties of the board. The board must: 1. supervise the management of the business and affairs of the corporation; 2. act honestly and in good faith with a view to the best interests of the corporation; 3. exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances; 4. act in accordance with its obligations contained in the Securities legislation of each province and territory of Canada, other relevant legislation and regulations, the corporation s articles, by-laws, and board and shareholders resolutions; 5. consider the following matters as a board and not delegate them to a committee: (a) (b) (c) (d) any submission to the shareholders of a question or matter requiring the approval of the shareholders; the filling of a vacancy among the directors or in the office of the external auditor, or the appointing of additional directors; the issuing of securities, except as authorized by the directors; the issuing of shares in one or more series, except as authorized by the directors; PAGE i

18 (e) (f) (g) (h) (i) (j) (k) the declaration of dividends; the purchase, redemption or any other form of acquisition of shares issued by the corporation; the payment of a commission to any person in consideration of the purchase or agreement to purchase shares of the corporation from the corporation or from any other person, or procuring or agreeing to procure purchases for any such shares, except as authorized by the directors; the approval of a management proxy circular for a shareholders meeting; the approval of any take-over bid circular or directors circular; the approval of the annual financial statements of the corporation; the adoption, amendment or repeal of by-laws of the corporation; and 2. INDIVIDUAL DIRECTOR RESPONSIBILITIES There are general duties and responsibilities of directors, both at common law and as set out in the Canada Business Corporations Act ( CBCA ). A corporation s directors are trustees in the sense that in performance of their duties they stand in a fiduciary relationship to the corporation and are bound by all the rules of fairness, morality and honesty in purpose that the law imposes. From this fiduciary role comes the stewardship responsibility to preserve and enhance shareholder value. Each individual director shares the fiduciary responsibility to the corporation collectively with the other directors. Also, directors must, individually, in connection with the powers and duties of their office, act honestly and in good faith with a view to the best interests of the corporation and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstance. Part of this care and diligence is for all directors to attend and participate in board discussion. The duties of a director as established by the CBCA and as interpreted by the courts may be summarized as follows: (1) Duty of Honesty In dealings with fellow directors, a director must tell the whole truth and act in good faith. Secret profits are forbidden to directors. (2) Duty of Loyalty A director is required to give individual loyalty to the corporation. Each director must exercise his or her powers honestly and for the benefit of the corporation as a whole. (3) Duty of Care A director is required to exercise prudence and diligence. The duty of care requires prudence based on common sense. The legislation requires every director to exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Acting prudently is acting carefully, deliberately and cautiously, trying to foresee consequences. PAGE ii

19 Directors must also keep the following guidelines in mind in the exercise of their individual responsibilities. A director must: exercise powers properly for the purpose for which they are conferred; be sensitive to any sort of conflict of interest, whether real or perceived. Where conflict cannot be avoided, declare the conflict and, based on the specifics on the conflict, either refrain from voting or excuse him or herself from the meeting; not misuse information or position; ensure that appropriate records are kept and maintained and that proper distributions or payments are made; establish an effective, independent and respected presence and a collegial relationship with other board members; with regard to the corporation s goals and objectives: fulfill legal requirements and obligations of a director, represent the interests of all shareholders in the governance of the corporation, participate in review of corporate policies and strategies and monitor the corporation s progress; with regard to board activity: exercise good judgment and act with integrity, use abilities and experience and influence constructively, be available as a resource to management and the board, respect confidentiality, govern rather than manage, be aware of potential conflict areas, evaluate the CEO and corporate performance and assist in maximizing shareholder value; with regard to preparation and attendance: read materials provided, maintain a good attendance record and acquire adequate information for decision making; with regard to communication: participate fully and frankly in meetings, encourage free and open discussion and ask probing questions, where necessary; with regard to independence: demonstrate interest in long term success of the corporation and speak and act independently; with regard to committee work: know the purpose and goals of the committee and understand the process and the role of management and staff supporting the committee; and with regard to business, corporation and industry knowledge: require management, and auditors and other outside advisors to provide all information the directors deem relevant to understanding the issues before them and to reach sound business judgements, remain knowledgeable of the corporation s services, facilities and industry, understand the corporation s role in the community, understand the regulatory, legislative, business, social and political environments of the corporation, become acquainted with corporate officers and be an effective ambassador for the corporation. The foregoing is a very brief summary of the duties of a corporate director. Further information can be found in Guidelines for Corporate Directors in Canada published by the Institute of Corporate Directors. PAGE iii

20 3. CHAIR AND CEO RESPONSIBILITIES The following is a general discussion of the typical roles and responsibilities of the Chair of the Board and CEO: (a) Chair of the Board Responsibilities The Final Report of the Joint Committee on Corporate Governance 1 provides a general description of the role of the chair of the board as being responsible for managing the processes of the board and for ensuring the board discharges its responsibilities. More specifically, the following are the responsibilities of a Chair: provide leadership to the board; ensure the board can function independently of management; establish procedures to govern the board s work, working with the corporation s governance committee; schedule meetings of the full board and work with committee chairpersons to coordinate the schedule of meetings for committees; ensure the appropriate agenda for regular or special board meetings based on input from directors; ensure proper flow of information to the board, review adequacy and timing of documented material in support of management s proposal; ensure adequate lead time for effective study and discussion of business under consideration; oversee the preparation and distribution of proxy material to shareholders, customers, employees and the community; assist the board in fulfilling its goals by assigning specific tasks to members of the board where necessary; act as liaison between the board and management; when requested by the board, represent the corporation to external groups as required; ensure proper committee structure, and assign committee members and chairpersons working with the corporation s governance committee; chair regular and special meetings of the board and shareholders; and carry out other duties as required by the board as a whole, depending on needs and circumstances. 1 Supra, 1 PAGE iv

21 (b) CEO Responsibilities The CEO generally exercises control of and supervision over the corporation s affairs. More specifically, the following are the responsibilities of a CEO: foster a corporate culture that promotes ethical practices, encourages individual integrity and fulfills social responsibility; maintain a positive and ethical work climate that is conducive to attracting, retaining and motivating a diverse group of top-quality employees at all levels; develop and recommend to the board a long term strategy and vision for the corporation that leads to the creation of shareholder wealth; develop and recommend to the board annual business plans and budgets that support the corporation s long term strategy; determine the appropriate use of technology; develop and recommend to the board the allocation of capital necessary to achieve the corporation s business plan; ensure that the day-to-day business affairs of the corporation are appropriately managed including evaluation of the corporation s operating performance and initiating appropriate action where required; consistently strive to achieve the corporation s financial and operating goals and objectives; ensure that the corporation builds and maintains a strong positive relationship with its customers; ensure continuous improvement in the quality and value of the products and services provided by the corporation; ensure that the corporation achieves and maintains a satisfactory competitive position within the industry; ensure that the corporation builds and maintains a strong positive relationship with its employees; ensure, in cooperation with the board, that there is an effective succession plan in place for the CEO position; formulate and oversee the implementation of major corporate policies; serve as the chief spokesperson for the corporation; build and maintain strong relationships with the corporate and public community; and ensure management support for board committees. PAGE v

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