LORILLARD, INC. CORPORATE GOVERNANCE GUIDELINES
ADOPTED AS OF MAY 5, 2008
(AMENDED AS OF FEBRUARY 25, 2010)
I. Introduction
The following Corporate Governance Guidelines (the “Guidelines”) have been adopted by the Board of Directors to assist the Board in the exercise of its responsibilities. These Guidelines reflect the Board’s commitment to monitor the effectiveness of policy and decision making both at the Board and management levels, with a view to enhancing shareholder value over the long term.
These Guidelines set forth certain goals and expectations of the Board but are not intended to bind the Board in any particular circumstance or to affect the Board’s obligations or authority under the Company’s charter or by-laws, stock exchange rules or applicable laws or regulations.
II. Composition of the Board
The Board shall from time to time review the manner in which the Board and its leadership are configured, with a view toward maintaining a structure that will best serve the Company and its shareholders.
III. Board Leadership
The Board has no fixed policy with respect to combining or separating the offices of Chairman of the Board and Chief Executive Officer. The Board will exercise discretion in combining or separating the positions as it deems appropriate in light of prevailing circumstances and the Board reserves the right to make this determination.
In the event the offices of the Chairman of the Board and Chief Executive Officer are combined, the Board of Directors may designate one of the independent directors, as determined in accordance with stock exchange rules and applicable laws and regulations, as the Lead Independent Director in accordance with the Company’s By-Laws. The Lead Independent Director shall, among other things, serve as the liaison between the Chairman of the Board, and the independent directors, assist in the establishment of agendas for Board meetings and preside over the executive sessions of the independent directors.
IV. Director Qualification Standards
A majority of the members of the Board must be “independent” directors, as determined in accordance with stock exchange rules and applicable laws and regulations. The Board will act to fill any vacancy created by the departure of an independent director as necessary to restore or maintain such majority.
The Board is responsible for selecting candidates for Board membership, with assistance from the Nominating and Corporate Governance Committee. Candidates are selected for their character, judgment, business experience and areas of expertise, among other relevant considerations, such as the requirements of stock exchange rules and applicable laws and regulations. The Board recognizes that the needs of the Board, in terms of the relative experience and other qualifications of its members, may change over time. Consistent with its charter, the Nominating and Corporate Governance Committee is responsible for screening candidates, for developing and recommending to the Board criteria for nominees and for recommending to the Board a slate of nominees for election to the Board at the annual meeting of shareholders. Final approval of any candidate shall be determined by the Board.
V. Limits on Board Service
To ensure that directors have sufficient time to properly discharge their duties, directors are expected to notify the Chairman of the Board and obtain approval from the Nominating and Corporate Governance Committee prior to joining the board of any other public company. No director shall serve on the boards of more than six public companies, including the Company’s Board. The Chief Executive Officer shall not serve on the boards of more than one other public company without the prior approval of the Board. Each director is expected to provide advance notice to the Chairman of the Board of his or her acceptance of an invitation to serve on the board of directors, audit committee or compensation committee of any other public company. If a member of the Audit Committee wishes to serve on the audit committees of more than three public companies, including the Company’s Audit Committee, such director must seek Board approval prior to accepting the additional service.
Directors are also expected to report changes in their business or professional affiliations and responsibilities to the Chairman of the Board. Directors who a have significant change in their personal circumstances, including a change in their primary employment or job responsibilities, shall tender their resignation to the Chairman of the Board. The Nominating and Corporate Governance Committee, in consultation with the Chairman of the Board, will evaluate the appropriateness of the director’s continued service on the Board under the circumstances and will make a recommendation to the Board as to whether or not to accept the resignation. No such resignation shall be effective until accepted by the Board.
The Board does not believe it is advisable to establish a term limit for directors because such a limit may deprive the Company and its shareholders of the contribution of directors who have been able to develop valuable insights into the Company and its operations over time.
VI. Director Responsibilities
A. Standard of Care for Directors. Directors should exercise their business judgment to act in what they reasonably believe to be in the best interests of the Company and its shareholders in a manner consistent with their fiduciary duties. In considering the best long-term and short-term interests of the Company, directors may consider the needs of employees, suppliers and customers of the Company and its subsidiaries, communities in which the Company and its subsidiaries conduct business and other pertinent factors in addition to the objective of maximizing shareholder value.
Directors shall be provided with information about the Company’s business, performance and prospects, as well as any matters submitted for Board action. Such information will be made available to the directors periodically and, in any event, within a reasonable period of time before meetings where the subject matter of such information is on the meeting agenda. Information should be relevant, concise and timely. Requests for action by the Board should include the recommendation of management and be accompanied by data sufficient for the directors to make a determination as to the advisability of the matter.
Directors should regularly attend meetings of the Board and all committees upon which they serve. To prepare for meetings, directors should review the materials that are sent to them in advance of those meetings and otherwise spend the necessary time and effort to discharge their responsibilities appropriately.
B. Meetings of the Board. The Board expects that it will meet approximately six times a year. Additional meetings (or actions to be taken by unanimous consent) may be scheduled as necessary or appropriate in light of circumstances. The Company’s Secretary shall prepare an annual schedule of meetings for the Board and the Audit, Compensation and Nominating and Corporate Governance Committees. To the extent practicable, the schedule shall be designed to accommodate discussion of agenda subjects that are generally of a recurring nature and are expected to be discussed during the ensuing year. Certain matters shall be addressed by the Board at least annually, including a review of the Company’s strategic plan or objectives, business and financial performance for the prior year and compliance with applicable laws, regulations and stock exchange rules.
Meetings of the Board shall be chaired by the Chairman of the Board or, in his or her absence, the Lead Independent Director, if one has been appointed. The Company’s Chief Executive Officer, Chief Financial Officer, General Counsel and Secretary should also attend all meetings of the Board, subject to the Board’s discretion to excuse one or more of these officers from all or portions of any meeting.
The Chairman of the Board, with advice from the Lead Independent Director (if one has been appointed), the Chief Executive Officer (if the Chief Executive Officer is not the Chairman of the Board) and the Secretary, shall set the agenda of each meeting of the Board. Any director may suggest agenda items and may raise at meetings other matters that they consider worthy of discussion. Directors must disclose to the other directors any potential conflicts of interest they may have with respect to any matter under discussion and, if appropriate, refrain from participating in such discussion and from voting on a matter in which they may have a conflict. Directors shall preserve the confidentiality of confidential material given or presented to the Board.
C. Executive Sessions of Independent Directors. The Board shall schedule regular executive sessions where independent directors shall meet without management participation. The Chairman of the Board if an independent director, the Lead Independent Director or an independent director selected by a majority of the independent directors of the Board shall preside at each executive session.
VII. Communications with Directors
Interested parties, including shareholders, may communicate directly with the Company’s directors, including independent directors, individually or as a group, by writing to the following address:
[The Board of Directors]
[The Independent Directors] or
[Name of Individual Director(s)]
c/o Corporate Secretary
Lorillard, Inc.
714 Green Valley Road
Greensboro, North Carolina 27408-7018
VIII. Committees of the Board
The Board will maintain a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee, as well as such other standing or ad hoc committees as the Board deems appropriate. Each committee shall have the authority and responsibilities delineated in the resolutions creating the committee and any applicable committee charter, subject to the Company’s charter and by-laws, stock exchange rules and applicable laws and regulations. The Board shall have the authority to disband any ad hoc or standing committee (other than the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee) when it deems it appropriate to do so.
Members of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee and their chairpersons shall be appointed by the Board each year at the annual meeting of the Board. It is the Board’s policy that only independent directors who meet the independence and other requirements of stock exchange rules and applicable laws and regulations shall serve on such committees.
Each of the Audit, Compensation and Nominating and Corporate Governance Committees shall have a written charter approved by the Board. Committee charters shall be reviewed by the relevant committee at least annually in light of the activities of the committee, changes in stock exchange rules, applicable laws or regulations and other relevant considerations. Suggested revisions to such charters shall be presented to the Board for approval.
The chairpersons of the various committees, in consultation with their committee members, shall determine the frequency and length of committee meetings. The chairperson of each committee, in consultation with appropriate Company officers, will establish the agenda for each committee meeting. Committee members and other directors may suggest additional agenda items for committee meetings upon reasonable notice to the committee chairperson.
To the extent practicable, information regarding matters to be considered at committee meetings shall be distributed to committee members a reasonable period of time before the meeting. Following a meeting the committee chairperson shall report to the Board on the committee’s activities, and minutes of committee meetings shall be distributed to all directors for their information.
IX. Director Access to Management and Independent Advisors
The Company shall provide each director with complete access to management and management information, subject to reasonable advance notice and reasonable efforts to avoid disruption to the business. The Board and, to the extent set forth in the applicable committee charter, Board committees, have the right to consult and retain independent legal and other advisors at the expense of the Company. Management shall be responsive to requests for information from Board members. The Board encourages the Chairman of the Board, the Lead Independent Director and the Chief Executive Officer to invite members of management to make presentations at Board meetings in order to provide insights into the Company’s business or to provide individuals with exposure to the Board for purposes of management development. Directors may suggest possible guests to the Chairman of the Board, Lead Independent Director or the Chief Executive Officer.
X. Director Compensation
From time to time the Board or a designated committee of the Board will review the form and amount of compensation, including cash, equity-based awards and other compensation, paid to directors and committee members. In this regard, the Compensation Committee may request that management report to it periodically on the status of the Board’s compensation in relation to other similarly situated companies. The Board continues to believe that an alignment of director interests with those of shareholders is important.
XI. Director Orientation and Continuing Education
The Board, in consultation with management, will establish or direct management to establish an appropriate orientation program for newly elected directors either prior to or within a reasonable period of time after their nomination or election as a director. The orientation program shall address the Company’s strategic plans, significant risk exposures and compliance programs, including its Code of Business Conduct and Ethics, and may include presentations by management, the internal auditors and the independent accountants. Directors may receive continuing education on the foregoing and other matters of importance to the Company’s business through presentations by management and the Company’s advisors as well as education programs provided by third parties.
XII. Stock Ownership Guidelines for Directors and Executive Officers
The Board expects all directors and executive officers to maintain an ownership interest in the Company’s stock in order to align their interests with those of shareholders. To this end, the Board has adopted stock ownership guidelines for directors and executive officers which set targets expressed as a number of shares that approximate three times the annual cash retainer for non-executive directors, three times the base salary for the Chief Executive Officer and one times the average base salary for the other executive officers. Stock owned outright, stock held in Company benefit plans and restricted stock not subject to performance contingent vesting will be included in determining compliance with the stock ownership guidelines. Directors and executive officers generally are expected to comply with the stock ownership guidelines within five years of becoming subject to the guidelines. The Board [or the Compensation Committee on behalf of the Board] will review the stock ownership guidelines and individual compliance therewith on a regular basis.
XIII. Management Succession
The Board or the Compensation Committee on behalf of the Board will conduct an annual review of the performance and compensation of the Chief Executive Officer.
The Board will establish and review such formal or informal policies and procedures, consulting with the Nominating and Corporate Governance Committee, the Chief Executive Officer and others, as it considers appropriate, regarding succession planning for the office of Chief Executive Officer.
XIV. Communications with Public and Others
The Board believes that management speaks for the Company. Directors are expected to refrain from communicating with institutional investors, other stockholders, governmental or community officials, analysts or the press regarding the business of the Company.
XV. Reliance on Management and Outside Advice
In performing its functions, the Board and each Board committee is entitled to rely on the advice, reports and opinions of management, counsel, accountants, auditors and other expert advisors. The Board shall have the authority to retain and approve the fees and retention terms of its outside advisors.
XVI. Board Evaluations
The Board will conduct a self-evaluation annually to determine whether it and its committees are functioning effectively. The Board will discuss the evaluation to determine what, if any, action could improve Board and committee performance. In addition, the Nominating and Corporate Governance Committee will assess the contributions and performance of directors on a periodic basis when considering whether to recommend their nomination to serve another term as a director.
XVII. Amendment and Annual Review
The Board shall retain the authority to amend or waive any provision of these Guidelines and, with the assistance of the Nominating and Corporate Governance Committee, shall review these Guidelines on an annual basis to determinate whether any changes are appropriate.
