On August 6, 2003, the Cardinal Health, Inc. (the “Company” or “Cardinal Health”) Board of Directors (the “Board”) adopted the following Corporate Governance Guidelines, which were most recently amended by the Board effective September 1, 2009:
Role of the Board
The Board serves as the representative and acts on behalf of all of the shareholders of Cardinal Health. In representing Cardinal Health’s shareholders, the basic responsibility of the Directors is to exercise their business judgment in good faith to act in what they reasonably believe to be the best interests of the Company. In discharging that obligation, Directors should be entitled to rely on the honesty and integrity of their fellow Directors and of the Company’s senior executives, outside advisors and outside auditors. The Board, operating directly and through its committees, fulfills the following primary functions:
- Oversee management in the conduct of Cardinal Health’s businesses;
- Oversee management’s efforts to establish and maintain for the Company high standards of legal and ethical conduct in all of its businesses, including conformity with all applicable laws and regulations;
- Review, evaluate and, where appropriate, approve, the Company’s major strategies and long-term plans and its performance against broad financial objectives;
- Select, evaluate and compensate the Chief Executive Officer and other senior officers and plan for management succession;
- Oversee management’s efforts to protect the assets of Cardinal Health through the maintenance of appropriate accounting, financial reporting and financial and other controls;
- Oversee the Company’s policies and procedures for assessing and managing risk;
- Provide advice and counsel to senior management;
- Evaluate the overall effectiveness of the Board and its committees; and
- Evaluate, select and recommend an appropriate slate of candidates for election as Directors.
Board Selection and Composition
Board Selection. The Board is responsible for selecting candidates for election as Directors based on the recommendation of the Nominating and Governance Committee.
Board Membership Criteria. The responsibilities of the Nominating and Governance Committee include reviewing with the Board from time to time the appropriate skills and characteristics required of Board members in the context of the make-up of the Board and developing criteria for identifying and evaluating candidates for the Board. These criteria include, among other things, an individual’s business experience, qualifications, attributes and skills (including skills in core areas such as operations, management, technology, healthcare industry knowledge, accounting and finance, leadership, strategic planning and international markets), independence, judgment, integrity and ability to commit sufficient time and attention to the activities of the Board, as well as the absence of potential conflicts with the Company’s interests. The Nominating and Governance Committee considers these criteria in the context of an assessment of the operation and goals of the Board as a whole and seeks to achieve diversity of occupational and personal backgrounds on the Board.
Board Independence. A majority of the Board must be comprised of Directors who meet the New York Stock Exchange definition of “independence,” as determined by the Board. Under standards that the Board has adopted to assist it in assessing independence, the Board defines an “independent Director” to be a Director who:
- is not and has not been during the last three years an employee of, and whose immediate family member is not and has not been during the last three years an executive officer of, the Company(provided however, that, in accordance with New York Stock Exchange listing standards, service as an interim executive officer, by itself, does not disqualify a director from being considered independent under this test following the conclusion of that service);
- has not received, and whose immediate family member has not received other than for service as an employee (who is not an executive officer), more than $120,000 in direct compensation from the Company, other than director and committee fees and pension or other forms of deferred compensation for prior service (provided such compensation is not contingent in any way on continued service), in any 12-month period during the last three years (provided however, that, in accordance with New York Stock Exchange listing standards, compensation received by a director for former service as an interim executive officer need not be considered in determining independence under this test);
- (a) is not a current partner or employee of a firm that is the Company’s internal or external auditor; (b) does not have an immediate family member who is a current partner of the Company’s internal or external auditor; and (c) is not and was not during the last three years, and whose immediate family member is not and was not during the last three years, a partner or employee of the Company’s internal or external auditor who personally worked on the Company’s audit within that time;
- is not and has not been during the last three years employed, and whose immediate family member is not and has not been during the last three years employed, as an executive officer of another company during a time when any of the Company’s present executive officers serve on that other company’s compensation committee;
- is not, and whose immediate family member is not, serving as a paid consultant or advisor to the Company or to any executive officer of the Company, or a party to a personal services contract with the Company or with any executive officer of the Company;
- is not a current employee of, and whose immediate family member is not a current executive officer of, a company that has made payments to, or received payments from, the Company for property or services in an amount which, in any of the last three fiscal years, exceeds the greater of $1 million, or 2% of such other company’s consolidated gross revenues;
- is not, and whose spouse is not, an executive officer of a non-profit organization to which the Company or the Company foundation has made contributions during the past three years that, in any single fiscal year, exceeded the greater of $1 million or 2% of the non-profit organization’s consolidated gross revenues (Amounts that the Company contributes under matching gifts programs are not included in the contributions calculated for purposes of this standard); and
- has no other material relationship with the Company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Company).
The Board assesses on a regular basis and at least annually the independence of Directors and, based on the recommendation of the Nominating and Governance Committee, makes a determination as to which members are independent. References to the “Company” above would include any subsidiary in a consolidated group with Cardinal Health. The terms “immediate family member” and “executive officer” above have the same meaning specified for such terms in the New York Stock Exchange listing standards.
In addition to the independence standards applicable to Directors generally, Audit Committee members may not accept, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than director fees and any regular benefits that other Directors receive for services on the Board or Board Committees. In addition, no Audit Committee member can be an affiliated person of the Company or any of its subsidiaries.
Board Leadership. The Board is responsible for the selection of the Chairman of the Board and the Chief Executive Officer.
Presiding Director. An independent Director elected annually by the remaining independent Directors serves as the Presiding Director. The Presiding Director presides at all meetings of the Board at which the Chairman is not present, including executive sessions of the independent Directors; has the authority to call additional executive sessions of the independent Directors as appropriate; serves as a liaison between the Chairman and the independent Directors; advises on the flow of information sent to the Board, and reviews the agenda, materials and schedule for Board meetings; is available, as deemed appropriate by the Board, for consultation and direct communication with major shareholders; and performs such additional functions as designated by the Board.
Board Leadership. The Board is responsible for the selection of the Chairman of the Board and the Chief Executive Officer. The Board believes that it is in the best interests of the Company for the Board to make a determination regarding whether or not to separate the roles of Chairman and Chief Executive Officer based upon the circumstances. The Board periodically reviews and assesses its leadership structure.
Size of the Board; Under the Company’s Restated Code of Regulations, as amended (the “Restated Code of Regulations”) the number of the Directors in no case shall be fewer than nine (9) or more than sixteen (16).
Board Orientation and Continuing Education. A thorough understanding of the Company’s business is required to enable a Director to make a substantial contribution to the Board. Accordingly, all new Directors participate in an orientation program developed by the Company after their election to the Board. The orientation includes 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 standards of business conduct and ethics, its principal officers, and its internal and independent auditors. Directors are encouraged to participate in continuing education developed by the Company or programs provided by outside sources. Directors endeavor to meet at key Company locations from time to time to conduct in-depth reviews of particular segments of the Company’s operations.
Continuation of Service.
- Re-Nomination. The Nominating and Governance Committee assesses the contributions and independence of Directors on an annual basis in accordance with the criteria set forth in the committee’s charter to determine whether these Directors should be requested to stand for reelection and continue service on the Board.
- Retirement Age. A director will not be nominated for re-election after his or her 72nd birthday; provided, however, the Board may nominate candidates over the age of 72 under special circumstances.
- Change of Responsibility of Non-Management Director. When a non-management director’s principal occupation or business association changes substantially during his or her tenure as a Director, that Director shall tender his or her resignation for consideration by the Board. The Nominating and Governance Committee will consider the tendered resignation and recommend to the Board the action, if any, to be taken with respect to the resignation.
- Former Chief Executive Officer. When the Chief Executive Officer resigns or retires, he or she should tender his or her resignation from the Board to the Nominating and Governance Committee at that time. The Nominating and Governance Committee will consider the tendered resignation and recommend to the Board the action, if any, to be taken with respect to the resignation.
- Number of Other Directorships. Non-management Directors should not serve on more than four public company boards in addition to the Company’s Board. Non-management Directors should advise the Chairman of the Board, the Chairman of the Nominating and Governance Committee and the Secretary in advance of accepting an invitation to serve on another board.
Voting for Directors. Article Eleventh (“Article Eleventh”) of the Company’s Amended and Restated Articles of Incorporation, as amended, provides, among other things, that, at each meeting of shareholders for the election of Directors at which a quorum is present, a nominee for election as a Director in an uncontested election (as defined in Article Eleventh) shall be elected to the Board if the number of votes cast for such nominee’s election exceeds the number of votes cast against such nominee’s election. Any nominee for Director, who is not elected by shareholders in an uncontested election because he or she did not receive a greater number of votes for his or her election than against such election, and who remains on the Board as a Director in accordance with Section 2.5 of the Restated Code of Regulations, will promptly tender his or her resignation to the Chairman of the Board following certification of the shareholder vote. Within 90 days following the certification of the shareholder vote, the Nominating and Governance Committee will make a recommendation to the Board as to whether to accept the tendered resignation. Thereafter, the Board will promptly act on the tendered resignation and publicly disclose its decision regarding the tendered resignation and the rationale behind the decision. Any Director who tenders his or her resignation pursuant to this provision is expected to recuse himself or herself from voting on the recommendation of the Nominating and Governance Committee or the decision of the Board with respect to his or her resignation.
Committee Matters
Number, Structure and Independence of Committees. The four committees of the Board are the Audit, Human Resources and Compensation, Executive, and Nominating and Governance Committees. From time to time, the Board may form a new committee or disband a current Committee, depending upon the circumstances. The Audit, Human Resources and Compensation and Nominating and Governance Committees are comprised of only Directors who meet the New York Stock Exchange definition of “independence,” as determined by the Board. As noted under Director Independence above, members of the Audit Committee must satisfy additional independence criteria, in accordance with requirements of the Securities and Exchange Commission rules. It is intended that members of the Human Resources and Compensation Committee qualify as “non-employee directors” for purposes of Rule 16b-3 under the Securities Exchange Act of 1934 and as “outside directors” for purposes of Section 162(m) of the Internal Revenue Code. Each of the Audit, Human Resources and Compensation, Executive and Nominating and Governance Committees has a written charter setting forth its duties, authority and responsibilities. The Board may, from time to time, establish or maintain additional committees as necessary or appropriate.
Assignment of Committee Members. The Nominating and Governance Committee is responsible for recommending to the Board the assignment of Board members to various committees and the selection of committee Chairs. Consideration should be given to periodically rotating Committee members. However, the Board does not have a firm policy mandating rotation of committee assignments since special knowledge or experience may warrant a particular Director serving for an extended period on one committee.
Frequency of Committee Meetings. With the exception of the Executive Committee, which is empowered to perform all duties of the full Board when the Board is not in session (other than to fill vacancies among the Directors or on any committee of the Board), each committee meets at least four times per year with the Audit Committee meeting at least quarterly. Committees report regularly to the full Board with respect to their activities.
Committee Agenda. The Chair of each committee, in consultation with the Chief Executive Officer, Corporate Secretary and appropriate management liaisons, establishes the committee’s agenda for its meetings. Committee members are free to suggest the inclusion of items on the agenda.
Meetings of the Board
Agenda. The Chairman of the Board, in consultation with the Presiding Director, the Corporate Secretary, and members of management, establishes the agenda for each Board meeting. Each Director is free to suggest the inclusion of items on the agenda.
Advance Distribution of Board Materials. Information and material that are important to the Board’s understanding of the business to be conducted at each Board meeting are distributed to the Board before the Board meets. Highly confidential or sensitive matters, and matters that arise immediately prior to Board meetings, may be presented and discussed without prior distribution of background material.
Executive Sessions. The non-management Directors of the Board meet in executive session regularly. In addition, the independent Directors of the Board meet in executive session at least annually.
Director Attendance. Absent unusual circumstances, each Director is expected to attend all Board meetings and all meetings of the committee(s) of which the Director is a member, and to spend the time needed and meet as frequently as necessary to discharge their responsibilities. Absent unusual circumstances, each Director is expected to attend the annual meeting of shareholders.
Board Access to Senior Management. At all times, Directors have open access to the Company’s senior management. Members of the Company’s management are invited to attend and participate in Board meetings from time to time to brief the Board and the committees on particular topics. The Board encourages senior management to bring into Board or committee meetings and other scheduled events managers who can provide additional insight into matters being considered and/or whom senior management believes have future growth potential with the Company and should be given exposure to the members of the Board.
Board Access to Independent Advisors. The Board and the Audit, Human Resources and Compensation and Nominating and Governance Committees, consistent with their respective charters, have the authority to retain such outside counsel, experts and other advisors as they determine appropriate to assist them in the full performance of their functions.
Assessment and Leadership Development
Evaluation and Compensation of the Chief Executive Officer. The Board, through the Human Resources and Compensation Committee, conducts an annual evaluation of the performance of the Chief Executive Officer against criteria established by the Human Resources and Compensation Committee. This evaluation is shared with the Chief Executive Officer and is used by the Human Resources and Compensation Committee in setting the Chief Executive Officer’s compensation.
Assessing Board and Committee Performance. The Nominating and Governance Committee oversees an annual evaluation of the Board’s effectiveness and performance, the results of which are discussed with the full Board. Each of the Audit, Human Resources and Compensation and Nominating and Governance Committees conducts an annual self-assessment. The Nominating and Governance Committee also conducts an individual evaluation of each Director, not less frequently than once every three years, the results of which are shared with such individual Director.
Management Development and Succession Planning. The Board is responsible for planning for the succession to the position of Chief Executive Officer and other senior management positions. To assist the Board, the Chief Executive Officer annually provides the Human Resources and Compensation Committee with an assessment of senior managers and their potential to succeed him or her. The Chief Executive Officer also makes available to the Board, on a continuing basis, recommendations regarding an emergency succession plan which addresses who should assume the role of Chief Executive Officer in the event that the Chief Executive Officer becomes unwilling or unable to perform his or her duties. The Chief Executive Officer also provides the Human Resources and Compensation Committee with an assessment of persons considered potential successors to other senior management positions, including a review of any development plans recommended for such individuals. The results of these reviews are reported to and discussed with the Board on a regular basis.
Other Matters
Stock Ownership. Under the Cardinal Health Guidelines for Share Ownership adopted by the Board of Directors, each executive officer and non-management Director must accumulate and hold a certain dollar value of Company shares by the later of June 30, 2012 or three years after joining the Company or the Board. The specific share ownership requirements for Directors are: five times base salary for the Chairman and Chief Executive Officer; four times base salary for Segment Chief Executive Officers and the Chief Financial Officer; three times base salary for other executive officers; and four times the annual cash retainer for non-management Directors.
Ethics and Compliance. The Company maintains an ethics and compliance program that is designed to be effective in the context of the Company’s business and operations, including but not limited to appropriate standards of business conduct and ethics. The Board shall be briefed upon and be provided information so that it may remain knowledgeable about the content and operation of the ethics and compliance program and shall exercise appropriate oversight with respect to the implementation and effectiveness of the compliance and ethics program. The Audit Committee oversees compliance with standards of business conduct and ethics for its employees, including its executive officers, and Directors. The full text of the standards is posted on the Company’s website. The Company will disclose on its website future amendments to or waivers from the standards for its executive officers and Directors promptly upon any such amendment or waiver. Any waiver from its standards for Directors or executive officers must be approved by the Audit Committee of the Board of Directors.
Review of Strategic Plans. The Board reviews and evaluates at least annually the long-term strategic and business plans of the Company.
Director Compensation. The form and amount of Director compensation is recommended by the Human Resources and Compensation Committee in accordance with the policies and principles set forth in its charter and any New York Stock Exchange or other applicable rules, and that committee conducts an annual review of Director compensation. Changes in director compensation, if any, are recommended by the Human Resources and Compensation Committee and approved by the full Board. To more closely align the interest of the Directors with those of Cardinal Health’s shareholders, typically, a portion of Directors’ fees is paid in the form of Company common shares or options to purchase Company common shares. No additional compensation is paid to members of management for serving on the Board.
Annual Review
The Nominating and Governance Committee is responsible for reviewing these guidelines at least annually and making recommendations for appropriate changes to the Board.
Effective: September 1, 2009
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