1. General. The Board of Directors (the “Board”) of CareFusion Corporation (the “Company”) has the responsibility to organize its functions and conduct its business in the manner it deems most effective and efficient, consistent with its duties of good faith, due care and loyalty. In that regard, the Board has adopted a set of flexible policies to guide its governance practices. These practices, set forth below, will be regularly re-evaluated and updated as necessary or appropriate by the Board’s Governance and Compliance Committee in light of changing circumstances in order to continue serving the best interests of the Company and its stockholders. Accordingly, this summary of current corporate governance guidelines is not a fixed policy or resolution by the Board, but merely a statement of current guidelines that are subject to continuing assessment and change.
2. Role of Board. The Board serves as the representative and acts on behalf of all of the Company’s stockholders. In representing the Company’s stockholders, the basic responsibility of the Company’s 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’s primary functions are to:
| (a) |
Oversee management in the conduct of the Company’s businesses; |
| (b) |
Oversee management’s efforts to establish and maintain for the Company the highest standards of legal and ethical conduct in all of its businesses, including conformity with all applicable laws and regulations; |
| (c) |
Review, evaluate and, where appropriate, approve, the Company’s major strategies and long-term business plans, as well as its performance against broad financial objectives; |
| (d) |
Select, evaluate and compensate the Company’s Chief Executive Officer and other senior officers and review management succession planning; |
| (e) |
Oversee management’s efforts to protect the Company’s assets through the maintenance of appropriate accounting, financial reporting and financial and other controls; |
| (f) |
Provide advice and counsel to senior management; |
| (g) |
Evaluate the overall effectiveness of the Board and its committees; and |
| (h) |
Evaluate, select and recommend an appropriate slate of candidates for election as directors. |
3. Board Selection and Composition.
| (a) |
Board Selection. The Board is responsible for selecting candidates for election as directors based on the recommendation of the Governance and Compliance Committee. |
| (b) |
Board Membership Criteria. The responsibilities of the Governance and Compliance 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 generally include, among other things, an individual’s business experience and skills (including skills in core areas such as operations, management, technology, accounting and finance, strategic planning and international markets), as well as independence, judgment, knowledge of our business and industry, professional reputation, leadership, integrity and ability to represent the best interests of the Company’s stockholders. The Governance and Compliance Committee will also consider the ability to commit sufficient time and attention to the activities of the Board, as well as the absence of any potential conflicts with the Company’s interests. In addition, the Governance and Compliance Committee will consider diversity of backgrounds and experiences in the context of the make-up of the Board so that the Board is comprised of directors with a diverse range of perspectives, ideas, and viewpoints. |
| (c) |
Board Independence. A majority of the Board must be comprised of directors who meet the New York Stock Exchange definition of “independent,” as determined by the Board. The Company will strive to have all of its non-employee directors of the Board meet the New York Stock Exchange definition of “independent.” Under standards that the Board has adopted to assist it in assessing independence, the Board defines an “independent” director to be a director who:
| (i) |
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); |
| (ii) |
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); |
| (iii) |
(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; |
| (iv) |
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; |
| (v) |
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; |
| (vi) |
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; |
| (vii) |
is not, and whose spouse is not, an executive officer of a non-profit or other tax-exempt 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 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 |
| (viii) |
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). |
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The Board assesses on a regular basis and at least annually the independence of each director and, based on the recommendation of the Governance and Compliance Committee, makes a determination as to which directors are independent. References to the “Company” above would include any subsidiary in a consolidated group with the Company. 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.
As discussed below in Section 4(a), in addition to the independence standards applicable to directors generally, the members of the Audit Committee and the Human Resources and Compensation Committee are subject to additional requirements to qualify for service on these Committees. |
| (d) |
Board and Company Leadership. The Board is responsible for selecting the Chairman of the Board and the Chief Executive Officer. |
| (e) |
Presiding Director. An independent director selected annually by the independent directors (the “Presiding Director”) will preside at meetings of the non-management and independent directors, preside at all meetings of the Board at which the Chairman of the Board is not present and will perform such other functions as the Board may direct, including advising on the selection of committee chairs and advising management on the agenda for Board meetings. The Presiding Director will serve as liaison between the Chairman of the Board and the independent directors and will have the authority to call meetings of the independent directors. Consideration should be given to periodically rotating the Presiding Director. However, the Board does not have a firm policy mandating rotation of the Presiding Director over any period of time. |
| (f) |
Size of the Board. The Board, with the recommendation of the Governance and Compliance Committee, will regularly evaluate and set the size of the Board. Although the actual number will vary from time to time, generally the Board will range in size from 6 to 15 members. |
| (g) |
Board Orientation and Continuing Education.A thorough understanding of the Company’s business is required to enable a director to make a meaningful contribution to the Board. Accordingly, all new directors will participate in an orientation program developed by the Company after their election to the Board. The orientation will include presentations and information designed to familiarize new directors with the Company’s business and strategy, significant financial, accounting and risk management considerations, the Company’s compliance programs, including the Code of Conduct, as well as its principal officers and its internal and external auditors. The Company shall provide ongoing continuing education to Directors regarding the Company’s business and strategy, which will include meetings at key Company locations from time to time to allow Directors to conduct in-depth reviews of particular segments of the Company’s operations. In addition, the Company shall provide annual training to Directors on the Company’s Code of Conduct. The Board also recognizes that Directors can benefit from continuing education programs provided by outside sources, including related to board governance, effectiveness and accountability, and the Board encourages Directors to supplement the continuing education provided by the Company with participation in at least one outside program every two years at Company expense. |
| (h) |
Stock Ownership. To more closely align director interests with those of the Company’s stockholders generally, the Company will require that each non-employee director own an equity interest in the Company. The Company’s Stock Ownership Guidelines, adopted by the Board of Directors, establish stock ownership requirements for the Company’s non-employee directors, as well as the Company’s executive officers. Under the Stock Ownership Guidelines, each non-employee director is required, within five years of joining the Board, to hold three times the annual cash retainer provided to non-employee directors. |
| (i) |
Continuation of Service.
| (i) |
Re-Nomination. The Governance and Compliance Committee is responsible for assessing the contributions and independence of each director in accordance with the criteria set forth in each Committee’s charter to determine whether an incumbent director should be requested to stand for reelection and to continue service on the Board. |
| (ii) |
Term Limits or Retirement Age. The Board does not believe it should establish term limits or a mandatory retirement age. While term limits and mandatory retirement can make fresh ideas and viewpoints available to the Board, these limitations can also result in the loss of directors who have been able to develop, over a period of time, an increasing insight into the Company and its operations. As an alternative to term limits and mandatory retirement, the Governance and Compliance Committee will review each incumbent director’s continuation on the Board when he or she is considered for re-nomination. This will also allow each director the opportunity to conveniently confirm his or her desire to continue as a member of the Board. |
| (iii) |
Change of Responsibility of Director. In the event a non-employee director changes his or her principal occupation or business association, or publicly announces a future change in his or her principal occupation or business association, during his or her tenure as a director, that director shall promptly provide notification of such change to the chair of the Governance and Compliance Committee. The Board does not believe that a director should necessarily be required to leave the Board upon such a change, but that continued service on the Board should be considered under these circumstances. Accordingly, any such director shall be required to tender his or her resignation to the chair of the Governance and Compliance Committee no later than the date of the next meeting of the Board of Directors following the effective date of such change. The Governance and Compliance Committee will consider the tendered resignation and recommend to the Board the action, if any, to be taken with respect to the resignation. |
| (iv) |
Former Chief Executive Officer. When the Chief Executive Officer resigns or retires, he or she shall tender his or her resignation from the Board to the Governance and Compliance Committee at that time. Whether the individual continues to serve on the Board is a matter for discussion at that time with the Board. |
| (v) |
Number of Other Directorships. Non-employee directors should not serve on more than four public company boards in addition to the Company’s Board. Current positions in excess of these limits may be maintained unless the Board determines that doing so would impair the director’s service on the Company’s Board. Non-employee directors should advise the Chairman of the Board, the Chairman of the Governance and Compliance Committee and the Corporate Secretary in advance of accepting an invitation to serve on another board, or establishing other significant relationships with businesses, institutions, governmental units or regulatory entities, particularly those that may result in significant time commitments or a change in the director’s relationship to the Company. |
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| (j) |
Consideration of Stockholder Nominees. The Governance and Compliance Committee will review a reasonable number of candidates for director recommended by a single stockholder who has held over 0.1% of the Company’s common stock for over one year and who satisfies the notice, information and consent provisions set forth in the Company’s Amended and Restated By-Laws. Candidates so recommended will be reviewed using the same process and standards for reviewing Board recommended candidates, including the Board membership criteria set forth in these Corporate Governance Guidelines. |
4. Committee Matters.
| (a) |
Number, Structure and Independence of Committees. The three standing committees of the Board are the Audit Committee, the Human Resources and Compensation Committee and the Governance and Compliance Committee. 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 Governance and Compliance Committees will be comprised of only directors who meet the New York Stock Exchange definition of “independent,” as determined by the Board. In addition, the charters of the Audit Committee and the Human Resources and Compensation Committee will set forth additional criteria, including any additional requirements under the rules and regulations of the New York Stock Exchange and the Securities and Exchange Commission, for directors to serve as members on such Committees. |
| (b) |
Assignment of Committee Members. The Governance and Compliance Committee is responsible for recommending to the Board the assignment of Board members to the various Board 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. |
| (c) |
Frequency of Committee Meetings. Each committee shall meet no less than twice per year, with the Audit Committee meeting at least quarterly. Committees report regularly to the full Board with respect to their activities |
| (d) |
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. |
5. Meetings of the Board.
| (a) |
Agenda. The Chairman of the Board, in consultation with the Presiding Director, the Corporate Secretary, and members of management, will establish the agenda for each Board meeting and review the information sent to the Board, to help assure that there is sufficient time for discussion of all agenda items. Each director is free to suggest the inclusion of items on the agenda. |
| (b) |
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 will be 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. |
| (c) |
Executive Session of Independent Directors. The independent directors of the Board will meet in executive session at least three times each year. The Presiding Director will chair these meetings. |
| (d) |
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 properly discharge their responsibilities. Absent unusual circumstances, each director is expected to attend the annual meeting of stockholders. |
| (e) |
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. |
| (f) |
Board Access to Independent Advisors. The Board and the Audit, Human Resources and Compensation and Governance and Compliance 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. |
6. Assessment and Leadership Development.
| (a) |
Evaluation and Compensation of the Chief Executive Officer. The Board, through the Human Resources and Compensation Committee, will conduct an annual evaluation of the performance of the Chief Executive Officer against criteria established by the Board. This evaluation will be shared with the Chief Executive Officer and will be used by the Human Resources and Compensation Committee in recommending to the Board the Chief Executive Officer’s compensation. The Board will be responsible for approving the compensation for the Chief Executive Officer, including relevant goals and objectives and the evaluation of the CEO’s performance and compensation in light of those goals and objectives. |
| (b) |
Assessing Board and Committee Performance. The Governance and Compliance Committee will oversee an annual evaluation of the Board’s effectiveness and performance, the results of which will be discussed with the full Board. Each of the Audit, Human Resources and Compensation and Governance and Compliance Committees will conduct an annual self-assessment. The Governance and Compliance Committee will also conduct an individual evaluation of each director, not less frequently than once every three years, the results of which will be shared with such individual director. |
| (c) |
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 will provide 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 will make available to the Board, on a continuing basis, recommendations regarding an emergency succession plan which will address 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 will provide 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 will be reported to and discussed with the Board on a regular basis. |
7. Other Matters.
| (a) |
Code of Conduct. The Company will maintain, and the Audit Committee will oversee compliance with, a code of business conduct and ethics (known as the Code of Conduct) for its employees, including its executive officers, and directors. The full text of the Code of Conduct will be posted on the Company’s website. The Audit Committee will review and approve all amendments to the Code of Conduct and all waivers of the Code of Conduct for executive officers or directors, and provide for prompt disclosure of all amendments and waivers required to be disclosed under applicable law. |
| (b) |
Ethics and Compliance.The Company will maintain, and the Governance and Compliance Committee will oversee, the Company’s Compliance Program Declaration. The full text of the Compliance Program Declaration, which describes the Company’s compliance policies and procedures and summarizes the Company’s efforts to maintain an effective compliance program, will be posted on the Company’s website. |
| (c) |
Related Party Transactions. The Company will maintain a policy governing the evaluation, consideration and approval of related party transactions (known as the Related Party Transaction Policy and Procedures). The Audit Committee will be responsible for reviewing and approving the Related Party Transaction Policy and Procedures, including the approval or ratification of related-party transactions. |
| (d) |
Director Compensation. The form and amount of director compensation will be 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 will conduct 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 the Company’s stockholders, typically, a portion of directors’ compensation will be paid in the form of stock-based awards. No additional compensation is paid to members of the Company’s management for serving on the Board. |
| (e) |
Communications from Stockholders and other Interested Parties. The Board, or as applicable, any committee of the Board or any individual Board member or the non-management Board members as a group, will give appropriate attention to written communications on issues submitted by stockholders or other interested parties, and will respond if appropriate. Communications to directors must be in writing and sent in care of the Company’s Corporate Secretary to the Company’s headquarters address or delivered via e-mail to an e-mail address established by the Corporate Secretary’s office for this purpose. The name(s) of any specific intended Board recipient(s) should be noted in the communication. The Company shall disclose the Company mailing address and e-mail address for such communications in its proxy statement for each annual meeting and on its website.
A copy of each communication received since the date of the last quarterly Board meeting shall be distributed to each director in advance of each regularly scheduled Board meeting, except items that are unrelated to the duties and responsibilities of the Board, such as: spam, junk mail and mass mailings, business solicitations and advertisements, and communications that advocate the Company’s engaging in illegal activities or that, under community standards, contain offensive, scurrilous or abusive content.
The Company’s Corporate Secretary shall be responsible for and oversee the receipt and processing of stockholder communications to Board members. An acknowledgement of receipt shall be sent by the Corporate Secretary or Assistant Secretary to each stockholder submitting a communication. The Company’s Corporate Secretary shall retain a copy of each communication for one year from the date of its receipt by the Company. |
| (f) |
Prohibition on Personal Loans. The Company does not extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any Board member or executive officer. |
| (g) |
Oversight of Risk. The Board’s role in the Company’s risk oversight process includes receiving regular reports from members of management on areas of material risk to the Company, including operational, financial, legal and regulatory. The Board receives these reports from the appropriate members of management to enable it to understand the Company’s risk identification, risk management and risk mitigation strategies. The Board encourages management to promote a corporate culture that incorporates risk management into the Company’s business operations. |
8. Annual Review. The Governance and Compliance Committee is responsible for reviewing these guidelines at least annually and making recommendations for appropriate changes to the Board.
Last reviewed and approved: May 2, 2012
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