Governance
Board of Directors Guidelines
Last Updated 2-20-08
The Lubrizol Corporation
Board of Directors Governance Guidelines
Composition
The Regulations provide that the Board will have nine to thirteen Directors with both the shareholders and the Board having the authority to set the number within that range. The optimum size of the Board should be ten to twelve members. The Chief Executive Officer normally will be the Chairman of the Board.
Other than during transition periods to a new Chief Executive Officer or absent special circumstances, all of the Directors other than the Chief Executive Officer shall be independent in accordance with the New York Stock Exchange rules on independence and the independence criteria approved by the Board (Exhibit A). The Board annually shall make an independence determination for each Director.
Board members should be recruited from the broadest geographic region possible within the U.S. The Board should also seek candidates having broad international experience. Approximately half of the outside Directors should be out-of-town members.
The Board should represent a broad spectrum of individuals with experience who are able to contribute to the success of the Company. Assessment of new members should include the issues of independence, diversity, age, judgment, skill, integrity, willingness to make the required time commitment, the interplay of the candidate’s experience with the experience of other Board members and skills necessary to the needs of the Board at the time, as determined by the Organization and Compensation Committee.Meetings
The Board holds an organizational meeting to elect officers after each Annual Meeting of Shareholders at which Directors are elected. The Annual Meeting and the organizational meeting of the Board are held on the fourth Monday of April. The Board establishes other regular meetings at such times and places as it decides. Board meetings are usually held at least six times per year. Dates and times are determined in advance. A majority of Directors then in office constitutes a quorum for Board meetings.
On a timely basis before each meeting, management will provide an agenda for the meeting, minutes from the last meeting and background information for important subjects to be presented at the meeting. Directors are expected to review the materials sent to them in preparation for the meeting.
Proposed significant transactions normally are on the agenda for at least two consecutive meetings.
The Company’s strategic plan is reviewed at one meeting each year.
Periodically, the Board will hold meetings at other locations of the Company.Attendance
The expectation for attendance at meetings is 100 percent, including the Annual Meeting of Shareholders, except for occasional illness or unavoidable conflicts. If a Director determines that it is not possible to attend a meeting, the Director is expected to notify the Chairman of the Board or the Secretary of the Company promptly to assist in assuring a quorum for the meeting. If a Director physically cannot attend a Board meeting but is otherwise able to participate, it may be possible for the Director to attend by telephone if advance arrangements are made.
Committees
The Board may elect an Executive Committee and/or other Board committees each consisting of not less than three Directors. Directors are expected to serve on one or more committee.
The Organization and Compensation Committee consists of all the independent Directors. Committee appointments, other than for the Organization and Compensation Committee, will be rotated as determined by the respective Committee chair and the Chairman of the Board.
The Chairman of the Board will nominate each Committee chair for approval by the Organization and Compensation Committee. Absent special circumstances no Committee chair may serve as such for more than four years.
Currently, the Board has established four standing committees: Executive Committee, Organization and Compensation Committee, Audit Committee and Retirement and Savings Plans Investment Committee. The Board will review and approve the charters of the committees at the February Board meeting, and periodically, as may be required throughout the year.
Majority Vote
In an uncontested election, a current Director who is nominated for re-election who receives more “withhold” votes than “for” votes promptly will volunteer to resign from the Board. With the advice of the Organization and Compensation Committee, the Board will decide, within 90 days after the voting results are certified, whether to accept the resignation offer, and the Company will promptly disclose the Board’s decision in a press release. If the Board decides to reject the resignation offer, the press release will indicate the reasons for that decision.
Retirement
A Director will retire no later than the date of the Annual Meeting next following the date on which such Director attains the age of 69.
Change in Status
A person whose primary job responsibilities change from those he/she held when elected to the Board will volunteer to resign from the Board. It is the responsibility of the Organization and Compensation Committee to either accept the resignation or ask the Director to remain on the Board.
Former Chief Executive Officer's Board Membership
A former Chief Executive Officer, upon retirement from the Company, will resign from the Board following a short period of time to allow for a smooth transition to the new Chief Executive Officer.
A former Chief Executive Officer serving on the Board during this short transition will be considered an inside Director for purposes of corporate governance.
Membership on Other Boards
Each Director has the responsibility to notify the Chief Executive Officer and Chairman of the Board prior to accepting invitations to join other Boards of Directors. This guideline is established to avoid potential conflicts of interest or the appearance of conflicts of interest. Appropriate legal judgment will be obtained as necessary.
Lead Director
The Chair of the Organization and Compensation Committee will serve in the capacity of Lead Director for the purpose of chairing meetings of the independent Directors, which will be held periodically, as scheduled or as called by the Lead Director. The Lead Director also:
- serves as liaison between the Chairman and the independent Directors.
- receives information regarding topics for Board meetings and the time allotted for the presentations
- gives appropriate feedback to the Chairman regarding the effectiveness of Board meetings
- out of courtesy, makes him/herself available if requested by a major shareholder(s) for consultation and direct communication
- reviews all correspondence from shareholders sent to the outside Directors
Executive Sessions of Independent Directors
The independent Directors of the Board will meet privately in regularly scheduled Executive Sessions of the Organization and Compensation Committee without the Chief Executive Officer or other management to discuss any issues relevant to the Company.
Assessing Board Performance
The Organization and Compensation Committee will conduct an annual assessment of the Board's performance and processes.
This assessment should be of the Board's contribution as a whole and specifically review areas in which the Board and/or the management believes improvements can be made to increase the effectiveness of the Board.
Evaluation of the Chief Executive Officer
The Organization and Compensation Committee will conduct an annual formal evaluation of the Chief Executive Officer and communicate it to the Chief Executive Officer by the Chair of the Organization and Compensation Committee and another member of the Chair's choosing.
The evaluation will consider goals and objectives tied to Corporate performance, such as earnings per share, return on investment and other profitability measures; and short and long term growth metrics that support people development, product innovation and global market position. The evaluation will reflect a combination of objective and subjective judgment with an emphasis on the impact on the Company's sustainability and competitiveness within its industry. As part of the evaluation, the Chief Executive will prepare a self-evaluation in accordance with the Company's performance and career management process.
The evaluation will be used by the Organization and Compensation Committee in the course of its deliberations when considering the compensation of the Chief Executive Officer.
Succession Planning/Management Development
The Chief Executive Officer will submit an annual report to the Organization and Compensation Committee on succession planning and the Company's program for management development.
The Chief Executive Officer's recommendation as to his/her successor should he/she be unexpectedly unavailable to serve will be communicated to the Organization and Compensation Committee on a continuing basis.
Board Access to Senior Management
Board members have complete access to Lubrizol's management. Each Board member has the responsibility to inform the Chief Executive Officer and Chairman of the nature of any communication with management and to provide copies of any written communication to the Chief Executive Officer and Chairman.
The Board encourages management to bring managers into Board meetings who can provide additional insight into the items being discussed and/or who represent future potential that the management believes should be given exposure to the Board.
Board Access to Independent Advisers
Board members have access, as appropriate, to independent advisers. The Board shall determine and approve the compensation to be paid by the Company to these advisers.
Review of Shareholder Protection Provisions
All shareholder protection provisions will be reviewed at least biannually.
Relationship with Shareholders and Investors
Management has the authority and responsibility to speak for Lubrizol on behalf of the Company and the Board of Directors. Management will provide periodic reports to the Board regarding shareholder communications.
As a courtesy, the Lead Director will make him/herself available for consultation and Director communication if requested by a major shareholder(s).
Shareholders and others may communicate with the outside Directors through the Lead Director by sending a letter marked “Confidential” and addressed to:
Lead Director, The Lubrizol Corporation Board of Directors
c/o Corporate Secretary,
The Lubrizol Corporation
29400 Lakeland Boulevard
Wickliffe, OH 44092
Alternatively, shareholders and others may send an email to the Lead Director through Lubrizol’s corporate secretary by indicating “Lead Director” in the subject line. The corporate secretary will forward these emails to the Lead Director.
Director Compensation
The Chief Executive Officer will report annually to the Board of Directors on the status of Lubrizol Board compensation in relation to other comparable U.S. manufacturing companies. The Board is authorized to set a reasonable compensation for Directors. Any Director who is a full-time employee of the Company receives no separate compensation as a Director. A detailed description of Director compensation is attached as Exhibit B.
Stock Ownership
Directors are required to own at least 5,200 shares of the Company's stock. New Directors will have five years to meet this requirement. The Board believes that the stock compensation and deferral plans for Directors are appropriate methods to allow Directors to increase their holdings significantly over time.
Director Orientation and Continuing Education
Each new Director shall participate in an orientation program of the Company. In addition, Directors shall, as appropriate, participate in a course of continuing education.
Exhibit A
The Lubrizol Corporation Director Independence Criteria
In addition to the independence criteria under the New York Stock Exchange listing standards, the Board adopted the following categorical standards to determine Director independence:
Former Employees. A Director will not be considered independent if during any of the past three years he or she has been an employee or whose immediate family member has been an executive officer of Lubrizol or any of its subsidiaries.
Auditors or Former Auditors. A Director will not be considered independent if: (a) the director or immediate family member is a current partner of Lubrizol’s internal or external auditor; (b) the Director is an employee of Lubrizol’s internal or external auditor; (c) the Director has an immediate family member who is a current employee of Lubrizol’s internal or external auditor and who participates in the firm’s audit, assurance or tax compliance (but not tax planning) practice; or (d) during any of the past three years (but is no longer) the Director or an immediate family member, was a partner or employee of Lubrizol’s internal or external auditor and worked personally Lubrizol’s audit during that time.
Interlocking Directorates. A Director will not be considered independent if during any of the past three years he or she, or an immediate family member, has been an executive officer of another company for which a Lubrizol executive officer serves on the Board of Directors.
Immediate Family Members: Spouses, parents, children, siblings, mothers- and fathers-in law, sons- and daughters-in-law, brothers- and sisters-in-law and anyone who shares the Director’s home.
Attorneys, Investment Bankers, Consultants. A Director will not be considered independent if he or she is affiliated with a firm that is an attorney, investment banker, consultant or similar advisor to Lubrizol.
Significant Customer or Supplier. A Director will not be considered independent if he or she is affiliated with or whose immediate family member is an executive officer of a customer that represents more than the greater of $1 million or 2% of our total consolidated gross revenues. A Director will not be considered independent if he or she is affiliated with or whose immediate family member is an executive officer of a supplier of which we represent more than the greater of $1 million or 2% of its total consolidated gross revenues.
Significant Charitable Contribution Recipient. A Director will not be considered independent if he or she is employed as an executive officer of a not-for-profit entity of which we represent more than the greater of $1 million or 2% of its consolidated gross revenues.
Exhibit B
The Lubrizol Corporation Director Compensation
January 1, 2008
Outside Directors receive an annual cash retainer of $60,000.
Committee members (other than the Chairs) receive an annual cash retainer of $7,500 for each committee on which they serve.
The Chair of the Retirement and Savings Plans Investment Committee receives an annual cash retainer of $10,000.
The Chair of the Audit Committee receives an annual cash retainer of $13,500.
The Lead Director receives an annual cash retainer of $21,000.
Outside Directors will receive an annual award of $75,000 worth of restricted stock units under The Lubrizol Corporation 2005 Stock Incentive Plan.
Travel expenses incurred in attending all meetings are reimbursed. Air travel is based on round-trip, first-class airfare from the Director's home to the meeting locations. Other expenses, such as hotels, meals, local transportation and similar expenses, are also reimbursed.
The Company maintains a Deferred Compensation Plan under which a Director may elect to defer all of his/her annual retainer fee, all or any portion of his/her attendance fee for any fiscal year and all or any portion of his/her restricted stock unit grant for any fiscal year.
Directors are eligible to participate in The Lubrizol Corporation Foundation Matching Gift Program..
