Charters and Guidelines

The Lubrizol Corporation
Organization and Compensation Committee Charter
Last Updated 2-20-08

Organization

There shall be a standing committee of the Board of Directors to be known as the Organization and Compensation Committee, comprised solely of all of the independent Directors of the Board of Directors, with authority and responsibilities as described in this Charter. The responsibilities of a member of the Organization and Compensation Committee are in addition to those set out for a member of the Board.

Authority

The Organization and Compensation Committee is established to: (1) identify individuals to become Directors consistent with criteria approved by the Board; (2) select or recommend that the Board select the Director nominees for the next annual meeting of shareholders; (3) develop and recommend to the Board a set of corporate governance principals applicable to the Company; and (4) discharge Board responsibilities relating to compensation of the Company’s Executives Officers.

Reporting and Communications

There is no need to report the Organization and Compensation Committee’s activities to the full Board because the Board of Directors is comprised of all of the independent Directors plus the Chief Executive Officer, and the Organization and Compensation Committee is comprised of all of the independent Directors. The Organization and Compensation Committee shall have appropriate access to Company personnel and documents. The Organization and Compensation Committee will be given the resources necessary to discharge its responsibilities.

Meetings

The Organization and Compensation Committee will meet as required. The current practice is to meet at least five times each year. The Organization and Compensation Committee shall meet privately in regularly scheduled Executive Sessions, without management, to discuss any issues relevant to the Company.

Responsibilities

The Organization and Compensation Committee shall be responsible for:

1. Reviewing corporate governance annually.
2. Reviewing and approving on an annual basis the proxy statement, including the "Compensation Committee Report” and the “Compensation Discussion and Analysis".
3. Determining criteria for selecting new Directors, which shall be reflected in the Board of Directors Governance Guidelines.
4. Reviewing and recommending candidates for election as Directors, including, if desired, retaining and terminating any search firm to be used to identify Director candidates and approving the search firm’s fees and other retention terms.
5. Reviewing and authorizing compensation for the Directors.
6. Overseeing the evaluation of the Board and Executive Officers.
7. Reviewing and approving Company goals and objectives relevant to the compensation of the Chief Executive Officer, including, if desired, retaining and terminating any compensation consulting firm and approving the firm’s fees and other retention terms.
8. Evaluating the performance of the Chief Executive Officer in light of the goals and objectives determined above, and determining and setting the compensation of the Chief Executive Officer based on the evaluation.
9. Assuring that effective succession planning is conducted for the positions of Chief Executive Officer and other Executive Officers, as appropriate.
10. Reviewing and recommending candidates for election as Executive Officers.
11. Reviewing and authorizing compensation for the Executive Officers.
12. Reviewing and approving executive employment agreements.
13. Making recommendations to the Board with respect to the approval of all Executive Officer benefit plans, incentive compensation plans and equity-based plans.
14. Approving awards, award documents, vesting accelerations (if applicable) and amendments to executive benefit plans, incentive compensation plans and equity-based plans, if provided by the terms of the plan.
15. Performing annual self-assessments.
16. Taking further actions with respect to compensation and governance programs of the Company as shall be delegated to the Committee from time to time by the Board.

back to top

The Lubrizol Corporation Audit Committee Charter

Last Updated 2-20-08

Organization

There shall be a standing committee of the Board of Directors to be known as the Audit Committee, composed solely of at least three independent Directors, each of whom is or shall become financially literate within a reasonable period of time after appointment, at least one of whom shall have accounting or related financial management expertise, and at least one whom is a financial expert, as that term is defined by the Securities and Exchange Commission. Members are considered independent if they have no relationship to the Company that may interfere with the exercise of their independence and judgment in carrying out their responsibilities, as set forth in the New York Stock Exchange rules on audit committees. The Board of Directors annually shall determine whether in its business judgment a member: is independent; is financially literate; has accounting or related financial management expertise; is a financial expert in accordance with Securities and Exchange Commission regulations. The authority and responsibilities of the Audit Committee are defined in this Charter. The responsibilities of a member of the Audit Committee are in addition to those set out for a member of the Board.

Authority

Primary responsibility for the Company’s management processes and systems, internal control structure and financial reporting is vested in senior operating management as overseen by the Board. The Audit Committee is established to assist Board oversight of: (1) the Company’s financial statements; (2) the Company’s compliance with legal and regulatory requirements; (3) the independent auditor’s qualifications and independence; and (4) the performance of the Company’s internal audit function and independent auditors. The Audit Committee, on behalf of the Board, represents the interests of the Company’s shareholders and debtholders, and as such, is the principal client of the independent and internal auditors. The Audit Committee hires the independent auditor, which is ultimately accountable to the Board of Directors and the Audit Committee.

Reporting and Communications

The Audit Committee Chair shall report the Audit Committee's activities to the full Board on a regular and timely basis. The Audit Committee shall have candid communications with the independent and internal auditors, and financial management, and have appropriate access to Company personnel and documents. The Audit Committee will be given the resources necessary to discharge its responsibilities.

Meetings

The Audit Committee will meet as required, and at least four times each year. The Audit Committee shall have private sessions of Audit Committee members and meetings with the Chief Executive Officer and other senior management of the Company, the Chief Ethics Officer, and the independent and internal auditors, on a regular basis, and with legal counsel as needed.

Responsibilities

Overall, the Audit Committee shall be responsible for:

• Monitoring financial reporting, audit processes and risk control-related matters.
• Influencing the overall corporate commitment to quality financial reporting, sound business risk controls, and ethical and legal behavior.

More specifically, the Audit Committee’s oversight activities include but are not limited to the following:

1. Reviewing and reassessing the adequacy of this Charter annually, and submitting the Charter to the Board for approval annually.
2. Appointing, evaluating and terminating the independent auditing firm to audit the Company's consolidated financial statements for the year.
3. Reviewing the annual plan for services to be provided by the independent auditor, which includes, but is not limited to:
   
   
• Reviewing the annual audit scope, including, staffing, timing and the estimated and actual fees.
• Reviewing the scope of any non-audit services planned or performed by the independent auditors, as well as related fees, and considering the possible effect that these services could have on the independence of such auditors.  Note:  The independent auditors are prohibited from providing the services listed in Rule 2-01 of Regulation S-X.
• Obtaining from the independent auditor a formal written statement delineating all relationships between the auditor and the
• Company as required by the Independence Standards Board on an annual basis. 
  
  
Pre-approving all audit and non-audit services to be provided by the independent auditor.
Obtaining, at least annually, and reviewing a report by the independent auditor describing:


• Its internal quality control procedures.
• Any material issues raised by the most recent internal quality control review or peer review of the firm, or by any inquiry or investigation by governmental or professional authorities within the preceding five years, respecting one or more independent audits carried out by the firm and any steps taken to deal with such issues.
• All relationships between the independent auditor and the Company (to assess auditor independence).
  


4. Reviewing the adequacy and effectiveness of the internal audit function of the Company, including concurring on the appointment, replacement, reassignment, or dismissal of the director of internal audit. 
5. Reviewing the impact of adopted or proposed significant changes in accounting principles and reporting requirements.
6. Reviewing annually the actuarial assumptions of the Company and its major domestic and subsidiary pension plans.
7. Prior to the release of quarterly and annual earnings, reviewing with financial management and the independent auditor: (1) matters that affect the Company’s consolidated financial statements; (2) the results of the independent auditor’s interim reviews and annual audit and report, including discussions regarding qualitative judgments about the appropriateness, not just the acceptability, of the Company’s accounting principles;  (3) all critical accounting policies and practices to be used;  (4) all alternative treatments of financial information within generally accepted accounting principals related to material items that have been discussed with management, the ramifications of the use of such alternative disclosures and treatments, and the treatment preferred by the independent auditor; and (5) other material written communications between the independent auditor and management, such as any management letter or schedule of unadjusted differences.  Discussions held prior to the release of quarterly and annual earnings may be conducted by the Chair on behalf of the Audit Committee, in which case the Chair shall advise the Audit Committee of the results of such discussions at the next regularly scheduled meeting.
8. Prior to the issuance of the annual report to shareholders:
   
   
• Reviewing with the independent auditor any audit problems or difficulties and management’s response.
• Reviewing Management’s Discussion and Analysis of Financial Condition and Results of Operations along with the financial statements and Independent Auditor’s Report.
• Discussing any matters that the independent auditor communicates to the Audit Committee, including matters required by generally accepted auditing standards, laws or regulations, or otherwise required to be communicated.
• Issuing a report for inclusion in the Company’s annual proxy statement in accordance with applicable Securities and Exchange Commission regulations. 
9. Discussing earnings press releases as well as financial information and earnings guidance provided to analysts and rating agencies.
10. Overseeing the internal control structure established by management, including management’s annual assessment of the effectiveness of the internal control structure and procedures for financial reporting.
11. Discussing policies with respect to risk assessment and risk management.
12. Providing oversight of the activities of the Chief Ethics Officer and semi-annually reviewing management procedures for monitoring compliance with the Company’s Ethical and Legal Conduct Guidelines.
13. Obtaining advice and assistance, as appropriate, from outside legal, accounting or other advisers.
14. Meeting separately, at least quarterly, with management, the independent auditor and internal auditors.
15. Reviewing and assessing with management the programs and policies of the Company designed to ensure compliance with applicable laws and regulations and monitoring the results of the efforts. 
16. Setting clear hiring policies for employees or former employees of the independent auditor.
17. Reporting regularly to the Board.
18. Performing annual self-assessments and assessments of management, and the independent and internal auditors’ performance against criteria and expectations.
19. Establishing procedures for the confidential and anonymous receipt and treatment of complaints regarding the Company’s accounting, internal accounting controls and auditing matters, as well as for the confidential, anonymous submissions by Company employees of concerns regarding questionable accounting or auditing matters.
20. Performing other oversight functions as it deems necessary, or as requested by the Board, such as:

• Periodically meeting with management and the independent and internal auditors to agree on mutual expectations, a detailed plan of Audit Committee activities and the nature, extent and timing of Audit Committee information needs.

back to top

The Lubrizol Corporation Audit Committee Procedural Guidelines

Last Updated 2-20-08

The items that follow are consistent with the Audit Committee Charter and provide additional guidance on some of the more procedural aspects of the Committee’s activities.

Meetings

• The Audit Committee Chair shall prepare and/or approve an agenda in advance of each meeting. The agenda should be consistent with the Charter.
• Meetings may include discussions among the Audit Committee members in a private session, regarding the information disclosed to them by management, the internal and independent auditors and legal counsel.

Responsibilities

The Audit Committee’s oversight activities include but are not limited to the following:

1. Annually, the Audit committee shall appoint the independent auditor.  The Audit Committee shall take into account the auditor independence rules under Rule 2.01 of Regulation S-X.
2. The Audit Committee shall review the annual plan for services to be provided by the independent auditor, which includes, but is not limited to:
   
   
• Reviewing and pre-approving the scope of any audit or non-audit services to be performed by the independent auditors, as well as related fees, and considering the possible effect that the non-audit services could have on the independence of such auditors.  The Chair or other member designee of the Audit Committee, in lieu of the full Audit Committee, may grant pre-approval of any audit or non-audit services, which shall be presented to the Audit Committee at the next scheduled meeting.  Notwithstanding the pre-approval of all services, management and the independent auditors shall advise the Audit Committee, as soon as practicable, if it appears that the annual aggregate non-audit fees will exceed the annual worldwide audit fees.
• Obtaining from the independent auditor a formal written statement delineating all relationships between the auditor and the Company as required by the Independence Standards Board (ISB) Standard 1, on an annual basis.  The Committee shall also receive an annual written accounting of both the audit and non-audit fees for worldwide services provided by the independent auditor.  The Committee is responsible for discussing with the auditor any disclosed relationships or services that may impact the objectivity or independence of the auditor and for taking appropriate action in response to the auditor’s report to satisfy itself of the auditor’s independence to ensure the independence of the outside auditor.
  
  
3. The Audit Committee shall determine the payment of compensation to the independent auditor and to any advisors employed by the Audit Committee, which compensation shall be paid by the Company.
4. The Audit Committee shall review the impact of adopted or proposed significant changes in accounting principles and reporting requirements.  Sources of these changes include the Financial Accounting Standards Board, the American Institute of Certified Public Accountants, the Securities and Exchange Commission, or other regulatory bodies.
5. The Audit Committee, prior to the issuance of the annual report to shareholders, shall:
   
   
   • Review the process for the annual letter of management representations given to the independent auditor and inquire whether or not any difficulties were encountered in obtaining the letter or any specific representations therein.
     
   • Discuss any matters that the independent auditor communicates to the Audit Committee, including matters required by generally accepted auditing standards, laws or regulations, or otherwise required to be communicated.  Such matters may include: significant management judgments and accounting estimates, significant audit adjustments (recorded and unrecorded), disagreements with management, significant accounting policies or changes in policies, or difficulties encountered in performing the audit.
     
   • Issue a report for inclusion in the Company's annual proxy statement regarding whether the Audit Committee has: 1) reviewed and discussed the audited financial statements with management; 2) discussed with the independent auditors the matters required by SAS 61; 3) received the written disclosures and letter from the independent accountants required by ISB Statement 1; and 4) based on these reviews and discussions, recommended to the Board that the audited financial statements be included in the Company's annual report on Form 10-K.
     
     
6. The Audit Committee shall oversee the internal control structure established by management, by reviewing reports and recommendations of both the independent and internal auditors, regarding the adequacy of internal controls, along with management's resulting actions for any identified material weaknesses.
7. The Audit Committee shall perform other oversight functions as it deems necessary, or as requested by the Board, such as
   
   
   • Advising the Board promptly with respect to any concerns coming to the attention of the Audit Committee as a result of carrying out the foregoing and, where appropriate, recommending corrective measures to address such concerns.
   • Deciding whether to request the independent auditor, internal auditor or the Chief Ethics Officer to meet with the Board to discuss any matters relative to the financial statements or other issues.
     
     
8. The Chief Ethics Officer shall at least twice annually report to the Audit Committee the activities of the Ethics Office.  In addition:

   A.  Accounting/Audit Matters

   1. The Chief Ethics Officer shall immediately report to the Chair of the Audit Committee any complaint received regarding accounting, internal accounting controls, auditing matters or fraud concerning any persons who have been designated by the Board of Directors as an officer for Section 16 purposes.

   2. The Chief Ethics Officer shall report to the Chair of the Audit Committee a complaint received regarding accounting, internal accounting controls, auditing matters or fraud concerning any persons other than those who have been designated by the Board of Directors as an officer for Section 16 purposes:

   1. When the Chief Ethics Officer forms a judgment, after consultation with the Chief Financial Officer, that any matter under review does or reasonably could involve a financial transaction or loss in excess of $.5 million.
   2. When the Chief Ethics Officer is advised by counsel (including outside counsel) or by the Finance Division of the Company that a restatement of the Company’s financial statements is, or could reasonably be, necessary in view of a matter under review;
   3. When the Chief Ethics Officer is advised by counsel (including outside counsel) that a matter under review requires external disclosure or reporting to any governmental authority or agency;
   4. When the Chief Ethics Officer identifies trends or patterns which may indicate the absence of appropriate internal accounting controls, even when the threshold amounts set forth in the standards above are not reached.

B.         Non-Accounting/Audit Matters

1. The Chief Ethics Officer shall immediately report to the Chair of the Audit Committee any complaint received regarding the Chief Executive Officer or any Director.
2. The Chief Ethics Officer shall immediately report to the Chief Executive Officer and if necessary, in the Chief Ethics Officer’s best judgment, to the Chair of the Audit Committee, any other complaints regarding persons who have been designated by the Board of Directors as an officer for Section 16 purposes.
   

C.        The Chief Ethics Officer shall meet privately with the Audit Committee periodically at regularly scheduled Audit Committee meetings.

D.        The Chief Ethics Officer shall record, retain and handle each complaint in the categories specified above in accordance with the same written policies and procedures used by the Ethics Office for all other complaints and inquiries received by it (Appendix A).

E.         The toll-free number to the Ethics Office Helpline is displayed on the first Ethics web page on the Company’s web site for easy access by third parties.

F.         The Audit Committee may direct the investigation of any matter either by the Chief Ethics Officer or outside resources, which shall be paid for by the company.

9. The General Counsel shall at least annually report to the Board of Directors the activities of the Legal Division.  In addition:

   A.         Securities Law/Fiduciary Duty

   1. The General Counsel shall immediately report to the Chair of the Audit Committee any allegation received regarding securities law violations or breach of fiduciary duty concerning any persons who have been designated by the Board of Directors as an officer for Section 16 purposes.
   2. The General Counsel shall report to the Chair of the Audit Committee any allegation received regarding securities law violations or breach of fiduciary duty concerning any persons other than those who have been designated by the Board of Directors as an officer for Section 16 purposes:

   1. When the General Counsel forms a judgment, after consultation with the Chief Financial Officer, that any matter under review does or reasonably could involve a financial transaction or loss in excess of $.5 million.
   2. When the General Counsel determines in conjunction with the Finance Division of the Company that a restatement of the Company’s financial statements is, or could reasonably be, necessary in view of a matter under review;
   3. When the General Counsel determines that a matter under review requires external disclosure or reporting to any governmental authority or agency;
   4. When the General Counsel identifies trends or patterns which may indicate the absence of appropriate internal accounting controls, even when the threshold amounts set forth in the standards above are not reached.

    

B.         Other Legal Matters

1. The General Counsel shall immediately report to the Chair of the Audit Committee any allegation of a violation of law received regarding the Chief Executive Officer or any Director.
2. The General Counsel shall immediately report to the Chief Executive Officer and if necessary, in the General Counsel’s best judgment, to the Chair of the Audit Committee, any other allegations of a violation of law received regarding persons who have been designated by the Board of Directors as an officer for Section 16 purposes.

C.        The General Counsel shall record, retain and handle allegations of violations of law in the categories specified above in accordance with the written policies and procedures used by the Legal Division regarding Lubrizol Legal Division Guidelines Regarding Compliance with SEC Lawyer Conduct “Reporting Up” Rules. (Appendix B).

D.        The Audit Committee may direct the investigation of any matter either by the General Counsel or outside resources, which shall be paid for by the Company.

 

Resources

The Audit Committee may hire its own independent counsel and other advisors to assist and advise the Audit Committee with respect to its responsibilities. The company will pay for any and all such advisors.

Appendix A

Extension 5000 Receipt Retention and Documentation Procedures

Lubrizol’s Ethical and Legal Conduct Guidelines illustrate the shared accountability each of us has in conducting our business with honesty and integrity. The materials presented are intended to assist employees in making ethical and legal choices. If after reviewing the guidelines any section is unclear, or if employees have questions or face situations which they feel should be raised for review, they are requested to bring the matters to the attention of the Regional Ethics Leaders or the Corporate Ethics Office.

Ethics inquiries, questions and concerns can be brought to the attention of the Ethics Office by dialing 1-866-347-5000 in the U.S. Issues are also raised via e-mail, which are sent directly to the Corporate Ethics Office. Individuals have also felt comfortable to call or visit us in person to raise concerns. Similar communication lines have also been established at our subsidiary locations.

When issues are raised the call is recorded on the case information form which includes information pertinent to the issue being raised. That information includes: the date the matter was brought to our attention, the case number assigned, the investigator, the source of the inquiry (e-mail, letter, personal contact or phone), who initiated the contact, their location, the organization level of the individual contacting us, the category of the call (i.e., IT related, gifts and entertainment, proprietary information, etc.), the subject of the call, individuals providing assistance in the investigation, dates cases are transferred to others, to whom they are transferred, the alleged subject of the investigation, disciplinary actions taken, and closing comments.

The Ethics Office employs a call intake unit that meets on a weekly basis to review new cases received and to assign investigative responsibilities. The case information form is entered into the ethics database by the executive assistant to the Chief Ethics Officer and there is a weekly review of open cases by members of the Ethics Office.

For each case a file is prepared and all documents related to the case are to be included in the file. Closed cases are stored in a secure area in the Human Resource Division and are retained indefinitely.

On a regional level, ethics leaders are asked to maintain files on cases brought to their attention and to provide case information to the Corporate Ethics Office on a semi-annual basis. Ethics leaders are trained annually and are advised on what types of incidents require immediate contact with the Corporate Office.

Members of the Ethics Office present case information to the Audit Committee of The Board of Directors on a semi-annual basis. The Chief Ethics Officer is also given the opportunity to meet privately with members of the Audit Committee at each Audit Committee meeting. Information presented to the Audit Committee includes any proposed revisions to the Ethical and Legal Conduct Guidelines, data related to extension 5000 inquiries, a review of all cases resulting in disciplinary action, and related activities that support our global ethics initiative. Similar information is shared with our external auditors on an annual basis.

To further engage those functional groups that support the ethical and legal conduct initiative, the Ethics Office meets with members of the Internal Audit Department and the Legal Division on a regular basis to review case information and related activities. The purpose of this meeting is to raise each perspective group’s awareness of particular matters of importance to our ethical and legal conduct compliance activities.

The Corporate and Regional Ethics Offices, operating practices and file content are subject to periodic review by our Internal Audit Team, or any other outside party deemed appropriate by the Audit Committee of The Board of Directors.

Appendix B

Lubrizol Legal Division Guidelines Regarding Compliance with SEC Lawyer Conduct “Reporting Up” Rules

Date: September 22, 2003

1. Compliance
2. Application
3. Material Violations
4. Reporting Method
5. Conflicts
6. Qualified Legal Compliance Committee
7. Application and Notice to Outside Law Firms

Policy Statement and Background

The SEC recently adopted rules requiring in-house lawyers and outside counsel to report, up the ladder within the company, evidence of material wrongdoing by the company or its directors, officers, employees or agents.

The Legal Division takes these new rules seriously, and has therefore adopted the following guidelines to help division lawyers understand and comply with them.

1. Compliance

1.1 Mandatory Compliance

Compliance with the SEC rules and this policy is mandatory. Failure to comply may be grounds for discipline by Lubrizol, up to and including termination, and may subject the non-compliant attorney to SEC enforcement action. The SEC rules do not provide for enforcement action against the company for violation of the attorney reporting rules.

LZ will conduct at least annual training sessions on this policy for current and newly hired attorneys and will provide all attorneys with a copy of this policy.

1.2 Non-Retaliation

No attorney may be disciplined, reprimanded, dismissed or otherwise penalized for complying in good faith with the SEC rules or this policy. An attorney formerly employed or retained by Lubrizol who believes that he or she was discharged for making a report should notify Lubrizol’s board of directors or its audit committee.

1.3 Contacts

If an attorney has questions regarding the SEC rules or this policy, the attorney should contact the general counsel.

1.4 Audit Committee Oversight

The general counsel will report periodically to the audit committee of the LZ board to certify compliance of the company’s lawyers with this policy, or to disclose exceptions.

2. Application

2.1 Application to All Attorneys, for Internal Purposes

The SEC rules apply to all attorneys “appearing and practicing” before the SEC. Because SEC’s definition of “appearing and practicing” is very broad and presents difficult interpretive questions, all Lubrizol attorneys should understand and comply with the SEC rules and this policy, regardless of whether they believe they are appearing and practicing before the SEC, and regardless of whether they regularly participate in securities law matters.

3. MATERIAL VIOLATIONS

3.1 Material Violation Definition

The SEC rules require attorneys to report up the ladder evidence of any “material violation” of some laws by the company or a director, officer, employee or agent of the company of which such attorneys become aware. Specifically, the rules reach to a material violation of US federal or state securities law; a material breach of a fiduciary duty under US federal or state law; or a similar material violation of any US federal or state law, all as supported by “credible evidence”.

It seems clear that this definition requires difficult judgments. For this reason, LZ attorneys other than the general counsel should not attempt to determine whether a particular violation is covered by the SEC rules, whether it is “material”, or whether it is supported by “credible evidence”. If an attorney becomes aware of a violation of law or breach of fiduciary duty by the company or one of its officers, directors, employees or agents, the attorney must report that violation up to the general counsel.

4. REPORTING METHOD

4.1 Reporting by Lubrizol Legal Division members

Any lawyer of the LZ Legal Division who becomes aware from any source that a violation of law or fiduciary duty may have occurred should report that information, by telephone, voice message, or in person, as soon as possible to the general counsel. In any event, the information should be reported no later than three days following its receipt by the lawyer.

4.2 Reporting by outside lawyers

All outside lawyers providing legal advice and services to Lubrizol in any capacity are also subject to the SEC rules and to this internal policy. (See Section 7 of this policy.)

4.3 Response by the General Counsel to the Reporting Lawyer

The general counsel will respond, verbally or, in his or her discretion, in writing, to any lawyer making a report under this policy. The general counsel’s response will indicate the actions taken in response to the report. If the general counsel has determined that the matter reported is either not covered by the SEC rules or, if covered, is not material for purposes of the rules, his or her response to the reporting lawyer shall so state.

4.4 Responsibility of the General Counsel

Under the SEC rules, it is the responsibility of the general counsel in the first instance to assess evidence of violations and decide on an appropriate response within or by the company.

If the general counsel determines that no material covered violation does exist or is about to occur, he or she must notify the reporting inside or outside lawyer and state the basis for that determination.

If the general counsel concludes that a material covered violation exists or is about to occur, he or she must: (1) take all reasonable steps to cause LZ to adopt an appropriate response; and (2) notify the reporting lawyer of that response within a reasonable time.

4.5 Responsibility of the Reporting Lawyer

A lawyer who reports evidence of a violation to the general counsel is responsible, following his or her receipt of the general counsel’s response to the report, to determine whether it is an “appropriate response” under the SEC rules. If the reporting lawyer determines that the general counsel’s response has been appropriate, the reporting lawyer is not obligated to take any further action under the SEC rules. (See, however, the record making requirement of our policy, Section 4.7 below.)

If it is not an appropriate response, further action is required of the reporting lawyer, i.e., he or she must report the violation to the audit committee of the company’s board of directors.

4.6 What is an Appropriate Response?

Under the SEC rules, an appropriate response is one that leads the reporting lawyer reasonably to believe: (1) that no material violation of a covered law exists; (2) that LZ has acted on the matter and taken sufficient remedial measures; or (3) that the general counsel, with the consent of the board of directors, or the board on its own, has directed counsel to review the evidence and either has substantially implemented remedial recommendations made by counsel or has been advised by counsel that a “colorable defense” would be available on behalf of the company in a proceeding relating to the evidence.

4.7 Eventual Written Record of Report and Responses

The general counsel and any lawyer who reports evidence of a violation under the SEC rules must, following evaluation, investigation and determination, make a brief written record establishing that a telephone, voice message or in person report was in fact made, providing a brief topical description of the nature of the report, and noting whether a response was received by the reporting lawyer from the general counsel.

The general counsel will keep a log of all such records, as well as a copy of the eventual written records.

5. Conflicts

If a reporting lawyer reasonably believes that reporting to the general counsel would be futile because the general counsel is perceived to be involved in the subject wrongdoing, then the lawyer should report the matter to Lubrizol’s ethics office or to the audit committee of the board of directors.

6. Qualified Legal Compliance Committee

The SEC rules permit Lubrizol’s board to form a Qualified Legal Compliance Committee (“QLCC”) or to designate the audit committee or another committee of the board as a QLCC.

As of the date of this policy, LZ’s board has not formed or designated a QLCC. If the Board takes such action, the general counsel will inform the company’s attorneys and revise this policy to reflect certain alternative procedures for reports to, and investigations by, the QLCC.

7. Application to Outside law Firms

Outside law firms that have attorneys who appear and practice before the SEC on Lubrizol matters are expected to comply fully with the SEC rules and this policy by making appropriate reports to the general counsel of evidence of a material violation.

In this regard, every LZ attorney who retains outside counsel on behalf of the company must provide that counsel with a copy of this policy and include a reference to this policy in engagement letters.