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CVS CAREMARK CORPORATION Corporate Governance Guidelines 1.
Composition of the Board and Board Membership Criteria; Director Qualifications The Nominating and Corporate Governance Committee shall recommend to the Board criteria for Board and Board committee membership, which shall include the criteria set forth in these Corporate Governance Guidelines, and shall recommend individuals for membership on the Company’s Board of Directors. In making its recommendations, the Nominating and Corporate Governance Committee shall:
The invitation to join the Board shall be extended by the Nominating and Corporate Governance Committee or the Chairman of the Board. Independence At least a majority of the Board shall be comprised of directors meeting the independence requirements of the New York Stock Exchange. The Board shall make an affirmative determination at least annually as to the independence of each director. The Board may from time to time establish categorical standards to assist it in making independence determinations.The categorical standards currently established by the Board are attached hereto as Annex A. Term Limits Although the Board does not believe it should establish term limits, the Board shall periodically review the appropriateness of director term limits in connection with its procedures for the selection and nomination of directors. While term limits could help ensure that there are fresh ideas and viewpoints available to the Board, they hold the disadvantage of losing the contributions of directors who have been able to develop, over a period of time, increasing insight into the Company and its operations and, therefore, provide an increasing contribution to the Board as a whole. The Board believes the annual assessment of the Board’s and each director’s performance provides each director a convenient opportunity to confirm the desirability of each director continuing as a member of the Board. Retirement Age The current mandatory retirement age for directors is seventy-two (72). No director who is or would be over the age of 72 at the expiration of his or her current term may be nominated to a new term, unless the Board waives the mandatory retirement age for a specific director in exceptional circumstances. Such waiver must be renewed annually. Simultaneous Service on Other Public Company Boards or Audit Committees It is the policy of the Board that every director must notify the Board prior to accepting any invitation to serve on another public company corporate board and/or another public company corporate board’s audit committee. The Nominating and Corporate Governance Committee shall evaluate the continued appropriateness of Board and/or committee membership under the new circumstances and make a recommendation to the Board as to any action to be taken with respect to continued Board and/or committee membership. Changes in Primary Employment It is the policy of the Board that every director, including the CEO and any other inside directors, must notify the Board of his or her retirement from present employment, any change in employer and any other significant change in professional roles and responsibilities. Such a director should also offer not to stand for reelection as a director. The offer not to stand for reelection should be initially communicated to the Board. It is not the sense of the Board that such directors should necessarily leave the Board. There should, however, be an opportunity for the Nominating and Corporate Governance Committee to evaluate the continued appropriateness of Board membership under the new circumstances and make a recommendation to the Board as to any action to be taken with respect to continued Board membership. Conflicts of Interest If an actual or potential conflict of interest develops because of a change in the business of the Company, or in a director’s circumstances (for example, significant and ongoing competition between the Company and a business with which the director is affiliated), the director should report the matter immediately to the Chief Legal Officer or the Corporate Compliance Officer who will, where appropriate, report the matter to the Board or Nominating and Corporate Governance Committee for evaluation and appropriate resolution. Directors should refer to the Company’s Code of Conduct for a complete description of the Company’s policies regarding conflicts of interest. If a director has a personal interest in a matter before the Board, the director shall disclose the interest to the full Board, shall recuse himself or herself from participation in the discussion and shall not vote on the matter. Stock Ownership The Board believes that directors should hold meaningful equity ownership positions in the Company. The Company’s director share ownership guidelines require all non-employee directors to own a minimum of 10,000 shares of the Company’s common stock within five years of being elected to the Board, and retain ownership of a minimum of 10,000 shares for at least six months after leaving the Board. The Board acts as the ultimate decision-making body of the Company and advises and oversees management, who are responsible for the day-to-day operations and management of the Company. In fulfilling this role, each director must act in what he or she reasonably believes to be in the best interests of the Company and must exercise his or her business judgment. Participation at and Preparation for Board Meetings The Company expects directors to be active and engaged in discharging their duties and to keep themselves informed about the business and operations of the Company. Directors are expected to make every effort to attend all Board meetings and the meetings of the committees on which they serve and to prepare themselves for these meetings. Directors are expected to attend the Company’s annul meeting of stockholders. In order for the Board to exercise fully its oversight functions, management provides the Board with access to information regarding the Company and the markets in which the Company operates. This information comes from a variety of sources, including management reports, security analysts’ reports, information regarding peer performance, interaction with senior management at Board meetings and visits to Company facilities. Any written materials that assist directors in preparing for a Board or committee meeting shall be distributed to the directors in advance of the meeting, to the extent possible, and directors are expected to review such materials prior to the meeting. The Lead Director shall advise the Chairman of the Board’s informational needs. Company Performance and Corporate Strategy The Board also periodically reviews the Company’s long-term strategy, and assesses its strategic, competitive and financial performance, on both an absolute basis and in relation to the performance, practices and policies of its peers and competitors. The Chairman of the Board shall determine the frequency and length of Board meetings and shall set the agenda for each Board meeting. The Lead Director shall advise the Chairman of the Board regarding Board meeting agendas and as to the appropriate schedule of Board meetings, and may request inclusion of additional agenda items. Board members are encouraged to suggest the inclusion of additional items on an agenda, and any director may request that an item be placed on an agenda. In addition, each Board member is encouraged to raise at any Board meeting subjects that are not on the agenda for that meeting. 4.
Meetings of and Contact with Non-Management Directors; Lead Director The Company’s non-management directors shall regularly schedule executive sessions in which management does not participate. If this group includes directors who do not meet the independence standards of the New York Stock Exchange, the directors who are deemed independent shall also meet in executive session at least once a year. The Board believes that while all directors are elected by shareholders and all have an equal voice, it is in the best interests of the Company for the Board of Directors to appoint a Lead Director. The Lead Director has the authority to call, and shall lead, non-management director and independent director sessions. The Lead Director may retain independent legal, accounting or other advisors in connection with these sessions, and the Company shall provide appropriate funding. In the event the Lead Director is not present, the Chairs of the Audit, Management Planning and Development, and Nominating and Corporate Governance Committees will respectively act as presiding director at meetings or executive sessions of non-management directors (or parts thereof) at which the principal items to be considered are within the scope of the applicable committee. The Company shall publicly disclose in the annual proxy statement the identity of the Lead Director and the method for interested parties to communicate directly with the Company’s Lead Director or with the non-management directors as a group. he Lead Director shall preside at all meetings of the Board at which the Chairman is not present. The Lead Director shall serve as a liaison between the Chairman and the independent directors, and shall help facilitate communication between the Chairman and the independent directors. The Lead Director shall advise the Chairman of the Board’s informational needs, shall advise the Chairman regarding Board meeting agendas and as to the appropriate schedule of Board meetings and may request inclusion of additional agenda items. The Board presently has twelve (12) members. Although the Board considers its present size to be appropriate, it may consider expanding its size to accommodate its needs or reducing its size if the Board determines that a smaller Board would be more appropriate. The Nominating and Corporate Governance Committee shall periodically review the size of the Board and recommend any proposed changes to the Board. 6.
Chairman of the Board and Chief Executive Officer The Board believes it is important to retain its flexibility to allocate the responsibilities of the offices of Chairman of the Board and Chief Executive Officer (“CEO”) in any way that is in the best interests of the Company at a given point in time. The Board will periodically make a determination as to the appropriateness of its then current policies in connection with the recruitment and succession of the Chairman of the Board and/or the CEO. The Board shall have at all times an Audit Committee, a Management Planning and Development Committee and a Nominating and Corporate Governance Committee. The Board also has an Executive Committee. Subject to any changes that the Board may make from time to time:
Each of the Audit Committee, Management Planning and Development Committee, and Nominating and Corporate Governance Committee shall operate pursuant to its own written charter. These charters shall, among other things, set forth the purpose, goals and responsibilities of the particular committee, the procedures for committee member appointment and removal and committee structure and operations, as well as reporting to the Board. The charters shall also provide for an annual evaluation of each committee’s performance. Only independent directors meeting the independence requirements of the New York Stock Exchange and, for audit committee members, Rule 10A-3 of the Securities Exchange Act of 1934 and any related rules promulgated by the Securities and Exchange Commission, may serve on the Audit, Management Planning and Development and Nominating and Corporate Governance Committees. Committee members shall be appointed by the Board based upon the recommendation of the Nominating and Corporate Governance Committee, except for the Nominating and Corporate Governance Committee, which is directly appointed by the independent members of the Board. The Board may, from time to time, establish or maintain additional committees as it deems appropriate and in the best interests of the Company. In making its recommendations for committee appointments, the Nominating and Corporate Governance Committee shall:
While the rotation of committee members at certain set intervals should be considered periodically, rotation is not required because the Board believes there are significant benefits attributable to continuity, experience gained in service on a particular committee over time and utilizing most effectively the individual talents of Board members. 8.
Board Member Access to Management and Independent Advisors Board members shall have complete access to the management and employees of the Company and to its outside counsel and auditors. Any meetings or contacts that a director wishes to initiate may be arranged through the CEO or the Corporate Secretary. Executive officers and other members of senior management are expected to be present at Board meetings at the invitation of the Board. Furthermore, the Board encourages the continuation of the long-standing practice of bringing managers into Board meetings from time to time who: (a) can provide additional insight into the items being discussed or (b) senior management believes have future potential as prospective leaders. The Board and each of its committees is authorized to hire independent legal, financial or other advisors as they may consider necessary, without conferring with or obtaining the approval of management or, in the case of committees, the full Board.
The Management Planning and Development Committee shall review and recommend to the Board compensation (including stock option grants and other equity-based compensation) for the Company’s directors. In so reviewing and recommending director compensation, the Committee shall:
Changes in director compensation, if any, should come at the recommendation of the Management Planning and Development Committee, but with full discussion and concurrence by the Board. Charitable Contributions Proposed charitable contributions to tax exempt organizations by the Company within any given fiscal year of the Company in an aggregate amount that exceeded the greater of $120,000 or 2% of the entity’s gross revenues, to an entity for which a director or a member of his or her immediate family serves as a director, officer or member of such entity’s fund-raising organization or committee, shall be subject to prior review and approval by the Audit Committee (with notification to the Nominating and Corporate Governance Committee). The Nominating and Corporate Governance Committee shall be provided on an annual basis with a report from management of the charitable contributions to tax exempt organizations made by the Company during the fiscal year in an amount that exceeded the greater of $120,000 or 2% of the entity’s gross revenues, to an entity for which a director or executive officer, or a member of his or her immediate family, serves as a director, officer or member of such entity’s fund-raising organization or committee. 10.
Director Orientation and Continuing Education All new members of the Board are encouraged to participate in the Company’s orientation program for directors. Other directors may also attend the orientation program. All directors are encouraged to participate in continuing education programs, with any associated expenses to be reimbursed by the Company, in order to stay current and knowledgeable about the business of the Company. Such orientation and continuing education programs shall be overseen by the Nominating and Corporate Governance Committee of the Board. 11.
Management Evaluation and Management Succession The Management Planning and Development Committee shall annually evaluate the performance of the senior management of the Company with reference to objective criteria including performance of the business, accomplishment of long-term strategic objectives, development of management and such other factors as the Committee deems appropriate and in the best interests of the Company. The Management Planning and Development Committee shall present its findings regarding the performance of the senior management team to the full Board. The Management Planning and Development Committee together with the Board’s other independent directors will annually set the CEO’s compensation based on such Committee’s annual performance evaluation. In addition, the Management Planning and Development Committee will set each other senior manager’s compensation based on its annual performance evaluation. The Board shall review the Management Planning and Development Committee’s report in order to ensure that management’s performance is satisfactory and that management is providing the best leadership for the Company in the long and short-term. The Management Planning and Development Committee shall review and report to the Board on the Company’s succession planning, including succession planning in the case of the incapacitation, retirement or removal of the CEO. In that regard, the CEO shall provide an annual report to the Management Planning and Development Committee recommending and evaluating potential successors, along with a review of any development plans recommended for such individuals. The CEO shall also provide to the Board, on an ongoing basis, his or her recommendation as to a successor in the event of an unexpected emergency.
12.
Annual Board Performance Evaluation The Board, led by the Nominating and Corporate Governance Committee, shall establish and conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Nominating and Corporate Governance Committee shall oversee the evaluation with each director completing a questionnaire developed by the Nominating and Corporate Governance Committee with respect to various criteria, including a review of the Board’s structure, governance principles, composition, agenda, processes and schedule to consider whether it is functioning well in view of its responsibilities and the evolving situation of the Company. The collective evaluations shall be compiled in advance of the review session and shall be presented by the Chairman of the Nominating and Corporate Governance Committee to the full Board for discussion. This process shall also include annual self-assessments by each Board committee, relying on a review process similar to that used by the Board, with performance criteria for each committee established on the basis of its charter. The evaluations will provide the basis for the Board’s recommendation of a slate of directors to the shareholders. 13.
Evaluation of Individual Director Performance It is the policy of the Board to have the Nominating and Corporate Governance Committee assess, on the basis of established criteria, the performance of each individual director standing for re-election at the next shareholders meeting. The established criteria address each director’s core competencies, independence and level of commitment. The Nominating and Corporate Governance Committee considers not only an individual’s qualities, performance and professional responsibilities, but also the then composition of the Board and the challenges and needs of the Board at that time. The Nominating and Corporate Governance Committee also considers the impact of any change in the principal occupation of existing directors. Upon completion of the individual director evaluation process, the Committee reports to the full Board its conclusions and recommendations for nominations to the Board. It is the policy of the Board that the Nominating and Corporate Governance Committee also should review and consider the situation of any individual director if a situation were to arise that interfered with the proper performance of his or her duties as a member of the Board. 14.
Board Interaction with Institutional Investors, the Press, Customers and other
Interested Parties The Board believes that the management speaks for the Company and the Chairman speaks on behalf of the Board. Individual Board members may, from time to time, meet or otherwise communicate with various constituencies that are involved with the Company. Accordingly, it is expected that individual Board members will meet or otherwise communicate with constituencies that are involved with the Company only with the knowledge and agreement of the Company’s management or the full Board.
Annex A Categorical Standards to Any relationship or set of facts that falls within the following standards or relationships will not, in itself, preclude a determination of independence.
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