SCOTTISH RE GROUP LIMITED CORPORATE GOVERNANCE
PRINCIPLES AND PRACTICES
A. THE ROLE OF THE BOARD OF DIRECTORS
1. Direct the Affairs of the Corporation for the Benefit of Shareholders
The Scottish Re Group Limited’s (“SRGL”) Board of Directors (“Board”) believes the primary responsibility of directors is to oversee the affairs of the corporation for the benefit of the corporation’s shareholders, while day-to-day operation of the corporation is the responsibility of management. Although the Board believes that directors should be sensitive to the needs of employees, suppliers, creditors, customers and the community in evaluating the affairs of the corporation, the Board believes the primary responsibility of the directors and management is to SRGL shareholders.
2. Advise and Participate in Long-Range Strategy Development
Board members provide advice to management on matters relating to the corporation’s business at Board meetings and in other less formal settings, such as telephone calls and small meetings.
The Board believes that long-range strategic issues should be discussed as a matter of course at regular Board meetings, but that, given the complexity of the organization and the level of change in the insurance industry, it is important to hold periodic multi-day off-site meetings devoted solely to discussion of strategic issues. The frequency of such offsite meetings will vary with changes in the business environment and the organization, but it is the current view of the Board that such meetings should be held approximately every 18-24 months, subject to recommendations of management.
3. Review and Approve Financial Goals/ Performance
The Board reviews the yearly operating plan and specific goals at the start of the fiscal year and financial performance quarterly (actual and in comparison to prior periods and plan). The Board also believes it is important to establish and evaluate longer-term objectives so as not to overly emphasize short-term performance.
4. Ethical Business Environment/ Compliance with Legal and Regulatory Mandates
The Board believes that the long-term success of the corporation is dependent upon the maintenance of an ethical business environment that focuses on adherence to both the letter and the spirit of regulatory and legal mandates. The Audit Committee and the Board receive reports from internal and external auditors and the general counsel on these matters, as well as other reports from management, as appropriate. The Board and committee agendas and materials and other information flow to the Board is established with legal/regulatory requirements in mind.
5. CEO and Senior Executive Performance Evaluation
The Board believes that CEO and senior executive performance should be evaluated annually.
At SRGL, the evaluation process is conducted by the Compensation Committee. In addition, the Compensation Committee reviews the CEO’s and senior executive’s salary, variable compensation and long-term performance units or stock options against market standards. The Compensation Committee, which is composed entirely of independent directors, approves the appropriate level of such items and presents them to the Board for its review and ratification.
The Board believes that evaluation of the CEO and senior executives should be a comprehensive process, based on both qualitative and quantitative factors, including performance of the business, accomplishment of long-term objectives, positioning of the long-term objectives, positioning of the corporation for the future, development of management, stewardship of the enterprise and effective Board communication and interaction.
6. Succession Planning of Key Executive Officers
At SRGL, the Board and the Compensation Committee share these responsibilities. The Board has delegated responsibility to the Compensation Committee (through the committee’s Charter) to review and advise on management succession issues. The Board has an established practice of having the CEO annually review with the full Board in executive session the abilities of key senior managers. Appointments at the executive vice president level and above are reviewed by both the Compensation Committee and the Board.
At this time, SRGL continues to serve as the plan sponsor for a number of important benefit plans. The Compensation Committee is involved in setting compensation for senior executives.
B. MEETINGS OF THE BOARD OF DIRECTORS
1. Chairman of the Board, Lead Director and Committee Composition
The Board is of the view that, at this time, the corporation is best served by having the same individual serve as both Chairman of the Board and Chief Executive Officer. The Board believes it should be free to determine whether both positions should be held by the same individual as appropriate, depending on what it believes is best for the corporation taking all circumstances into consideration. The Board has appointed an independent director to act as Lead Director for the corporation.
The Corporate Governance Committee makes recommendations to the full Board regarding the composition of each Board Committee.
2. Frequency of Meetings
The Board should meet frequently, given the size and complexity of the business regulatory mandates for director review of various matters, and the changing environment in the industry. The Board believes that the number of scheduled Board meetings should vary with circumstances and that special meetings should be called as necessary. The Board believes that as a general matter a meeting schedule of four times a year, as determined by the Chairman and CEO, is appropriate. While the Board recognizes that directors discharge their duties in a variety of ways, including personal meetings and telephone contact with management and others regarding the business and affairs of the corporation, the Board feels it is the responsibility of individual directors to make themselves available to attend both scheduled and special Board and committee meetings on a consistent basis.
3. Executive Sessions
The SRGL Board believes that outside directors should meet in executive session from time to time and that some of the executive sessions should be with the CEO, who is an inside director, and some should be in the absence of the CEO and any other inside directors or management officials. Such executive sessions shall be led by a lead director, chosen by the Corporate Governance Committee.
It is the policy of the SRGL Board for outside directors to meet in executive session, in the absence of the CEO, approximately two times annually. Other executive sessions, with or without the CEO may be held as needed.
All of the committees may meet in executive session, as circumstances warrant. At the committee’s discretion, the CEO or other members of management may be requested to meet with the committee during these executive sessions. The Audit Committee periodically meets in executive sessions with the external auditors, outside the presence of management.
4. Attendance of Non-Directors at Meetings
The Board believes that the Chairman of the Board should have discretion to invite the members of management he deems appropriate to attend the Board meetings, subject to the Board’s right to request that such attendance be limited or discontinued.
5. Agendas and Presentations
The Board believes the Chairman of the Board should establish the agenda for each Board meeting, taking into account suggestions of Board members. Board members are encouraged to suggest the inclusion of particular items on the agenda and the Chairman, from time to time, is expected to ask directors for their suggestions or opinions on possible agenda items.
As with the agenda, the Board believes that the Chairman of the Board should determine the form of each presentation to the Board and the person to make such presentation. However, the Board believes it is important that line and support unit managers to make presentations to the Board from time to time, to permit the Board to meet these officers in person.
6. Information Flow
The Board should receive information important to understanding presentations, discussions and issues covered at each meeting, in writing and sufficiently in advance of the meeting to permit appropriate review. Longer and more complex documents should contain executive summaries. The focus of materials should be on analysis rather than data.
As part of its self evaluation process, the Board reviews the information flow to Board members to help assure that directors receive the right kind and amount of information from management in sufficient time to prepare for meetings. The Chairman of the Board has directed the General Counsel and/or Corporate Secretary to discuss periodically director satisfaction with Board materials with individual directors, and he encourages directors to offer suggestions on materials.
7. Director Orientation and Education
The Board believes it is appropriate to review annually its own effectiveness, including its corporate governance policies and practices. The Corporate Governance Committee will generally assume this responsibility and report to the Board the results of its analysis and any recommendations following each such review. All directors are free to make suggestions on improvement of the Board’s practices at any time and are encouraged to do so. Each Board committee will also review its effectiveness on an annual basis.
8. Director Orientation and Education
Each new director shall, within six months of his or her election to the Board, attend a briefing session with senior management on SRGL’s strategic plans, its financial statements, and its key policies and practices. In addition, all Board members shall periodically participate in briefing sessions on subjects that would assist them in discharging their duties, such as financial reporting, corporate governance and executive compensation.
9. Access to Independent Advisors
The Board and its committees shall have the right at any time to retain independent outside financial, legal or other advisors.
C. BOARD STRUCTURE
1. Director Independence
The SRGL Board believes that a significant majority of the Board should be considered to be “independent” only if the Board affirmatively determines that the director does not have any direct or indirect material relationship with SRGL that may impair, or appear to impair, the director’s ability to make independent judgments. With respect to each director, the Board’s assessment and determination of such director’s independence shall be made by the remaining members of the Board. In each case, the Board shall broadly consider all relevant facts and circumstances and shall apply the following standards:
An independent director is one who:
- is not a member of management and has not been a member of management within the last five years;
- has no close family or similar relationship with a member of key management;
- is not a lawyer, advisor or consultant to the corporation or its subsidiaries and does not have any personal service contracts with the corporation or its subsidiaries;
- is not employed or affiliated with the corporation’s independent auditor;
- does not have any other relationship with the corporation or its subsidiaries, either personally or through his employer, which, in the opinion of the Board, would adversely affect the director’s ability to exercise his or her independent judgment as a director.
The following relationships will not be considered to be a relationship that would impair, or appear to impair, a director’s ability to make independent judgments:
- The director is an executive officer of a company that does business with SRGL and the other company’s annual sales to, or purchased from, SRGL are less than one percent of the annual revenues of SRGL and less than one percent of the annual revenues of such other company;
- The director is an executive officer of a company that is indebted to SRGL or is an executive officer of a company to which SRGL is indebted and, in either case, the aggregate amount of such debt is less than one percent of the total consolidated assets of SRGL and less than one percent of the total consolidated assets of such other company;
- The Board will review annually all commercial and non-profit relationships between each director and SRGL and make a determination of such director’s independence, and SRGL will disclose the Board’s determinations in the proxy statement.
To help maintain the independence of the Board, all directors are required to deal at arms length with SRGL and its subsidiaries and to disclose circumstances material to the director that might be perceived as a conflict of interest.
2. Size of the Board
The Board currently has 9 members, which the Board believes is within an appropriate range given the size and complexity of SRGL and the desire for diversity of experience on the Board.
3. Director Retirement Age/Term Limits
The SRGL Board does not believe it to be appropriate to establish a mandatory retirement policy for directors. Periodically, the Corporate Governance Committee will review the retirement policy to help assure that it remains appropriate in light of the corporation’s needs.
The Board believes that consistent quality in the directorship can be achieved effectively without term limits. The Corporate Governance Committee regularly reviews incumbent directors and the strengths and weaknesses of the Board as a whole.
4. Director Appointments
The Board believes that directors should be nominated for Board approval by the Corporate Governance Committee, which consists entirely of independent directors. The Board expects the Corporate Governance Committee to consider the views of the Chairman and CEO in making appointments. It is the Corporate Governance Committee’s responsibility, however, to make director recommendations to the full Board for submission to the shareholders each year in connection with SRGL’s annual meeting.
The SRGL Board and Corporate Governance Committee believe that SRGL directors should be individuals with substantial accomplishments, who have been associated with institutions noted for excellence and who have broad experience and the ability to exercise sound business judgment. In selecting directors the Board generally seeks a combination of active or former CEOs and senior executives of major complex business (from different industry sectors), leading academics, and individuals with substantial records of government service or other leadership roles in the not-for-profit sector, with a sensitivity to diversity. The Board expects that directors who change their primary job responsibilities should offer to resign from the Board, but should not necessarily be required to resign. The Corporate Governance Committee will review such offers of resignation, with a recommendation from the Chairman and CEO.
It is expected that no director shall serve on more than five other boards of public companies in addition to the SRGL Board. However, the Board may determine that service in excess of these guidelines is appropriate based on the facts and circumstances. Current positions in excess of these guidelines may be maintained unless the Board determines that doing so would impair the director’s service on the SRGL Board.
5. Director Evaluation
The Board believes that the Corporate Governance Committee should review incumbent directors as part of the annual nomination process and in the context of the committee’s overall review of the strengths and weaknesses of the Board as a whole. The Corporate Governance Committee will review each individual incumbent director with respect to a variety of factors, including his or her attendance, participation in the work of the Board and overall contribution to the Board. The Board expects that the Corporate Governance Committee will take appropriate action to effect changes in incumbent directors if, in the opinion of the Corporate Governance Committee after discussion with the Chairman and CEO, any director is not contributing to the work of the Board.
6. Director Compensation and Stock Ownership Guidelines
The Board believes that the level of director compensation should generally be competitive with that paid to directors of other international corporations, and that a component of such compensation should be in the form of stock. The Compensation Committee is responsible for making recommendations to the full Board with respect to director compensation. The full Board approves director compensation and benefits programs.
7. Service of Former CEO on the Board
SRGL does not have any retired officers on its Board. The Board believes that policy is appropriate for this corporation at this time.
D. COMMITTEES OF THE BOARD
1. Number and Types of Committees
The Board believes that committees should be created and disbanded depending on the particular interests of the Board, issues facing the corporation, and regulatory/legal requirements. The current standing committees of the Board are: Audit Committee, Compensation Committee, Finance and Investment Committee, and Corporate Governance Committee. The Chairman of the Board is responsible for making recommendations to the Corporate Governance Committee on the committee structure, but directors are free to make suggestions of committees at any time and are encouraged to do so. The Board also expects that the committee structure would be one of the matters considered by the Corporate Governance Committee from time to time as part of its review of overall Board effectiveness.
2. Assignment and Rotation of Committee Members/Independent Directors on Certain Committees
The Board believes that the Chairman and CEO should recommend committee appointments to the Corporate Governance Committee, which will be submitted for the approval of the full Board. The Board expects that assignments would normally be made within the following guidelines: assignments should be rotated periodically, though not necessarily within any specified timeframe; new members of the Board should serve on one committee for the first two or three years on the Board. Other members are expected to serve on two committees. The Audit Committee, the Compensation Committee, and the Corporate Governance Committee should be comprised solely of independent directors.
3. Committee Meetings
In consultation with each Committee Chairman, management will recommend a yearly committee meeting schedule for all standing committees and agendas for each meeting. The schedule and meeting content are expected to assure that the Committees meet regularly and as needed to accomplish their responsibilities.
4. Committee Reports
Written and/or oral reports of Committee meetings are submitted to the full Board, as appropriate.
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