The following Corporate Governance Guidelines have been approved by the Board of Directors (the “Board”) and, together with the Restated Certificate of Incorporation, Amended and Restated Bylaws and Charters of the Board committees, help provide the framework for the governance of The Toro Company (the “Company”). The Board intends that these Corporate Governance Guidelines serve as a flexible guide and not as a set of binding legal obligations. These Corporate Governance Guidelines may be reviewed on an annual basis and modified as circumstances warrant.
1. Director Qualifications
The Board will have a majority of directors who meet the criteria for independence required by law, the Securities and Exchange Commission and the New York Stock Exchange listing standards. The Nominating & Governance Committee is responsible for reviewing with the Board, on an annual basis, the requisite skills and characteristics of new Board members, if any, as well as the composition of the Board as a whole. This assessment will include members’ qualification as independent, as well as consideration of diversity, age, skills, and experience in the context of the needs of the Board. The Nominating & Governance Committee, with the participation of the Chairman of the Board, (i) reviews and makes recommendations to the full Board concerning all nominees for Board membership, including the re-election of existing Board members, and (ii) those nominated in accordance with the Restated Certificate of Incorporation and Amended and Restated Bylaws. The Restated Certificate of Incorporation currently calls for the Board consisting of not less than eight nor more than twelve members.
It is the sense of the Board that individual directors who significantly change the responsibility they held when they were elected to the Board volunteer to resign from the Board. It is not the sense of the Board that the directors who retire or change from the position they held when they came on the Board should leave the Board. However, any such director shall offer his or her resignation in writing providing an opportunity for the Board through the Nominating & Governance Committee to review the continued appropriateness of Board membership under the circumstances.
No director shall sit on board of directors of more than four publicly held companies without the approval of the Nominating & Governance Committee.
There shall not be more than two members of the Board who are active employees of the Company.
No director who is an active full time employee of the Company shall serve as a director of more than two other publicly held companies and there shall be no interlocking board memberships without the approval of the Nominating & Governance Committee.
The Board does not believe it should establish age limits. However, any director who has attained the age of 70 should volunteer not to stand for re-election.
The Board does not believe it should establish term limits. Term limits have the disadvantage of losing the contribution 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. As an alternative to term limits, the Chair of the Nominating & Governance Committee, after conferring with the Chairman of the Board, will review with the Committee, and the Committee will make a recommendation to the full Board, regarding each director’s continuation on the Board before the annual meeting at which a director is to be proposed for re-election.
Directors shall annually sign a business ethics policy statement promulgated by the Nominating & Governance Committee.
Within five years of joining the Board, each non-management director is expected to own a dollar value of Toro Common Stock equal to at least five times the amount of the director’s annual cash retainer for Board service.
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2. Director Responsibilities
The basic responsibility of the directors is to exercise their business judgment to act in what they reasonably believe to be in the best interests of the Company and its shareholders. In discharging that obligation, directors are entitled to rely on the honesty and integrity of the Company’s senior executives and its outside advisors and auditors. The directors are also entitled to have the Company purchase reasonable directors’ and officers’ liability insurance on their behalf, to the benefits of indemnification to the fullest extent permitted by law and the Company’s charter, bylaws and any indemnification agreements, and to exculpation as provided by Delaware law and the Company’s charter.
Absent unusual circumstances, including for example medical issues and family emergencies, directors are expected to attend Board meetings and meetings of committees on which they serve, and to spend the time needed and meet as frequently as necessary to properly discharge their responsibilities. Information and data that are important to the Board’s understanding of the business to be conducted at a Board or committee meeting should generally be distributed in writing to the directors before the meeting, and directors should review these materials in advance of the meeting.
Directors are expected to attend the Company’s annual meeting of shareholders.
The Board has no policy with respect to the separation of the offices of the Chairman of the Board and the Chief Executive Officer. The Board believes that this issue is part of the succession planning process and will be reviewed as the Nominating & Governance Committee deems it appropriate. However, at any time that (i) the offices of Chairman of the Board and Chief Executive Officer are held by the same person, or (ii) the Chairman of the Board does not meet the criteria for “independence” as established by law, the rules and regulations of the Securities and Exchange Commission or the New York Stock Exchange listing standards, then the Board, upon recommendation of the Nominating & Governance Committee, shall appoint a presiding non-management director (“Lead Director”). The Lead Director, if one is appointed, shall, among other things, (i) assist the Chairman of the Board in establishing the agendas for Board meetings and the schedule of agenda subjects to be discussed during the year (to the degree this can be foreseen); (ii) preside at regularly scheduled executive sessions of the non-management directors without management present; (iii) together with the Chair of the Compensation & Human Resources Committee, communicate to the Chief Executive Officer the results of his or her annual performance review and compensation; (iv) together with the Chair of the Nominating & Governance Committee, lead the Board’s annual self-evaluation; and (v) have such duties as are otherwise determined by the Board from time to time.
The Chairman of the Board will establish the agenda for each Board meeting. The Chairman of the Board will also establish a schedule of agenda subjects to be discussed during the year (to the degree this can be foreseen). If the offices of the Chairman of the Board and the Chief Executive Officer are not held by the same person, the Chairman of the Board will confer with the Chief Executive Officer regarding such schedule. Each Board member is free to suggest the inclusion of items on the agenda. Each Board member is free to raise at any Board meeting subjects that are not on the agenda for that meeting. The Board will review the Company’s long-term strategic plans and the principal issues that the Company will face in the future during at least one Board meeting each year.
The non-management directors will meet in regularly scheduled executive sessions without management. The director who presides at these meetings will be (i) the Lead Director, (ii) the Chairman of the Board, if the offices of the Chairman of the Board and the Chief Executive Officer are not held by the same person, or (iii) such other individual chosen by the non-management directors.
The Board believes that management speaks for the Company. Notwithstanding that fact, shareholders and interested parties may communicate with the Board through the process set out in the Company’s proxy statement or on the Company’s website at www.thetorocompany.com.
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3. Board Committees
The Board will have at all times an Audit Committee, a Compensation & Human Resources Committee, and a Nominating & Governance Committee, each of which shall have the authority and discharge the responsibilities established by the New York Stock Exchange listing standards. All of the members of these committees will meet the independence and other requirements established by law, the rules and regulations of the Securities and Exchange Commission, and the New York Stock Exchange listing standards. Committee Chairs and members will be appointed by the Board upon recommendation of the Nominating & Governance Committee. The Nominating & Governance Committee will confer with the Chairman of the Board regarding such recommendations. It is the sense of the Board that consideration should be given to rotating committee members periodically but the Board does not feel that rotation should be mandated as a policy or that rotation should interfere with the ongoing business of the committee.
Each committee will have its own charter. The charters will set forth the purposes, goals and responsibilities of the committees as well as qualifications for committee membership, committee structure and operations and committee reporting to the Board. The charters will also provide that each committee will annually evaluate its performance.
The Chairman of the Board and the Chair of each committee, in consultation with the committee members and the Chief Executive Officer (if not also the Chairman of the Board), will determine the frequency and length of the committee meetings consistent with any requirements set forth in the committee’s charter. The Chair of each committee, in consultation with the appropriate members of the committee, the Chairman of the Board and the Chief Executive Officer (if not also the Chairman of the Board), will develop the committee’s agenda. Each committee will maintain a schedule of agenda subjects to be discussed during the year (to the degree these can be foreseen). The schedule for each committee will be furnished to all directors.
The Board and each committee have the power to hire independent legal, financial or other advisors as they may deem necessary, without consulting or obtaining the approval of any officer of the Company in advance.
The Board may, from time to time, establish or maintain additional committees as necessary or appropriate.
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4. Director Access to Officers and Employees
Directors should have full and free access to officers and employees of the Company. Any meetings or contacts that a director wishes to initiate may be arranged through the Chief Executive Officer or the Secretary or directly by the director. The directors will use their judgment to ensure that any such contact is not disruptive to the business operations of the Company and will, to the extent not inappropriate, copy the Chief Executive Officer on any written communications between a director and an officer or employee of the Company.
The Board welcomes regular attendance at each Board meeting of senior officers of the Company as directed by the Chief Executive Officer.
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5. Director Compensation
The form and amount of director compensation will be reviewed periodically by the Compensation & Human Resources Committee in accordance with the policies and principles set forth in its charter. The Compensation & Human Resources Committee will present any proposed changes in such compensation to the Board for approval.
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6. Director Independence
Independence may be jeopardized if the Company makes substantial charitable contributions to organizations with which a director is affiliated, or if the Company enters into consulting contracts with (or provides other indirect forms of compensation to) a director, a member of a director’s immediate family, or an organization with which the director is affiliated. Accordingly, no consulting arrangements shall take place without prior approval of the Nominating & Governance Committee or pursuant to a specific policy adopted by that committee.
The Nominating & Governance Committee shall (i) review and recommend to the Board with respect to independence determinations of the members of the Board, and (ii) review, approve or ratify reportable related person transactions by use of the following procedures:
- The Company’s Legal Department will evaluate the disclosures provided in the director and officer questionnaires and from data obtained from the Company’s records for potential independence issues or related person transactions.
- Management will periodically, but no less than annually, report to the Nominating & Governance Committee on all related person transactions that occurred since the beginning of the prior fiscal year or that it believes will occur in the next year. Such report should include information as to (i) the related person’s relationship to the Company and interest in the transaction; (ii) the material facts of the transaction; (iii) the benefits to the Company of the transaction; and (iv) an assessment of whether the transaction is (to the extent applicable) in the ordinary course of business, at arm’s length, at prices and on terms customarily available to unrelated third party vendors or customers generally, and whether the related party had any direct or indirect personal interest in, or received any personal benefit from, such transaction.
- Taking into account the factors listed above, and such other factors and information as the Nominating & Governance Committee may deem appropriate, the committee will determine whether or not to approve or ratify (as the case may be) each related party transaction so identified.
- Transactions in the ordinary course of business, between the Company and an unaffiliated corporation of which a Toro non-employee director serves as an officer, that are:
− at arm’s length,
− at prices and on terms customarily available to unrelated third party vendors or customers generally,
− in which the non-employee director had no direct or indirect personal interest, nor received any personal benefit, and
− in amounts that are not material to Toro’s business or the business of such unaffiliated corporation,
are deemed conclusively pre-approved.
The Board, following consideration of relevant facts and circumstances and upon recommendation of the Nominating & Governance Committee, will determine the independence of each director and a director will be considered independent if the Board affirmatively determines that such director meets the independence requirements as established by applicable law, the rules and regulations of the Securities and Exchange Commission and the New York Stock Exchange listing standards.
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7. Director Orientation and Continuing Education
All new directors should participate in an orientation program. This orientation program may include presentations by senior management to familiarize new directors with the Company’s strategic plans, its significant financial, accounting and risk management issues, its compliance programs, its Code of Business Conduct and Ethics, its principal officers, and its internal and independent auditors. In addition, the orientation program may include visits to the Company’s headquarters and, to the extent practical, other Company facilities.
The Company will financially and otherwise support participation, from time to time, by directors in continuing education or similar programs as may be necessary or appropriate to assist them in the performance of their duties.
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8. Chief Executive Officer Evaluation and Management Succession
The Chair of the Compensation & Human Resources Committee will coordinate an annual review of the Chief Executive Officer's performance. Such review as well as its compensation recommendation will be reviewed for ratification by the full Board in executive session. The results of the review will be communicated to the Chief Executive Officer by the Chair of the Compensation & Human Resources Committee together with the Lead Director or, if the offices of the Chairman of the Board and the Chief Executive Officer are not held by the same person, with the Chairman of the Board.
The Chief Executive Officer will annually review with the Board top management succession plans, including development plans for succession candidates, and will periodically review with the Board an emergency leadership preparedness plan applicable in the event that the Chief Executive Officer unexpectedly becomes incapacitated or otherwise is unable to continue to serve.
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9. Annual Performance Evaluation
The Board will conduct an annual self-evaluation to determine whether it and its committees are functioning effectively. The Chair of the Nominating & Governance Committee together with the Lead Director or, if the offices of the Chairman of the Board and the Chief Executive Officer are not held by the same person, the Chairman of the Board will lead the Board in such assessment of its performance. This assessment will focus on areas in which the Board believes that the Board could improve.
It is the policy of The Toro Company to maintain the highest level of moral, ethical and legal standards in the conduct of its business based on a fundamental belief in law, honesty, fair dealing and open competition. To support this policy, the Toro Board of Directors has, pursuant to the Board's Corporate Governance Guidelines, adopted this Business Ethics Policy Statement for its members. Directors are expected to:
- maintain and foster the standards of this Policy
- disclose any action that comes to their attention that they believe may be inconsistent with this Policy
- conduct their activities on behalf of Toro in strict observance of both the letter and spirit of this Policy
In performing their Board and Board Committee functions, Toro directors will:
- act in good faith, and in the honest belief that their actions are in the best interests of Toro and its shareholders
- avoid actual and potential conflicts of interest, as well as the appearance of impropriety, where personal interests would interfere with the ability to exercise judgment objectively
- not use corporate funds or other Toro assets for illegal or improper purposes
- not improperly influence any customer, supplier, government official, elected official, candidate for public office, or other party dealing with Toro
- comply with all securities laws, rules and regulations, as well as Toro's securities trading compliance program
- encourage and promote the free enterprise system and open competition, and comply with all antitrust laws, including prohibitions on improper agreements among competitors
- maintain the confidentiality of all non-public information about Toro and its businesses and affairs.
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