Corporate Governance Guidelines
BALDOR ELECTRIC COMPANY
Corporate
Governance Guidelines
Adopted by Baldor’s Board of Directors on April 24, 2004,
and including
amendments through April 16, 2005.
The following Guidelines have been approved and adopted by Baldor’s
Board. In addition to these Guidelines, Baldor’s Articles, Bylaws, and
Charters of the various Committees of the Board, provide the foundation for
its governance. See the attached Exhibit “A” for certain definitions
or terms used in this document.
- Roles of the Board of Directors and Executive Management
Each Director is elected by Baldor’s shareholders. The Board is
the ultimate decision making body of Baldor, except with respect to those
matters reserved to its shareholders in Baldor’s Governing Documents
or as required by other Regulatory Agencies. Baldor’s business is
conducted by its employees and officers under the direction of the CEO
and subject to the oversight of the Board. Both the Board and the executive
management seek to enhance the long-term value of Baldor for the benefit
of its shareholders. In doing so, Baldor recognizes that the interests
of its shareholders will also be advanced by responsibly taking into account
the concerns of its other constituencies, including customers, employees,
the communities in which it does business, the public at large, and the
governmental entities that regulate its businesses.
- Critical Functions of the Board of Directors
In addition to overseeing Baldor’s Executives, the critical functions
of the Board, at times in conjunction with an appropriate Committee, include,
but are not limited to, the following matters:
- considering and approving Baldor’s fundamental business strategies
and major corporate actions in accordance with direction set forth
in the Bylaws;
- selecting, evaluating, and compensating Executive positions;
- planning
for succession to the position of CEO as well as certain other Executive
positions; and
- enhancing Baldor’s integrity and reputation by
ensuring that the appropriate management establishes, implements,
and maintains policies, practices, and procedures for full compliance
with all applicable laws and for meeting the high ethical standards that
the Board and the public expect of Baldor.
- Director Responsibilities
The primary responsibility of each Director is to exercise business judgment
in good faith to act in what the Director reasonably believes to be in
the best interests of Baldor and its shareholders. In addition to those
requirements set for in the Governing Documents, in discharging this responsibility,
Baldor requires that each Director shall:
- preserve the confidential nature of material information given or
presented to the Board;
- disclose to the other Directors any potential
conflicts of interest with respect to any matter under discussion and,
if appropriate, refrain from voting on such a matter;
- not serve as
a director, officer, or employee of any entity which is in competition
with Baldor and not misappropriate any opportunity or asset belonging
to Baldor for direct or indirect benefit;
- consistent with the Board’s
belief that management speaks for Baldor, and except as provided
in these Guidelines, refer all inquiries from the press, institutional
investors, and others to the CEO or such other Executives or appropriate
designees, provided, however, that a Director may, from time to time,
meet or otherwise communicate with various third parties about Baldor
but only with the knowledge and advance approval of the Executive
Committee or if requested by the Executive Committee; and
- establish a
financial stake in Baldor by developing a meaningful ownership position
in Baldor over time as determined by the Board and that is appropriate
for the Director’s personal financial circumstances.
- Director Qualifications and Selection Process
The Nominating & Corporate Governance Committee evaluates all Nominees,
including current Directors who may be up for re-election, based on several
different professional criteria and in accordance with the minimum requirements
as established in the Governing Documents. Additional general criteria
includes knowledge of business, industry, and economic environment, educational
background, professional experience, and willingness and availability to
serve as a Director of Baldor.
Baldor seeks to have a Board representing diverse experiences in business,
government, education, technology, and in various areas relevant to its
businesses. This Committee will also consider the make-up of the Board
as a whole in terms of the professional diversity represented by various
occupations and review the overall qualifications in determining a combination
of Directors that will best serve the needs of the Board and Baldor. Other
considerations and requirements include, but are not limited to, the following:
- Integrity and Values
Each Director should possess the highest personal
and professional ethics and integrity and be devoted to representing
the interests of Baldor and its shareholders. A Director must be willing
to devote sufficient time to carrying out his or her duties and responsibilities
effectively.
- Independence
The make-up of the Board shall at all times meet the criteria
for independence required by the Regulatory Agencies.
- Nominations
Proposed nominations for Directors will be made to the
Board by the Nominating & Corporate
Governance Committee in accordance with the policies and principles in its
Charter. Shareholders may also propose nominees for election as Directors for
consideration by this Committee in accordance with the procedures set forth
in Governing Documents. In the event of vacancies that occur on the Board between
annual shareholder meetings, as set forth in the Governing Documents, the Board
may fill such positions pursuant to recommendation by this Committee and as
indicated in Governing Documents.
- Material Changes in Qualifications; Retirement
If a Director changes
principal occupation, position, or represented responsibility held when
elected to the Board, the Director must immediately notify the Chairman
of the Board and the Committee Chair of the Nominating & Corporate Governance
Committee. The individuals will review the circumstances and situation, review
the appropriateness of continued Board service under the new circumstances,
and make a recommendation as to retention or removal to the full Board.
- Service
on Other Boards of Directors
A Director will advise the Chairman of the Board,
the Committee Chair of the Nominating & Corporate Governance Committee
in advance of accepting an invitation to serve as a director of another
public company. The Nominating & Corporate
Governance Committee will review whether such board membership may unduly impact
the ability of the Director to fulfill his or her responsibilities as a Director
of Baldor and shall make a recommendation to the Board. Generally, a Director
of Baldor should not serve on more than three other public company boards of
directors.
- Chairman of the Board
Baldor has no fixed policy with respect to the
separation of the offices of Chairman of the Board and the CEO. The Board
believes that this issue is part of the succession planning process,
and that it is in the best interests of Baldor for the Board to make
this determination from time to time, when selecting a new CEO.
- Independence of Directors
The Nominating & Corporate Governance Committee shall be responsible
for creating categorical standards to assist it and the Board in making
a determination of independence of Directors in accordance with the Governing
Documents and the rules and regulations Regulatory Agencies. Upon approval
by the Board, the standards shall be disclosed to interested parties of
Baldor. On an annual basis, this Committee shall re-evaluate and determine
the status of independence of all Directors in accordance with the set
standards. This Committee shall present for approval to the full Board
a report regarding its determination on the independence (or lack thereof)
of each Director serving on the Board.
- Membership, Terms, and Term Limits
The number of Directors on the Board and the terms of each Director
shall be in compliance with the Governing Documents. The Board does
not believe it should establish term limits for its Directors and,
as such, each Director may be re-elected to additional terms. The nomination
process and associated criteria will ensure that there are fresh ideas
and viewpoints available to the Board while maintaining the contribution
of Directors who have been able to develop, over a period of time,
increasing insight into Baldor and its operations and, therefore, provide
an increasing contribution to the Board as a whole.
- Meetings
of the Board of Directors
- Meetings Scheduled
The Board, in accordance with Governing Documents, may have meetings, regular
or special, as frequently as the Board determines. Although Baldor has no formal
policy regarding the required number of meetings held each year, the Board has
generally found that four regularly scheduled meetings per year have been appropriate
and sufficient.
- Meeting
Attendance and Preparation
Each Director is expected to attend all Board meetings and all
meetings of Committees on which the Director serves. A Director
should notify Baldor’s Secretary as soon as practical after
becoming aware of being unable to attend a meeting. Each Director
is expected to spend the amount of time and effort needed, and
to meet as frequently as necessary, to properly discharge the
required and appropriate responsibilities. Information and data
that are important to the Directors’ understanding of the
business to be conducted at a Board meeting generally should
be made available or distributed to the Directors as soon as
possible and practicable. All Committees may establish information
distribution guidelines and timelines within their individual
Charters. Each Director should review the materials in advance
of the meeting.
- Meeting Agenda
Prior to each meeting, the Chairman of the Board will establish
the agenda for each Board meeting and establish a schedule of agenda
subjects to be discussed during the meeting to the degree this
can be foreseen. The Board of Directors will review Baldor’s
long-term strategic plans and the principal issues that it will
face in the future during at least one Board meeting each year.
Directors are encouraged to suggest the inclusion of additional
items on the agenda. Whenever possible, such additional agenda
items should be discussed with the Chairman of the Board or Corporate
Secretary in advance of the meeting so that appropriate notice
and materials relating to such item can be distributed to all Directors
prior to the meeting. A Director may raise subjects for discussion
at any Board meeting whether or not included within the formal
agenda for that meeting.
- Meetings of Non-Management Directors
Executive sessions or meetings of those members of theBoard
who meet the then current standards of independence shall be held
at least annually and more frequently if the independent Directors
so desire. No member of Baldor management shall be present at such
executive sessions except by specific invitation by the Presiding
Director of the meeting. The non-management Directors may meet
in executive session completely separate from a scheduled meeting
of the full Board of Directors or during a scheduled Board meeting
upon first excusing all members of Baldor management from that
segment of the meeting. The Presiding Director for this Committee
will be determined annually.
- Board Committees
- Standing Committees
The Board will have at all times an Executive Committee and any
other Committee required by the Governing Documents or Regulatory
Agencies. Other than the Executive Committee, all of the members
of these Committees shall be Directors who then meet the independence
criteria then in effect and as established by the Regulatory Agencies.
The Board may create additional standing and ad hoc committees
as deemed appropriate from time to time. Consideration will be
given to rotating Committee members periodically, but the Board
does not believe that rotation should be mandated.
- Committee Charters
Each Board Committee will have its own Charter or other governing
document. Each Charter will set forth the purposes, goals, and
responsibilities of the Committee as well as certain specific qualifications
for Committee membership and procedures for Committee member appointment.
Each Charter will address the nature of items that, and the frequency
with which, the Committee will report to the full Board. Each Charter
will require the Committee to annually evaluate its own performance.
- Committee
Meetings and Agendas
The Committee Chair, in consultation with the Committee members
and Baldor’s Chairman of the Board, CEO and Executives,
where appropriate, will determine the frequency and length of
the Committee meetings consistent with any requirements set forth
in the Committee’s Charter. The Committee Chair, in consultation
with the appropriate members of the Committee and Executives,
will develop the Committee’s agenda for each meeting. The
meeting schedule for each Committee will be furnished to all
Directors.
- Committee Reports to the Board
After each Committee meeting, but not less than annually, each
standing Committee will make a report to the Board as required
in each Committee’s Charter and including other issues that
may be of interest to the Board. Such reports shall include an
analysis of the issues and how such issues were resolved or otherwise
addressed by the Committee.
- Engagement of Advisors
The Board and each Committee have the power to hire, at the expense
of Baldor, independent legal, financial or other advisors as it
may deem necessary, without consulting or obtaining the approval
of any Executive of Baldor in advance. Directors are expected to
use their best judgment in determining when such engagements are
necessary and shall consider the qualifications and fees to be
charged by such advisors when making their selection. The Board
and/or the Committee that engages such advisor shall promptly notify
Baldor’s Corporate Secretary of such engagement so that the
Corporate Secretary can confirm the independence of such advisor
and make the necessary arrangements for the payment of fees to
such advisor. Except for the Audit Committee, any other standing
Committee shall be limited to $5,000 per engagement unless otherwise
authorized by the Board of Directors. A report will be made to
the Board regarding the reason for the engagement and the fees
at the next Board meeting.
- Non-Delegable Actions of the Board of Directors
The Board may delegate responsibility for certain actions within the
scope of the Board’s authority to the extent such delegation
is permissible by applicable law. Any such matters delegated to a Committee
must be within the scope of authority granted to such Committee in
its Charter. Notwithstanding any such delegation, the Board shall remain
responsible for such actions and the Committees and/or persons to whom
such actions have been delegated shall report the status of such matters
to the Board from time to time as directed by the Board. However, Baldor
believes that the following matters may not be delegated outside the
Board and must be addressed by the Board as a whole:
- any matter which is required by applicable law to be acted upon
by the Board of Directors, such as amendments to Baldor’s
Articles of Incorporation, issuances of shares, share repurchases,
and declarations of dividends;
- any amendment to, or waiver of,
Baldor’s Code of Ethics
and Business Conduct;
- any waiver to, or waiver of, Baldor’s
Code of Ethics for Certain Executives;
- any business acquisition
or disposition requiring approval by Baldor’s shareholders;
- Director Access to Officers and Employees
- Contacts
Directors shall have full and free access to Executives and employees
of Baldor. Any meetings or contacts that a Director wishes to initiate
may be arranged directly or through the CEO or Corporate Secretary.
A Director will use judgment to ensure that any such contact is
not disruptive to the business operations of Baldor and may, if
appropriate, copy the CEO and Corporate Secretary on any written
communications between a Director and an Executive or employee
of Baldor.
- Participation in Meetings
In addition to the Directors and Baldor’s Corporate Secretary,
the Board may extend invitations to other Baldor personnel or affiliates
to attend various Board or Committee meetings, or certain portions
of such meetings. Meeting attendance of non-members should be approved
by the Chairman of the Board or by the Committee Chair or by a
majority of the members of the Board or Committee.
- Management Evaluation
At least annually, the Board, in conjunction with the Compensation & Stock
Option Committee, shall review the performance of the CEO and Executives,
particularly Baldor’s Named Executive Officers, to ensure that
these senior management individuals are providing the best leadership
for Baldor in the long and short term.
- Succession
Planning
In order to be prepared in the event of an unexpected inability of
the CEO to continue to serve, the Board, upon recommendations of the
Executive Committee and the Nominating & Corporate Governance Committee,
shall evaluate potential successors to the CEO. In evaluating potential
successors, the Board or these Committees shall meet with the CEO to
discuss the CEO’s recommendations and evaluations, including
a review of any development plans recommended for such potential successors.
- Director Compensation
The form and amount of Director compensation will be determined by
the full Board on the recommendation of the Nominating & Corporate
Governance Committee in accordance with the policies and principles
set forth herein, in its Charter, and any Regulatory Agency. This Committee
will conduct an annual review of Director compensation. The Board,
upon the advice of this Committee, shall consider whether the independence
of Directors may be jeopardized: a) if Director compensation and perquisites
exceed customary levels; b) if Baldor makes substantial charitable
contributions to organizations with which a Director is affiliated;
or c) if Baldor enters into consulting contracts with (or provides
other indirect forms of compensation to) a Director or an organization
with which the Director is affiliated.
- Director Education and Continuing Education
Baldor will establish, or identify and provide access to, appropriate
orientation programs, sessions, or materials for newly elected directors
of Baldor for their benefit prior to or within a reasonable period
of time after their nomination or election as a Director. The program
or materials will include information to familiarize new Directors
with Baldor’s strategic plans, its significant financial, accounting,
and risk management issues, its compliance programs, its Code of Ethics
and Business Conduct, its Executives, and its internal and independent
auditors.
The Board encourages its members to participate in continuing education
programs sponsored by universities, stock exchanges, or other organizations
or consultants specializing in director education. Subject to approval
by the Board’s Executive Committee, a Director may attend continuing
education programs at Baldor’s expense.
- Reliance on others; Liability Insurance
In discharging the obligations and responsibilities as a Director
of Baldor, each Director is entitled to rely on the honesty and integrity
of other Directors and of Baldor’s Executives, independent auditors,
and other outside advisors. Further, in order to promote the ability
of each Director to act in accordance with the Director’s reasonable,
good faith business judgment without undue concern for the substantial
risk of personal liability faced by directors of public companies,
Baldor shall purchase and maintain directors’ and officers’ liability
insurance in amounts reasonably deemed appropriate from time to time.
To the extent deemed advisable by the Board, Baldor shall bestow on
the Directors the benefits of indemnification and exculpation to the
fullest extent permitted by law and by Baldor’s Governing Documents
and any indemnification agreements.
- Annual Performance Evaluation
The Board, in conjunction with the Nominating & Corporate Governance
Committee, will conduct an annual self-evaluation to determine whether
it and its Committees are functioning effectively. The performance
assessment will be discussed with the full Board following the end
of each fiscal year. The assessment will focus on the Board’s
contribution to Baldor and specifically focus on areas in which the
Board or management believes that the Board could improve. In addition,
at least annually the Board shall review whether the Baldor is in line
with its long-tem strategic plans and shall revise such plans as needed.
- Amendment, Waiver and
Modification
The Board recognizes that these Guidelines must continue to evolve
in accordance with the changing needs of Baldor, its shareholders,
and the applicable laws and regulations of Regulatory Agencies. At
least annually, the Board will review these Guidelines and Baldor’s
Governing Documents to determine whether any changes are appropriate.
The Board may amend, modify, or waive these Guidelines, subject to
the disclosure and other provisions of laws, rules, and regulations
applicable to Baldor.
EXHIBIT “A”
BALDOR ELECTRIC
COMPANY
Corporate Governance Guidelines
Adopted by Baldor’s Board of Directors on April 16, 2005
Articles - Articles of Incorporation, as amended and/or
restated, of Baldor Electric Company in effect at the time
Baldor - Baldor Electric Company and the affiliates of Baldor
Electric Company unless otherwise noted
Board - Board of Directors of Baldor Electric Company
Bylaws - Bylaws, as amended, of Baldor Electric Company
in effect at the time
CEO - Chief Executive Officer of Baldor Electric Company
Chairman of the Board - Chairman of the Board of Directors
of Baldor Electric Company
Charters - Charters, or other governing documents, of the
specified Committees of the Board of Directors of Baldor Electric Company
Committee - any specified Committee of the Board of Directors
of Baldor Electric Company
Committee Chair - Chairman (or Presiding Director) of the
specified Committee of the Board of Directors of Baldor Electric Company
Director - any member of the Board of Directors of Baldor
Electric Company
Executives - the Chief Executive Officer, the Named Executive
Officers, and the other Executive Officers of Baldor Electric Company as defined
as “executive officer” for purposes of Form 10-K Report and Proxy
Statement reporting and as defined as “officer” for purposes of
Section 16 of the Exchange Act
Governing Documents - including, but not limited to, the
Articles of Incorporation, as amended and/or restated, the Bylaws, as amended,
and the Charters of specified Committees of the Board of Directors of Baldor
Electric Company
Guidelines - corporate governance principles approved and
adopted by the Board of Directors of Baldor Electric Company as indicated in
this particular document
Nominee - a nominee to the Board of Directors of Baldor
Electric Company
NYSE - New York Stock Exchange (or similar exchange on which
Baldor’s stock is traded and regulated)
Regulatory Agencies - including, but not limited to, the
NYSE, the SEC, the IRS, other similar governing and rule-making agencies, and
the rules and regulations of the SOX
SEC - the Securities and Exchange Commission
SOX - the rules and regulations of the Sarbanes-Oxley Act
of 2002
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