Corporate Governance Guidelines
Penseco Financial Services Corporation
Corporate Governance Guidelines
Effective February 21, 2006
These Corporate Governance Guidelines (these "Guidelines") were adopted by the Board of Directors (the “Board”) of Penseco Financial Services (the "Corporation") on February 21, 2006.
A. Composition of the Board of Directors.
- Size. Under the Corporation’s charter, the Board may consist of no less than five or more than fifteen directors. The charter provides for the annual election of directors, with the directors classified into four classes of directors as nearly equal in number as possible serving for staggered four-year terms. The Board, on the recommendation of the Nominating and Corporate Governance Committee, shall evaluate and determine annually the appropriate size and composition of the Board.
- Number of Independent Directors. The Board believes that as a matter of policy the majority of the directors should be “independent.”
- Definition of Independent Director. The Board shall review annually the independence of all non-employee directors. No director shall qualify as "independent" unless the Board affirmatively determines that the director has no relationship with the Corporation which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director and has no material relationship with the Corporation (either directly or as a partner, shareholder or officer of an organization that has a relationship with the Corporation). The Corporation shall disclose, in its annual proxy statement, the names of those directors that the Board has determined to be independent and the basis for the Board's determination. To assist it in making determinations of independence, the Board may adopt and disclose categorical standards. As a matter of general policy, the Board shall use the definition of “independence” observed by The Nasdaq Stock Market in NASD Rule 4200(a)(15), as amended from time to time, to determine the independence of directors (a copy of the most current version of which is attached as Annex A to these Guidelines). In addition, the Board may adopt more stringent requirements to determine the independence of directors serving on various committees of the Board, such as the Audit Committee.
- Conflicts of Interest. Directors will disclose to the Board any business relationships with the Corporation or any other potential conflicts of interest as they become aware of them, [and will update annually their responses to the Directors and Officers Questionnaire]. In addition, the Corporation will disclose to the Board any business relationship of a director with the Corporation or any potential conflicts of interest as the Corporation becomes aware of them. Directors may not enter into such a transaction without first disclosing the transaction and obtaining advance approval of the Board or any committee of the Board designated by the Board to so approve such a transaction. The director must recuse himself or herself from Board or committee consideration and decision on any such transaction.
- Retirement. Currently there is no retirement age for directors. However, the Board will review the issue on an annual basis and, based upon its review, consider the imposition of such a limitation if it believes that the absence of a mandatory retirement age may negatively affect director independence and the imposition of such a limitation will not interfere with the Board's ability to find otherwise independent and qualified candidates.
- Change of Job Responsibility. Independent directors who change their primary position held when they were elected to the Board will promptly advise the Nominating and Corporate Governance Committee of the change for review and recommendation to the Board. It is not the opinion of the Board that every director who retires from or changes his or her primary position with the Corporation should necessarily leave the Board. The Board should however, have an opportunity, through the Nominating and Corporate Governance Committee, to review the continued appropriateness of Board membership under such circumstances.
- Candidates. The Board as a whole is responsible for selecting candidates to become directors. The Nominating and Corporate Governance Committee is responsible for screening and recommending candidates. In discharging this responsibility, the Nominating and Corporate Governance Committee considers the nature of the expertise and experience required for the performance of the duties of a director of a corporation engaged in the Corporation's business and such matters as the relevant business and industry experience, professional background, age, current employment, community service and other board service of candidates for directors, as well as the racial, ethnic and gender diversity of the Board. The Nominating and Corporate Governance Committee seeks to identify, as candidates for director, persons with a reputation for and record of integrity and good business judgment who (1) have experience in positions with a high degree of responsibility and are leaders in the organizations with which they are affiliated, (2) are free from conflicts of interest that could interfere with a director's duties to the Corporation and its Shareholders, and (3) are willing and able to make the necessary commitment of time and attention required for effective Board service. The Nominating and Corporate Governance Committee also takes into account the candidate's level of financial literacy. The Nominating and Corporate Governance Committee monitors the mix of skills and experience of the directors whether the Board has the necessary tools to perform its oversight function effectively.
- Term Limits. Although the Board, upon the recommendation of the Nominating and Corporate Governance Committee, will consider length of service in recommending candidates for re-election, the Board does not believe that adopting a set term limit for directors serves the interests of the corporation.
- Service on Other Boards. Except in extraordinary circumstances approved by the Board upon the recommendation of the Nominating and Corporate Governance Committee, no director may serve on the board of directors of more than four public companies (in addition to the Board). The Nominating and Corporate Governance Committee shall take into account the competing demands on a person's time in deciding whether or not to recommend a person's nomination or re-nomination as a director.
- Leadership. The Board should remain free to configure leadership of the Board and the Corporation in the way that best serves the Corporation's interests at the time and, accordingly, has no fixed policy with respect to combining or separating the offices of Chairman and CEO.
- Compensation. Director compensation should be set by the Board. The Compensation Committee, with the assistance of the Corporation's staff, reviews the amount and composition of director compensation from time to time and makes recommendations to the Board when it concludes changes are needed. In recommending director compensation, the Compensation Committee shall consider the potentially negative effect of director independence if director compensation and perquisites exceed customary levels.
B. Responsibilities of Directors; Meeting Attendance and Preparation.
- General Responsibilities of Directors. Directors stand in a fiduciary relationship to the corporation. They shall perform their duties as a director, including their duties as a member of any committee of the Board upon which they may serve, in good faith, in a manner they reasonably believe to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing their duties, directors shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following:
- One or more officers or employees of the corporation whom the directors reasonably believe to be reliable and competent in the matters presented.
- Counsel, public accountants or other persons as to matters which the directors reasonably believe to be within the professional or expert competence of such person.
- A committee of the board upon which the director does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence.
- Effect of actual knowledge. Directors shall not be considered to be acting in good faith if they have knowledge concerning the matter in question that would cause their reliance to be unwarranted.
- Indemnification. Directors shall be entitled to indemnification to the fullest extent permitted by law and by the Corporation's charter and By-laws and to exculpation as provided by state law and by the Corporation's charter and By-Laws. Directors shall also be entitled to reasonable directors' and officers' liability insurance purchased by the Corporation on their behalf.
- Agendas. The Chairman of the Board is responsible for setting and circulating in advance an agenda for each meeting. The agenda will be distributed sufficiently in advance of the meeting so as to permit a meaningful prior review and opportunity for comment. Any director may suggest items for inclusion on the agenda or may raise, at any Board meeting, subjects that are not on the agenda for that meeting. The Board expects that meeting agendas will include on a regular basis a review of financial performance and a review of the Corporation's business strategies and practices.
- Meeting Attendance and Preparation. Directors are expected to attend Board meetings and to spend the time needed to discharge their responsibilities as directors. Materials with respect to matters on which action is expected to be taken are circulated to the Board at least several days in advance of the meeting whenever possible, and directors are expected to review these materials in advance of the meeting. Financial reports, certain Committee minutes and other background materials are also circulated in advance of the meeting.
- Attendance at Annual Meeting of Shareholders. Directors are expected to attend the annual meeting of the Corporation's Shareholders.
- Executive Sessions of Directors. The non-management members of the Board shall meet, without management present at regularly scheduled executive sessions which may take place after a regularly scheduled meeting of the full Board. The Chairman of the Board or, in his or her absence, the Chairman of the Nominating and Corporate Governance Committee, shall preside at such executive sessions. The independent members of the board shall meet at least semi-annually in executive session.
- Communications with Directors. The Corporation shall disclose, in its annual proxy statement and on its website, one or more methods by which Shareholders and other interested parties may communicate directly with the Board.
- Access to Employees. The Board expects that senior officers of the Corporation will regularly attend Board and committee meetings, present proposals and otherwise assist in the work of the Board. The Board, acting as a whole, shall have direct access to any and all of the Corporation's employees.
- Authority to Engage Advisors. The Board has the power to hire independent legal, financial or other advisors as it deems necessary, without consulting or obtaining the approval of any officer of the Corporation in advance, and the Corporation will pay any fees and expenses incurred in connection with the engagement.
- Every Director must be a shareholder of the Corporation and shall own on date of election in his own right at least one share. Any Director shall cease to act when no longer holding such a share, which fact shall be reported to the Board by the Secretary, whereupon the Board shall declare the seat of such Director vacated.
C. Committees of the Board.
- Numbers and Composition of Committees. The Corporation will have at all times the following Standing Committees: Executive, Nominating and Corporate Governance, Audit and Compensation Committees. The Corporation also has a Trust Committee. Only independent directors are members of the Nominating and Corporate Governance Committee, Compensation Committee and Audit Committee. Employees of the company may serve on the Executive Committee and Trust Committee. The Chairman of each committee will interface with the designated staff officer for the staff work needed by the committee. The Nominating and Corporate Governance Committee in consultation with the Chief Executive Officer shall review the Corporate Structure, the Board Structure and the membership of all committees at least annually and make recommendations to the Board for changes contemplated.
- Committee Chairman and Membership. The Board believes that committee assignments should be based on the director's knowledge, interests and areas of expertise. The Chief Executive Officer will normally chair the Executive Committee. The chairmanship of committees should be reviewed regularly.
- Committee Meeting Procedures. The Board or committee chairman, in consultation with the committee members and as otherwise might be required by the By-Laws or the charter governing the operation of each committee, shall determine the frequency of committee meetings. Directors are expected to attend meetings of the committees on which they sit and to spend the time needed to discharge their responsibilities as members of those committees. The agenda and any background materials for committee meetings may be developed in consultation with committee members, management or the executive officer responsible for supporting the Committee and are circulated in advance of the meeting whenever practical. Committee members are expected to review these materials in advance of the meeting. The minutes of the committee meetings shall be circulated to the Board at the next regularly scheduled Board meeting.
D. Role with Respect to Management.
- Evaluation of Senior Officers. A key responsibility of the Board is to monitor the performance of the CEO and, in consultation with the CEO, the performance of other senior officers. The Compensation Committee shall conduct annually a formal management development and succession planning review, to which all of the Corporation's directors are invited, and report the results of such reviews to the Board.
- Succession Planning. The Compensation Committee shall review, and, following Committee discussions, with and without the CEO, regarding the results of its annual management development and succession planning review, shall make recommendations to the Board concerning management development and succession planning activities. The Nominating and Corporate Governance Committee shall discuss succession planning in the event of the unexpected death, incapacity or resignation of the CEO and recommend to the Board, after consultation with the Chairman of the Compensation Committee, an appropriate successor or interim arrangements until a successor can be named under such circumstances.
- Communication. Management speaks for the Corporation. Inquires from institutional investors, the press and others should be referred to the CEO or those whom the Chief Executive Officer had designated.
- Director Orientation and Continuing Professional Development. When new directors are elected, an orientation program shall be conducted which includes the introduction of new directors to the Corporation’s principal officers and shall include presentations by senior management to familiarize new directors with the Corporation's strategic plans and business units. The orientation generally shall include a visit to the Corporation's headquarters. Continuing professional development opportunities for all other directors shall be conducted through: (1) the Corporation's Board meetings and Board meeting materials; (2) periodic Board or Board committee presentations by the Corporation’s officers concerning the Corporation's strategies, initiatives, business plans, management structure, compliance programs, and significant financial, accounting and risk management issues; (3) Board Committee presentations by outside parties concerning industry issues and other business, legal and regulatory matters; (4) copies of periodic filings and significant presentations made to investors; (5) attendance at the orientation program for new directors if desired; and (6) other professional development opportunities, if appropriate and relevant to the duties of a director of the Corporation, including presentations and programs offered by various outside organizations, with appropriate expenses paid by the Corporation.
- Periodic Evaluation of Guidelines. The Nominating and Corporate Governance Committee shall review and reassess these Guidelines periodically, but in no event on less than an annual basis, and submit any recommended changes to the Board for its approval.
E. Annual Performance Evaluation.
The Nominating and Corporate Governance Committee shall lead the Board in an annual self-evaluation to determine whether the Board and its committees are functioning effectively and in compliance with these corporate governance guidelines. Such evaluation shall include a review and assessment of the performance of each Board member. The Nominating and Corporate Governance Committee shall review the continuing independence of each Board member. The Nominating and Corporate Governance Committee shall solicit comments from all of the directors and reports annually to the Board on its assessment of the Boards performance and its recommendations for improvement. All Directors are encouraged to make suggestions at any time for the improvement of the Boards practices.
Rule 4200(a)(15) – Definition of Independence
(15) "Independent director" means a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The following persons shall not be considered independent:
- a director who is, or at any time during the past three years was, employed by the company or by any parent or subsidiary of the company;
- a director who accepted or who has a Family Member who accepted any payments from the company or any parent or subsidiary of the company in excess of $60,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:
- compensation for board or board committee service;
- payments arising solely from investments in the company's securities;
- compensation paid to a Family Member who is a non-executive employee of the company or a parent or subsidiary of the company;
- benefits under a tax-qualified retirement plan, or non-discretionary compensation;
- loans from a financial institution provided that the loans (1) were made in the ordinary course of business, (2) were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with the general public, (3) did not involve more than a normal degree of risk or other unfavorable factors, and (4) were not otherwise subject to the specific disclosure requirements of SEC Regulation S-K, Item 404;
- payments from a financial institution in connection with the deposit of funds or the financial institution acting in an agency capacity, provided such payments were (1) made in the ordinary course of business; (2) made on substantially the same terms as those prevailing at the time for comparable transactions with the general public; and (3) not otherwise subject to the disclosure requirements of SEC Regulation S-K, Item 404; or
- loans permitted under Section 13(k) of the Act. Provided, however, that in addition to the requirements contained in this paragraph (B), audit committee members are also subject to additional, more stringent requirements under Rule 4350(d).
- director who is a Family Member of an individual who is, or at any time during the past three years was, employed by the company or by any parent or subsidiary of the company as an executive officer;
- a director who is, or has a Family Member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which the company made, or from which the company received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenues for that year, or $200,000, whichever is more, other than the following:
- payments arising solely from investments in the company's securities; or
- payments under non-discretionary charitable contribution matching programs.
- a director of the listed company who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three years any of the executive officers of the listed company serve on the compensation committee of such other entity; or
- a director who is, or has a Family Member who is, a current partner of the company's outside auditor, or was a partner or employee of the company's outside auditor who worked on the company's audit at any time during any of the past three years.
- in the case of an investment company, in lieu of paragraphs (A)-(F), a director who is an "interested person" of the company as defined in Section 2(a)(19) of the Investment Company Act of 1940, other than in his or her capacity as a member of the board of directors or any board committee.