A Great Place to • Grow • Shop • Work • Invest
CORPORATE
GOVERNANCE
POLICIES AND
PROCEDURES
© 2002 Sears Canada Inc.
TA B L E O F C O N T E N T S
INTRODUCTION
Mission, Vision and Values . . . . . . . . . . . . . . . . . . . . . . . .
3
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . .
4
BOARD OF DIRECTORS
Board of Directors’ Mandate . . . . . . . . . . . . . . . . . . . . . . .
5
Mandate of the Chairman of the Board and Chief Executive
Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5
Board Composition and Proportionate Representation . . . . . . . .
6
Independence from Management . . . . . . . . . . . . . . . . . . . .
7
Eligibility Requirements/Director Selection Policy . . . . . . . . . . .
8
Director Education and Orientation . . . . . . . . . . . . . . . . . . .
9
Terms of Office and Tenure . . . . . . . . . . . . . . . . . . . . . . . .
9
Director Compensation/Share Ownership Policy . . . . . . . . . . .
10
Indemnification and Liability Insurance . . . . . . . . . . . . . . . . .
10
Code of Business Conduct . . . . . . . . . . . . . . . . . . . . . . . . .
10
OPERATION OF BOARD/COMMITTEES
Board Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
Board Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
Board Information Needs . . . . . . . . . . . . . . . . . . . . . . . . .
13
Board Access to Management . . . . . . . . . . . . . . . . . . . . . .
14
Disclosure, Confidentiality and Insider Trading . . . . . . . . . . . .
14
Audit Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
PERFORMANCE ASSESSMENT
Board Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15
Chairman and CEO Assessment . . . . . . . . . . . . . . . . . . . . .
15
APPENDIX
Board of Directors’ Responsibilities . . . . . . . . . . . . . . . . . . .
i
Individual Director Responsibilities . . . . . . . . . . . . . . . . . . . .
ii
Chair and CEO Responsibilities . . . . . . . . . . . . . . . . . . . . .
iv
PA G E 2
INTRODUCTION
‘‘The objective of good governance is to promote strong, viable and competitive
corporations. Boards of directors are stewards of the corporation’s assets and their behaviour
should be focused on adding value to those assets by working with management to build a
successful corporation and enhance shareholder value.’’1
Sears Canada Inc. (‘‘Sears’’ or the ‘‘Corporation’’), its Board of Directors (‘‘Board’’) and
management are committed to maintaining high standards of corporate governance. Sears
believes that strong corporate governance practices are essential to the success of the
Corporation, to effective corporate performance and to the best interests of shareholders.
This booklet outlines the corporate governance policies and practices of Sears, including the
composition, operation and assessment of its Board, as well as the Committees of the Board. It
also contains, in an Appendix, a summary of the general duties and responsibilities of
boards, directors, chairs of the board and chief executive officers.
1 . M I S S I O N , V I S I O N A N D VA L U E S
Sears is a multi-channel retailer dedicated to providing its customers with quality merchandise
and exceptional service, coast to coast. Sears vision is to be Canada’s most successful retailer
by providing its customers with total shopping satisfaction, its associates with opportunities for
career advancement and personal growth, and its shareholders with superior returns on their
investments.
Sears has adopted a balanced approach to achieving its mission, vision and values by
focusing on making Sears a great place to Grow, Shop, Work and Invest.
The four key imperatives are:
Grow – Drive Profitable Growth
In order for Sears to remain relevant to its customers it must constantly look for ways to
continue to grow its business consistent with their evolving needs. To do this requires
continually improving and reinventing Sears to meet the challenges of an ever-changing
marketplace. This requires creativity, focus, persistence and a passion for results.
Shop – Relentlessly Pursue a Customer-Focused Approach
Success will only be achieved by anticipating and delivering value to Sears customer needs.
Keeping this focus and instilling a culture that centres on the customer is essential to business
survival.
1
‘‘Beyond Compliance: Building a Governance Culture’’, Final Report, Joint Committee on Corporate Governance,
November 2001
PA G E 3
Work – Continue to Develop and Sustain a High Performing Organization
Greatness can only be accomplished when people are able to contribute their talents, support
one another, and are constantly creating better ways to add value to their work and for Sears
customers. This requires leadership that fosters a supportive environment where people can
do their best, have challenging work, build on their capabilities and actively contribute to
Sears success.
Invest – Focus on Resource Productivity
Ensuring Sears invests wisely to enable a sustainable return to its investors is a priority for
Sears. This means actively seeking new opportunities as well as keeping an eye on the most
efficient ways and means to deliver value to Sears customers.
2 . C O R P O R AT E G O V E R N A N C E
‘‘Corporate governance means the process and structure used to direct and manage the
business and affairs of the corporation with the objective of enhancing shareholder value,
which includes ensuring the financial viability of the business. The process and structure
define the division of power and establish mechanisms for achieving accountability among
shareholders, the board of directors and management. The direction and management of the
business should take into account the impact on other stakeholders such as employees,
customers, suppliers and communities.’’ 2
At Sears, the Board, the Audit Committee and the Human Resources and Compensation
Committee are each responsible for certain corporate governance functions in accordance
with their respective mandates/charters. However, the Nominating and Corporate
Governance Committee (‘‘Governance Committee’’) has been assigned the responsibility for
monitoring emerging trends in corporate governance and guiding the Corporation in its
approach and practices in matters of corporate governance. It acts as the ‘‘Lead Director’’ for
the Corporation and oversees, on behalf of the Board, corporate governance, including the
methods and processes for evaluating Board effectiveness and performance.
2
‘‘Where Were the Directors?’’, Guidelines for Improved Corporate Governance in Canada, Draft Report of the Toronto
Stock Exchange Committee on Corporate Governance in Canada, May 1994
PA G E 4
BOARD OF DIRECTORS
1 . B O A R D O F D I R E C T O R S ’ M A N D AT E
The Board is responsible for overseeing the business and the affairs of the Corporation, acting
with a view to the best interests of the Corporation, and providing guidance and direction to
the management of the Corporation in order to attain corporate objectives and to maximize
shareholder value. The Board carries out its stewardship functions directly and through its
Committees. In fulfilling its mandates, the objectives of the Board include:
(a)
adopting a strategic planning process and approving a strategic plan which takes into
account the opportunities and risks of the business, and monitoring management’s
success in implementing the strategy;
(b)
assessing operational performance;
(c)
understanding the principal risks of all aspects of the business of the Corporation
and ensuring that there are systems in place which effectively monitor and manage
these risks;
(d)
appointing of Officers, assessing the performance of the Chief Executive Officer
(‘‘CEO’’) and ensuring that programs are in place for training and assessing Officers
and for an orderly succession process for Officers;
(e)
taking a leadership role in the development of effective two-way communication
capabilities between the Corporation and its shareholders, other stakeholders and the
public generally;
(f)
assessing the integrity of the Corporation’s internal control and management
information systems; and
(g)
appointing the appropriate Committees and delegating to them certain responsibilities
to assist the Board in giving effect to the foregoing.
2 . M A N D AT E O F T H E C H A I R M A N O F T H E B O A R D
AND CHIEF EXECUTIVE OFFICER
The mandate of the Chairman of the Board and Chief Executive Officer comprises the
following responsibilities:
(a)
The Chairman of the Board (‘‘Chairman’’) is responsible for providing leadership,
direction and focus to the Board in carrying out its mandate.
(b)
The CEO of the Corporation is responsible for the Corporation’s financial, strategic and
organizational performance (both short and long term) and for maximizing shareholder
value.
PA G E 5
In fulfilling the mandate, the objectives of the Chairman include:
(i)
playing a guiding role in the discharge of the Board’s responsibilities;
(ii)
managing the Board’s processes including setting the agenda for and chairing Board
meetings and co-ordinating the activities of the Board;
(iii) providing consultation and guidance to individual Directors and, where appropriate,
engaging outside experts or advisors at the Corporation’s expense; and
(iv) overseeing the transmission of accurate and timely information from management to the
Board on the state of affairs of the Corporation.
In fulfilling the mandate, the objectives of the CEO include:
(i)
providing leadership and effective management;
(ii)
facilitating effective communication between management and the Board;
(iii) assessing the performance of the Officers of the Corporation and assisting the Human
Resources and Compensation Committee in the development of a succession plan for
Officers of the Corporation;
(iv) acting as a liaison between the management of Sears, Roebuck and Co. (‘‘Sears
Roebuck’’) and the management of the Corporation to facilitate the exchange of retail,
financial and technological information, expertise and support; and
(v)
providing timely and systematic communication to Sears Roebuck upon significant
developments in Canada of a political, business, legal or financial (including
US/Cdn tax issues) nature.
3. BOARD COMPOSITION AND
P R O P O R T I O N AT E R E P R E S E N TAT I O N
The Directors are elected annually by the shareholders of the Corporation. Sears Roebuck is
the significant shareholder of the Corporation based on its beneficial holding of
approximately 54% of the Shares. The remaining Shares are widely held by minority
shareholders.
PA G E 6
The Board is currently composed of ten Directors. Nine of the Directors are Unrelated
Directors3 and one Director is a Related Director, as he is an officer of the Corporation. Of the
nine Unrelated Directors, three are Officers of Sears Roebuck and six Directors (or 60% of the
total number of Directors) are Independent Directors.4 The Board’s composition fairly reflects
the investment in the Corporation by minority shareholders and the independence of the
Board from management.
4. INDEPENDENCE FROM MANAGEMENT
The Governance Committee is responsible for reviewing, on a regular basis, the guidelines
for improved corporate governance adopted by the Toronto Stock Exchange (‘‘TSX’’). From
time to time, the position of Chairman and the position of CEO are held by the same person;
however, Sears believes that this, per se, does not impair the ability of the Board to act
independently of management because of the integrity of the Corporation’s Board structure
and Board process.
Board Structure
●
the entire Board is composed of Unrelated Directors, except for one Director, being the
CEO;
●
the Audit Committee is made up of five Unrelated Directors, four of whom, are
Independent;
●
the Human Resources and Compensation Committee is made up of four Unrelated
Directors, three of whom are Independent;
●
the Governance Committee is made up of four Independent Directors and one ex officio
member, being the CEO;
●
the Corporation has a significant shareholder, Sears Roebuck, which owns
approximately 54% of the outstanding Shares of the Corporation. The Chairman,
President and Chief Executive Officer of Sears Roebuck, Alan J. Lacy, is a member of the
Board of the Corporation and is aligned with protecting the interests of all shareholders.
He is also a member of the Human Resources and Compensation Committee and he
participates, along with the other Committee members, in the evaluation of the
performance of the Chairman and CEO of the Corporation;
3
‘‘Unrelated Director’’ is a Director who is independent from management and free from any interest and any business
or other relationship which could, or could reasonably be perceived to, materially interfere with the Director’s ability to
act in the best interests of the Corporation, other than interests and relationships arising from shareholding.
4
‘‘Independent Director: (a) is not a member of management and is free from any interest and any business or other
relationship which in the opinion of the Exchange could reasonably be perceived to materially interfere with the
director’s ability to act in the best interest of the company; and (b) is a beneficial holder, directly or indirectly, or is a
nominee or associate of a beneficial holder, collectively of 10% or less of the votes attaching to all issued outstanding
securities of the applicant.
PA G E 7
●
The Governance Committee is formally recognized by the Board as fulfilling the role of
‘‘Lead Director’’;5
●
The Corporation has written Mandates for the Board and for the Chairman and CEO
which set out their respective responsibilities;
●
All Committees of the Board have written Charters which set out their roles and
responsibilities; and
●
The Corporation has written Corporate Governance Policies and Procedures.
Board Process
The Board schedules meetings in camera, that is, without the Chairman and CEO present,
after each meeting, giving Unrelated and Independent Directors a forum for frank and
open discussion;
●
●
The Governance Committee is responsible for assessing Board effectiveness and
conducts regular formal surveys of all Board members; the feedback forms the basis for
action plans for continuous improvement;
●
Adequacy of Independent Directors’ compensation is assessed by the Governance
Committee with direct access to external advisors;
●
As ‘‘Lead Director’’, the Governance Committee can be approached by any Director on
all matters of concern, including that of Board independence from management;
●
The Audit Committee meets regularly with external auditors in camera, as well as with the
senior internal audit manager in camera; and
●
Board and CEO/Chair Mandates, all Committee Charters and the Corporate
Governance Policies and Procedures are reviewed annually and updated as required.
5. ELIGIBILITY REQUIREMENTS/DIRECTOR
SELECTION POLICY
The Board’s Nominating and Corporate Governance Committee is charged with, among
other things, the responsibility of identifying, evaluating and recommending nominees for the
Board, in consultation with the Board.
The eligibility requirements for Directors of Sears are set out in the Canada Business
Corporations Act. In addition to these requirements, the Nominating and Corporate
5
The TSX Company Manual, section 474(12) reads: Every board of directors should have in place appropriate
structures and procedures to ensure that the board can function independently of management. An appropriate structure
would be to (i) appoint a chair of the board who is not a member of management with responsibility to ensure the board
discharges its responsibilities or (ii) adopt alternative means such as assigning this responsibility to a committee of the
board or to a director, sometimes referred to as the ‘‘lead director’’. Appropriate procedures may involve the board
meeting on a regular basis without management present or may involve expressly assigning the responsibility for
administering the board’s relationship to management to a committee of the board.
While the guideline contemplates an individual director in the ‘‘lead director’’ role, it also permits Sears current structure
of having a committee function in a similar role.
PA G E 8
Governance Committee refers to Sears Director Selection Policy. The selection criteria in the
policy include such characteristics as regional representation, business and academic
qualifications and Canadian residency. It also contains a guideline which requires that an
incumbent director prepare a letter of resignation addressed to the Board if there is a material
change in his/her principal occupation or residency status. The Board will decide whether or
not to accept the resignation.
6 . D I R E C T O R E D U C AT I O N A N D O R I E N TAT I O N
The Board recognizes the need to familiarize newly elected Directors with their role,
responsibilities and liabilities and to provide them with an overview of the Corporation and its
affiliates. This is customarily done by way of an orientation, which consists of meetings with
various senior managers to consider matters such as: the nature of the business and the
structure of the Corporation; its strategic plans; Board procedures and the Corporation’s
by-laws; the Corporation’s marketing strategies and products; operations and capital
expenditure programs; financial planning strategies and corporate services; human
resources strategies; and new ventures, sales products and services. A new Director will also
be provided with the opportunity to visit various facilities of the Corporation and to meet with
corporate officers to discuss and better understand the business. Also, continuing education is
provided to Directors through materials and regular presentations on key legislative,
regulatory and governance initiatives and developments.
7. TERMS OF OFFICE AND TENURE
The particulars of Sears Directors’ tenure include:
(a)
each Director is nominated or re-nominated for election as a director each year by the
shareholders of the Corporation at the Annual Meeting;
(b)
there is no limit on the number of years a Director may serve on the Board;
(c)
there is a policy adopted by the Corporation which provides that a Director shall not be
nominated for election at the Annual Meeting following the Director’s 70th birthday; and
(d)
if there is a material change in an incumbent Director’s principal occupation or
residency status, he or she should prepare a letter of resignation addressed to the Board.
The Board will decide whether or not to accept the resignation.
PA G E 9
8 . D I R E C T O R C O M P E N S AT I O N / S H A R E
OWNERSHIP POLICY
The Nominating and Corporate Governance Committee reviews compensation of the
Directors on a bi-annual basis and makes recommendations to the Board regarding changes.
The Corporation has designed the Directors’ compensation to align the Directors’ interest with
corporate performance and the return to shareholders. The Corporation has adopted a
Directors’ Share Ownership Policy. Independent Directors6 are expected to acquire and own,
within three years of being appointed/elected, common shares of the Corporation equal in
value to three times their annual retainer. These common shares may be accumulated through
share grants, direct purchases and/or deferred shares.
Independent Directors receive an annual grant of common shares and stock options under
plans established by the Corporation. In addition to equity compensation, Independent
Directors receive cash compensation and an administration and expense allowance, as more
particularly set out in the current Management Proxy Circular of the Corporation. All or part of
the annual retainer may be taken in deferred common share units of the Corporation. All
equity grants and deferred shares taken in lieu of the annual cash retainer must be held by
each director until the end of their term.
Directors and their eligible family members also receive a discount on purchases made at
Sears in accordance with the Corporation’s Discount Policy Agreement. After 10 years of
service, this discount privilege continues for the life of the Director.
9 . I N D E M N I F I C AT I O N A N D L I A B I L I T Y I N S U R A N C E
The Board has passed an Indemnification Resolution under which the Corporation
indemnifies Directors, Officers and other persons from liability arising from the performance
of their duties, as long as they acted lawfully and in good faith, and did not commit a
dishonest, fraudulent, criminal or malicious act or omission. In addition, the Corporation
carries, through Sears Roebuck, liability insurance coverage for Directors and Officers.
10. CODE OF BUSINESS CONDUCT
The Corporation has adopted a Code of Business Conduct which applies to every Director,
Officer and associate. The Code provides guidelines and sets out expectations regarding
interactions with customers, investors, governmental authorities, suppliers of merchandise
and services, and associates. It also sets out the ethical values and standards of behaviour
that apply to all of the Corporation’s business activities including such matters as fair dealing,
conduct in the workplace, conflicts of interest, corporate property, records and compliance
with the laws of all jurisdictions in which the Corporation conducts business.
6
Supra, 4
PA G E 10
O P E R AT I O N O F B O A R D / C O M M I T T E E S
1. BOARD MEETINGS
The Board has five regularly scheduled meetings each year with additional meetings held as
required. As mentioned earlier, the Board schedules meetings in camera (without
management present) after each meeting.
2. BOARD COMMITTEES
A key determinant of Board independence is the composition of its committees. One of the
recommendations in the Final Report of The Joint Committee on Corporate Governance7 was
that Audit Committees should be composed solely of Unrelated Directors. It also
recommended that all members of audit committees be ‘‘financially literate’’, with at least one
member having accounting or related financial experience.
The Board has established the following committees, all of which have formal written charters
which are reviewed annually to promote best practices.
Audit Committee
The Audit Committee currently consists of five Unrelated Directors8, four of whom are
Independent. All members are financially literate9 and at least one member has accounting or
related financial experience10. The main objectives of the Audit Committee are to:
●
assist the Board in assessing the principal risks of the business of the Corporation,
including financial, accounting and legal matters;
●
evaluate the adequacy of internal systems and controls;
●
review and approve financial statements and other public disclosure documents;
●
approve reporting and accounting policies;
●
maintain direct lines of communication with the Directors and the Corporation’s external
auditors, internal auditors and financial management;
7
Supra, 1
8
Supra, 3
9
The TSX definition of ‘‘financial literacy’’: the ability to read and understand a balance sheet, an income statement, a
cash flow statement and the notes attached thereto
10
The TSX definition of ‘‘accounting or related financial experience: the ability to analyze and interpret a full set of
financial statements, including the notes attached thereto, in accordance with Canadian generally accepted accounting
principles
PA G E 11
●
meet with the Corporation’s external auditors in camera (without management present),
as well as with the senior internal audit manager;
●
monitor independence of the external auditors;
●
review compliance by the external auditors and management with the Corporation’s
external audit services policy regarding audit, audit related and non-audit services
provided by the external auditors; and
●
monitor and make recommendations to the Board in connection with the emerging
legislative and regulatory initiatives and trends in best corporate governance practices
relating to the Audit Committee’s role and responsibilities;
The Audit Committee meets five times each year with additional meetings held as required.
Human Resources and Compensation Committee
The Human Resources and Compensation Committee currently consists of four Unrelated
Directors, three of whom are Independent. The main objectives of the Human Resources and
Compensation Committee are to:
●
review and ensure that the overall goals and objectives of the Corporation are supported
by appropriate executive compensation philosophy and programs;
●
review and approve the succession planning process for officers;
●
review annually, and report to the Board on, the CEO’s evaluation of the executives and
the related compensation recommendations;
●
review annually, and report to the Board on, the CEO’s business objectives, performance
against the business objectives and compensation; and
●
oversee significant benefit programs for employees of the Corporation.
The Human Resources and Compensation Committee meets four times each year with
additional meetings held as required.
Investment Committee
The Investment Committee currently consists of six members. Four members are Unrelated and
Independent Directors and two are management employees. The main objective of the
Investment Committee is to monitor and provide direction for the investment of assets of
specified benefit plans established by the Corporation for its employees. The Investment
Committee is responsible for the selection and appointment of external investment managers.
The Investment Committee meets four times each year with additional meetings held
as required.
PA G E 12
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee currently consists of four Unrelated
and Independent Directors and one ex officio member who is a Related Director.11 The main
objectives of the Nominating and Corporate Governance Committee are to:
●
fulfil the role of ‘Lead Director’ to the Board;
●
consider annually the composition and size of the Board;
●
propose nominees to the Board;
●
implement a process for assessing the effectiveness of the Board and its Committees;
●
consider the sufficiency of the orientation and education program for new Directors and
ongoing educational presentations to incumbent Directors;
●
act as a forum to receive any expression of concern from a Director, including a concern
regarding the independence of the Board from management;
●
make recommendations to the Board with respect to the adequacy and form of
compensation for the Independent Directors; and
●
monitor the emerging trends in matters of corporate governance, guide the Corporation
in its approach and practices in all such matters and make recommendations to the Board
in connection with best corporate governance practices.
The Nominating and Corporate Governance Committee may engage outside experts or
advisors at the Corporation’s expense, where appropriate, in consultation with the Chairman
of the Board.
The Nominating and Corporate Governance Committee meets four times each year with
additional meetings held as required.
3 . B O A R D I N F O R M AT I O N N E E D S
For each board meeting, each Director is provided with a binder containing a copy of the
meeting agenda, together with supporting information on agenda items that will be discussed
during the meeting, including general background material (for example, minutes, summary
of capital expenditures, results, etc.) and specific presentation information. Selected materials
are ordinarily sent to Directors several days prior to Board and Committee meetings. Directors
also receive bi-weekly articles on selected topics, being Sears, its competition, the economy
and corporate governance.
11
‘‘Related Director’’ is a Director who is not an Unrelated Director (see Supra, 3)
PA G E 13
4. BOARD ACCESS TO MANAGEMENT
The Board has access to management at all times and for any reason. In addition,
(a)
the Chairman and CEO arranges for executive officers and members of management to
attend Board and Committee meetings as required to provide additional insight into the
matters being considered and to expose the Directors to senior employees; and
(b)
presentations are periodically made at Board and Committee meetings by executive
officers and senior managers on new industry developments, products, and service
offerings to keep the Directors informed of these matters.
5. DISCLOSURE, CONFIDENTIALITY AND
INSIDER TRADING
The Corporation has adopted a corporate Disclosure, Confidentiality and Insider Trading
Policy (the ‘‘Disclosure Policy’’) which reflects its commitment to providing timely and accurate
corporate information to the capital markets, including its shareholders, and to the general
public. The Disclosure Policy provides direction and guidance to the Directors, Officers and
associates regarding confidentiality and non-disclosure of corporate information and insider
trading obligations. It requires prompt general disclosure of any material information. It sets
out the rules which apply to trading in the Corporation’s shares, including the obligation to
comply with the Sears ‘‘black-out’’ periods. It also sets out the procedures to be followed in
communicating with investors, analysts and the media, including press conferences and
media briefings via webcast. The Disclosure Policy is reviewed annually and amended as
required.
6. AUDIT SERVICES
The auditors of the Corporation are appointed annually by the shareholders, at a
remuneration which is fixed by the Directors. Deloitte & Touche LLP have served as auditors of
the Corporation since 1984. They are required to communicate at least annually with the
Corporation regarding all relationships between Sears and themselves which, in their
professional judgement, may reasonably be thought to bear on their independence.
In addition, as part of its mandate, the Audit Committee regularly examines the scope of all of
the services the auditors have provided to the Corporation. In order to enhance such
examination and assess the independence of the auditors, the Corporation has adopted a
policy which establishes the scope of the auditor’s services. This policy outlines the services
which are audit and audit related, non-audit related and prohibited. Fees for non-audit
related services rendered by the auditors shall not exceed 50% of the total audit and audit
related fees per annum without the pre-approval of the Audit Committee. The auditors may not
perform prohibited services, except with the pre-approval of the Audit Committee.
PA G E 14
PERFORMANCE ASSESSMENT
1. BOARD ASSESSMENT
Board assessment takes place through various means determined by the Nominating and
Corporate Governance Committee including: surveys, interviews, group discussions and
other similar methodology.
A Board Effectiveness Questionnaire is completed by the Directors periodically and the results
are reported to the Nominating and Corporate Governance Committee and to the Board of
Directors. This survey solicits frank comments from the Directors to evaluate Board and
Committee performance, timeliness and quality of materials and effectiveness of meetings. In
addition, the Chairman of the Board periodically consults with each Independent Director to
review Board effectiveness. The information gathered by the survey and consultations is used
by Sears to develop action plans to improve its corporate governance practices.
2. CHAIRMAN AND CEO ASSESSMENT
One of the roles of the Human Resources and Compensation Committee is to ensure there is
an appropriate Chairman and CEO evaluation process in place. This Committee evaluates
the performance of the Chairman and CEO against business objectives and reports to the
Board on an annual basis. The Chairman and CEO is not a member of this Committee.
A successful corporate governance culture is a journey; not a destination. Sears believes that
a corporation’s commitment to its corporate governance practices is a reflection of its
commitment to its customers, employees and shareholders. Directors and Officers must, on an
ongoing basis, reflect upon the focus and direction of the corporation, with careful attention to
its mission, vision and values. Sears is dedicated to continuing its proactive approach to
corporate governance practices, while nurturing, enhancing and evolving its strong
corporate governance culture.
For additional information or guidance, the reader is asked to contact:
Corporate Secretary
Sears Canada Inc.
222 Jarvis Street,
Department 766,
Toronto, Ontario, M5B 2B8
Telephone No. (416) 941-4417
Facsimile No. (416) 941-2321
This booklet, which is subject to amendment from time to time, is only a general overview of
Sears corporate governance policies and practices and is not intended to be exhaustive.
PA G E 15
APPENDIX
RESPONSIBILITIES
This Appendix is a summary of the general duties and responsibilities of all Canadian boards,
directors, chairs of the board and chief executive officers.
1. BOARD OF DIRECTORS’ RESPONSIBILITIES
A corporation is owned by its shareholders who delegate supervision of management to its
board of directors, which, in turn, delegate to management the responsibility of managing the
corporation. The primary responsibility of the board is to foster the long-term success of the
corporation, consistent with its fiduciary responsibility to the shareholders to maximize
shareholder value. A board operates by delegating certain of its responsibilities, including
spending authorizations, to management, while reserving certain powers to itself. A board
must operate within the parameters of the applicable legislation and the corporation’s
constating documents which include articles, by-laws, directors’ and shareholders’
resolutions and any applicable shareholder agreements.
A director’s responsibility is that of a fiduciary and is both individually and collectively
founded in legal imperatives. The board of directors as a whole is responsible for the
stewardship of the corporation. The directors are also required to meet specific legal
requirements in discharging the duties of the board.
The board must:
1.
supervise the management of the business and affairs of the corporation;
2.
act honestly and in good faith with a view to the best interests of the corporation;
3.
exercise the degree of care, diligence and skill that a reasonably prudent person would
exercise in comparable circumstances;
4.
act in accordance with its obligations contained in the Securities legislation of each
province and territory of Canada, other relevant legislation and regulations, the
corporation’s articles, by-laws, and board and shareholders’ resolutions;
5.
consider the following matters as a board and not delegate them to a committee:
(a)
any submission to the shareholders of a question or matter requiring the approval
of the shareholders;
(b)
the filling of a vacancy among the directors or in the office of the external auditor,
or the appointing of additional directors;
(c)
the issuing of securities, except as authorized by the directors;
(d)
the issuing of shares in one or more series, except as authorized by the directors;
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(e)
the declaration of dividends;
(f)
the purchase, redemption or any other form of acquisition of shares issued by the
corporation;
(g)
the payment of a commission to any person in consideration of the purchase or
agreement to purchase shares of the corporation from the corporation or from any
other person, or procuring or agreeing to procure purchases for any such shares,
except as authorized by the directors;
(h)
the approval of a management proxy circular for a shareholders’ meeting;
(i)
the approval of any take-over bid circular or directors’ circular;
(j)
the approval of the annual financial statements of the corporation;
(k)
the adoption, amendment or repeal of by-laws of the corporation; and
2. INDIVIDUAL DIRECTOR RESPONSIBILITIES
There are general duties and responsibilities of directors, both at common law and as set out
in the Canada Business Corporations Act (‘‘CBCA’’).
A corporation’s directors are ‘‘trustees’’ in the sense that in performance of their duties they
stand in a fiduciary relationship to the corporation and are bound by all the rules of fairness,
morality and honesty in purpose that the law imposes. From this fiduciary role comes the
stewardship responsibility to preserve and enhance shareholder value. Each individual
director shares the fiduciary responsibility to the corporation collectively with the other
directors.
Also, directors must, individually, in connection with the powers and duties of their office, act
honestly and in good faith with a view to the best interests of the corporation and exercise the
care, diligence and skill that a reasonably prudent person would exercise in comparable
circumstance. Part of this care and diligence is for all directors to attend and participate in
board discussion.
The duties of a director as established by the CBCA and as interpreted by the courts may be
summarized as follows:
(1)
Duty of Honesty – In dealings with fellow directors, a director must tell the whole truth
and act in good faith. Secret profits are forbidden to directors.
(2)
Duty of Loyalty – A director is required to give individual loyalty to the corporation.
Each director must exercise his or her powers honestly and for the benefit of the
corporation as a whole.
(3)
Duty of Care – A director is required to exercise prudence and diligence. The duty of
care requires prudence based on common sense. The legislation requires every director
to exercise the care, diligence and skill that a reasonably prudent person would exercise
in comparable circumstances. Acting prudently is acting carefully, deliberately and
cautiously, trying to foresee consequences.
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Directors must also keep the following guidelines in mind in the exercise of their individual
responsibilities. A director must:
●
exercise powers properly for the purpose for which they are conferred;
●
be sensitive to any sort of conflict of interest, whether real or perceived. Where conflict
cannot be avoided, declare the conflict and, based on the specifics on the conflict, either
refrain from voting or excuse him or herself from the meeting;
●
not misuse information or position;
●
ensure that appropriate records are kept and maintained and that proper distributions or
payments are made;
●
establish an effective, independent and respected presence and a collegial relationship
with other board members;
●
with regard to the corporation’s goals and objectives: fulfill legal requirements and
obligations of a director, represent the interests of all shareholders in the governance of
the corporation, participate in review of corporate policies and strategies and monitor
the corporation’s progress;
●
with regard to board activity: exercise good judgment and act with integrity, use abilities
and experience and influence constructively, be available as a resource to management
and the board, respect confidentiality, govern rather than manage, be aware of potential
conflict areas, evaluate the CEO and corporate performance and assist in maximizing
shareholder value;
●
with regard to preparation and attendance: read materials provided, maintain a good
attendance record and acquire adequate information for decision making;
●
with regard to communication: participate fully and frankly in meetings, encourage free
and open discussion and ask probing questions, where necessary;
●
with regard to independence: demonstrate interest in long term success of the corporation
and speak and act independently;
●
with regard to committee work: know the purpose and goals of the committee and
understand the process and the role of management and staff supporting the committee;
and
●
with regard to business, corporation and industry knowledge: require management, and
auditors and other outside advisors to provide all information the directors deem relevant
to understanding the issues before them and to reach sound business judgements, remain
knowledgeable of the corporation’s services, facilities and industry, understand the
corporation’s role in the community, understand the regulatory, legislative, business,
social and political environments of the corporation, become acquainted with corporate
officers and be an effective ambassador for the corporation.
The foregoing is a very brief summary of the duties of a corporate director. Further information
can be found in ‘‘Guidelines for Corporate Directors in Canada’’ published by the Institute of
Corporate Directors.
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3. CHAIR AND CEO RESPONSIBILITIES
The following is a general discussion of the typical roles and responsibilities of the Chair of the
Board and CEO:
(a) Chair of the Board Responsibilities
The Final Report of the Joint Committee on Corporate Governance1 provides a general
description of the role of the chair of the board as being responsible for managing the
processes of the board and for ensuring the board discharges its responsibilities. More
specifically, the following are the responsibilities of a Chair:
●
provide leadership to the board;
●
ensure the board can function independently of management;
●
establish procedures to govern the board’s work, working with the corporation’s
governance committee;
●
schedule meetings of the full board and work with committee chairpersons to coordinate
the schedule of meetings for committees;
●
ensure the appropriate agenda for regular or special board meetings based on input
from directors;
●
ensure proper flow of information to the board, review adequacy and timing of
documented material in support of management’s proposal;
●
ensure adequate lead time for effective study and discussion of business under
consideration;
●
oversee the preparation and distribution of proxy material to shareholders, customers,
employees and the community;
●
assist the board in fulfilling its goals by assigning specific tasks to members of the board
where necessary;
●
act as liaison between the board and management;
●
when requested by the board, represent the corporation to external groups as required;
●
ensure proper committee structure, and assign committee members and chairpersons
working with the corporation’s governance committee;
●
chair regular and special meetings of the board and shareholders; and
●
carry out other duties as required by the board as a whole, depending on needs and
circumstances.
1
Supra, 1
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(b) CEO Responsibilities
The CEO generally exercises control of and supervision over the corporation’s affairs. More
specifically, the following are the responsibilities of a CEO:
●
foster a corporate culture that promotes ethical practices, encourages individual integrity
and fulfills social responsibility;
●
maintain a positive and ethical work climate that is conducive to attracting, retaining and
motivating a diverse group of top-quality employees at all levels;
●
develop and recommend to the board a long term strategy and vision for the corporation
that leads to the creation of shareholder wealth;
●
develop and recommend to the board annual business plans and budgets that support the
corporation’s long term strategy;
●
determine the appropriate use of technology;
●
develop and recommend to the board the allocation of capital necessary to achieve the
corporation’s business plan;
●
ensure that the day-to-day business affairs of the corporation are appropriately managed
including evaluation of the corporation’s operating performance and initiating
appropriate action where required;
●
consistently strive to achieve the corporation’s financial and operating goals and
objectives;
●
ensure that the corporation builds and maintains a strong positive relationship with its
customers;
●
ensure continuous improvement in the quality and value of the products and services
provided by the corporation;
●
ensure that the corporation achieves and maintains a satisfactory competitive position
within the industry;
●
ensure that the corporation builds and maintains a strong positive relationship with its
employees;
●
ensure, in cooperation with the board, that there is an effective succession plan in place
for the CEO position;
●
formulate and oversee the implementation of major corporate policies;
●
serve as the chief spokesperson for the corporation;
●
build and maintain strong relationships with the corporate and public community; and
●
ensure management support for board committees.
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