The Governance and Nominating Committee of Quorum Health Corporation (“QHC,” the “Company” “we” or “our”) has developed, and our Board of Directors (the “Board”) has approved, the following guidelines. These guidelines are subject to modification from time to time by the Governance and Nominating Committee. The principles herein are guidelines within which the Board may conduct its business and are not intended to be legally binding obligations. The Board, in the exercise of its discretion, may deviate from these guidelines from time to time as it deems appropriate.
- Role of the Board of Directors and Management. Our officers and employees, under the direction of our chief executive officer (“CEO”) and the oversight of the Board, work to enhance the long-term value of the Company for our stockholders. In addition to its general oversight of management, the Board also performs a number of specific functions including: (1) selecting, evaluating and compensating the CEO and overseeing CEO succession planning, (2) providing counsel and oversight on the selection, evaluation, development and compensation of senior management, (3) reviewing, approving and monitoring fundamental financial and business strategies and major corporate actions, (4) as further described in Section 2 below, assessing major risks facing the Company and reviewing options for their mitigation and (5) ensuring processes are in place for maintaining the integrity of the Company.
- Risk Management. Risk management is primarily the responsibility of the Company’s management team, which shall be administered through a broad-based committee that includes executives from our operations, internal audit, compliance, quality, revenue management, accounting, risk management, finance, human resources, information technology and legal departments. The Board is responsible for the overall supervision of the Company’s risk management activities and shall annually perform a review of those activities along with a review of the Company’s enterprise risk assessment. The Board’s oversight of the material risks faced by the Company occurs at both the full Board level and at the Board committee level.The Audit and Compliance Committee has oversight responsibility for financial reporting with respect to the Company’s major financial exposures and the steps management has taken to monitor and control such exposures, as well as for the effectiveness of management’s enterprise risk management process that monitors key business risks facing the Company. The Audit and Compliance Committee also oversees the delegation of responsibility for the oversight of specific risk areas among the other Board committees, consistent with the committees’ charters and responsibilities.Management shall provide regular updates throughout the year to the respective committees regarding the management of the risks each committee oversees, and each of these committees discusses those risks with the full Board at either regular meetings of the Board or at committee meetings in which all Board members participate. At least annually, the Audit and Compliance Committee shall review the allocation of responsibility for the oversight of risk areas among the Board’s committees and implement any changes it deems appropriate.In addition to the reports from the committees, the Board shall receive presentations throughout the year from various department and business unit leaders that include discussions of risks as necessary. At each Board meeting, the CEO shall address, in a director-only session, matters of particular importance or concern, including any areas of risk that require attention from the Board. Additionally, through dedicated sessions focusing entirely on corporate strategy, the full Board reviews in detail the Company’s short- and long-term strategies, including consideration of risks facing the Company and their potential impact.
- Board Leadership. The Board elects from among its members a Chairman (the “Chairman”) who will organize Board activities to enable the Board to effectively provide guidance to and oversight of management. The Chairman, among other things: creates and maintains an effective working relationship with the members of management and the Board; provides management with ongoing direction as to Board needs, interests and opinions; and sees that the Board agenda is appropriately directed to the matters of greatest importance to the Company.When the position of Chairman is not held by an independent director, a Lead Independent Director will be designated by the Board. The Lead Independent Director will be selected from among the independent directors by a majority of the independent directors to serve a minimum of one year.In addition to any other responsibilities and duties set forth in these guidelines or the By-laws, the responsibilities and duties of the Chairman, if independent, or the Lead Independent Director will consist of the following:
Board Performance and Development
• Together with the CEO, ensuring the efficient and effective performance and functioning of the Board;
• Consulting with the Governance and Nominating Committee on the Board’s annual self assessment;
• Providing guidance to the CEO on the ongoing development of directors;
• With the Governance and Nominating Committee and the CEO, consulting in the identification and evaluation of director candidates’ qualifications (including candidates recommended by directors, management, third party search firms and stockholders) and consulting on committee membership and committee chairs;
• In the case of the Chairman, presiding at all meetings of the Board and, in the case of the Lead Independent Director, presiding at all meetings of the Board at which the Chairman is not present, including at executive sessions of the independent directors;
• Calling meetings of the independent directors, as appropriate;
• In the case of the Lead Independent Director, if the CEO is also Chairman, providing Board leadership if the CEO/Chairman’s role may be (or may be perceived to be) in conflict;
• Serving as a liaison between the CEO and the independent directors;
• Establishing a close relationship and trust with the CEO, providing support, advice and feedback from the Board while respecting executive responsibility;
• Acting as a “sounding board” and advisor to the CEO;
• In coordination with the CEO, planning, reviewing and approving meeting agendas for the Board;
• In coordination with the CEO, approving meeting schedules to assure that there is sufficient time for discussion of all agenda items;
• Advising the CEO of the information needs of the Board and approving information sent to the Board;
• Developing topics of discussion for executive sessions of the Board;
Stockholders and Other Stakeholders
• Being available for consultation and direct communication, to the extent requested by major stockholders.
- Meetings of Board; Presiding Director. The Board shall be responsible for determining the appropriate number of regular meetings to hold each year, but under no circumstances shall it have less than four meetings of the full Board in any year. At each regular meeting, the Board shall review and discuss reports by management on the performance of the Company, the Company’s plans and prospects, as well as immediate issues facing the Company. Directors are expected to attend scheduled Board and committee meetings.
In addition to meetings of the full Board, our independent directors meet in regularly scheduled executive sessions without management present. The chair of the appropriate Board committee acts as Presiding Director at executive sessions at which the principal item to be considered is within the scope of authority of his or her committee. If there is no single principal item to be considered, the Chairman, if independent, or the Lead Independent Director shall serve as Presiding Director at such executive session. The Chairman, if independent, or the Lead Independent Director has the authority to call meetings of the independent directors. In addition, the chair of any Board committee has the authority to call meetings of the independent directors at which the principal item to be considered is within the scope of authority of his or her committee. The Board believes, by providing opportunities for leadership to more than one independent director, it is more fully engaging the Board members.
- Size of the Board. The number of directors constituting the full Board shall be determined from time to time by the Board within the limits prescribed by the Company’s Certificate of Incorporation and By-laws. In determining the number of directors constituting the full Board, the Board should consider, among other things, the size and breadth of the Company’s business and the Company’s goals and needs.
- Newly-Created Directorships and Vacancies. Newly-created directorships resulting from any increase in the number of directors or any vacancies in the Board resulting from death, resignation, retirement, disqualification, removal from office or any other cause shall, unless otherwise provided by law or by resolution of the Board, be filled by a majority vote of the directors then in office. Any director appointed to the Board to fill a newly-created directorship or other vacancy shall be subject to election at our next Annual Meeting of Stockholders. The foregoing procedures are subject to the rights of the holders of any series of Preferred Stock then outstanding.
- Qualifications. The Governance and Nominating Committee shall establish selection criteria for directors. At a minimum each director must possess (1) a reputation for the highest ethical and moral standards, (2) good judgment, (3) a positive record of achievement, (4) if on other boards, an excellent reputation for preparation, attendance, participation, interest and initiative, (5) business knowledge and experience relevant to the Company and (6) a willingness to devote sufficient time to carrying out his or her duties and responsibilities effectively.The Governance and Nominating Committee shall consider a variety of factors in selecting and nominating individuals to serve on the Board, including, without limitation:
(a) The Board’s and the Company’s needs for input and oversight about the strategy, business, regulatory environment, and operations of the Company;
(b) The management directors’ views as to areas in which additional advice and counsel could be provided by the Board;
(c) The mix of perspectives, experience, and competencies currently represented on the Board (while this is primarily directed to the professional acumen of an individual, it may also include gender, ethnic, and cultural diversity);
(d) The results of the Board’s annual self-assessment process; and
(e) As to incumbent directors, meeting attendance, participation and contribution, and the director’s current independence status.
The Governance and Nominating Committee shall seek candidates with broad background and experience that will enable them to serve on and contribute to any of the Board’s three standing committees. Every director nominee should demonstrate a strong record of integrity and ethical conduct, an absence of conflicts that might interfere with the exercise of his or her independent judgment, and a willingness and ability to represent all stockholders of the Company.
Independence of Directors. A majority of the directors must be “independent” under the New York Stock Exchange (“NYSE”) Listed Company Corporate Governance Standards. The Board believes it is in the best interest of the Company and will endeavor to maintain a super-majority of “independent” directors. The Board believes, however, that directors who do not meet the NYSE independence standards also make valuable contributions to the Board and to the Company by reason of their experience and wisdom.
To be considered independent under the NYSE rules, the Board must determine that a director does not have any material relationship with the Company (either directly or as an officer, employee, shareholder or partner of an organization that has a relationship with the Company). The Board has established the following standards to assist it in determining director independence in accordance with that rule:
Independence Standards for Directors (Including Service on Governance and Nominating Committee)
Independent Directors shall:
(a) Not have been an employee of the Company, nor have an immediate family member who is or has been an executive officer, within the last three years. “Executive Officer” has the same meaning specified for the term “officer” in Rule 16a-1(f) under the Securities Exchange Act of 1934.
(b) Not have been the recipient of, or have an immediate family member who has been the recipient of, more than $120,000 in direct compensation from the Company, excluding director and committee fees and pension or other deferred compensation for prior services, during any twelve-month period within the last three years.
(c) Not have been the recipient of, or have an immediate family member who was the recipient of, more than $120,000 in direct or indirect compensation in any form from the Company, excluding director and committee fees, compensation paid to an Immediate Family Member who is a non-executive employee of the Company, benefits under a tax-qualified retirement plan and non-discretionary compensation, during any twelve-month period within the last three years.
(d) Not (i) be a partner of or have an immediate family member who is a current partner of a firm that is the Company’s current internal or external auditor; (ii) be an employee of a firm that is the Company’s current internal or external auditor; (iii) have an immediate family member who is a current employee of a firm that is the Company’s internal or external auditor and who personally works on the Company’s audit; or (iv) have been or have an immediate family member who was, within the last three years, a partner or employee of the firm that is the Company’s internal or external auditor and personally worked on the Company’s audit within that time.
(e) Not have been part of an interlocking directorate within the last three years; for the purpose of evaluating an interlocking directorate, the employment of the director’s immediate family members shall also be evaluated.
(f) Not be an employee, or have an immediate family member who is an executive officer, of another company that has made payments to, or received payments from, the Company for property or services in an amount which exceeds the greater of (i) $1 million or (ii) 2% of the other company’s consolidated gross revenues, in any of the last three fiscal years.
(g) Not be or have an immediate family member who is a partner (other than a limited partner), a controlling shareholder or an executive officer of any entity or organization (including law firms and charitable entities) that has made payments to, or received payments from, the Company for property or services (other than payments which arose solely from investments in the securities of the Company and payments under non-discretionary charitable contribution matching programs) in an amount which exceeds the greater of (i) $200,000 or (ii) 5% of the recipient’s consolidated gross revenues for that year, in the current year or any of the last three fiscal years.
The Board will also evaluate, on a case-by-case basis, any other relationship, direct or indirect, between a director and the Company and its officers, which might have the appearance of potentially impairing the director’s independence of judgment. Special attention will be paid to service on a non-profit or charitable Board by the director or a close personal relationship between the director and any executive officer.
Additional Standards for Independence for Audit and Compliance Committee Members
Audit and Compliance Committee members shall:
• Not receive any compensation from the Company other than fees for service as a director or committee member.
• Not have been involved in preparing the Company’s financial statements in the last three years.
• Not be an “affiliate” of the Company, as defined by SEC regulations, which include within the “affiliate” definition a 10% or greater shareholder.
Additional Standards for Independence for Compensation Committee Members (to allow the committee to approve Section 16(b) transactions for securities law purposes and approve “performance goals” for purposes of 162(m) of the Internal Revenue Code)
Compensation Committee members shall:
• Never have been an officer of the Company.
• Not receive any compensation from the Company other than fees for service as a director or committee member.
• Not be engaged in any business relationship or have an interest in any transaction that is required to be disclosed under Item 404(a) or (b) of Regulation S-K.
• Not have any relationship with the Company that is material to his or her ability to be independent from the Company’s management in connection with his or her duties as a member of the Compensation Committee.
- Selection Process. Our stockholders elect our entire Board each year at the Annual Meeting of Stockholders. All director nominees are nominated for election to one-year terms. All candidates for director are evaluated and recommended for nomination by the Governance and Nominating Committee, unless nominated by a stockholder in accordance with the procedures set forth in our By-laws, or as set forth in a written contract between the Company and a third party. The Governance and Nominating Committee will conduct the same analysis of any director nominations properly submitted by a stockholder that it conducts with respect to its director nominees and, as a result of that process, will formulate its recommendation to support or oppose that person’s election as a member of the Board.Stockholders may propose candidates for the Board by submitting the names and supporting information to: Secretary, Quorum Health Corporation, 1573 Mallory Lane, Suite 100, Brentwood, TN 37027. Requirements concerning the form and timing of such proposals are set forth in our By-laws.
- Limitation Regarding Service on Other Boards. No non-management director may serve on more than four (4) public companies’ boards of directors, in addition to the Company’s. No member of the Audit and Compliance Committee may serve on more than two other companies’ audit committees. A director should notify the chair of the Governance and Nominating Committee and the secretary of the Company in a timely fashion of his or her appointment to or resignation from the board of directors of another public company. Likewise, a member of the Audit and Compliance Committee should notify the chair of the Governance and Nominating Committee and the secretary of the Company of his or her appointment to or resignation from another company’s audit committee. The Company’s CEO shall serve on no more than two (2) other public companies’ boards of directors and shall obtain the approval of the Governance and Nominating Committee prior to accepting such nomination or appointment. No other executive officer of the Company shall accept nomination or appointment to any public company board of directors without prior approval of the CEO and advice of counsel, and the Governance and Nominating Committee shall be advised of all such appointments.
- No Term Limits. The Board does not believe that arbitrary term limits on directors’ service are appropriate, nor does it believe in a mandatory retirement age. The advantage of potentially providing new ideas and viewpoints of new directors is offset by the significant disadvantage of losing the experience and insight into the Company and its operations gained over time. The Board self-evaluation process described below will be an important determinant for Board tenure.
- Submission of Resignation From Board Upon Change of Circumstance, Including Failure to Receive a Majority of Votes Cast in an Uncontested Director Election. Company officers who also serve as directors must tender their resignations from the Board at the same time they resign or retire from the Company. Any other director who has a significant change in circumstances, such as a change in his or her primary occupation, should also give notice and tender his or her resignation from the Board in conjunction with such change in circumstances. The Governance and Nominating Committee, in its discretion, will determine whether to accept such resignation after considering the appropriateness of continued service on the Board.
Any nominee for election to the Board who is then serving as a director and, in an election at which the standard for election of directors is a majority vote in accordance with the Corporation’s By-laws, receives a greater number of “against” votes than “for” votes shall promptly tender his or her resignation following certification of the vote. A form of such resignation may be obtained from the secretary of the Company. The Governance and Nominating Committee of the Board shall then consider the resignation offer and recommend to the Board whether to accept or reject the resignation, or whether other action should be taken; provided that any director whose resignation is under consideration shall not participate in the committee’s recommendation regarding whether to accept the resignation. The Board shall take action on the committee’s recommendation within 90 days following certification of the vote, and promptly thereafter publicly disclose its decision and the reasons therefor.
- Board Committees. The Board has established the following committees to assist it in discharging its responsibilities: (1) Audit and Compliance Committee; (2) Compensation Committee; and (3) Governance and Nominating Committee. Current charters of these committees shall be published on the QHC website, and will be mailed to stockholders on written request. The committee chairs shall be responsible for apprising the full Board on a regular basis of all committee proceedings, determinations and recommendations.
14. Independence of Committee Members. In addition to the requirement that a majority of the Board satisfy the independence standards discussed in paragraph 8 above, all members of the Audit and Compliance, Governance and Nominating and Compensation Committees must be independent. Members of the Audit and Compliance Committee and the Compensation Committee must also satisfy additional independence requirements as set forth above.
- Director Orientation. The general counsel and the chief financial officer shall be responsible for providing an orientation for new directors, and for periodically providing materials or briefing sessions for all directors on subjects that would assist them in discharging their duties. Each new director shall, within six months of election to the Board, spend a day at corporate headquarters for personal briefing by senior management on the company’s strategic plans, its financial statements, and its key policies and practices.
- Self-Evaluation and Director Education. The Board and each of the committees will perform an annual self-evaluation. In the fourth quarter of each year, the directors will be requested to provide their assessments of the effectiveness of the Board and the committees on which they serve. The individual assessments will be organized and summarized by the general counsel for discussion with the Board and the committees. The full Board’s self-assessment of its effectiveness shall include questions regarding the preparedness and contributions of directors. The Governance and Nominating Committee shall consider the input received in this self-assessment and take appropriate action including, for example, offering feedback to a particular director or suggesting or arranging for additional training. Directors are offered the opportunity to complete self-assessments as a way to communicate expectations and the factors by which effective directorship can be measured. In conjunction with this director self-assessment, each director is able to self-identify his or her individual needs or desires for additional training or orientation related to discharging his or her duties as a director. Directors are encouraged to attend, at the Company’s expense, third-party director education conferences.
- Ethics and Conflicts of Interest. The Board expects its directors, as well as officers and employees, to act ethically at all times and to acknowledge their adherence to the policies comprising QHC’s Code of Conduct. The Board will not permit any waiver of any ethics policy for any director or executive officer. If an actual or potential conflict of interest arises for a director, the director shall promptly inform the Chairman, if independent, or the Lead Independent Director. If a significant conflict exists and cannot be resolved, the director should resign. All directors must recuse themselves from any discussion or decision affecting their personal, business or professional interests. The Audit and Compliance Committee shall resolve any conflict of interest question involving the CEO, and the CEO shall resolve any conflict of interest issue involving any other officer of the Company.
- Reporting of Concerns to Non-Employee Directors or the Audit and Compliance Committee. Anyone who has a concern about the Company’s conduct, or about the Company’s accounting, internal accounting controls or auditing matters, may communicate that concern directly to any non-employee directors, or to the Audit and Compliance Committee. Such communications may be confidential or anonymous, and may be e-mailed, submitted in writing, or reported by phone. The Company will adopt appropriate procedures to ensure that any contact received at the Company will be forwarded to the director(s) without delay or censor. Concerns may also be directed through the Company’s confidential disclosure program by using special addresses and a toll-free phone number that are published on the Company’s website. All such concerns will be reviewed and addressed by the Company’s Corporate Compliance Officer in the same way that other concerns are addressed by the Company and may be forwarded directly to the non-employee directors or the Audit and Compliance Committee, if so directed in the correspondence or other contact. The status of all outstanding concerns addressed to the non-employee directors or the Audit and Compliance Committee will be reported to the directors on a quarterly basis. The non-employee directors or the Audit and Compliance Committee may direct special treatment, including the retention of outside advisors or counsel, for any concern addressed to them. The Company’s Code of Conduct prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve an integrity concern.
- Access to Senior Management. Non-employee directors are encouraged to contact senior managers of the Company without senior corporate management present.
- Access to Independent Advisors. The Board and its committees shall have the right at any time to retain independent outside financial, legal or other advisors.
- Compensation of Board. The Governance and Nominating Committee is responsible for recommending to the Board compensation and benefits for non-employee directors. In discharging this duty, the Governance and Nominating Committee shall be guided by three goals: compensation should fairly pay directors for work required in a company of the Company’s size and scope; compensation should align directors’ interests with the long-term interests of stockholders; and the structure of the compensation should be simple, transparent and straightforward for stockholders to understand.
- Succession Plan. The Board shall be responsible for establishing a succession plan for the CEO and senior executives.
- Annual Compensation Review of Senior Management. The Compensation Committee shall annually approve the goals and objectives for compensating the CEO. That committee shall evaluate the CEO’s performance in light of these goals before setting the CEO’s salary, bonus and other incentive and equity compensation. The Compensation Committee shall also annually approve the compensation structure for the Company’s officers, and shall evaluate the performance of the Company’s senior executive officers before approving their salary, bonus and other incentive and equity compensation.
- Stock Ownership Guidelines and Holding Periods (Directors and Executive Officers). The Quorum Health Corporation Stock Ownership Guidelines align the interests of its directors and executive officers with the interests of stockholders and promote the Company’s commitment to sound corporate governance. The guidelines apply to the following Company leaders, in the indicated multiples of either an executive officer’s base salary or a non-executive director’s retainer fee at the time the participant becomes subject to the guideline:
Position with the Company
|Value of Shares Owned|
|President/Chief Executive Officer||5.0x|
|Non-Executive Members of the Board||5.0x|
|Executive Vice Presidents||3.0x|
|Division Presidents and Other Officers named in the Proxy||3.0x|
|Other Officers above Vice President||1.5x|
Company leaders subject to these guidelines are expected to achieve their respective guideline within five (5) years of becoming subject to the guideline (and an additional five (5) years in the event of a promotion to a higher guideline). Once achieved, ownership of the guideline amount must be maintained for as long as the individual is subject to these Stock Ownership Guidelines.
Until such time as a Company leader satisfies the ownership guidelines set forth above, that individual will also be required to hold, for at least one year, 100% of the shares received upon the exercise of stock options and upon the vesting of full value stock awards, including but not limited to restricted stock and restricted stock units, in each case net of those shares required to pay the exercise price and any taxes due upon exercise or vesting.
Stock that counts towards satisfaction of the Company’s Stock Ownership Guidelines includes: (i) shares held outright by the participant or his or her immediate family members living in the same household; (ii) restricted stock issued and held as part of an executive’s or director’s long term compensation, whether or not vested; (iii) shares underlying vested Quorum Health Corporation stock options; and (iv) shares acquired on stock option exercises that the participant continues to hold. The Governance and Nominating Committee of the Board shall have the authority to review a participant’s progress and compliance with the applicable guideline and grant any hardship waivers or exceptions (i.e., in the event of a divorce) as such committee deems necessary and appropriate.
The Governance and Nominating Committee of the Board shall periodically review the participants’ base salaries and the relative value of their stock ownership pursuant to the guidelines to evaluate whether the intent of the guidelines is being achieved and may revise them from time to time.
- No Personal Loans to Directors or Executive Officers. The Company will not make any personal loans or extensions of credit to directors or executive officers.
APPROVAL AND ADOPTION
Reviewed and adopted by the Board of Directors on April 1, 2016 and effective as of April 29, 2016.