Corporate Governance Guidelines
CORPORATE GOVERNANCE GUIDELINES and POLICIES
(as Modified by the Board of Directors on March 8, 2017)
These Corporate Governance Guidelines have been adopted by the Board of Directors (the “Board”) of ePlus inc. These guidelines, in conjunction with the Certificate of Incorporation, bylaws and the charters of the committees of the Board, form the framework for the governance of ePlus. The Nominating and Corporate Governance Committee of the Board (the “N&CG Committee”) reviews these guidelines annually and recommends changes to the Board as appropriate.
Guideline No. 1
Selection of Chairman and CEO
The Board will determine whether the offices of Chief Executive Officer (“CEO”) and Chairman of the Board should be combined or separate, based on an analysis of then-existing facts and what is in the best interests of the Company at any particular time. Therefore, the Board does not have a predetermined policy as to whether or not the roles of the Chief Executive Officer and the Chairman should be separate and, if the roles are to be separate, whether the Chairman should be a Non-Management Director or a Management Director. The Nominating and Corporate Governance Committee shall make recommendations to the Board on these issues from time to time.
Guideline No. 2
The size of the Board is relatively small. The Board periodically considers the number of members appropriate for effective operation. The independent Directors are expected to play a very active role in Board matters. The independent Directors will annually designate a Director to serve as Lead Director who will perform the functions set forth in these Guidelines and such other functions as the Board may direct, including (a) presiding at all meetings of the Board at which the Chairman is not present (b) serving as liaison between the CEO and independent Directors, (c) having final approval of meeting agendas for the board and types of information sent to the board and (d) together with at least one other Independent Director, communicate to the Executive Chairman his evaluation. The Nominating and Corporate Governance Committee will reassess on an annual basis the continuing effectiveness of the role of Lead Director.
Guideline No. 3
Number, Structure and Independence of Committees
Currently, there are three standing Board committees: Audit; Nominating and Corporate Governance; and Compensation. The Board may, from time to time, form a new committee or disband a current committee depending on the circumstances. The current charters and key practices of the Nominating and Corporate Governance Committee, the Compensation Committee and the Audit Committee are published on the Company’s website, and will be mailed to shareholders on written request. Each committee has a designated committee chair. The committee chairs provide a report on their meetings to the Board following each meeting of the respective committees. The Nominating and Corporate Governance Committee has the responsibility of annually reviewing the committee structure, charters and membership, and recommending changes to the Board, if any.
Each of the Audit Committee, Nominating and Corporate Governance Committee and Compensation Committee shall be comprised solely of Independent Directors.
Guideline No. 4
The committee chairs, in consultation with committee members, and the assistance of management, will determine the frequency and length of the meetings of their respective committees.
Guideline No. 5
The committee chairs, in consultation with committee members and with the assistance of management, will develop their respective committee's agenda. Additional agenda items may be recommended by other committees or Board members.
Guideline No. 6
Selection of Agenda Items for Board Meetings
The Board shall be responsible for its agenda. An annual Board Core Agenda shall be determined by the Board based upon key strategic direction and operational challenges identified by the CEO and the Lead Director together with standard items scheduled throughout the year and presentations according to approval level requirements or other business purposes. Directors are also encouraged to suggest items to be included on the Core Agenda. Directors may make suggestions for additional agenda items to the Chairman, the Lead Director, or appropriate committee chair at any time. Prior to each Board meeting, the CEO will communicate a proposed agenda for the meeting and the amount of time allocated for agenda items to the Lead Director, who shall have the authority to make changes or approve the agenda for the meeting, and to call meetings of the independent directors.
Guideline No. 7
The CEO and the Lead Director, or committee chair as appropriate, shall determine the type of information that shall be provided to the Directors for each scheduled Board or committee meeting. Directors are also encouraged to suggest additional materials. Directors may make suggestions for additional materials to the Chairman, the Lead Director, or appropriate committee chair at any time. Generally, printed and/or electronic materials are made available approximately one week in advance of the Board or committee meeting. However, there may be limited circumstances where such materials may be unavailable to directors in advance of the meeting.
Guideline No. 8
Regular Attendance of Non-Directors at Board Meetings
The Board believes the attendance of key executive officers, from time to time, will augment the meeting process and provide relevant expertise and/or insight. Attendance at the Board meetings by the management is a routine practice while other company personnel (including business division leaders) are invited to attend Board meetings depending on the agenda.
Guideline No. 9
Executive Sessions of Independent Directors
The Independent Directors will meet in executive sessions without management present at regularly scheduled Board meetings, which will be presided over by the Lead Director. Additional sessions may convene at any time by the Lead Director, either on his or her own initiative or at the request of any other Director. The Lead Director shall discuss the conclusions of the executive session with the CEO promptly after such session and report to the Board on the discussions with the CEO at the next executive session (or sooner if warranted by the nature of the matter discussed). In the event that the subject of discussion at any meeting of a committee pertains to a person in attendance, such committee will conduct such discussion in executive session as it deems appropriate.
Guideline No. 10
Board Access to Senior Management
Directors have open access to management, and as stated earlier, the members of management attend Board meetings. Directors may communicate with such persons directly or may request the Lead Director to serve as a liaison in such communications. As a general rule, Directors will inform the CEO and coordinate with the Corporate Secretary when scheduling visits with management.
Duties and Independence
Guideline No. 11
Ethics and Conflicts of Interest
The Board expects its Directors, officers and other employees to act ethically at all times and to acknowledge adherence to ePlus’ Code of Conduct. Directors are expected to avoid any action, position or interest that conflicts with an interest of ePlus or that gives the appearance of a conflict. If any actual or potential conflict of interest arises for a Director, the Director shall promptly inform the Chairman, Chief Executive Officer and the Chair of the Nominating and Corporate Governance Committee. If a significant conflict exists and cannot be resolved, the Director should resign. All Directors will recuse themselves from any discussion or decision affecting their personal, business or professional interests.
Guideline No. 12
Duties of Directors
The basic responsibility of the Directors is to exercise their business judgment to act in the best interests of ePlus and its shareholders. In carrying out this responsibility, the Board also considers the concerns of the Company’s other stakeholders and interested parties, including its employees, customers, suppliers, partners, local communities, and the public at large. The Directors rely on the honesty and integrity of ePlus’ officers, employees, and outside advisors in making Board decisions.
Guideline No. 13
Independence of Directors
At least a majority of the directors must be independent, and no more than three of the directors may be not independent under ePlus’ independence standards set forth in Exhibit A, which are consistent with NASDAQ’s director independence standards.
Guideline No. 14
The Board believes that the Company should not enter into paid consulting arrangements with independent Directors, excluding service by an independent Director on any regularly constituted advisory board of the Company for which such Director receives standard fees of less than $50,000 per annum.
Guideline No. 15
Non-management directors may serve on no more than five for-profit boards (including the Company’s Board). The Chief Executive Officer and other Executive Officers may serve on no more than three for-profit boards (including the Company’s Board). In addition, prior to accepting an invitation to serve on another for-profit board, directors and executive officers shall advise the Corporate Secretary, who will then advise the Chairman of the Board, the Lead Independent Director and the Chair of the Nominating and Corporate Governance Committee. Additionally, the Nominating and Corporate Governance Committee and the Board will take into account the nature of and the time involved in a Director's service on other boards in evaluating the suitability of new Directors and incumbent Directors for election (or re-election) to the Board and making its recommendations to shareholders.
Membership and Candidate Selection
Guideline No. 16
Former CEO's Board Membership
The Board believes that it is appropriate for the CEO to offer his/her resignation from the Board at the same time he/she resigns or retires from the CEO position. Whether the individual continues to serve on the Board is a matter for discussion with the new CEO and the Board. It is also recommended that should the Board decide that the former CEO should continue on the Board, the period of service should be reviewed periodically.
Guideline No. 17
Board Membership Criteria
The Nominating and Corporate Governance Committee is responsible for reviewing annually the Board’s future requirements for Board members and the appropriate criteria for membership to the Board. Generally, non-employee Directors shall have unquestioned personal ethics and integrity; shall possess specific skills and experience aligned with ePlus’ strategic direction and operating challenges and that complement the overall composition of the Board, as well as diversity in skills and experience; core business competencies of high achievement and a record of success, financial literacy and history of making good business decisions and exposure to best practices; interpersonal skills that maximize group dynamics; should be enthusiastic about ePlus and have sufficient time to become fully engaged.
Guideline No. 18
Selection of Director Candidates
The Nominating and Corporate Governance Committee has, as one of its responsibilities, the recommendation of Director candidates to the Board. In making such recommendation, the Nominating and Corporate Governance Committee shall, in respect of new candidates, seek input from sources the Committee deems helpful and, in respect of incumbent Directors standing for reelection, conduct an evaluation of such Directors in accordance with the Committee’s Charter. Nominees suggested by shareholders shall be communicated to the Nominating and Corporate Governance Committee and shall be considered in the selection process for nominees to be included among the Director candidates to be recommended to the Board.
Guideline No. 19
Directors Who Change Their Present Job Responsibility
A Director shall submit his/her resignation to the Board when a change in the Director's principal occupation or job responsibility occurs. The Board does not believe that a director in this circumstance necessarily should be required to leave the Board. The Nominating and Corporate Governance Committee is responsible for recommending to the Board whether such resignations should be accepted. Non-employee Directors are also required to advise the Corporate Secretary, who will then advise the Chairman of the Board and the Chair of the Nominating and Corporate Governance Committee, of any significant change in their employment or other personal circumstances, which might affect their service on the Board.
Guideline No. 20
Term Limits and Retirement Policy
With the evaluation of incumbent Directors standing for reelection (Guideline No. 18), the annual assessment of Board performance (Guideline No. 23), and the resignation requirement upon a change in job responsibility (Guideline No. 19), the Board does not believe that an artificial term limit should be established. The Board has adopted the following mandatory retirement policy: No person will be elected a Director who has reached his or her 75th birthday (for individuals who were Board members on March 31, 2010) or his or her 72nd birthday (for individuals who become Board members on or after April 1, 2010). The Board, upon the recommendation of the Nominating and Corporate Governance Committee, may expressly waive the application of the mandatory retirement age for individual directors. The waiver shall be effective for one year, however, a director may receive subsequent waivers.
Guideline No. 21
Director Resignation (Majority Voting)
ePlus’ bylaws provide that at each election of directors, the persons receiving the greater number of votes, up to the number directors then to be elected, shall be the persons then elected. In an uncontested election (where the number of persons being elected is the same or smaller than the number of board positions available), if any nominee for director does not receive a majority of the votes cast, he is expected to tender his resignation in writing to the Chairman of the Nominating and Corporate Governance Committee promptly following the certification of the election results, which resignation will be conditioned upon acceptance by the Board. The Nominating and Corporate Governance Committee shall evaluate each resignation tendered and shall make a recommendation to the Board whether to accept or reject the resignation, or whether other actions should be taken. The Nominating and Corporate Governance Committee, in making its recommendation, and the Board, in making its decision, may consider any factors or other information that it considers appropriate and relevant. The Board shall act on each such resignation, taking into account the recommendation of the Nominating and Corporate Governance Committee, within 90 days following the certification of the election results. Upon making its determination, the Board will promptly disclose (i) its decision whether to accept or reject the director’s tendered resignation and (ii) if rejected, the reasons for rejecting the tendered resignation. If a director’s resignation is not accepted by the Board, then such director shall continue to serve until the next Annual Meeting and until such director’s successor is elected and qualified, except as required by law.
A director who tenders a resignation pursuant to the foregoing shall not vote with respect to the recommendation of the Nominating and Corporate Governance Committee or the decision of the Board as to whether to accept his resignation. If, however, each member of the Nominating and Corporate Governance Committee failed to receive a majority of the votes cast in the same uncontested election, then the Board will appoint a committee comprised solely of independent directors who received a majority of the votes cast in that election to consider each tendered resignation and make a recommendation to the Board with respect thereto.
For purposes of this guideline, a majority of the votes cast means that the number of shares voted “for” a director must exceed the number of shares voted “against” or “withheld” for that director.
Development and Succession Planning
Guideline No. 22
Formal Evaluation of the CEO
The Board shall conduct an annual performance evaluation of the CEO against predetermined objectives. The CEO shall not be present during the performance evaluation. In addition, the CEO also shall annually prepare a self-evaluation prior to such annual performance evaluation by the Board.
Guideline No. 23
Assessing the Board's Performance
In accordance with the charter of the Nominating and Corporate Governance Committee, the Board and each of the committees will perform an annual self-evaluation of its overall performance. The Nominating and Corporate Governance Committee is responsible for developing and conducting or coordinating such self-evaluations and reviewing the results with the Board and each committee.
Guideline No. 24
The Nominating and Corporate Governance Committee shall review with the Company’s management the succession plans for executive officers and senior operations executives. Succession planning is also annually reviewed with the Board. The current CEO's recommendation for his or her successor (as the result of an unexpected event) will be communicated to the Chair of the Nominating and Corporate Governance Committee in a letter to be opened only in case of such an event. The CEO will update the recommendation periodically.
Guideline No. 25
The Nominating and Corporate Governance Committee is responsible for reviewing with appropriate representatives of management, ePlus’ organization structure and, in particular, the responsibilities and performance of executive officers, and from time to time, senior operations executives and the plans for their succession and to report at least annually to the Board on this subject.
Guideline No. 26
Board Interaction with Institutional Investors, the Press, Customers, etc.
The Board believes that management speaks for the Company. In limited circumstances, board members may communicate with the outside constituents at the request of management. However, the Lead Director may determine to meet with ePlus shareholders, as appropriate, and, if requested by major shareholders, will ensure he is available for consultation and direct communication. Such sessions are not intended to serve as a forum for the communication of material non-public information that is subject to SEC Regulation FD.
In addition, only the Executive Chairman, Chief Executive Officer and the Chief Financial Officer (and others specifically authorized by the above) are authorized to disclose information about ePlus to the investment community.
Guideline No. 27
Director Orientation and Continuing Education
The CEO, together with the other members of management, shall be responsible for providing an orientation for new Directors. Each new Director shall, as soon as practicable, spend a day at the Company's offices for personal briefing by senior management on the Company's strategic plans, its financial statements, and its key policies and practices. All Directors are encouraged to attend, from time to time, continuing education programs for Directors at the Company’s expense.
Guideline No. 28
Board Compensation Review
The Nominating and Corporate Governance Committee is responsible for reviewing and making recommendations to the Board with respect to non-employee Director compensation and benefits. Board compensation recommendations are presented to the Board for action. The Board believes that compensation and benefits for non-employee Directors should fairly pay Directors for work required in a company of the Company’s size and scope and should align Directors’ interests with the long-term interests of shareholders.
Stock Ownership Guidelines
Guideline No. 29
Non-Employee Director Stock Ownership Guidelines
The Board believes that each member of the Board should be a long-term shareholder of the Company. Accordingly, a significant amount of each non-employee Director’s annual retainer is paid in restricted stock issued by the Company. The Board has adopted the below Stock Ownership Guidelines to align the interests of its non-employee directors with the interests of shareholders and further promote the Company’s commitment to sound corporate governance: (1) The guidelines may be waived, at the discretion of the Company’s Nominating and Corporate Governance Committee, if compliance would create severe hardship or prevent a Director from complying with a court order, as in the case of a divorce or other property settlement. It is expected that these instances will be rare. (2) All non-employee Directors are expected to reach a multiple of three times their annual cash Board retainer fee within four years of joining the Board of Directors (or by December 31, 2016 for individuals who were Board members as of January 1, 2012). (3) Compliance with these ownership guidelines will be measured on the first trading day of each calendar year, using the average closing common stock price for the 60 trading days prior to such date. If, due to a decrease in stock price, a Board member’s shareholdings fall below these guidelines, there is no expectation that the Director would be required to promptly purchase shares in the open market. (4) All shares beneficially owned directly or indirectly (e.g., joint accounts, family trusts, unvested restricted shares) will be considered in determining compliance with these guidelines.
Guideline No. 30
Executive Stock Ownership Guidelines
The Board believes that each Executive should be a long-term shareholder of the Company. The Board has adopted the below Executive Stock Ownership Guidelines to align the interests of its Executive Officers with the interests of shareholders and further promote ePlus’ commitment to sound corporate governance: (1) These Executive Stock Ownership Guidelines apply to Executives who have been identified by the Board as Executive Officers, as defined in Rule 3b-7 under the Exchange Act; (2) The guidelines may be waived, at the discretion of the Company’s Compensation Committee, in the event of an extraordinary expense (such as, for example, housing or higher education needs), or if compliance would create severe hardship or prevent an Executive from complying with a court order, as in the case of a divorce or other property settlement. It is expected that these instances will be rare; (3) The Chief Executive Officer is expected to reach a multiple of five times his annual base salary within five years of being named as Chief Executive Officer. Other executive officers are expected to reach a multiple of two times their annual base salary within five years of being named as an executive officer. (4) The calculation of annual base salary for this policy is (a) April 1st of each year for current Executive Officers, and (b) for new Executive Officers, when the employee is first identified as Executive Officer. For purposes of stock ownership valuation, compliance with these ownership guidelines will be measured on the first trading day of each calendar year, using the average closing common stock price for the 60 trading days prior to such date. If, due to a decrease in stock price, an Executive’s share holdings fall below these guidelines, there is no expectation that the Executive would be required to promptly purchase shares in the open market; (5) Executive Officers are expected to retain one-half of all equity grants until such time as the target stock ownership is reached; and (6) All shares beneficially owned directly or indirectly (e.g., joint accounts, family trusts, unvested restricted shares) will be considered in determining compliance with these guidelines.
Reporting Concerns; Access to Independent Advisors
Guideline No. 31
Reporting of Concerns to Non-Employee Directors or the Audit Committee
Anyone who has a concern about the Company's conduct, or a complaint regarding the Company's accounting, internal accounting controls or auditing matters, may communicate that concern directly to the outside Directors or to the Audit Committee. Such communications may be confidential or anonymous, and may be emailed, or reported by phone to the Company’s Chief Financial Officer or General Counsel at a toll-free number that is published on the Company's website. All communications to the outside Director(s) or the Audit Committee (other than unsolicited commercial communications ) will be forwarded to the appropriate outside Director(s) or the Audit Committee for their review and will be simultaneously reviewed and addressed by the Company's compliance, internal audit or legal staffs in the same way that other concerns are addressed by the Company. The status of all outstanding concerns addressed to the outside Directors or the Audit Committee will be reported to the Directors on a quarterly basis. The outside Directors or the Audit Committee may direct special treatment, including the retention of outside advisors or counsel, for any concern addressed to them. The ePlus Code of Conduct prohibits any employee from retaliating or taking any adverse action against anyone for raising or helping to resolve an integrity concern.
Guideline No. 32
Access to Independent Advisors
The Board and its committees shall have the right at any time to retain and authorize the compensation of independent outside financial, legal or other advisors.
Review of Guidelines
Guideline No. 33
The Nominating and Corporate Governance Committee is responsible for annually reviewing these guidelines, as well as considering other corporate governance principles that may, from time to time, merit consideration by the Board.
Definition of Independent. "Independent Director" means a person other than an Executive Officer or employee of the Company 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. For purposes of this rule, "Family Member" means a person's spouse, parents, children and siblings, whether by blood, marriage or adoption, or anyone residing in such person's home. The following persons shall not be considered independent:
(A) a director who is, or at any time during the past three years was, employed by the Company;
(B) a director who accepted or who has a Family Member who accepted any compensation from the Company in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence, other than the following:
(i) compensation for board or board committee service;
(ii) compensation paid to a Family Member who is an employee (other than an Executive Officer) of the Company; or
(iii) benefits under a tax-qualified retirement plan, or non-discretionary compensation.
Provided, however, that in addition to the requirements contained in this paragraph (B), audit committee and compensation committee members are also subject to additional, more stringent requirements under NASDAQ rules.
(C) a 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 as an Executive Officer;
(D) 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:
(i) payments arising solely from investments in the Company's securities; or
(ii) payments under non-discretionary charitable contribution matching programs.
(E) a director of the 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 Company serve on the compensation committee of such other entity; or
(F) 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.
Categorical Standards of Independence. The Board of Directors has determined that the following relationships will not be considered material relationships that would impair a Director's independence:
I. Business Relationships.
(a) The Company does business with a Director’s business affiliate or the business affiliate of an immediate family member of a Director for goods or services, or other contractual arrangements, in the ordinary course of business and on substantially the same terms as those prevailing at the time for comparable transactions with non-affiliated persons and the annual revenues or purchases from such business affiliate are less than the greater of $200,000 and 1% of such business affiliates consolidated gross annual revenues;
(b) A company (of which a Director or an immediate family member is an officer) does business with the Company and the annual sales to, or purchases from, the Company during such other company’s preceding fiscal year are less than the greater of $200,000 and 1% of the consolidated gross annual revenues of such other company;
(c) A law firm of which a Director or an immediate family member is a partner or of counsel performs legal services for the Company, the Director or the immediate family member does not personally perform any legal services for the Company, and the annual payments to such law firm are less than the greater of $200,000 and 1% of such law firm’s consolidated gross annual revenues;
(d) An investment bank or consulting firm of which a Director or an immediate family member is a partner or of counsel performs investment banking or consulting services for the Company, the Director or the immediate family member does not personally perform any investment banking or consulting services for the Company and the annual payments to such investment bank or consulting firm are less than the greater of $200,000 and 1% of such investment bank’s or consulting firm’s consolidated gross annual revenues; and
(e) The Director serves on a regularly constituted advisory board of the Company, for which such Director receives standard fees of no more than $50,000 per annum.
II. Relationships with Not-for-Profit Entities.
(a) A foundation, university or other not-for-profit organization of which a Director or immediate family member is an officer, director or trustee receives from the Company contributions in an amount which does not exceed the greater of $100,000 and 1% of the not-for-profit organization’s aggregate consolidated gross annual revenues during the entity’s preceding fiscal year. (The Company’s automatic matching of employee charitable contributions are not included in the Company’s contributions for this purpose.)
Definition of “Immediate Family Member.” For purposes of the independence standards described above, an “immediate family member” includes a person’s spouse, parents, children, siblings, mothers- and fathers-in-law, sons and daughters-in-law, brothers- and sisters-in-law, and anyone (other than domestic employees) who shares such person’s home. When applying the “look-back” provisions above, the Company need not consider individuals who are no longer immediate family members as a result of legal separation or divorce, or those who have died or become incapacitated.
Standard of Independence for Audit Committee Membership. Also, NASDAQ and the Securities and Exchange Commission have additional requirements, to be considered independent for purposes of serving on the Audit Committee, and the Company shall conform to those requirements.
Standard of Independence for Compensation Committee Membership. NASDAQ has additional requirements to be considered independent for purposes of serving on the Compensation Committee and the Company shall conform to those requirements.
Director Disclosure and Board Determination. Each Director is required to disclose to the Company certain relationships between and among that Director, the Company, and senior management of the Company in order to allow for an appropriate determination of that Director’s independence. Each Director shall promptly disclose to the Corporate Secretary, who will then notify the Chairman, the Lead Director and the Chair of the Nominating and Corporate Governance Committee with respect to, any change in circumstances that may affect his or her independence.
The determination that a Director is independent or eligible to serve on the Audit Committee or the Compensation Committee shall be made by the Board following a review of all relevant information and a recommendation by the Nominating and Corporate Governance Committee; such determination shall be made by the Board at least annually and at the next Board meeting after the Board receives information from or in connection with a Director indicating a significant change in information previously received.
Related Party Transactions. It is the policy of the Board that all interested transactions with Related Parties shall be subject to approval or ratification in accordance with the procedures set forth in its Related Party Transactions Policy.