The Board of Directors of NACCO Industries, Inc. (the “Company”) has adopted these Corporate
Governance Guidelines to assist the Board in the exercise of its duties and responsibilities and to serve the
best interests of the Company and its stockholders. The Guidelines should be applied in a manner
consistent with all applicable laws, regulations and listing requirements, as well as the Company’s
Certificate of Incorporation and By-Laws. The Guidelines provide a framework for the conduct of the
Board’s business.
Responsibilities of the Board of Directors
The Board of Directors, acting directly or through duly constituted committees, shall have the
following responsibilities:
- Oversee the conduct of the Company’s business and evaluate whether the business is
being properly managed;
- Review, approve and monitor fundamental business and financial strategies and
major corporate actions;
- Oversee processes designed to ensure the accuracy and completeness of the
Company’s financial statements;
- Monitor the effectiveness of the Company’s internal controls;
- Assess major risks facing the Company and review options for addressing such risks;
- Ensure processes are in place for maintaining the integrity of the Company, including
the integrity of its financial statements, the integrity of the Company’s compliance
with law and ethics, and the integrity of its relationships with its stakeholders;
- Evaluate and authorize compensation of the Company’s Chief Executive Officer and
oversee Chief Executive Officer succession planning; and
- Oversee the selection, evaluation, development, compensation and succession
planning of other senior managers.
Director Qualifications
Independence. The Board of Directors will be comprised of at least a majority of independent
directors. For purposes of these Guidelines, the term “independent” shall be interpreted by the Board to
meet or exceed the independence standards of the New York Stock Exchange and any applicable laws,
rules and regulations. The Board shall undertake an annual review of the independence of each director.
Directors have an affirmative obligation to inform the Board of any material changes in their
circumstances or relationships that may impact their designation by the Board as independent.
Director Qualifications. As a general matter, the Company seeks directors who will represent
the best long-term interests of the Company’s stockholders. Directors should possess the highest personal
and professional ethics, integrity and values, and be committed to representing the long-term interests of
the stockholders. Additional factors to be considered include judgment, skill, independence, possible
conflicts of interest, experience with businesses and other organizations of comparable size or character,
the interplay of the candidate’s experience and approach to addressing business issues with the experience
and approach of incumbent directors and other new director candidates. The Company’s goal in selecting
directors for nomination to the Board of Directors is generally to seek a well-balanced membership that
combines a variety of experience, skill and intellect in order to enable the Company to pursue its strategic
objectives. The Board of Directors does not believe that arbitrary term limits on directors’ service or
retirement ages are appropriate or in the best interests of the Company, nor does it believe that directors
should automatically expect to be renominated annually. The performance of each director is evaluated
annually by the Nominating and Corporate Governance Committee.
Board Meetings
Number of Meetings. The Board of Directors of the Company meets at four regularly scheduled
meetings each year. In addition, the Boards of Directors of each of the Company’s principal subsidiaries
(NACCO Materials Handling Group, Inc., Hamilton Beach/Proctor-Silex, Inc., The North American Coal
Corporation and The Kitchen Collection, Inc.), of which each of the directors of the Company is a
member, meets in person at four regularly scheduled meetings each year. The Boards of Directors of the
Company and its subsidiaries also meet on other occasions in person or by telephone at additional special
meetings as needed.
Meetings of the Non-Management and Independent Directors. In accordance with the rules of the New York Stock Exchange, the Company holds one regularly scheduled meeting of the non-management
directors of the NACCO parent company Board, which is presided over by the Chairman of
the Compensation Committee. In addition to the February meeting, additional meetings of the non-management
directors will be scheduled from time to time when the non-management directors believe
such meetings are desirable. The determination of the director who should preside at such meetings will
be made based upon the principal subject matter to be discussed at the meeting. If the Company has non-management
directors who are not independent, at least once a year the independent directors will meet in
executive session without members of management or the non-independent directors present.
Meeting Materials. Information and materials that are important to the directors’ understanding
of the business to be conducted at Board and Committee meetings or that will facilitate the Board’s or a
Committee’s discussion generally will be distributed in advance of those meetings. Directors are
expected to review these materials in preparation for the meeting. The Board understands that certain
items to be discussed at Board or Committee meetings may be extremely confidential or time-sensitive
and that distribution of materials relating to these matters prior to meetings may not be appropriate or
practicable.
Meeting Attendance. Absent an appropriate excuse, attendance is expected for the full length of
the meeting by all directors at the Company’s Annual Meeting of Stockholders, at all meetings of the
Boards of Directors of the Company and each of its principal subsidiaries, and at all meetings of each
Committee of which a director is a member.
Board Committees
The purpose of the Committees of the Board of Directors is to help the Board to fulfill its
responsibilities effectively and efficiently, although the Committees do not displace the oversight
responsibilities of the Board as a whole.
The Board has established five standing Committees of the Board. The five standing Committees
are:
- Audit Review Committee. The Audit Review Committee has the responsibilities set
forth in its Charter with respect to: the quality and integrity of the Company’s
financial statements; the Company’s compliance with legal and regulatory
requirements; the Company’s guidelines and policies to monitor and control its major
financial risk exposures; the qualifications, independence and selection of the
independent auditor; the performance of the Company’s internal audit function and
independent auditors; assisting the Board and the Company in interpreting and
applying the Company’s Corporate Compliance Program and other issues related to
Company and employee ethics; and preparing the annual Report of the Audit Review
Committee to be included in the Company’s proxy statement.
- Nominating and Corporate Governance Committee. The Nominating and
Corporate Governance Committee has the responsibilities set forth in its Charter with
respect to: identifying individuals qualified to become members of the Board;
recommending to the Board when new members should be added to the Board;
recommending to the Board individuals to fill vacant Board positions; recommending
to the Board the director nominees for the next Annual Meeting of Stockholders;
periodically developing and recommending to the Board updates to the Company’s
Corporate Governance Guidelines; assisting the Board and the Company in
interpreting and applying the Company’s Corporate Governance Guidelines and other
issues related to corporate governance; and evaluating the Board and its members.
- Compensation Committee. The Compensation Committee has the responsibilities
set forth in its Charter with respect to: overseeing overall compensation policies and
programs of the Company and its subsidiaries and their specific application to
principal officers of the Company and its subsidiaries and to members of the Board
of Directors; reviewing and evaluating the performance of the Chief Executive
Officers and other senior managers of the Company and its subsidiaries; reviewing
director compensation; assisting in succession planning for the Chief Executive
Officers of the Company and its subsidiaries; and preparing an annual report on
executive compensation for inclusion in the Company’s proxy statement.
- Finance Committee. The Finance Committee reviews the financing and selected
financial risk management strategies of the Company and its principal subsidiaries
and makes recommendations to the Board of Directors on all matters concerning
finance.
- Executive Committee. Except as otherwise required by law, rule or regulation, the
Executive Committee may exercise all of the powers of the Board of Directors over
the management and control of the business of the Company during intervals
between meetings of the Board of Directors.
Board Compensation
The Compensation Committee will annually review director compensation, and will make
recommendations to the Board of Directors. Board compensation may be paid in cash and equity
interests in the Company, and may consist of annual retainers, meeting fees and such other components as
appropriate. Separate compensation may be provided to chairpersons of Committees of the Board. In
making its recommendations, the Compensation Committee should consider the following goals:
- Directors should be fairly compensated for the work involved in overseeing the
management of a company the size and scope of the Company;
- Director compensation should be competitive with director compensation at other
U.S. companies with the size and scope of the Company; and
- Director compensation should align Board members’ interests with the long-term
interests of the Company’s stockholders.
Directors who are also employees of the Company shall not receive any additional compensation for their
service as Directors.
Director Orientation and Continuing Education
The Secretary of the Company will arrange for new directors to meet with senior managers of the
Company in order for the new director to become familiar with the Company’s strategic plans, financial
statements, and key policies and practices. This orientation should begin as soon as practicable after the
new director is elected, and should be completed within one (1) year after the new director joins the
Board. From time to time, the Company will provide Board members with presentations from Company
and/or third party experts on topics that will assist Board members in carrying out their responsibilities.
In addition, once each year on average, the Board of Directors may visit a facility of one of its operating
companies.
Board Access to Management and Independent Advisors
Directors have full and free access to officers and employees of the Company and its subsidiaries.
Any meetings or contacts that a director wishes to initiate with officers or employees may be arranged
through the Chief Executive Officer or Secretary, or directly by the director. The Company will, on a
regular basis, provide specific opportunities for this type of interaction.
The Board of Directors or any Committee may retain and terminate such independent advisors,
including attorneys, accountants, investment bankers and other consultants, as it deems necessary or
appropriate to the performance of its duties from time to time. The Board or Committee, as appropriate, will have the sole authority to
approve the fees and other retention terms of such independent advisors.
Management Succession
The Board of Directors will annually review the report of the Compensation Committee
concerning the performance and succession plan for the Chief Executive Officers of the Company and its
principal subsidiaries. Succession planning should include policies and principles for Chief Executive
Officer selection and performance review, as well as policies regarding succession in the event that the
Chief Executive Officer retires, resigns or is incapacitated.
Annual Performance Evaluation of the Board
The Board of Directors will annually review the report of the Nominating and Corporate
Governance Committee concerning the performance of the Board and its members. Such review will
include an assessment of the Board’s composition and independence, the effectiveness of the Board
Committees, the maintenance and implementation of these Guidelines and such other matters as the
directors may determine. Periodically, the Board of Directors will conduct a self-evaluation to determine
whether the Board of Directors and its committees are functioning effectively.
Effect of Corporate Governance Guidelines
These Corporate Governance Guidelines are intended as one of the components of the flexible
framework within which the Board of Directors and its Committees direct and oversee the affairs of the
Company. While these Guidelines should be interpreted in the context of applicable laws, regulations and
listing requirements, as well as in the context of the Company’s Certificate of Incorporation and
By-Laws, they are not intended to establish by their own force any legally binding obligations.
Amendment of Corporate Governance Guidelines
The Board may amend, modify or make exceptions to these Guidelines from time to time in its
discretion and consistent with its duties and responsibilities to the Company and its stockholders.
Disclosure of Guidelines
Consistent with New York Stock Exchange listing requirements, these Guidelines are included on the Company’s website and are available upon request in writing sent to the Secretary of the Company. The Company’s annual report to stockholders states that these Guidelines are available on the Company’s website and are available upon request in writing sent to the Secretary of the Company.
September 2005
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