Corporate Governance Guidelines
The Board and management believe that sound and effective corporate governance is essential to Centerra’s performance. Centerra has adopted certain practices and procedures to ensure that effective corporate governance practices are followed and that the Board functions independently of management. In addition, the Nominating and Corporate Governance Committee of the Board reviews Centerra’s corporate governance practices and procedures on a regular basis to ensure that they address significant issues of corporate governance.
The Board supervises the conduct of the affairs of the Corporation directly and through its committees. In so doing, the Board endeavours to act always in the best interests of the Corporation. In addition, the Board recognizes the importance of the enhancement of both short and longer term value for all shareholders. In carrying out its responsibilities, the Board appoints the senior executives of the Corporation and meets with them on a regular basis to receive and consider reports on the Corporation’s business. The Board holds regularly scheduled meetings, with additional meetings being held as required to consider particular issues or conduct specific reviews between regularly scheduled meetings.
The fundamental responsibility of the Board is to supervise the management of Centerra’s business and affairs with a view to sustainable value creation for all shareholders. Centerra’s Board promotes fair reporting, including financial reporting, to shareholders and other interested persons as well as ethical and legal corporate conduct through an appropriate system of corporate governance, internal controls and disclosure controls.
The Board is, among other matters, responsible for the following:
- selection, appointment, evaluation and, if necessary, termination of the Chief Executive Officer and senior management;
- adoption of a strategic planning process and approval of strategic plans;
- risk management policies and procedures;
- policies and procedures regarding the integrity of financial reporting and information management;
- oversight of estimates of Centerra’s reserves by management;
- human resources policies;
- health, safety and environmental policies;
- disclosure policies and procedures;
- corporate governance;
- corporate social responsibility and sustainability; and
- certain other matters which may not be delegated by the Board under applicable corporate law.
- The Board has adopted a formal written mandate which clarifies these responsibilities and complements the written mandates of each of the committees.
The Board has adopted a formal written mandate which clarifies these responsibilities and complements the written mandates of each of its standing committees. The standing committees are: Audit Committee, Corporate Social Responsibility Committee, Human Resources and Compensation Committee, Nominating and Corporate Governance Committee, Reserves Committee, and the Safety, Health and Environmental Committee. The mandates of the Board and the committees are reviewed annually.
Directors are provided an opportunity to meet individually in work sessions with senior management to obtain further insight into the operations of the Corporation and its subsidiaries, and are involved on a regular basis in discussions with management. Each Board committee may engage outside advisors at the expense of the Corporation. Individual directors are also free to consult with members of senior management whenever so required and to engage outside advisors, at the expense of the Corporation, with the authorization of the Nominating and Corporate Governance Committee. To ensure that the Board is able to discharge its responsibilities independently of management, the independent directors have regularly scheduled opportunities to meet separately from management and the non-independent directors following each meeting of the Board. They avail themselves of this opportunity, at their discretion, whenever they deem necessary.
The Board Chair
The Board has appointed Mr. Stephen Lang as its Chair effective May 17, 2012. The Chair is principally responsible for overseeing the operations and affairs of the Board. His responsibilities include leading, managing and organizing the Board, consistent with the approach to corporate governance adopted by the Board from time to time; confirming that appropriate procedures are in place to allow the Board to work effectively and efficiently and to function independently from management; acting as a liaison between the Board and senior management, encouraging effective communication between the Board and Chief Executive Officer, including confirming that the Board and senior management understand their respective responsibilities and respect the boundaries between them; and working with the Chief Executive Officer, the Nominating and Corporate Governance Committee (of which the Chair is a member) and the Corporate Secretary to further the creation of a healthy governance culture within Centerra.
Since Mr. Lang is not independent of the Corporation due to his historical role in the Corporation (he was President and Chief Executive Officer from 2008 to May 2012), Centerra’s independent directors have appointed Mr. Terry Rogers as the lead director of the Board. Mr. Rogers is independent from the Corporation. As lead director, Mr. Rogers is responsible for coordinating the activities of the independent directors, acting as an independent leadership contact for all independent directors, and to provide support to the Chair, Chief Executive Officer, the Chair of the Nominating and Corporate Governance Committee and the Corporate Secretary, as needed, to further the creation of a healthy governance culture within the Corporation.
Overseeing the President and Chief Executive Officer
The President and Chief Executive Officer is appointed by the Board and is responsible for managing Centerra’s affairs. His or her key responsibilities involve articulating the vision for the Corporation, focusing on creating value for shareholders, and developing and implementing a strategic plan that is consistent with the corporate vision.
Annually the Board (though the HRC Committee) sets objectives for the President and Chief Executive Officer which align with the Corporation’s strategic plan. These objectives include specific quantifiable goals and general growth related goals which are not driven by a predetermined mathematical formula but are more qualitative.
The President and Chief Executive Officer is accountable to the Board and the Board committees. The Board conducts a formal review of his performance once per year.
The Board has established clear limits of authority for the President and Chief Executive Officer. These are described in Centerra’s delegation of financial authority policy which was last reviewed in 2011.
Position Descriptions of Board Chair and President and Chief Executive Officer
The Board has adopted a position description for the Chair of the Board, which sets out the duties and responsibilities of the Chair. This position description is reviewed by the Board from time to time. The position description for the Chair of the Board is contained in the Board’s mandate. The Board’s mandate also provides that the chair of each committee is responsible for determining the agenda, and the frequency and conduct of the meetings of that committee.
The Board has also adopted a position description for Centerra’s Chief Executive Officer which sets out the duties and responsibilities of the Chief Executive Officer. This position description is reviewed by the Board from time to time.
The Board receives reports on Centerra’s operating activities as well as timely reports on certain non-operational matters, including insurance, legal, corporate governance and financial matters.
The Board works with management in developing the overall business strategy of the Corporation and the annual business plans for achieving its objectives, which form the annual objectives for the President and Chief Executive Officer (as described above). The Board receives regular updates from management regarding management’s implementation of the business strategy.
Along with those matters which must by law be approved by the Board, key strategic decisions are also submitted by management to the Board for approval or discussion. In addition to approving specific corporate actions, the Board reviews and approves the reports issued to shareholders, including annual and interim financial statements, as well as materials prepared for shareholders’ meetings.
Composition of the Board and Independence
Centerra’s Board is currently comprised of 10 directors. As discussed in the Corporation’s most recently filed management information circular, the Board is currently recruiting to fill the vacancy created by the departure in May 2012 of Mr. Ian Austin who was the chair of the Audit Committee.
Centerra’s Board has assessed the independence of each director. In determining independence, the Board examined and relied on the definition of independence in National Instrument 58-101. After considering a wide variety of factors and information disclosed by each director, the Board has determined that a majority of the current directors (seven of ten) are independent.
- Mr. Lang is not independent because he was an executive officer of Centerra within the last three years.
- Mr. Walter is not independent because he is currently a member of management of Centerra.
- Mr. Muraliev is not independent because he is the Chairman of the board of directors of Kyrgyzaltyn JSC, which has significant ongoing arrangements with Centerra (see below).
Pursuant to a Restated Shareholders Agreement dated as of June 6, 2009 entered into by Kyrgyzaltyn and Centerra, so long as Kyrgyzaltyn and its affiliates continue to hold 10% or more of Centerra’s outstanding Shares, Centerra has agreed to include in Centerra’s proposed slate of directors nominated for election at each annual or special meeting at which directors are to be elected two board nominees designated by Kyrgyzaltyn, at least one of whom must be independent of the KR Government, within the meaning of applicable securities laws in Canada. Should Kyrgyzaltyn and its affiliates own less than 10% but more than 5% of Centerra’s outstanding Shares, Centerra has agreed to include in its proposed slate of directors one nominee of Kyrgyzaltyn who shall not be required to be independent.
Overseeing and Managing Risk
The Board is responsible for overseeing Centerra’s policies and processes to identify the Corporation’s principal business risks and to confirm that systems are in place to mitigate these risks where prudent to do so. The Board and its standing committees manage various types of risks as follows:
- Audit Committee: The Audit Committee monitors financial related risks, including risks relating to internal controls over financial reporting, the delegation of financial authority, and financial risk management policies. The Audit Committee also oversees the Corporation’s disclosure controls and procedures, code of ethics and anti-bribery policies.
- Corporate Social Responsibility Committee: The Corporate Social Responsibility Committee reviews and oversees policies and programs related to community involvement in the jurisdictions Centerra operates in, including the creation of sustainable developments.
- Human Resources and Compensation Committee: The HRC Committee oversees and manages compensation related risks, and retention and succession risks.
- Nominating and Corporate Governance Committee: The Nominating and Corporate Governance committee oversees risks related to corporate governance matters.
- Reserves Committee: The Reserves Committee oversees the estimation of the Corporation’s mineral reserves and disclosure thereof.
- Safety, Health and Environment Committee: The Safety, Health and Environmental Committee reviews and oversees policies and systems related to safety, health, environment and related operational risks.
Annually, the Nominating and Corporate Governance Committee reviews the effectiveness of the Board, its Chair and committees and directors through the use of a confidential self-assessment questionnaire completed by each member. The results of the surveys are subsequently discussed by the Board.
The Nominating and Corporate Governance Committee, through the survey and interviews, assesses the operation of the Board and the committees, the adequacy of information given to directors, communication between the Board and management, the effectiveness of the processes of the Board and committees, and the effectiveness of the Board and directors. The committee recommends to the Board any changes needed to enhance performance based upon this assessment process.
Nomination of New Directors and Board Size
The Nominating and Corporate Governance Committee is responsible for assessing the need for new directors, and the preferred experience and qualifications of new directors, taking into consideration the independence, age, skills and experience required for the effective conduct of the Corporation’s business. The Nominating and Corporate Governance Committee recommends candidates for initial Board membership and Board members for re-nomination. Recommendations are based upon character, integrity, judgment, business experience, record of achievement and any other skills or talents that would enhance the Board and overall management of the business and affairs of the Corporation.
The Nominating and Corporate Governance Committee maintains an understanding of the anticipated tenure of current directors, and the needs of the Board as a whole. Particular candidates are considered in light of the Board’s current and anticipated needs. Board members complete annual skills and experience self-assessments, which are reviewed by the committee to assist in placing Board members on committees where their expertise can best be utilized and also to identify skills and experience gaps important in identifying any new nominees to the Board.
The Board’s mandate provides for retirement of directors at age 72 unless this requirement has been waived by the Board or the Nominating and Corporate Governance Committee for a valid reason. The Board has waived this requirement in respect of Raphael Girard due to his experience and expertise in the areas of government relations and corporate social responsibility.
The Board is of the view that its optimal size for effective decision-making and committee work is between 9-12 members.
Board Education Opportunities
Centerra provides new directors with orientation materials describing the business of the Corporation, its corporate governance structure and related policies and information. Centerra’s Chief Executive Officer, Chief Financial Officer and other senior executives provide new directors with detailed briefings on company strategy, operations, business development, legal, financial, exploration, human resources and government relations matters.
Continuing education is provided by management through presentations to the Board and committees when any key business decisions are sought. Directors are briefed regularly on strategic issues affecting the Corporation. Board members are encouraged to attend conferences or seminars at Centerra’s expense. The conference or seminar can deal with any subject matter that is applicable to the Board member’s role on the Board or its committees or to increase the member’s knowledge of the Corporation’s business. The Corporate Secretary notifies Board members of conferences, seminars or other educational opportunities on pertinent topics.
Board members are encouraged to visit the Corporation’s main operating sites. In 2010, the Board visited the Corporation’s Boroo project in Mongolia. In 2011, members of the Safety, Health and Environmental Committee and the Corporate Social Responsibility Committee visited and held meetings in the Kyrgyz Republic, where the Kumtor project is located.
Succession Planning For Senior Management
The Human Resources and Compensation Committee oversees succession planning for senior management and retention programs. The committee reviews the succession plan at least annually. Depending on the position at issue, other Board committees such as the audit committee, and the safety, health and environmental committee may also be involved in the regular review of succession planning.
All directors are expected to attend Board and relevant committee meetings and the annual meeting of shareholders, except where non-attendance is unavoidable.
Compensation of Directors
The Board believes that compensation for directors should be competitive with the compensation paid to directors of comparable companies. The HRC Committee reviews directors’ compensation annually and makes recommendations to the Board. Directors who are employees of the Corporation or any of its affiliates do not receive any compensation for service as directors.
Codes of Ethics
Centerra’s Board expects all of Centerra’s directors, officers and employees to conduct themselves in accordance with the highest ethical standards.
Centerra’s Board has adopted a Code of Ethics for employees which addresses, among other things, avoidance of conflicts of interest, protection of confidential information, compliance with applicable laws, rules and regulations, adherence to good disclosure practices and procedures for employees and third parties to report concerns with respect to accounting and auditing matters. Employees with such concerns may report their concerns directly or, if they so wish, in a confidential or anonymous manner to: (i) the General Counsel and Corporate Secretary of the Corporation, (ii) the Chair of the Audit Committee, or (iii) a 24 hour-a-day compliance hotline, a service which is operated by a third party and is available in the local languages of the Corporation’s operating subsidiaries. As set out in the Code of Ethics, an employee who, in good faith, reports a concern regarding accounting matters or a suspected breach of the Code of Ethics is protected from reprisal, such as dismissal, demotion, suspension, threats, harassment or discrimination.
The Board has also adopted a Code of Ethics for directors which set out the ethical standards that apply to directors in the exercise of their duties. Directors are required to promptly report all actual, potential or perceived conflicts of interest to the Corporate Secretary, who is in turn required to bring such conflicts to the attention of the Nominating and Corporate Governance Committee. Directors may not participate in discussions, deliberations or decision-making in which they have a conflict of interest.
An annual compliance certificate is required to be signed by all directors and mid-level and senior employees of Centerra. The Audit Committee receives an annual compliance report for employees, and the Nominating and Corporate Governance Committee receives an annual report on directors’ compliance. Issues arising between annual reporting are brought to the attention of the appropriate committee.
Disclosure and Insider Trading Policy
Centerra’s Board has adopted and periodically reviews and updates Centerra’s written corporate disclosure and insider trading policy. The policy addresses the following matters:
- establishes a process for the disclosure of material information;
- establishes a process for reviewing news releases, corporate documents and public oral statements before they are issued;
- sets out the obligations of Centerra’s directors, officers and other employees to preserve the confidentiality of undisclosed material information;
- sets out the prohibitions applicable to Centerra’s directors, officers and other employees with respect to illegal insider trading and tipping; and
- prohibits directors and employees of Centerra from hedging the value of any equity based awards or Shares.
Shareholder/Investor Communications and Feedback
The Corporation has in place procedures to effectively communicate with its stakeholders, including its shareholders, employees and the general public. The fundamental objective of these procedures is to ensure an open, accessible and timely exchange of information with shareholders, employees and other stakeholders concerning the business, affairs and performance of the Corporation. This includes quarterly conference calls with industry analysts, investors and media representatives in conjunction with the release of the Corporation’s financial results, as well as regular presentations to or meetings with industry analysts and with institutional shareholders. Through the Corporation’s website, shareholders and other stakeholders may access webcasts of these conference calls and most of the presentations made by the Corporation to the investment community. In addition, the Corporation has in place procedures to ensure that inquiries or other communications from shareholders are answered by an appropriate person in the Corporation.