I. Duties and Responsibilities of the Board of Directors and Each Director
The Board of Directors (the "Board") of Citizens Financial Services, Inc. (the "Company") is responsible for promoting and acting in the best interests of all stockholders of the Company. The Board is the ultimate decision-making body of the Company except with respect to those matters reserved to stockholders. The business and affairs of the Company are managed by its officers under the direction of the Board.
Each director of the Company owes fiduciary duties of loyalty and care to the Company. A director is required to discharge his or her duties in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances.
II. Composition of the Board; Board Operation
Size. The Board believes that between 10 and 15 is currently an appropriate number of directors, but that a smaller or larger Board may be appropriate at any given time, depending on the circumstances.
Board Membership Criteria. Membership criteria shall be provided by the Governance and Nominating Committee, after consultation with the Board. The criteria should take into consideration the restrictions set forth in the Articles of Incorporation and the Bylaws, diversity, age, skills, experience and other relevant factors.
Invitation to Join Board. The invitation to join the Board is extended by the Chair of the Governance and Nominating Committee and/or the Chairman of the Board after discussion with and approval by the Governance and Nominating Committee and the full Board of Directors.
Mix of Inside and Outside Directors. In no event will the Board consist of less than a majority of independent directors. The definition of "independent director" shall conform to the definition contained in the qualitative listing requirements for Nasdaq Stock Market, Inc. issuers and in any applicable Securities and Exchange Commission rules and regulations.
Board Agenda. The Chairman of the Board sets the agenda for Board meetings with the understanding that certain items necessary for appropriate Board oversight, such as annual budgets and long range plans, must appear periodically on the agenda. Board members may suggest that particular items be placed on the agenda.
Frequency of Meetings. The Board has an annual organization meeting and a minimum of four additional meetings per year as may be called from time to time as determined by the needs of the business. It is the responsibility of the directors to attend meetings in person or by conference call.
Corporate Strategy. From time to time, the Board devotes an extended meeting to a review of the Company's long-term strategic and business plans.
Authority to Engage Advisors. The full Board has the authority to obtain advice and assistance from internal and external legal, accounting or other advisors, at the Company's expense, without consulting with or obtaining the prior approval of management of the Company.
III. Selection of Chairman, Vice Chairman, CEO and President
The Board is free to make the selection in the manner and upon the criteria that the Board deems appropriate at the time of each selection. The Board has no policy with respect to the separation of the roles of Chairman of the Board and of President and Chief Executive Officer.
Number and Structure. Designated committees include: Executive, Audit and Examination, Governance and Nominating, and Compensation/Human Resources. The Audit and Examination Committee is comprised entirely of independent directors. The Company may also utilize committees consisting of Board members and officers for the purpose of advising the Board on various operational matters.
Assignment of Committee Members. The Governance and Nominating Committee reviews committee assignments annually and recommends to the Board the assignment of Board members to various committees. With the exception of the assignment of an independent Board member on the Executive Committee, the Board does not have a firm policy mandating rotation of committee assignments since special knowledge or experience may mitigate in favor of a particular director serving for an extended period on one committee.
Frequency and Length of Committee Meetings. The Chairman of each committee, in consultation with committee members, will determine the frequency and length of committee meetings. Committee meetings are normally held by conference call, unless the committee meeting falls on the same day as full Board meeting.
Committee Agenda. The Chairman of the committee, in consultation with appropriate members of management and other committee members, will develop the committee's agenda. The committee Chair, in consultation with the Chairman and/or other committee members, determines whether special committee meetings or longer meetings are advisable. The committee Chair reports on a committee's meeting at the full Board meeting following the committee meeting.
Attendance. Management directors may attend the general session of any regularly scheduled committee meeting at the pleasure of the committee Chair. The Chairman of the Board, the Vice Chair of the Board, and the Chief Executive Officer have the option to attend, as non-voting participants, any and all meetings of committees for which they are not members, except the Chief Executive Officer cannot attend the Compensation/Human Resources Committee meeting when his compensation is being considered.
Self-Assessments. Each of the Audit and Examination Committee, the Compensation/Human Resources Committee and the Governance and Nominating Committee should periodically sponsor self-assessments of the performance of the respective committees, the results of which will be discussed with the full Board. The assessment should include a review of any areas in which the Board or management believes such committees can make a better contribution to the governance of the Company. The purpose of the review will be to improve the performance of the committees as units and not to target individual committee members. The Board will utilize the results of the evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for committee appointments.
V. Executive Sessions of Independent Directors
The independent directors will meet in executive session at least once a year. Issues to be discussed in executive session may include the evaluation of the President and Chief Executive Officer, management succession planning and such other matters as they may deem appropriate.
VI. Succession Planning
The Executive Committee, with the full involvement of the Board, plans for the succession to the position of Chief Executive Officer. To assist the Executive Committee and the Board, the Chief Executive Officer and management report to the Executive Committee and the Board at least annually on the succession planning and management development. The Chief Executive Officer and management also provide the Executive Committee and the Board with an assessment of persons considered potential successors to certain senior management positions at least once each year.
VII. Board Access to Management
General. Board members have complete access to management. Board members will use judgment to assure that this contact is not distracting to the business operation of the Company, and that such contact, if in writing, be copied to the President and Chief Executive Officer.
Attendance of Non-Directors at Board Meetings. The Board encourages the President and Chief Executive Officer to bring members of management from time to time into Board meetings to:
(a) Provide management insight into items being discussed by the Board which involve the manager;
(b) Make presentations to the Board on matters which involve the manager; and
(c) Bring managers with high potential into contact with the Board. Should the President and Chief Executive Officer desire to add additional members of management as attendees on a regular basis, this should be suggested to the Board for its concurrence.
VIII. Board Materials Distributed in Advance
Information and data are important to the Board's understanding of the business and are essential to prepare Board members for productive meetings. Presentation materials relevant to each meeting will be distributed to the Board in advance of the meeting, unless doing so would compromise the confidentiality of competitive information. Under normal circumstances, materials should be delivered at least three (3) days in advance of the meeting. In the event of a pressing need for the Board to meet on short notice, it is recognized that materials may not be available in advance of the meeting. Management will make every effort to provide presentation materials that are brief and to the point, but yet communicate the essential information.
Annual Evaluation of Board Performance. The Governance and Nominating Committee annually oversees and reports to the Board an evaluation of the Board's performance
Annual Evaluations of Chief Executive Officer. At the direction of the Compensation/Human Resources Committee and in compliance with such committee's Charter, the outside directors should perform annual evaluations of the Chief Executive Officer.
X. Share Ownership of Directors
Effective July 28, 2012, each Company non-employee director shall beneficially own an amount of Company stock equal to the greater of (i) three times the previous year's cash retainer, based on the previous 12/31 Company common stock price or (ii) 1,000 shares, unencumbered. Newly appointed or elected non-employee directors shall have up to 36 months to accumulate the minimum number of qualifying shares. For purposes of this provision, beneficial ownership shall be determined in accordance with Rule 13d-3 under the Securities Exchange Act of 1934, as amended.
XI. Director Compensation Review
The Compensation/Human Resources Committee shall review on an annual basis director compensation and recommend any changes to the Board for approval in accordance with such Committee's Charter
XII. Board Interaction with Third Persons
The Board believes management speaks for the Company. Individual Board members may from time to time communicate with various constituencies that are involved with the Company, such as the press, investors and customers. However, it is expected that this communication would be made with the concurrence of management.
XIII. Periodic Review
The Board is responsible for periodically reviewing these principles, as well as considering other corporate governance principles that may, from time to time, merit consideration by the Board.
XIV. Orientation of New Directors and Continuing Education
New directors, upon election to the Board, will be provided with a comprehensive set of materials on the operations, finances and business plan of the Company and meet informally with as many members of senior management as practical. The Company will reimburse the expenses incurred by a director in attending continuing education seminars relevant to his or her duties as a director of the Company.