OVERVIEW – THE ROLE OF THE BOARD OF DIRECTORS
The Board of Directors of Blue Cross and Blue Shield of Kansas, Inc. (“BCBSKS”) has, among its primary functions, the obligation to select the CEO, to oversee the CEO and other senior management in the competent and ethical operation of BCBSKS, to monitor BCBSKS financial and service performance, to review and approve business objectives, major strategies and policies for BCBSKS, to provide advice and counsel to senior management, to recommend candidates for the board of directors, to evaluate board processes and performance, to review the adequacy of internal controls for complying with all applicable policies, laws and regulations and to monitor indicia of compliance with those.
Those obligations arise out of an overarching obligation to assure that the long-term interests of policyholders of BCBSKS are being served.
To satisfy these obligations, the board of directors may employ committees, but such committees are always subject to the ultimate authority of the board of directors as a whole.
Because the responsibility of the board of directors is an active and not a passive responsibility, these guidelines may change from time to time to reflect ongoing activities of the board. These guidelines do not, of course, supersede or bind the corporation in the same fashion that bylaws do, but are instead meant to provide the board of directors with a set of working tools and to provide to policyholders additional information about the manner in which their company is governed.
COMPOSITION OF AND QUALIFICATIONS FOR THE BOARD OF DIRECTORS
The Size of the Board - As provided by the BCBSKS bylaws, the current number of board members is 16 members.
Independent Directors - The bylaws of BCBSKS provide that there will be one employee who is a member of the board of directors. Other than that, the board is composed of persons who have no material relationships with BCBSKS. However, to provide knowledgeable input regarding the effect of its operations in the important realm of the provision of health care services for which BCBSKS pays, the bylaws allow for no more than two persons who are contracting M.D.s or D.O.s, no more than two persons who are administrators of contracting hospitals, and no more than one person who is a contracting dentist to serve on the board. For purposes of the bylaws, and in recognition of the service of health care providers on the Board, a director is deemed to be independent if neither director nor any first degree relatives of the director are employees of the company and if the director has no material transactions with the company, including the sales of goods or services, other than in the capacity of a health care provider.
Qualifications of Board Members – The corporate bylaws require that, all board members must be policyholders, or representatives of a group policyholder, of BCBSKS. In addition, according to the bylaws of BCBSKS, such persons must be residents of the Kansas Plan area, which BCBSKS serves (all of Kansas except Johnson and Wyandotte county). Beyond this, in considering persons for nomination to the board of directors, the governance committee, which is charged with such nominations, will seek to assure that the board includes directors representative of policyholders and will further seek to identify candidates for nomination who possess core competencies relevant to the operation of BCBSKS. In addition to these qualities, board member nominees are identified and considered on the basis of knowledge, experience, integrity, leadership, reputation, and ability to understand BCBSKS’ business. Nominees will be screened to insure each candidate has qualifications, which complement the overall core competencies of the board. In addition, nominees will be screened to assure that the bylaw requirements of BCBSKS and regulatory requirements of Kansas insurance law are met.
Selection of Board Members - The governance committee has responsibility to identify, screen and recommend qualified candidates to the board.
TRAINING AND EVALUATION OF THE BOARD OF DIRECTORS
Orientation - BCBSKS has a program through which a new director is provided with the core materials and orientation to become knowledgeable about the business of BCBSKS and familiar with the senior management team.
Continuing Education - BCBSKS provides directors with educational opportunities, including educational programs directly related to Blue Cross and Blue Shield Plan operations and governance, as well as materials, briefings and additional educational opportunities. Board members are also encouraged to visit BCBSKS facilities and meet with BCBSKS employees throughout their tenure. All new directors elected after January 1, 2007 are required to receive specific education regarding fiduciary obligations of a director and regarding the operations of the Blue Cross and Blue Shield Association.
Self-Evaluation - On a regular basis, the board will engage in a self-evaluation, which seeks to determine how the board as a whole is working, what needs to be improved, what areas of strength should be further exploited, and how the board can enhance its capacity to oversee the governance of the corporation.
Evaluation of Persons Proposed for Election or Reelection - A person proposed for election or reelection to the board of directors shall be evaluated by the governance committee to determine whether that director is functioning in a
fashion that fully meets the needs of the corporation and whether that particular director brings to the corporation the kinds of attributes necessary to provide the board as a whole with a range of skills, qualifications, and tools it needs to function properly.
EXECUTIVE SESSIONS OF OUTSIDE DIRECTORS
The outside (“independent”) directors meet from time to time, upon direction of the chair, in executive session both with and without the inside (employee) director present.
DIRECTOR CONFLICTS OF INTEREST
Annually, directors (as well as all BCBSKS employees) are required to execute a statement setting forth any existing or potential conflicts of interest they may have with the corporation, including any relationships they have with BCBSKS as a purchaser of goods or services from the company or a seller of goods or services to the company. At a minimum, any conflicts, which are revealed, require disclosure and may require abstention from participation in discussion in voting by such director on matters related to the conflict. In conjunction with this, directors who are health care providers abstain from voting on issues relating to coverage or payment for services of the kind delivered by such types of health care providers.
The board, when making a business decision, must act in accordance with its fiduciary obligations and on an informed basis. Accordingly, members of the board will not use their corporate positions for personal profit, gain or other personal advantage, and must recuse themselves from voting or participating in deliberations on matters in which a potential conflict of interest may arise, unless their participation is approved by a majority vote of the disinterested members of the board of directors after full disclosure of the circumstances giving rise to the potential conflict.
EXTENSION OF CREDIT TO DIRECTORS OR EXECUTIVE MANAGEMENT
Neither BCBSKS nor its subsidiaries will extend to any director or executive officer any loan or any form of credit other than travel advances designed to cover nominal travel expenses within the guidelines of BCBSKS for travel expenses.
FORMAL EVALUATION OF CHIEF EXECUTIVE OFFICER
The chief executive officer will be evaluated annually on performance, and the results of the annual evaluation will be provided to the CEO by the Chair to allow the CEO to offer comments, and will then be shared with the Compensation Committee for its consideration and development of compensation recommendations to the Board.
ACCESS TO MANAGEMENT AND INDEPENDENT ADVISERS
Board members have open access to BCBSKS management. If a board member feels it would be appropriate, the director is asked to inform the chief executive officer of his or her contact with the employee in question. Members of senior management normally attend portions of each board meeting, and may be directly questioned in the course of such meetings. The board audit committee may, when appropriate, obtain advice and assistance from outside advisers and consultants on an independent basis apart from involvement by the senior management.
TERM LIMITS AND RETIREMENT POLICY
The board has no policy relating to age limits of directors. In 2003, it adopted a policy of term limits, limiting board members to three consecutive four-year terms of service. Those term limits apply only to terms commencing on or after May, 2003, and prior service is disregarded in applying those limits.
DIRECTORS WHO CHANGE THEIR PRESENT JOB RESPONSIBILITY
Directors who retire or change from a position they held when initially elected to the board are expected to notify the board of such change. The bylaws call for an offer of resignation in such a circumstance, which the board as a whole may accept or reject.
The fundamental role of the directors is to exercise their business judgment in acting on what they reasonably believe to be the best interests of BCBSKS and its policyholders. In fulfilling that responsibility, the directors should be able to rely on the honesty and integrity of the company’s senior management and outside advisors.
The board recognizes and accepts its fiduciary obligation to fully inform itself of all relevant facts and information on a particular matter prior to making a decision as a board. The board is entitled to rely on information, opinions, reports or statements, and other data, prepared or presented by legal counsel, officers or employees of the Plan, public accountants, or other persons who are reasonably believed to be competent to prepare or present those matters to the board.
Board members are expected to prepare for, attend and participate in all board and applicable committee meetings, and to spend the time needed to meet as often as necessary to properly discharge their obligations. An agenda for each board meeting, along with information and data that is important to the board’s understanding of the business to be conducted at the board meeting, is distributed to the directors in advance of the meeting. Certain matters may be
discussed at the meeting without advanced distribution of written materials, as appropriate. Each board member is free to and encouraged to suggest the inclusion of items for the agenda and to raise any relevant subjects not on the agenda at a board meeting.
COMMITTEES OF THE BOARD
Committees support the role of the board on issues that benefit from consideration by a smaller, more focused subset of directors.
The board will create committees for the purposes of performing oversight functions. Each committee will report its recommendations, activities, and work product to the full board on a regular and continuing basis. The committees will include: (i) an audit committee and compliance committee, which may be integrated into the finance committee (the “finance, audit, and compliance committee), which in its audit function will implement and support the oversight function of the board by reviewing the Plan’s process for producing financial data, its internal controls, and the independence of the Plan’s external auditor and in its compliance function will implement and support the oversight function of the board by monitoring indicia of the Plan’s compliance with all applicable laws and regulations as well as the Plan’s standards of business conduct and ethics (“compliance program”); (ii) a committee responsible for recommending candidates for all directorships and board appointed officer positions (the “governance committee”); and (iii) a committee responsible for implementing and
supporting the board in its review of executive compensation packages (the “compensation committee”). These committees shall be composed exclusively of outside ("independent") directors.
The roles of the audit and compliance, compensation, and governance committees are defined by the company’s bylaws. In addition, charters setting forth more precisely the roles and responsibilities of the audit, compensation and governance committee have been adopted by the board and may be revised from time to time.
The board has established other standing committees, particularly an investment committee and three provider advisory committees, through the bylaws, and may, from time to time, establish ad hoc committees to consider specific, limited issues.
REPORTING CONCERNS ABOUT ABUSE, VIOLATIONS OF LAW, VIOLATIONS OF THE CODE OF CONDUCT
The Code of Business Conduct adopted by the board allows for anonymous reporting of any suspected abuse, violation of law, or violation of the Code of Business Conduct to the compliance officer at 291-6400; toll free 1-800-432-0216 x6400, or, for use by employees, through a website allowing for anonymous reporting and feedback. Concerns about violation of employment regulations such as discrimination or occupational safety and health concerns should be reported to the company’s EEO coordinator. The company provides for independent reporting by the compliance officer to the board audit committee, which consists solely of independent directors, and persons should feel comfortable that no retaliation for good faith reporting will occur. In the rare circumstance where a person wishing to make such a report simply cannot feel comfortable reporting other than labor law concerns through such channels, persons may write directly to the company’s independent outside auditors, Eide Bailly, 406 Main Ave., Suite 3000, P.O. Box 2545, Fargo, North Dakota 58108-2545.
PUBLICATION OF INFORMATIONBCBSKS will publish these Corporate governance Guidelines, a listing of members of the board of directors, its Code of Business Conduct, bylaws, articles of incorporation, and charters for the audit committee, compensation committee, and the governance committee on the BCBSKS Web site.