BOARD OF DIRECTORS OPERATIONS AND POLICY MANUAL As Amended May 17, 2014

Transcription

1 BOARD OF DIRECTORS OPERATIONS AND POLICY MANUAL As Amended May 17, 2014 Table of Contents I. PURPOSE II. STATEMENTS OF MISSION AND VISION A. MISSION B. VISION III. DUTIES OF THE BOARD OF DIRECTORS GENERALLY IV. STANDING COMMITTEES A. GENERAL DUTIES B. PROCEDURES V. THE EXECUTIVE COMMITTEE A. PURPOSE B. MEETINGS C. DUTIES D. COMPENSATION COMMITTEE PROCEDURES E. RESPONDING TO OFFERS TO GIFT OF REAL PROPERTY VI. THE AUDIT COMMITTEE VII. THE GOVERNANCE COMMITTEE VIII. NOMINATIONS AND ELECTIONS OF BETHESDA DIRECTORS A. CEO SUPPORT TO GOVERNANCE COMMITTEE B. SELECTION AND INTERVIEW OF POTENTIAL DIRECTOR CANDIDATES C. SELECTION OF DIRECTOR CANDIDATES D. THE DIRECTORS ELECTION BALLOT E. COUNTING OF DIRECTORS ELECTION BALLOTS F. INCUMBENT INDICATION OF INTENT TO SEEK RE-ELECTION G. MID-TERM DIRECTOR VACANCY IX. OFFICER ELECTION POLICIES

2 A. BOARD MEMBER OFFICER QUALIFICATIONS B. PROCEDURES X. THE EMPLOYEE PENSION TRUST A. MANAGEMENT OF THE PENSION TRUST B. INVESTMENT POLICY OF THE PENSION TRUST (VERSION DATE 8/14/2009) XI. CORPORATE COMPLIANCE AND ETHICS POLICIES A. CODE OF ETHICS B. OFFICER AND DIRECTOR CONFLICTS OF INTEREST POLICY C. WHISTLEBLOWER AND NON-RETALIATION POLICY XII. PROGRAM POLICIES A. FACILITY CLOSINGS B. USE OF BETHESDA CHAPELS C. STAFF AUTHORITY TO INITIATE CERTAIN NEW CLIENT PROGRAMS XIII. AWARDS AND GRANTS POLICIES A. POOL OF BETHESDA AWARD B. CHRISTIAN SERVICE AWARD C. BETHESDA VOICES ANNUAL PUBLIC POLICY AWARD D. BETHESDA IN LOCAL ACTION AWARD E. THE STEVE JONES MISSION PARTNERSHIP GRANT XIV. POLICIES REGARDING DIRECTOR EXPECTATIONS AND BOARD FUNCTION.32 A. EXPECTATIONS OF DIRECTORS B. EXPECTATIONS OF COMMITTEE CHAIRPERSONS C. BOARD OF DIRECTORS - BOARD FUNCTIONS Retirement of Directors Spouses Director Expenses Policy D. BOARD INTERNAL CONTROLS E. HOUSING ALLOWANCE F. POLICY ON CALLING CLERGY FOR THE CHIEF RELIGIOUS LIFE OFFICER POSITION G. POLICY ON CALLING PROFESSIONAL CHURCH WORKERS OTHER THAN THE CHIEF RELIGIOUS LIFE OFFICER H. INDEMNIFICATION OF DIRECTORS AND OFFICERS XV. AMENDMENT OF OPERATIONS AND POLICY MANUAL XVI. APPENDIX A. ELEMENTS OF CONTROL OF BETHESDA OVER ITS SUPPORTING FOUNDATION.37 B. BETHESDA-FOUNDATION INTER-CORPORATE TRANSFER AND FUNDING AGREEMENT DATED 3/27/ C. FIRST AMENDMENT TO BETHESDA-FOUNDATION INTER-CORPORATE TRANSFER AND FUNDING AGREEMENT DATED 1/15/ D. GANTT CHART- GOVERNANCE COMMITTEE TASK CYCLE E. ANNUAL CONFLICT OF INTEREST ACKNOWLEDGEMENT FORM F. SUBCOMMITTEE/AD HOC COMMITTEE RECORD FORM G. MODEL PROXY STATEMENT FORM

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4 I. PURPOSE. This Operations and Policy Manual sets forth the procedures and methods by which the Board of Directors fulfills its responsibilities as described in the Articles of Incorporation and Bylaws of Bethesda Lutheran Communities, Inc. (hereafter Bethesda ). Its objectives are to: Describe in detail policies and areas of Board responsibility. To provide continuity in Board procedures. To inform Bethesda members, staff and the general public on the procedures and policies of the Board. To orient new or prospective members of the Board. To familiarize existing Board members with new positions and responsibilities. This Manual is designed to supplement the Articles of Incorporation and Bylaws. In the event of any conflict or inconsistency, the Articles of Incorporation or Bylaws shall control over this Manual. II. STATEMENTS OF MISSION AND VISION. A. MISSION. To enhance the lives of people with intellectual and developmental disabilities through services that share the good news of Jesus Christ. B. VISION. To reflect better-than-best practice in everything it does. III. DUTIES OF THE BOARD OF DIRECTORS GENERALLY. In addition to other appropriate duties and functions, and those specified elsewhere in this Manual, the Board of Directors shall: 1. Ensure that the Christian faith, as professed and confessed by the Evangelical Lutheran Church in the Book of Concord of 1580, is the standard for pastoral care, worship and Christian nurture for the entire Bethesda ministry. 2. Meet at least four times each year, traditionally in November, February, May, and August. Normally, three meetings are held at Bethesda s Watertown campus and one is held in proximity to one of Bethesda s regional facilities. 4

5 3. Establish controls and monitor all the affairs and business of Bethesda, and maintain minimum standards of care in compliance with applicable laws and regulations of legally authorized agencies. 4. Employ the President and Chief Executive Officer, who is responsible for implementing all Board policies and directives. 5. Serve on standing committees of the Board and on regular subcommittees and/or ad hoc committees as invited and as time and ability permit. 6. Review the religious ministry supports offered by the Religious Life Department, and advise and consult with the President and Chief Executive Officer regarding Bethesda s religious ministry at least semiannually. 7. Review candidates and determine persons to receive Calls. 8. Provide and disseminate information and promote understanding of the mission and ministry of Bethesda as well as the nature of developmental disabilities in general. 9. Support and facilitate the development and mission advancement activities of Bethesda with regard to the Board of Directors and other contacts. 10. Encourage the conservation and expansion of membership in Bethesda. 11. Support and promote other local efforts that facilitate Bethesda's mission. 12. Approve recipients of the following annual awards: Pool of Bethesda Award; Christian Service Award for Volunteers; Christian Service Award for Lutheran Professionals; Follower of the Lamb Award. 13. Oversee and promote Bethesda scholarships, awards and grants. At the November and May meetings, staff shall present Bethesda In Local Action grant applications to the Board of Directors, which shall then decide whether to award grants to the applicants. Annually at the August meeting, the Board of Directors shall receive an annual report from staff on the scholarship and awards program. 14. Provide ongoing oversight and review of human resources matters, excepting those matters otherwise specifically reserved to another body. 15. Review at its August meeting the proposed annual budget including the salary plan prepared by staff, and approve as appropriate. 16. Review and approve if appropriate staff requests for expenditures in addition to those included in the annual budget. 5

6 IV. STANDING COMMITTEES. A. GENERAL DUTIES. In addition to the specific duties described elsewhere in this Manual, each Standing Committee shall have the following responsibilities: 1. Establish an orientation time and procedure for new members (usually 1st meeting of the year) as well as regular meetings. 2. Educate and familiarize the committee members about areas for which the committee is responsible. 3. Periodically review the Operations and Policy Manual and suggest proposed changes to the Chairman of the Board. B. PROCEDURES. Standing Committees shall meet as needed and as specified in the procedures of each committee described elsewhere in this Operations and Policy Manual. Committee meetings should be coordinated as much as practical with Board of Directors meetings to minimize travel and maximize member availability. Chairpersons shall, as much in advance as possible, notify the Chairman of the Board and the President and Chief Executive Officer of scheduled meetings. V. THE EXECUTIVE COMMITTEE. A. PURPOSE. The Executive Committee is to act as necessary on behalf of the Board of Directors between its meetings, subject to specified limitations. B. MEETINGS. The Chairman of the Board shall chair all meetings of the Executive Committee and in his absence the Vice-Chairman of the Board shall chair the meeting. The Secretary, or in the Secretary s absence another member appointed by the Chairman of the Board, shall record or have recorded minutes of all committee meetings. The Executive Committee shall meet at least once quarterly. Meetings shall be called by the Chairman of the Board or may be called on the request of two (2) members of the committee. The minutes of the Executive Committee shall be disseminated to all directors as soon as possible. C. DUTIES. The Executive Committee has full authority to act on behalf of the Board of Directors between meetings, except as follows: 1. Those matters specifically reserved to the Board of Directors by (a) the Articles of Incorporation, (b) the Bylaws, or (c) a specific resolution of the Board of Directors. 6

7 2. The sale of any real estate in excess of $250, The purchase of any real estate in excess of $250,000.00, except this limit may be exceeded for facility sites where the establishment of the facility was previously authorized by the Board of Directors. 4. Amendment of the adopted budget where the amount exceeds $150, Employment or discharge of the President and Chief Executive Officer. In addition to its duties set forth in the Bylaws, the Executive Committee shall annually review the Board s succession policy, procedures, and plans for the President and Chief Executive Officer and shall ensure that appropriate succession policies, procedures, and plans are in place for senior management. D. COMPENSATION COMMITTEE PROCEDURES. In its capacity as the Compensation Committee, the Executive Committee shall: 1. Identify all Disqualified Persons. (a) The President and Chief Executive Officer, Vice President of Finance and Vice President of Operations are by law deemed to be Disqualified Persons. (b) In determining whether other persons are Disqualified Persons, it may rely on the opinion of inside or outside legal counsel. 2. At least in every odd-numbered year, review and make findings as to the reasonableness of: (a) The compensation paid and benefits provided to the President and Chief Executive Officer. (b) The compensation ranges and benefit levels of the positions occupied by the other Disqualified Persons. 3. Consider all incentives, perquisites, deferred compensation and anything of value in making its analysis. 4. Obtain objective, market comparable compensation and benefit level data from sources outside Bethesda. 5. Document its analysis and findings in written reports. The report required in every odd-numbered year should ordinarily be concluded by the regular August Board of Directors meeting. A summary of the report shall be presented to the Board of Directors. The summary shall identify all Disqualified Persons and their positions, summarize the data relied upon and the analysis engaged in, and report findings as to reasonableness of compensation. 7

8 The Executive Committee while acting as the Compensation Committee is not charged with reviewing the performance of the Disqualified Persons. E. RESPONDING TO OFFERS TO GIFT OF REAL PROPERTY. Offers to donate real property should ordinarily be referred to Bethesda Lutheran Foundation, Inc., which typically would receive any real property donations to the Bethesda organization. In the event that a prospective donor insists on making a donation to Bethesda Lutheran Communities, Inc. or there are other sound business reasons to do so, the Executive Committee or Board of Directors shall decide whether to accept the gift or bequest of real property. Appropriate environmental investigation shall be conducted before the land is accepted. VI. THE AUDIT COMMITTEE. Management shall promptly report all matters that have the potential to have a material adverse impact on Bethesda to the Audit Committee. The Audit Committee shall engage a firm of certified public accountants annually to examine all books, papers, bonds and stocks, and submit an audit report to the Board of Directors at its November meeting. The Audit Committee shall review the auditor's report with the auditors prior to the November Board of Directors meeting and submit any recommendations deemed necessary to the Board of Directors. In addition to its duties set forth in the Bylaws, the Audit Subcommittee shall: A. Engage and meet with independent certified public accountants to plan the annual audit, review any material or unusual events or difficulties to be encountered in performing the audit, and review and approve fees for the engagement. The independent auditors shall report directly to the Audit Committee. The Audit Committee shall convey to the independent auditors that they are accountable to the Audit Committee and ultimately the Board of Directors. The Audit Committee will meet with the independent auditors in June and October (or other agreeable times) and such other times with management as required to discuss any items brought to the Audit Committee. The Audit Committee shall resolve any disagreements between management and the independent auditors regarding financial reporting. This authority shall not be delegated to management or the Board of Directors. B. Meet with the independent certified public accountants after the audit to review the audit report and the management letter and to meet with the auditors without management present to discuss any pertinent matters. C. Accept the Audit Report and present it to the Board of Directors. D. Review plans of internal and external auditors, adopt new accounting principles, authorize changes in accounting principles, establish significant reserves, disclose material contingencies, investigate variances between years and other relevant matters such as: 8

9 Irregularities/Illegal Acts Weaknesses in Internal Control Related Party Transactions Disagreements with management over the application of accounting principles or other reporting issues Unusual Transactions Unique Accounting Policies Significant Audit Adjustments Major Difficulties in Performing Audit Restrictions on Scope of Audit Accounting for Investments E. The Audit Committee shall receive and respond appropriately to allegations from any source regarding accounting concerns, failures of internal controls, auditing concerns, potentially illegal activities or similar wrongdoing. The Audit Committee shall establish whistleblower procedures to receive such allegations which shall include the following elements: The complaints may be anonymous, if desired by the reporting party. Complaints shall be made to an outside agency, not under the control of management. Under protocols developed by the Audit Committee, the outside agency receiving complaints shall first report allegations of material wrongdoing allegedly committed by or involving the President and Chief Executive Officer and/or Vice President level executive staff directly and solely to the Audit Committee for a determination of an appropriate response, and shall not at that time advise the executive leadership. After review of any complaint received making allegations of material wrongdoing allegedly committed by or involving the President and Chief Executive Officer and/or Vice President level executive staff, the Audit Committee may, based on the facts and circumstances and in its good faith judgment as to the best course of action based on the interests of Bethesda, either: o independently act on the allegation, o refer the matter to appropriate executive leadership, or 9

10 o disregard the complaint if it determines it to be immaterial, false, made in bad faith, or otherwise not worthy of a response. F. The Audit Committee shall on an ongoing basis consult and coordinate with the Audit Committee of Bethesda Lutheran Foundation, Inc. It shall promptly report to the Audit Committee of Bethesda Lutheran Foundation, Inc. any noteworthy findings or potentially damaging circumstances that have the potential to materially and adversely affect Bethesda. G. The Audit Committee is not a committee with the power to itself take action against management. If the Audit Committee makes a finding of material wrongdoing by management, it shall recommend to the Executive Committee appropriate responsive action against management. In the event that the President and Chief Executive Officer is not among the management staff involved in the alleged wrongdoing, the Executive Committee shall consider the recommendation of the Audit Committee, review the matter and if appropriate make a recommendation for action to the President and Chief Executive Officer. In the event that the President and Chief Executive Officer is among the management staff involved in the alleged wrongdoing, the Executive Committee shall consider the recommendation of the Audit Committee, review the matter and make a recommendation for action to the Board of Directors. The Board of Directors shall review the matter and if appropriate take action against the President and Chief Executive Officer and any other involved management. H. The Audit Committee shall report a summary of its activities and findings to the Board of Directors on an ongoing basis. VII. THE GOVERNANCE COMMITTEE. In addition to its duties set forth in the Bylaws, the Governance Committee shall: 1. Conduct an appropriate exit interview of each director who retires or otherwise ceases to serve as a director. The exit interviews shall be conducted by a person or persons selected by the Chairperson of the Governance Committee, and in the case of retiring directors shall be done before May Develop and implement a program for the ongoing training and development of all directors in substantive matters relevant to the mission and operations of Bethesda and its systems of governance. 3. Annually review the Articles of Incorporation, Bylaws, and the Board of Directors Operations and Policy Manual to determine if any revisions are warranted, and to determine if Bethesda is operating in conformance with 10

11 these documents. It shall report its finding to the Board of Directors at the August meeting. 4. Interpret the Articles of Incorporation, Bylaws and Board of Directors Operations and Policy Manual as needed. 5. Assist the Board of Directors with the wording of any new provisions or changes to the Articles of Incorporation or Bylaws. 6. Determine if a question is raised whether Bethesda is acting in conformance with its adopted Articles of Incorporation, Bylaws and Operations and Policy Manual. 7. Review all proposed changes to the Articles of Incorporation, Bylaws and Board of directors policies, and recommend action regarding any such changes to the Board of Directors. 8. Select candidates for election to the Board of Directors using the procedures outlined in section VIII. VIII. NOMINATIONS AND ELECTIONS OF BETHESDA DIRECTORS. A. CEO SUPPORT TO GOVERNANCE COMMITTEE. The President and Chief Executive Officer shall provide support to the Governance Committee in its director candidate selection and nomination function. The President and Chief Executive Officer shall be responsible for the following: Maintaining a data system to identify and track potential director candidates. This system shall include the name, candidate history, professional background, ability to provide financial support and other relevant information of all potential director candidates known to Bethesda. The information is to be used by the Governance Committee in selecting director candidates. Working with the Governance Committee to consider, develop and implement a plan to identify potential director candidates using sources and methods other than member or director nomination. Preparation of and, after approval by the Governance Committee, mailing of the directors election ballot. Maintaining a set of current forms for letters and other documents used in the director selection and election process. At each November Board of Directors meeting, asking directors whose term will expire the following calendar year who are eligible for re-election 11

12 to indicate whether they intend to seek re-election the following November, and then reporting the responses to the chairperson of the Governance Committee. Providing other administrative and logistical support as requested by the Governance Committee. B. SELECTION AND INTERVIEW OF POTENTIAL DIRECTOR CANDIDATES. Each year, the Governance Committee shall select a group of persons being considered for placement on that year s directors election ballot. One or more members of the Governance Committee shall interview each person being considered for ballot placement. The Governance Committee should complete Interviews of current Bethesda directors whose term will expire and who are eligible for and seek re-election by May 31 of each year, or as soon thereafter as possible. The interviews should inquire into past performance, attendance, and future expectations as a director. In each year where an election of a new director will occur, the Governance Committee, after evaluating the pool of potential director candidates, should by June 30 or as soon thereafter as possible select a group of persons not currently directors who are being considered for placement on that year s directors election ballot. The Governance Committee shall by letter invite each person in this group to an interview to discuss the following questions: Available free time to attend meetings, other service, and family commitments. Past experience as a church leader, Board member, professional, etc. Their health. Interest in Bethesda's expanding opportunities to serve in the field of developmental disabilities. Proper relationship between Board and staff. Expectations as a director of the Board and goals to be realized. Thoughts on upholding Christian principles and keeping Bethesda a Christ-centered organization. C. SELECTION OF DIRECTOR CANDIDATES. No later than September 15 of each year, the Governance Committee shall select director candidates for that year s directors election. In making its selection, the 12

13 Governance Committee should endeavor to maintain a Board of Directors containing a broad spectrum of professions and vocations to avoid a "clustering" of any single calling. The Governance Committee shall consider and follow where possible the following: Clergy representation should be maintained reasonably close to the three director minimum. The Governance Committee must be mindful to move the clergy seats around within the permitted synods. After making its director candidate selection, the Governance Committee shall forthwith report its decision to the Chairman of the Board, and notify by letter both those persons selected as director candidates and those interviewed who were not selected. D. THE DIRECTORS ELECTION BALLOT. A director selected as a candidate shall be placed on the ballot without opposition. The ballot shall be formatted to permit write-in votes for candidates not named on the ballot. The final printed form of the directors election ballot mailing (including biographical sketches) shall be approved by the Governance Committee before being mailed to all members of Bethesda. The ballot mailing shall meet the following requirements: 1. A brief biography of each candidate shall be included. Candidate biographies should be succinct and no longer than one page. 2. Incumbent directors shall be identified as incumbents. 3. The ballot envelope should be clearly marked in bold print: "Ballot Enclosed - Return by." Do not ask for a return address on the part of the one who is voting. 4. The ballot mailing shall include a cover letter, which should be instructive, simple and direct. 5. The entire ballot mailing should be mailed on the same date, or as close to the same date as possible. The directors election ballot should be mailed so that the members of Bethesda receive it before September 30. Executed ballots are to be returned to the Governance Committee in Watertown, Wisconsin. To be counted, an executed ballot must be received by October 24. E. COUNTING OF DIRECTORS ELECTION BALLOTS. As soon as practical following October 24, staff personnel subject to the direction and control of the Governance Committee shall count the ballots. Candidates with the 13

14 greatest number of votes shall be certified in writing to the Chairman of the Board. In the event of a tie, the winner shall be determined by the Governance Committee through the casting of lots. The Chairman of the Board shall notify the successful candidates by telephone as soon as possible thereafter. Additionally, the Chairman of the Board shall notify the unsuccessful candidates of the results of the election. F. INCUMBENT INDICATION OF INTENT TO SEEK RE-ELECTION. At each November Board of Directors meeting, the President and Chief Executive Officer shall ask directors whose term will expire the following November who are eligible to serve an additional term to indicate whether they intend to seek reelection the following November, and then report the responses to the chairperson of the Governance Committee. This declaration of intention is non-binding, and is intended to assist the Governance Committee in planning for the number of candidates required in the following year s director election. G. MID-TERM DIRECTOR VACANCY. When considering persons to recommend to the Chairman of the Board for appointment in the event of a mid-term director vacancy, the Governance Committee shall give consideration to any persons interviewed for but not placed on that year s directors election ballot.. IX. OFFICER ELECTION POLICIES. A. BOARD MEMBER OFFICER QUALIFICATIONS. The Chairman of the Board and Vice-Chairman of the Board shall have served at least one full term as Bethesda directors. In addition, the Chairman of the Board shall have served on the Executive Committee. The Secretary and Treasurer shall have served on the Board of Directors at least two years. B. PROCEDURES. At the August Board of Directors Meeting, a master list of eligible officer candidates shall be confirmed by the Governance Committee. The President and Chief Executive Officer thereafter shall ask each eligible director about the director s willingness to serve as to each eligible officer position. From this information, a nominating slate shall be developed and presented to the Board of Directors for nomination and election at the annual regular November Board of Directors meeting. At this time officer nominations shall be presented in the form of a ballot. 14

15 For officer positions, where there is more than one candidate for an office, the election for that office shall be by written ballot. Where there is one candidate for an officer position, the candidate shall be declared elected to the office by acclamation and no written ballot shall be required. The Chairman of the Board shall appoint counters for any election. Elections shall be by written ballot, except where permitted by acclamation. The positions shall be determined in this order: Chairman of the Board; Vice-Chairman of the Board; Secretary; and Treasurer. When there are more than two candidates for an office and the first ballot does not produce a clear majority, the person with the lowest vote count shall be eliminated and the voting shall continue in this manner until a clear majority is obtained. When a person has been elected to an office or position, that name shall be removed from the ballot for subsequent offices or positions. Should it happen that there are no candidates remaining on the ballot for a particular office or position, the floor shall be reopened for nominations and the procedures set forth above shall be repeated until a candidate is elected. X. THE EMPLOYEE PENSION TRUST A. MANAGEMENT OF THE PENSION TRUST. In addition to its duties set forth in the Bylaws, the trustees shall: Determine and administer the benefits of the Pension Trust. Review periodically the benefits provided by the Pension Trust and recommend to the Board of Directors any changes that are deemed appropriate. Maintain the Pension Trust as a qualified tax exempt trust under the Internal Revenue Code, and submit to the Board of Directors any amendments to the Pension Trust that are deemed necessary to maintain the Pension Trust as a qualified tax exempt trust under the Internal Revenue Code. Arrange for an annual actuarial valuation of the Pension Trust assets, and review the funding status of the Pension Trust. Authorize the periodic payment of required employer contributions to the Pension Trust. At each regular meeting, provide a financial report on the status of the Pension Trust to the Board of Directors. Report to the Board of Directors on the results of the annual audit at the next regular meeting after its issuance. 15

16 B. INVESTMENT POLICY OF THE PENSION TRUST (version date 8/14/2009). The Board of Directors of Bethesda Lutheran Communities, Inc. (BLC) has delegated authority for the administration and investment of the assets of the Bethesda Lutheran Communities Pension Trust (BLCPT) to five Trustees. The Chairperson annually appoints three Trustees: one director from BLC and two from Bethesda Lutheran Foundation, Inc. The Treasurer and the President and Chief Executive Officer of BLC also serve as trustees. The Vice President Finance of BLC serves as the Plan Administrator. I. MANAGEMENT POLICY. The administrative goals of the Trustees of BLCPT are to manage the Pension Trust in conformity with all of the provisions of the Trust document and to ensure the timely payment of all pension benefits due to employees of BLC. To facilitate these goals, the Trustees shall recommend the periodic payment of sums from BLC to the BLCPT, as calculated by an independent actuary and required by federal law. II. INVESTMENT PHILOSOPHY. To further facilitate the aforementioned administrative goals, the Trustees shall invest the financial resources of the BLCPT in a manner that will: A. Maximize the assets available for the payment of Pension benefits, thus minimizing the required contributions to the Trust from BLC. B. Provide necessary liquidity to facilitate pension payments from the Trust. C. Provide diversification of investment vehicles sufficient to create an acceptable level of investment risk. III. GENERAL POLICY STATEMENT. The general Investment Policy of BLCPT shall be to maximize the return on assets consistent with the degree of risk appropriate with the financial and contractual obligations of the Pension Trust and compatible with its long-range goals. This policy shall apply to all assets of the Pension Trust, whether managed externally or internally, unless otherwise indicated. Fulfillment of this general Investment Policy requires the balancing of the following objectives: A. YIELD: Assets shall be acquired which provide the maximum possible return at an acceptable level of risk to the Pension Trust. B. CAPITAL SECURITY: The preservation of asset principal value shall be maintained and associated with reasonable rates of return within the general economic environment. C. DIVERSIFICATION: Asset composition shall be structured so that proper diversification techniques are followed to ensure reduced risk exposure. Portfolio limits and diversification requirements are contained in this policy to provide quantification of the suggested diversification. 16

17 D. MARKETABILITY: The purchase of highly marketable assets shall be deemed preferable to less marketable assets where principal security, maturity, quality and rates of return are similar. Assets with lower liquidity will demand a higher rate of return than similar assets with greater marketability. Lowering risk is the primary reason for utilizing hedge fund strategies. E. LEGAL CONSTRAINTS: The investments of the BLHSPT shall be managed according to the prudent person rule. The prudent person rule may be summarized as follows: 1. The fiduciary shall discharge its duties solely in the interest of the participants and beneficiaries, and a. for the exclusive purpose of: (1) providing benefits to participants and their beneficiaries; and (2) defraying reasonable expenses of administering the plan; b. with care, skill, prudence and diligence under circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims; and c. by diversifying the investments of the plan as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. 2. The fiduciary shall give appropriate consideration to all investment decisions. Appropriate consideration includes: a. A determination by the fiduciary that the proposed investment is reasonably designed as part of the portfolio; that the fiduciary has considered the risk of loss and the opportunity for gain associated with the investment; and b. Consideration of the following factors as they relate to the investment: (1) the composition of the portfolio with regard to diversification; (2) the liquidity and current return of the portfolio relative to the anticipated cash flow requirements of the plan; and (3) the projected return of the portfolio relative to the funding objectives of the plan. IV. SPECIFIC INVESTMENT POLICIES. An integrated management system shall be used to achieve the designated investment policy objectives. To accomplish this end, specific investment policies shall be implemented, investment counsel retained and/or internal management shall be used, depending on market conditions, the funds being managed, the economic environment, the current policy objective and/or the type of investment being considered. There shall be a specific policy for each general category of investment. A category of investment here is defined to mean a type of function to fulfill a specific investment objective. 17

18 A. DEFINITION OF INVESTABLE FUNDS: Investable funds of the BLCPT shall be defined as all assets of the Pension Trust, expressed on a market basis as of the month end immediately preceding the Trustee s Committee meeting. B. ASSET ALLOCATION: The Trustees of the BLCPT shall determine the allocation of total investable funds among the major categories of investment vehicles (equities, fixed income, alternative and cash) expressed as a percentage of the whole, within the limitations set forth below. These allocation targets shall form the basic structure within which strategic investment decisions shall be rendered. As such, these allocation targets shall be considered guidelines rather than strict limitations. At least annually, the Trustees shall evaluate the appropriateness of the current allocation targets, considering past performance, current economic conditions and projected cash flow requirements of the plan. The Trustees shall adjust the allocation target percentages as they deem necessary. C. MONITORING AND RE-BALANCING OF ASSET ALLOCATIONS: At each quarterly meeting, the Trustees shall review a schedule of all investable assets at current market value, showing each asset classification expressed in both absolute dollars and as a percentage of total assets. Within the equity asset classification, the analysis shall further classify each equity portfolio by style and capitalization in both absolute dollars and as a percentage of total equity investment. The analysis shall include a comparison with the allocation targets described below. If one or more of the major asset classifications deviates from its minimum or maximum limitation, as defined below, the Trustees shall either direct a re-balancing of the asset allocation to rectify the condition or act to change the strategic balance relationship between asset allocation categories or agree to accept the situation pending review at the next meeting. Within the equity asset classification, if a portfolio exceeds the allocation target (expressed in absolute dollars) by more than 20%, the Trustees shall consider additional asset re-balancing within the equity classification. However, as stated above, the equity allocation targets are guidelines and not absolute limitations. Therefore, such re-balancing of equity investments shall be at the discretion of the Trustees. D. EQUITY STOCK INVESTMENT: 1. Limitations a. A maximum of seventy percent (70%) of investable funds shall be invested in equity stock (common or preferred). Securities convertible into stock shall be considered the same as stock. b. The holding in any one stock issue shall be limited to fifteen (15%) of that specific stock portfolio s total market value. c. No further restrictions on specific stock selection (political or moral) shall be placed upon equity portfolio managers, except that managers hired to represent a particular style and capitalization level are expected to limit their selections to stocks that meet those criteria. 2. Allocation of Equity Investment Funds: 18

19 a. The Trustees shall determine allocation targets for equity investments among the various classifications of styles and capitalization levels they wish to employ, expressed as a percentage of total funds dedicated to equity investment. This process shall include consideration of growth vs. value, domestic vs. international and large-cap vs. mid-cap vs. small-cap. b. Equity mutual funds may also be used as an equity investment vehicle for further diversification of both specific issues held and equity management philosophy. (Equity mutual funds shall be exempt from the limitation listed in IV. D. 1.b. above. 3. Equity Portfolio Manager / Equity Mutual Fund Selection: In selecting external equity portfolio managers or equity mutual funds, the Trustees shall give consideration to: a. Prevailing conditions in the stock market and the U.S. economy in general. b. Diversification requirements of both management philosophy and specific issues to be held. c. The portfolio manager s / mutual fund s investment philosophy, policies and strategies, past performance record and fee schedule d. The Trustees shall engage the services of a national brokerage firm to facilitate the settlement and safekeeping of equity securities. With the assistance of an investment consultant from that brokerage firm (or other sources as necessary), the Trustees shall select active equity portfolio managers (or equity mutual funds), to represent each of the equity classifications it has decided to employ. The Trustees shall select such managers (or mutual funds ) based on their specific investment style, depth of management personnel and historical performance, compared to that of an appropriate benchmark index over a period of time representing a full economic cycle. 4. Equity Investment Objectives: The primary objective of equity investment shall be to maximize both the cash return and total return of each equity portfolio, while accurately representing the style / capitalization level for which the manager was selected and to exceed the return of an appropriate equity index which most closely represents the style / capitalization characteristics of the manager. 5. Definitions of Cash Return and Total Return : a. Cash Return shall mean dividend income plus net realized capital gains, earnings on temporary cash investments and any other cash income directly attributable to the funds authorized for equity investment controlled by the equity portfolio manager. b. Total Return shall consist of the cash return plus unrealized gains, less unrealized losses. 6. Equity Portfolio Manager Responsibility: a. The equity portfolio manager shall have sole discretion and responsibility for all funds under his management. This includes determining the amount of managed funds actually in equities, the particular stocks owned (subject to the limitation of IV.D.1.b.) and the timing of the purchase and sale of stocks. b. The equity portfolio manager shall provide the Trustees or their designee with the latest quarterly and fiscal year-end appraisal reports. 19

20 7. Equity Portfolio Manager Performance Evaluation: a. The Trustees shall regularly monitor and evaluate the performance of each equity mutual fund or portfolio manager based on his success in meeting the equity investment objectives (outlined in IV.D.4. above). b. The Trustees recognize that equity investments are long-term in nature. The objective of maximizing total cash returns, therefore, is not a short-term objective and will be viewed over a period of years. It is neither expected nor desired that capital gains be realized solely for the purpose of adding to total cash return. The Trustees intend that sale decisions reflect the equity portfolio manager s belief that the security has less attractive return prospects than can be realized in an alternative security or temporary cash investment. The Trustees do encourage the manager to sell a security to realize a gain when the manager believes that a potential gain may be eroded by a decline in the market value of the security. c. The Trustees shall periodically re-evaluate each equity portfolio manager considering the selection criteria described in IV.D.3. above and that manager s long-term performance as measured against the equity investment objectives outlined in IV.D.4. above. d. The investment consultant shall provide the Trustees with regular quarterly reports detailing the performance of each equity manager (or mutual fund) compared to that of a benchmark index previously selected by mutual consent with the equity manager. In addition, the investment consultant shall provide a regular comparison of total equity performance from all managers (and mutual funds) compared to a customized index representing the weighted average of each individual manager s benchmark index. e. Any change in ownership or material change in the management structure of an equity portfolio manager shall precipitate a re-evaluation of the decision to retain that manager s services, no later than the next quarterly meeting. The Trustees shall rely on the investment consultant to monitor such changing conditions. The investment consultant shall promptly contact and inform the Chairperson of the Trustees of such changes. If in the opinion of the Chairperson, it would be prudent to discuss such changes before the next regularly scheduled meeting, the Chairperson shall arrange for an interim meeting of the Trustees (or conference call) to render a decision to retain or terminate the equity portfolio manager. 8. Sub-Standard Performance By An Equity Manager: a. If an equity manager fails to meet the performance of the designated benchmark index for the one year and three year periods and is ranked in the lower 50th percentile in the universe of his peers, the equity manager will be placed on a probationary status. The equity manager shall be instructed to appear before the Trustees at their next quarterly meeting or as soon as possible thereafter. b. The Trustees, with the assistance of the investment consultant shall evaluate the specific circumstances contributing to the under performance of the portfolio. The investment consultant shall report to the Trustees information verifying that key management staff remains in place, stock selection 20

21 practices remain consistent with the manager s stated style and other internal factors are stable, while also examining the specific components of the benchmark index. c. The final decision to terminate a manager for sub-standard performance shall result from an overall evaluation of the relevant facts and the Trustees conclusion that the manager has failed to perform in the manner consistent with that for which the manager was hired and further that alternative managers are available, who meet the same stated style and capitalization criteria, and who continue to meet or exceed the benchmark index. d. If the equity manager has been on a probationary status for a period of 24 months, a decision must be made to terminate the manager or rescind the probationary status. 9. Equity Mutual Fund Performance Evaluation: At its second regular quarterly meeting of the calendar year, the Trustees shall evaluate the performance of each equity mutual fund based on its success in meeting the equity investment objectives outlined in IV.D.4. above. E. FIXED INCOME INVESTMENT: 1. Limitations. At least fifteen percent (15%) of total investable funds of BLCPT shall be held in fixed income securities. This percentage amount may be up to one hundred percent (100%) of total investable funds, if the Trustees shall so elect. 2. Definition of Acceptable Vehicles. Fixed income investments may include, but shall not necessarily be limited to, any fixed income obligation of the U.S. Treasury or any agency thereof, any corporate fixed income obligation, any asset collateralized security, or any other fixed income obligation, including fixed income mutual funds with similar characteristics, provided that the security or mutual fund has a degree of liquidity and the security (or holdings of a mutual fund) have a rating of at least BBB, excluding bond mutual funds or cash or cash equivalents. Appropriate consideration shall be given to cash flow and liquidity needs of the Plan. 3. Fixed Income Investment Objectives: The primary objective of fixed income investments is the preservation of capital, while rendering a weighted average return that is commensurate with or exceeds that of U.S. Treasury obligations with maturities of three to five years. The expected rate of return on a managed portfolio of instruments other than U.S. Treasury obligations must exceed that described above by a margin considered to be acceptable by the Trustees for the additional degree of risk that it represents. 4. Allocation of Fixed Income Investment Funds: a. The Trustees shall determine the allocation of fixed income investment funds between individually managed portfolios to facilitate proper diversification. b. Fixed income mutual funds may also be used as a bond investment vehicle for further diversification of both specific issues held and bond management philosophy. 5. Fixed Income Manager Selection: The Trustees shall select external fixed income portfolio managers or mutual funds giving consideration to: a. Prevailing conditions in the bond market and the U.S. economy in general. 21

22 b. Diversification requirement of both management philosophy and specific issues to be held. c. Individual fixed income portfolio manager s / mutual fund s investment philosophy, policies and strategies, past performance record and fee schedule. 6. Fixed Income Portfolio Manager Responsibility: a. The fixed income portfolio manager has sole discretion and responsibility for all funds under his management. This includes determining the amount of managed funds actually in fixed instruments, the particular issues owned and the timing of the purchase and sale of securities. b. The fixed income portfolio manager shall provide the Trustees with the latest quarterly and fiscal year-end appraisal reports. 7. Fixed Income Portfolio Manager Performance Evaluation: a. The Trustees shall regularly monitor and evaluate the performance of each fixed income portfolio manager based on his success in meeting the investment objectives outlined in IV.E.3. above. b. The Trustees recognize that fixed income investments are long-term in nature. The objective of maximizing total cash returns, therefore, is not a short-term objective and will be viewed over a period of years. It is neither expected nor desired that capital gains be realized solely for the purpose of adding to total cash return. The Trustees intend that sale decisions reflect the fixed income portfolio manager s belief that the security has less attractive return prospects than can be realize in an alternative security or temporary cash investment. c. The Trustees shall periodically re-evaluate each fixed income portfolio manager considering the selection criteria described in IV.E.5. above and that manager s long-term performance as measured against the investment objectives described in IV.E.3. above. F ALTERNATIVE INVESTMENTS: 1. Limitations. Alternative investments shall constitute an additional investment asset classification limited to a maximum of twenty-five percent (25%) of total investable funds. 2. Objectives. Alternative investments shall be utilized as part of an overall strategy to reduce volatility of investment return (risk) by producing a consistently positive absolute return that does not correlate with the performance of either the equity or bond market 3. Evaluation. Alternative investments shall be evaluated based on the production of consistent positive real returns. G. CASH DEPOSITS. Total cash deposits in any one financial institution shall be limited to the federally insured value and any excess amounts shall be invested in any money market fund with an investment policy which limits such investments to U.S. Treasury obligations. H. STAFF AUTHORITY. The Vice-President Finance shall be designated by the Trustees as the Plan Administrator and shall be responsible, through the President and 22

23 Chief Executive Officer of BLC, to execute daily investment transactions within the guidelines defined by the Trustees. The Plan Administrator shall report all such transactions to the President and Chief Executive Officer on a timely basis. XI. CORPORATE COMPLIANCE AND ETHICS POLICIES. A. CODE OF ETHICS. Bethesda, and its directors, officers and management, shall promote honest and ethical conduct in all Bethesda activities. Any actual or potential conflicts of interest shall be disclosed, reviewed and resolved promptly and appropriately. In all activities, Bethesda and its directors, officers and management shall comply with applicable law and governmental regulations. Bethesda shall have a mechanism for reporting internal violations of this Code to ensure accountability and appropriate oversight. There shall be no retaliation of any nature against any person who makes a good faith report of a potential violation of this Code. B. OFFICER AND DIRECTOR CONFLICTS OF INTEREST POLICY. This conflicts of interest policy is intended to protect Bethesda s interest when it is contemplating entering into a transaction or arrangement that might benefit the private interest of an officer or director of Bethesda. This policy is intended to supplement but not replace any applicable state laws governing conflicts of interest applicable to nonprofit and charitable corporations. Definitions. Interested person means any director, principal officer, or member of a committee with Board delegated powers who has a financial interest, as defined below. If a person is an interested person with respect to any corporation in which Bethesda has a membership or controlling interest, or which has such an interest in Bethesda, then he or she is an interested person with respect to all such corporations. Financial interest. A person has a financial interest if the person has, directly or indirectly, through business, investment or family: An ownership or investment interest in any entity with which Bethesda has a transaction or arrangement, or A compensation arrangement with Bethesda or with any entity or individual with which Bethesda has a transaction or arrangement, or A potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which Bethesda is negotiating a transaction or arrangement. 23