TURQUOISE HILL RESOURCES LTD.
1. Corporate Governance Practices
STATEMENT OF CORPORATE GOVERNANCE
The board of directors (the "Board") of Turquoise Hill Resources Ltd. (the "Corporation") considers good corporate governance an important factor in the continued and long-term success of the Corporation and in maximizing shareholder value over time. As a corporation listed on the Toronto Stock Exchange (the "TSX"), the Corporation is subject to Canadian securities requirements and the rules and policies of the TSX relating to corporate governance.
As a foreign private issuer listed on the New York Stock Exchange (the "NYSE") and the Nasdaq Capital Market ("Nasdaq"), the Corporation is not required to comply with most of the NYSE standards relating to corporate governance (the "NYSE Rules") and the Nasdaq requirements relating to corporate governance (the "Nasdaq Rules"), and instead may comply with domestic requirements. The Corporation believes that its corporate governance practices comply in most respects with the NYSE and Nasdaq Rules and generally do not differ from those followed by U.S. companies under such rules. To the extent required by applicable law, rule, regulation or policy of an exchange, the Corporation will disclose any significant differences between its corporate governance practices and the NYSE Rules and Nasdaq Rules in its public filings.
The Corporation continues to review its corporate governance practices to ensure compliance with all of the applicable requirements under Canadian securities legislation and regulations and with the disclosure and listing requirements of the TSX, as well as applicable U.S. securities legislation and regulations, including the U.S. Sarbanes-Oxley Act of 2002
and the NYSE Rules and Nasdaq Rules.
2. Board of Directors
The Board of the Corporation is currently composed of seven members, a majority of whom are independent directors within the meaning of Canadian securities legislation, and the NYSE Rules and Nasdaq Rules.
The Board has responsibility for supervising the conduct of the Corporation's affairs and the management of its business, with the objective of increasing shareholder value. The Board fulfills its mandate through direct oversight, setting policy, appointing committees of the Board, discharging their respective mandates, and appointing the CEO. The Board takes all reasonable measures to ensure that policies and processes are in place for identifying principal business risks and opportunities for the Corporation, addressing the extent to which such risks are acceptable to the Corporation, and requiring management to establish appropriate systems to manage those risks.
The Corporation expects its directors to commit sufficient time and effort to the Corporation's business. The directors are expected to attend all board meetings and review in advance all meeting materials. The Board also ensures that prospective directors understand the role of the Board and its committees and the contribution that individual directors are expected to make, including, in particular, the commitment of time and energy that the Corporation expects of its directors.
- Conflicts of Interest
Board members are regularly asked to disclose any conflict or potential conflict of interest prior to Board meetings. A director's conflict or potential conflict is recorded in the minutes of the meeting and the director is required to abstain from voting on any resolution in respect of that matter. In particular, in relation to any agreements entered into between Rio Tinto and the Corporation, decisions are made solely by the independent directors of the Corporation.
- Majority Voting
The Board has adopted a policy providing that in an uncontested election of directors, any nominee who receives a greater number of votes "withheld" or "abstained" than votes "for" will tender his or her resignation to the board promptly following the meeting of shareholders at which the director is elected. The Board will accept such resignation, except in exceptional circumstances, and announce such decision in a press release to be issued within 90 days following the meeting of Shareholders. The director who offered to tender his or her resignation pursuant to this policy will not participate in any committee or Board deliberations and decisions pertaining to the resignation offer.
- Annual Performance Evaluation of the Board
The Nominating and Corporate Governance Committee oversees the process for assessing the effectiveness of the Board as a whole, the committees of the Board, and the contribution of individual directors. The Nominating and Corporate Governance Committee has developed and regularly updates an annual assessment process for the Board, each of its committees, and the contribution of individual directors. Directors complete Board and committee assessments.
The Nominating and Corporate Governance Committee and the Board review the completed questionnaires. As part of this evaluation process, directors also complete self-assessments which assess matters including skills and experience, preparation, attendance, accountability, communication, and contribution to strategic planning.
- Director Compensation
In accordance with its charter, the Compensation and Benefits Committee reviews and makes recommendations to the Board on an annual basis with respect to the adequacy and form of the compensation for non-executive directors, taking into account the responsibilities and risks involved and the importance of not compromising the directors' independence. It also determines fees payable to members of any ad hoc committees established by the Board.
- Director Orientation and Continuing Education
The charter of the Nominating and Corporate Governance Committee provides that this committee is responsible for developing and maintaining orientation and continuing education programs for directors. The Corporation encourages and directors attend appropriate continuing education activities, including seminars, conferences, and industry forums. Directors have full access to the Corporation's records and are encouraged to communicate with management, auditors and technical consultants to assist them in maintaining the skills and knowledge necessary to meet their obligations as directors; to keep themselves current with industry trends and developments and changes in legislation with management's assistance; and to attend related industry seminars.
- Retention of Independent Advisors
In performing its responsibilities, the Board or any committee of the Board may, as required and subject to advising the Chairman of the Board, engage an outside advisor for advice and assistance at the expense of the Corporation.
- Direct Access to Management
Members of the Board have full access to the management of the Corporation. In addition, the Board encourages management to address the Board in those instances where a manager's expertise and assistance can enhance the Board's understanding of a particular issue under its consideration.
- Management Succession
The Board is responsible for overseeing the existence of appropriate mechanisms regarding succession planning for the Corporation's senior management. It chooses the Chief Executive Officer of the Corporation (the "CEO") in agreement with its controlling shareholder. The Board oversees the succession plans for the CEO in agreement with the Corporation's controlling shareholder.
- Code of Business Conduct
The board has adopted a Code of Business Conduct that governs the behaviour of the Corporation's directors, officers, contractors, suppliers and employees.
- Complaints Regarding Auditing and Accounting Matters
Complaints from non-employees about accounting, internal accounting controls or auditing matters can be confidentially and anonymously submitted to EthicsPoint, an independent firm providing confidential and anonymous "hotline" reporting, by calling 1.866.384.4277 or through the Corporation's website. The Corporation prohibits retaliatory action against any employee who, in good faith, reports a possible violation.
- Communication with the Chairman of the Board
Shareholders and other interested parties may communicate confidentially with the Chairman of the Board or with non-management directors as a group by mail at Suite 354 - 200 Granville Street, Vancouver, British-Columbia, Canada V6C 1S4. Communications received in this manner will be processed in accordance with procedures approved by the Board's independent directors.
3. Board Committees
From time to time, the Board may delegate certain tasks to its committees. However, such delegation does not relieve the Board of its overall responsibilities. The Corporation has an Audit Committee, a Compensation and Benefits Committee, a Nominating and Corporate Governance Committee and a Health, Safety and Environment Committee, and has adopted formal charters for each of its committees. These charters describe the responsibilities delegated to each committee.
- Audit Committee
The primary objective of the Audit Committee is to act as a liaison between the Board and the Corporation's independent auditors and internal auditors and to assist the Board in fulfilling its oversight responsibilities with respect to: (a) the accounting and financial reporting processes of the Corporation, including the integrity of the financial statements and other financial information provided by the Corporation to its shareholders, the public and others; (b) the Corporation's compliance with legal and regulatory requirements; (c) the audit of the Corporation's financial statements; (d) the qualifications, independence and performance of the independent auditors; (e) the Corporation's risk management and internal financial and accounting controls, and management information systems, including the performance of the Corporation's internal audit function; and (f) such other matters as shall be mandated under applicable laws, rules and regulations.
Each member of the Audit Committee must be financially literate, independent and at least one member must have accounting or related financial experience and be an audit committee financial expert. In determining whether or not a director is independent, financially literate or is an audit committee financial expert, the Board follows the applicable Canadian and U.S. securities legislation and regulations, as well as the NYSE Rules and Nasdaq Rules.
Because of the Audit Committee's demanding roles and responsibilities, the mandate of such committee provides that no member of the Audit Committee may serve simultaneously on the audit committees of more than three public companies, including the Corporation, unless the Board of directors of the Corporation determines that such simultaneous service would not limit or impair the ability of such members to effectively serve on the Audit Committee. The basis for such determination is disclosed as required by law or stock exchange regulation. In addition, directors that are chief executive officers or other senior executives of public corporations, should hold no more than two public corporation directorships (including the Corporation's Board), and other directors should hold not more than five public corporation directorships (including the Corporation's Board).
- Compensation and Benefits Committee
The primary objective of the Compensation and Benefits Committee is to assist the Board in discharging its responsibilities relating to compensation of the executive officers and directors of the Corporation.
- Nominating and Corporate Governance Committee
The primary objective of the Nominating & Corporate Governance Committee is to assist the Board in fulfilling its oversight responsibilities by (a) identifying individuals qualified to become Board and Board committee members and recommending that the Board select director nominees for appointment or election to the Board; (b) developing and recommending to the Board corporate governance guidelines for the Corporation and making recommendations to the Board with respect to corporate governance practices; (c) recommending such permanent or ad hoc committees as it deems necessary for the purposes of assisting in the corporate governance of the Corporation; and (d) addressing such other matters as shall be mandated under applicable laws, rules and regulations.
- Health, Safety and Environment Committee
The Health, Safety and Environment Committee assists the Board in fulfilling its oversight responsibilities by ensuring the Corporation has established appropriate practices with respect to health, safety and environmental matters affecting the Corporation.
The Corporation has a Health, Safety and Environment ("HSE") Policy that affirms its commitment to protecting the environment and to safeguarding the health, safety and welfare of all employees, contractors and communities who are affected by the Corporation or its subsidiaries. The Corporation is dedicated to performing its duties in a safe, environmentally responsible and effective manner.
These guidelines will be annually reviewed by the Board and may be amended from time to time.