Corporate Governance Guidelines

Corporate Governance Guidelines

1. Role of the Board of Directors

   The primary role of the Board of Directors (the "Board") of Emeritus Corporation (the "Company") is to oversee the business affairs and management of the Company, including appointing and overseeing senior management, for the benefit of its shareholders and other constituencies. The Company's management is responsible for conducting the day-to-day operations of the Company pursuant to appropriate delegation of authority and oversight by the Board.

2. Director Qualifications

   • General. Each director should possess a high standard of personal and professional ethics, integrity and values, and be committed to acting in the best interests of the Company's shareholders. Directors should have the ability to keep an open mind in carrying out their duties and responsibilities to the Company.
   • Independence. It is the policy of the Company that a majority of the members of the Board qualify as independent in accordance with the applicable standards of the New York Stock Exchange, as well as other applicable laws and regulations. In making independence determinations, the Board will review information provided by the directors and the Company with regard to each director's business and personal activities and relationships as they may relate to the Company and the Company's management.
   • Additional Criteria. The Nominating and Corporate Governance Committee works with the Board on an annual basis to determine the appropriate characteristics, skills, and experience for the Board as a whole and its individual members with the objective of having a Board with appropriately diverse backgrounds and experience in business, government, education, and other matters. In evaluating the suitability of individual Board members, the Board may take into account many factors, including: general understanding of marketing, finance, and other disciplines relevant to the success of a publicly traded company in today's business environment; understanding of the Company's business; educational and professional background; personal accomplishment; and geographic, gender, age, and ethnic diversity. The Board evaluates each individual in the context of the Board as a whole, with the objective of having a Board that can best perpetuate the success of the Company's business and represent shareholder interests through the exercise of sound judgment. In determining whether to recommend a director for re-election, the Nominating and Corporate Governance Committee also considers the director's past attendance at meetings, and participation in and contributions to the activities of the Board.

3. Director Responsibilities

   • General. Directors should exercise their judgment consistent with their fiduciary duties in taking action regarding what they reasonably believe to be in the best interests of the Company and its shareholders. In considering the Company's best short-term and long-term interests, directors may consider the needs of employees, suppliers, clients and other constituencies of the Company and its subsidiaries, communities in which the Company and its subsidiaries conduct business and other pertinent factors, in addition to fulfilling its obligations to maximize shareholder value. In exercising their judgment concerning the best interests of the Company, directors are entitled to rely upon the advice and integrity of the Company's management and its outside advisors and independent auditors as is reasonable under the circumstances.
   • Conflicts of Interest. A director must promptly advise the Chairmen of the Audit and Special Committees of any potential or current conflict of interest, including personal or business-related matters, he or she may have with respect to matters relating to the Company, and, as appropriate, abstain from considering or voting on matters relating to any such conflict. The Audit Committee or the Special Committee generally will review conflict of interest matters.
   • Confidentiality. Directors are required to preserve the confidentiality of company-related confidential materials and may not use such information for other than the purpose of serving as a director of the Company.
   • Term and Age Limits. The Board does not believe it should limit the number of terms for which an individual may serve as a director or the age of a director serving on the Board. The Board believes that directors who have served on the Board for an extended period of time are or of a certain age are often able to provide special and valuable insight into the operations and future of the Company based on, among other things, their experiences with and understanding of the Company industry or business generally. The Board believes that, as an alternative to term and age limits, it can ensure that the Board continues to evolve and adopt current and relevant viewpoints through the evaluation and nomination processes described in these guidelines.
   • Directors with Significant Job Changes. The Board requires that any director who retires from his present employment, or who materially changes his position, must offer to resign from the Board. The Board, and specifically the Nominating and Corporate Governance Committee, will then evaluate whether the Board should accept the resignation based on a review of whether the individual continues to satisfy the Board's membership criteria in light of his changed occupational status.
   • Other Directorships. Directors must advise the Board in advance of accepting an invitation to serve on another public company board. In considering service on another public company board, directors are to consider time and other requirements for the preparation, participation and attendance regarding those boards.

4. Board and Committee Processes

   • Meetings. Directors are expected to attend meetings of the Board and the Board committees upon which they serve. Information and data, including agendas, important to the Board's understanding of the business to be discussed at Board or committee meetings will be distributed in advance of meetings to the extent practicable. To prepare for meetings, directors are to review the materials distributed in advance of meetings and be prepared to appropriately discuss such materials at the meetings.
   • Independent Director Executive Sessions. The Board will meet regularly at independent director executive sessions where the independent directors meet without non-independent director or management participation. The meetings will be chaired on a rotating basis by the Chairs of the Audit, Compensation and Nominating and Corporate Governance Committees.
   • Committees. The Board will maintain an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee that shall operate in accordance with applicable laws and regulations, including those of the SEC and NYSE, and their respective charters as adopted and amended from time to time by the Board. In addition, the Board has established a Special Committee of Independent Directors to review certain transactions with directors and may establish such other Board committees as it deems necessary, and may delegate to Board committees such authority permitted by applicable laws and regulations and the Company's governance documents, as the Board determines appropriate. All members of the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee must be independent (as required by the applicable committee charter). Each committee will have its own charter (or Board-specified purposes, duties and responsibilities if there is no charter). Each charter will set forth the purposes, duties and responsibilities of the committee. The charters of the Audit Committee, Compensation Committee and the Nominating and Corporate Governance Committee will be reviewed annually and be publicly available and posted on the Company's website.

5. Director Access to Management and Outside Advisors

   Each director has complete access to Company employees, including management, and facilities. The Board and its committees, to the extent set forth in the applicable committee charter, may consult and retain outside financial, legal, compensation or other advisors at the expense of the Company on issues relating to Board or committee matters.

6. Board Communications to Outside Parties

   The Chief Executive Officer(s) and other applicable senior management are responsible for communicating for the Company, including establishing appropriate dialogues with the Company's constituencies. The Chairman of the Board (or, if appointed, the lead independent director) is the spokesperson for the Board. On occasion, however, individual directors may meet or otherwise communicate with various constituencies regarding the Company after consultation with the Chairman of the Board or senior management.

7. Director Compensation

   Generally, the Board believes that the level of director compensation should be based on time spent carrying out Board and committee responsibilities and should be competitive with comparable companies. In addition, the Board believes that a significant portion of director compensation should align director interests with the long-term interests of shareholders. Directors may be compensated by any combination of: (i) annual retainer payment, (ii) Board or committee meeting fees, including out-of-pocket expense reimbursement for meeting attendance, and (iii) equity or equity-based awards. In determining director compensation, contributions to charities or organizations with which directors are affiliated may be considered. The Compensation Committee will review and recommend to the Board for determination the form and amount of director compensation, including cash, equity or equity-based awards and other director compensation, in accordance with its charter. Employee directors do not receive additional compensation for service as director.

8. Director Orientation and Continuing Education

   The Company shall provide for appropriate director orientation programs, sessions and materials for newly elected directors either prior to or within a reasonable period of time after their appointment or election as a director. Orientation includes an introduction to key personnel and facilities and business-related corporate governance materials. The Board expects directors to periodically attend programs and otherwise keep current regarding the responsibilities of directors of publicly traded companies and the Company generally. Directors may be reimbursed by the Company for director continuing education programs relating to their Board and committee service.

9. Management Evaluation and Succession

   • Selection of Chief Executive Officer(s) and Chairman; Lead Independent Director. The Board selects the Company's Chief Executive Officer(s) and Chairman of the Board in the manner that it determines to be in the best interests of the Company's shareholders. The Board does not have a policy as to whether the Chairman should be an independent director, an affiliated director or a member of management. When the Chairman is an affiliated director or a member of Company management, the Board, at its discretion and upon the recommendation of the Nominating and Corporate Governance Committee, may have the Chairman of the Nominating and Corporate Governance Committee, who shall be an independent director, act ex officio as the lead independent director of the Board, with responsibility for coordinating the activities of the other independent directors and for performing the duties specified in these guidelines and such other duties as are assigned from time to time by the Board.
   • Chief Executive Officer(s) Evaluation. The Nominating and Corporate Governance Committee leads the annual review of the performance of the CEO(s), with input from the Compensation Committee following review of CEO compensation. The evaluation results are reviewed and discussed with the independent directors, as well as the full Board as appropriate, and the results are communicated to the Chief Executive Officer(s). The Nominating and Corporate Governance Committee with input from the Compensation Committee establishes the evaluation process and determines the criteria on which CEO performance is evaluated.
     
     The Chief Executive Officer(s) in consultation with the Nominating and Corporate Governance Committee and the Board, as appropriate, shall provide an annual report on succession planning and related senior management-development recommendations to the Board, including a short-term succession plan delineating temporary delegation of authority in the event that the Chief Executive Officer(s) or any other senior management is unexpectedly unable to perform his duties.

10. Annual Performance Evaluation of the Board

    The Board and its committees will conduct annual self-evaluations to determine whether they are functioning effectively. The Board and the committees, as applicable, will discuss the evaluation report to determine what, if any, action could improve performance. Such evaluations shall be conducted in accordance with procedures, from time to time adopted, by the Board and such committees in consultation with the Chairman of the Board and the Nominating and Corporate Governance Committee.

11. Review and Waiver of Corporate Governance Guidelines

    The policies and practices memorialized in these corporate governance guidelines will be reviewed periodically, as appropriate, by the Nominating and Corporate Governance Committee, with any recommended amendments approved by the Board. The Board may waive or suspend or repeal any of these corporate governance guidelines at any time, with or without public notice, as it determines necessary or appropriate in the exercise of the Board's judgment consistent with its fiduciary duties.

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