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Learn about the corporate governance guidelines that govern the Blue KC Board of Directors.

Blue Cross and Blue Shield of Kansas City (Blue KC)
Corporate Governance Guidelines
Adopted on May 12, 2004

The Blue Cross and Blue Shield of Kansas City ("Blue KC") Board of Directors has adopted the following Corporate Governance Guidelines. These guidelines, along with the Blue KC Bylaws, the Board Charter, the Board Committee Charters, and Board policies provide the framework for governing Blue KC.

1. Duties and Responsibilities

a. The Role of the Board of Directors.
The Blue KC Board of Directors oversees and guides the company's business through the exercise of its business judgment in what it reasonably believes to be in the best interests of Blue KC. Within this framework, the Board also considers the interests of other constituents such as customers, employees, business partners and the communities in which Blue KC operates. The Board selects the Chief Executive Officer ("CEO") who in turn selects executives (collectively "Management") who are charged with the conduct of Blue KC 's business in a manner that is consistent with the direction provided by the Board and the Blue KC standards of business conduct. Having selected Management, the Board oversees and monitors their performance.

b. Duty of Care.
Directors have an obligation to exercise appropriate diligence in making decisions and overseeing management. As a result, directors are expected to: (1) acquire an understanding of Blue KC 's business; (2) keep informed about Blue KC activities; (3) maintain familiarity with the Blue KC financial status by reviewing financial statements regularly; (4) prepare for, attend and participate in Board and applicable committee meetings; (5) spend time to meet as often as necessary to properly discharge their obligations; (6) review all materials pertinent to a decision to be made by the Board; (7) make inquiry when additional information is needed, or circumstances or events indicate board attention is appropriate; and (8) act in the best interest of Blue KC. Directors are entitled to rely (absence knowledge that such reliance is unwarranted) on information, opinions, reports or statements, and other data, prepared or presented by officers or employees, public accountants, legal counsel, board committees or other persons who are reasonably believed to be competent to prepare or present such matters to the Board.

c. Duty of Loyalty: Conflicts of Interest.
Directors owe an undivided duty of loyalty to Blue KC. 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 must act in good faith in the best interest of Blue KC and not use their positions for their own interest or in the interest of another person or organization with which the Director is associated. Directors must recuse themselves from voting or participating in deliberations on matters in which a conflict of interest may arise, unless their participation is approved by a majority vote of the disinterested members of the Board after full disclosure of the circumstances giving rise to the potential conflict.

Directors (as well as all Blue KC employees) are required to execute an annual statement setting forth any existing or potential conflicts of interest, including any relationships they have as a purchaser or a seller of goods or services to or from Blue KC. Any material conflicts will be reported to the Board and may require abstention from participation in discussion and in voting by such director on matters related to the conflict

2. Board Composition and Qualifications of Directors

a. The size of the Board.
As provided by the Blue KC bylaws, the Board of Directors shall consist of at least twelve, and no more than sixteen members.

b. Independent Directors.
A majority of Board members must be Independent Directors. In addition, all members of the Audit Committee, and a majority of the Personnel and Governance Committees must be Independent Directors. Directors have an affirmative obligation to inform the Chairman of the Board and the Chairman of the Governance Committee of any changes in their circumstances or relationships that may impact their designation as independent.

c. Definition of Independent Director.
The term "Independent Director" shall mean a director whom the Board affirmatively determines has no material relationship with Blue KC (either directly or as a partner, shareholder or officer of an organization that has a material relationship with Blue KC). In addition, the following individuals shall not be considered an Independent Director of Blue KC:

i.  A director who is, or in the past 3 years has been, employed by Blue KC or any of its subsidiaries; or whose immediate family member is, or in the past 3 years has been, employed as an officer of Blue KC or any of its subsidiaries.

ii. Director who receives, or whose immediate family member receives more than $100,000 per year in direct compensation from Blue KC [other than: (a) director or committee fees; (b) pension or other forms of deferred compensation for prior service, provided such compensation is not contingent in any way on continued service; and (c) health plan benefit payments to the director or their family member]. Such directors shall not be considered independent until 3 years after the director (or family member) ceases to receive more than $100,000 per year in such compensation. Compensation paid to a director's immediate family member who is not an officer of Blue KC shall not be considered under this test.

iii. A director who is, or has been, affiliated with or employed by (or whose immediate family member is, or has been, affiliated with or employed in a professional capacity by) a present or former internal or external auditor of Blue KC. Such directors shall not be considered independent until 3 years after the end of the affiliation, employment or auditing relationship.

iv. A director who is, or has been, (or whose immediate family member is, or has been,) employed as an executive officer of another organization where any of Blue KC 's present executives serve on that other organization's Compensation Committee. Such directors shall not be considered independent until 3 years after the end of such service or employment relationship.

v. A director who is an executive officer or an employee (or whose immediate family member is an executive officer) of another organization that makes payments to, or receives payments from Blue KC in an amount which exceeds 2% or $1,000,000, whichever is greater, of such other organization's annual consolidated gross revenues in a single fiscal year.

Such directors shall not be considered independent until 3 years after falling below such revenue threshold. This test shall apply only to the director or family member's current employer.

vi. A director who is, or has been, (or whose immediate family member is, or has been) an officer or director of a tax exempt organization that receives more than $100,000 in contributions from Blue KC in a year. Such directors shall not be considered independent until 3 years after such relationship ends.

vii. A director who is, or has been, a practicing physician (MD, DO or DDS) participating in a Blue KC network shall not be considered independent until 3 years after such director is no longer a practicing or participating physician.

viii. An "immediate family member" includes a person's spouse, parents, children, siblings, mothers and fathers-in-law, sons and daughters-in-law, brothers and sisters-in-law, and anyone (other than domestic employees) who share such person's home.

d. Composition of Board.
The Board has adopted guiding principles and requirements for the overall composition of the Board. These principles address residency, diversity, physician representation, conflicts of interest and public members. In addition, the Blue KC bylaws provide that the Blue KC President and CEO may be a member of the Board. The CEO may not be Chairman, or any other officer, of the Board.

e. Criteria for Board Membership.
The Governance Committee is responsible for reviewing with the Board the Qualification Standards to be considered in nominating and re-nominating individuals to serve as directors and to ensure the appropriate skills and characteristics are represented on the Board in the context of the current needs and composition of the Board.

f. Fitness of Officers and Directors.
Blue KC is committed to transacting business with integrity, accountability and good ethical conduct. It is the policy of Blue KC to prohibit unfit individuals from serving on the Board or as Officers of Blue KC. This is accomplished by consideration of the Qualification Standards for nomination and re-nomination of directors and of the CEO's recommendation of officer appointments.

g. Selection of Board Members.
The Governance Committee is responsible for identifying, screening and recommending qualified candidates for election by the Board.

h. Directors Who Change Their Present Job Responsibility.
When a director's principal occupation or business association changes substantially from the position he or she held when originally invited to join the Board, the director should notify in writing the Chairman of the Board and the Chairman of the Governance Committee. The Board does not believe that directors who retire or change from the position they held when they came on the Board should necessarily leave the Board. There should, however, be an opportunity for the Board to review the continued appropriateness of Board membership under these circumstances.

i. Service on Other Boards of Directors.
Directors are encouraged to limit the number of other company boards on which they serve to ensure adequate time and effective service on the Blue KC Board. Directors should notify in writing the Chairman of the Board in advance of accepting an invitation to serve on the board of another company which may present a potential conflict of interest with Blue KC (for example, a health care provider board), or serving on the audit committee of another board.

j. Term Limits and Retirement Policy.
The Board does not impose term limits on directors. The Board believes that the benefits of term limits are outweighed by the disadvantage of losing the contribution of directors who have been able to develop, over a period of time, increasing insight into Blue KC and its operations; and therefore provide an important contribution to the Board. Members of the Board are required to resign upon reaching age 75. In addition, in the event a medical, osteopathic or dental Board member ceases to be a participating physician, for whatever reason, they are ineligible for continued service on the Board and must resign.

3. Board Meetings

a. Meetings.
The Board will hold regularly scheduled meetings, at least five times a year, plus special meetings as the need arises.

b. Executive Sessions.
All non-management directors will meet at regularly scheduled executive sessions without the presence of management. In addition, there will be at least one executive session each year that only includes the Independent Directors.

c. Selection of Board Meeting Agenda Items.
The Chairman of the Board and the CEO will establish the agenda for each Board meeting. Each director is encouraged to suggest the inclusion of item(s) on the agenda.

d. Board Material Distributed in Advance.
Information and data that is important to the Board's understanding of the matters to be considered will be distributed in writing by Management before the Board meets.

e. Board Attendance and Participation.
Directors are expected to prepare for, attend, and participate in all Board and applicable committee meetings.

f. Board Presentations.
As a general rule, presentations on specific subjects should be sent to Board members in advance so that Board meeting time may be conserved and discussion time focused on issues arising from the presentation.

g. Attendance at Board Meetings by Senior Management.
The Board welcomes regular attendance of senior managers at Board meetings. The Board also encourages the CEO to bring associates into Board meetings from time to time, who: (1) can provide additional insight into the items being discussed because of personal involvement in these areas, and/or (2) are associates with future potential that the CEO believes should be given exposure to the Board.

4. Board Operations

a. Orientation & Continuing Education.
Blue KC provides new directors with detailed background materials and orientation to become knowledgeable about the business of Blue KC and familiar with the senior management team. Thereafter, Directors are provided educational opportunities, including educational programs directly related to Blue Cross and Blue Shield Plan operations and governance, as well as materials, briefings and other educational opportunities.

b. Committees of the Board.
The Board may create committees for the purpose 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 Board currently has five committees: Audit; Executive; Governance; Health Policy and Quality; and, Personnel. The duties and responsibilities of the committees are set forth in the Blue KC Bylaws and committee charters. The Board has discretion to form new committees or disband current committees, depending upon the circumstances. The Board may also establish ad hoc committees to consider specific, limited issues.

c. Assignment and Rotation of Committee Members.
The Board believes that there should be periodic rotation of committee membership among directors. However, there may be reasons at a given point in time to maintain an individual director's committee membership for a long period.

d. Frequency and Length of Committee Meetings.
Each committee Chairman, in consultation with the committee members, will determine the frequency and length of meetings of the committee.

e. Committee Agenda.
Each committee Chairman, in consultation with the members of the committee, the Chairman of the Board, and Management, will develop the committee's agenda.

f. Annual Board Evaluation.
The Blue KC Board and each of its committees conduct self-evaluations at least annually, to determine whether the Board and Committees are functioning effectively and in accordance with the Bylaws, these guidelines and the Committee Charters.

g. Access to Management & Independent Advisors.
Directors have complete and open access to Management. Directors are encouraged to contact members of management and to visit Blue KC facilities. Directors shall use good judgment to ensure such access and contacts are not distracting to business operations. The Board may select and retain independent outside financial, legal or other advisors as it determines necessary or appropriate in the discharge of its duties and responsibilities.

h. Director Compensation.
The Personnel Committee reviews the form and amount of director compensation. The Committee has the authority to engage compensation advisors and consultants as needed. The Committee makes recommendations on director compensation, including directors' fees and perquisites, to the entire Board for action. The entire board also reviews and approves substantial charitable contributions to organizations in which a director is affiliated.

5. Leadership Development

a. Formal Evaluation of the CEO.
The Executive Committee will perform an annual evaluation of the CEO's performance. The evaluation will be based on objective criteria including performance of the business, accomplishment of long-term strategic and annual objectives, development of Management and other criteria set by the Board designed to measure the CEO's leadership of the Company. The evaluation will be used by the Board when considering the CEO's compensation.

b. Management Development.
The CEO shall periodically report to Board on the company's program for management development.

c. Succession Planning.
The CEO shall periodically report to the Board on Management succession planning. The Board is responsible for CEO succession planning. In addition, there will be available, on a continuing basis, recommendations of the CEO and the Chairman of the Board as to a successor should the current CEO be unexpectedly unable to perform the CEO's duties.

6. Standards of Business Conduct & Reporting of Irregularities

a. Extension of Credit.
Blue KC (and its subsidiaries) will not extend or arrange for any personal loan, or any form of credit, to any director or officer.

b. Code of Business Conduct.
Blue KC has adopted a Code of Business Conduct (the "Code") for employees, officers and directors. The purpose of the Code is to focus on areas of potential ethical and legal risks; provide guidance in recognizing and dealing with ethical and compliance issues; provide mechanisms to report possible ethical and compliance issues; and, to help foster a culture of honesty and integrity.

c. Reports of Irregularities.
Blue KC allows for anonymous reporting to the Compliance Officer of any suspected abuse, violation of law, or violation of the Code of Business Conduct. Blue KC provides for independent reporting by the Compliance Officer to the Board Audit Committee. The Board and Management will not allow or tolerate retaliation for reports of potential compliance issues made in good faith. Any reports of concerns regarding accounting, internal accounting controls, auditing matters or other irregularities or concerns, may also be brought to the attention of the Chairman of the Audit Committee. These reports may be anonymous if made using the Board of Directors hotline at 816-395-2408. The Chairman of the Audit Committee will report periodically to the Board of Directors concerning these matters.

7. Publication of Information

Blue KC will publish these Corporate Governance Guidelines, its Code of Business Conduct, Committee Charters and a listing of members of the Board of Directors on the Blue KC Web site.

These Corporate Governance Guidelines are reviewed periodically by the Governance Committee and may change to reflect the ongoing activities of Blue KC. Matters of corporate governance and changes to these guidelines will be made by a vote of the Board.