Governance

Profile Disclosure and Description

Information Location

Arizona Chemical’s highest governing body is the Board of Directors, which meets four times per year. It is comprised of five members and two independent advisors. Messrs. Fisch, Rosetti and Wolff are from American Securities, which acquired a controlling interest Arizona Chemical in 2010. Mr. Tigay is from Rhône Capital, our previous owner. Mr. Berlik and Dr. Krautter are independent advisors. Cornelius (Kees) Verhaar is the only executive officer on the Board. As Arizona Chemical’s President and CEO, he has direct responsibility for the Company’s economic, social, and environmental performance. All Board members are white males. One Board member is in his thirties; two are in their forties; one is in his fifties; and three are in their sixties. 

Arizona Chemical Directors

American Securities’ stated values are integral to our management approach. Their values include maintaining ethical standards through honesty and fair dealing, and making the world a better place by giving back to the communities it serves. http://american-securities.com/Values

The following committees are mandated by a resolution of the Board of Directors.

Committees of the Board of Directors

We have four standing committees: the Audit Committee, the Compensation Committee, the Finance Committee and the Executive Committee.

Our Audit Committee consists of Messrs. Rosetti and Wolff. The Audit Committee is responsible for, among other things:

• Selecting, hiring and compensating our independent registered public accounting firm, and pre-approving the audit and non-audit services to be performed by our independent registered public accounting firm;
• Reviewing the independent public accounting firm’s qualifications, independence and performance;
• Reviewing the performance of the internal audit services function;
• Discussing the scope and results of the audit with the independent registered public accounting firm and reviewing with management and the independent registered public accounting firm our interim and year-end operating results;
• Reviewing the adequacy and effectiveness of our internal control policies and procedures;
• Preparing the Audit Committee report and monitoring the integrity of our financial statements and our compliance with legal and regulatory requirements;
• Setting policies regarding the hiring of current and former employees of the independent registered public accounting firm;
• Discussing types of information to be disclosed and provided to analysts and rating agencies;
• Establishing procedures for receipt, retention and treatment of complaints received by the Company regarding accounting or internal controls and the submission of anonymous employee concerns regarding accounting;
• Reviewing and discussing any reports concerning material violations submitted to it by our attorneys or outside counsel;
• Discussing with our general counsel legal matters having an impact on financial statements; and reviewing the policy with respect to related party transactions and approving or rejecting proposed related party transactions.

Compensation Committee
Our Compensation Committee consists of Messrs. Rosetti and Tigay. The Compensation Committee is responsible for, among other things:

• Reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and making recommendations to the board with respect to the compensation of other members of senior management;
• Recommending, when appropriate, changes to our compensation philosophy and principles;
• Evaluating overall compensation and benefits programs;
• Overseeing regulatory compliance with respect to compensation matters;
• Recommending to our board any changes in our incentive compensation and equity-based plans that are subject to board approval and overseeing the activities of individuals and committees responsible for administering these plans;
• Overseeing our management development and succession planning programs and making recommendations to the board with respect to any aspects of such programs that are subject to board approval.
  

Finance Committee
The Finance Committee consists of Messrs. Rossetti and Wolff. The Finance Committee is responsible for, among other things:

• Establishing capital allocation and capital expenditure policies and budgets; establishing investment policies for, and overseeing decisions respecting, the investment of liquid assets not required in the Company’s operations including making investment decisions; establishing policies for, and overseeing/approving decisions respecting, asset dispositions by the Company; and overseeing the Company’s relationships with, and approving significant decisions respecting, the Company’s sources of external finance and its relationships with rating agencies.
• Reviewing the annual business plan of the Company with respect to profitability, liquidity and capital expenditures in order to assess the achievability of the Company’s strategic, operational and commercial initiatives.
• Reviewing the operating performance metrics and investment hurdle rates set by the Company’s management to help guide the Company in achieving its financial goals and plans.
• Reviewing the profit, cash flow and capital expenditures forecasts as they are updated and analyzed throughout the fiscal year.
  

Executive Committee
Our Executive Committee consists of Messrs. Rossetti, Tigay and Verhaar, with Mr. Verhaar as chairperson. The purpose of the committee is to act, between meetings of the board, with the authority of the board on matters set forth in the committee’s charter.

4.2
Indicate whether the Chair of the highest governance body is also an executive officer.

4.3
For organizations that have a unitary board structure, state the number of members of the highest governance body that are independent and/or non-executive members.

4.4
Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body.

2010 Corporate Commitment to Sustainability: Business Conduct and Ethics: p. 10

To improve stakeholder access to the Company’s highest governance body, we will launch a telephone hotline in 2011 to facilitate opportunities for any member of the Arizona Chemical community to report a financial concern. This information will be screened and brought to the appropriate level of management and potentially the Board of Directors.

We identified the potential benefits of undertaking an employee survey to further engagement opportunities. Based on initial planning in 2010, the survey, called “My Voice,” was launched in 2011. It gives all employees a chance to be heard and to express their thoughts on Arizona Chemical’s culture, work environment, and other aspects of their jobs. The President and CEO has specifically endorsed the survey and encouraged participation as part of our business growth strategy.

Stakeholders and employees may also provide recommendations or direction to the highest governance bodies through formal representation bodies such as work councils and unions, an informal open door policy at all levels of the organization, and site procedures that require management members to report to their superiors. Topics discussed cover a wide variety of economic, environmental and social interests.

Our Code of Business Conduct – published on the Company website – outlines the procedures required of employees should their concern relate to a potential violation of it. This “duty to act” component of the Code indicates how employees should proceed and when issues will be brought to the attention of the Board of Directors.

Arizona's Global Lead Team meets monthly to ensure that issues that have been raised are addressed. It is their responsibility to call significant concerns to the attention of the Board of Directors in a timely way.

Since 2007 when International Paper sold Arizona Chemical and we became an independent company, we have had to establish our own governance structures and procedures. Our evolution includes planning for an Internal Audit Department during 2010. Launched in 2011, the department is an independent, objective assurance and advisory function. To help Arizona Chemical achieve its goals, it will systematically evaluate and improve risk management, internal controls, business processes and corporate governance. It is granted free and unrestricted access to all relevant Arizona Chemical records, physical properties, and personnel, and to the Board of Directors. The Independent Audit Department reports to Arizona Chemical’s Board of Directors through the Audit Committee’s oversight function. The Vice President of Internal Audit reports administratively to the Chief Financial Officer and functionally to the Audit Committee.

Arizona Chemical is a privately-held company so that the shareholder issues of public companies are not an issue.

The structure and responsibilities of the Board of Directors’ Compensation Committee are described in 4.1.

The compensation program for our executive officers is designed to attract, retain and provide base compensation and meaningful performance-based incentives for our management. We reward strong performance and achievement of clear and measurable business objectives. We believe in encouraging ownership and entrepreneurialism among our senior management team.

Decisions regarding executive compensation change each year depending on market conditions, our business goals and key initiatives. Compensation is linked to the organization’s performance and to individual and company goals, including financial, social and environmental goals. Executive officers participate in our annual performance management and employee development system, as do employees at all levels.

American Securities, which has three Directors on our Board and holds a controlling interest in our company, states its values clearly and prominently. These include placing a priority on high personal and corporate ethical standards. This philosophy is carried through in our policies and practices. http://american-securities.com/Values

Members of our Board of Directors owe a fiduciary duty to the company to act in good faith in their dealings with or on behalf of the company and exercise their powers and fulfill the duties of their office honestly. This duty includes the following elements: (i) a duty to act in good faith in the best interests of the company; (ii) a duty not to make a personal profit from opportunities that arise from the office of a director; (iii) a duty to avoid conflicts of interest; and (iv) a duty to exercise powers for the purpose for which such powers were intended. A duty also exists to: (i) act honestly and in good faith with a view to the best interests of the company; and (ii) exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Our processes to ensure that the Board fulfills its fiduciary responsibilities including avoidance of conflicts of interest continue to evolve.

4.7
Process for determining the composition, qualifications, and expertise of the members of the highest governance body and its committees, including any consideration of gender and other indicators of diversity.

4.8
Internally developed statements of mission or values, codes of conduct, and principles relevant to economic, environmental, and social performance and the status of their implementation.

Our internally developed vision is: We are Arizona Chemical – the world’s leading innovator of sustainable chemical solutions. We state our core mission as:

• We develop market innovations and provide unique green solutions.
• We are the recognized technology leader in our chosen markets.
• We utilize a diverse, sustainable, and regional supply base.
• We aggressively grow our integrated, global business.

The enablers that drive achievement of the mission are:

• We are a welcomed and valued member of our host communities.
• We drive purposeful change.
• We excel and have fun doing it.
• We pursue excellence in everything we do.

Arizona Chemical’s Code of Business Conduct is posted on the company website. It covers areas relevant to economic, environmental and social principles that are globally applicable. Specific sections cover employees, safety and health, the environment, compliance with laws and regulations, confidential information and insider trading, conflict of interest, gifts and gratuities, political activities, competitive practices, financial integrity, external relationships and employees’ duty to act.

We continued our identification of best practices in corporate governance, and began planning for the 2011 launch of an independent Internal Audit Department described in 4.4. In 2010 we published an updated anti-trust policy in a handbook entitled “Antitrust and Competition Law Compliance Guidelines." Our principles and practices are generally aligned with accepted ethical business standards worldwide.

4.9
Procedures of the highest governance body for overseeing the organization's identification and management of economic, environmental, and social performance, including relevant risks and opportunities, and adherence or compliance with internationally agreed standards, codes of conduct, and principles.

The Global Lead Team (GLT) is responsible for overseeing identification and management of all aspects of the company’s performance. This Team reports quarterly to the Arizona Chemical Board of Directors on issues warranting their attention.

The GLT meets monthly to review performance on company goals and Key Performance Indicators (KPI). The company’s KPIs encompass social, economic and environmental, health and safety (EHS) performance, risks and opportunities and are therefore integrally tied to sustainability. The global business process platform we implemented in 2009 has been proven effective in facilitating clarity of and more immediate access to data, to enable more effective decision-making. Given that EHS is a priority, we have a formal policy for notification of senior management officials regarding environmental, safety and heath incidents. 

4.10
Processes for evaluating the highest governance body's own performance, particularly with respect to economic, environmental, and social performance.

4.11
Explanation of whether and how the precautionary approach or principle is addressed by the organization.

See Table Below

4.13
Memberships in associations (such as industry associations) and/or national/international advocacy organizations in which the organization:
* Has positions in governance bodies;
* Participates in projects or committees;
* Provides substantive funding beyond routine membership dues; or
* Views membership as strategic.

Arizona Chemical engages with diverse stakeholder groups. The most significant are:

• Customers in our target industries
• Governments, especially in the European Union and United States, and in locations where we conduct business
• Employees, of whom we have over 1100 worldwide, and relevant unions and trade councils.
• Communities in which we have operations under our direct control.
• Non-governmental and charitable organizations that we support, especially in the communities in which we operate.
• Suppliers of our raw materials, both primary and secondary.
• Investors including American Securities which owns a majority stake in the company and the banking and financial institutions with which we have relationships.
• Industry organizations which may help set strategic principles, provide knowledge-sharing forums and advocate on behalf of the pine-chemicals industry.

4.15
Basis for identification and selection of stakeholders with whom to engage.

2010 Corporate Commitment to Sustainability: Taking Action on Our Most Material Issues: p. 2

Arizona Chemical strives to ensure that our practices have a positive impact on sustainability – which includes consideration of the stakeholders who are affected by us or who affect us. In accordance with GRI guidance, we have considered both indirect and direct stakeholders. We engage in many different ways with stakeholders every day and for the purposes of GRI reporting, we set priorities on our stakeholders in order to engage with the most significant ones.

In this, our second year of GRI reporting, we have expanded our direct stakeholder engagement to include a broader constituency. Most important in our identification and selection of the stakeholders with whom we engage directly is how strongly a stakeholder group influences or is influenced by our economic, social and/or environmental performance. While we focus on those with the most impact currently, we also consider whether or not a stakeholder group will be likely to have a significant future impact on achievement of our sustainability goals. Stakeholders included in our Materiality Assessment appear in 3.5.

4.16
Approaches to stakeholder engagement, including frequency of engagement by type and by stakeholder group.

Arizona Chemical’s typical engagement with stakeholder groups involves:

• Customers – Members of our Commercial team have ongoing and frequent dialogue with their key customers. Our cross-functional Global Segment Teams focus on market needs (i.e. needs of our customers in target industries) and guide development of solutions that meet identified customer needs.
• Governments – We engage with country, state and local governments as advocates on issues affecting our industry. Our goal is to call their attention to the impact of various legislative initiatives, particularly renewable energy subsidies for biomass, and to strive for a sustainable solution that enables our business to thrive. We promote positive engagement through advisory committees, participation in conferences, individual meetings and presentation of position papers.
• Employees – We communicate with employees through our Intranet, an official review process to assess performance and establish goals, labor union negotiations, informal and ad hoc one-on-one or group meetings and established Health and Safety Committees. We communicate with retired employees through phone, mail and other mechanisms as appropriate. We began planning an employee survey in 2010 for launch in 2011. (See 4.4).
• Communities – We actively seek community input and have formal community Action Panels in place at our U.S. and some EU facilities to ensure an ongoing dialogue. Each facility has an informal “open line” with the community so that officials and the public can share their comments.
• Non-governmental and charitable organizations – Arizona Chemical encourages employee volunteerism worldwide. Many of our facilities support their local schools and in the U.S. we have received in 2010 alone several awards from the United Way. The U.S. is also active in fund-raising for the March of Dimes and American Red Cross. Several staff members hold Board positions at charitable organizations including the National Multiple Sclerosis Society – North Florida Chapter and the Florida Theater.
• Suppliers – Our direct engagement with suppliers includes development of purchasing agreements, conducting site and financial audits, and encouragement of sustainable business practices.
• Investors – The Global Lead Team reports to private equity firm American Securities, our primary owner, and to the financial institutions with which we conduct business through written and oral reports.
• Industry organizations – Arizona Chemical is highly active in guiding the strategic direction of the industry associations in which we participate. Because our perspective is so valuable to their policy-making, we frequently speak at conferences, help develop position papers and serve on Boards and Committees.
  

After publication of our 2009 Sustainability Report, the Arizona Chemical Sustainability Team requested feedback from leading stakeholders on the topics of greatest interest. This included their reaction to the issues identified in our Materiality Assessment. (See 3.5 for the list of stakeholders included in the 2011 Materiality Assessment).

We address the key topics and concerns raised by stakeholders and how we are dealing with them in our 2010 Corporate Commitment to Sustainability: p. 2–10.