2015 Corporate Social Responsibility Report

Lexmark 2015 Corporate Social Responsibility ReportOur Approach to CitizenshipInfluence on Stakeholder Assessments and DecisionsWe value all the feedback we gather from our stakeholders.We believe that a more comprehensive perspectivecontributes positively toward our strategic and tacticaldecisions. We respond to these key topics of concern byincorporating the feedback into our decision-making processand by including them in our materiality analysis, whichensures proper focus moving forward.Our efforts are prioritized and balanced to maintainalignment with our vision and values. To be an effectiveorganization, we must be able to focus efforts on thoseinitiatives that are most relevant and actionable. Ourcitizenship prioritization begins by capturing a wide rangeof potentially key subjects, and then considering more than50 subjects relevant to our stakeholders with regard tocorporate citizenship. This way, we are able to recognize andrespect a highly diverse set of issues.From there we begin the process of focusing on the mostrelevant issues for Lexmark. Lexmark utilizes extensivequalitative and quantitative analyses to contribute tobusiness judgments in making strategic and operationaldecisions for the company. We used pairwise comparisonanalysis in our research methodology to add clarity toour focus. We determined our material subjects with thisenhanced process.Materiality matrixLexmark’s organizational groupsInnovationEmployeeHuman facturingCustomerHealth & SafetyEnergyTransport/WarehouseLaborPracticesEnd ianceand WasteOccupationalHealth & SafetyThe diagram below represents our organization. The innercircle represents our internal organization and the outercircle represents groups external to our organization:Contract laborand outsourcingImaging Solutionsand vernmentsDistributorsTransport/WarehouseEnd UserVARSOffice/IT/UtilitiesContract laborand outsourcing(Value AddedImaging Solutionsand ServicesCorporationsSignificance of Economic, Environmental and Social ImpactsThis allows our organization to see what is most meaningfultoDistributorsour broad set of stakeholders and to align ourGovernmentseffortsaccordingly. This is an ongoing process and we continue tomonitorfor changing sentiment.VARS(Value AddedResellers) /Enterprise SolutionsEnterprise SolutionsResellers) /TheseBSD material subjects drive action within our operations.Office Super Stores(Business SolutionsTo managethe advancement in these areas effectively, itDealers)is beneficial to map Lexmark’s organizational groups to thesubjects mostto them. Whilereport the first publication describing ourManufacturingorganization in thismanner, the scope of this analysis and boundaries describedhere have not significantly changed from previous years.BSD(Business SolutionsOffice Super StoresDealers)Open channelOriginal EquipmentManufacturingOutside of OrganizationSupplierChannelCustomer8

Lexmark 2015 Corporate Social Responsibility ReportOur Approach to CitizenshipRelevance of material aspects/subjects to lexmark’s organizational groupsMaterial AspectBrief Description of AspectImpact AreaInnovationFostering a culture of discovery and advancement.All internal and external to the organizationMaterialsMaterials used by weight or volume. Approach to using recycled content andrecycling.Manufacturing and transport/warehouse; corporations and government,OEM, Lexmark ISSProducts and ServicesExtent of mitigation of environmental impacts of products and services.All customers, all channels, Lexmark internal organizationAnti-corruptionEstablished policies on anti-corruption. Communication and training onanti-corruption policies and procedures.All internal and external to the organizationEnergyReporting energy consumption, targets, and use reduction progress.Manufacturing and transportation/warehouse; all customers, Lexmarkinternal organizationProduct ComplianceMonetary value of significant fines for noncompliance with laws andregulations concerning the provision and use of products and services.All customers, Lexmark internal organizationEffluents and WasteTotal water discharge by quality and destination. Total weight of waste bytype and disposal method. Total number and volume of significant spills.Documentation of any hazardous waste.Lexmark ISS, all customersEmployment (Labor)Description of current and new employee base in terms of age, gender andregion. Description of benefits provided.Lexmark internal organization, end users and corporationsCustomer Health and SafetyHealth and safety assessments for products and services, and any incidentsof noncompliance with regulations and voluntary codes concerning the healthand safety impacts.All internal and external to the organizationHuman RightsFocus on nondiscrimination, freedom of association, child labor, security practices and forced labor.Lexmark internal organization, end users and corporationsEmissionsDisclosure of all greenhouse gas emissions, as well as other significant airemissions, including trends.All customers, all channels, Lexmark internal organizationSupplier ResponsibilityOverall assessments of suppliers’ performance on environmental practices,labor practices, human rights and impacts on society.All internal and external to the organizationWaterTotal water use, water sources, and water recycling efforts.Lexmark ISS, end user and corporationsCustomer PrivacyTotal number of substantiated complaints regarding breaches of customerprivacy and losses of customer data.Lexmark internal organization, all customersEnvironmental ComplianceMonetary value of significant fines and total number of nonmonetarysanctions for noncompliance with environmental laws and regulations.All internal and external to the organizationHealth and SafetyInjury rates and lost workdays, committee and any union representation.Lexmark internal organization9

Lexmark 2015 Corporate Social Responsibility ReportOur Approach to CitizenshipGovernanceGood corporate governance for Lexmark goes beyondensuring that the organization is effective and profitable;a key element to governance is establishing opentransparency on the details of the governance structureand composition. Transparency drives accountability,assuring our stakeholders that they can be confident thatLexmark is being managed responsibly.Extensive supporting documentation on Lexmark’sgovernance structure, process, and composition is availablein our Investor Relations web page, Annual Report/Form10-K, and Proxy Statement.Governance highlightsTransparency drivesaccountability, assuringour stakeholders that theycan be confident thatLexmark is beingmanaged responsibly.O ur Board of Directors’ Corporate Governance andPublic Policy Committee periodically reviews theCorporation’s key public policy issues, including itssustainability initiatives and its engagement in thepublic policy process, in addition to other duties.No former employees currently serve as directors.A vote is held annually to ratify independent auditors.The Board of Directors is actively engaged in corporatesocial responsibility topics and has access to executive-levelleadership with responsibility for those topics. Sustainabilityinitiatives are lead by Global Corporate Senior Manager ofSustainability, John Gagel; he formally reviews and approvesLexmark’s annual CSR report.Lexmark’s Corporate Social Responsibility programmanagement is directed by the Lexmark CorporateSustainability Department and the Sustainability andCorporate Social Responsibility Cross-Functional Council,which is comprised of representation from numerousbusiness areas, such as: Development, Facilities, HumanResources, Supply Base Management, Supply Chainand Marketing.O ur executive compensation program includes anannual advisory stockholder vote to approve executivecompensation (commonly referred to as “Say on Pay”).The shareholder-approved Board Declassification is nowcomplete; all Directors elected in 2016 will serve oneyear terms.O ur Board of Directors consists of 12 Directors: elevenare independent non-executive directors and onenon-independent - Lexmark Chairman and CEO, PaulRooke - and 2 (17%) are women. Directors have limitedmembership on other public company boards, and alldirectors attended more than 75 percent of all Boardand Committee meetings in 2015.10

Lexmark 2015 Corporate Social Responsibility ReportOur Approach to CitizenshipTransparency & EthicsEthical business practicesWe believe that ethical behavior is critical to the Lexmark’svision, Customers for Life. All Lexmark employees areexpected to adhere to the policies set forth in the LexmarkCode of Business Conduct. The Code covers the followingtopics: personal conduct, conflicts of interest, accountingrecords, internal controls and audits, complying withlaws and regulations, supplier relationships, customerrelationships, information concerning others and corporatesocial responsibility.In 2015, nearly all regular, worldwide employees andmanagers (99 percent) acknowledged their understandingof the 2015 Code of Business Conduct confirming that theyconduct themselves and Lexmark business in accordancewith the Code’s requirements.Lexmark’s success isdriven by building trustand maintaining integrityin all of our business dealingsas well as by thecommitment we have toour customers.Lexmark requires targeted anti-corruption and anti-briberytraining courses that educate select employee groups aboutrisks of corruption specific to their job functions. The Code ofBusiness Conduct is reviewed on an annual basis. Possibleupdates and employee review statistics are shared with theLexmark Ethics Committee and the Corporate GovernanceCommittee of the Board of Directors. All modifications to theCode of Business Conduct are reviewed and approved by theEthics Committee.Any officer, director, employee, agent or stockholder actingon behalf of Lexmark who violates the Lexmark Code ofBusiness Conduct can be subject to Lexmark disciplinaryaction, as well as substantial government fines and/orimprisonment. Lexmark publicly reports infractions of theBusiness Code of Conduct that impact investors.Preventing corruptionBoth Lexmark business units (Imaging Solutions and Services[ISS] and Enterprise Software [ES]) are regularly analyzedfor risks related to corruption. All locations and operationsare included when considering fraud risks. Significantentities and processes are specifically identified duringthe review process. Corruption risk factors are consideredin the formation of the Lexmark internal audit plan, whichis reviewed by the Finance and Audit Committee of theLexmark Board of Directors on an annual basis. TheCompany has designed and adopted employee and suppliercodes of business conduct that help to mitigate these risks.The annual audit planning process takes into considerationhigh-risk fraud areas. The planning phase for each auditincludes a discussion and consideration of fraud risk. Basedon the risk assessment for fraud, internal Audit evaluatescontrols in each area audited through test steps designedto address fraud risks. Specific audits are also plannedto primarily focus on fraud risks. Key risks are revenuerecognition, inventory, receivables, fixed assets, liabilities/disbursements and employee payables.Lexmark has a zero-tolerance policy towards briberyand corruption among Lexmark employees and businesspartners. Lexmark terminates business relationships withbusiness partners that operate in an unethical manner.Lexmark recently terminated its relationship with an11

Lexmark 2015 Corporate Social Responsibility ReportOur Approach to Citizenshipelectronic component manufacturer after discovering thatthe company violated an environmental regulation andrefused to take the required corrective actions. Incidentsof corruption involving Lexmark employees are reported toLexmark’s Ethics Committee and to the Finance and AuditCommittee of the Lexmark Board of Directors. No legal casesregarding corrupt practices were brought against Lexmarkor our employees during 2015.Monetary finesAll allegations of employee corruption and/or fraud arethoroughly investigated by the appropriate business unit incollaboration with Human Resources, Internal Audit, and theLexmark Legal Department. Results of such investigationsdetermine disciplinary action and whether the incidentrequires investigation by outside agencies and formalcharges. While incidents of corruption are infrequent, theydo occur. In accordance with the Lexmark zero-tolerancepolicy toward bribery and corruption, Lexmark decidedto dismiss certain employees during the reporting periodbased on nonsystemic, personal-level incidents of fraud ordishonesty.Gift and gratuity policyPreventing anticompetitive behaviorLexmark supports efforts to preserve and foster fairand honest competition in a competitive market system.We take care to ensure that our business practices donot violate competition laws (also known as antitrust,monopoly, fair trade or cartel laws) that prohibit businesspractices that unreasonably restrict the functioning ofthe competitive system. Lexmark was a defendant in onepending anticompetitive behavior lawsuit during thereporting period. In U.S. federal court litigation, StaticControl Components, Inc. has alleged that Lexmark engagedin anticompetitive behavior in violation of federal and statelaws. The courts have not rendered any decision on themerits of these claims. Lexmark denies the allegations and isactively defending itself in court. For additional information,see the Lexmark 10-K form.Because of our commitment to ethical business practices,Lexmark has not been subject to any significant fines ornonmonetary sanctions for noncompliance of laws andregulations related to accounting fraud, human rights,workplace discrimination, health and safety or corruptionduring this reporting period.The Lexmark Gift and Gratuity Policy states that no Lexmarkemployee or member of his or her family may accept a gift orgratuity from a supplier or prospective supplier unless it is ofnominal value (no more than 25). Cash gifts of any kind areprohibited.Vision and valuesOur employees have defined our vision and values. We livethese concepts every day. More than mere words, thesestatements are truly a framework for how we operate. Tolearn more about our vision and values, see our Vision andValues page.Ethics hotlineThe Lexmark Ethics Line (1-866-477-2029) is a 24-hour,international toll-free telephone number established toassist Lexmark employees with questions about the Codeof Business Conduct or concerns that something improperhas occurred or might be occurring. A third-party provideroperates the Ethics Line. The third-party provider of thetelephone lines is prohibited from providing a caller’sidentity to Lexmark without the caller’s permission. Callsare reported to Lexmark for investigation and reviewed byLexmark senior management.Contact for finance andaudit committeeThe Lexmark contact line (1-866-484-7895) for the Financeand Audit Committee of the Board of Directors is a 24-hour,international toll-free telephone number for employeesto question accounting or auditing matters, or to reportpossible unethical or illegal conduct to the Finance andAudit Committee. A third-party provider operates thecontact line. The third-party provider of the telephone linesis prohibited from providing a caller’s identity to Lexmarkwithout the caller’s permission. Call information is forwardedto the Finance and Audit Committee for review and furtherinvestigation.Marketing communicationsAs stated in our Code of Business Conduct, “It is Lexmark’spolicy to avoid any misstatement of fact or misleadingimpression in any of its advertising, literature, exhibits orother public statements.It is the joint responsibility of the public relations, marketingor content development representative preparing themessage, and of the technical product experts, to verifythat all statements are true and correctly supported. Theaccuracy of claims is also reviewed by our Legal Departmentand validated by the Product and Process Quality AssuranceTeam. We review our compliance with regulations andvoluntary codes concerning marketing communicationsannually. Lexmark had no incidents of noncompliancewith regulations or voluntary codes concerning marketingcommunications in 2015.12

Lexmark 2015 Corporate Social Responsibility ReportOur Approach to CitizenshipFinance & EconomicsInvestors today seek companies who understand the diverseset of risks in their business and who are proactive aboutaddressing them. At Lexmark we go beyond typical riskmitigation. We not only seek a thorough awareness of theworld in which we operate, we also strive to make it a betterplace. This is deeply infused in our corporate culture, and weare a stronger company for it.Lexmark is committed to delivering shareholder value to ourinvestors. Our focus on environmental sustainability yieldssignificant operational efficiencies. By reducing waste in allits forms, we can pass more value on to our shareholders.Significant investments—ongoingcommitment to human rightsEmploying members of thelocal communitiesand using local resourceswhen possible help Lexmarkhave a positive impacton the economies that surroundour global locations.Any business must position itself to thrive well into thefuture. The same long-term perspective that ensuresour continued success also drives our keen interest insustainability. Forces like climate change, natural resourcedepletion and human rights can have a material impacton our ability to conduct business in an increasinglyinterconnected world.Since 2010, Lexmark has acquired 14 software companies.Claron and Kofax were acquired in 2015. During duediligence of the target companies, Lexmark confirmed thateach of these companies prohibit discrimination basedupon race, color, religion, gender, sexual orientation, genderidentity, national origin, disability, age or veteran status.These acquisitions are enabling Lexmark to transform from ahardware provider to a higher value solutions provider.Financial transparencyTo ensure full financial transparency, the Lexmark InvestorRelations page provides a range of information aboutthe financial performance and market presence of ourcompanies, our financial reporting covers

Lexmark 2015 Corporate Social Responsibility Report Our Approach to Citizenship 3 Citizenship at Lexmark begins with our pledge to provide our customers innovative, high-quality products and services in an environmentally and socially responsible manner. This encompasses our operations, where we deploy cost-effective best practices