Committed to Sound Corporate Governance

BMO has long been committed to, and recognized as a leader in, sound corporate governance. Today, we remain focused on maintaining our place at the forefront. In practice, this means that every day we seek to earn the trust of all our stakeholders, including our shareholders, customers, employees and communities. We do so by conducting our business ethically and according to the principles of honesty, transparency and accountability.

BMO’s Board of Directors sets the standard of good governance for the entire enterprise. We believe that having all BMO directors be independent, with the exception of BMO’s President and CEO, helps the Board operate autonomously and ensures that we are accountable to all our stakeholders. Our independent Chairman ensures that the Board operates independently of management and that directors have access to an independent leader. Further, the Board seeks to represent the interests of all our stakeholders by nominating individuals with a broad array of skills and backgrounds for election to the Board.

Here is an overview of BMO’s corporate governance structure:

An Active Year

The Board’s leadership role was particularly evident in fiscal 2007. It was a year that saw a number of complicated and challenging issues arise, including losses in our commodities business, unsettled asset-backed commercial paper markets and economic concerns related to the troubled subprime mortgage market in the United States. The Board held 10 meetings in fiscal 2007, in addition to those in its normal schedule, to provide advice and oversight on various issues. As well, it is overseeing a complete review of risk management systems and procedures, as well as attitudes to risk, across the enterprise.

Responsibility Framework

The Board’s Approval/Oversight Guidelines serve as the backbone of our corporate governance program and provide management and directors with a clear road map of their respective responsibilities. These guidelines, which are updated annually, detail clearly those matters requiring Board and committee approval, advice or review.

The Board also has adopted FirstPrinciples, our comprehensive code of business conduct and ethics, which provides directors, officers and employees with a framework for the ethical conduct and decision-making integral to their work. The Audit Committee has also adopted whistleblower procedures that allow officers and employees who believe a violation of FirstPrinciples has occurred to report this violation on a confidential and anonymous basis to BMO’s Ombudsman. The Chair of the Audit Committee is notified of all concerns relating to accounting, internal accounting controls or auditing matters and determines the nature of any necessary investigation to be completed and the action taken at the conclusion of the investigation.

Focus on Disclosure

Disclosure is an essential component of effective corporate governance. At BMO, we place a high value on our stakeholders being able to understand our operations, goals and values as well as our financial performance. Our Board encourages, and management actively seeks, ways to provide more information, clarity and insight to our stakeholders on an ongoing basis.

We place a high value on our stakeholders being able to understand our operations, goals and values as well as our financial performance.

A hallmark of our public disclosure is our financial performance scorecard, which has made us a pioneer in financial disclosure. The scorecard is a report on and comparison of 11 important financial measures, including shareholder return, return on equity, earnings per share growth, productivity and credit performance. We disclose our performance on these measures relative to the performance of Canada’s major banks and our North American peer group. We believe that assessing performance relative to our competition puts our results in an appropriate context for our stakeholders and provides further clarity. BMO has disclosed these comparatives every year since we started the practice in 1992.

Building on Our Commitment

Over the past number of years, BMO has adopted many leading governance practices, including:

• discontinuing option grants to non-employee directors in 2003;
• having independent directors meet regularly without management present;
• enhancing Board and director evaluation procedures by including written peer reviews and one-on-one interviews with the Chairman; and
• setting minimum share ownership guidelines for directors at six times their annual retainer to strengthen the alignment of their interests with those of our shareholders.

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