Governance Guidelines

Adopted March 29, 2004; amended March 3, 2006

The following Governance Guidelines have been adopted by the Board of Directors of Communications Systems, Inc. (the "Company") to assist the Board in the exercise of its responsibilities. These Governance Guidelines are not intended to change or interpret any Federal or state law or regulation, including the laws of the State of Minnesota, or the Articles of Incorporation or Bylaws of the Company.

MISSION AND RESPONSIBILITIES OF THE BOARD

Mission Statement

The Board's primary objective is to maximize long-term shareholder value and to assure the vitality of the Company for its owners, employees, customers and the other individuals and organizations who depend on the Company.

Responsibility of the Board

The business and affairs of the Company shall be managed by or under the direction of the Board. In furtherance of its mission, the Board delegates certain authority to the executive offices of the Company ("Management"). Management is responsible for managing the Company, not the Board. The Board also advises Management with respect to strategic plans and expects and requires that the Company's Management and employees operate in a legal and ethically responsible manner.

Each director is expected to spend the time and effort necessary to properly fulfill his or her responsibilities, including making every reasonable effort to attend meetings of the Board, committees on which he or she serves and meetings of shareholders, with the understanding that on occasion a director may be unable to attend a meeting. A director who is unable to attend a meeting is expected to notify the Chair of the Board or the Chair of the appropriate committee in advance of such meeting.

BOARD COMPOSITION AND INDEPENDENCE

1. Size of the Board
   
   The Board should generally have between five and eight directors. If appropriate, the Board can determine to increase or decrease its size, including in order to accommodate the availability of an outstanding candidate.



2. Mix of Inside and Independent Directors
   
   A majority of directors on the Company's Board shall be "independent."



3. Definition of What Constitutes an Independent Director
   
   The Company adopts the definition of independence as provided in the listing standards of the American Stock Exchange (AMEX) Stock Market, as amended from time to time.



4. Board Membership Criteria
   
   The Governance and Nominating Committee is responsible for reviewing with the Board on an annual basis the appropriate skills and characteristics required of Board members in the context of the existing makeup of the Board. This assessment should include issues of relevant experience, integrity, ability to make independent analytical inquiries, ownership of or commitment to purchase the Company's common stock, understanding of the Company's business, relationships and associations related to the Company's business, personal health and a willingness to devote adequate time and effort to Board responsibilities, all in the context of an assessment of the perceived needs of the Board at that point.



5. Selection of Director Candidates
   
   The Governance and Nominating Committee is responsible for identifying, evaluating and selecting candidates for membership to the Board, including candidates proposed for election to the Board by a shareholder or shareholders.
   
   The process by which shareholders may submit proposed director candidates to the Board for consideration by the Governance and Nominating Committee shall be as follows: Shareholders shall submit the name(s) and appropriate biographical information regarding the proposed candidate(s) to the Governance and Nominating Committee at the Company's principal executive office. Submissions will be forwarded to Chair of the Governance and Nominating Committee for review and consideration by the entire Committee; provided that any Shareholder desiring to submit a director candidate for consideration at an annual meeting of shareholders must ensure that the submission is received by the Company no later than the preceding December 1 (or at such later date as is set forth in the Company's proxy materials for the annual meeting in the previous year) in order to provide adequate time for the Governance and Nominating Committee to properly consider the candidate. In addition, a shareholder wishing to directly nominate a director candidate for consideration at an annual shareholder meeting may follow the procedure established in the Company's bylaws.



6. Tenure
   
   The Board does not believe it should establish term limits. The Governance and Nominating Committee shall consider the issue of continuing director tenure in connection with each director in light of the criteria under paragraph 4 above.



7. Loans
   
   Personal loans to directors and executive officers are not permitted.

8. Number of Committees
   
   The Board has the following standing committees: Audit, Compensation, Governance and Nominating, Finance and Executive. The Board has the flexibility to form a new committee or disband a current committee. It is the policy of the Board that only independent directors serve on the Audit, Compensation and Governance and Nominating Committees, as those terms are defined and applicable to the respective committees in the 1934 Exchange Act, the Exchange Act Rules, the AMEX listing standards, and the Internal Revenue Code.



9. Assignment
   
   The Board, upon recommendation of the Governance and Nominating Committee, designates the members and chairs of the committees taking into account the desires of individual Board members.



10. Frequency and Length of Committee Meetings
    
    The Chair of each committee, in consultation with its members and invited Management or other guests, determines the frequency and length of the meetings of the committee.



11. Committee Agenda
    
    The Chair of each committee, in consultation with the appropriate members of the Board, management, staff and independent advisors, will develop the committee's agenda.



12. Reports to the Board.
    
    At each meeting of the Board of Directors, each Committee shall report whether a meeting of the Committee occurred and, if so, briefly summarize the topics covered and action taken.

13. Selection of Agenda for Board Members
    
    The Chair of the Board will establish the agenda for each Board meeting. Each Board member is free to suggest the inclusion of items on the agenda. Each Board member is free to raise at any Board meeting subjects that are not on the agenda for that meeting.



14. Board Materials Distributed in Advance
    
    Information and data that are important to the Board's understanding of the business should be distributed in writing to the Board before the Board meets. Management will make every attempt to see that this material is as complete and concise as possible.



15. 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 questions that the Board has about the material.



16. Attendance of Non-Directors at Board Meetings
    
    The Chair and Chief Executive Officer may invite officers and key employees to attend Board meetings.



17. Board Interaction with Institutional Investors, the Press, Customers, Etc.
    
    The Board believes that management should speak for the Company. Individual Board members may, from time-to-time, meet or otherwise communicate with various constituencies that are involved with the Company, but only at the request of Management.



18. Executive Sessions of Independent Directors
    
    The independent directors will meet in executive session at each regular Board meeting.



19. Board Access to Senior Management and Advisers.
    
    Board members shall have complete access to the Company's Management, auditors (after consulting with the Chair of the Audit Committee) and outside counsel. It is assumed that Board members will use judgment to be sure that this contact is not distracting to the business operation of the Company and that such contact, if in writing, be copied to the Chair of the Board and the Chair of any relevant committee.
    
    Furthermore, the Board encourages Management to bring managers into Board meetings as needed to: (a) provide additional insight into the items being discussed because of personal involvement in these areas, and/or (b) represent managers with future potential that senior management believes should be given exposure to the Board.
    
    The Board has authority to retain outside counsel of its choice at Company expense with respect to any issue relating to its activities.



20. Board Compensation Review
    
    Changes in Board compensation, if any, should come at the suggestion of the Compensation Committee, but with full discussion and action by the Board.
    
    It is the policy of the Board that a portion of director compensation be in the form of stock or stock options, consistent with the Company's equity compensation plans then in effect.



21. Assessing the Board's Performance
    
    The Governance and Nominating Committee is responsible for periodically conducting and reporting to the Board an assessment the Board's performance. If the Governance and Nominating Committee so desires, it may be assisted by an independent consultant in making its assessment of the Board's performance. The Board assessment will be discussed with the full Board. This assessment should be of the Board's contribution as a whole and specifically review areas in which the Board and/or the management believes a greater contribution could be made.



22. Process for Shareholders to Contact the Board of Directors.
    
    Subject to and consistent with the Company's Articles of Incorporation and Bylaws, shareholders may communicate with the Board or any member of the Board by the following process: Any shareholder who desires to contact the Board or any member of the Board may do so by writing to the Board of Directors of the Company generally or to an individual director at the address of Company's principal executive offices. Communications received will be distributed to the full Board of Directors, a committee or an individual director, as appropriate, depending on the request of the shareholder sending the communication and other facts and circumstances outlined in the communication received. For example, a complaint or other communication regarding accounting, internal accounting controls or auditing matters will be forwarded to the Chair of the Audit Committee for review. Complaints or other communications may be submitted on a confidential or anonymous basis.

23. Selection of the Chief Executive Officer
    
    The Board shall be responsible for identifying potential candidates for, and selecting, the Company's Chief Executive Officer. In doing so, the Board shall consider, among other things, a candidate's experience, understanding of the Company's business environment, leadership qualities, skills, integrity, reputation in the business community, and willingness to devote the necessary time and effort to make the Company successful. This process shall be guided by the Governance and Nominating Committee.



24. Formal Evaluation of the Chief Executive Officer
    
    The Governance and Nominating Committee shall have the responsibility of establishing and implementing an evaluation process by the Board of the Chief Executive Officer.
    
    The independent directors serving on the Board should make this evaluation annually, and it should be communicated to the Chief Executive Officer by the Chairs of the Compensation Committee and the Governance and Nominating Committee or as otherwise determined by the Board.
    
    The evaluation should be based on objective criteria including performance of the business, accomplishment of long-term strategic objectives, development of management and development of management succession.
    
    The evaluation will be used by the Compensation Committee in the course of its deliberations when considering the compensation of the Chief Executive Officer.



25. Strategic and Succession Planning and Management Development
    
    The Board shall review and discuss the Company's annual and longer-term strategic plans. This process shall be guided by the Governance and Nominating Committee.