The Board of Directors met 7 times during the 2013 financial year, each meeting had an average duration of approximately 2 hours and 30 minutes and the percentage attendance of the Directors corresponding to approximately 87% and the percentage attendance of the Independent Directors exceeded 89%.
The Lead Independent Director attended all the Board of Directors’ meetings.
3 Board Meetings were held in 2014 at the Date of the Report.
The Board of Directors dedicated the time necessary to the items on the Agenda in the cited meetings, to allow a constructive debate, favouring the contributions made by individual Directors.
Evaluation of the general trend of operations19 and strategic Plans
The Board of Directors evaluated the general trend of operations and the foreseeable outlook at least on a quarterly basis, in accordance with the law20 and the Company Bylaws21.
More in particular, during the 2013 financial year the Board approved:
- the compliance of the impairment test procedure with the requirements of the international accounting standard IAS 36 independently and in advance compared to the approval of the Financial Statements;
- the periodic accounting reports, and on these occasions, the Board received information concerning the results achieved by Pirelli compared with: (i) the historical data; (ii) the defined budget targets, with a focus on any deviations; (iii) the results achieved by the main competitors;
- the review of the targets notified to the market;
- the 2013 Business Plan on the basis of the 2012-2014 Industrial Business Plan with an outlook extended to 2015 (approved in the meeting held on November 8, 2011);
- the “new” 2013-2017 Industrial Business Plan.
Internal control system and governance system22
The Board of Directors also approved:
- the reports on each of the matters on the Agenda of the Shareholders’ Meetings;
- the “new” Whistleblowing Policy and the Anti-Corruption Compliance Programme;
- the Audit Plan and defined the structure for the variable incentive referred to the Internal Audit function Manager, after hearing the opinion expressed by the Board of Statutory Auditors;
- amendments to the “Organisational Model 231”. In this regard the reader is referred to the “Code of Ethics, the Policy Guidelines and the Organisational Model 231” section;
- the Pirelli group’s “new” organisational structure. In this regard the reader is referred to the “Company organisation” section;
- amendments to the Procedure for Transactions with Related Parties. In this regard the reader is referred to the following section: “Directors’ Interests and Transactions with related parties”.
In addition, the Board of Directors initiated the verification of the requirements envisaged to be assigned the office as a Director referred to each Board Member and the requirements to be qualified as Independent Directors referred to the Directors elected and qualified as such at the date their candidacy was proposed, as well as the suitability of the means and the powers attributed to the officer responsible and endorsed the activities implemented thereby for the purposes of issuing the own certificates. In this regard the reader is referred to the following section: “Officer responsible for preparing the company’s accounting documents”.
The Board then assessed the adequacy of the internal control system on a half-yearly basis and, more in general, Pirelli’s governance system and endorsed the considerations expressed by the CICRCG, and expressed a positive opinion concerning the adequacy of the Company’s organisation, administrative and accounting structure, as well as the internal control system and, more in general, on the governance system of the Company and of the Group.
The Board of Directors also supervised the risk management process, in line with the recommendations of the Self-Regulatory Code, defining the policy guidelines (and therefore, the overall risk threshold considered acceptable, so-called risk appetite, so that the principal risks to which Pirelli is exposed are identified correctly and measured, managed and monitored adequately) and verifying the compatibility with the strategic targets identified during approval of the industrial business plan23 by approving the annual risk assessment and examining the subsequent risk assessment update. In this regard the reader is referred to the “Risk management system” section.
Furthermore, the Board:
- endorsed the evaluation by the CCIRCG in relation to the fees paid to the Audit Company for non-audit services, noting that the fees in question were not high, and therefore, did not prejudice the external auditor’s independence in any way. The reader is referred to the “audit company” section;
- noted that the analysis of the so-called “Management Letter” did not indicate “significant shortcomings” in the internal control system in relation to the financial information process, also taking into account the positive evaluation made by the CCIRCG and by the Board of Statutory Auditors. In this regard the reader is referred to the following section: “risk management and internal control system in relation to the financial information process”;
- defined a structured succession plan for the Company’s top management to be implemented in the case of an “emergency”, as well as outlining the process to be followed to define the natural succession plan in relation to the top management. In this regard the reader is referred to the “Succession plans” section;
- identified the Operations General Manager Gregorio Borgo, effective from September 26, 2013, the Chief Technical Officer Maurizio Boiocchi, effective from November 5, 2013, the Chief Human Resources Officer Christian Vasino, effective from January 1, 2014 and the Senior Vice President Manufacturing Giuliano Menassi effective from March 27, 2014 as additional “Directors with strategic business responsibilities” in relation to the duties and powers attributed to them.
Remuneration of Directors invested with special offices
During the 2013 financial year, the Board of Directors approved the Remuneration Report for the 2013 financial year, pursuant to the applicable legislation, also the regulatory provisions; the Report consisted of the Remuneration Policy for the 2013 financial year – subsequently submitted to the advisory vote of the Shareholders’ Meeting to approve the Financial Statements for 2012 – and the Remuneration Statement for the 2012 financial year.
The Board of Directors expressed its intention to proceed with the anticipated closure of the 2012-2014 LTI Plan at the end of the 2013 financial year, taking into account the approval of the “new” 2013-2017 Industrial Business Plan, and to “launch” a “new” 2014-2016 LTI Plan; this intention was subsequently confirmed by the Board in the meeting held on February 27, 2014.
For further details regarding the 2014-2016 LTI Plan, the reader is referred to the press release distributed by the Company on February 27, 2014, and available on the Pirelli Internet website, together with the documentation relating to the LTI Plan.
Furthermore, the Board of Directors approved the Remuneration Report referred to the 2014 financial year consisting of the Remuneration Policy referred to the 2014 financial year and the Remuneration Statement referred to the 2013 financial year, again based on a proposal by the Remuneration Committee and after hearing the opinion of the Board of Statutory Auditors.
The Remuneration Report referred to the 2014 financial year will be made available on the Pirelli Internet website no later than 21 days prior to the Shareholders’ Meeting to approve the Financial Statements for 2013.
Transactions of significant strategic, economic, equity or financial importance24
The Board of Directors is responsible for the prior approval of some actions and transactions which are not intragroup (determined on the basis of qualitative criteria and quantitative thresholds) when executed by Pirelli & C. or by Italian and also foreign companies which are not listed and are subject to management and coordination activities by Pirelli & C.25 without prejudice to (i) the responsibilities and powers reserved by law and the Company Bylaws; (ii) the structure of the powers and (iii) internal procedures.
With regard to the last aspect it is important to note that during the 2013 financial year, the Board of Directors approved the principal transactions executed by Pirelli. The reader is referred to the Directors’ Report for further information.
In addition, the “procedure regarding information flows to Directors and Auditors”26 envisages general and periodic information on the activities performed.
Transactions with related parties
As regards transactions with related parties, the reader is referred to the section “Directors’ Interests and transactions with related parties”.
Board performance evaluation
The Board of Directors has performed a self-evaluation process of its performance, so-called “Board performance evaluation”27 since the 2006 financial year.
The Board deemed it appropriate to confirm the self-evaluation process also with reference to the 2013 financial year based on the procedure adopted in 2012 – in line with the proposal by the CICRCG and taking into account the positive experience of the previous year – entrusting the foregoing Committee directly to manage the self-evaluation process referred to the 2013 financial year, by using a questionnaire prepared by the Committee in question (with the support of Spencer Stuart), in order to prepare a final report on the self-evaluation process to be presented to the Board of Directors.
The self-evaluation process focused on the following aspects:
- to provide continuity to the self-evaluation over time, to verify the procedures followed to implement the decisive actions to improve the operation of the Board’s activities and to identify the level of satisfaction of the Board Members;
- to take into account the changes in the Board’s composition, and therefore, the presence of new Board Members. More in particular, the following aspects were examined in detail: the information flow, the completeness of the investigations performed and the Board’s involvement in relation to a number of important resolutions passed, for example, the resolutions concerning Prelios;
- to consider the agreements entered into among shareholders of the Pirelli Group and communicated to the Company, which also concerned some aspects relating to governance, including those referring to the size and composition of the Board of Directors of Pirelli and its Committees.
The Board of Directors confirmed its appreciation concerning the size, composition and function of the Board itself with reference to the 2013 financial year based on the outcome of the self-evaluation process.
The self-evaluation process, inter alia, indicated satisfaction (i) regarding the further improvement – in quantitative terms (frequency of the meetings, duration) and in qualitative terms (accurate preparation of the meetings, presentation of the topics, the presence of managers at the meetings, greater company knowledge favoured by informal meetings and by the visit to the technological centre at Settimo Torinese) – recorded in relation to the Board’s involvement in the plan’s definition; (ii) regarding the wealth of information made available to the Board Members; (iii) in relation to the positive role played by the Lead Independent Director, also in the organisation of the Independent Directors’ work; (iv) the role played by the CICRCG, concerning the significant and detailed work performed regarding the “transactions with related parties”, as well as the risk analysis, in relation to which appreciation was confirmed regarding the very precise risk quantification/ calculation work performed, deemed by the Board to be a best practice in this area.
The attribution of sustainability issues to a Board Committee that already exists or to be newly established was advocated, based on the outcome of the self-evaluation process, considering that such issues represent an aspect that will increasingly permeate the Company’s business activities and its development plans.
As regards the size and composition of the Board, the self-evaluation process that also considered the agreements entered into among Pirelli’s shareholders, indicated a marked appreciation for the composition of the current Board of Directors that comprises of persons with a high personal and professional standing.
It was deemed desirable that at the next renewal of the Board of Directors (i) the diversity of skills and expertise is enhanced, as well as the presence of Independent Directors, which could also constitute the majority of the Board and must represent a sufficient number to guarantee the operation of the Committees; (ii) the concentration of skills and expertise regarding financial aspects is avoided, thereby guaranteeing a balance among the different professional skills, knowledge and experience; (iii) the presence of economists is ensured, useful to support the Board in the analysis of scenarios and to understand the development of the business and of the markets; (iv) a certain continuity in the Board’s composition is guaranteed in order to preserve the wealth of knowledge, acquired over time, within the Company and the Group.
Article 2390 of the Italian Civil Code
Article 10, last paragraph of the Company Bylaws envisages that Directors are not bound by the competition prohibition set out under Article 2390 of the Italian Civil Code, unless otherwise resolved by the Shareholders’ Meeting.
19 Self-Regulatory Code: Application criterion 1.C.1., sub-section e).
20 Article 150 of the Unified Finance Law (TUF).
21 Article 11 of the Company Bylaws.
22 Self-Regulatory Code: Application criterion 1.C.1., sub-section. b).
23 Self-regulatory code: Application criterion 7.C.1., sub-section a).
24 Self-Regulatory Code: Application criterion 1.C.1., sub-section. f).
25 In this regard, the reader is referred to the “General criteria to identify transactions of significant strategic economic, equity or financial importance” indicated in their up-to-date version on the Company’s Internet website.
26 The “procedure regarding information flows to Directors and Auditors” is available on the Company’s Internet website.
27 Self-Regulatory Code: Application criterion 1.C.1., sub-section. g).