The corporate governance system
Some aspects of the Group’s Corporate Governance which are particularly relevant (material) to the reporting of sustainability in accordance with the GRI-G4 guidelines are briefly illustrated below. For a more detailed and comprehensive description see the 2016 Report on Corporate Governance ("RCG") and Share Ownership, the Report on Remuneration ("RR"), the Bylaws and the Group Governance Procedures, available at telecomitalia.com.
[G4-34], [G4-35], [G4-40] The Group’s Board of Directors is appointed by the Shareholders’ Meeting based on slates submitted by eligible voters who own a total of at least 0.5% of the ordinary share capital (or any other amount that may be required by the regulations issued by Consob). The existing Board of Directors was appointed by the Shareholders’ Meeting on April 16, 2014. In December 2015, the number of Directors increased from 13 to 17 with the appointment of 4 Directors at the request of the reference shareholder Vivendi S.A.. During 2016, the number of members fell by 1, due to the departure of the Group’s previous CEO. [G4-38], [G4-40]The only stakeholders represented in the Board of Directors are the shareholders. Directors’ powers are granted (and revoked) by the Board of Directors, which determines the purpose, limits and methods by which they are exercised.
[G4-40] The Group’s Bylaws require the least represented gender to account for at least one third of the total number of directors, rounded up to the next unit in the event of a fraction. The independence of a minimum number of directors is required by the law (Consolidated Law on Finance) based on the overall composition of the Board; the same law and the Corporate Governance Code of Borsa Italiana also define the criteria for the independence of Directors. An amendment made to the Bylaws of TIM in May 2015 introduced the principle that at least half of the candidates and elected members from each slate must be independent when the Board of Directors is renewed. Reference is made either to the legal independence requirements or the Corporate Governance Code drawn up by the Corporate Governance Committee of Borsa Italiana, with which TIM complies.
[G4-40] In delivering its guidance to shareholders, with a view to the Shareholders’ Meeting called to renew the Board of Directors on April 16, 2014, the outgoing Board of Directors expressed a few wishes regarding the new Board, including:
- the skills which were deemed to be necessary were a knowledge of the telecommunications and/or information technology sectors (including regulations) or associated areas of business, strategic guidance, finance, communication and organisation, risk management and internal control. In terms of professional background, people of managerial extraction were to be preferred (primarily: CEOs or CFOs of significantly large companies), but the contribution of academic experts in finance and taxation, risks, law or the technical sector in which the Group operates were also judged useful;
- International openness was desirable, with the inclusion in the slate of non-Italian candidates, i.e. individuals who had gained professional experience overseas;
- A balanced mix of the various components was required, as the coexistence of diverse skills and experience ensures the complementarity of professional profiles, promoting fruitful discussion and the efficient operation of the Board, in the knowledge that specialised skills can be contributed by internal structures or, if necessary, by external consultants, and that the complexity of the matters to be dealt with suggest that candidates with prior experience gained on the boards of listed companies would be appropriate.(see Resolution Proposals - Shareholders’ Meeting of April 16, 2014, available at telecomitalia.it)
[G4-38] The Board of Directors in office consists of 16 members, including 9 independents. 6 of the Board members are women and the female gender is the only social subgroup represented. Table 2 “Structure of the Board of Directors and Committees and other positions 6held” contained in the RCG, shows for each director their term of office, the committees to which they belong, the number and nature of other positions they hold (meaning the director or statutory auditor positions held by the relevant individual in other companies listed in regulated markets, even abroad, holding companies, banks, insurance companies or undertakings of a significant size), the slate to which they belong (indicating “LSGR” in the case of appointment with a slate vote and candidacy by the SGR and Institutional Investor Slate, indicating “LT” in the case of appointment with a slate vote and candidacy by the Telco Slate or “T” in the case of original candidacy in the Telco slate but appointment by the Shareholders’ meeting by ordinary vote, indicating “V” in the case of appointment of candidates proposed by Vivendi S.A. during the Shareholders’ meeting on December 15, 2015) whether they are independent, executive or non-executive. The CVs of each director are available on the telecom italia.com website in About us, Company Bodies/Board of Directors/Members section. The Directors’ skills in the field of economics range from university teaching to graduate and post-graduate studies, specific training in the field of mergers and acquisitions, and experience with stock market supervision authorities and at the top of big companies. One director also declares that he/she has worked on sustainability-related projects. More details are available on the telecomitalia.com website in About us, Company Bodies/Board of Directors/Members section.
[G4-47] 14 meetings of the Board of Directors were held in 2016.
[G4-43] The Directors take part in specific meetings with the management or external consultants, aimed at providing adequate knowledge of the industry in which the Company operates, business dynamics and their evolution. Business lunches, workshops on new technologies and educational-informative meetings are held prior to strategic meetings. Updates regarding the relevant legislative framework are provided in specific briefing notes. As happened in 2016, specific meetings on sustainability are planned in 2017.
[G4-34], [G4-40]Currently the committees set up within the Board of Directors are the Strategy Committee, the Control and Risk Committee and the Nomination and Remuneration Committee. Significant transactions with related parties are subject to scrutiny by the Control and Risk Committee, in the case of transactions of lesser importance, or by a Committee consisting of all the Independent Directors, in the case of transactions of greater importance. The process of selecting and appointing members of the committee, and the independence and competence requirements are described in the Nomination and Remuneration Committee Regulations and in the Control and Risk Committee Regulations, both available on the telecomitalia.com website.
[G4-44a] For the 2016 financial year, the self-assessment of the size, composition and operation of the Board and its Committees was carried out with the support of the consultant Egon Zehnder. The board review is carried out every year (since 2005).
[G4-44b] Further information on the assessment methods and results are illustrated in the RGS. The 2016 self- assessment did not tackle issues of sustainability.
[G4-35], [G4-36], [G4-39], [G4-42] The Shareholders’ Meeting of April 16, 2014 appointed Giuseppe Recchi as Chairman and the subsequent meeting of the Board of Directors of April 18 appointed Marco Patuano as CEO. Subsequently, on March 22, 2016, Marco Patuano resigned and, on March 30, 2016, the Board of Directors appointed director Flavio Cattaneo as CEO. Also on March 30, 2016, the Board of Directors updated the proxies granted to the two Executive Directors.
The proxies and powers granted to the Executive Chairman include:
- determining the guidelines for the development of the Group, in agreement with the CEO, with powers to identify and analyse extraordinary transactions;
- supervising the strategic, industrial and financial planning process, the implementation of these plans and their development and monitoring the implementation of board
- supervising the definition of organisational structures and the power to organise and determine the size of the workforce and resources required to exercise his functions, making direct use of the Human Resources & Organizational Development department, which reports to the CEO;
- supervising the economic and financial performance of the companies and the Group;
- supervising the process of examining and devising the structure of the internal control system;
- supervising security and the TISparkle company;
- representing the company and the Group in external relations with all Authorities, Italian and international Institutions and investors (on the understanding that Investor Relations department reports to the CEO);
- responsibility for the following departments that report directly to him:
- Brand Strategy & Media;
- Institutional Communication (save for the CEO’s power to make use of the Press Office for the operational management support required in coordination with the Executive Chairman);
- Legal Affairs (save for the CEO’s power to make use of the Legal Affairs Department for the operational management support required)
- Public Affairs;
- responsibility for the Corporate Shared Value (CSV) department [G4-48] including responsibility for drawing up the sustainability report) and governance of the Fondazione TIM.
[G4-35], [G4-36], [G4-42] The proxies and powers assigned to the CEO include:
- responsibility for administration (which include drawing up the Financial Statements), ordinary and extraordinary finance, taxation activities, management control and Investor Relations;
- responsibility for devising, proposing to the Board of Directors and then implementing and developing strategic, industrial and financial plans;
- responsibility for defining organisational structures, personnel policies and relations with trade unions;
- all organisational responsibilities for managing and developing the business in Italy and South America;
- responsibility for market disclosure, with reference to the company;
- “employer” responsibility for the health and safety of workers in the workplace, with reference to the company;
- responsibility and powers regarding the handling and protection of personal data, with reference to the company.
[G4-35], [G4-36] The system by which the executive directors (Executive Chairman and CEO) delegate powers to the departments that report to them is the subject of a specific company procedure that establishes the methods by which this system must be implemented (Granting and Revocation of Powers). Powers are normally granted to those reporting directly to the executive directors and, in particular, for matters of an economic and financial nature, they are granted to those reporting to the Chief Executive Officer who deals with such matters, while for sustainability the powers are delegated to those in charge of the CSV department reporting to the Executive Chairman. Those reporting directly can in turn assign specific powers to specific departments; [G4-37] in particular, powers are granted in this way to consult stakeholders (customers, suppliers, government local offices, employees etc., described in the Stakeholder Engagement paragraph of Corporate Shared Value chapter).
[G4-41] The company procedure for transactions with related parties1 , drawn up in accordance with Consob Regulation no. 17221 of March 12, 2010, is systematically updated (the latest revision is dated March 17, 2016) and is illustrated in the Report on Corporate Governance and Share Ownership, see Directors’ Interests and Transactions with Related Parties. The disclosure of any transactions with related parties during the relevant period is included in the “Transactions with related parties” chapter of the Annual Financial Report.
[G4-45], [G4-46], [G4-14] The internal control and risk management system consists of a set of rules, procedures and organisational structures intended to ensure the healthy and proper management of the company, in a way that is consistent with the established goals, through an appropriate key risk identification, measurement, management and monitoring process. Being responsible for the internal control and risk management system the Board of Directors defines the system guidelines, verifying their adequacy, effectiveness and proper operation, so as to ensure that the main risks facing the company (including operational, compliance, economic and financial risks) are correctly identified and managed over time.
The establishment and maintenance of the internal control system are entrusted to the Executive Directors, each in his/her own delegated area, and to the Executive responsible for preparing the Company’s accounting documents in his/her area of responsibility, so as to ensure the overall adequacy of the system and its effectiveness, from a risk-based perspective, which is also considered when determining the agenda of Board meetings. Coordination between the parties involved in the internal control and risk management system is illustrated in the Report on Corporate Governance and Share Ownership.
The internal control system is contained in the so-called “231 Organisational Model”, i.e. an organisational and management model adopted pursuant to Legislative Decree 231/2001, aimed at preventing offences that may result in liability for the Company.
[G4-45], [G4-46], [G4-14] The Group has adopted an Enterprise Risk Management (hereinafter ERM) Model which allows risks to be identified, assessed and managed uniformly within Group companies, highlighting potential synergies between the parties involved in assessing the Internal Control System. Particular focus is placed on the relationship between the ERM process and the business planning process, particularly on determining the acceptable level for the Group (Risk Appetite) and the acceptable degrees of deviation from the main business targets (Risk Tolerance).
The process is managed by the ERM Steering Committee, which is chaired and coordinated by the CFO. The Steering Committee ensures the governance of the Group’s risk management, aimed at guaranteeing the operational continuity of the business, monitoring the effectiveness of countermeasures taken. The ERM process is designed to identify potential events that may influence the business activity, in order to manage risk within acceptable limits and provide a reasonable guarantee that business objectives will be achieved. For further details please read the Enterprise Risk Management system section in Being sustainable in TIM.
[G4-49], [G4-50], [G4-58] In November 2015, TIM implemented the new Whistleblowing procedure, which provides for the centralised management, by the Audit Department, of all whistleblowing reports - including those that are the responsibility of the Board of Statutory Auditors, particularly in its role as the 231 Supervisory Body - via a compute app which whistleblowers can use to access the company intranet. Since February 2016 this reporting channel has also been accessible via the Group’s website. Reports may be made by any employee, collaborator, consultant, freelance worker, as well as third parties who have business relations with the Group. The system assigns each report a unique identification code which enables the whistleblower to check the processing status in anonymity.
[G4-57], [DMA Labor Practice Grievance Mechanisms] As stated in article 4 of the Group Code of Ethics and Conduct, any requests for clarification regarding the appropriateness of one’s own conduct or the conduct of other people, in order to ensure full compliance with the Code and the values set by the Code itself, must be addressed to the Head of the Audit Department of TIM S.p.A. or to the Head of the Audit Department of the Group’s overseas company directly involved, in accordance with specific internal procedures.
[G4-58] Using the Whistleblowing procedure, the same entities must be promptly informed of the following by the recipients of the Code and those who have undertaken to comply with it:
- any violations, requests or inducements to violate legal provisions or regulations, provisions of the Code and internal procedures with regard to the activities and services of interest to the Group;
- any irregularities or negligence in accounting procedures, keeping of relevant accounting documentation, fulfilling reporting obligations or internal management in Group companies.
There are no negative consequences for people who make reports in good faith.
The confidentiality of the identity of people making reports is in any case guaranteed by appropriate internal procedures, subject to legal requirements. No recipient of the Code, employee or third party having business relations with the Group can be subject to sanctions or otherwise discriminated against if he/she refuses to perform actions or adopt a conduct which are considered, in good faith, to infringe the Code, even if this refusal should result in a loss of business or other adverse consequence for the company’s business and/or the Group. The Brazilian subsidiary TIM Participações also uses a report reception system based on a form, also accessible via the company’s website, that allows the report to be received at an email address, equipped with computer security systems, for its subsequent management.
[G4-50] In 2016, the Whistleblowing procedure resulted in 219 reports made in Italy and 518 in Brazil. The Human Rights section of the Being sustainable at TIM chapter and the Reports of the TIM people chapter illustrate the reports received concerning alleged violations of human and employment rights2.
[G4-50] The Board of Statutory Auditors’ Report states the number of reports received by the Board of Statutory Auditors and provides summary of the investigations carried out by the Board itself with the support of the Group Compliance Officer, (see 2016 Annual Report). In 2016 the Supervisory Body received only one report which did not however relate to the Code of Ethics, Human Rights or 231 Organisational Model.
[G4-51], [G4-52] The remuneration policy for the members of the Board of Directors is determined in accordance with legal requirements and the by-laws, according to which:
- [G4-53] the Shareholders’ Meeting determines the total gross annual remuneration of the Board of Directors (without including directors of specific offices: Executive Chairman and CEO); expresses an opinion on the first section of the Remuneration Report; passes resolutions regarding remuneration plans based on the allocation of financial instruments;
- the Board of Directors passes resolutions to determine how the remuneration set by the Shareholders’ Meeting will be distributed (when it is established as a total amount for the Board in its entirety); determines the remuneration policy for Executive Directors and key managers with strategic responsibilities; determines the remuneration of Directors holding special offices.
The Board of Directors is also responsible for making proposals to the Shareholders’ Meeting regarding remuneration plans based on the allocation of financial instruments for Directors and employees and for drawing up the Remuneration Report.
[G4-52] In order to ensure that the choices made regarding remuneration are appropriately investigated, in accordance with the rules on transparency and the strict regulations on potential conflicts of interest, the Board of Directors relies on the support of the Nomination and Remuneration Committee. In performing its duties, the Committee (the meetings of which are attended by the Chairman of the Board of Statutory Auditors or by another Auditor appointed by him/her) relies on the assistance provided by appropriate structures of the Company and can also rely on the support of external consultants whose position does not compromise their independence of judgement. Again for 2016, the Committee has relied on the assistance and support of Mercer Italia.
[G4-51] With the exception of the Executive Chairman and the CEO, the Directors receive fixed remunerations only. Table 1 “Remuneration paid to members of the management and control body and Key Managers with Strategic Responsibilities” in the RR states all the types and amounts of remuneration received by each director. Details of the fixed and variable remuneration components (including any stock option), benefits and severance pay attributed to the CEO, the Chairman and the key managers with strategic responsibilities, as well as the targets for the variable component of the CEO’s remuneration are illustrated in detail in the Remuneration Report. More specifically, for the Executive Directors, the targets assigned for 2016 are mainly financial in nature and regard the Group’s EBITDA indicators, the Group’s Net Financial Position and the Group’s Service Revenues (with the exclusion of the first quarter 2016 for the Chief Executive Officer). In addition to these, there is a set of quality targets, which for the Chief Executive Officer relate to the 2016 strategic initiatives (consisting of the new domestic market turnaround, the update to the turnaround plan for Brazil, the update to the broadband plan and the item “Rates and Authority”), whilst for the Chairman, they include a target relating to media and another to the Board’s assessment of the effectiveness in managing the work of the Board of Directors.
1 The terms “related party” and “related parties” of TIM are understood to refer to the parties defined as such in the Consob Regulation. Regardless of whether they can be defined as related parties according to accounting principles, the Procedure also applies to the parties to significant shareholders’ agreements, pursuant to article 122 of the Consolidated Law on Financial Intermediation, that govern candidacies for the position of Director of the Company, if it turns out that the majority of Directors appointed has been drawn from the slate presented by participants in shareholders’ agreements.
2 In particular, the Human Rights section contains a detailed description of the procedure and the types of reports made via the procedure.