Annual corporate governance report – 2007 Financial Year

GLOSSARY

Self-Regulatory Code: means the Self-Regulatory Code of conduct for listed companies approved in March 2006 by the Corporate Governance Committee and promoted by the Italian stock exchange, Borsa Italiana S.p.A.;

Civil code: means the Italian Civil Code;

Board / Board of Directors: means the board of directors of Pirelli & C.,

CONSOB: means the Commissione Nazionale per le Società e la Borsa, the Italian official body for regulating and supervising companies and stock exchanges;

Date of approval of the Report: means the meeting of the Board of Directors on 26 March 2008 that approved this report;

Responsible Officer: indicates the officer responsible for preparing the company accounting documents referred to in article 154-bis of the FSA;

Financial year: indicates the company financial year that ended on 31 December 2007 to which the Report refers;

Savings Law: indicates law no. 262 of 28 December 2005, in the ordinary supplement of the Gazzetta ufficiale della Repubblica italiana (Official Gazette of the Republic of Italy) no. 301 of 28 December 2005;

Market Regulation Instructions: indicates the Instructions for the Regulation of Markets organised and managed by Borsa Italiana S.p.A.;

Pirelli & C. indicates Pirelli & C. S.p.A. with registered offices in Milan, tax code, VAT number and Milan Business registry no. 00860340157;

Pirelli RE: indicates Pirelli & C Real Estate S.p.A., with registered offices in Milan, tax code, and Milan Business registry no. 02473170153;

Pirelli Tyre: indicates Pirelli Tyre S.p.A.. with registered offices in Milan, tax code, and Milan Business registry no. 07211330159;

Market Regulations: indicates the Market Regulations organised nd managed by Borsa Italiana S.p.A.;

Consob Issuer Regulations: indicates the Regulations issued by Consob with deliberation no. 11971 of 1999 on the subject of issuers;

Consob Market Regulations: indicates the Regulations issued by Consob with deliberation no. 16191 of 2007 on the subject of imarkets;

Report: indicates this corporate governance report drafted pursuant to article 124 bis of the FSA, 89 bis of the Consob Issuer Regulations and article IA.2.6. of the Market Regulation Instructions;

Company: indicates Pirelli & C.;

FSA: indicates Legislative Decree no. 58 of 24 February 1998 (the Testo Unico della Finanza, or consolidated Financial Services Act).

1. PROFILE OF THE ISSUER

Pirelli & C is a company listed on the Italian Stock Exchange that controls a multinational Group that does business in 160 countries with 135 years’ experience in industry.

In the tyres sector it operates Pirelli Tyre, the fifth largest manufacturer in the world, in terms of turnover, and leader in the high quality tyre market, with an industrial presence on four continents.

In the property sector it trades as Pirelli RE, a company which in just a few years has established its leadership in Italy, and recently started to expand into Central and Eastern Europe.

With its strong orientation towards innovation, the Group has also initiated a number of start-up initiatives in recent years, in high technology sectors such as new generation photonics, broadband access, sustainable mobility and renewable energy sources.

Pirelli Labs S.p.A. is the advanced research centre that serves all the Group businesses.

The Company is aware of the importance of its Corporate Governance system in fulfilling its objective of creating value for all shareholders and making progress in sustainable development, and thus induces the Company to keep its own corporate governance system constantly in line with national and international best practices, as well as making sure that it is up to date with legislative changes.

The Company uses the traditional administration and control model, founded on the central position of the Board of Directors, on the presence of correct disclosure practices regarding the choices and the procedures for decision-making within the Company, on an effective system of internal controls, on an effective monitoring for potential clash of interests and on a rigorous code of conduct for transactions with related parties.

The system of governance is documented in the Code of Ethics, in the Company bylaws, in the Regulations regarding shareholders’ meetings, and in a series of principles, rules and procedures, periodically updated to reflect regulatory changes, that are available on the website of the Company at www.pirelli.com under the Governance section dedicated to the Governance, and in the policies and guidance of the Board of Directors.

Moreover, the Company has been publishing its corporate governance reports since 2005 – further information is available in the appropriate section in the company financial reports.

It should be noted that the Company highlights updates and additions made to its corporate governance system since the preceding annual report in its half-yearly report.

2. INFORMATION on the SHAREHOLDER STRUCTURE (ex art. 123 bis FSA) at (26/03/2008)

a) Structure of the share capital

The Report takes into account the share capital reduction operation approved by the extraordinary shareholders’ meeting on 12 December 2007, and, for those matters pertaining to such shareholders, by the special meeting of savings shareholders’ held on 14 December 2007.

Specifically, the shareholders approved the voluntary reduction in the share capital from euros 2,791,311,344.64 to euros 1,556,692,865.28 by reducting the par value of ordinary and savings shares from 0.52 to euro 0.29.

The purpose of the reduction is to allow shareholders to be reimbursed for some of the financial resources obtained as a result of the sale of the holding in Olimpia S.p.A., by distributing an “extraordinary dividend” of 0.154 euros per share (for a total of approximately 827 million euros), and to optimise the equity structure of the company by allocating approximately 408 million euros to the reserve.

The capital reduction operation will be completed on 31 March 2008, and the “extraordinary dividend” will be payable from 31 March 2008 (with coupons to be surrendered on 3 April 2008).

The bylaws updated with the new values will be filed after the above-mentioned dividend has been paid.

The Share capital is divided into ordinary shares and savings shares; the table below shows its exact composition.

No. shares

% of share capital

Listing

Ordinary shares*

5,233,142,003

97.49%

Listed on the MTA (Mercato Telematico Telematic Stock Market) organised
and managed by Borsa Italiana S.p.A. – Blue Chip segment.

Savings shares**

134,764,429

2.51%

Listed on the MTA (Telematic Stock Market) organised and managed by Borsa Italiana S.p.A. – Blue Chip segment.

* Identification code ISIN IT0000072725

** Identification code ISIN IT0000072733

Rights and obligations

Ordinary shares entitle the holder to one vote each. They are registered shares or bearer shares, to the extent permitted by law, and in this case can be converted into the other type of shares at the request and expense of their owner.

Savings shares do not have voting rights and, unless otherwise provided by law, are bearer shares. At the request and expense of the shareholder they can be converted into registered savings shares.

In addition to the rights and privileges specified by the law and the Company bylaws, savings shares have pre-emption in the reimbursement of capital for their whole face value; if the share capital is reduced by losses, the face value of the savings shares is only reduced for the part of the losses that exceeds the overall face value of the other shares. They also retain the rights and privileges assigned to them by the law and the Company bylaws, even when excluded from negotiations of ordinary and savings shares.

If share capital should be increased by the issue of shares of a single category, they must be offered as an option to all categories of shareholders.

If capital is increased by the issue of both ordinary and savings shares:

a) holders of ordinary shares have the right to receive options for ordinary shares and, for any difference, savings shares;

b) holders of savings shares have the right to receive options for savings shares and, for any difference, ordinary shares.

The net annual profits are divided as follows, after the legal allocations have been made:

a) savings shares are attributed a sum totalling seven percent of their par value; if a dividend of less than seven percent of the par value has been assigned to the savings share in a financial year, the difference is calculated by increasing the privileged dividend in the two subsequent years[1]; the profits remaining after assignment of the above dividend to the savings shares are split between all the shares so that the savings shares are entitled to a total dividend that is two percent of their par value higher than the dividend payable to the ordinary shares;

b) without prejudice to the above provisions concerning the increased total dividend payable on savings shares, ordinary shares are attributed a sum totalling five percent of their par value[2].

The remaining profits will be distributed to all the shares, in addition to the sums assigned as described in letters a) and b) above, unless the shareholders’ meeting should decide to approve the Board’s proposal to make special allocations to extraordinary reserves or other uses, or should to carry forward part of said share of the profits.

If reserves are distributed the savings shares have the same rights as the other shares.

Financial instruments that attribute the right to subscribe to new issue shares.

At the date of approval of the Report no financial instruments that attribute the right to subscribe to new issue shares have been issued.

It should be noted that in a decision made by the extraordinary shareholders’ meeting held on 11 May 2004, the Directors were given the right to issue convertible bonds in both ordinary and savings shares, or with warrants valid for the subscription of such shares to be offered as options to shareholders and holders of convertible bonds, for a maximum nominal sum of 1,000 million euros, before 10 May 2009, in one or more operations, within the limits permitted at the time of issue by the current regulations, with a consequent possible increase in share capital to serve the conversion of the bonds and/or the exercise of the warrants. See the section below entitled “Powers to increase the share capital and authorisations to purchase own shares”.

Stock incentive plans

See the financial report and the information prospectus prepared pursuant to art. 84 bis of the Consob Issuer Regulations available on the Company website www.pirelli.com Governance section.

b) Restrictions on the transfer of securities

There are no restrictions on the transfer of securities.

c) Major shareholdings

Those subjects holding voting shares corresponding to more than 2% of the ordinary share capital according to the register of shareholders supplemented by the communications received pursuant to art. 120 of Legislative Decree no. 58/1998 and other information available are listed below:

Declaring subject

% share of ordinary capital

% share of voting capital

1

MARCO TRONCHETTI PROVERA

26.19

26.19

 

of which directly

0.00

0.00

 

and indirectly through CAMFIN S.P.A.

26.17

26.17

 

and through Cam Partecipazioni S.r.l.

0.02

0.02

2

ASSICURAZIONI GENERALI S.p.A.

5.49

5.49

 

of which directly 113,926,593 shares (2.18%)

 

and indirectly through:

 

- Ina Assitalia SpA - 104,949,245 shares (2.00%)

 

- Generali Vie S.A - 57,400,000 shares (1.10%)

 

- Alleanza Assicurazioni SpA - 964,282 shares (0.02%)

 

- Intesa Vita SpA – 842,952 shares (0.02%)

 

- La Venezia Assicurazioni SpA - 38,640 shares (0%)

 

- Toro assicurazioni SpA 8,923,725 shares (0.17%)

3

RAGIONE DI GILBERTO BENETTON & C. S.a.p.A.

4.77

4.77

 

indirectly through EDIZIONE HOLDING S.p.A.

4

MEDIOBANCA S.p.A.

4.61

4.61

5

PREMAFIN FINANZIARIA S.p.A.

4.48

4.48

 

of which indirectly through

 

FONDIARIA – S.A.I S.p.A.

4.45

4.45

 

- Milano Assicurazioni SpA- 1,296,000 shares (0.02%).

 

- Sasa Assicurazioni e Riassicurazioni SpA – 26,664 shares (0%)

 

- Novara Vita SpA – 149,332 shares (0%)

 

- Sasa Vita SpA – 3,332 shares (0%)

6

ALLIANZ SE

4.41

4.41

 

indirectly through Allianz S.p.A.

7

AMBER CAPITAL LP

2.16

2.16

 

(as manager of Amber Master Fund Cayman Spc.
which holds the entire shareholding)

Note: The information on shareholders who directly or indirectly hold ordinary shares corresponding to 2% or more of the capital with voting rights in ordinary meetings of the Company shareholders is also available on the website of the Commissione Nazionale per le Società e la Borsa (Consob). In this respect, it should be noted that the information published by Consob on its website by virtue of the communications made by the subjects required to fulfil the obligations of article 120 of the FSA and Consob Regulation 11971/99, may differ appreciably from the real situation, since the obligations to communicate changes in the percentage holdings arise not when these percentages change, but only when they “exceed” or “fall below” predetermined thresholds (2%, 5%, 7.5%, 10% and subsequent multiples of 5). It follows as a result that a shareholder (i.e. a declaring subject) which has declared ownership of 2.6% of the voting capital may increase their holding to up to 4.9% without any obligation to communicate this to Consob pursuant to art. 120 of the FSA.

d) Securities that confer special rights

No securities that confer special monitoring rights have been issued.

e) Employee shareholdings: mechanism for exercising voting rights

There are no mechanisms for exercising the voting rights of employee shareholders when the voting rights are not exercised directly by said employees.

f) Restrictions on voting rights

There are no restrictions on voting rights (such as, for example, limitations on voting rights at a certain percentage or a certain number of votes, terms imposed on the exercise of voting rights, or systems in which, with the cooperation of the Company, the financial rights related to the securities are separate from the ownership of the securities).

g) Shareholder agreements

Participants in the Pirelli & C. S.p.A. Block Share Syndicate, the purpose of which is to ensure Pirelli & C. share structure stability, and an excerpt of the relevant agreement are listed at the end of this Report and are available on the website of the Company at www.pirelli.com.

h) Appointment and replacement of Directors

The Company bylaws[3] have provided that the Board of Directors is appointed by a slate system since 2004. This system ensures that – if more than one slate is presented – minority shareholders can elect one fifth of the Directors.

The slates presented by shareholders, undersigned by the parties submitting them, must be deposited[4] at the registered office of the Company at least fifteen days prior to the date set for the shareholders’ meeting to be held on first call and made available to anyone on request.

Each shareholder may present or participate in the presentation of only one slate and each candidate may appear on only one slate, on pain of ineligibility.

Only shareholders who, alone or together with other shareholders, hold at least 2 per cent of the share capital entitled to vote at the ordinary shareholders’ meeting, may present slates, or the lesser proportion required by regulatory provisions issued by CONSOB, subject to their proving ownership of the necessary number of shares not later than the date by which they must be deposited.

CONSOB[5] has determined the percentage shareholding required for presentation by the shareholders of the slates of candidates for election to the administration and control bodies of Pirelli & C for the 2008 financial year as 1.5% of the capital with voting rights in the ordinary shareholders’ meeting.

Declarations in which the candidates individually accept their candidacy and attest, on their own responsibility, that there are no grounds for ineligibility or incompatibility, and that they meet the requirements prescribed by law and the bylaws, must be deposited with each slate. The declarations must be accompanied by a curriculum vitae for each candidate regarding his personal and professional characteristics, indicating the administration and control appointments held by the candidate with other companies and his or her suitability to qualify as independent, according to legal and Company criteria.

Slates presented in violation of the above rule are considered null.

Each person entitled to vote may vote for only one slate.

The following procedure will be used for the election of the Board of Directors:

a) four fifths of the directors to be elected are selected in the progressive order in which they are listed on the slate that obtained the majority of the votes cast by the shareholders, rounding down to the nearest whole number;

b) the remaining directors are appointed from the other slates; for this purpose, the votes obtained by the slates will be divided by a sequence by whole numbers from one up to the number of directors that remain to be elected. The quotients thus obtained are assigned progressively to the candidates of each of the slates, in the order in which they are listed. The quotients attributed to the candidates of the various slates are arranged in a single list, in decreasing order. The persons with the highest quotients are elected.

If more than one candidate obtains the same quotient, the candidate from the slate that has not yet elected a director, or which has elected the fewest directors, is elected.

If no-one from these slate has yet elected a director, or if they have all elected the same number of directors, then within these slates candidate who obtained the highest number of votes is elected. If two candidates on a slate have the same number of votes, and the same quotient, then the entire shareholders’ meeting votes again and the candidate obtaining a simple majority of votes is elected.

For the appointment of directors not nominated according to the procedure described above for any reason, then the shareholders decide with the legal majorities.

If one or more directorships should become vacant during the financial year, the provisions of art. 2386 of the Italian Civil Code apply.

It should be noted that when the financial reports for the year ended on 31 December 2007 are to be approved[6], the extraordinary meeting of the shareholders will be asked to make some changes to the company bylaws[7]. In particular, in addition to some further changes, we propose to supplement the arrangements for the election of the Board of Directors by providing that, if the slate voting mechanism does not assure the minimum number of independent directors, the non-independent candidate with the highest progressive number in the list who has received the highest number of votes is replaced by the unelected independent candidate from the same list according to their progressive number on it, and so on, list by list, until the minimum number of independent directors has been achieved. The purpose of this change is essentially to ensure that the director appointment procedure guarantees that the minimum number of independent directors required by the law is present on the Board. As per international best practices, the renewal of the administrative body of the Company allows shareholders to vote on separate elections on: (i) the number of people on the Board of Directors; (ii) the election of Directors through a vote on the presented slates; (iii) the duration of the mandate of the Board of Directors; and (iv) the pay packages of the Directors.

i) Changes to the bylaws

Changes to the bylaws of the Company are deliberated as provided by the legal regulations.

l) Powers to increase share capital and authorisations to purchase own shares[8]

In a deliberation an extraordinary shareholders’ meeting on 7 May 2003, the Directors were given the right to issue, in one or more tranches, up to a maximum of 100,000,000 ordinary shares by 30 April 2008, to be assigned to managers and directors of the company, its subsidiaries or their subsidiaries, in Italy or abroad, pursuant to articles 2441 subsection eight of the Civil Code and article 134 of the FSA. On 25 February 2005, the Board of Directors, in partial execution of the powers attributed to it by the extraordinary shareholders’ meeting of 7 May 2003, deliberated to increase the share capital for a maximum of Euro 15,725,496.50 par value, by the issue of a maximum of 54,225,850 ordinary shares of 0.29 euros par value, at a price of 0.996 euros each, of which 0.706 as share price premium, to be reserved for subscription by managers and executives of the company, its subsidiaries and their subsidiaries, in Italy and abroad.

In a deliberation made by an extraordinary shareholders’ meeting on 11 May 2004, the Directors were given the right to increase the share capital by payment, by 10 May 2009, in one or more operations, up to a total sum of 600 million euros par value, with or without share premium, by issuing a maximum of 2,068,965,517 ordinary shares to be offered in option to shareholders and holders of convertible bonds, with the possibility of excluding the right to option pursuant to the combined provisions of art. 2441, last subsection, of the Civil Code, and article 134, subsection two of the FSA, where the shares are offered for subscription by the employees of Pirelli & C. or its subsidiaries.

By a deliberation made by the extraordinary shareholders’ meeting of 11 May 2004, the Directors were given the right to issue convertible bonds in both ordinary and savings shares, or with warrants valid for the subscription of such shares to be offered as options to shareholders and holders of convertible bonds, for a maximum nominal sum of 1,000 million euros, before 10 May 2009, in one or more operations, within the limits permitted at the time of issue by the current regulations, with a consequent possible increase in share capital to serve the conversion of the bonds and/or the exercise of the warrants.

At the date of approval of this report, the Board of Directors had not made use of the last two powers mentioned above.

The deliberations to increase the share capital that may ultimately be made by the Board of Director in exercising its rights as attributed above must set the subscription price (including any share premium) and the corresponding term within which the shares may be subscribed. It may also specify that, if the deliberated increase should not be wholly subscribed within the period of time set, the capital will be increased by a sum equal to the subscriptions collected at the end of said period.

At the date of this report, the Company holds 2,617,500 of its own ordinary shares and 4,491,769 of its own savings shares.

In its meeting on 26 March 2008, the Board of Directors deliberated to propose to the shareholders’ meeting[9] that the Board of Directors should be authorised to purchase and sell its own shares within the limits specified in the current regulations.. For more detail, see the Directors’ Report for this operation, which will be made available on the company website www.pirelli.com.

m) Change of control clauses

There are no subjects which may, directly or indirectly, also by virtue of shareholder agreement, individually or jointly with other persons included in these agreements, exercise control over Pirelli & C..

It follows that, this being the case, no change of control of the company can occur.

n) Directors’ indemnity in case of resignations, termination or cessation of appointment after a public takeover bid

The Company has not stipulated agreements with its directors that envisage indemnities in case of resignations or termination/cancellation of appointments without good reason or if the employment relationship ceases after a public takeover bid.

3. COMPLIANCE

Since it was first issued, Pirelli & C. has adhered to the self-regulatory code of the Italian Stock Exchange (published in July 2002) and in the Board meeting held on 12 March 2007 it formalized its adhesion to the new self-regulatory code for listed companies (published on March 2006).

As mentioned, the Company is aware of the importance of its Corporate Governance system in fulfilling its objective of creating value for all shareholders and making progress in sustainable development, and thus induces the Company to keep its own corporate governance system constantly in line with national and international best practices, and with legislative changes.

At the date of approval of this Report non-Italian legal provisions that influence the corporate governance structure of the Company do not apply to Pirelli & C..

4. DIRECTION AND COORDINATION ACTIVITIES

There are no subjects which may directly or indirectly, also by virtue of shareholder agreement, individually or jointly with other persons included in these agreements, exercise control over Pirelli & C..

Moreover, the Company is not subject to direction and coordination activities by any company or body pursuant to article 2497 and subsequent articicles of the Civil Code.

In contrast, Pirelli & C., which heads the Group of that name, exercises direction and coordination activities pursuant to the provisions of the Italian Civil Code over many companies, having published appropriate information about these matters pursuant to article. 2497-bis of the Civil Code.

It should be noted that, while the Company controls Pirelli RE, a company listed on the Milan stock exchange, pursuant to article 2359 of the Civil Code, consolidates its results, and held over 50% of the voting capital at the date of approval of this Report, it does not exercise direction and coordination activities over it, since there is no evidence to show that it has any effective impact on the management of this subsidiary, and this is also confirmed in the section “Role of the Board of Directors”, para.“Transactions with significant impact on the strategy, the profitability, the assets or the financial position of the Company”. Formal evidence for this assessment has been provided by the Boards of Directors of both Pirelli and of Pirelli RE.

5. BOARD OF DIRECTORS

In line with Italian regulations for the traditional direction model, the management of the Company in guiding its strategy and controlling its operations, with the power to direct its overall management and intervene directly in a series of decisions that are necessary or useful in the pursuit of its corporate aims is entrusted to the Board of Directors.

To carry out its duties the Board of Directors relies on the support provided by specific Board subcommittees composed entirely of independent directors.

5.1. Composition

The Board of Directors of the Company, as established by the bylaws, consists of no less than seven and no more than twenty-three members, who serve for three years (unless a lesser period is specified by the shareholders’ meeting at the act of their appointment) and may be re-elected.

The Board of Directors in office on 31 December 2007 consists of twenty members and was appointed by the shareholders’ meeting of 28 April 2005 for three financial years to expire on approval of the financial reports for the year ending 31 December 2007[10].

By voting on a slate[11] the minority shareholders were able to nominate four Directors, i.e. one fifth of the total number (specifically, Carlo Angelici, Franco Bruni, Mario Garraffo and Aldo Roveri).

Two lists were presented at the shareholders’ meeting on 28 April 2005, one by the participants in the Pirelli & C. S.p.A. Share Block Syndicate and the other by various savings management companies. Those proposing the slates made the candidates’ profiles available so that the candidates’ personal and professional characteristics, as well as some candidates’ qualifications as independents, were made known prior to voting. The curricula vitae presented when the slates were filed were promptly published on the Governance section of the company website, www.pirelli.com, where they remain available in an updated version.

During 2007 some changes were made to the composition of the Board. Specifically, the appointment of Alberto Bombassei, co-opted by the Board of Directors on 12 September 2006, was confirmed by the shareholders’ meeting on 23 April 2007, and Luigi Roth was appointed, restoring the number of serving Directors to twenty (at the end of 2006, following the resignation of Managing Director Carlo Buora, the Board of Directors, given the imminent shareholders’ meeting, decided not to proceed to co-opt any other directors, but to refer all decisions on this issue to the shareholder meeting). Finally, the shareholders’ meeting of 12 December 2007 confirmed the appointment of Enrico Tommaso Cucchiani, coopted to the Board of Directors in the meeting of 26 July 2007, as Director in place of Paolo Vagnone, who resigned his directorship on 20 July 2007.

The composition of the Board of Directors at the date of approval of this Report is indicated below:

Name

Office

Appointed on

Slate

Exec.

Nonexec.

Indep.

Indep. FSA

% BDM

Marco Tronchetti Provera

Chairman

04/28/2005

Maj.

X

100

Alberto Pirelli

Deputy Chairman

04/28/2005

Maj.

X

89

Carlo Alessandro Puri Negri

Deputy Chairman

04/28/2005

Maj.

X

100

Carlo Acutis

Director

04/28/2005

Maj.

X

X

X

67

Carlo Angelici

Director

04/28/2005

Min.

X

X

X

100

Gilberto Benetton

Director

04/28/2005

Maj.

X

67

Alberto Bombassei

Director

09/12/2006*

**

X

X

X

78

Franco Bruni

Director

04/28/2005

Min.

X

X

X

89

Enrico Tommaso Cucchiani

Director

07/26/2007*

**

X

67

Gabriele Galateri di Genola

Director

04/28/2005

Maj.

X

100

Mario Garraffo

Director

04/28/2005

Min.

X

X

X

100

Dino Piero Giarda

Director

04/28/2005

Maj.

X

X

X

89

Berardino Libonati

Director

04/28/2005

Maj.

X

X

X

56

Giulia Maria Ligresti

Director

04/28/2005

Maj.

X

100

Massimo Moratti

Director

04/28/2005

Maj.

X

78

Giovanni Perissinotto

Director

04/28/2005

Maj.

X

78

Giampiero Pesenti

Director

04/28/2005

Maj.

X

X

X

56

Luigi Roth

Director

04/23/2007

***

X

X

X

83

Aldo Roveri

Director

04/28/2005

Min.

X

X

X

89

Carlo Secchi

Director

04/28/2005

Maj.

X

X

X

100

LEGEND

* Alerto Bombassei and Enrico Cucchiani have been appointed directors pursuant to article 2386 subsection 1 of the Civil Code. The Directorship of Mr. Bombassei was confirmed by the Shareholders’ Meeting on 23/04/2007, and that of Mr. Cucchiani on 12/12/2007

** It should be noted that since the appointment was confirmed after an appointment pursuant to article 2386 subsection 1 of the Civil Code, the voting slate mechanism was not applicable.

*** Appointed by the shareholders’ meeting on 23 April 2007. In this case the voting slate mechanism was not applicable, pursuant to the Company bylaws.

Slate: Maj/Min according to whether the director was elected from the majority or minority slates (art. 144-decies of the Consob Issuer Regulations)

Exec. if checked indicates that the director is an executive director

Non-exec. if checked indicates that the director is a non-executive director

Indep. if checked indicates that the director is independent according to the criteria contained in the Self Regulatory Code.

Indep. FSA: if checked indicates that the director possesses the attributes of independence specified in art. 148, subsection 3 of the FSA (art. 144-decies of the Consob Issuer Regulations)

% BDM indicates the percentage of Board meetings attended by the director (in calculating this percentage for Directors Cucchiani and Roth, this was calculated from the number of meetings they attended in relation to the number of Board meetings held after their appointment)

In accordance with the provisions of the Self Regulatory Code[12], the positions occupied by the Directors in major companies other than Pirelli Group companies are listed at the end of the Report..

Name

Office

R.C.

% R.C.

CCI

% C.I.C.C.G.

Carlo Angelici

Member

X

100

Franco Bruni

Member

X

100

Berardino Libonati

Chairman

X

100

 

Giampiero Pesenti

Member

X

100

 

Aldo Roveri

Member

X

100

 

Carlo Secchi

Chairman

X

100

LEGEND

R.C. indicates the Remuneration Committee

% R.C.: indicates the percentage of meetings of the Remuneration Committee attended by the director

C.I.C.C.G.: indicates the Committee for Internal Control and Corporate Governance

%. C.I.C.C.G.: indicates the percentage of meetings of the Committee for Internal Control and Corporate Governanceattended by the director

The directors who ceased to hold office during the year are listed below:

Name

Office

Served from/to

Slate

Exec.

Non exec.

Indep.

% BDM

Paolo Vagnone

Director

From 04/28/2005 to 07/20/2007

Maj.

X

80

LEGEND

Refer to the legend for the two preceding tables

Maximum accumulation of directorships in other companies

By deliberation of the Board of Directors on 9 November 2007, fully implementing the Self Regulatory Code[13] it has been established that serving as a director or authotiry of more than five companies other than those directed and coordinated by Pirelli & C S.p.A, or controlled or affiliated to such companies, is not considered compatible with serving as a director of the Company, when the companies are (1) listed companies included in the S&P/MIB index (or equivalent foreign indices), or (ii) companies operating prevalently in the retail finance sector (members of the lists specified in article 107 of legislative decree no. 385 of 1 September 1993) or (iii) companies that undertake banking or insurance activities. Moreover, it is not considered compatible for a director to hold more than three executive positions in companies described in (1), (ii) or (iii).

Offices held in more than one company in the same group are considered a single office, and executive positions prevail over non-executive ones.

The Board of Directors retains the right to form a different opinion, and this will be made public in the annual report on corporate governance, together with the congruent grounds for doing so.

The positions occupied by the Directors in major companies other than Pirelli Group companies are listed at the end of the Report..

After investigation by the Committee for Internal Control and Corporate Governance, the Board of Directors, in its meeting of 26 March 2008, examined the offices held and reported by the individual Directors and determined that all Directors hold appointments that are compatible with the execution of their office of Director of Pirelli & C according to the policy on this issue adopted by the Company.

Shareholders who, pursuant to the bylaws, intend to present slates for the composition of the Board of Directors, are invited to examine this document.

The “policy of the Board of Directors on the maximum number of appointments considered compatible with effective service as a director of the Company” is appended at the end of this Report and is also available in the Governance section of the company website, www.pirelli.com.

5.2. Role of the Board of Directors

The Bylaws do not specify a minimum interval between Board meetings. The Company has circulated a calendar[14] that schedules 4 meetings for 2008, specifically:

  • 26 March 2008 to examine the budget and consolidated financial reports for the year ended on 31 December 2007
  • 9 May 2008 to examine the intermediate report on operations for the first quarter of 2008;
  • 5 August 2008 to examine the abbreviated half-yearly financial report;
  • 7 November 2008 to examine the intermediate report on operations for the third quarter of 2008.

Moreover, after its renewal by the Shareholders’ Meeting[15], the newly-appointed Board of Directors will meet for the deliberations consequent on the appointment..

The Board meetings may take place by means of telecommunication systems enabling participation of all parties concerned, with equal information, in the debate.

The Board of Directors meetings are convened by means of letter, telegram, fax or e-mail sent at least five days prior (or, in the event of emergencies, at least six hours prior) to the meetings to each Director and Acting Auditor.

Barring exceptional cases, the Directors and the Auditors have always received the necessary documentation and data with reasonable notice in order to express their informed opinion on the matters submitted to their examination.

During the 2007 financial year there were 9 meetings of the Board of Directors, with an average duration of approximately one and a half hours each; the mean percentage attendance by directors was around 85%, and the independent Directors attended an average 82% of meetings.

The Lead independent director attended all meetings of the Committee for Internal Control and Corporate governance (which he Chairs), all meetings of the Board of Directors, the two shareholders’ meetings that were held during the 2007 financial year, and the special meeting of savings shareholders.

At the date of approval of the Report, there had been 2 meetings of the board.

Functions of the Board of Directors

As stated, the Board of Directors plays a central role in the corporate governance system of the Company; it has the power (and the duty) to direct Company business, pursuing and fulfilling its primary and ultimate objective of creating shareholder value.

Pursuant to the bylaws[16], the Board is responsible for the management of the Company and, to this end, it is vested with the broadest powers, except for those matters remitted by law or the bylaws to the authority of the shareholders’ meeting.

The Board of Directors, also in accordance with the recommendations of the Self Regulatory Code[17]:

  • examines and approves the strategic, industrial and financial plans of the Company and the Group;
  • formulates and adopts the rules for the corporate governance of the Company, and defines the group governance guidelines;
  • evaluates the adequacy of the general organisational, administrative and accounting structure of the Company as well as of those subsidiaries of strategic importance as set up by the Managing Directors, with special reference to internal auditing and the management of conflicts of interests;
  • grants powers to the Managing Directors and the Executive Committee (if established) and revokes them; fixing their limits, the manner in which they have to be exercised and the frequency, at least quarterly, on which such bodies must report to the Board on the activity performed in the exercise of the powers granted to them;
  • determines, after having examined the Remuneration Committee proposals and consulted the Board of Statutory Auditors, the remuneration of the Managing Directors and of those directors who are vested with special offices and, if the shareholder meeting has not already resolved upon it, allocates the total remuneration to which the members of the Board of Directors are entitled;
  • evaluates the general performance of the Company, taking particularly into consideration the information received from the delegated bodies, and periodically compares the results achieved with those planned;
  • examines and approves in advance all operations involving the Company and its subsidiaries which have a significant impact on the strategy, the profitability, the assets or the financial position of the Company, paying particular attention to situations in which one or more directors act in their own interest or in the interest of third parties, and more generally to transactions with related parties. During the revision of the corporate governance instruments, it was expressly stated that the Board of Directors establish general criteria for the detection of these kinds of operation;
  • at least once a year, evaluates the size, composition and functioning of the Board itself and its Committees, expressing opinions on the professional figures whose presence in the Board could be deemed advisable;
  • constitutes the Supervisory Body pursuant to legislative decree no. 231/2001;
  • appoints and dismisses the internal control officer and determines her/his duties and remuneration, after having received the opinion of the Committee for Internal Control and Corporate Governance and the Board of Statutory Auditors; reviews and approves periodic reports prepared according to applicable legislation;
  • exercises the other powers and fulfils those duties attributed to it by the law and the Company bylaws.
Evaluation of the general results of operations[18]

Pursuant to the bylaws[19] and the current regulations[20], the Board of Directors has evaluated the general results and likely development of operations at at least quarterly intervals.

Please also refer to the paragraph headed “Information to the Board” in the “Delegated Bodies” section.

Internal control system and governance system[21]

The Board of Directors has assessed[22] the adequacy of the internal control system and, more generally, the governance of the Company and of the Group it controls, at six monthly intervals..

In this respect it should be noted that recently the Board of Directors, in its meeting on 26 March 2008, adopting the considerations made by the Committee for Internal Control and Corporate Governance, evaluated the adequacy of the general organisational, administrative and accounting structure of the Company, and expressed a positive opinion of the internal control system and, more generally, of the governance system of the Company and the Group[23]

Remuneration of the directors vested with special responsibilities[24]

The Board has examined and approved the Committee’s proposal for the remuneration of the General Managers of the Company and has been informed of the remuneration of the Managing Director and General Manager of Pirelli Tyre[25].

Given the ending of its mandate, the Board did not deliberate on the variable remuneration package of directors vested with special responsibilities for the 2008 financial year, referring all determinations on this matter to the new Board.

See section 10 “Remuneration of directors” for all issues related to remuneration.

Transactions with significant impact on the strategy, the profitability, the assets or the financial position of the Company[26]

The “Procedure for information flows to Directors and Auditors”, appended at the end of this chapter, available in the Governance section of the company website, www.pirelli.com, specifies that the general information on the activities carried out should be accompanied by specific detailed information on, among other matters, transactions with significant impact on the profitability, assets or financial position of the company, identified using qualitative criteria and quantitative thresholds.

Moreover, the Board, without prejudice to the responsibilities and powers reserved to it by the law, bylaws, powers structure and internal procedures, has also specified that it is the Board of Director’s responsibility to give prior approval to certain non infragroup operations and actions (determined on the basis of the latest qualitative criteria and further quantitative thresholds) when carried out by Pirelli & C or by unlisted foreign companies subject to the direction and coordination of Pirelli & C..

Thus the transactions of Pirelli RE (a listed company not subject to the direction and coordination[27] of Pirelli & C.) and the companies directed and coordinated by Pirelli RE are not subject to the prior approval of the Board of Directors of Pirelli & C.

Transactions with related parties

For transactions with related parties, see the section entitled “Interest of the directors and transactions with related parties”.

Board performance evaluation[28]

During 2006, for the first time, the Board of Directors made a self-evaluation of its performance (officially called a “Board performance evaluation”), thus adhering to international best practices and the provisions in the Self-Regulatory Code[29].

As proposed by the Committee for Internal Control and Corporate Governance, and based on suggestions made by the independent directors[30], and taking the positive experience of the preceding year into account, the Board concluded that it would be advisable to start a similar Board self-evaluation for the 2007 financial year, inverting the process used the previous year. The self-evaluation process occurred by direct interviews with individual Board members or, alternatively, allowing Board members to provide written answers to a questionnaire which was also used as a guide for the interviews. The self-evaluation was carried out with the assistance of a major consultancy company that worked alongside the Committee for Internal Control and Corporate Governance to develop self-evaluation methods and to analyse the results.

Directors were invited to express their opinions on three major themes:

  • the board performance evaluation: including, among other aspects, the size, composition and operation of the Board and its Committees;
  • the directors’ evaluation: including, among other aspects, the participation, knowledge of the Company, knowledge of regulatory developments and independence of opinion of the executive directors, non-executive and non-independent directors and independent directors;
  • the self-evaluation: including, among other aspects, an evaluation by each individual director of the issues considered in the directors’ evaluation of their own participation, knowledge of the Company, knowledge of regulatory developments and independence of opinion.

The Directors interviewed had an opportunity to express four degrees of opinion and to formulate their own comments.

The results were subject to in depth analysis by the Committee, and then examined by the Board of Directors in its meeting of 26 March 2008.

The Directors expressed a high degree of participation in the self-evaluation board performance evaluation and the examination of the results showed the emergence of a decidedly positive impression.

This second edition of the board performance evaluation confirmed the participation in and satisfaction of the Directors with their Board.

Article 2390 Civil Code

Article 10, last subsection of the bylaws provides that, unless otherwise deliberated by the shareholders’ meeting, the directors are not bound by the prohibition contained in article 2390 of the Civil Code.

5.3. Delegated bodies

Chairman

Where the Shareholders’ Meeting has not done so, the Board of Directors appoints its Chairman. Specifically, the Board of Directors appointed Marco Tronchetti Provera as Chairman of the Board of Directors in its meeting of 28 April 2005.

The Chairman is recognised as the legal representative of the Company, empowered to perform any action pertinent to corporate activity in its various manifestations.

The Board of Directors has identified the limits to the powers it confers, which have been defined as the inner limits of the relationship between the delegating body of the Board and the subject with delegated powers. In particular, the following inner limits have been identified for the Chairman: the power to guarantee Company and subsidiary bonds having individual values of more than 25 million euros, or for third parties regarding bonds with individual values of more than 10 million euros (in the latter cases another Managing Director must co-sign with the Chairman);

Furthermore, the Board confirmed that the Chairman, Marco Tronchetti Provera, should exercise the following organizational functions:

  • relations with shareholders and the information provided to them;
  • coordination of the Managing Directors’ activities;
  • formulation, in agreement with the Managing Directors, of the general strategies and development policy for the Company and the Group, to be submitted to the Board of Directors together with extraordinary corporate actions;
  • proposals, to be submitted to the Board of Directors in agreement with the Managing Directors, for the appointment of members of the General Managers’ Departments and, after consulting the Remuneration Committee, for their compensation;
  • chairmanship of the managing committees with strategic functions;
  • all forms of communication to the market, with the right to delegate to the managing directors, in accordance with what is covered by the procedure for the management and communication to the market of sensitive information, as approved by the Company;
  • the right to acquire from the Managing Directors and the management of the Group all the data and information considered necessary to carry out the above-mentioned functions.
Managing Directors and other Managers

Powers pertaining to their specific functions, subject to certain quantitative limits, have been granted to Claudio De Conto, Chief Operating Officer, and to Luciano Gobbi, Chief Finance and Strategic Planning Officer[31].

Less broad powers have been granted to other managers of the Company to be used in their individual spheres of competence.

As in the past, in 2007 the Chairman, the Managing Directors, the General Managers and the Managers used their delegated powers only for the ordinary management of the activities of the Company (in regard to which the directors were periodically informed) and submitted the transactions which were more important from an operational or financial perspective to the Board of Directors.

In fact, delegation does not mean the assignment of exclusive powers but is rather the solution adopted by the Company to ensure, in terms of the organization of the senior management team, the greatest degree of operational flexibility, both within the Company and in relation to third parties.

Information to the Board

Pursuant to Article 11 of the bylaws and the prescriptions of Article 150, subsection 1 of the FSA, the Board of Directors and the Board of Statutory Auditors are kept informed, inter alia by the persons with delegated powers, about the performance of the Company, its general management, its prospects and the transactions of greatest significance for its profitability, financial position or assets and liabilities carried out by the Company or its subsidiaries; in particular, such persons report any transactions in which they have an interest, for their own account or on behalf of third parties, or that are influenced by the person, if any, who performs management and coordination activities. Such reports are made promptly and at least once every three months, on occasion of the Board of Directors meetings (and the Executive Committee, if established) or by means of a written communication.

In order to favour the orderly organization of the flow of information, in July 2002, the Company adopted a procedure with the rules to be followed to ensure compliance with the above-mentioned Article 150 with regard to the activities of the executive directors, both in exercising their delegated powers and in carrying out the transactions approved by the Board of Directors.

This procedure has been subject to a review that involved Company governance frameworks. The Board of Directors meeting on 12 March 2007 actually decided to adopt a general procedure on information flows to the Directors and Auditors, which incorporates more widely the procedure adopted to fulfil the obligations of art. 150 of the Financial Services Act. The new procedure aims at regulating and coordinating the various types of data flowing to Directors and Auditors, so that they all have the common aim of continuously making available to the members of these Boards the data needed to properly fulfil their directional, policy and control responsibilities.

The text of this new policy, shown at the end of this reportis also available on the website of the Company at www.pirelli.com, under the section entitled “Governance”.

5.4. Other executive Board Members

The Board of Directors has considered the Chairman of the Board of Directors, Marco Tronchetti Provera, and the two Vice Chairmen, Carlo Alessandro Puri Negri (also Vice Chairman and Managing Director of subsidiary Pirelli RE) and Alberto Pirelli (also director and manager of a business unit of subsidiary Pirelli Tyre and director of other subsidiaries of Pirelli Tyre) to be executive directors.

During the year, in accordance with the recommendations of the Self Regulatory Code[32], to extend the knowledge of all directors about the reality and dynamics of the company, a visit was organised to Modular Integrated Robotized System (MIRS) to better understand all the phases of the tyre production cycle from raw material to finished product..

5.5. Independent Directors

The Board of Directors of the Company evaluate the requisites for independence specified in the Self Regulatory Code and the FSA for non-executive directors qualified as independent upon their appointment and during their mandate.

In the light of a substantial evaluation of the information provided by the Directors and that available to the Company, the Board of Directors confirmed, in the Board meeting on 26 March 2008, that the eleven directors who, on appointment, were qualified as independent (Carlo Acutis; Carlo Angelici; Alberto Bombassei; Franco Bruni; Mario Garraffo; Dino Piero Giarda; Berardino Libonati; Giampiero Pesenti; Luigi Roth; Aldo Roveri and Carlo Secchi), continue to maintain these requisites. A further six Board members (Gilberto Benetton; Enrico Tommaso Cucchiani; Gabriele Galateri di Genola; Giulia Maria Ligresti; Massimo Moratti; Giovanni Perissinotto) could be qualified as non-executive members. It follows that the percentage of independent directors on the Board as currently composed is 55%. It should also be noted that the Board of Directors has ascertained that all directors who can be qualified as independent are also independent in terms of the requisites of the FSA for members of the Board of Statutory Auditors.

In accordance with the recommendations of the Self Regulatory Code[33],the Board of Statutory Auditors has checked that the criteria and ascertainment procedures adopted by the Board to assess the independence of its members are correctly applied.

The Board of Directors performed this evaluation based on the most rigorous requirements in the Self Regulatory Code[34] which states that a director may not – by law – be considered independent:

a) if they, directly or indirectly or on behalf of subsidiaries, trust companies or through third parties, control the issuer or are able to exercise considerable influence on said issuer, or are a participant in a shareholder agreement through which one or more subjects can exercise control or significant influence on the issuer;

b) if they have or have been in the past three financial years a prominent exponent[35] of the issuer, or one of its strategic subsidiaries or a company under joint control with the issuer, or a company or a body that, alone or together with others in accordance with shareholders agreements, control the issuer or are able to exercise considerable influence on said issuer;

c) if directly or indirectly (e.g. through subsidiaries or bodies of which they are a significant exponent, or as a partner in a law firm or a consultancy company) they have, in the previous financial year, had a close business, financial or professional relationship with the following:

— the issuer, one of its subsidiaries, or any related prominent exponent thereof;

— a subject who, alone or together with others within a shareholder agreement, controls the issuer, or – in the case of a company or body – with their significant exponents ;

— or is or has been within the previous three financial years, an employee of one of the above-mentioned subjects ;

d) they receive, or have received in the past three financial years, from the issuer or one of its subsidiaries or parent companies, a substantial bonus in addition to their “fixed” salary as non-executive director of the issuer, including performance-based incentive plans, such as stock bonuses or other;

e) if they have been a director of the issuer for more than nine years of the past twelve;

f) if they are an executive director in another company in which the executive director of the issuer holds the role of director;

g) if they are a partner or director of a company or body belonging to the company mandated to audit the accounts of the issuer;

h) if they are a close family member of a person in one of the situations described above.

Meetings of the independent directors

Durng the financial year, in line with the recommendation of the Self -Regulatory Code[36], the independent directors met twice in the absence of the other directors. The topics of the meetings were matters inherent to the corporate governance system of the Company (specifically, the in-depth consideration of the board evaluation), the role of the independent Directors, the valuation in the balance sheet of the Company investment in Olimpia S.p.A.

During 2008, one meeting of the independent directors has already been held.

5.6. Lead independent director

As of November 2005, in order to increase further the role of the independent directors, the Board of Directors decided to introduce a Lead Independent Director.

The Lead Independent Director (Carlo Secchi, the Chairman of the Committee for Internal Control and Corporate Governance, was chosen) coordinates and acts as a point of reference for the requirements and contributions of the independent Directors.

The Lead Independent Director may also convene – on his own initiative or upon the request of other Directors – specific meetings solely for independent Directors in order to discuss subjects occasionally felt to be of interest to the functioning of the Board of Directors or management of the firm. Please note that the Lead Independent Director may collaborate with the Chairman of the Board of Directors for the better functioning of the Board of Directors.

The Lead independent director attended all meetings of the Committee for Internal Control and Corporate governance (which he Chairs), all meetings of the Board of Directors, the two shareholders’ meetings that were held during the 2007 financial year, and the special meeting of savings shareholders.

6. HANDLING OF COMPANY INFORMATION

6.1 Internal management and disclosure of documents and information

Market transparency, clarity, correctness and integrity of information are the values that are upheld by the conduct of the corporate bodies, the management and all the employees of the Pirelli Group. In March 2006, the Board of Directors of the Company adopted a specific procedure for the management and market communication of sensitive information that, keeping account of the regulations regarding market abuse, governs the management of sensitive information connected to Pirelli & C., its unlisted subsidiaries and the listed financial instruments of the Group, and as such all the members of corporate bodies such as the employees and collaborators of companies external to the Group that may have access to information that could evolve into sensitive information.

This procedure also applies as instructions to all subsidiaries in order to obtain from them, without hesitation, the necessary information for the timely and proper fulfilment of financial reporting obligations. The Procedure also disciplines the institution of a register of persons with access to confidential information, in operation since 1 April 2006.

The text of this procedure shown at the end of this Report, is also available on the website of the Company at www.pirelli.com, under the section entitled “Governance”.

6.2 Insider dealing

Matters regarding the transparency of transactions on Company shares or financial instruments underlying or linked to shares made directly or by third parties for relevant persons or by persons closely related or linked to them (i.e. insider dealing) are currently fully governed by law and by regulations established by Consob (art. 114 of the Financial Services Act and art. 152-sexies and following amendments of the Issuer's Regulation), as of April 1st, 2006 over-riding the Code of Conduct of the Company regarding insider dealing, adopted as from December 2002.

Pursuant to the law, Directors and statutory auditors of the issuing Company, as well as “persons who carry out administrative [...] functions in an issuing company and managers that have regular access to sensitive information [...] and have the power to make management decisions that could affect the performance and the future prospects of an issuing company…” are obliged to disclose to the market any insider dealing transactions made on Company shares or financial instruments linked to these shares having a value of more than Euros 5,000 annually. The Company opted to identify these managers as its General Managers, and – as an example of self-regulation – the Managing Director and General Manager of the subsidiary Pirelli Tyre S.p.A. (who was the Managing Director of the Company until 30 June 2006). Similar disclosure obligations have also been undertaken by Pirelli RE., a company that is also listed on regulated markets.

Within the more general auditing process for the corporate governance instruments, despite being not obliged by law, the Board of Directors decided to institute a black out period for the persons mentioned above who must adhere to insider dealing regulations; they shall therefore abstain from making transactions on Company shares or on financial instruments linked to these shares. These periods may moreover be extended or suspended by the Board of Directors in exceptional cases.

The text of this procedure shown at the end of this Report, is also available on the website of the Company at www.pirelli.com, under the section entitled “Governance”.

7. BOARD COMMITTEES

The Board of Directors has instituted two subcommittees: the Committee for Internal Control and Corporate Governance and the Remuneration Committee.

8. APPOINTMENTS COMMITTEE

The Board of Directors has decided not to establish committee charged with nominating candidates for the position of Director, since at present the conditions envisaged by the Code for its establishment do not exist, because of the current ownership structure and, above all, the By-laws provision for the slate system, in view of the transparency this mechanism ensures in the selection of candidates.

Since the Board considers the above arguments are still valid, it has not felt that the constitution of a specific elections committee is necessary. Moreover, it has given the Committee for Internal Control and Corporate Governance the power to identify candidates to propose to the Board in the event that an independent Director replaced pursuant to article 2386, subsection 1 of the Civil Code.

9. REMUNERATION COMMITTEE

The Board established the “Remuneration Committee”, a subcommittee from among its members, charged with fact-finding and advisory functions, in 2000.

In full compliance with the provisions of the Self-Regulatory Code[37], the Remuneration Committee is composed exclusively of independent Directors:

  • Berardino Libonati (Chairman);
  • Giampiero Pesenti
  • Aldo Roveri

The Secretary to the Board of Directors acts as Secretary to the Committee.

The meetings of the Remuneration Committee are regularly minuted by the secretary and the minutes are transcribed into a specific register[38].

Functions of the Remuneration Committee

The Board of Directors, in its meeting on 12 March 2007, acted to adapt the tasks of the Remuneration Committee as specified in the Self-Regulatory Code.

The function of the Remuneration Committee is to investigate and consult on the following matters, and specifically:

  • to formulate proposals to the Board regarding the remuneration of the Managing Directors and those persons who hold certain offices to ensure that they align with the objective of shareholder value creation in the medium-long term;
  • to periodically evaluate the remuneration criteria for the senior management of the Company and, as requested by the Managing Directors, formulate proposals and recommendations, with specific reference to the adoption of possible stock option plans or stock bonuses;
  • to monitor the application of the decisions made by the competent bodies and company policies regarding top management compensation.

The Committee – which may also request the assistance of external consultants in fulfilling its mandate – meets whenever its Chairman deems it appropriate or when a meeting has been requested by another member of the committee or by a Managing Director. The Board of Statutory Auditors or, if deemed appropriate, other Company and/or Group representatives attend the meetings of the Committee.

In line with the recommendations of the Self Regulatory Code[39], directors vested with special officers do not attend Remuneration Committee meetings..The available information and documents required for informed deliberation of the material submitted to the committee have always been circulated to all members reasonably in advance.

The Committee has full independence of expense for the performance of its tasks.

The Committee also has the right[40] to access information and company departments as necessary for the execution of the tasks allocated to it, making use of the support of the Secretary of the Board of Directors..

During 2007, the Remuneration Committee held a single meeting, attended by all members, during which it examined – and presented to the Board – the pay packages of the Chairman and the General Managers, also disclosing the criteria underlying its decisions. The Committee was also informed about the decisions made by Pirelli Tyre concerning the compensation of the Managing Director and General Manager, Dr. Francesco Gori, and the adoption of a system of 2007/2008 Long Term Cash Incentive for the Senior Management of the Pirelli Tyre Group.

The Remuneration Committee has already met twice in 2008, in order, among other things, to formulate its proposals for the attribution of compensation to the Managing Directors of the Company for the 2008 financial year, postponing the pay package of those directors who, after the renewal of the Board, are vested with special offices for the consideration of the “new Remuneration Committee”.

10. REMUNERATION OF DIRECTORS

In addition to reimbursement for expenses incurred in performing their duties, Directors receive annual fees determined by the shareholders’ meeting[41].

The meeting of 28 April 2005 decided “to establish a maximum of 1,200,000 euros as the total annual compensation of the Board of Directors pursuant to Art. 2389, subsection 1, of the Civil Code, said amount to be distributed among its members in accordance with the decisions taken in this regard by the Board.

At the same meeting, on 28 April 2005, the Board of Directors established the distribution of the compensation as follows:

  • 50,000 euros per annum for each of the members of the Board of Directors;
  • 25,000 euros per annum for each of the members of the Committee for Internal Control and Corporate Governance;
  • 20,000 euros per annum for each of the members of the Remuneration Committee,

reserving the right to use the residual amount (65,000 euros) in the future, to give the Board a margin of organizational flexibility, including for the adoption of any new governance solutions.

A fee 10,000 euros per annum is also made to the Board member called on to be a member of the Supervisory Body as per legislative decree no. 231/2001 (Carlo Secchi).

The Board of Directors upon consultation with the Board of Statutory Auditors establishes remuneration for directors given particular tasks, as proposed by the Remuneration Committee. The current remuneration system provides[42] for payments to comprise a fixed amount and an additional bonus linked to the performance of the Group, and to be related to the attainment of specific objectives set by the Board.

Information on the remuneration of the directors vested with special powers and managers with strategic responsibilties can be found in a chart in the notes to the financial statements for 2007. It should be noted that the Board of Directors of the Company has identified the managers with strategic responsibilities insofar as they “hold the power to take decisions which may impact on the future development and evolution” of the Company as its General Managers (Claudio De Conto and Luciano Gobbi) as well as – for self-regulatory purposes - the Managing Director and General Manager of subsidiary Pirelli Tyre (Francesco Gori).

It should be noted that, for the 2008 financial year, the (fixed and variable) proposals to revise the compensation of the General Managers[43] of the Company were developed after an indepth comparative analysis by a major consultancy on market positioning in terms of the compensation of General Managers compared to a sample of over 200 FTE 500 European companies.

Lastly, it should be noted that there are no stock-option plans for either the executive or the non-executive directors[44].

11. THE COMMITTEE FOR INTERNAL CONTROL AND CORPORATE GOVERNANCE

The Board of Directors established[45] the Committee for Internal Control and Corporate Governance, which is charged with fact-finding and advisory functions, from amongst its members, in 2000.

In line with best practices and in full compliance with the recommendations in the Self Regulatory Code, the Committee is exclusively composed of the following independent Directors:

  • Carlo Secchi (Chairman)
  • Carlo Angelici
  • Franco Bruni

two of whom[46], as ascertained by the Board of Directors convened on 12 March 2007, possess adequate accounting and financial experience.

The Secretary to the Board of Directors acts as Secretary to the Committee.

The meetings of the Committee for Internal Control and Corporate Governance are regularly minuted by the secretary and the minutes are transcribed into a specific register[47].

Functions attributed to the internal control committee

Similarly to the Remunerations Committee, the Board of Directors that convened on 12 March 2007 provided for the adjustment of the tasks mentioned of the Committee for Internal Control and Corporate Governance to those specified in the Self-Regulatory Code, and also specified that the Committee should continue to maintain the corporate governance prerogatives that have characterised it since its establishment.

The Committee for Internal Control and Corporate Governance performs investigative and consultation tasks on the following matters, and specifically:

  • assists the Board of Directors:

• in the definition of policies for the internal control system, so that the principal risks for the Company and its subsidiaries are correctly identified and adequately measures, managed and monitored, and also in the determination of criteria for the compatibility of these risks with healthy and correct management of the business;

• in the identification of an executive director (normally one of the managing directors) charged with supervising the operations of the internal control system;

• in the evaluation, at least annually, of the adequacy, efficacy and effective operation of the internal control system;

• in the description of the essential elements of the internal control system in the corporate governance report, expressing its evaluation of the system’s overall adequacy;

  • expresses an opinion on proposals to appoint, revoke or assign tasks relating to the internal control officer and the officer responsible for the preparation of company accounting documents;
  • evaluates the correct use of accounting principles and their homogeneous application inside the Group and for the purpose of drawing up the consolidated financial reports, with the administrative managers of the Company, the officer responsible for the preparation of the company accounting documents and the auditors;
  • at the request of the executive director with specific responsibility, expresses opinions on specific aspects of the identification of the main company risks and on the design, implementation and management of the internal control system;
  • reviews the work plan prepared by the internal control officers, from whom it receives periodic reports;
  • evaluates the proposals formulated by the external auditors in order to obtain the commission, as well as the audit plan and the results set out in the auditors’ report and in the letter of suggestions, if produced;
  • monitors the efficacy of the audit process;
  • monitors the respect of the principles that the Company has formulated for execution of transactions with related parties;
  • reports to the Board of Directors, normally in the first available meeting, on the activity carried out and in general on the adequacy on the internal control system when the annual and half-yearly financial reports are being approved;
  • monitors compliance with the rules of corporate governance and their periodic updating, and respect for any rules of conduct adopted by the Company and its subsidiaries. It is also responsible for proposing the methods for and times at which the Board of Directors should perform its annual self-evaluation.
  • if an independent Director should be replaced, it proposes candidates for co-opting to the Board of Directors;
  • it performs the further tasks assigned to it by the Board of Directors, also in relation to the monitoring of procedural correctness and of the substantial fairness of operations.

The Committee – which may also request the assistance of external consultants in fulfilling its mandate – meets whenever its Chairman deems it appropriate or a meeting has been requested by another member of the committee or by a Managing Director. The Board of Statutory Auditors[48] and, if deemed appropriate, other Company and/or Group representatives, and the External Auditors attend the meetings of the Committee.

The available information and documents required for informed deliberation of the material submitted to the committee have always been circulated to all members reasonably in advance.

The Committee has full independence of expense for the performance of its tasks.

In accordance with the provisions of the Self Regulatory Code[49], the Committee also has the right to access information and company departments as necessary for the execution of the tasks allocated to it, making use of the support of the Secretary of the Board of Directors.During 2007, the Committee for Internal Control and Corporate Governance met 5 times and all members participated in these meetings. The average duration of the meetings was over two and a half hours.

The Committee actively contributed to the implementation process and the updating of Company corporate governance instruments.

In particular, during the year considered, it proceeded to approve the actions necessary to incorporate the provisions of the Self Regulatory Code, submitting them to the approval of the Board of Directors:

  • the definition of some issues reserved to the exclusive competence of the Board of Directors;
  • the updating of the duties assigned to the Remuneration Committee and the Committee for Internal Control and Corporate Governance
  • the identification of the Director responsible for supervising the operation of the Company internal control system, including attribution of the duties specified in the Self-Regulatory Code;
  • the identification of the black-out periods applicable to subjects required to respect the insider dealing regulations;
  • some changes to the rules of conduct for execution of transactions with related parties;
  • the adoption of a new “procedure for information flows to board members and auditors”;
  • definition of general criteria to identify transactions of significant impact for the company and its subsidiaries to submit to the prior examination of the Board;
  • definition of an orientation for the maximum number of appointments considered compatible with serving as a director of the company.

The Committee has also proposed some changes to the Company bylaws and Rules for shareholders’ meetings, principally to implement the legal provisions for the protection of savings and the regulatory standards, and intended to improve their clarity, providing more systematic and complete rules, and to take the policies formed over time in response to legislative initiatives into account.

Also during 2007, the internal control officer of the Company (who is the head of the Internal Auditing Department) was able to refer his actions to the Committee for Internal Control and Corporate Governance through the submission of four reports. The Committee also monitored the work carried out by the Internal Audit Department of the Company, specifically examining the result of work carried out to implement the 2006 Audit Plan (approved by the Committeee in its meeting of 12 March 2007) and has approved the Audit Plan for 2008.

The Responsible Officer also reported on his activity to the Committee: please see the section entitled “Officer responsible for the preparation of the company accounting documents”.The Committee approved the new version of the “231 Organisational model” and the subsequent modifications to this (see the corresponding section for further details), and was also constantly informed about the implementation of the project called “Project 262”, and checked the audit activity plan with external auditors PriceWaterhouseCoopers

The Committee was also constantly updated about the process that will lead the Board of Auditors to formulate its proposal pursuant to article 159 of the FSA, concerning the appointment of external auditors of the financial statements and consolidated financial reports of the Company for the years 2008-2016 to the shareholders’ meeting called upon to approve the financial reports for the year ended on 31 December 2007[50].

Lastly, it was felt opportune to give an account of the development of the actions, legal and otherwise, that involved two ex-heads of Company Security that were reported in the corporate governance report for 2006 and have been the subject of an investigation by the Committee for Internal Control and Corporate Governance and the Board of Statutory Auditors.

In particular, the Committee was informed that the Company continues to actively assist the legal authorities, providing them with all documents that might be useful for the investigation to proceed.

The Committee was also brought up to date on the completion by the Company of the selection process to appoint a new Security department manager reporting directly to the General Operations Manager. The person appointed started on 1 October 2007 and, on the basis of the two audit reports issued by the Internal Audit Department of the Company, appointed by the Committee (as described in the previous report) to investigate the security services required by the various departments of the company over recent years, and analysis of the documents produced by the departmental managers concerning the security duties they assign, no substantial irregularities were found in terms of the organisational profile and procedures of the company.

Finally, it should be noted that the Company is proceeding with the civil action started against the security service suppliers involved in the investigations in order to be compensated for services that were not contractually fulfilled or were even illegal.

The Committee for Internal Control and Corporate Governance and the Board of Directors, taking into account the comments of the Board of Statutory Auditors, judged the internal control system of the Company and of the Group it controls to be adequate[51].

12. Internal control system

The internal control system of Pirelli & C. and the Group it heads is designed to ensure the provision of correct information and adequate control cover for all the activities of the Group, with special reference to those areas that are considered to be potentially at risk

It has developed as a process intended to achieve substantial and procedural fairness, transparency and accountability by ensuring that transactions and, more generally, business related activities are efficient and can be known and verified, that financial information and accounting and operational data are accurate, that applicable laws and regulations are complied with, and that the assets of the business are safeguarded, not least with a view to prevent the perpetration of fraud against the Company and financial markets.

The cardinal rules of the internal control system of the Company are:

i) the separation of roles in the performance of the main activities involved in each operating process;

ii) the traceability and constant visibility of choices;

iii) the management of decision-making processes according to objective criteria.

12.1. Executive director responsible for the internal control system

Responsibility for the internal control system lies with the Board of Directors, which lays down the guidelines for the system and periodically verifies that it is adequate and working effectively. To this end, the Board avails itself of the Committee for Internal Control and Corporate Governance, as well as an Internal Control Officer, who is given an adequate level of independence and appropriate means in order to carry out this mandate, and who carries out typical audit functions to verify the adequacy and efficiency of this system; and, if anomalies are detected, who proposes the necessary corrective solutions.

A specifically delegated Director (currently the Chairman of the Board of Directors) is charged with[52] identifying the main company risks that must periodically be examined by the Board and the execution of the policy lines defined by said Board, seeing to the planning, realisation and management of the internal control system, constantly verifying its overall adequacy, efficiency and adaptation to the changes in business conditions and legislation and regulation frameworks

12.2. Internal control officer

The internal control officer – that the Board of Directors, with the approval of the Committee for Internal Control and Corporate Governance and in accordance with best practice, identified as the head of the Internal Audit Department (Maurizion Bonzi) and also decided his remuneration for this task – reports to the Committee for Internal Control and Corporate Governance and the Board of Statutory Auditors and is hierarchically answerable to the Chairman of Pirelli & C.

The Internal Audit Department has a significantly important role in the internal control system and, also for activities performed regarding subsidiaries, it has the main task of assessing the adequacy and functionality of control, risk management and corporate governance processes throughout the entire Group by means of independent assurance and consultancy. The work of the Internal Audit Department is carried out in accordance with its mandate and is approved by the Committee for Internal Control and Corporate Governance, regarding the following aspects:

  • mission;
  • objectives and responsibilities (independence, complete access to information, activity framework, communication of results);
  • improvement in the quality of internal audits; principles of professional ethics;
  • professional reference standards.

During 2007, as requested by the Institute of Internal Audit (IIA), the Management of the Internal Audit department underwent an External Quality Assessment to evaluate its compliance of the activities it carries out with the Standards for the Professional Practice of Internal Auditing issued by the IIA, and was found to generally comply, the maximum mark attributable under the standards mentioned.

The Company also has in place a planning and control system that focuses on individual sectors and operating units and produces a detailed monthly report for the General Management teams, so that they have a useful tool with which to monitor specific activities.

To promote compliance with the strategies and guidelines adopted by the parent company, the General Managers and senior executives with responsibililities for the specific businesses and functions sit on the Boards of Directors of the largest subsidiaries.

Also regarding internal control, please note that – in order to comply with provisions in art. 154-bis of the Financial Services Act (as amended by the Savings Law, and more recently, by Legislative Decree no.303/2006), the Company initiated a project (named “Project 262”), guided by a specific steering committee, with the objective of making a system of controls for administrative and accounting procedures available to the administrative boards and the managers involved in the preparation of corporate accounts for the preparation and the validation of periodic accounting reports, which allow these individuals to make the declarations required by law.

12.3. Organisational Model ex Legislative Decree 231/2001

The internal control system described above has been further strengthened by the introduction of an organizational model that the Board of Directors approved on July 31t, 2003 and which was revised and modified according to updated regulations (with a resolution of the Board of Directors on 12 March 2007 to incorporate the legislative innovations introduced by law no. 123/2007 of 9 November 2007). The updated Organisational Model is available on the website www.pirelli.com.

The organisational model, which is intended to ensure the creation of a system responding to the specific requirements deriving from the entry into force of Legislative Decree 231/2001 on the administrative liability of companies for criminal offences committed by their employees, consists of a set of principles and procedures arranged in a pyramid that, starting from the base, can be summarized as follows:

  • a Group Code of Ethics, which formulates the general principles (transparency, correctness and fairness) inspiring the conduct of business. It indicates the objectives and the values informing business activity in relation to the main stakeholders with which Pirelli & C. interacts on a daily basis: the shareholders, the financial market, customers, staff and the community,
  • general principles of internal control, which qualify the Internal Control System and the field of application, and which extend uniformly across the various organizational levels;
  • lines of conduct, which set out specific rules aiming to avoid the creation of environmental situations that favour criminal activity in general, and in particular, crimes covered under legislative decree no. 231/2001, and translate the principles established by the Group Code of Ethics into operational terms.
  • internal control checklists, which set out the main phases of each high and medium risk process and of the instrumental processes, the specific checks to be performed with a view to reasonably anticipating the risks of any criminal offence, and specify the reports to be transmitted to the Supervisory Body to draw attention to situations of possible non-compliance with the procedures established in the organizational model.

A specific Supervisory Body, with full economic independence, monitors the functioning of and the adherence to the organisational model. It is composed of Carlo Secchi, the Lead Independent Director and Chairman of the Committee for Internal Control and Corporate Governance, Statutory Auditor Paolo Francesco Lazzati, a member of the Board of Statutory Auditors, and Maurizio Bonzi, head of the Internal Audit Department and internal control officer.

Thus full independence of this Body, and the input of the different professional skills that contribute to corporate management control is assured.

The Supervisory Body is in charged of making recommendations to the Board of Directors for it to adapt the organizational model to changes in the legal framework, the nature of the business activities of the Company and the ways they are conducted. It reports to the Board of Directors, the Committee for Internal Control and Corporate Governance and the Board of Statutory Auditors on the checks performed and their results.

The shareholders’ meeting of 28 April 2005 confirmed the annual gross fee payable to each member of the Supervisory Body at 10,000 euros.

The mandate of theSupervisory Body expires at the same time as that of the Board of Directors that appointed it, and the new Supervisory Body will be appointed after the renewal of the Board of Directors by the shareholders’ meeting called to approve the financial statements for the year ended on 31 January 2007.

With reference to the other Italian companies in the Group, the Supervisory Body has been identified by seeking the technical and operational solution that, while respecting the mandate and the powers reserved to this body by law, is appropriate to the size and organizational context of each company.

Lastly, a disciplinary system has been introduced to sanction non-compliance with the measures indicated in the organizational, operational and control models.

Finally, it should be pointed out that the Internal Audit Department of Pirelli & C. provides, when requested by the Supervisory Bodies of Group companies, operative assistance in the management and analysis of information flows established pursuant to Art. 6, subsection 2, letter d), of Legislative Decree 231/2001, as well as in implementation of specific audits on the basis of data received through the aforementioned information flows.

During the second half of the year, the Supervisory Body became involved in the court case that implicated two ex-heads of the Security Department of the Company, as detailed more extensively in the section entitled “Committee for Internal Control and Corporate Governance”. In this respect, the Supervisory Body has taken note of the circumstances reported in the aforementioned section.

As stated, the outcome of the evaluations made by the Board of Directors and the Committee for Internal Control and Corporate Governance, taking the comments of the Board of Statutory Auditors into account, was to consider the internal control system of the Company and the Group it controls to be adequate.

12.4. External auditors

The audit of the company accounts is carried out by an external auditors appointed by the Shareholders’ Meeting and chosen from the firms listed in the appropriate register kept by Consob.

For the financial years 2005-2007 the Shareholders’ Meeting held on April 28th, appointed PricewaterhouseCoopers S.p.A., which was also appointed by other major Group companies to audit their accounts.

The fees paid to PricewaterhouseCoopers S.p.A. (and the other companies that are part of its network) are reported in detail in the notes to the consolidated financial statements of Pirelli & C at 31 December 2007.

The Shareholders Meeting called to approve the financial reports for the year ending 31 December 2007[53], pursuant to 159 of the FSA, at the reasoned proposal of the Board of Statutory Auditors, must award the task of auditing the financial reports and consolidated financial statements to a new External Auditor for the 2008 – 2016 financial years, and approve the fees for this work.

The Board of Statutory Auditors has kept the Committee for Internal Control and Corporate Governance constantly informed about the selection process and the technical and economic evaluation – performed independently of the Board of Statutory Auditors with the assistance of the competent company departments – and on completion has communicated its opinion also to ensure that article 165 of the FSA concerning the “auditing of groups” is complied with.

12.5. Officer responsible for preparing the company accounting documents

The Company bylaws[54] attribute the power to appoint the Responsible Officer to the Board of Directors, after having received the opinion of the Board of Statutory Auditors; they also establish that this appointment expires when the term of the Board of Directors making the appointment expires The Responsible Officer must be an expert on administration and control matters, and possess the proper requisites, as established for directors.

In its meeting on 10 May 2007, the Board of Directors, as proposed by the Committee for Internal Control and Corporate Governance, with the favourable opinion of the Board of Statutory Auditors, appointed Claudio De Conto, Chief Operating Officer of the Company, to whom all the administrative and tax structures of the Group report, as the Responsible Officer.

The Board of Directors, in compliance with the provisions of the FSA, has assigned the following duties to the Responsible Officer:

a) to organise adequate administrative and accounting procedures for the formation of the company financial reports and consolidated financial statements and all other communications of a financial nature;

b) to issue a written declaration attesting that the documents and communications of the Company disseminated to the market and the related financial reports, including mid-year reports, of the Company correspond to the documentary evidence, ledgers and accounting records;

c) to attest, with a specific report drawn up according to the model established in the CONSOB regulations, attached to the financial reports, the half-yearly report and the consolidated financial statements, the adequacy and effective application of the procedures specified in paragraph a) above during the period to which the documents refer, and the correspondence of the latter with the ledger entries and accounts and their suitability to provide a true and correct representation of the economic, financial and equity situation of the Company and the set of businesses included in the consolidation.

The Responsible Officer has been granted all powers of an organisational and management nature needed to perform the tasks attributed by the current regulations, the Company bylaws and the Board of Directors to exercise the powers conferred on him and granted full economic autonomy.

Taking into account the provisions of the bylaws, the appointment of Dr. De Conto as Responsible Officer will expire when the shareholders’ meeting approves the financial statements for the year ending 31 December 2007[55].

The Responsible Officer has attended all the meetings of the Board of Directors of the Company for which the examination of the economic-financial data of the Company was on the agenda, and has issued, after his appointment, the attestations and declarations specified in article 154-bis of the FSA.

The Responsible Officer reported to the Committee for Internal Control and Corporate Governance and, when the budget was being approved, to the Board of Directors, concerning the adequacy and suitability of the powers and means conferred by the Board of Directors of the Company, confirming that he had had direct access to all the information necessary for the production of the accounting data, without need of any authorisation, shared the internal flows for accounting purposes and approved all the company procedures that had an impact on the economic, financial and equity situation of the Company.

13. INTERESTS OF DIRECTORS AND TRANSACTIONS WITH RELATED PARTIES

The Company has also had rules of conduct for transactions with related parties, including intra-group business, in place since 2002. The purpose of these rules is to guarantee effective procedural and substantial correctness and transparency in transactions undertaken by Pirelli & C, directly or through subsidiaries, with parties related to Pirelli & C. itself.

On the basis of these rules, the Board is called on to approve transactions with related parties and infragroup transactions in advance, when the transactions are not typical or usual and concluded at standard conditions. To this end, the Board receives an adequate report on the nature of the relation, the ways in which the transaction is to be carried out, the conditions, including the economic conditions, for its execution, the evaluation procedure followed, and the underlying reasons and interest, as well as any risks for the company. If the relation is with a Director or with a related party through a Director, the Director concerned must – unless the Board decides otherwise - limit him or herself to supplying clarification, and does not participate in the Board Meeting that will deliberate the transaction. Depending on the nature, value or other characteristics of the transaction, the Board of Directors, to ensure that the transaction is not carried out at incongruous conditions, is assisted by one or more experts who express their opinion on the economic and/or legal and/or technical aspects of the transaction.

Finally, please note that in order to identify what constitutes a related party, the Company – as also indicated by Consob – defines the concept of “related party” according to the IAS/IFRS principles (specifically IAS 24).

The text of the main principles of conduct is shown at the bottom of this report, and is available on the website of the Company at www.pirelli.com under the section entitled “Governance”.

14. BOARD OF STATUTORY AUDITORS

According to the law and the Company bylaws, the Board of Statutory Auditors is entrusted with monitoring the following:

  • compliance with the law and the bylaws;
  • respect for the rules of correct administration;
  • the adequacy of the organisational structure of the Company for the aspects within its competence, of the internal control and administration-accounting system, and of the reliability of the latter to correctly represent the operating results;
  • the ways in which the corporate governance rules specified in the codes of conduct prepared by companies that manage regulated markets or professional associations, which the company declares to follow, are actually implemented;
  • the adequacy of the instructions issued by the Company to its subsidiaries regarding the reporting of price sensitive information[56].

The Board of Statutory Auditors carries out its duties by exercising all of the powers conferred upon it by law and, since it can rely on a constant and analytical information flow from the Company, during and beyond the regular meetings of the Board of Directors and its Committees.

In fulfilling its functions, the Board of Statutory Auditors, besides participating in all the Board of Directors and Shareholders’ Meetings, also takes part in the tasks of the Remuneration Committee and the Committee for Internal Control and Corporate Governance. Moreover, Paolo Francesco Lazzati, a Statutory Auditor, is a member of the Supervisory Board in accordance with the legislative decree No. 231/2001.

15. APPOINTMENT OF STATUTORY AUDITORS

The Company bylaws provide that the Board of Statutory Auditors consists of three Statutory Auditors and two Alternate Auditors. In order to allow minority shareholders to elect one Statutory Auditor and one Alternate, the Company bylaws[57] specify that they are appointed using the so-called the slate system, meaning that one Statutory Auditor and one Alternate Auditor are elected from the slate that obtains the second highest number of votes (the so-called the minority slate). The remaining members of the Board (i.e. two Statutory Auditors and the other Alternate Auditor) are elected from the slate that obtains the highest number of votes (the majority slate). Shareholders who, alone or together with others, hold at least 2 per cent of the share capital entitled to vote at the ordinary shareholders' meeting, may present slates, and in this context it seems necessary to point out that CONSOB[58] has determined the percentage shareholding required for presentation by the shareholders of the slates of candidates for election to the administration and control bodies of Pirelli & C for the 2008 financial year as 1.5% of the capital with voting rights in the ordinary shareholders’ meeting.

Pursuant to the Issuer Regulations, as recently announced[59], the slates must be filed at the registered offices of the company at least 15 days before the date of the shareholders’ meeting called to deliberate the matter. While the current regulations should be consulted for further details, it is pointed out that if a single slate is presented, or if the several slates presented by shareholders are found to be linked, then slates may be submitted up to five days after the expiry of the date for their presentation (15 days before the shareholders’ meeting) and the thresholds for their presentation are reduced by half.

Each shareholder may present or participate in the presentation of only one slate.

The slates must be accompanied by the following, also pursuant to the current regulations:

  • information on the identity of the shareholders who presented the slates, indicating their percentage holdings and a certificate proving that they own such a holding;
  • a declaration by shareholders other than those who hold, including jointly, a controlling interest or relative majority, attesting that there are no links;
  • a professional curriculum vitae for each candidate and declarations in which the candidates individually accept their candidacy and attest, on their own responsibility, that there are no grounds for ineligibility or incompatibility, and that they meet the requirements prescribed by law and the bylaws.

Slates presented in violation of the above rules are considered null.

Subject to ineligibility, each candidate may only appear on one slate.

Slates must be divided into two sections: one for candidates for the position of Statutory Auditors and the other for candidates for the position of Alternate Auditor. The first candidate in each section must be selected from among persons entered in the Register of Certified Auditors who have worked on statutory audits for a period of not less than three years.

Each person entitled to vote may vote for only one slate. Additionally, according to the Company bylaws, the Statutory Auditor at the top of the minority slate which obtains the largest number of votes is entitled to Chair the Board of Statutory Auditors.

In the event of death, resignation or disqualification of a Statutory Auditor, he (or she) is replaced by the Alternate Auditor from the same slate. If the Chairman of the Board of Statutory Auditors is replaced, the other Statutory Auditor elected on the same slate takes the Chair; if it is not possible to proceed in the manner described above, a shareholders’ meeting is called to fill the vacancy or vacancies by means of a resolution approved by a relative majority of the votes cast.

When the Shareholders’ Meeting must appoint the Statutory and/or Alternate Auditors needed to complete the Board of Statutory Auditors, pursuant to the previous paragraph, or to the law, the following procedure must be used:

If Auditors elected from the majority slate are to be replaced, the appointment is made with the favourable votes of a relative majority without being tied to a slate; if, instead, Auditors elected from the minority slate are to be replaced, the shareholders’ meeting replaces them with the favourable votes of a relative majority, choosing where possible from among the candidates on the slate from which the Auditor to be replaced was elected. The principle of necessary representation of minorities is respected, since the bylaws assure the right to participate in the appointment of the Board of Statutory Auditors, in case of the appointment of Auditors who have been candidates on the minority slate or slates other than those that obtained the highest number of votes in the procedure to appoint the Board of Statutory Auditors[60].

For the appointment of Auditors for any reason not appointed according to the procedure described above, then the shareholders’ meeting decides with the legal majorities.

Outgoing Auditors may be re-elected.

Participation in meetings of the Board of Statutory Auditors may be – if the Chairman or his substitute verifies the necessity – by means of telecommunication systems that permit participation in the discussion and equality of information for all those taking part.

16. STATUTORY AUDITORS

The Shareholders’ Meeting held on 21 April 2006 resolved to renew the Board of Statutory Auditors for the 2006-2008 period, appointing Luigi Guatri, Enrico Laghi and Paolo Francesco Lazzati as Statutory Auditors.

Luigi Guerra and Franco Ghiringhelli were appointed alternate auditors.

The appointments were made with the slate system. The single slate was presented by members of the Pirelli & C Block Shares Syndicate. The Company considers that the reason why no alternative slate was presented by the minorities is the authoritative and known character of the candidates proposed.

In the absence of members of the Board of Statutory Auditors from the minority slate, the Shareholders’ Meeting decided to confirm the appointment of Luigi Guatri as Chairman of the Board of Statutory Auditors.

The Shareholders’ Meeting also determined that the annual gross fee for each of the Statutory Auditors should be 41,500 euros, and that the gross annual fee of the Chairman of the Board of Statutory Auditors should be 62,000 euros; it also established that the Auditor called on to be a member of the Supervisory Board as specified in legislative decree no. 231/2001 (Paolo Francesco Lazzati) should receive an additional gross annual fee of 10,000 euros.

During 2007 the Board of Statutory Auditors held 7 meetings attended by all members of the Board, with a single absence at a single meeting. However, it should be noted that the members of this Board also attended the Shareholders’ Meetings and the meetings of the Board of Directors of the Company, all of the meetings of the Committee for Internal Control and Corporate Governance held during the year, and the meeting of Remuneration Committee, as required by the corporate governance rules adopted by the Company, which offer the whole Board of Statutory Auditors the possibility of directly following the activities of the Committees and performing their control functions more efficaciously.

Name

Office

Appointed on

Slate

Indep. ex. Code

% part. B.A.

Luigi Guatri

Chairman

04/21/2006

Maj.

X

85.71

Enrico Laghi

Statutory auditor

04/21/2006

Maj.

X

100

Paolo Francesco Lazzati

Statutory Auditor

04/21/2006

Maj.

X

100

Luigi Guerra

Alternate auditor

04/21/2006

Maj.

-

-

Franco Ghiringhelli

Alternate auditor

04/21/2006

Maj.

-

-

LEGEND

Office: indicates whether the person is the chairman, a Statutory Auditor, or an alternate auditor.

Slate: Maj/Min according to whether the auditor was elected from the majority or minority slates (art. 144-decies of the Consob Issuer Regulations)

Indep. if checked indicates that the auditor may be considered independent according to the criteria contained in the Self Regulatory Code, specifying at the end of the table if these criteria have been supplemented or modified.

% part. B.A. indicates the percentage of meetings of the board of auditors attended by the auditor

The offices held by the Auditors in other companies are listed at the end of this Report.

Auditor Lazzati resigned his office from the date of the shareholders’ meeting that approved the financial statements for the year ending 31 December 2007[61]. Pursuant to the bylaws, on that occasion the shareholders’ meeting deliberated with the legal majority without invoking use of the slate voting mechanism, since the conditions to do so did not occur.

In line with the provisions of the Self Regulatory Code[62] and as expressly ascertained by the Board of Statutory Auditors, all Auditors may be defined as independent based on criteria contained in the Code regarding directors.

In accordance with international accounting principles, Pirelli & C. qualifies its Auditors as related parties for the Company, and this if an Auditor has an interest in a specific transaction of the Company the “rules of conduct for transactions with related parties” described in the preceding section “Interests of Directors and transactions with related parties” become applicable. It follows that, in accordance with the provisions of the Self-Regulatory Code[63], the Board receives an adequate report on the nature of the relation and the ways in which the transaction will be executed..

The Board of Statutory Auditors has monitored[64] the independence of the external auditors, checking that their instructions in terms of both the nature and entity of the services other than accounts monitoring provided to Pirelli & C, and its subsidiaries by the firm and its network are respected.

The Board of Statutory Auditors[65] coordinated its activities with the Internal Audit department and, as stated, staff from the latter participated in all the meetings of the Committee for Internal Control and Corporate Governance.

17. RELATIONS WITH SHAREHOLDERS

In line with its tradition of transparency and fairness, the Company actively promotes relations with shareholders, institutional and private investors and with financial analysts, with other market operators and with the financial community in general within the proper limits of their respective roles, and periodically organizes meetings both in Italy and abroad.

In March 1999, the Company established an Investor Relations Department to foster continuous dialogue with the financial market. The Investor Relations Department, which reports directly to Finance and Strategic Planning General Manager, is headed by Alberto Borgia and has its own section in the website of the Company at www.pirelli.com for both institutional and private (or retail) investors. Specifically, for the latter, a subsection (at the “Private Investors” link) has been created providing guidelines for more detailed knowledge of the activities of the Pirelli Group and other useful information on the performance of its shares.

While in the Investor Relations section, investors can find every document of interest published by the Company, in English as well as in Italian, related to financial reporting (e.g. the annual financial statements and the half-yearly and quarterly reports) and the corporate governance system of the Company (e.g., the bylaws, the regulations for Shareholders’ meetings, the Rules of conduct for transactions with related parties, the procedure for information flows to Directors and Auditors, the procedure for the management and communication to the public of sensitive information and the minutes of Shareholders’ Meetings). The section also gives access to press releases distributed by the Company and the documentation that the Company makes available to the financial community in presentations and/or meetings and information on the share capital of the Company and shareholders (including the publication of shareholders’ agreements).

To facilitate dissemination of its data, Pirelli & C. has taken action in several directions: during 2007, it has held regular meetings with the financial community and has taken part in conferences in the Auto/Autoparts sector during which it has been able to present the activity and progress of the Group in detail. The Company also participates in a number of sustainability indices, and has thus obtained many acknowledgements in the field of CSR.

Finally, it should be recalled that Pirelli & C. was one of the first companies in Italy and Europe to publish specific inserts giving economic and financial data in the mass media, as well as one of the first to set up a kit on its website for small investors.

Investor queries may be sent to:
e-mail: ir@pirelli.com; tel.: +39 02 64422949; fax: +39 02.64424686.

18. SHAREHOLDERS’ MEETINGS

The Shareholders’ meeting – that may be ordinary or extraordinary – has the competence, according to the law, for resolving upon a series of specified matters such as the approval of the financial statements, the appointment and the revocation of directors and auditors, their fees and responsibilities, the purchase or sale of own shares, the modification of the Company bylaws, the issuance of convertible bonds, and, except for restricted cases, merger and division transactions.

An ordinary Shareholders’ Meeting – which may be held in Italy, not necessarily in the registered office – may be convened within 120 days after the end of the financial year. The Shareholders’ Meeting to approve the financial reports for the year ended on 31 December 2007[66] will also be called to deliberate the modification of article 7 of the company bylaws, to incorporate the variations made to the FSA by Legislative Decree no. 195 of 6 November 2007, incorporating directive 2004/109/EC concerning the harmonisation of the requirements for transparency in information on issuer whose securities are traded in a regulated market. Specifically listed companies may not benefit from the possibility envisaged in subsection two of article 2364 of the Civil Code to derogate to the end of the period of one hundred and twenty days for the approval of the financial statements by the Shareholders’ Meeting, and thus the Shareholders’ Meeting is called on to eliminate from the bylaws the provision concerning the possibility of calling an ordinary shareholders’ meeting within one hundred and eighty days of the end of the financial year, when required by particular needs and after reporting the reasons for the extension of time in the report on operations provided with the financial statements. For full details of these proposals, please see the report that was drafted by the Directors regarding this matter that will be made available on the Company website, www.pirelli.com.

In addition to the law and the bylaws, shareholders’ meetings are governed by the Rules for Shareholders’ Meetings, which were approved by the shareholders’ meeting held on 11 May 2004, appended to this report and available on the website of the Company www.pirelli.com in the section entitled “Governance”. To allow supplementary agenda items to be raised by the shareholders, as introduced by the Savings Law, the Shareholders’ Meeting held on 23 April 2007 deliberated some modifications to the rules, and in particular, granted the Chairman the right to provide those shareholders who have formulated a request pursuant to the law and bylaws, to raise supplementary items for discussion at the Shareholders’ Meeting, granting them a period of no longer than 15 minutes to illustrate their proposals and explain the reasons for their inclusion. The possibility that shareholders may propose additional agenda items is also taken into account in the interventions proposed in renumbered item 12, intended to assure the shareholders proposing this right, recognised to the Board of Directors, to modify or supplement its own proposals. This also includes further formal modifications intended to provide greater presentational clarity.

The Shareholders’ Meeting is chaired, in the following order, by the Chairman of the Board of Directors, by a Deputy Chairman or a Managing Director; if there are two or more Deputy Chairmen or Managing Directors, the meeting is chaired by the senior in age. In the absence of the aforementioned individuals, the Shareholders’ Meeting is chaired by another person elected by the shareholders with the favourable vote of the majority of the capital represented at the meeting.

The Chairman of the shareholders’ meeting – among other things – verifies that the meeting has been validly constituted, ascertains the identity of those present and their right to attend, including by way of proxies, ascertains the legal quorum and governs the proceedings, with the faculty to establish a different order for the discussion of the topics indicated in the notice convening the meeting. The Chairman also takes appropriate action to ensure orderly discussion and voting, establishing the procedures and verifying the results.

The decisions of the meeting are recorded in minutes signed by the Chairman of the meeting and the Secretary or by the Notary public.

The minutes of extraordinary Shareholders’ Meetings must be prepared by a Notary public appointed by the Chairman of the meeting.

Article 7 of the Company bylaws specifies that shareholders’ interventions for which the communication specified in article 2370 subsection 2 of the Civil Code, within two days of the date of the particular shareholders’ meeting, are legitimate.

The bylaws do not envisage the non-availability of the actions for which the communications mentioned in the aforementioned article 2370, subsection 2 of the Civil Code until the meetig has been held.

With reference to the right of each shareholder to speak on topics raised for discussion, it should be noted that the Rules for shareholders’ meetings provide that the Chairman determines the period of time available to each speaker at the start of the meeting, taking the importance of the individual items on the agenda into account, but in any event no less than 15 minutes. Persons who wish to speak must ask the Chairman or the Secretary, indicating the topic to which the speech refers. The request may be presented up to the moment the Chairman has declared closed the discussion of the matter which the demand to speak refers. Participants may ask to speak a second time during the discussion, for a period of no more than five minutes, solely for the purpose of replying or formulating voting intentions.

19. CHANGES AFTER THE CLOSURE OF THE FINANCIAL YEAR

The Report takes into account the changes that have occurred since the end of the financial year to the data of approval of the Report.

[1] It should be noted that for the 2006 and 2007 financial years, the value taken as reference for attribution of the privileged dividend was the par value of 0.52 euros (the par value before the reduction in capital. Please see section a) of this paragraph - Structure of the share capital - for details).

[2] For the financial year that ended on 31 December 2007, the value taken as reference for attribution of the privileged dividend was the par value of 0.52 euros (the par value before the reduction in capital. Please see section a) of this paragraph - Structure of the share capital - for details).

[3] Article 10 of the company bylaws.

[4] Also in accordance with Application Criterion 6.C.1 of the Self-Regulatory Code.

[5] CONSOB deliberation no. 16319 of 29 January 2008.

[6] The date of first call of the shareholders’ meeting to approve the financial reports for the year ended on 31 December 2007 is 28 April 2008, and in second call, for 29 April 2008.

[7] For full details of these proposals, please see the report that was drafted by the Directors regarding this matter.

[8] The data reported take the operation to reduce the share capital described in the paragraph headed “Structure of share capital “ in the “Information on ownership structure” section into account.

[9] Cf. Note 6

[10]Cf. Note 6.

[11]The voting list is specified in article 10 of the bylaws.

[12] Self Regulatory Code: Criterion of application 1.C.2.

[13] Self Regulatory Code: Criterion of application 1.C.3.

[14] Press release of 9 November 2007.

[15] Cf. Note 6.

[16] Article 11 of the company bylaws.

[17] Self Regulatory Code: Criterion of application 1.C.1, lett. a).

[18] Self Regulatory Code. Criterion of application 1.C.1, lett. e)..

[19] Article 11 of the company bylaws.

[20] Article 150 of the FSA

[21] Self-Regulatory Code. Criterion of application 1.C.1, lett. b)..

[22] Self-Regulatory Code. Criterion of application 1.C.1

[23] See the paragraph headed “ Committee for Internal Control and Corporate Governance”, below, for further details.

[24] Self Regulatory Code: Criterion of application 1.C.1, lett. d)..

[25] As reported in the section entitled “Remuneration of Directors”, the Managing Director and General Manager of Pirelli Tyre, Dr. Francesco Gori, has been categorised, for self-regulatory purposes, as a “director with strategic responsibilities”.

[26] Self Regulatory Code: Criterion of application 1.C.1, lett. f)..

[27] Please see the section entitled “Direction and coordination activities”.

[28] Self Regulatory Code: Criterion of application 1.C.1, lett. g)..

[29] Self Regulatory Code: Criterion of application 1.C.1, lett. g)..

[30] The board performance evaluation was examined in depth in the meetings of the independent directors. Please see the “Independent directors” section under “Meeting of the independent directors “

[31] Luciano Gobbi left the company at the end of March 2008, at which time his activities and responsibilities were assigned to General Operations Management.

[32] Self Regulatory Code: Criterion of application 2.C.2.

[33] Self-Regulatory Code. Criterion of application 3.C.5

[34] Criterion of application 3.C.1 and 3.C.2

[35] The following may be considered “prominent exponents” of a company or body: the chairman of the body, the legal representative, the chairman of the Board of Directors, the executive directors and managers with strategic responsibilities in the company or body considered.

[36] Self-Regulatory Code. Criterion of application 3.C.6

[37] Self Regulatory Code: Principle 7.P.3.

[38] Also in accordance with the recommendations of the Self Regulatory Code : Criterion of application 5.C.1, lett. d).

[39] Self Regulatory Code: Criterion of application 7.C.4.

[40] Also in line with the provisions of the Self Regulatory Code. Criterion of application 5.C.1, lett. e)..

[41] Article 14 of the company bylaws.

[42] Also in line with the provisions of the Self Regulatory Code. Criterion of application 7.C.1.

[43] Cf. Note 31.

[44] Vice Chairman Carlo Alessandro Puri Negri is an exception to this, since he is a recipient of stock options in his capacity as Chief Executive Officer of Pirelli RE.

[45] Also in line with the provisions of the Self Regulatory Code. Criterion of application 8.P.4.

[46] Specifically, Mr Bruni and Mr Secchi.

[47] Also in line with the provisions of the Self Regulatory Code. Criterion of application 5.C, lett. d)..

[48] Also in accordance with the recommendations of the Self Regulatory Code : Criterion of application 8.C.4.

[49] Self Regulatory Code: Criterion of application 5.C.1, lett. e).

[50] Cf. Note 6.

[51] Cf. Paragraph headed “Internal control system and governance system” in the section entitled “Role of the Board of Directors”

[52] Also in line with the provisions of the Self Regulatory Code. Criterion of application 8.C.1, lett. b).

[53] Cf. Note 6.

[54] Article 11 of the company bylaws.

[55] Cf. Note 6.

[56] Now referred to as “sensitive information” (article 114 of the FSA)

[57] Article 16 of the company bylaws.

[58] CONSOB deliberation no. 16319 of 29 January 2008.

[59] Deliberation no. 15915 of 3 May 2007 introduced “Title V-bis” of the Issuer Regulation, which deals with “Administration and Control Bodies”.

[60] The changes to the bylaws that will be proposed to the Shareholders’ Meeting that will approve the financial statements for the year ended on 31 December 2007 and those made by the extraordinary shareholders’ meeting held on 12 December 2007 are taken into account (see the explanatory report by the directors, which will be made available on the company website, www.pirelli.com).

[61] Cf. Note 6.

[62] Self-Regulatory Code. Criterion of application 10.C.2

[63] Self-Regulatory Code. Criterion of application 10.C.4

[64] Also in accordance with the recommendations of the Self Regulatory Code : Criterion of application 10.C.5.

[65] (Criterion of application 10.C.6. and 10.C.7.)

[66] Cf. Note 6.

List of principal offices held by the Directors in other non-Pirelli Group companies

Marco Tronchetti Provera

Marco Tronchetti Provera S.a.p.A.

General Partner

 

Camfin S.p.A.

Chairman

 

Gruppo Partecipazioni industriali S.p.A.

Chairman

 

Mediobanca S.p.A.

Member of Supervisory Committee

 

F.C. Internazionale Milano S.p.A.

Director

Alberto Pirelli

Camfin S.p.A.

Director

 

Gruppo Partecipazioni industriali S.p.A.

Director

 

KME S.p.A.

Director

Carlo Alessandro Puri Negri

Camfin S.p.A.

Deputy Chairman

 

Gruppo Partecipazioni industriali S.p.A.

Managing Director

 

AON Italia S.p.A.

Director

 

Artemide Group S.p.A.

Director

 

Eurostazioni S.p.A.

Director

 

Fratelli Puri Negri S.p.A.

Chairman

Carlo Acutis

Vittoria Assicurazioni S.p.A.

Deputy Chairman

 

Banca Passadore S.p.A.

Deputy Chairman

 

Ergo Previdenza S.p.A.

Director

 

Scor S.A.

Director

 

IFI S.p.A.

Director

 

Yura International B.V.

Director

Carlo Angelici

SACE BT

Director

Gilberto Benetton

Atlantia S.p.A.

Director

 

Autogrill S.p.A.

Chairman

 

Benetton Group S.p.A.

Director

 

Telecom Italia S.p.A.

Director

 

Mediobanca S.p.A.

Member of Supervisory Committee

 

Allianz S.p.A.

Director

Alberto Bombassei

Italcementi S.p.A.

Director

 

Brembo S.p.A.

Chairman

 

Atlantia S.p.A.

Director

 

Ciccolella S.p.A.

Director

Franco Bruni

Pioneer Global Asset Management S.p.A.

Director

 

Unicredit Audit S.p.A.

Director

 

Unicredit Banca Mobiliare S.p.A.

Director

Enrico Tommaso Cucchiani

Allianz SE

Director

 

Allianz S.p.A.

Managing Director

 

Unicredit S.p.A.

Director

 

ACIF Allianz Compangnia Italiana

 
 

Finanziamenti S.p.A.

Chairman

 

L.A. Vita S.p.A.

Director

 

Lloyd Adriatico Holding S.p.A.

Chairman

Gabriele Galateri di Genola

Telecom Italia S.p.A.

Chairman

 

Accor S.A.

Member of Supervisory Committee

 

Assicurazioni Generali S.p.A.

Deputy Chairman

 

RCS MediaGroup S.p.A.

Deputy Chairman

 

Italmobiliare S.p.A.

Director

 

Banca Esperia S.p.A.

Director

Mario Garraffo

Recordati S.p.A.

Director

 

Terna S.p.A.

Director

Dino Piero Giarda

Banca Popolare Società Cooperativa

Deputy Chairman

 

ACEA S.p.A.

Director

 

Cassa del Trentino S.p.A.

Chairman

Berardino Libonati

RCS MediaGroup S.p.A.

Director

 

Unicredit S.p.A.

Deputy Chairman

 

ESI S.p.A. – Edizioni Scientifiche Italiane

Director

Giulia Maria Ligresti

Fondazione Fon-SAI

Chairman

 

Premafin Finanziaria S.p.A.

Chairman and Managing Director

 

Fondiaria SAI S.p.A.

Deputy Chairman

 

Telecom Italia Media S.p.A.

Director

 

SAI HOLDING S.p.A.

Managing Director

 

SAIFIN S.p.A.

Managing Director

Massimo Moratti

F.C. Internazionale Milano S.p.A.

Chairman

 

SARINT S.A.

Chairman

 

SARAS S.p.A. Raffinerie Sarde

Managing Director

 

Interbanca S.p.A.

Director

 

Angelo Moratti di Gian Marco Moratti
e Massimo Moratti & C. S.a.p.A.

General Partner

Giovanni Perissinotto

Assicurazioni Generali S.p.A.

Managing Director

 

IntesaSanpaolo S.p.A.

Operational Board Member

 

Banca Generali S.p.A.

Chairman

 

Alleanza Assicurazioni S.p.A.

Director

 

Ina Assitalia S.p.A.

Director

 

Toro Assicurazioni S.p.A.

Director

Giampiero Pesenti

Italcementi S.p.A.

Chairman

 

Italmobiliare S.p.A.

Chairman

 

Ciments Francais

Director

 

Compagnie Moneguasque de Banque

Director

 

Allianz S.p.A.

Director

 

Mittel S.p.A.

Director

Luigi Roth

Terna S.p.A.

Chairman

 

Ente Autonomo Fiera Internazionale di Milano

Chairman

Aldo Roveri

-

-

Carlo Secchi

Allianz S.p.A.

Director

 

Italcementi S.p.A.

Director

 

Mediaset S.p.A.

Director

 

Parmalat S.p.A.

Director

List of offices held by Statutory Auditors in other Companies

Luigi Guatri

Banco di Desio e della Brianza S.p.A.

Director

 

ACBGroup S.p.A.

Chairman of Supervisory Comittee

 

Centrobanca S.p.A.

Chairman of Board of Statutory Auditors

 

Italmobiliare S.p.A.

Chairman of Board of Statutory Auditors

 

Negri Bossi S.p.A.

Director

 

RHIFIM S.p.A.

Chairman of Board of Statutory Auditors

 

Medinvest International S.c.a.

Director

Enrico Laghi

Banca Finnat S.p.A.

Director

 

Beni Stabili S.p.A.

Director

 

Nomura SIM Italia S.p.A.

Director

 

Gruppo Editoriale Espresso S.p.A.

Auditor

 

Alitalia – Linee Aeree Italiane S.p.A.

Chairman of Board of Statutory Auditors

 

Alitalia Servizi S.p.A.

Chairman of Board of Statutory Auditors

 

Raffinerie di Gela S.p.A.

Chairman of Board of Statutory Auditors

 

RaiCinema S.p.A.

Chairman of Board of Statutory Auditors

 

Sarbit S.p.A.

Chairman of Board of Statutory Auditors

 

01 Distribution S.r.l.

Statutory Auditor

 

Rainet S.p.A.

Statutory Auditor

 

Fendi S.r.l.

Statutory Auditor

 

Servizi Aerei S.p.A.

Statutory Auditor

 

IT Telecom S.p.A.

Statutory Auditor

 

TM News S.p.A.

Statutory Auditor

 

Iridium in liquidazione S.p.A.

Statutory Auditor

 

Manzano Sviluppo S.r.l.

Statutory Auditor

Paolo Francesco Lazzati 67

A.F.I S.p.A.

Chairman of Board of Statutory Auditors

 

Acquario S.r.l. in liquidazione

Statutory Auditor

 

Alfa S.r.l.

Statutory Auditor

 

Amiata Energia S.p.A.

Chairman of Board of Statutory Auditors

 

Antonio Cerruti & C. SAPA

Statutory Auditor

 

APOGEO S.r.l.

Chairman of Board of Statutory Auditors

 

Aree Urbane S.r.l.

Chairman of Board of Statutory Auditors

 

Baleri Italia S.p.A.

Chairman of Board of Statutory Auditors

 

Backdoor S.r.l.

Director

 

Cam Partecipazioni S.r.l.

Statutory Auditor

 

Capitolotre S.p.A.

Chairman of Board of Statutory Auditors

 

Casaclick S.r.l.

Chairman of Board of Statutory Auditors

 

Castello S.r.l.

Statutory Auditor

 

CO.RE.COM

Statutory Auditor

 

Credito Artigiano

Statutory Auditor

 

Creval Banking S.p.A.

Chairman of Board of Statutory Auditor

 

Dear S.p.A.

Statutory Auditor

 

Dixia S.r.l.

Statutory Auditor

 

Ecla Rete S.r.l.

Chairman of Board of Statutory Auditor

 

Ecla S.p.A.

Chairman of Board of Statutory Auditor

 

Edilnord Gestioni S.p.A.

Statutory Auditor

 

Effe 2005 Finanziaria Feltrinelli S.p.A.

Statutory Auditor

 

Elesa S.p.A.

Statutory Auditor

 

Elle Servizi S.r.l.

Director

 

Erogasmet Holding S.p.A.

Statutory Auditor

 

Fin Fashion S.p.A.

Chairman of Board of Statutory Auditor

 

Finaval S.r.l.

Director

 

Finlibri S.r.l.

Statutory Auditor

 

Finpol S.p.A.

Chairman of Board of Statutory Auditor

 

Fondazione Giacomo Feltrinelli

Director

 

Fondazione Parma Capitale della Musica

Director

 

FREE Sim S.p.A.

Chairman of Board of Statutory Auditor

 

Giacomo Feltrinelli Editore S.r.l.

Chairman of Board of Statutory Auditor

 

Giglio Real Estate S.p.A.

Statutory Auditor

 

Grafica Sipiel S.r.l.

Statutory Auditor

 

ICBI S.p.A.

Statutory Auditor

 

ICIERRE S.r.l.

Statutory Auditor

 

ILMA Plastica S.p.A.

Statutory Auditor

 

Imation S.p.A.

Chairman of Board of Statutory Auditor

 

Iniziative immobiliari 3 S.r.l.

Statutory Auditor

 

Invocing S.p.A.

Chairman of Board of Statutory Auditor

 

Ital China Leather S.p.A.

Statutory Auditor

 

Ivri Direzione S.p.A. – Milano

Chairman of Board of Statutory Auditor

 

Ivri S.p.A. – Bari

Statutory Auditor

 

Ivri S.p.A. – Parma

Statutory Auditor

 

Ivri S.p.A. – Piacenza

Statutory Auditor

 

Ivri S.p.A. – Firenze

Chairman of Board of Statutory Auditor

 

Ivri S.p.A. – Genova

Chairman of Board of Statutory Auditor

 

Ivri S.p.A. – Milano

Chairman of Board of Statutory Auditor

 

Kedrios S.p.A.

Statutory Auditor

 

Gorj, Bumbesti – JIU

Statutory Auditor

 

Lanificio F.lli Cerruti S.p.A.

Statutory Auditor

 

Librerie delle Stazioni S.r.l.

Chairman of Board of Statutory Auditor

 

Librerie Feltrinelli S.r.l.

Statutory Auditor

 

M-Platform

Statutory Auditor

 

MCS & Partners S.r.l.

Chairman of Board of Statutory Auditor

 

Molteni S.p.A.

Chairman of Board of Statutory Auditor

 

Monit S.p.A.

Chairman of Board of Statutory Auditor

 

Oasi S.p.A.

Chairman of Board of Statutory Auditor

 

Orione Immobiliare Prima S.p.A.

Statutory Auditor

 

Parcheggi Bicocca S.r.l.

Chairman of Board of Statutory Auditor

 

Pirelli Industrie Pneumatici S.r.l.

Chairman of Board of Statutory Auditor

 

Pirelli Tyre S.p.A.

Chairman of Board of Statutory Auditor

 

Pirelli Real Estate Agency S.p.A.

Chairman of Board of Statutory Auditor

 

Pirelli Real Estate Energy S.p.A.

Chairman of Board of Statutory Auditor

 

Pirelli Franchising Servizi Finanziari S.r.l.

Chairman of Board of Statutory Auditor

 

Pirelli SGR Private Opportunities S.p.A.

Statutory Auditor

 

Pirelli SGR S.p.A.

Statutory Auditor

 

Pro Juvara S.r.l.

Director

 

Profidia S.r.l.

Director

 

Progetto Corsico S.r.l.

Statutory Auditor

 

Progetto Fontana S.r.l.

Chairman of Board of Statutory Auditor

 

Progetto Nuovo Sant’Anna S.r.l.

Chairman of Board of Statutory Auditor

 

Progetto Perugia S.r.l.

Chairman of Board of Statutory Auditor

 

Prysmian Cavi e sistemi telecom S.r.l.

Chairman of Board of Statutory Auditor

 

Prysmian Cavi e sistemi energia S.r.l.

Chairman of Board of Statutory Auditor

 

Prysmian S.p.A.

Statutory Auditor

 

Prysmian Powerlink S.r.l.

Chairman of Board of Statutory Auditor

 

S.AN.CO Scarl

Chairman of Board of Statutory Auditor

 

Sange Scarl

Chairman of Board of Statutory Auditor

 

Securnetwork S.p.A.

Statutory Auditor

 

Società degli AVI S.p.A.

Chairman of Board of Statutory Auditor

 

Solar Utility S.p.A.

Chairman of Board of Statutory Auditor

 

Sorocaima S.p.A.

Chairman of Board of Statutory Auditor

 

Progetto Magnolia S.r.l.

Chairman of Board of Statutory Auditor

 

Speed S.p.A.

Statutory Auditor

 

Stone S.p.A.

Director

 

Tau S.r.l.

Statutory Auditor

 

Thesia S.p.A. in liquidazione

Statutory Auditor

 

USO S.r.l.

Chairman of Board of Statutory Auditor

 

VAIMM Sviluppo Immobiliare

Statutory Auditor

 

Verdi S.r.l. in liquidazione

Statutory Auditor

 

Vivigas S.p.A.

Statutory Auditor

 

Zero9 S.p.A.

Statutory Auditor

 

Zopa Italia S.p.A.

Chairman of Board of Statutory Auditor

67 Paolo Lazzati resigned his office with effect from the Shareholders, Meeting tto approve the financial statements for the year ended on 31 December 2007.