Procedure for information flows to Directors and Auditors
1.1 – The completeness of the available information to directors is essential for the proper fulfilment of their duties and responsibilities regarding the management, the direction and the monitoring of the business activities of Pirelli & C. S.p.A. (henceforth “Pirelli” or “the Company”) and of the Group.
1.2 – Similar appropriate information is due to the Board of Statutory Auditors.
1.3 – In compliance with the legal and the bylaws’ provisions, non-executive Directors and Auditors are therefore the receivers of a permanent information flows from the Executive Directors, who are coordinated by the Chairman of the Board of Directors who, if necessary, can refer to the Secretary to the Board of Directors of the Company.
1.4 – The purpose of the current procedure is to regulate the above-mentioned information flows in order to:
- guarantee the transparency of the management of the Company;
- ensure good conditions for efficacious and effective actions of direction and monitoring of the Company activities and management by the Board of Directors;
- supply the Board of Statutory Auditors with the requisite tools for an efficient fulfilment of its role.
2. Terms and procedures
2.1 – The information flows to Directors and Auditors is preferably provided with written documents, specifically:
- notes, memoranda, presentations and reports drawn up by Company offices or consultants, including those prepared for Board of Directors meetings;
- other documents, published and un-published, available to the Company;
- documents of accounting period of the Company that are intended for publication;
- quarterly financial reports including external information, drawn up according to specific guidelines.
2.2 – The above-mentioned documentation is promptly transmitted to non-executive Directors and Auditors and, in any case:
- with a sufficient frequency in order to ensure that legal and bylaws data provisions are respected;
- according to coherent deadlines with the scheduling of the single Board of Directors meeting.
2.3 – The information reproduced according to the procedures above are integrated (or, if necessary, omitted for reasons of privacy) with the comments made orally by the Chairman, the Executive Directors or by members of the management of the Group during Board of Directors meetings or specific informal meetings, open to Directors’ or Auditors’ participation, and organized in order to go into topics about the management of the Company.
2.4 – The transmission of documents and any other material to Directors and Auditors is coordinated by the Secretary to the Board of Directors of the Company, in agreement with the manager responsible for of the accounting documents of the Company, as per his competence.
2.5 – In any case, Directors and Auditors are the recipients of the information published by Pirelli by virtue of the legal regulations on Company information (such as press releases and reports) and invitations to invest (irrespective of the name of any such documents).
3.1 – The information flow to Directors and Auditors – besides matters intended for the examination and/or the approval of the Board of Directors of the Company according to the law and the bylaws of the Company – includes:
- the general results of operations and their foreseeable development;
- the completed activity, with specific reference to transactions involving significant economic, financial and equity aspects, to transactions with related parties and to atypical or unusual transactions;
- the instructions given during the execution of direction and coordination activities;
- any further activities, transactions or events that are deemed appropriate to bring to the attention of Directors and Auditors.
4. General results and development of operations
4.1 – The corporate activities of the Group are the focus of background information about management.
4.2 – Corporate activities are considered in a strategic perspective of planning and direction, as well as in terms of the attainment of results and in comparison with industrial and budget forecasts.
4.3 – General results and development of operations are regularly examined by the Board of Directors of the Company when they approve the accounting period reports. The attained results are compared:
- with historic figures (opportunely reconstructed using pro forma figures in order to obtain homogeneous comparisons with previous periods);
- with budget objectives, indicating the causes of possible variances, also in order to evaluate the effects of these variances on strategic or anticipatory objectives and/or on forecasts regarding following periods;
- with the general trend of the sector and peers, in order to benchmark.
5. Business activity
5.1 – General information about the completed business activity concern executive businesses and developments of operations already decided by the Board of Directors, as well as activities performed by Executive Directors – also through units and subsidiaries of the Company – in the exercise of their delegated powers).
5.2 – General information about the business activities are completed with a specific report of details regarding:
- transactions with significant impact on the profitability, assets or financial position of the company;
- operations with related parties;
- atypical or unusual transactions.
6. Significant transactions
6.1 – The following – besides operations reserved to the Board of Directors according to the art. 2381 of the Italian Civil Code and the bylaws of the Company – are considered transactions involving significant economic, financial and equity aspects when Pirelli or subsidiaries carry out:
- the issue of financial instruments for a total value higher than Euro100 million;
- the granting of personal and collateral securities in the interest of subsidiary companies (and in the interest of Pirelli regarding collateral securities) against bonds having a unit value higher than Euro 25 million;
- the granting of loans or securities in favour or in the interest of third parties for amounts higher than Euro 10 million;
- the granting of loans in favour of subsidiary companies and the investment or disinvestment transactions, also real estate transactions, transactions for the purchase and the assignment of share, of company and company branches, of assets and other activity, for amounts higher than Euro 100 million;
- merger and division transactions, when at least one of the parties is a listed company or when subsidiary companies are involved if at least one of the parameters indicated below, in case of application, come out equal or higher than 15% of:
- the total assets of the merged company, or of the abusiness submitted to division/the total assets of the Company (figures taken from consolidated balance sheet, if reported).
- the earnings before taxes and extraordinary items of the merged/incorporated company, or of the business submitted to division/the earnings before taxes and extraordinary items of the Company (figures taken from consolidated balance sheet, if reported);
- the total equity capital of the merged/incorporated company, or of the company branch submitted to division/the total equity capital of the Company (figures taken from consolidated balance sheet, if reported).
6.2 – Informative report on transactions with significant impact on the profitability, assets or financial position of the company shall highlight the strategic aims, the budget and the industrial plan coherence, the executive procedures (including economic terms and conditions for their fulfilment), the developments as well as the possible changes and implications for the activities of the Pirelli Group.
6.3 – Informative reports shall also be made for transactions that, even if they are individually smaller than the above-mentioned threshold value, are associated within the same strategic plan or executive programme and therefore, considered altogether, exceed the threshold values.
7. Transactions with related parties:
7.1 – For the purpose of this policy, “related parties” refers to those subjects defined as such in the international accounting standards for the financial reporting o transactions with related parties, adopted in accordance with art. 6 of EC Regulation n. 1606/2002 as indicated in the “Information collection procedure”.
7.2 – The Company adopted this specific procedure in order to ensure that the principle of fairness is respected in substance and form for all transactions made directly or through subsidiaries with related parties with Pirelli.
7.3 – In addition to those transactions with related parties that are subject to the approval of the Board according to the above-mentioned procedure (atypical, unusual or non-standard transactions), transactions with related infra-Group parties (i.e. companies owned by Pirelli or by the company that owns Pirelli) must be similarly reported to Directors and Auditors if they involve amounts higher than Euro50 million, and those with associated non infra-Group parties if they involve amounts higher than Euro 500.000. For each of these transactions, the following points must be indicated:
- object and amount;
- the date the contract(s) underlying or those in any way linked to the transaction were concluded;
- the identities of the counterparties (specifying the nature of their relationship with Pirelli).
7.4 – For each reporting quarter, the total value of the transactions concluded with the individual parties related to Pirelli must be supplied, separating the transactions directly carried out by Pirelli and the transactions carried out by subsidiary companies.
8. Atypical or unusual transactions
8.1 – Transactions that form part of the ordinary business of the Company are considered typical, i.e. essential to the production and trading cycle of the Company. Usual transactions are operations whose purpose is the satisfaction of ordinary requirements, i.e. requirements that are normally part of company operations.
8.2 – In any event, transactions may be considered neither typical nor usual when they actually present particular elements of criticality due to their specific characteristics and/or their intrinsic risks, to the nature of the counterparty or to the time of their completion.
8.3 – Information about atypical or unusual transactions highlights their underlying interest and illustrates the ways in which they are carried out (including the financial and business terms and conditions of their execution), with specific reference to the valuation procedures followed.
9. Direction and coordination
9.1 – Information about the execution of direction and coordination activities illustrates:
- the strategic aims, with specific reference to the entrepreneurial interest justifying them and the results achieved;
- the manner of their execution (including the economic terms and conditions of their execution), with specific reference to the evaluation procedures applied;
- the possible effects and implications on company operations, also in relation to the budget and the industrial plan.
9.2 Further progress reports on the operations affected are supplied to enable the overall results of the direction and coordination activities to be evaluated.
Information collection procedure
In order to allow an adequate information flow to non-executive Directors and to the Board of Statutory Auditors, information must be provided to the Chairman and the Managing Directors according to the procedure indicated below.
1. Information on operations, transactions with significant economic, financial and equity implications, infragroup transactions and atypical or unusual transactions.
Pirelli General Managers and the Heads of Business units/Central Functions/Business Operations that report directly to the Chairman and the Managing Directors (the so-called “Front Line”) through the General Manager and Chief Operating Officer transmit, on a quarterly basis, to the Chairman and the Managing Directors, with an apposite note, the activities that the competent structure carried out in the period, highlighting specifically the transactions with significant impact on the profitability, assets or financial position of the company, the infra-Group transactions higher than Euro 50 million; non-standard, atypical or unusual transactions; the executive businesses and developments of operations already decided by the Board of Directors; as well as the main business activities carried out within the powers attributed to Managing Directors, including the most important launched projects and the most significant undertaken initiatives.
Informative reports shall also be made for transactions that, even if they are individually smaller than the above-mentioned threshold values or the values that reserve them to the exclusive competence of the Board of Directors, are associated within the same strategic plan or executive programme and therefore, considered altogether, exceed the threshold values.
2. Information about operations with related parties other than intra-group transactions.
This procedure applies to transactions with related parties carried out by Pirelli or by companies owned by Pirelli, with parties directly or indirectly related to Pirelli, meaning:
- subjects who, directly or indirectly, control Pirelli, also by virtue of shareholder agreement, individually or jointly with other subjects included in these agreements;
- subjects who, directly or indirectly, exercise a significant influence over Pirelli. This influence is presumed in case of shareholdings of 10% or more of the share capital represented by ordinary Pirelli shares;
- the Directors and Statutory Auditors of Pirelli;
- the managers with strategic responsibilities in the Company, identified by the Board of Directors of Pirelli, or in its possible parent company (i.e. “key managers”);
- close relatives of the subjects defined in letters a) to d) above, meaning the cohabiting spouse, and dependent children of the subject and/or of his/her spouse indicated in the civil records and any other dependent irrespective of their family relationship, and those family members who the interested subject considers might influence or be influenced by him or her in their relations with Pirelli & C;
- companies affiliated to Pirelli.
- the companies upon which the subjects indicated above in letters a) to e) exert control, directly or indirectly, also by virtue of shareholder agreements, individually or jointly with other subjects included in these agreements;
- the companies on which the subjects indicated above in letters a) to e), if they are physical persons, exert significant influence, directly or indirectly. This influence is presumed in case of shareholdings of 10% or more (in the case of listed companies) or 20% (in the case of unlisted companies) of the share capital represented by voting shares;
- the joint ventures in which Pirelli is a participant;
- the pension funds for the employees of Pirelli or of related companies;
- the Internal Control and Corporate Governance Committee of Pirelli may consider a related party on a case by case basis.
- the companies in which the physical persons indicated above in letters a) to e) hold strategic management roles and the companies controlled by these companies;
- companies which share a majority of directors with Pirelli.
At the frequency stated in point 1 above, General Operations Management collects and transmits to the Chairman and to the Managing Directors declarations from the subjects mentioned under letters a) to d) above, in which they provide evidence that the transactions involving amounts of Euro 500,000 or lesser amounts but non-standard conditions, executed directly by or through one of the subjects indicated in letters g) to k) above, including through third parties, with Pirelli or its subsidiaries, by themselves or, in the case of physical persons, by their spouse or dependents, as indicated in civic records.
In supplying this information, those transactions that, even if individually for smaller amounts than the above-mentioned threshold value, are linked as part of a single relationship and therefore, considered altogether, exceed the threshold value, must be highlighted.
General Operations Management also collects the declarations whereby the persons in letters a) to d) above: (i) list the companies for which they perform the roles indicated in letters g) to j) above, as well as companies in which they are directors; (ii) update this list.
General Operations Management transmits the list of the parties related to Pirelli as specified above to the General Managers and to the Front Line.
At quarterly intervals, the Front Line communicates those transactions completed with Pirelli – or companies controlled by Pirelli – also through third parties by indirectly related parties as identified in the list supplied by the General Operations Management, involving amounts higher than Euro 500,000 and, also if involving lower amounts, made under non-standard conditions to the Chairman and the CEOs .