Role of the Board of Directors

The Company's Board of Directors holds a crucial role in its organization. It has strategic and organizational functions and responsibilities with respect to the Company and the Group. It is also responsible for verifying that the necessary controls are in place to monitor the performance of the Company and its subsidiaries.

In addition to exercising the powers that are attributed to it by the Law, the Company's Bylaws (Article 21.1), according to the law, attributes the Board the competence to resolve on issues pertaining to the Shareholders' Meeting that can determine amendments to the Bylaws as previously described in “amendments to the Bylaws”.

Within the limits as per Article 2381 of the Italian Civil Code, the Board of Directors may delegate its tasks to an executive committee and/or to one or more of its members (Article 22.1 of the Bylaws).

In this context and in compliance with the Law and the provisions of specific resolutions, and considering the provisions of Article 1 of the Governance Code, the Board of Directors carries out the following:

  • examines and approves the strategic, industrial and financial plans of the company and the Group it heads, regularly monitoring implementation. In this respect, the current structure of Company powers provides that, in particular, the Board of Directors approves the Company's annual budget and long-term plans updated on an annual basis (which include the combined annual budgets and long-term plans of the subsidiaries) (Article 1.C.1, letter a) of the Governance Code); Monitoring is carried out through the regular assessment of the trend of operations and specific Company Performance Management tools (BSC). In 2012, the Board of Directors examined and approved the strategic, industrial and financial plan of Terna and the Terna Group, presented to the market on March 20, 2012 (the 2012 - 2016 Strategic Plan), most recently updated on February 6, 2013 (2013 - 2017 Strategic Plan), thereby pursuing the creation of value for shareholders in the medium/long-term. With regard to the action planned, the Board provides specific guidelines, a description of the objectives, characteristics and application methods of the activity monitoring the business processes and risk analysis, and defines the nature and level of accounting risk with the strategic objectives relating to the implementation of the mission assigned to the company (Articles 1.P.2 and 1.C.1, letter b) of the Governance Code). With regard to this matter, reference should be made to section XI;
  • defines the corporate governance system under the scope of the company and provides for the appointment, definition of functions and regulations of the internal committees of the board, as established by the current structure of powers in the company and presented in this report (Articles 1.C.1, letter a); 7.P.3 and 7.C.1, letter d) of the Governance Code);
  • resolves, with regard to the Group structure and regarding the establishment of new companies, the purchase and transfer of shares in companies, namely in companies or company branches with a value exceeding € 30 million, as envisaged by the current structure of powers in the company (Article 1.C.1, letter a) of the Governance Code);
  • on the basis of the proposals by the specific Committee, approves Company Policy concerning remuneration of members of administration bodies, general directors and executives with strategic responsibilities, which is then submitted to the Shareholders’ Meeting for an advisory vote, and after having heard the Board of Statutory Auditors, determines the remuneration of the CEO and of other Directors covering special offices (Article 6.P.4 of the Governance Code) which it indicates annually in a specific report; With regard to this matter, reference should be made to section IX;
  • constantly evaluates the suitability of the organisational, administrative and accounting structure of the company, defined by the CEO according to the proxies received, and its subsidiaries of strategic relevance (thereby meaning, in accordance with that resolved by the company's Board of Directors on February 22, 2007: a) subsidiaries listed on regulated markets and b) subsidiaries which abroad have a significant share of the segment of core business of the Group) and during the examination of internal procedures on the matter submitted to the Board and the resolutions passed that, in FY 2012, also regarded the reorganisation of the Group and adjustments to meet the new provisions of the Governance Code. With specific reference to the internal control and risk management system, it defines the relevant guidelines, at the proposal of the Director appointed by the Internal Control and Risk Management System and, upon seeking the opinion of the specific Committee (Articles 1.C.1, letter c) and 7.C.1, letter a) and b) of the Governance Code). The evaluation of the suitability of the Internal Control and Risk Management System of the Terna Group with respect to the characteristics of the business and the risk profile assumed, and its efficiency is carried out at least once a year, upon seeking the opinion of the Control and Risk Committee (Article 7.C.1, letter b) of the Governance Code). With regard to this matter, reference should be made to section XI;
  • examines and approves transactions with a significant impact on the Company's financial position and results, especially if they are related party transactions or could otherwise give rise to a potential conflict of interest. This is without prejudice to the powers assigned to the CEO for particularly urgent cases. In particular, in addition to that specifically envisaged by a specific procedure on related party transactions and the steps taken to identify and manage situations where a Director holds his own interest or an interest of third parties regarding a transaction that he should evaluate (for which we would refer you to the specific section XII sub "Interests of Directors and related party transactions”) are subjected to the prior approval or preventive examination (in the case of operations for which the companies directly and/or indirectly controlled by Terna are competent) of the Board of Directors, "significant operations" concluded also by means of subsidiaries identified under the scope of a specific internal procedure of the Board ("Approval of significant operations and management of situations of interest", most recently updated on March 31, 2011). These are identified as: (i) transactions that have as their object, amount and terms/time frames of implementation an impact on safeguarding the company assets or the completeness and correctness of Terna's information also of accounting information and that as such create an obligation for Terna to make available to the public an informative document in compliance with provisions by supervisory authorities of financial markets and/or (ii) financial transactions whose value exceeds 50 million euros with the exception for transactions included in the budget and in approved financial plans as well as those regarding dispatching activity and all related services (Article 1.C.1, letter f) of the Governance Code). In this regard, it is specifically envisaged that the Board of Directors shall receive a suitable disclosure on the executive methods of significant operations, on timing and economic conditions for the implementation of such operations, on the evaluation procedure, the interests and reasoning underlying them and on any risks for Terna and its subsidiaries connected with said operations and, moreover, that can use the assistance of one or more independent experts for an opinion on the economic conditions and/or the executive and technical methods of the operation. Board resolutions taken in relation to infra-group operations are suitably grounded with regard to the reasons and convenience of the operation. According to the current structure of powers in the company, the Board of Directors is also entitled to pass resolutions on: the reduction of loans, assets and liabilities, in any form, in the medium/long-term, of a value in excess of € 100 million not envisaged by the budget and financial plans approved and not aimed at developing interventions that have already been approved by the Board in the National Transmission Grid Development Plan and/or the Strategic Plan;
  • receives, as does the Board of Statutory Auditors and in accordance with the provisions of Article 21.3 of the Bylaws, constant, complete information from the Chief Executive Officer on the activities carried out in the exercise of the proxies received and in relation to the trend of operations of the company, its foreseeable outlook and the most important operations, summarised on a quarterly basis in a specific report (Article 1.C.1, letter d) of the Governance Code). In particular, with respect to all significant transactions carried out by the Company and its subsidiaries (including any related party transactions of lesser importance as identified in the specific Procedure adopted by Terna, and which are not exempt from application of the same, which do not require approval by the Board of Directors) the CEO reports to the Board of Directors on the (i) characteristics of the transactions, (ii) the parties involved and their relationship with the Company or its subsidiaries;
  • assesses the general performance of Company operations, with specific reference to situations of conflict of interest, on the basis of the information received from the CEO and the Control and Risk Committee, periodically checking that planned results have been achieved (Article 1.C.1, letter e) of the Corporate Governance Code);
  • carries out, at least once a year, an assessment on the operation of the Board and its committees and on the dimension and composition. In this respect, we refer you to the details given in the title below "Assessment of the operation of the Board of Directors" (Article 1.C.1, letter g) of the Governance Code);
  • assesses, having consulted with the Board of Statutory Auditors and received the opinion of the Control and Risk Committee, the results given by the legal auditor in any letter of suggestions and in the report on the essential issues that have emerged during the legal audit (Article 7.C.1, letter e) of the Governance Code);
  • reports to the shareholders in the meeting, in accordance with the provisions of current legislation. With regard to this matter, reference should be made to section XVI.

Board of Directors Meetings and the role of the Chairman

The Directors gather regularly and carry out tasks based on their full knowledge and in autonomy, pursuing the objective of creating value for shareholders, taking into account the social aspects of the Group's activities and the resulting need to adequately consider all stakeholders in the performance of those activities (Articles 1.P.1 and 1.P.2 of the Governance Code).

During FY 2012, the Board of Directors held 7 meetings, each lasting an average of 1 hour and 20 minutes, which saw the regular participation of the Directors and the attendance of the Board of Statutory Auditors and which also was the attendance, by invitation of the Chairman and in line with the provisions of Article 1.C.6 of the Governance Code, executives of the Company, whose presence was considered an assistance in ensuring a better disclosure on the items on the agenda. The percentage participation of each Director in the meetings held during FY 2012 is indicated in table 1 attached (Article 1.C.1, letter i)-(2) of the Governance Code and Article 123-bis, paragraph 2, letter d) of the Consolidated Law on Finance).

For 2013, a Board meeting is expected every month and all the meetings have been scheduled relative to the examination of the economic and financial data by the Board of Directors according to what officially communicated to the market on January 18 and 24, 2013. In the current year and as of the date of approval of the present Report, the Board of Directors met two times.

The activities of the Board of Directors are coordinated by the Chairman. In accordance with the Bylaws, the latter has the legal power of representation of the company and the company signature, chairs the Shareholders’ Meeting, shares the Board of Directors, convenes board meetings, establishes the agenda on the request of the CEO and guides the related events; it also verifies implementation of board resolutions (Article 25 of the Bylaws) and is assigned the tasks attributed to the Chairman by the law or Governance Code. More specifically, with regard to the duties involved in organising the Board works, the Chairman ensures that suitable documentation and information is given to enable the Board to rule knowledgeably on the matters submitted for its examination (Article 1.C.5 and Comment to Article 2 of the Governance Code).

To this end, during the meeting held on December 19, 2012 - considering the provisions of the Governance Code and the set of governance rules of the company with regard to the meetings of the Board of Directors and the committees established within the board - the Board of Directors defined a disclosure prior to the board meeting and for the committees that is at least coherent with the terms envisaged for convening the meetings of these organisations, without prejudice to the fact that, where the subject so requires, the information given can be supplemented, including subsequently, by the presentation provided orally by the Chairman, the Chief Executive Officer or members of the Group management and/or consultants suitably authorised and invited during the meetings of said organisations, or the meetings of the Board of Statutory Auditors, or during specific informal meetings open to the participation of Directors and/or Statutory Auditors organised to further investigate matters of interest with reference to business management.

Subsequently to that resolved and until the date of approval of this Report, the disclosure made has been coherent with that specified by the Board.

Assessment of the Board of Directors activity

In compliance with the Governance Code, Terna's Board of Directors also for 2012 assessed the Board operation, its committees and their size and composition. The Board conducted such assessment, drawing on the assistance of the company Egon Zehnder International S.p.A. as an external consultant to ensure the utmost objectivity of its evaluations. This initiative follows on from others run by the Board of Directors of Terna since 2006, which, amongst other matters, have highlighted how the suitability of the members of the Board of Terna and the specificity of the members have helped ensure that aware decisions were taken (Articles 2.P.1, 2.P.2, 2.P.3, and 2.P.4 of the Governance Code).

It is specified that, in accordance with Article 1.C.1, letter g) of the Governance Code, Egon Zehnder International S.p.A. has specifically declared the lack of other consulting and/or other professional appointments between Egon Zehnder and Cassa Depositi e Prestiti S.p.A. and/or some of the subsidiaries of Terna S.p.A..

The analysis of the consulting firm, initiated during the first quarter of 2013, was carried out using qualitative questionnaires and in-depth individual interviews with individual Directors expressing both the majority and minority shareholders and with the subsequent examination of the data collected (Article 1.C.1, letter i)-(3) of the Governance Code). More specifically, the analysis focused on numerous aspects relating to: a) the heterogeneous, balanced composition of the members of the Board and Committees, considering the professional characteristics, experience (including managerial and in the office), with reference to the provisions of the company Bylaws and Governance Code with regard to the members of the Board and Committees that have already come into force on the basis of the respective adjustment time indicated by the transitional regulations; b) the decision-making process; c) the flow of information and presentation; d) the participation in the definition of the strategic guidance and e) the climate within the Board and relations with the Chairman and CEO. Such analysis highlighted how Terna's Board of Directors is totally in line with the Governance Code to the point that it fully represents a best practice both at the Italian and international level, confirming the positive judgement that there was compliance with said requirements.

On the basis of the results of the analysis carried out, on March 15, 2013, the Board of Directors passed an overall positive evaluation on the size, composition and performance of the Board and its Committees having positively evaluated all the principal profiles examined and committed to exercising their role as best as possible.

In particular, the Board, considering that the operation of the board in 2012 has confirmed the high level of efficiency and the general tendency towards continuous improvement of some organisational subjects that constitute the excellences of the Board, has seen improvements on: internal cohesion and independence of the Board; greater support of the Board to the Senior Management and attention to the company risks; optimisation of the committees internal to the Board; efficiency of the information process between Chairman, CEO and Directors.

With reference to the requirements of Article 1.C.1, letter h) of the Governance Code, the Board has also pointed out that thus far no situations of difficulty have arisen by the shareholders in preparing suitable candidates, such as to enable a composition of the Board aligned with that recommended by the Governance Code.