Pirelli & C.

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4. Board of Directors

In accordance with the regulations for the traditional direction and control model, the management of the Company is assigned to the Board of Directors, which plays an active role 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.

To carry out its duties the Board of Directors relies on the support provided by specific Board Committees composed entirely of independent Directors, responsible for investigations, advice and/or consultation.

4.1 Appointment and replacement of Directors

Since 2004, the Company bylaws6 have provided that the Board of Directors is appointed by a slate system. This system ensures that – if at least two slates are presented – the so-called “minority” shareholders can elect one fifth of the Directors.

The slates presented by the shareholders, signed by those presenting them, must be filed at the registered offices of the Company, for inspection by anyone wishing to do so, at least fifteen days before the date the Shareholders’ Meeting is first convened7 .

Each shareholder may present or take part 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 a total number of shares representing at least 2 percent of the share capital entitled to vote at ordinary shareholders’ meeting or the minor percentage, according to the regulations issued by CONSOB 8, are entitled to present slates, subject to their proving ownership of the necessary number of shares not later than the date by which they must be deposited.

Declarations in which the candidates individually accept their candidacy and attest that there are no grounds for ineligibility or incompatibility, and that they meet any requirements prescribed for the offices in question, must be deposited with each slate. The declarations must be accompanied by a curriculum vitae for each candidate regarding their personal and professional characteristics, indicating (i) the administration and control appointments held by the candidate with other companies and (ii) their fitness to be considered independent, according to the legal and Company criteria.

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

In the Meeting, 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:

  1. 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;
  2. the remaining Directors are appointed from the other slates; for this purpose, the votes obtained by the slates will be divided by a sequence of 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 none from these slates has yet elected a Director, or if they have all elected the same number of Directors, then within these slates the 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.

If the slate voting mechanism should not assure the minimum number of independent Directors specified in the applicable regulations, the elected 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 with next highest progressive number, and so on, list by list, until the minimum number of independent Directors has been achieved.

For the appointment of Directors, not nominated for any reason according to the procedure described, 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.

Loss of the requisites for independence by a Director does not cause their appointment to lapse if the minimum number of Directors - specified by applicable regulations - in possession of the legal requisites for independence remain in office.

As per international best practice, when renewing the Board of Directors it is Company practice to allow the shareholders separate votes on: (i) the number of people on the Board of Directors; (ii) the election of Directors through a vote on the slates presented; (iii) the duration of the mandate of the Board of Directors; and (iv) the remuneration of the Directors.

It should be noted that the Company will take the necessary action to adapt to the provisions of legislative decree no. 27 of 27 January 2010, containing the “Transposal of Directive 2007/36/EC of the European Parliament and Council of 1 July 2007. on the exercise of certain rights of shareholders in listed companies, implementing the powers contained in article 31 of law no. 88 of 7 July 2009”, and which shall apply for shareholders’ meetings called after 31 October 2010. It should be noted that some changes to the Bylaws will be submitted to the Shareholders’ Meeting to approve the 2009 Financial Reports, specifically, that the part of article 7 of the Company Bylaws that does not prescribe the right (reintroduced by the aforementioned legislative decree 27/2010) that the shareholders’ meeting to approve the financial reports may be called – pursuant to article 2364 of the Italian Civil Code – within 180 days of the end of the company financial year, and the further reduction of the threshold specified in the Bylaws for the presentation of slates to renew the control bodies, be modified. For details of the aforementioned changes, see the “Shareholders’ Meeting” and “Board of Statutory Auditors” sections of this report, and the Directors’ report on the proposed modifications, available on the Company website.

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4.2 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 upon their appointment) and may be re-elected.

The Board of Directors in office on 31 December 2009 consists of twenty members and was appointed by the Shareholders’ Meeting held on 29 April 2008 for three financial years to expire at the Shareholders’ Meeting called to approve the financial reports for the year ending 31 December 2010. The average age of the Directors is just over 63 years.

By voting on a slate9, the minority shareholders were able to nominate four Directors, i.e. one fifth of the total number (specifically, Carlo Angelici, Cristiano Antonelli, Franco Bruni and Umberto Paolucci).

Two slates were presented to the shareholders' meeting held on 29 April 2008: one from the participants in the Pirelli & C. Share Block Syndicate (which obtained 93% of the votes of the voting capital10) and one from a group of institutional investors11 (which obtained 5.5% of the votes of the voting capital12). 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, containing the personal and professional characteristics of each Director, 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.

The composition of the Board of Directors at the date of this Report is indicated in Table 3. It should be noted that no Director ceased to serve after the election of the Board of Directors by the Shareholders’ Meeting of 29 April 2008.

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4.2.1 Maximum accumulation of directorships in other companies

On 29 April 2008, as recommended by the Self Regulatory Code 13, the Board of Directors confirmed the validity and applicability of the Policy14 , adopted by the Board during the previous mandate15 , which established that serving as a Director or auditor of more than five companies other than those directed and coordinated by Pirelli & C S.p.A, or controlled or affiliated by said Company, is not considered compatible with serving as a Director of the Company, when the companies are (i) listed companies included in the FTSE/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 (i), (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.

When the Board of Directors is due for renewal, Shareholders who, pursuant to the Bylaws, intend to present slates for the composition of the Board of Directors, are invited to examine this document16.

After investigation by the Committee for Internal Control, Risks and Corporate Governance, the Board of Directors, in its meeting of 10 March 2010, examined the offices held and reported by the individual Directors and determined that all Directors hold positions 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. In particular, none of the serving Directors was found to hold a higher number of offices than the maximum specified in the Policy.

Positions occupied by the Directors in major companies other than Pirelli Group companies are annexed to this Report17 .

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4.3. Role of the Board of Directors

The Bylaws do not specify a minimum interval between Board meetings. The Company has circulated a calendar18 that schedules 4 meetings for 2010, specifically:

  • 10 March 2010: Board of Directors’ meeting to examine the budget and consolidated financial reports for the year ended on 31 December 2009
  • 6 May 2010: Board of Directors’ meeting to examine the half-yearly report on operations at 31 March 2010.
  • 29 July 2010: Board of Directors’ meeting to examine the half-yearly financial report at 30 June 2010.
  • 4 November 2010: Board of Directors’ meeting to examine the half-yearly report on operations at 30 September 2010.

Board meetings may take place by means of telecommunication, enabling all parties to participate in the debate, with equal information.

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

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

During the financial year there were 6 meetings of the Board of Directors, with an average duration of approximately one and a half hours each, with a mean percentage attendance by Directors of 78%, while the percentage attendance of the independent Directors was 85%.

The Lead independent Director attended all meetings of the Committee for Internal Control, Risks and Corporate Governance (which he chairs) and all meetings of the Board of Directors.

At the date of the Report, there had been one Board meeting in 2010.

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4.3.1 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 to direct and set the policy of the Company.

Pursuant to the Bylaw 19 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 Code20):

  • 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 corporate 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 clashes of interests;
  • grants powers to the Managing Directors and the Executive Committee (if established) and revokes them; defining their limits, the manner in which they are to be exercised and the frequency, at least quarterly, at which such bodies must report their activities in the exercise of the powers granted them by the Board;
  • determines, after having examined the proposals of the Remuneration Committee 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 Shareholders’ 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 into consideration, specifically, 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; to this end it established general criteria for identifying operations of significant impact;
  • at least once a year, evaluates the size, composition and functioning of the Board itself and its Committees, expressing opinions on any professional figures whose presence in the Board it might deem advisable;
  • constitutes the Supervisory Body pursuant to legislative decree no. 231/2001;
  • appoints the General Managers and, subject to the opinion of the Board of Statutory Auditors, the manager responsible for drawing up the company accounting documents, determining their responsibilities and powers;
  • appoints and dismisses the internal control officer and determines their duties and remuneration, after having received the opinions of the Committee for Internal Control, Risks 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 the responsibilities attributed to it by the law and the Company bylaws.

Finally, the Board is responsible for the overall supervision of the company risk assessment and management system. In this capacity, the Board of Directors resolved to adopt a new risk assessment and risk management model in its meeting of 29 July 2009. Please see the section entitled “Risk assessment system”.

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4.3.2 Evaluation of the general results of operations21

Pursuant to the current regulations22 and the Bylaws , the Board of Directors has evaluated the general results and likely development of operations at least once a quarter.

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

4.3.3 Internal control system and governance system 24

The Board of Directors has assessed 25, 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 10 March 2010, adopting the considerations of the Committee for Internal Control, Risks 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 26.

4.3.4 Remuneration of the Directors vested with special responsibilities27

During the financial year the Board examined and approved the Committee’s proposal for the remuneration of the Chairman.

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

4.3.5 Transactions with significant impact on the strategy, the profitability, the assets or the financial position of the Company28

The “Procedure for information flows to Directors and Auditors”29 specifies that the general information on the activities carried out should be complete with specific detailed information on, among other matters, transactions with significant impact on the strategy, profitability, assets or financial position of the company.

Moreover, the Board, without prejudice to the responsibilities and powers reserved to it by the law, Bylaws, powers structure and internal procedures, has also determined that it is the responsibility of the Board of Directors to approve in advance certain non-infragroup operations and actions (determined on the basis of the latest qualitative criteria and further quantitative thresholds detailed at the end of this Report) when carried out by Pirelli & C. or by unlisted foreign companies subject to the direction and coordination of Pirelli & C.

4.3.6 Transactions with related parties:

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

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4.3.7 Board performance evaluation30

During 2006, for the first time, the Board of Directors made a self-evaluation of its performance (officially called a “Board performance evaluation”), for what is now the fourth time, thus adhering to international best practices and the provisions in the new Self-Regulatory Code31. As proposed by the Committee for Internal Control, Risks and Corporate Governance, taking the positive experience of preceding years into account, the Board decided it was appropriate to confirm the existing structure of the self-evaluation process for the 2009 financial year.

In accordance with the most widely tested practice, the self-evaluation process occurred by direct interviews with individual Board members or, alternatively, allowing Board members to provide written answers to a specific questionnaire (which was also used as a guide for the interviews). The evaluation was carried out with the assistance of a major consultancy company that worked alongside the Committee for Internal Control, Risks and Corporate Governance to develop evaluation methods and to analyse its results.

Considering the good results that emerged from the preceding self-evaluations, the Board also decided to simplify and slim down the self-evaluation in relation to some aspects that were positively assessed in previous exercises, now considered to have achieved a level such that no further improvement in these aspects can be expected.

The Board also decided to examine the opinion of the Board decision training process in depth in the Board performance evaluation, with specific reference to the activities of the Board committees and the information support provided by the management in some of the important decisions taken during the year.

Finally, to give continuity over time to the self-evaluation process, the Board decided to re-submit some issues that emerged during the 2008 self-evaluation to the attention of the Board, also with the aim of identifying and evaluating the improvements achieved.

As in previous evaluations, the Directors were invited to express their opinions on the following major aspects:

  • “Board performance evaluation”: the evaluation by Directors that is principally concerned with the operation of the Board and its Committees in general;
  • “Directors’ evaluation”: the evaluation that involves an in-depth examination of Directors’ opinions of the degree of effective participation in and knowledge of the Company by other Directors;
  • “self evaluation”: individual Directors’ evaluation of their own participation in and knowledge of the Company.

The Directors interviewed were given the opportunity to express four degrees of opinion and to formulate their own comments.

The results were subject to in-depth analysis by the Committee for Internal Control, Risks and Corporate Governance and then submitted to the Board of Directors in its meeting on 10 March 2010. As is its standard practice, a meeting of the independent Directors, namely a working meeting in which participation is extended to all the Directors, will be dedicated to this topic.

It confirmed that there was a high degree of participation in the Board performance evaluation by the Directors, who participated massively in the direct interview in place of the written questionnaire, and the examination of the results indicated a positive impression of the Board and its Committees, although a need to make some changes to improve some aspects also emerged.

Specifically, the Directors expressed their appreciation of the working meetings they had had with Top Management to examine in depth some specific business issues32 confirming the importance of repeating such meetings, which now represent a consolidated practice – and in the opinion of the Directors of the Company – a profitable one, in the future.

The Board then express its special appreciation of the role played by the Lead Independent Director, considered an effective facilitator of the process of reporting to the independent Directors, in the meetings of the independent Directors only, and on the Committee for Internal Control. Risks and Corporate Governance as an effective part of the internal control system. The Board performance evaluation also formulated a positive opinion of the Board committees in general, and of the decision taken by the Board during the financial year to extend its membership.

The Members of the Board made some suggestions for the further improvement of the debate in its meetings, considered to be the forum in which the principal strategic decisions should be analysed, debated and decided. In particular, it was suggested that all the individual Directors should attend meetings more regularly.

The Board performance evaluation also produced a positive evaluation of the corporate governance solutions for “risk management”33, which, as noted in the preceding report, should play a more central role in Board discussions..

Finally, the Board performance evaluation concluded that the actual development of the three year management incentive plans should be monitored over time34

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4.3.8 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 competition prohibition contained in article 2390 of the Civil Code.

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4.4. Delegated Bodies

4.4.1 Chairman

Pursuant to the Bylaws, The Board of Directors appoints its Chairman, where the Shareholders’ Meeting has not done so. The Board of Directors appointed Marco Tronchetti Provera as Chairman in its meeting of 29 April 2008.

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

Furthermore, the Chairman, Marco Tronchetti Provera, was confirmed as responsible for the following organizational functions:

  • relations with shareholders and the information provided to them;
  • formulation of the general strategies and development policy for the Company and the Group, and any extraordinary corporate actions, to be submitted to the Board of Directors ;
  • proposals for the appointment of members of the General Managers’ departments and, after consulting the Remuneration Committee, for their remuneration, to be submitted to the Board of Directors;
  • chairmanship of any Management Committees with strategic functions instituted;
  • coordination of the activities of Managing Directors, where appointed;
  • all forms of communication with the market, with the power to delegate to Managing Directors, where appointed.

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 issue guarantees for 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 the signature of the Chairman must be accompanied by that of another legal representative with similar power (in particular of “managers with strategic business responsibilities”).

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4.4.2 General Managers and other Managers

In its meeting on 16 September 2009, the Board of Directors of the Company approved a new organisational structure for the Group. Coherently with the strategy and aims of the 2009-2011 industrial plan to focus on its core business, the company decided to simplify its organisational structure and group all activities that directly support the core business in the new “Tyre and Parts” Division, headed by Dr. Francesco Gori, who continues to act as Managing Director of Pirelli Tyre.

In line with the focus on industrial activities, the reorganisation absorbed the Chief Operating Officer post, held by Claudio De Conto (who also ceased to serve as Responsible Officer on that date 35) who is now focussed on Pirelli RE, as Managing Director of Finance, together with the other Managing Director of Pirelli RE, Giulio Malfatto.

As a result of this reorganisation plan, the Board of Directors also appointed the new Responsible Officer, Dr. Francesco Tanzi.

The following persons are classified as managers with strategic business responsibilities in that they have the power to take management decisions that can affect the evolution and future prospects of the business: Francesco Gori, General Manager Tyre & Parts, Francesco Chiappetta, Assistant to the Chairman and Group General Counsel and Francesco Tanzi, Director of Finance, and as stated, Officer responsible for the preparation of the company accounting documents.

Powers pertaining to their specific assigned functions, subject to certain quantitative limits, have been granted to the aforementioned officers with strategic business responsibilities.

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 2009 the Chairman, 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 significant transactions to the Board of Directors.

In fact, delegation is not a way of assigning exclusive powers but is rather the solution adopted by the Company to ensure the best degree of operational flexibility in terms of the organization of the Board (and in terms of relationships with third parties).

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4.4.3 Information to the Board

Pursuant to law 36 and the company Bylaws37, the Board of Directors and the Board of Statutory Auditors are kept informed about the performance of the Company, its general management, its prospects, and the transactions with greatest impact on its profitability, financial position or assets and liabilities carried out by the Company or its subsidiaries. As appropriate, the delegated organs report any transactions in which they have an interest, on 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.

To foster the orderly organisation of the flow of information, the Company developed a specific Procedure, in use since 2002, which clearly defines the rules to follow to comply with the information reporting obligations.

In its meeting on 29 April 2008 the Board of Directors confirmed the validity and applicability for the current mandate of the procedure on information flows adopted by the Board during its previous mandate 38.

The purpose of the new procedure is to regulate and coordinate the various types of data flowing to Directors and Auditors Statutory, so that they all have the common aim of making the data needed to properly fulfil its directional, policy and control responsibilities continuously available to the Board. Finally, it should be noted that new regulations for transactions with related parties is scheduled to be issued during the 2010 financial year.

The Company will assess the content of the new regulations and the consequent need to adopt new procedures.

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4.5. Other Directors

The Board of Directors considers that the Chairman of the Board of Directors, Marco Tronchetti Provera, and the two Vice Chairmen, Carlo Alessandro Puri Negri and Alberto Pirelli are executive Directors.

In accordance with the recommendations of the Self Regulatory Code39 and with what is now consolidated practice in the company, in order to increase all Directors’ knowledge of the reality and dynamics of the company, several working lunches with Top Management were organised during the year, to examine specific business and corporate governance issues in greater detail.

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4.6. Independent Directors

The Board of Directors of the Company evaluate the requisites for independence specified in the Self-Regulatory Code and the CFL for non-executive Directors qualified as independent upon their appointment and at yearly intervals.

In the light of a substantial evaluation of the information provided by the Directors and that available to the Company, the Board of Directors, in its meeting on 10 March 2010,confirmed that the eleven Directors who have been qualified as independent, also in terms of the requisites of the CFL, since their appointment (Carlo Acutis, Carlo Angelici, Cristiano Antonelli, Alberto Bombassei, Franco Bruni, Luigi Campiglio, Berardino Libonati, Umberto Paolucci, Giampiero Pesenti, Luigi Roth and Carlo Secchi), continue to maintain these requisites.

A further six Board members (Gilberto Benetton, Enrico Tommaso Cucchiani, Giulia Maria Ligresti, Massimo Moratti, Renato Pagliaro and Giovanni Perissinotto) could be qualified as “non-executive Directors”.

It follows that independent Directors represent the majority (55%) of serving Directors and approximately 2/3 (about 65%) of the total number of “non-executive Directors”. The average age of the independent Directors is 68.

In line with the recommendations of the Self-Regulatory Code40 ,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 assessment based on the requirements recommended by the Self-Regulatory Code41, and thus Directors may not – by law – be considered independent:

  1. if they, directly or indirectly, including on behalf of subsidiaries, trust companies or through third parties, control the Pirelli & C. or are able to exercise considerable influence on the company, or are a participant in a shareholder agreement through which one or more subjects can exercise control or significant influence on Pirelli & C.;
  2. if they have or have been in the past three financial years a prominent exponent42 of Pirelli & C., or one of its strategic subsidiaries or a company under joint control with Pirelli & C., or a company or a body that, alone or together with others in accordance with shareholders agreements, control Pirelli & C. or are able to exercise considerable influence on it;
  3. if directly or indirectly (e.g. through subsidiaries or bodies that have a significant position, such as a partner in a law firm or consultancy company) they have, or had in the previous financial year, a close business, financial or professional relationship with:
    • Pirelli & C., one of its subsidiaries, or any related prominent exponent thereof;
    • a subject who, alone or together with others in a shareholder agreement, controls Pirelli & C., or – in the case of a company or body – with prominent exponents of said body; or
    • is or has been an employee of one of the above-mentioned subjects within the previous three financial years ;
  4. if they receive, or have received in the past three financial years, from Pirelli & C. or one of its subsidiaries or parent companies, a substantial bonus in addition to their “fixed” salary as non-executive Director of Pirelli & C., including performance-based incentive plans, including share options;
  5. if they have been a Director of Pirelli & C. for more than nine years of the past twelve;
  6. if they are an executive Director in another company in which an executive Director43 of Pirelli & C. is a Director;
  7. if they are a partner or Director of a company or body belonging to the company mandated to audit the accounts 44 of Pirelli & C.;
  8. if they are a close family member of a person that finds themselves in one of the situations described above.

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4.6.1 Meetings of the independent Directors

In accordance with the recommendations of the Self-Regulatory Code 45, the independent Directors met four times during the financial year in the absence of the other Directors, and examined topics inherent to the corporate governance system of the Company again confirming, for the 2009 financial year, the particular attention they pay to the system used for the self-evaluation of the Board of Directors and the remuneration mechanisms for the Senior Management of the company, as well as making a valuable contribution to the evaluations of the Remuneration Committee and the Board of Directors. The independent Directors discussed some elements of the company reorganisation process resolved by the Board of Directors in greater detail with the Chairman (see the “Delegated Bodies” section for further information).

The independent Directors specifically examined the issue of “sustainability” in the Pirelli Group, and the new corporate governance solutions that led to the definition of a new governance model for business risks, and the definition of a compliance function46.

During 2010, one meeting of the independent Directors has already been held.

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4.7. Lead independent Director

In November 2005, to further extend 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, Risks and Corporate Governance, was chosen) coordinates and acts as a point of reference for the issues raised and contributions made by the independent Directors.

The Lead Independent Director also has the right to convene – on his own initiative or upon the request of other Directors – specific meetings of independent Directors only in order to discuss any topics felt at the time to be of interest to the functioning of the Board of Directors or to the running of the business. Last but not least, it should be noted that the Lead Independent Director works with the Chairman of the Board of Directors to improve the operation of the Board itself, and in order to cooperate to ensure that Directors receive complete and prompt information.

The Lead independent Director, in his mandate to the Date of the Report, attended all meetings of the Committee for Internal Control, Risks and Corporate Governance (which he chairs) and all meetings of the Board of Directors.

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6 Article 10 of the company Bylaws

7 Also in line with Criterion of application 6.C.1 of the Self Regulatory Code

8 CONSOB (CONSOB Resolution no. 17148 of 27 January 2010) 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 2010 financial year as 2% of the capital with voting rights in the ordinary shareholders’ meeting.

9 The voting slate is specified in article 10 of the Bylaws.

10 Figure calculated from the Minutes of the Shareholders’ Meeting of 29 April 2008, available on the Investors section of the Company website, www.pirelli.com

11 The minority slate was presented by: ARCA SGR SPA (rubrica Fondo Azioni Italia – Rubrica Fondo Arca BB), BNP PARIBAS ASSET MANAGEMENT SGR SPA (BNL Azioni Italia), MONTE PASCHI ASSET MANAGEMENT SGR SPA (Ducato Geo Italia), PIONEER INVESTMENT MANAGEMENT SGR P.A. (Pioneer Azionario Crescita), PIONEER ASSET MANAGEMENT S.A., EURIZON CAPITAL SGR SPA (San Paolo Azioni Italia – Sanpaolo Italian Equity Risk – Sanpaolo Opportunità Italia – Nextra Rendita), EURIZON CAPITAL S.A. (SPI Obiettivo Industria – SPI Obiettivo Europa – SPI Obiettivo Euro – SPI Obiettivo Italia), FIDEURAM INVESTIMENTI S.G.R. S.p.A. (IMI Italy), FIDEURAM GESTIONS S.A. (Fonditalia Global – Fonditalia Equity Italy – Fonditalia Euro Cyclical – Fideuram Fund Equity Italy – Fideuram Fund Europe Listed Industrials Equity), INTERFUND SICAV (Interfund Equity Italy – Interfund Equity Europe Industrials), AMBER MASTER FUND SPC (Managed by Amber Capital LP).

12 Figure calculated from the Minutes of the Shareholders’ Meeting of 29 April 2008, available on the Investors section of the Company website, www.pirelli.com.

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

14 The aforementioned Policy is annexed to this Report, and is also available in the Governance section of the Company website, www.pirelli.com.

15 Board of Directors meeting of 7 November 2007.

16 See Call notice for Shareholders’ Meeting on 27 March 2008.

17 Self Regulatory Code: Criterion of application 1.C.2..

18 Press release of 7 November 2008.

19 Article 11 of the company Bylaws.

20 Self Regulatory Code: Criterion of application 1.C.1, lett. a).

21 Self-Regulatory Code. Criterion of application 1.C.1, lett. e)..

22 Article 150 of the CFL.

23 Article 11 of the Bylaws

24 Self-Regulatory Code. Criterion of application 1.C.1., lett.b).

25 Self-Regulatory Code. Criterion of application 1.C.1..

26 In this respect, see paragraph headed “Committee for Internal Control, Risks and Corporate governance”, for further details.

27 Self Regulatory Code: Criterion of application 1.C.1, lett. d).

28 Self Regulatory Code: Criterion of application 1.C.1, lett. f).

29 The “Procedure for Information Flows to Directors and Auditors” is available in the Governance section of the Company website www.pirelli.com.

30 Self Regulatory Code: Criterion of application 1.C.1, lett. g).

31 Self Regulatory Code: Criterion of application 1.C.1, lett. g).

32 Cf. Section 5.4 “Other Executive Directors”.

33 For more detail, see the section entitled “Risk assessment system”.

34 For more detail, see the section entitled “Directors' remuneration”.

35 Dr. De Conto’s tenure as manager ceased with effect from 31 December 2009.

36 Article 15, section one, of the CFL.

37 Article 11 of the company Bylaws.

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

39 Self Regulatory Code: Criterion of application 2.C.2.

40 Self-Regulatory Code. Criterion of application 3.C.5

41 Criteria of application 3.C.1 and 3.C.2

42 The following may generally 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.

43 The following persons are executive Directors of the issuer: Chairman Marco Tronchetti Provera and Vice Chairmen Alberto Pirelli and Carlo Alessandro Puri Negri.

44 The company mandated to audit the accounts of Pirelli & C. is Reconta Ernst&Young S.p.A. a member of the Ernst&Young network(Cf. Section 12.4)

45 Self-Regulatory Code. Criterion of application 3.C.6

46 See the section entitled “Risk assessment system” for further information.