Directors’ interests and related party transactions

Within the Company and its subsidiaries, Terna, even before listing its shares in the stock market, deemed appropriate to establish the conditions for ensuring that related party transactions were carried out in compliance with the principles of procedural and substantial correctness, in its own interest and as a duty to the market (Article 9.P.1 of the Governance Code).

As of February 22, 2007, in implementing the provisions of the new Governance Code, Terna defined these conditions as part of specific internal procedures submitted in advance to the Internal Control Committee and approved by the Board of Directors. Among other things, these procedures established for the entire 2011 a specific reporting to the Board of Directors and Board of Statutory Auditors that was periodically implemented.

Following the publication of “Regulations regarding related party transactions” issued by CONSOB with resolution no. 17221 dated March 12, 2010, subsequently amended with resolution no. 17389 dated June 23, 2010 (“CONSOB Related Party Regulations”), Terna’s Board of Directors – as announced to the market on November 12, 2010 – defined these conditions within a new Procedure (“Procedure for Related Party Transactions”), effective as of January 1, 2011, taking into account the new regulations regarding the provisions of the Civil Code and those of the Governance Code of listed companies (Article 9.P.1 of the Governance Code). The resolution was approved unanimously following the positive opinion of the Committee established for this purpose and formed by independent Directors only (as established by Article 4, paragraph 3, of CONSOB Regulations for Related Parties) whose members were identified among the then Internal Control Committee (Article 9.C.1 of the Governance Code). The new Procedure was published, as of November 12, 2010, on the Company’s website (www.terna.it, under the Investor Relations/Corporate Governance section).

Within the new Procedure and pursuant to article 4 of CONSOB Related Party Regulations, the following was implemented:

  • Related Parties were identified, Related Party Transactions were defined and the new terms for identifying, approving and implementing the various categories of Related Party Transactions were ruled;
  • lower amount Transactions were identified as well as those cases in which the provisions of the Procedure should not be applied (in line with the provisions of articles 13 and 14 of CONSOB Related Party Regulations) having taken into account the size of the Company and the sector it operates in, as well as the ownership structure;
  • the terms for forming the Director Committee were identified called upon to express its opinion on the single Transactions of greater or lesser importance, as well as the contents of such opinion and the independence requirements of the Committee member. Furthermore, specific measures were identified should at least 3 independent, non related Directors not be present;
  • the rules were established regarding cases in which Terna shall examine or approve transactions of Italian or foreign subsidiaries;
  • the terms and time frames were established with which Directors and the Committee for Related Party Transactions should be provided with information on Related Party Transactions and relative documentation;
  • the choices were identified as made by the Company with reference to the possibilities included in CONSOB Related Party Regulations.

Compared to previous conduct principles regarding Related Party Transactions adopted by Terna, the new Procedure envisaged lowering the relevance thresholds regarding certain types of Transactions which should be reported to the Board of Directors, so that an enlargement of entitled Related Party Transactions could be obtained, according to the definition indicated by CONSOB in the abovementioned resolution - as transactions of lesser importance.

In 2011, with the shareholders’ resolution of May 13, 2011, the statutory amendments required by the Procedure were approved and a census of the Related Parties was conducted, as provided for by Article 4 of the Procedure.

According to the provisions of the document, as a first application, the “Procedure for Related Party Transactions” was submitted for verification of possible amendments to the Board of Directors of Terna, which, on the basis of the opinion provided by the special Committee and taking into account that no criticalities have arisen, did not deem it necessary to change it. Further verifications of the “Procedure for Related Party Transactions” are envisaged, based on such procedure, where deemed necessary, and at least every three months also considering the organizational structure of the Company and of the Group, the assets owned and the effectiveness of the Procedure in its application.

The Related Party Transaction Committee, following the renewal of the outgoing Board of Directors, is presently composed of Salvatore Machì (acting as Coordinator), Romano Minozzi and Paolo Dal Pino, all non-executive and independent Directors; at least one member is also in possession of adequate experience in accounting and finance matters.

The Board identified such Committee as the body in charge of carrying out the role required by “Regulations on Related Party Transactions” issued by CONSOB with resolution no. 17221 of March 12, 2010, subsequently amended with resolution no. 17389 of June 23, 2010, both for the approval of greater importance transactions and for those of lesser importance in the Terna Procedure. The Committee is assigned preliminary duties and powers, proactive and advisory, in evaluations and decisions regarding the aforesaid Related Party Transactions, as well as in relation to possible amendment proposals by the Procedure adopted by Terna. A special “Organizational Regulation of the Related Party Transaction Committee of Terna S.p.A.” approved by resolution on December 12, 2010 and in force since January 1, 2011, governs the composition, the duties and the operation of the Committee.

The Company’s budget provides for adequate financial resources for carrying out the duties of the Related Party Transactions Committee. Moreover, for purposes of its own evaluation, said Committee may require the Company to utilize specialized, independent experts external to the Company, who are designated by this committee; costs for services rendered by consultants are shouldered by the Company. The methods for holding meetings are governed by the internal ad hoc Organizational Regulations adopted by the Board of Directors on November 12, 2010 and in force since January 1, 2011. Upon invitation by the Coordinator, other people whose presence could be helpful for the smooth performance of the Committee’s functions may participate in the meetings of the Related Party Transactions Committee.

During 2011, the Related Party Transactions Committee held four meetings, with the regular participation of its members for a duration of approximately 20 minutes each, in which Company executives were in attendance, whose presence was considered helpful for the best information on the issues on the agenda.
As a result of the renewal of the Board and the new composition of the Committee with new members (May 13, 2011), the first meeting was held by outgoing members and subsequent meetings were carried out by the newly appointed members.
In particular, during 2011, the Related Party Transactions Committee, with ad hoc opinions, supported the Board in verifying the “Procedure for Related Party Transactions” adopted by Terna and the statutory amendments on matters submitted to the Shareholders’ Meeting of May 13, 2011, as well as the Departments of the Company charged with approving specific non relevant transactions. All the opinions were favorable.

Terna has also identified specific terms for approving significant transactions carried out by the Company, also through subsidiaries (Article 1.C.1 lett. f) of the Governance Code) and for recognizing and managing situations in which a Director holds his own interest or an interest of third parties regarding a transaction that he should evaluate (Article 9.C.2 of the Governance Code), in compliance with the rules of the Governance Code, according to a specific internal procedure adopted as of 2007 and subsequently updated. For this purpose:

  • significant transactions subject to the procedure are identified as: a) 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; b) 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;
  • significant transactions are subject to prior approval or analysis (in the case of transactions falling under the field of activity of Terna’s directly or indirectly controlled companies) of Terna’s Board of Directors that may rely on the assistance of one or more independent experts that should express their opinion on the economic conditions and/or the executive terms of the transactions, with the exception for the powers assigned to the CEO for particularly urgent situations;
  • the Board of Directors is duly informed on the executive terms of significant transactions, the time frames and economic conditions to implement such transactions, the evaluation process followed, the underlying interests and motivations and any possible risks for Terna and its subsidiaries linked to these transactions;
  • the implementation of significant transactions, approved beforehand or subject to the evaluation by the Board of Directors is communicated to the Board of Directors and the Board of Statutory Auditors at least every three months.
  • Directors who have an interest (including potential or indirect interests) in the transaction:
    • are required to inform the Board of Directors and Board of Statutory Auditors in due time of the existence of the interest, specifying its nature, terms, origin and scope;
    • are required to leave the Board meeting or refrain from voting at the time of resolving, unless the Board specifically authorizes participation in the related discussions and/or vote;
    • are required to inform the Board of their positions at the time of their appointment and regularly update the Board on them.
  • Board resolutions passed in relation to intercompany transactions should be adequately justified and advantageous for the relevant company.