2.1 Role and functions

The Company is managed by a Board of Directors made up of no fewer than five members and no more than nine. The number of members and their term of office are decided by the Shareholders’ Meeting at the time of appointment.

The Board of Directors is the central body within the Snam corporate governance system and is invested with the broadest powers for the ordinary and extraordinary administration of the Company. It is entitled to carry out any measures it deems necessary in order to implement and achieve the corporate purpose, with the sole exception of measures that are reserved, by the law or by the Bylaws, for the Shareholders’ Meeting¹.

Pursuant to Article 2381 of the Italian Civil Code, the Snam Board of Directors has assigned itself a series of powers, in addition to those which by law cannot be delegated and, more generally, those set out in the Code of Corporate Governance. A description of these powers can be found on the Company website (http://www.snam.it/en/Governance/Corporate_governance_system/).

Meetings of the Board of Directors

The Board of Directors most recently approved, on 26 March 2013, a set of Regulations aimed at governing (i) the call of Board meetings, (ii) the performance of the Board’s duties, and (iii) the minuting of Board meetings.

Pursuant to the Bylaws and the Regulations, the Board of Directors is convened by the Chairman or, if he is absent or unable to do so, by the Chief Executive Officer, or, finally, if he is absent or unable to do so, by the eldest Board member.

The notice is usually sent at least five days before the meeting², except in exceptional cases.

At the beginning of each Board meeting, directors and statutory auditors are required to inform the Board of Directors and the Board of Statutory Auditors of any interest that they have, either on their own behalf or on behalf of third parties, in a given Company transaction.

At Board meetings, heads of the appropriate Company departments may, at the request of the Chairman and with the consent of those present, participate in order to provide appropriate background information on agenda items (some department heads participated in this way in 2013).

In 2013:

• the Board of Directors met 11 times;
• the meetings were attended on average by 98% of the directors;
• the attendance of independent directors was approximately 96.4 % on average;
• the average duration of Board meetings was 172 minutes.

The Board of Directors meets regularly, at least once every quarter, in accordance with the time limits set out by law. On 12 December 2013, the Board of Directors approved the “Calendar of Corporate Events for 2014³” (which was subsequently disclosed to the market), which includes the dates of (i) the main Board meetings concerning financial reporting, (ii) the Shareholders’ Meeting called to approve the Financial Statements as at 31 December 2013, (iii) presentations to analysts and conference calls, and (iv) payment of dividends and interim dividends, to be disclosed to the market (the “Financial Calendar”) pursuant to the regulations in force for markets organised and managed by Borsa Italiana S.p.A. This calendar can be consulted on the Company website (http://www.snam.it/en/Investor_Relations/Financial-Calendar/2014/).

Examination and approval of strategic, business and financial plans

In accordance with the regulations on matters that cannot be delegated and powers that it has assigned itself, the Board of Directors defines, on the recommendation of the Chief Executive Officer, the strategies and objectives of the Company and of the Group, including the sustainability policies. In compliance with the Unbundling Regulation, the Board examines and approves the strategic, business and financial plans of the Company and of the Group, monitoring their implementation each year, as well as the Company’s strategic agreements and, subject to the binding opinion of the Chief Executive Officer (as a member of the Combined Independent Management Committee), the annual and multi-year infrastructure plan.

The Board examines and approves the budget of the Company and of the Group, the half-year report and interim reports on operations of the Company and of the Group, as provided for by the regulations in force, the sustainability report and the report on corporate governance and ownership structure, which must be brought to the attention of the Shareholders’ Meeting.

On 12 March 2013, the Board of Directors approved the Snam Group’s 2013-2016 Plan and the Controlled Companies’ 2013-2016 Annual and Multi-Year Infrastructure Development Plan. The Board of Directors is responsible for monitoring the 2013 plans, and in 2014 will examine the first, second and third forecasts.

Definition of Group corporate governance system and structure

The Board of Directors defines the system and rules of corporate governance of the Company and of the Group. In particular, following consultation with the Control and Risk Committee, it adopts rules which ensure transparency and substantial and procedural correctness of related-party transactions and of transactions in which a director or a statutory auditor has a personal interest or an interest on behalf of others; it also adopts a procedure for the management and communication of corporate information, with particular reference to privileged information.

Assessment of the adequacy of the organisational, administrative and accounting structure, particularly with regard to the internal control and risk management system

The Board assesses the organisational, administrative and accounting structure of the Company and of its Controlled Companies, as put in place by the Chief Executive Officer. Specifically, the Board:

• defines the basic guidelines for the organisational, administrative and accounting structure of the Company and its subsidiaries. The Board also evaluates the adequacy of the organisational, administrative and accounting structure of the Company and its Controlled Companies on an annual basis, with particular reference to the internal control and risk management system;
• after consulting the Control and Risk Committee, defines the guidelines for the internal control and risk management system, so as to ensure the identification, measurement, management and monitoring of principal risks of the Company and its Controlled Companies, determining in addition the degree of compatibility of these risks with a management of the Company and the Group which is consistent with its defined strategic objectives. The Board evaluates, on an annual basis, the adequacy and effectiveness of the internal control and risk management system with regard to the characteristics of the Company and the Group and the risk profile it has adopted;
• having received an opinion from the Control and Risk Committee and consulted the Board of Statutory Auditors, evaluates the conclusions presented by the External Auditors in any letter of suggestions and in the report on key matters arising from the external audit;
• approves, at least once a year, the Audit Schedule prepared by the Internal Auditor, after hearing the opinion of the Control and Risk Committee and having consulted the Chairman of the Board of Directors, the internal control and risk management system director, and the Board of Statutory Auditors;
• on the recommendation of the Chief Executive Officer, with the agreement of the Chairman and having received a favourable opinion from the Control and Risk Committee and having consulted the Board of Statutory Auditors, appoints and dismisses the Internal Auditor and, subject to prior verification with the Remuneration Committee, sets his/her remuneration in line with the Company’s pay policy; ensures that he/she is given the appropriate resources to fulfil his/her responsibilities.

At its meeting on 27 February 2014, the Board of Directors, implementing the provisions of the Italian Civil Code and the Code of Corporate Governance, assessed the organisational, administrative and accounting structure as commensurate with the size and type of activity engaged in by Snam and its Controlled Companies.

Assessment of general operational performance and relations with the delegated bodies

The Board continually assesses the general operational performance of the Company, including by analysing the information it receives from the delegated bodies and by periodically comparing the results achieved with forecasts. More specifically, the Board:

• assesses the general operational performance, taking into consideration, in particular, the information received from the delegated bodies, paying particular attention to conflicts of interest and periodically comparing the results achieved, as stated in the financial statements and the interim accounts, with the budget targets;
• assigns and revokes powers to/from the Chairman and the Chief Executive Officer (the latter being the internal control and risk management system director), setting their limits and methods of operation and determining their remuneration once the proposals of the appropriate Committee have been examined and following consultation with the Board of Statutory Auditors;
• may issue directives to the delegated bodies and take it upon itself to perform operations which are covered by the powers.

The Chairman and the Chief Executive Officer report at least once a quarter to the Board itself and to the Board of Statutory Auditors on how they have exercised their powers, on the transactions with the greatest impact on the financial statements carried out by the Company and its Controlled Companies, and on transactions with related parties. Information must be made available promptly when the directors have an interest in the transaction, either on their own behalf or on behalf of third parties, or when the transaction could be affected by any entity that carries out management and coordination activities.

Approval of significant transactions carried out by Snam and its Controlled Companies and criteria for identifying such transactions

As part of its management and coordination activities and on the recommendation of the Chief Executive Officer, the Board resolves on the transactions of the Company and of its Controlled Companies that have a significant strategic effect on, and a significant impact on the financial statements of, the Company and the Group. This is without prejudice, in any case, to compliance with the confidentiality obligations relating to the commercial relations between the Company and the Controlled Companies and/or third parties.

The following transactions are considered to be of strategic importance or to have a significant impact on the financial statements:

• acquisitions, disposals, sales, closures, contributions of companies or business units (including rent and usufruct), real estate and/or investments worth more than € 100 million;
• supply contracts and contracts for the sale of goods and/or services relating to the commercial activities of the Company and its Controlled Companies, worth over € 1 billion and/or with a duration of over 15 years;
• contracts relating directly to the activities indicated in the corporate purpose and/or relating to the day-to-day management of corporate activities worth over € 100 million and/or with a duration of over 15 years;
• the stipulation, modification and termination of credit contracts for sums exceeding € 2 billion and/or with a duration of over 15 years;
• sureties and other forms of personal guarantee, as well as letters of patronage, in relation to commitments assumed or to be assumed by companies in which the Company directly or indirectly holds an equity investment, for amounts greater than € 100 million and, in any event, if the amount is not proportional to the investment held;
• sureties guaranteeing obligations assumed or to be assumed by the Company with third parties, worth over € 100 million;
• the Company’s brokerage contracts.

The activities and processes carried out by Italgas (Controlled Company) in relation to identifying natural gas distribution tenders in which to participate, and in relation to formulating the technical and financial bids for these tenders, are not discussed or subject to prior approval by the Snam Board of Directorsr⁴.

Assessment of the size, composition and functioning of the Board and its Committees

For 2013, the Snam Board of Directors has performed the first assessment of the Board and its Committees during its current term of office. The assessment was performed in compliance with the recommendations of Criterion 1.C.1 g) of the Code of Corporate Governance and with reference to the latest international best practice.

As in previous years, the Board decided to use the services of an external advisor, with the help of the preparatory work carried out by the Appointments Committee and following a competitive process, it chose an independent consultancy (Crisci & Partners – Shareholders and Board Consulting) firm that specialises in corporate governance and, with the exception of relations with the Board itself, has had no financial relations with Snam in the last two years. This decision was taken in the belief that a professional company focusing solely on the Shareholders and the Board can enable more in-depth and impartial discussions with all Board members, as well as better comparisons with best practice.

Snam’s Board and Board Committees were assessed by two senior consultants by way of unscripted interviews which took place in January and February 2014. Before conducting the interviews, the consultants carefully read Board and Board Committee documents and minutes, and met with the members of the Appointments Committee, the Chairman and the Chief Executive Officer of the Company, and, in an observational capacity, the Chairman of the Board of Statutory Auditors and the Secretary of the Board of Directors.

The main objectives of the interviews, which were prepared specifically for each Director, were as follows:

• to help the Directors to assess their involvement, responsibilities, preparatory work, leadership qualities and conduct with regard to their role as a Board member;
• to help identify the strengths of the Board, but more particularly the areas in which the Board and its Committees can improve and the best ways to make them more effective and efficient;
• to help develop the workings of the Board by encouraging the Directors to study the results of the assessment with a view to seeing where and how teamwork, consultancy and monitoring can be improved within Snam’s senior management.

The interviews conducted during the assessment of the new Board thus concentrated on the various aspects of the composition and functioning of the Board and its Committees, with a particular focus on:

• the size and composition of the Board, taking into account Directors’ experience and expertise;
• the term of office and compatibility of the Directors;
• the organisation and quality of Board inductions, reports, meetings, decision-making processes and general operational aspects;
• the Board’s relations with the Chief Executive Officer and managers;
• the Board’s strategic and monitoring roles, as well as its role as a resource for the Company;
• the role and functioning of the Committees and their interaction with the Board.

The 2013 assessment shows that Snam’s Directors believe the Board and its Committees to be of adequate size and particularly suitable composition in terms of the expertise and experience of their members.

In light of the recent appointment of the new Board of Directors, which saw new members elected in nearly all cases, the Directors gave a positive assessment of the overall functioning of the Board. The induction programme was deemed to be well executed and very useful, including with regard to the closer examination of specific themes that will take place over the course of the term of office.

The flow of information provided in support of Board operations was considered to be good, if somewhat broad; the Chief Executive Officer’s reports on operations and presentation of topics for debate were considered to be areas of particular strength.

The Board were considered to have worked well in relation to certain updates made to the governance system. The Directors identified room for improvement in terms of the Board’s cohesiveness (which is still a work in progress), the opportunity to use executive summaries for particularly large documents, and the opportunity to hold annual off-site meetings around the time the strategic plan is examined and approved. All Directors are aware of these opportunities and committed to pursuing them in the very near future.

In its capacity as a facilitator of the Snam Board’s self-assessment process, Crisci & Partners shares the Directors’ assessments and observations on the functioning of the Board and its Committees, and confirms a good level of compliance with the Code of Corporate Governance.

At its meeting of 27 February 2014, the Snam Board of Directors examined and discussed the outcome of the assessment presented by Crisci & Partners, and confirmed its positive overall assessment.

Exemptions from the prohibition on competition

The Shareholders’ Meeting did not authorise, in general or as a preventive measure, any exemptions from the prohibition on competition pursuant to Article 2390 of the Italian Civil Code.

Other duties of the Board of Directors

The Board is also responsible for:

• setting up the Internal Committees of the Board, with proposal and consultative functions, appointing their members, establishing their duties and approving their regulations;
• receiving half-yearly reports from the Internal Committees of the Board;
• appointing and dismissing the General Managers upon recommendation from the Chief Executive Officer and approval from the Chairman, granting them the related powers;
• appointing and dismissing the Executive Responsible for preparing corporate accounting documents, upon recommendation from the Chief Executive Officer, ratification from the Chairman and approval from the Board of Statutory Auditors, ensuring that he/she has the necessary powers and resources;
• ensuring that an Investor Relations Manager has been appointed;
• having examined the proposals of the Remuneration Committee, defining the policy for the remuneration of directors, general managers and executives with strategic responsibilities of the Company and the subsidiaries and the compensation systems; the Board also implements the compensation plans based on shares or other financial instruments that are resolved upon by the Shareholders’ Meeting and approves the Remuneration Report to be presented to the Shareholders’ Meeting; having received an opinion from the Remuneration Committee, the Board also assesses the vote on the Remuneration Report taken by the Shareholders’ Meeting and the proposals of the Committee on the adequacy, overall coherence and application of the adopted policy for the remuneration of directors and managers with strategic responsibilities;
• with regard to the Controlled Companies:
  - on the recommendation of the Chief Executive Officer, deciding on the exercising of voting rights at the Shareholders’ Meetings of Direct Controlled Companies; and
  - on the proposal of the Appointments Committee, resolving on the appointments of the members of the corporate bodies of Controlled Companies included in the scope of consolidation and foreign strategic subsidiaries;
• drawing up resolutions to be submitted to the Shareholders’ Meetings
• when the Board of Directors is being appointed, it recommends candidates to the shareholders, taking into account the results of the annual assessment of the functioning, size and composition of the Board and its Committees;
• examining and resolving on other particularly important and sensitive issues which the directors who hold powers wish to draw to the attention of the Board.