2.1 Role and functions

The Company is managed by a Board of Directors made up of no fewer than five and no more than nine members. 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 Snam’s 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’ Meeting²⁰.

Pursuant to Article 2381 of the Italian Civil Code, Snam’s 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).

Meetings of the Board of Directors

At its meeting on 26 January 2015, the Board of Directors approved a set of Regulations aimed at governing (i) the convocation of Board meetings, (ii) the performance of the Board’s duties, and (iii) the minuting of Board meetings²¹.

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 CEO, 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 meeting. A complete, comprehensive set of documents related to agenda items is made available to directors and standing auditors by the Secretary of the Board at least five days prior to the date of the meeting, except in exceptional cases. This timetable has generally been respected.

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.

Sufficient time is dedicated to each agenda item to hold a constructive debate, and the Chairman encourages all the directors to make a proactive contribution.

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 2014).

The Board of Directors meets regularly, at least once every quarter, in accordance with the time limits set out by law.

In 2014:

• the Board of Directors met ten times;
• the meetings were attended on average by 93.3% of the directors;
• the attendance of independent directors was approximately 98% on average;
• the average duration of Board meetings was 163.5 minutes.

On 17 December 2014, the Board of Directors approved the “Calendar of Corporate Events for 2015²²” (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 2014, (iii) presentations to analysts and conference calls, and (iv) payment of dividends, to be disclosed to the market (the “Financial Calendar”) pursuant to the regulations in force for markets organised and managed by Borsa Italiana This calendar can be consulted on the Company website (http://www.snam.it/en/Investor_Relations/Financial-Calendar/2015/).

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 CEO, the strategies and objectives of the Company and of the Group, including the sustainability policies. In compliance with the Unbundling Regulation, it examines and approves the strategic, business and financial plans of the Company and the Group, monitoring their implementation on an annual basis, as well as the Company’s strategic agreements and its 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 11 March 2015, the Board of Directors approved the Snam Group’s 2015-2018 Plan. The Board of Directors is responsible for monitoring the 2015 plan, and in 2015 will examine the first, second and third forecasts.

While the Board was drawing up the strategic plan based on the strategic risks identified as part of the Enterprise Risk Manangement (“ERM”) system, analyses and sensitivity tests were performed in order to take into consideration the potential impacts arising, with reference in particular to developments in the gas market and significant changes in the main financial parameters.

Definition of corporate governance and group 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 transactions with related parties 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 Subsidiaries. Specifically, the Board:

• defines the basic guidelines for the organisational, administrative and accounting structure of the Company and its Subsidiaries; evaluates on an annual basis the adequacy of the organisational, administrative and accounting structure of the Company and its Subsidiaries, with particular reference to the internal control and risk management system;
• having consulted 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 Subsidiaries, also determining the degree of compatibility of these risks with management of the Company and the Group which is consistent with its defined strategic objectives. 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 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 director in charge of the internal control and risk management system and the Board of Statutory Auditors;
• on the recommendation of the CEO, 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 Head of Internal Audit and, following prior verification with the Compensation 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 11 March 2015, 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 Subsidiaries.

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 performance of operations, taking into consideration, specifically, 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 those of the budget;
• assigns and revokes powers to/from the Chairman and the CEO (the latter having been appointed as the director in charge of the internal control and risk management system), setting their limits and methods of operation and determining their remuneration once the proposals of the appropriate Compensation 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 CEO 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 Subsidiaries, and on transactions with related parties. Information must be made available promptly when the directors have a direct interest in the transaction, when third parties are involved or when the transaction could be affected by any entity that carries out management and coordination activities. As a rule, this information is provided at every Board meeting.

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

On the recommendation of the CEO, the Board resolves upon the transactions of the Company and its Subsidiaries, in the context of exercising management and coordination activities that are of significant strategic, economic, capital or financial importance for 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 Subsidiaries 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;
• contracts for the sale of goods and/or services relating to the commercial activities of the Company and its Subsidiaries, 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 therein;
• 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 subsidiary Italgas 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 Snam’s Board of Directors²³.

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

The Snam Board of Directors carried out, for the 2014 financial year, the second assessment of the Board and its Committees of this term of office. The assessment process followed complied with the recommendations of application criterion 1.C.1. g) of the Code of Corporate Governance and was in line with the most recent international best practice.

As in previous years, the Board decided to use an external consultant and, supported by the Appointments Committee’s preliminary activity, confirmed the mandate of the consultancy firm (Crisci & Partners – Shareholders and Board Consulting) identified in the first year of the term of office of the current Board of Directors following a competitive process. Crisci & Partners was selected due to its specialisation in corporate governance practices and its independence, since it does not have (and has not had in the last two years) financial relations with Snam and its Subsidiaries, aside from its direct relations with Snam’s Board. The confirmation of the firm’s mandate allowed it to carry out a structured board evaluation process based on distinct procedures in the three years of the Board’s term of office.

The self-assessment of the Board of Directors and its internal Committees was carried out by two senior experts by means of open-structured interviews conducted in December 2014 and January and February 2015. Prior to conducting the interviews, the experts involved carefully read the documentation and meeting minutes pertaining to the Board and the Committees, met with the members of the Appointments Committee, the Chairman and the CEO, and made contact with the Chairman of the Board of Statutory Auditors and the Secretary of the Board of Directors, as observers.

The interviews with the Snam directors, which were individually tailored, focused on various aspects relating to the composition and functioning of the Board and its Committees, as well as involving a comparative analysis of the results of the self-assessment carried out in the previous year. Other aspects dealt with included:

• reflections on the composition of the Board and its Committees and the leadership and contribution of the directors, from the perspective of confirming previous assessments and looking ahead to future developments within the Board to be verified and carried out in the last year of its term;
• the role of the Board in the process of strategic planning, with reference in particular to internationalisation policies;
• the development of relations between the Board, the CEO and Management, at both Company and Group level;
• the development of conduct within the Board and of team work and cohesion in tackling the work and issues facing the Board, and in relations between the Board and the Committees;
• ongoing induction and board knowledge development aimed at enhancing directors’ understanding of the Company’s business and strategy;
• the organisation and quality of the information provided to the directors.

The Board has taken into account the outcomes of the previous year’s assessment, implementing various concrete measures aimed at refining governance processes, with reference in particular to the scheduling of meetings, the quality of the information provided to the Board, and procedures for managing debate and relations both between and within corporate bodies. During the course of 2014, the Board examined important issues related to changes in European regulations and strategic internationalisation choices aimed at consolidating Snam’s leadership position in the medium and long term.

The related assessments resulted in growing cohesion between the directors and open, constructive debate with Management. The Board’s involvement in the strategic process remains a key issue for individual members, with many hoping for more in-depth analysis during both on- and off-site inductions, as well as single-issue Board meetings attended by the Group’s senior management.

After a year of experimentation and intensive work on some major issues, the current size and composition of the Board is satisfactory to all of its members, who stated that the diverse expertise represented enabled the Board to benefit from targeted opinions and contributions concerning the majority of issues being resolved upon. The composition of the Board is considered – including by the Management – to be adequate in terms of expertise and experience.

The conduct of the Committees, which in Snam’s case have a particularly significant mandate while retaining an investigative, consultative and recommendation-based role, appears to be highly appreciated by the directors.

The comments made at the beginning of Board meetings on the development since previous meetings of significant operating events (even those just emerging) and the genuine reporting on operations by the CEO were considered areas of excellence.

The role of the Chairman in conducting the meetings is seen as defined and very effective. Board members acknowledged in particular the attention he pays to ensuring balance in the Board’s work and his considerable efforts to make debate more fruitful.

Given the experience acquired by the Board, we can expect further improvements in terms of the frequency of dealings between Snam’s Directors and the managers of Subsidiaries, with a view to guaranteeing a clear, unified vision of the Group’s governance. Targeted planning of the topics to be dealt with in Board and Committee meetings can also improve the quality of governance processes and the time available for dealing with priority issues, and the organisation of an off-site meeting, which was proposed in the previous self-assessment, can allow progress to be made in enhancing the Board’s knowledge of the developments in the macroeconomic situation in Snam’s reference markets, the regulatory framework and the medium-term business development options. All the directors are aware of these opportunities and are committed to pursuing them in the near future.

In its capacity as facilitator of the process and experience of the Board’s self-assessment, Crisci & Partners shares the positive assessments and constructive beliefs put forward by the directors on the functioning of the Board and its Committees and their possibilities for further development, and confirms that they comply with the provisions of Borsa Italia’s Code of Corporate Governance and international best practice.

At its meeting on 11 March 2015, the Board of Directors examined and discussed the results of the self-assessment presented by Crisci & Partners and confirmed its overall positive assessment.

Exemptions from the prohibition on competition

The Shareholders’ Meeting has not authorised, 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 CEO 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 CEO, 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 Compensation Committee, defining the policy for the remuneration of directors, general managers and executives with strategic responsibilities of the Company and its 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 Compensation 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 Subsidiaries:
  - on the recommendation of the CEO, resolving upon the exercise of voting rights at the Shareholders’ Meetings of the Direct Subsidiaries; and
  - on the recommendation of the Appointments Committee, resolving upon the appointments of the members of the corporate bodies of Subsidiaries included in the scope of consolidation and of strategic foreign investee companies
• drawing up resolutions to be submitted to the Shareholders’ Meetings;
• when it is being appointed, recommending 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 upon other particularly important and sensitive issues which the directors who hold powers wish to draw to the attention of the Board