2.2 Meetings of the Board of Directors

The Board of Directors has approved a set of Regulations aimed at governing the procedures for

1. convening meetings;
2. performing Board duties; and
3. drawing up meeting minutes²³.

Pursuant to the Bylaws and the Regulations, the Board of Directors is convened by the Chairman or, if they are absent or unable to do so, by the CEO, or, finally, if they are 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 Board Secretary 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 directors to make a proactive contribution.

At Board meetings, heads of the competent Company and Group 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 2015).

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

In 2015:

• the Board of Directors met 11 times;
• the meetings were attended on average by 97.51% of directors;
• the attendance of independent directors was approximately 94.54% on average;
• the average duration of Board meetings was 160.5 minutes.

The Board of Directors approved the “Calendar of Corporate Events for 2016” (the Financial Calendar)²⁴, which contains the dates of:

1. the main Board meetings concerning financial reporting;
2. the Shareholders’ Meeting called to approve the financial statements as at 31 December 2015;
3. presentations to analysts and conference calls;
4. payment of the dividend, to be communicated to the market pursuant to the Regulations applicable to markets organised and managed by Borsa Italiana.

(i) 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 management statement 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.

The meeting of the Board of Directors, by July 2016, shall examine for approvation the Snam Group’s Strategic Plan for 2016-2019. The monitoring for 2016 will be carried out during meetings of the Board of Directors, which in 2016 will examine the first, second and third forecasts.

When defining the Strategic Plan, the Board of Directors, in view of the strategic risks defined under the ERM system, conducted sensitivity tests and analyses in order to take into consideration the potential impacts of such risks.

(ii) 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. The Board is responsible for setting up its Internal Committees, with proposal and consultative functions, appointing their members, establishing their duties and approving their regulations. The Board also receives half-yearly reports from the Internal Committees. The Board may appoint and dismiss the General Managers and the Executive Responsible for preparing corporate accounting documents, and is required to ensure that a head of the unit responsible for managing shareholder relations is identified.

The Board is also responsible for resolving upon:

• on the recommendation of the CEO, the exercise of voting rights at the Shareholders’ Meetings of the Direct Subsidiaries; and
• on the proposal of the Appointments Committee, the appointments of the members of the corporate bodies of Subsidiaries included in the scope of consolidation and of strategic foreign investee companies.

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

The Board of Directors assesses the organisational, administrative and accounting structure of the Company and its Subsidiaries. Specifically, the Board:

• defines the basic guidelines for the organisational, administrative and accounting structure of the Company and its Subsidiaries; evaluates annually 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 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 that is consistent with its defined strategic objectives; evaluates annually 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, 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, following prior verification with the Compensation Committee, sets their remuneration in line with the Company’s remuneration policy; ensures that they are given the appropriate resources to fulfil their responsibilities.

At its meeting on 16 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.

(iv) 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;
• granting and revoking powers for the Chairman and the CEO, with the latter identified as the director in charge of the internal control and risk management system, setting a limit on such powers and deciding how they may be exercised, as well as establishing remuneration connected with these powers upon recommendation from the relevant committee and 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. This information is generally expected to be provided at each Board meeting.

(v) 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 objective 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 the Subsidiary Italgas in relation to identifying natural gas distribution tenders in which to participate, and in relation to preparing the technical and financial bids for these tenders, are not discussed or subject to prior approval by Snam’s Board of Directors²⁵.

(vi) Assessment of the size, composition and functioning of the Board and its Committees

Since 2006, Snam has performed an annual check on the size, composition and functioning of its Board and its Committees, with the professional support of an external advisor, pursuant to Application Criterion 1.C.1, letter g) of the Code of Corporate Governance.

Snam’s Board of Directors carried out an assessment of the Board and its Committees for the 2015 financial year, the third year of its term of office. Conducted ahead of the expiration of the Board’s term of office, the assessment was carried out based on a process that conforms to the recommendations of Application Criterion 1.C.1 of the Code of Corporate Governance, letters g) and h), and is in line with the most recent international best practices²⁶.

As in previous years, the Board decided to use the services of an external consultant and, with the help of the examination carried out by the Appointments Committee, confirmed the appointment of Crisci & Partners – Shareholders and Board Consulting, which was selected in the first year of the term of office of the current Board of Directors following a competitive process. Crisci & Partners was chosen because of its specialisation and professional focus on corporate governance, as well as its independence. Moreover, in the last three years, the firm has not had financial relations with the Snam Group, beyond those entered into directly with the Snam Board of Directors, including in relation to its performance of consultancy activities purely for directors and shareholders.

The confirmation of the consultancy firm’s appointment made it possible to: carry out a differentiated Board Evaluation process, with separate focuses for the three years of the Board’s term of office; and illustrate the cycle of development and growth of the Board of Directors over the course of its term of office and the emergence, during this latest assessment, of the suggestions developed by the directors over time and closely focused on the qualitative/quantitative composition of the corporate bodies, with a view to their renewal by the Shareholders’ Meeting in 2016.

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 November and December 2015. Prior to conducting the interviews, the experts involved carefully read the documentation and meeting minutes pertaining to the Board and the Committees, and met with the members of the Appointments Committee, the Chairman and the CEO and, as observers, the Chairman of the Board of Statutory Auditors and the Secretary of the Board of Directors. They also made contact with the Executive Responsible for preparing corporate accounting documents, the Risk Manager and the Internal Auditor.

The interviews with Snam’s directors were highly personalised and focused on the various aspects pertaining to the composition (including in the light of the Board’s renewal) and functioning of the Board and its Committees, as well as examining in more depth the results of the self-assessment carried out the previous year. Following the interviews, consultants from Crisci & Partners were invited to attend a Board meeting as observers.

The most significant issues and aspects of the evaluation discussed during the interviews included:

• analysis of the measures taken following the self-assessment relating to the previous financial year;
• considerations relating to the qualitative/quantitative composition of the Board and its Committees, and interpretations of their internal roles and relations;
• development of cohesion and team work in dealing with Board matters and in the interaction between the Board and its Committees;
• the quality of the reporting, debate and methods of evaluating individual skills;
• ongoing induction for directors, organisation of the duties of the Board and its Committees, and support from the Board Secretary;
• the Board’s role in the strategic planning process, particularly with regard to internationalisation policies;
• perception of the Board’s performance over the three years of its term of office, and of its contribution to the conception and implementation of governance best practices and to the strategy definition process;
• considerations on the optimal future qualitative/quantitative composition of the Board, in the light of the preliminary assessments of the Appointments Committee and of the formulation by the Board of guidelines for shareholders on the renewal of corporate bodies.

The Board of Directors has taken account of the results of the previous year’s assessment, putting into action various concrete measures for further improvement in terms of the scheduling of Board and Committee meetings, the quality of reporting, the management of debates and the approval of the strategic plan.

During 2015, the process of defining, discussing and approving the 2016-2019 three-year plan was also further refined, with plans to present alternative scenarios over a long-term horizon and more discussion at Board meetings.

The Board was involved in the implementation of several important decisions concerning internationalisation, with a view to pursuing the strategic development of the Company’s European presence. In terms of its composition, roles and processes, the Board appeared to be clearly defined and very active, as well as being aware of the dynamics of the business and suitably integrated – in terms of roles – with the management, which attributes to it the following contribution to the direction and management of the Company: in-depth examination and sharing of the management’s proposals, support for expansion policies and in-depth analysis of key management decisions. The Board is perceived as sufficiently diversified in terms of its expertise and experience.

For more than one year, at the opening of Board meetings, the CEO – the head of the Company, who is recognised for his competence and experience – discusses key facts relating to the Company and reports on its operations, in line with best practices. The meetings and debate are carried out with a focus on team work and efficiency. The allocation of examination and consultative duties to the Committees is clear and balanced. The Committees have carried out their work with strong commitment and continuity, making an active contribution to the Board and receiving its full recognition.

The Board Secretary has carefully coordinated the information flows produced by the management, as adjusted and subsequently improved, and has played a key role in managing and responding to all matters within their remit.

On the whole, over the course of the three years, the Snam Board of Directors has consolidated its culture and Board governance practices, and has positively developed its functioning, representing distinctive elements of its performance. It is to be hoped that these elements will continue to evolve and not be lost, through measured, careful and specific innovation by the corporate bodies, which is intrinsically necessary from one term of office to the next.

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 on their possibilities for further development. It confirms that they comply with the provisions of Borsa Italiana’s Code of Corporate Governance and with international best practices.

Separately, in a dedicated document for the Appointments Committee, it consolidated and reported the suggestions that arose during the self-assessment and were put forward by the Directors to shape the guidelines for Shareholders on the qualitative/quantitative composition of Snam’s Board of Directors.

At its meeting of 24 February 2016, the Snam Board of Directors examined and discussed the results of the self-assessment, presented by the consultancy firm Crisci & Partners, and together confirmed its positive assessments.

Furthermore, at its meeting on 16 March 2016, the Board of Directors, having heard the opinion of the Appointments Committee and taken into account the results of the Board Evaluation, considered the future size and composition of the Board of Directors, to be submitted to shareholders of the Shareholders’ Meeting to renew the corporate bodies on 27 April 2016:

Size of the Board of Directors

The Board of Directors deems the current number of nine directors, the maximum permitted by the Bylaws in force, to be adequate. In particular, the Board considers appropriate the ratio between Executive Directors (1), Non-Executive Non-Indipendent Directors (3) and the Independent Directors (5) in light of the complexity and specificity of the activities and management functions (Committees included) of both the Company and the Group.

Composition of the Board of Directors

The Chairman

• should be a person with leadership, business and professional preparation adequate to the role and complementary to the CEO’s ones;
• should have previous experience at boards of directors of companies of a comparable size and international scope to Snam;
• should dedicate time, presence and energy to fulfilling the role he/she represents.

The CEO

• should have significant and successful experiences in executive roles at large companies of a comparable size and complexity to Snam;
• should have a good capacities for strategy and, preferably, experience and/or knowledge of the Snam’s businesses or sectors which present similarities to these, particularly with regard to the relations, opportunities and risks of a governance/institutional nature also on an international scale, and of economic/financial assessments and assessments of operating control of large infrastructure assets.

The other seven directors

• should all be non-executive directors, of whom – also in relation to the composition of the Committees – at least five should be independent, based on the criteria set out by law and by the recommendations of the Code of Corporate Governance;
• should be able to demonstrate, in the light of their experience, also gained within boards of directors of listed companies, the ability of strategic guideline and to stimulate results, team work and the capacity to influence and resolve potential disagreements;
• should represent the following areas of expertise and experience:
  • management experience (also multinational ones), including in situations of strategic and corporate development;
  • experience in or knowledge of the conduct of foreign institutions or political organisations, preferably in countries where Snam operates;
  • experience/expertise in the energy business, in particular in the sectors of specific interest of Snam; knowledge of the international geopolitical dynamics; knowledge of regulatory policies and practices in the sectors of specific interest of the Company and in the countries where operates;
  • expertise in economic/financial matters, financial statements and risk management, preferably specific to the infrastructure and/or energy business;
  • legal and corporate governance knowledge.

The composition of the Board of Directors should contain adequate gender diversity and complementary experiences and expertise. All candidates for the role of executive or non-executive director, when accepting their candidacy, must have carefully considered – and assured the shareholders proposing them on this matter – the time they would need to dedicate to the diligent performance of their duties.

Such position will be made available to the public at the Company’s headquarters, on the Company and Borsa Italiana’s websites and at the authorized storage mechanism in parallel to the presentation, by Board of Directors, of the Directors’ Report to shareholders in view of the shareholders’ meeting relating to the renewal of corporate bodies.

(vii) Remuneration policy

The Board of Directors defines the remuneration policy for directors, general managers and executives with strategic responsibility of the Company and its Subsidiaries, as well as the relevant compensation systems, upon recommendation from the Compensation Committee. Furthermore:

• it implements the compensation plans based on shares or financial instruments resolved upon by the Shareholders’ Meeting;
• it approves the Remuneration Report to be presented to the Shareholders’ Meeting;
• it assesses, following consultation with the Compensation Committee, the contents of the vote on the Remuneration Report carried out by the Shareholders’ Meeting and the proposals of the Committee on the adequacy, overall coherence and application of the Remuneration Policy adopted for directors and managers with strategic responsibility.

(viii) Other duties of the Board of Directors

The Board is also responsible for:

• drawing up draft resolutions to be submitted to the Shareholders’ Meeting;
• examining and resolving upon other particularly important and sensitive issues that the directors who hold powers wish to draw to the attention of the Board.