Control and Risk Committee

Functions of the Control and Risk Committee

In 2004, within the Board of Directors, a specific Internal Control Committee was established, with the task of providing instructions, in the form of advice and suggestions, and, in particular, supporting the Board in its assessments and decisions relating to the Internal Control System and regularly monitoring its suitability, as well as in connection with specific aspects relating to the identification of the main business risks (such as, for example, operational risk, financial risk, market risk, and compliance risk (in addition to auditing compliance)), regularly reporting back to the Board on the suitability of the system and the work performed. The duties of the Committee have been identified in compliance with the Governance Code and the modalities of carrying out the meetings have been ruled through proper internal organizational Regulations adopted by the Board of Directors as of January 24, 2007.

In the meeting held on December 19, 2012, the Board of Directors resolved the necessary adjustments in relation to the members and competences of the committee in place in order to ensure that it was perfectly in line with the new provisions of the Governance Code on the internal control and risk management system (Articles 7.P.3, letter a-ii), 7.C.1 and 7.C.2 of the Governance Code) making some changes to the indicated Organisational Regulation (now named the "Organisational Regulation for the Control and Risk Committee of Terna S.p.A."). Consequently, the Internal Control Committee, already established in Terna, took on the name of Control and Risk Committee with no change made to its members.

More specifically, the "Control and Risk Committee" has the task of supporting the Board of Directors, with suitable guidance, in the assessments and decisions relating to the "Internal Control and Risk Management System" (the "System"), to approval of the annual financial report and the half-yearly financial report and relations between the company and the external auditor (Article 7.P.3, letter a-ii) of the Governance Code). Under this scope, the Committee is specifically assigned the following tasks:

  • supporting the Board of Directors in fulfilling the duties assigned it by the Governance Code on internal control and risk management, preparing specific opinions in this regard
    1. the definition of the System guidelines and level of compatibility of these risks with business management that is coherent with the strategic objectives identified by the Board of Directors (Article 7.C.1, letter b) of the Governance Code);
    2. the regular verification of the suitability of the System with respect to the business characteristics of the business and the risk profile assumed and its effectiveness (Article 7.C.1 letter a) of the Governance Code);
    3. the approval of the plan of works prepared by the Internal Audit Department Manager (Article 7.C.1, letter c) of the Governance Code);
    4. in the description of the main characteristics of the system in the Annual Report on Corporate Governance and Ownership Structures and in the assessment of the suitability of the system (Article 7.C.1, letter d) of the Governance Code);
    5. in the assessment of the results presented by the legal auditor and in the report on the essential issues that emerged during the legal audit;
  • assessing, together with the executive in charge of the preparation of accounting documents and the legal auditor and the Board of Statutory Auditors, the correct application of accounting principles and their uniformity for the preparation of the consolidated financial statement (Article 7.C.2, letter a) of the Corporate Governance Code);
  • expressing opinions on request of the CEO, on specific aspects concerning identification of main Company risks (Article 7.C.2, letter b) of the Corporate Governance Code);
  • examine the regular reports concerning the assessment of the system and those of particular relevance prepared by the Audit Department (Article 7.C.2, letter c) of the Governance Code);
  • monitor the independence, suitability, efficacy and efficiency of the Audit Department (Article 7.C.2, letter d) of the Governance Code). In this respect, we would refer you to the title below "Internal Audit Department Manager";
  • report at least once every six months to the Board of Directors during approval of the annual financial report and half-yearly financial report, on the activities carried out and on the suitability of the system (Article 7.C.2, letter f) of the Governance Code);
  • carry out the additional duties as may be assigned to the Board of Directors.

Additional specific duties are assigned to the Committee based on the Organisational Model adopted by Terna in compliance with Legislative Decree no. 231/01 and with Terna’s Code of Ethics.

The Committee can ask the Internal Audit Department to carry out checks on specific operative areas, simultaneously informing the Chairman of the Board of Statutory Auditors (Article 7.C.2, letter e) of the Governance Code).

The Chairman of the Board of Statutory Auditors (or another auditor appointed by him) shall attend the meetings of the Committee, and in any case, all other auditors can also attend (Article 7.C.3, letter e) of the Governance Code). At the invitation of the Committee Chairman, the Internal Audit Department Manager can attend the meetings and, with reference to the individual items on the agenda, the CEO (in his capacity as Director appointed to oversee the functions of the Internal Control and Risk Management System), the members of the Remuneration Committee and/or other members of the Board of Directors or other people whose presence may be useful to ensure the best possible operation of the Committee (Article 4.C.1, letter f) of the Governance Code).

With regard to the new provisions on the composition of the Committee, we note that, as envisaged by the transitional provisions of the Governance Code (paragraph VIII of the "Guidelines and transitional regime"), they are to be applied during the next renewal of the Board of Directors. The current members of the Committee are therefore in line with the applicable provisions of the previous Governance Code. In actual fact, following the renewal of the Board of Directors and subsequent appointment of the Director Pensato in lieu of a Director who was standing down, by resolutions passed on May 13, 2011 and November 9, 2011, four directors were appointed, all non-executive, and the majority of whom are independent: Paolo Carlo Renato Dal Pino (acting as Chairman), Matteo Del Fante, Francesco Pensato and Michele Polo. At least one member is in possession of sufficient accounting and financial experience.

Information on the number of meetings and the percentage attendance, as set out below, refers to the total activities of the Committee in FY 2012.

More specifically, during FY 2012, the Committee held 6 meetings, characterised by the regular participation of its members and the Board of Statutory Auditors, in view of the specific supervisory duties over the system that are assigned to the Board by current legislation on listed companies and by the Governance Code (Articles 7.P.3, letter d) and 7.C.3 of the Governance Code). The average duration was approximately 1 hour and 15 minutes each. By invitation of the Committee Chairman, the Internal Audit Department Manager attended the meetings.

Upon the Committee's request, the meetings were also attended by Directors of the Company whose presence was deemed helpful for the best information regarding the items on the agenda (Article 4.C.1, letter f) of the Governance Code).

More specifically, during FY 2012, in accordance with the provisions of the Governance Code in force at the time, the Committee has:

  • assessed the implications for Terna with regard to the adhesion to the new provisions on the Internal Control and Risk Management System envisaged by the Governance Code, to this end initiating a plan to carry out all consequent activities and providing support to the Board, which saw the involvement of the various entities and organisations involved;
  • carried out a preliminary examination of the adjustments by the Company on the Internal Control and Risk Management System to meet the new requirements of the Governance Code, also by virtue of the new Group organisational structure and the reference policies in place with the Company and the guidelines of the "Internal Control and Risk Management System".
  • given a positive opinion on the determination by the Board of the level of compatibility of the main risks relating to Terna and its subsidiaries with business management in line with the strategic objectives identified;
  • in connection and with the involvement of various entities and organisations involved, given its positive opinion on the suitability of the Internal Control and Risk Management System with respect to the business characteristics and risk profile assumed, and its effectiveness;
  • positively examined the structure of the Terna Audit, the plan of work prepared by the Internal Audit Department Manager, the activities relating to the Quality Assurance Plan and the methods for carrying out the tests and support for the Supervisory Body pursuant to Italian Legislative Decree no. 231/01 and examined and monitored the 2012 audit activities, noting elements for the assessment of the state of the risk management and control system also in relation to the Group reorganisation;
  • met the independent auditing firm to assess the auditing activities with particular regard to the methods by which they were carried out and the results.

Furthermore, it examined the progress of financial risk management. Pursuant to what provided for by the Governance Code, the committee assessed, together with the Executive in Charge and having consulted with the legal auditor and the Board of Statutory Auditors, the correct use of the accounting standards and received information on control activities implemented for compliance with the provisions of law 262/05 and subsequent amendments. The Committee also received the required disclosure from the Supervisory Body pursuant to Italian Legislative Decree no. 231/01 on the suitability and development of the Model and activities carried out by said organisation and reported to the board at the time of approval of the annual and half-yearly financial reports on the activities carried out and the suitability of the Internal Control and Risk Management System (Articles 7.C.2, letter c) and f) of the Governance Code).

Minutes were duly taken of all committee meetings and the committee had the chance to access the information and business functions necessary to go about its duties and to use external consultants in accordance with the terms established by the Board (Article 4.C.1, letter e) of the Governance Code).

In 2013, the Committee will hold as many meetings as are sufficient for carrying out the duties assigned.

During the current year, up to the date of approval of this Report, the Committee has held one meeting.

The percentage participation of each member of the committee in the meetings held during FY 2012 is indicated in table 1 attached (Article 123-bis, paragraph 2, letter d) of the Consolidated Law on Finance).

During the meeting of March 15, 2013, the Board of Directors evaluated the duties and performance of the Committee. The generally positive evaluation of the composition, size and responsibilities of the committee, was confirmed by the Board of Directors within the yearly review of the Board itself and of the committees.

The Committee has been granted adequate financial resources.