BOARD OF STATUTORY AUDITORS

The Board of Statutory Auditors is entrusted with monitoring the following aspects, in accordance with the law and the Company Bylaws:

  • compliance with the law and the Company Bylaws;
  • compliance with the principles of sound administration;
  • the adequacy of the Company’s organisational structure concerning the aspects within its area of jurisdiction, the internal control and the administrative and accounting system, as well as the dependability of the latter to represent correctly the operating results;
  • the procedures to implement effectively the corporate governance rules envisaged by the codes of conduct prepared by the companies which manage the regulated markets or by the trade associations which the Company declares it abides by;
  • the adequacy of the instructions issued by the Company to the subsidiaries in relation to the obligations to report price sensitive information58.

The Board of Statutory Auditors of listed companies monitors the following aspects, following the coming into force of Legislative Decree No. 39/2010:

  • a) t he financial reporting process;
  • b) t he efficiency of the internal control system, the internal audit, and risk management;
  • c) t he statutory audit of the annual accounts and the consolidated accounts;
  • d) t he independence of the statutory auditor or the statutory auditing company, in particular, concerning services other than auditing services rendered to the company whose accounts are to be audited.

The Board of Statutory Auditors carries out its duties by exercising all the powers conferred on it by law and by being able to rely on a constant and detailed information flow from the Company, also outside the periodic meetings of the Board of Directors and the Committees.

When performing this functions, the Board of Statutory Auditors takes part in the work performed by the Remuneration Committee and the Committee for Internal Control, Risks and Corporate Governance, besides attending all the meetings of the Board of Directors and the Shareholders’ Meetings and the Chairman of the Board of Statutory Auditors is invited to attend the meetings of the Appointments and Succession Committee and of the Strategies Committee.

Moreover, the Statutory Auditor, Paolo Domenico Sfameni was invited to become a member of the Supervisory Body, in accordance with Legislative Decree No. 231/2001.

Appointment of Auditors

The Company Bylaws envisage that the Board of Statutory Auditors is to be composed of three Statutory Auditors and two Alternate Auditors.

In order to permit the minority shareholders to elect one Statutory Auditor and one Alternate Auditor, the appointment is envisaged to be based on the so-called “voting list” system, according to which one Statutory Auditor and one Alternate Auditor are taken from the list that obtained the second highest number of votes (so-called minority list). The remaining members of the Board (namely, two Statutory Auditors and one Alternate Auditor) are taken instead from the list that obtained the highest number of votes (so-called majority list).

In accordance with the Company Bylaws shareholders, who alone, or together with other shareholders own an overall number of shares which represent at least 1.5% of the shares with voting rights in the Ordinary Shareholders’ Meeting or the smaller percentage established by Consob59 are entitled to present a list.

The lists are to be registered at the Company’s registered office at least 25 days prior to the date foreseen for the Shareholders’ Meeting convened to resolve this point, unless extended, as envisaged by the applicable legislation.

The Reader is referred to the current legislation, with regard to the latter point60, however, it is important to remember that if only one list is presented, or if multiple lists are presented by shareholders who are related, then the lists may be presented up to the fifth day after the deadline for the presentation of the lists (25 days prior to the Shareholders’ Meeting), and the thresholds required for their presentation are reduced by half.

Each shareholder may present or participate in the presentation of only one list.

The following are to be provided together with the lists, also in accordance with the current legislation:

  • information concerning the identity of the shareholders who presented the lists, with details of the percentage shareholding owned and a certificate that attests the ownership of the foregoing shareholding;
  • a declaration by the shareholders other than the shareholders who hold a controlling, or relative majority shareholding, alone or jointly, to attest that they are unrelated;
  • the description of the professional curriculum of the designated persons and the declarations in which the individual candidates accept the candidacy and attest under their own responsibility, that there are no grounds for their ineligibility or incompatibility and that they satisfy the requirements for the office, as prescribed by law or by the Company Bylaws.

Lists presented which fail to comply with the foregoing requirements are deemed not to have been presented.

Each candidate may appear on only one list, under penalty of ineligibility.

The lists are organised in two sections: one section for candidates to the position of Statutory Auditor and the other for candidates to the position of Alternate Auditor. The first candidate of the section must be identified from among the persons enrolled in the Register of Statutory Auditors who have worked as statutory auditors for a period of no less than three years.

Each person entitled to vote may vote for only one list.

The statutory member indicated as the first candidate on the minority list, if presented, shall be entitled to chair the Board of Statutory Auditors.

In the case of death, waiver or forfeiture of a Statutory Auditor, then the position shall be filled by the Alternate Auditor chosen from the same list as the former auditor no longer in office. If the Chairman of the Board of Statutory Auditors is to be substituted, then the chair shall be assigned to the other Statutory Auditor chosen from the same list as the former Chairman; if it is not possible to proceed with the substitutions in accordance with the above-mentioned criteria, a Shareholders’ Meeting shall be convened to supplement the Board of Statutory Auditors and the Meeting shall resolve by relative majority vote.

When the Shareholders’ Meeting is required to appoint the Statutory Auditors and/or Alternate Auditors necessary to supplement the Board of Statutory Auditors the Meeting shall proceed as follows: if auditors elected from the majority list are to be substituted, the appointment shall be made by relative majority, without list constraints; whereas, if auditors elected from the minority list are to be substituted, the Shareholders’ Meeting shall substitute them by relative majority vote, selecting them, where possible, from among the candidates on the list that included the Auditor to be substituted. The principle of necessary representation of minorities, for which the Company Bylaws assure the right to participate in the appointment of the Board of Statutory Auditors shall be deemed to be complied with in the event of appointing Statutory Auditors who were candidates in the minority list, at the time, or on other lists differing from the list that had obtained the highest number of votes when the Board of Statutory Auditors was duly appointed. If only one list has been presented, the Shareholders’ Meeting shall vote on that list; if the list obtains the relative majority then the candidates indicated in the respective section of the list shall be appointed as the Statutory Auditors and Alternate Auditors; the person indicated in first place in the cited list shall be appointed as the Chairman of the Board of Statutory Auditors.

The Shareholders’ Meeting shall resolve with the majorities required by law when appointing the Auditors, who, for whatever reason, were not appointed in accordance with the procedure indicated herein.

Outgoing Auditors may be re-elected.

The meetings of the Board of Statutory Auditors may be attended – if the Chairman or whoever acts on his/her behalf establishes the need – by means of telecommunications media, which permit all the persons in attendance to participate in the discussion and obtain information on an equal basis.

Auditors

The Shareholders’ Meeting held on April 21, 2009 resolved to renew the Board of Statutory Auditors for the 2009 - 2011 financial years, by appointing Enrico Laghi, Paolo Gualtieri and Paolo Domenico Sfameni as Statutory Auditors and by appointing Luigi Guerra and Franco Ghiringhelli as Alternate Auditors, accordingly, they shall fall from office in the Shareholders’ Meeting convened to approve the 2011 Financial Statements, after completing their mandate.

The appointment was based on the voting list system. The only list was presented by the members of the Pirelli & C. Shareholders’ Agreement (“Sindacato di Blocco Azioni Pirelli & C.”) that obtained about 95% of the favourable votes of the share capital with voting rights represented in the Shareholders’ Meeting. Enrico Laghi was appointed as Chairman of the Board of Statutory Auditors in the absence of members of the Board of Statutory Auditors originating from the minority list.

The Shareholders’ Meeting also established the annual gross fee to be paid to each Statutory Auditor at euro 41,500 and the annual gross fee to be paid to the Chairman of the Board of Statutory Auditors at euro 62,000.

Furthermore, the Statutory Auditor invited to take part in the Supervisory Body, pursuant to Legislative Decree No. 231/2001 (Paolo Domenico Sfameni) effective from April 21, 2011 is to be paid an additional annual gross fee of euro 25,000. Table No. 5 illustrates the composition of the Board of Statutory Auditors at the Date of the Report.

The list of positions held by Statutory Auditors in joint-stock companies, limited liability companies and companies with unlimited responsibility is published by Consob on its Internet website. It is important to note that, at the Date of the Report, no Statutory Auditor in office notified that he had exceeded the aggregate number of positions of administration and control envisaged under Article 144-terdecies of the Issuers’ Regulations.

In line with the provisions contained in the Self-Regulatory Code61 and as expressly ascertainment by the Board of Statutory Auditors, based on the information provided by the Statutory Auditors and the information available to the Board of Statutory Auditors, all the Statutory Auditors can be qualified as independent on the basis of the criteria envisaged by the same Code referred to Directors, as well as in relation to Consob Communication No. 8067632 dated July 17, 200862.

The Procedure for Transactions with Related Parties qualifies Statutory Auditors as parties related to the Company, in compliance with the regulatory provisions; accordingly, if the Statutory Auditor has an interest in a given Company transaction, the cited procedure shall apply, as described in greater detail in the preceding section “Directors’ interests and transactions with related parties”. It follows that the Board of Directors will receive adequate information concerning the nature of the relationship and how the transaction is to be executed, in line with the provisions set out in the Self-Regulatory Code63.

Activities of the Board of Statutory Auditors

The Board of Statutory Auditors held 8 meetings during the financial year and the percentage attendance of the Auditors was higher than 90% (the reader is referred to the table for a detailed representation of the attendance of the individual members of the Board of Statutory Auditors in the meetings held during the financial year).

Moreover, it is important to note that besides attending the Shareholders’ Meetings and the meetings of the Board of Directors, the members of the Board of Statutory Auditors also attended the meetings held during the financial year by the Committee for Internal Control, Risks and Corporate Governance and the Remuneration Committee, a circumstance that characterises the rules of corporate governance adopted by the Company and offers the entire Board the possibility of overseeing directly the activities of the Committees and to perform the control functions assigned to it more effectively.

The Chairman of the Board of Statutory Auditors attended the meeting of the Appointments and Succession Committee and attended the meeting of the Strategies Committee convened to examine the review (a) of the operating procedures; (b) the processes and (c) the top management relations of the organisation that will accompany the Group to “execute” the Industrial Plan (described in section 4.5.2).

During the financial year, the Board of Statutory Auditors monitored compliance with the law and the Company Bylaws, compliance with the principles of sound administration and the adequacy of the Company’s organisational structure, the internal control system and the administrative and accounting system, as well as the dependability of the latter to represent correctly the operating events.

The Board also monitored the correct implementation of the corporate governance rules envisaged by the codes of conduct prepared by the companies that manage the regulated markets or by trade associations, which the company declares it abides by and the adequacy of the instructions the Company issues to the subsidiaries in relation to the obligations to disclose price sensitive information64.

The Board of Statutory Auditors reported on the activities performed to the Shareholders’ Meeting held in April 2011 and expressed its opinion on the aspects within its area of jurisdiction concerning the Directors’ proposal regarding the allocation of profits and the size of the dividend to be distributed.

The Board of Statutory Auditors monitored65 the independence of the audit company checking compliance with the provisions applicable to this aspect and the nature and extent of the services other than auditing the accounts which are rendered to Pirelli & C. and to its subsidiaries by the same audit company and by other companies in the same network as the audit company.

Moreover, the Board of Statutory Auditors verified the correct application of the evaluation criteria and procedures adopted by the Board of Directors to assess the independence of its members.

The Board of Statutory Auditors66 coordinated its activities with the Internal Audit Department and as has been stated, the respective members attended all the meetings of the Committee for Internal Control, Risks and Corporate Governance. The Board held periodic meetings with the representatives of the Audit Company, pursuant to Article 150, paragraph 3 of Legislative Decree No. 58/1998 which did not reveal significant data and information worthy of being reported.

Moreover, the Board of Statutory Auditors expressed opinions during the financial year, pursuant to Article 2389 of the Italian Civil Code.

With regard to the surveillance activity to monitor the effectiveness of the internal control systems, as already stated previously, the Board of Statutory Auditors, today, already has the tools required for the new tasks through its attendance in the meetings of the Committee for Internal Control, in particular, considering that the Board has received: (i) reports from the Internal Audit Management, at least every quarter; (ii) the audit plan once a year; (iii) the risk assessment and risk management plan once a year.

Lastly, the Board of Statutory Auditors examined in advance the results of the impairment test procedure which Pirelli decided to implement in compliance with the provisions of the international accounting standard IAS 36, as well as endorsing the letter of suggestions prepared by the statutory auditor and forwarded to the Company’s management.

58 Now referred to as “privileged information” (Article 114 of the Unified Finance Law (TUF)).
59 Consob established the percentage shareholding referred to the 2011 financial year required for shareholders to present the lists of candidates to be elected to the administration and control bodies of Pirelli & C. that corresponds to 1.5 percent of the share capital with voting rights in the Ordinary Shareholders' Meeting in its Resolution No. 18083 dated January 25, 2011.
60 Issuers' Regulation: Article 144-quinquies and following articles. Moreover, CONSOB disseminated “Communication No. DEM/9017893 dated 26-2-2009” containing the recommendations regarding the “Appointment of members of administration and control bodies”.
61 Self-Regulatory Code Application Criterion 10.C.2.
62 CONSOB Communication No. DEM/DCL/DSG/8067632 dated 17-7- 2008 concerning “Situations of incompatibility of the members of control bodies, pursuant to Article 148, paragraph 3, sub-section c) of the Unified Finance Law (TUF)”.
63 Self-Regulatory Code Application Criterion 10.C.4.
64 Now referred to as “privileged information” (Article 114 of the Unified Finance Law (TUF)).
65 Also in line with the Self-Regulatory Code: Application Criterion 10.C.5.
66 Self-Regulatory Code: Application Criteria 10.C.6. and 10.C.7.