• Central role of the Board of Directors
  • Central role played by independent directors
  • A consolidated policy of disclosing corporate decisions and an effective internal control system
  • An innovative system of pro-active risk management
  • A management incentive system tied to medium and long-term goals
  • Rigorous rules governing potential conflicts of interest

Pirelli has adopted a traditional management and control system. The key features of the Pirelli corporate governance system are: (i) the central role of the Board of Directors, in its capacity as the supreme body in charge of company management; (ii) the central role played by independent directors, who hold a majority of the seats on the Board of Directors; (iii) a consolidated policy of disclosing corporate decisions and the processes that led to their being taken, as well as an effective internal control system; (iv) an innovative system of pro-active risk management; (v) a management incentive system tied to medium and long-term goals; (vi) rigorous rules governing potential conflicts of interest and firm rules of conduct for related party transactions.

Pirelli & C. has adhered to the Corporate Governance Code of listed companies ever since it was first published by Borsa Italiana (Italian Stock Exchange). The company subsequently affirmed its adherence to the new March 2006 version of the Corporate Governance Code.
The other key features of the Pirelli governance system include:

  • a high level of transparency, with descriptions of semi-annual updates and additions to the corporate governance system to reflect changes from what is illustrated in the Annual Report;
  • membership on the Board of Directors of a large number of independent directors, holding more than 50% of Board seats and representing about 90% of all non-executive directors;
  • the important role given to non-controlling interests, who elect 20% of the Board of Directors when lists are submitted (currently 4 out of 20);
  • the establishment of Board committees comprised exclusively of independent directors;
  • designation of a Lead Independent Director, who is assigned an active and effective role in coordinating the requests and contributions of independent directors;
  • periodic meetings of the independent directors and work meetings of directors with top management in order to improve their familiarity with the company’s actual operating conditions and facilitate their contribution to management, and to improve the effectiveness of their respective positions;
  • the Board of Directors’ consolidated practice of reviewing its own performance, with the aid of an expert consulting firm;
  • a new system for management and governance of managerial risks;
  • establishment of the Group Compliance department;
  • the control resulting from the Group Whistleblowing Procedure.

Consistently with the provisions governing the traditional management and control system that has been adopted, the Board of Directors is in charge of managing the company. The Board plays a key role in its strategic guidance, as well as in supervision of all business activity, with the authority for overall management policy making and direct action in a series of decisions that are necessary or useful for pursuing the corporate purpose. The Board is responsible for taking key economic or strategic decisions or those having a structural impact on management, i.e. decisions supporting supervision of the Group and its policy.

The Board of Directors relies on the support of its own internal committees to perform its duties. These standing committees are comprised of independent directors having investigative, policy making and/or consultative duties. The Board is also supported by managerial committees whose members are drawn from Group senior management to implement the directives and policies issued by the Board and delegated bodies.
Pursuant to the Bylaws, the Board of Directors has no less than seven and no more than twenty-three members, who serve for a term of three financial years (or a shorter term that might be set by the General Meeting when they are elected), and they may be re-elected.

The Board of Directors in office at December 31, 2010 is comprised of 19 directors and was elected by the Shareholders’ Meeting on April 29, 2008 for three financial years, expiring on the date of the General Meeting called to approve the annual report at December 31, 2010. Consequently, the next General Meeting called to approve the 2010 Annual Financial Report will elect a new Board of Directors. More information in this regard can be found in the Directors’ Report to the General Meeting published on the company website.

The Board of Directors is comprised of two directors with executive authority: the Chairman (who is also delegated specific duties) Marco Tronchetti Provera and the Deputy Chairman Alberto Pirelli, seven non-executive directors and ten independent directors (of whom X are elected by non-controlling interests).
For some time now, the absolute majority of seats on the Board of Directors have been held by independent directors.

The Board of Directors defines the independence of its directors on the basis of their not having relations with the company and/or with its principal shareholders and managers that might influence their judgement. When it evaluated their independence, the Board of Directors referred to the requirements recommended by the Corporate Governance Code issued by Borsa Italiana, which the company has adopted. For a more detailed description of the requirements necessary for determining the independence of directors, reference is made to the Report on Corporate Governance and Shareholdings.

In advance of the deadlines (which will come into force next year) mandated in the Corporate Governance Code and even more recently in the Consolidated Law on Finance, the company has decided to adopt a General Remuneration Policy, to be submitted to shareholders for a vote at the next General Meeting. The Policy contains guidelines for defining the compensation of executive directors and management in general, aimed at attracting, motivating and keeping the human resources who have the professional qualifications for profitably pursuing Group objectives.

The Policy is defined in such a way as to align management interests with those of shareholders, with the primary objective of creating sustainable value over the medium/long-term through a strong link between compensation, on the one hand, and individual and Group performance on the other.
Definition of the Policy is the result of a clear and transparent process in which the Remuneration Committee and the Board of Directors play a key role.

The Policy was approved by the Board of Directors at its meeting on March 8, 2011 and submitted to the General Meeting for approval of the 2010 Annual Report. As previously mentioned, it defines the following principles and guidelines:

  1. the Board of Directors defines the remuneration:
    • of the members of the Board of Directors and, in particular, the directors delegated with specific duties;
    • of the general managers;
    • of the executives with strategic responsibility;
  2. the Group defines the remuneration of senior managers and Group executives in general.

For a more detailed description, please see the General Remuneration Policy found at the end of the Report on Corporate Governance and Share Ownership, Volume 2. For further details on the corporate governance system, reference is made to Volume 2 as well. The section dedicated to the company’s corporate governance system can also be accessed through the homepage of the website www.pirelli.com.