The corporate governance model

By resolution of the Extraordinary Shareholders' Meeting of 26 February 2016, effective as from 27 April 2016, Intesa Sanpaolo has adopted a single-tier administration and control model. This section refers to the period from 27 April to 31 December 2016.

For more details on corporate governance, see the “Report on Corporate Governance and Ownership Structures – Remuneration Report”, which also has information on the period from January to April 2016, when the two-tier governance model was still in use @.

Board of Directors 

The Board of Directors has guidance and strategic supervisory functions. Management functions are mainly overseen by the Managing Director and CEO, while control functions are carried out by the Management Control Committee, appointed by the Shareholders' Meeting from Board members and comprising only independent directors.

The Board of Directors' role closely supplements the strategic supervisory function, with controls that are increasingly ex ante in nature (of strategic plans, company risks, organisational and internal control system adequacy), and are considered as physiological and essential for strategic business management.

This nature of the Board's role (which does not affect necessary ex post controls on actions already taken) can guarantee a positive mix at the highest level of management and control – because of the specific characteristics of the one-tier model, and also ensures continual monitoring of the merit and lawfulness of company conduct.

The fact that members of the Management Control Committee are also company directors that have to take management decisions considerably reinforces the effectiveness and efficiency of the Board's role overall and guarantees the utmost consistency of administrative actions, allowing directors to evaluate the implications of their decisions, from when they are taken, and control committee members to carry out their duties more effectively, because they are also directly involved in the decision-making process.

The Board of Directors in office at the date of this Report comprised 19 members appointed by the ordinary Shareholders' Meeting, by list voting, on 27 April 2016. The appointment was made based on lists of candidates meeting requirements established by law and the Articles of Association, presented by shareholders owning at least 0.5% of capital comprising ordinary shares. A sizeable majority of independent Board directors and the appointment of a single Managing Director by the Board, excluding other Directors that may have executive positions and that the Board may delegate its own duties to an executive committee, were considered as priorities.

At least one third of board positions are reserved for the least represented gender, in compliance with applicable laws on the gender equality of management boards of listed companies.

In accordance with the Bank's governance model, the Chairman of the Management Control Committee and Chairman of the Committee for Transactions with Related Parties and Associated Entities (of the Group) are minority-elected members.

In carrying out its duties, the Board of Directors is assisted by the following Committees, with members appointed from the Board. The organisation and operation of these committees are governed by specific Regulations approved by the Board:

• the Nomination Committee;
• the Remuneration Committee;
• the Risks Committee;
• the Committee for Transactions with Related Parties of Intesa Sanpaolo and Associated Entities of the Group.
    

Characteristics of the Board of Directors (data for the period from 27 April to 31 December 2016)

Characteristics of Board Committees (data for the period from 27 April to 31 December 2016)

The Chairman of the Board of Directors has a non-executive role and does not carry out management duties, even on a de facto basis.

In view of the current governance model and duties established by the Articles of Association, which are described in more detail in the Regulations of the Board of Directors, the Chairman’s role is fundamental for the Bank, as reflected by his/her authority and responsibilities and the amount of time dedicated to this position.

The Chairman of the Board of Directors supervises the activities of the Board, organises and oversees activities and carries out all duties required by supervisory regulations.

The Managing Director is also Chief Executive Officer and General Director and supervises company management within the framework of the powers granted to him/her in compliance with general planning and strategic guidelines established by the Board of Directors.

Leadership and Board Members' areas of expertise

On renewal, the Board assessed all eligibility requirements and the overall composition of the board (in qualitative/quantitative terms) in relation to recommendations from the outgoing Supervisory Board, in the case of new appointments/re-appointments (see the document published on the Bank's website on the appointment of positions currently in office).

The characteristics declared by Board Directors are diversified and suitable for ensuring a Board composition that is adequate, also for the improvement areas identified in previous self-assessments, as well as a correctly balanced composition of Board committees.

Training and continual professional development of Board Directors

The Chairman of the Board of Directors ensures that the Bank plans and adopts orientation programmes and training plans for Board members. It arranges for and promotes Directors' involvement in initiatives that will give them a greater knowledge of the sector the Bank and Group operate in, of company dynamics and their evolution, of principles of correct risk management and the legal and self-regulatory framework, and also holds meetings, including informal sessions, on strategic issues (ongoing-induction).

10 specific induction sessions were held from when the new Board of Directors took office until December 2016, with Directors exploring and discussing various aspects of the Bank's and Group's activities and the applicable legal framework, as well as their duties and responsibilities.

These sessions addressed the following issues in particular:

• governance, including the Regulations of the Board of Directors and of individual Committees, as well as updates to the Compliance Model pursuant to Legislative Decree 231/2001;
• risk management, including the Group's Risk Appetite Framework;
• the Group controls system;
• the Group technological model and IT issues;
• aspects concerning bank financial statements;
• remuneration and incentive policies;
• banking regulations.

To promote the best knowledge of the company and applicable legal framework and relative developments, Board Directors are given a set of regularly updated documents on governance, laws and regulations, main correspondence with the supervisory authorities and accounts, as well as additional documents, to help them carry out their duties.

Self-assessment of governance bodies

In February 2017, the Board of Directors conducted its annual self-assessment of the composition, performance, conduct and dynamics of the board and board committees.

This process was carried out in compliance with Board Regulations on Self-Assessment, adopted in compliance with Supervisory Provisions on Corporate Governance and the Corporate Governance Code.

The self-assessment was carried out with the professional assistance of the consultancy management experts Crisci & Partners, that assisted the Bank in its board review process in 2015. This company meets the requirements for neutrality, objectivity, competence and independence established in the Regulations.

Besides analysing the Board's activities during the year, the self-assessment also reviewed improvements made in relation to weaknesses identified in the previous self-assessment.

In line with Regulations, Crisci & Partners assisted the Board of Directors during the various stages of the self-assessment process: review (also based on questionnaires and individual interviews), data processing and preparing process outcomes.

Overall, the compliance of board governance with the Corporate Governance Code, with European Banking Authority guidelines, with Section VI of the Bank of Italy Circular No. 285 “Supervisory Provisions for Banks”, and with the best practices of listed companies, in so far as they are comparable with the Bank, was high.

Based on replies in the questionnaire and interviews, some good practices were identified to be retained and developed in the future, as part of consolidation of the new governance model. These include the further development of induction activities to cover additional topics, and earlier times for sending pre-board meeting documents that are more complex and/or highly confidential.

The internal control and risk management system

The internal control system is a three-tier system, in line with applicable laws and regulations. The system has the following types of controls:

• the first type comprises line controls; the purpose of these controls is to ensure that operations are carried out correctly and, as far as possible, are included in IT procedures. The controls are overseen by the same operating and business entities (level-one functions), also through dedicated control units that report to the managers of the entities, or are carried out by back office entities;
• the second type comprises risk and compliance controls; the purpose of these controls is to ensure, among others:
  • the correct adoption of the risk management process;
  • compliance with operating limits assigned to various functions;
  • the compliance of company operations with regulations, including self-regulation.
  The functions overseeing these controls (level-two control functions) are separate from operating functions and help define risk management policies and the risk management process. In the Intesa Sanpaolo Group, the following parent company entities and equivalent entities of Group companies are level-two control functions:
  • the Chief Compliance Officer, to whom the Anti-Money Laundering Head Office Department also reports;
  • the Chief Risk Officer Governance Area, to which the Controls Head Office Department reports.
  In compliance with Supervisory provisions issued by the Bank of Italy, which require these functions to be independent of operating entities and separate from the internal audit function, the Head of the Chief Risk Officer Governance Area and Chief Compliance Officer report directly to the Managing Director and CEO and, as required by laws, have direct access to corporate bodies, reporting the results of control activities carried out, without restrictions or intermediation.
• the third type comprises internal audits; the purpose of these audits is to identify infringements of procedures and regulations and periodically assess the completeness, adequacy, functionality (in terms of efficiency and effectiveness) and reliability of the organisational structure of other components of the internal control system and IT system (ICT audit) at a Group level, on a regular basis in relation to the nature and extent of risks. In line with Supervisory provisions, the Head of the Audit function directly reports to the Board of Directors and functionally to the Management Control Committee.

Strategic decisions concerning the internal control and risk management system at a Group level are submitted to the Board of Directors of Intesa Sanpaolo, in its capacity as parent company. In view of the single-tier governance model adopted by Intesa Sanpaolo, the Board of Directors, assisted by the Risks Committee and taking account of proposals from the Managing Director and CEO, defines and approves the overall governance and organisational structure of the Bank and Group, the internal control system guidelines, the risk appetite and risk management policies and governance processes.

Remuneration

Extensive information (in both qualitative and quantitative terms) is provided in the Remuneration Report, available on the website @.

According to the Bank's Articles of Association, Board Members are entitled to the reimbursement of expenses incurred in carrying out their duties and to fees which are determined by the Shareholders' Meeting on their appointment and refer to a fixed amount for their entire term of office. The shareholders' meeting also establishes additional fees of the Chairman and Deputy Chairman. On appointment of the Management Control Committee, the Shareholders' Meeting determines the specific fees (of the same amount) for each Board Director on the Committee, for the entire term of office, with an additional amount for the Committee Chairman.

The Managing Director and General Director receive fixed, variable fees determined by the Board of Directors in line with the remuneration policies approved by the Shareholders' Meeting. In compliance with the principle that the incentive system must be consistent and compatible with the allocation of dividends, the Supervisory Board has decided that the variable part of remuneration for the Managing Director and CEO, Carlo Messina, also considering his appointment as Chief Executive Officer, will have a maximum limit based on the fixed part of remuneration multiplied by around 0.86 and referred to the performance score (the maximum limit is determined considering the effect of the annual portion of the LECOIP on the cap including variable remuneration at 100% of fixed remuneration). Bonuses determined as above will be paid 50% in cash and 50% in shares (assuming that the materiality threshold has been exceeded) and will be subject to 60% deferment over 5 years. The payment of these deferred amounts will be subject to the annual verification of any malus conditions. The Managing Director is not a beneficiary of any stock option plan at present.

Operational Structure 

In terms of organisational logic and to ensure that Group governance has the necessary coherence, the parent company is divided into seven Business Units, comprising the aggregation of business lines with similar characteristics in terms of products and services provided and the regulatory framework, six Governance Areas, as well as Head Office Departments directly reporting to the Managing Director and CEO that carry out steering, coordination, control, support and service duties at a Group level @.

Shareholder Base

Share capital subscribed and paid up is equal to 8,731,984,115.92 euro, divided into 16,792,277,146 shares of a nominal value of 0.52 euro each, of which 15,859,786,585 ordinary shares (equal to 94.45% of share capital) and 932,490,561 non-convertible savings shares (equal to 5.55% of share capital).

At 28 February 2017, Intesa Sanpaolo’s shareholder base was composed as follows (holders of shares exceeding 3%^*):

* Asset management shareholders could have requested exemption from reporting, up to the threshold of 5%.

RELATIONS WITH SHAREHOLDERS AND THE FINANCIAL COMMUNITY

In its relations with the market, Intesa Sanpaolo adopts a specifically transparent form of conduct, especially with regard to annual and interim financial results and to Group strategies. This also takes place via meetings with the national and international financial community, in a framework of constant dialogue with the market based on correct and timely communication.

During 2016, in a still very difficult economic scenario, communications with the financial community continued to focus on sustainable profitability and the Group’s solidity as a safe point of reference for stakeholders. To guarantee access to all, again in 2016 this information was made available quickly, easily and economically through a number of channels: Internet, conference calls via a toll-free number and the free distribution of financial statements on request. The Investor Relations section of the website @ has a well-organised content and theme updates, always providing stakeholders with extensive, systematic information.

In order to contribute to the creation of sustainable value over time, regular and frequent meetings were held with the financial community that consolidated long term relations based on mutual trust.

Special attention was paid to socially responsible investors and investment analysts, with dedicated meetings and road shows.

Shareholders’ Meeting

The company considers shareholders’ meetings as one of the main opportunities for engagement with its shareholders, as well as an occasion to report information, in accordance with the principle of non-selective disclosure and rules on price sensitive information. At the same time, the meetings are a chance for shareholders to take an active role in the company and vote on issues, according to procedures established by law and by the Articles of Association.

Intesa Sanpaolo has always facilitated the most extensive involvement in shareholders' meetings and guarantees the highest standard of information, in order to give due importance to the meetings.

Shareholders' meetings are convened by the Board of Directors whenever deemed necessary, or on request of shareholders representing at least one twentieth of the share capital.

The shareholders' meeting, subject to notification to the Chairman of the Board of Directors, may also be convened by the Management Control Committee, if necessary for it to carry out its duties.

During 2016, an extraordinary Shareholders' Meeting was held on 26 February and an ordinary Shareholders' Meeting was held on 27 April.

Right to attend and vote

Each ordinary share confers the right to cast one vote. Savings shares, which may be in bearer form, do not confer the right to vote in ordinary and extraordinary shareholders’ meetings but entitle the holder only to attend and vote at the Special Meeting of savings shareholders.