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7.2 ›

ASSESSMENT OF CORPORATE GOVERNANCE

1. IDENTIFICATION OF THE CODE OF CORPORATE GOVERNANCE ADOPTED

The Corporate Governance Code to which the company is subject or has decided voluntarily to abide by shall be identified, under the terms and pursuant to article 2 of this regulation.

The place where the texts of the Corporate Governance Codes to which the Company is subject are made available to the public shall also be indicated (article 245-A(1)(p))

In 2013, the regulatory and advisory framework for matters of corporate governance was subject to a major overhaul.

Under the terms of this overhaul, and as a Company issuing shares that are admitted to trading on the Euronext Lisbon regulated market, REN finds itself subject to, in matters of disclosure of information relating to corporate governance, to the regime established by the Portuguese Securities Code, by Law No. 28/2009, of June 19, and by the CMVM regulation no. 4/2013 (the latter was approved in 2013 and is applicable to governance reports which relate to this financial year), in matters of disclosure of information relating to corporate governance.

Amongst the many amendments to CMVM regulation no. 4/2013, it is worth noting the possibility for issuers to opt for the adoption of the CMVM governance code or an alternative code issued by an entity dedicated to that purpose.

Also in this respect, and in an advisory sense, the CMVM and the Portuguese Institute for Corporate Governance (IPCG) approved, respectively, in 2013 and 2014, new corporate governance codes. This outcome was the result of a long process of discussion and consultation with various market players.

When preparing this report, REN referred to the CMVM Corporate Governance Code, considering, on one hand, market practices in this regard it was possible to establish that the main issuers continue to implement CMVM recommendations while on the other, it is this Code that has guided current governance bodies in relation to practices and principles adopted.

In summary, for the purposes of this report, REN took the decision to adopt the recommendations laid out in the Corporate Governance Code of the CMVM, approved in 2013, which can be viewed at www.cmvm.pt.

2. ANALYSIS OF COMPLIANCE WITH THE CORPORATE GOVERNANCE CODE ADOPTED

Pursuant to article 245-A(1)(o) of the Portuguese Securities Market Code, a statement shall be included on the acceptance of the Corporate Governance Code to which the issuer is subject, stating any divergence from the said code and the reasons for the divergence.

 

The information submitted should include, for each recommendation:

a) information that enables the verification of compliance with the recommendation or referral to the part of the report where the issue is discussed in detail (chapter, title, paragraph, page);

b) grounds for the potential non-compliance or partial compliance thereof;

c) in the event of non-compliance or partial compliance, the details of any alternative mechanism adopted by the company for the purpose of pursuing the same objective of the recommendation.

As mentioned above, REN took the decision to adopt all recommendations laid out in the Corporate Governance Code of the CMVM, approved in 2013.

Therefore, REN hereby declares that it fully adopts all the abovementioned CMVM recommendations on corporate governance matters laid down in said Code, except for Recommendations I.1. (partially), I.2. to I.4 and II.1.4, which are not complied with for the reasons given below.

The chart below identifies CMVM recommendations and individually mentions those that have been fully adopted by REN and those that have not. It also indicates the chapters in this report where a more detailed description of measures taken for their adoption may be found with the aim of complying with said CMVM recommendations.

RECOMMENDATION / CHAPTER98 INDICATION ON THE ADOPTION OF THE RECOMMENDATION CHAPTER OF THE REPORT

I. Voting and Company control

I.1. Companies shall encourage shareholders to attend and vote at general meetings, notably by not setting an excessively large number of shares required for the entitlement of one vote and implementing the means necessary to exercise the right to vote by mail and electronically.

Partially adopted

(With regard to the exercise of voting rights by electronic means, REN’s Articles of Association set forth that shareholders may exercise their voting rights by electronic communication, in accordance with the terms, time and conditions to be defined in the notice to convene. Although REN considers that the participation of shareholders is fully guaranteed at general meetings through correspondence vote and representation mechanisms, the Company considers that electronic voting may provide in the future important flexibility for its shareholders and for this reason included this option in the.)

Part 1, Chapter 7.1.2.I.12.

I.2. Companies shall not adopt mechanisms that hinder the approval of resolutions by its shareholders,
for instance, setting a resolution-fixing quorum that outnumbers that which is prescribed by law.

Not adopted

(The constitutive quorum, at first call, is 51% of the share capital. Moreover, the quorum for adopting resolutions on changes to the, demerger, merger, transformation or dissolution is two thirds
of the votes issued, whether at first or second call.
The aim of the mechanisms set out in article 11(1) and (2) of the Articles of Association is to ensure adequate representation of shareholders in light
of the nature of the activities carried out by the Company and its shareholder structure. In accordance with article 11(3), resolutions on changes relating to articles 7-A, 12(3) and 11 of the Articles of Association require the approval of three quarters of the votes issued. In summary, the statutory rules in question are best suited to the specificities of the Company, bearing in mind the underlying aim of this recommendation
and that this is related to a matter which is strictly within the realm of shareholder decision.)

Part 1, Chapters 7.1.2.I.14. and 7.1.3.I.48.

 
I.3. Companies shall not establish mechanisms intended to cause mismatching between the right to receive dividends or the subscription of new securities and the voting right of each ordinary share, unless duly justified in terms of long-term interests of shareholders.

Not adopted

(article 12(3) of the Articles of Association stipulates that the votes attached to REN shares shall not be counted if issued by any shareholder, on their own behalf or as representative of another shareholder, which exceed 25% of the total votes corresponding to REN’s share capital. For this purpose, the rights to vote inherent to REN shares which, pursuant to article 20(1) of the Portuguese Securities Code, are attributable to them are taken into account. In accordance with article 12(12) of the, shareholders which, directly or indirectly, exercise control over a company which either produces or sells electricity or natural gas are inhibited to exercise their social rights at the General Meeting with regard to any Company actions, except when ERSE has concluded that no risk of conflict of interest exists. Nevertheless, article 12(3) and (12) of the Articles of Association are the result of legal requirement and/ or administrative decision and do not seek to limit voting rights, but rather to ensure the existence of a penalty system for breaching the legal limit on the ownership of the abovementioned shares and compliance with the legal restriction on voting rights by certain entities.)

Part 1, Chapters 7.1.1.I.12.
I.4. Companies’ articles of association which set out a limitation on the number of votes that may be held or exercised by a single shareholder, individually or jointly with other shareholders, shall also establish that, at least every five years, the amendment or maintenance of this provision shall be subject to a resolution by the General Meeting – without aggravated quorum requirements vis-à-vis that legally established – and that upon such resolution, all votes cast shall be counted without applying such limitation.

Not adopted

(article 12(3) of the Articles of Association stipulates that the votes attached to REN shares shall not be counted if issued by any shareholder, on their own behalf or as representative of another shareholder, which exceed 25% of the total votes corresponding to REN’s share capital. For this purpose, the rights to vote inherent to REN shares which, pursuant to article 20(1) of the Portuguese Securities Code, are attributable to them are taken into consideration. In accordance with article 12(12) of the, shareholders which, directly or indirectly, exercise control over a company which either produces or sells electricity or natural gas are inhibited from exercising their social rights at the general meeting with regard to any Company’s actions, except when ERSE has concluded that no risk of conflict of interest exists. Nevertheless, the abovementioned provisions are the result of legal requirement and/or administrative decision and do not intend to limit voting rights, but rather to ensure the existence of a penalty system for breaching the legal limit on the ownership of the abovementioned shares and compliance with the legal restriction on voting rights by certain entities. As such, there is no mechanism in the Articles of Association to renew or repeal these statutory rules, as they exist in compliance with legal requirements.) 

 Part 1, Chapter 7.1.1.I.5. and 7.1.1.I.2
I.5. Measures that have the effect of requiring payment or the assumption of fees by the Company in the event of change of control or change in the composition of the management body, thus hindering the free transferability of shares and free assessment of the performance of the members of the management body by shareholders, shall not be adopted. Adopted  Part 1, Chapter 7.1.1.I.4.

II. Supervision, management and monitoring

II. 1. Supervision and management II.1.1. Within the legal limits established, and unless due to the reduced size of the Company, the Board of Directors shall delegate the day-to-day management of the Company. The delegated powers shall be identified in the Company’s annual Corporate Governance Report.

Adopted Part 1, Chapter 7.1.2.II.21. 

II.1.2. The Board of Directors shall ensure that the Company acts in accordance with its aims and does not delegate its powers, notably with regard to: i) the definition of the Company’s strategy and general policies; ii) the definition of the Group’s corporate structure; iii) the decisions that should be considered as strategic due to their value, risk or special characteristics.

Adopted Part 1, Chapter 7.1.2.II.21.
II.1.3. The General and Supervisory Board, in addition to its supervisory duties, shall take full responsibility at corporate governance level, whereby through the statutory provision or by equivalent means, shall set out the requirement for this body to decide on the strategy and major policies of the company, the definition of the corporate structure of the group and the decisions that shall be considered strategic due to the amount or risk involved. This body shall also assess compliance with the strategic plan and the implementation of key policies of the Company.

Not applicable

(This recommendation is not applicable given the corporate governance model adopted by REN)

 Part 1, Chapter 7.1.2.II.15.

II.1.4. Except by virtue of the reduced dimension of the Company, the Board of Directors and the General and Supervisory Board, depending on the corporate governance model adopted, shall create the necessary committees in order to:

a) ensure competent and independent assessment of the performance of executive directors and their overall performance, as well as that of the different existing committees;

b) reflect on the system, structure and governance practices adopted, verify their effectiveness and propose to the competent bodies measures to be implemented with a view to their improvement.

Adopted

 

Part 1, Chapter 7.1.2.II.27. 
II.1.5. The Board of Directors or the General and Supervisory Board, depending on the applicable model, should set goals in terms of risk-taking and create control systems to ensure that the risks e effctively incurred are consistent with those goals.  Adopted

Part 1,
Chapters 7.1.3.III.50 to 55.

II.1.6. The Board of Directors shall include a number of non-executive members ensuring the e effective ability to supervise, monitor and assess the activity of the remaining members of the management body. Adopted   Part 1, Chapter 7.1.2.II.18.
II.1.7. Non-executive members shall include an appropriate number of independent members, taking into account the adopted governance model, the size of the company, its shareholder structure and the relevant free float.

The independence of the members of the General and Supervisory Board and members of the Audit Committee shall be assessed as per the law in
force. Regarding other members of the Board of Directors, these are considered independent if they are not associated with any specific group of interests in the Company nor are under any circumstance likely to a ect an exempt analysis or decision, notably due to:
a) having been an employee at the Company or at a company in a controlling or group relationship within the last three years;
b) having, in the past three years, provided services or established a commercial relationship with the company or company with which it is in a controlling or group relationship, either directly or as a partner, board member, manager or director of a legal person;
c) being paid by the company or by a company with which it is in a control or group relationship in addition to the remuneration arising from performing the duties of a board member;
d) living with a partner or a spouse, relative or any first degree next of kin and up to and including the third degree of collateral affinity of board members
or natural persons that are direct or indirect holders of qualifying holdings;

e) being a qualifying shareholder
or representative of a qualifying shareholder.

Adopted Part 1, Chapter 7.1.2.II.18. 
II.1.8. Directors performing executive duties, when so requested by other corporate body members, shall provide any information requested by them in a timely and appropriate manner. Adopted Part 1, Chapters 7.1.2.II.18. and 23.

II.1.9. The Chairman of the Executive Board or of the Executive Committee shall submit, as applicable, to the Chairman of the Board of Directors, to the Chairman of the Supervisory Board, to the Chairman of the Audit Committee, to the Chairman of the General and Supervisory Board and to the Chairman of the Financial Matters Committee, the notices to convene and minutes of the relevant meetings.

Adopted   Part 1, Chapter 7.1.2.II.23.
II.1.10. If the Chairman of the management body carries out executive duties, said body shall appoint, from among its members, an independent member to ensure the coordination of the work of other non-executive members and the conditions so that they can make independent and informed decisions or to ensure the existence of an equivalent mechanism for such coordination Adopted   Part 1, Chapter 7.1.2.II.18.

II. 2. Supervision

II.2.1. Depending on the applicable model, the Chairman of the Supervisory Board, Audit Committee or Financial Matters Committee shall be independent in accordance with the applicable legal criteria and be appropriately qualified to carry out his or her duties.

 Adopted  Part 1, Chapter 7.1.2.II.18.

II.2.2. The supervisory body shall be the main representative of the external auditor and the first recipient of the relevant reports, and is responsible, inter alia, for proposing its remuneration and ensuring that the proper conditions for the provision of services are provided within the company.

Adopted  Part 1, Chapters 7.1.2.III.38 and 7.1.2.V.45.

II.2.3. The supervisory body shall assess annually the external auditor and propose to the competent body its dismissal or termination of the contract for the provision of its services when there is a just cause for said purpose

Adopted Part 1, Chapter 7.1.2.V.45. 

II.2.4. The supervisory body shall assess the functioning of the internal control and risk management systems and propose the adjustments that may be deemed necessary.

Adopted  Part 1, Chapters 7.1.2.III.38. and 6.1.3.III.50.

II.2.5. The Audit Committee, the General and Supervisory Board and the Supervisory Board decide on the work plans and resources concerning the internal audit services and services that ensure compliance with the rules applicable to the Company (compliance services), and should be recipients of reports made by these services at least when it concerns matters related to accountability, identification or resolution of conflicts of interest and detection of potential illegalities.

Adopted Part 1, Chapter 7.1.3.III.51. 

II.3. Setting of remuneration

II.3.1. All members of the Remunerations Committee, or equivalent, shall be independent in regard to the executive members of the management body and such committee shall include, at least, one member with know-how and experience in remuneration policy matters.

Adopted  Part 1, Chapters 7.1.4.II.67. and 68.

II.3.2. Any natural or legal person which provides or has provided, over the past three years, services to any structure reporting to the management body, to the management body of the Company or that has a current relationship with the Company or a consultant to the Company, shall not be engaged to assist the Remunerations Committee on the performance of its duties. This recommendation also applies to any natural or legal person which has an employment or a services agreement with the abovementioned persons.

Adopted  Part 1, Chapter 7.1.4.II.67.

II.3.3. The declaration on the remuneration policy of the management and supervisory bodies referred to under article 2 of Law No. 28/2009 of June 19, shall also contain the following:

a) Identification and details of the criteria for determining the remuneration to be paid to the members of the corporate bodies;

b) Information on the maximum potential amount, in individual terms, and the maximum potential amount, in aggregate form, to be paid to members of corporate bodies, and identification of the circumstances whereby these maximum amounts may be payable;

c) Information on the enforceability or unenforceability of payments for the dismissal or termination of appointment of board members.

Adopted  Part 1, Chapter 7.1.4.III.69.
II.3.4. A proposal shall be submitted to the General Meeting on the approval of plans for the allocation of shares, and/or stock options or based on variations in share price, to members of the corporate bodies. The proposal shall contain all the necessary information for the proper evaluation of the plan. Not applicable   Part 1, Chapter 7.1.4.VI.85.

II.3.5. Approval of any retirement benefit scheme established for members of corporate bodies shall be submitted to the General Meeting. The proposal shall contain all the necessary information for the proper evaluation of the system.

 Not applicable  Part 1, Chapter 7.1.4.III.76.

III. Remuneration

III.1. The remuneration of the executive members of the management body shall be based on actual performance and shall discourage taking on excessive risk.

Adopted  Part 1, Chapters 7.1.4.III.69. and 70.

III.2. The remuneration of non-executive members of the management body and the remuneration of the members of the supervisory body shall not include any component which value depends on the performance of the Company or of its value.

Adopted  Part 1, Chapters 7.1.4.III.69., 70. and IV.77.

III.3. The variable component of the remuneration shall be globally reasonable vis-à-vis the fixed component, and maximum limits shall be set out for all components.

Adopted  Part 1, Chapters 7.1.4.III.69., 70. and 71.

III.4. A significant part of the variable remuneration shall be deferred for a period of no less than three years, and the right to its payment shall depend of the Company’s steady positive performance during said period.

Adopted Part 1, Chapter 7.1.4.III.72. 

III.5. Members of the management body shall not enter into contracts, either with the Company or with third parties, which have the e ect of mitigating the risk inherent to the variability of the remuneration established for them by the Company.

Adopted  Part 1, Chapter 7.1.4.III.73.

III.6. Until the end of their term of o ce, the Executive Directors shall hold the Company shares that were allocated to them by virtue of variable remuneration schemes, up to twice the value of the total annual remuneration, with the exception of those shares that are required to be sold for the payment of taxes on the gains of said shares.

Not applicable Part 1, Chapter 7.1.4.III.73.

III.7. When the variable remuneration includes stock options, the beginning of the exercise period shall be deferred for a period of no less than three years.

Not applicable  

Part 1, Chapters 7.1.4.III.69. and 74.

III.8. When the removal of a director is not due to serious breach of his duties nor to his unfitness for the normal exercise of his functions, but is yet due to inadequate performance, the company shall be endowed with the adequate and necessary legal instruments so that any damages or compensation, beyond that which is legally due, is unenforceable.

Adopted  Part 1, Chapter 7.1.4.V.83

IV. Auditing

IV.1. Within the scope of its duties, the external auditor shall verify the implementation of the remuneration policies and systems for corporate bodies, the e ectiveness and functioning of the internal control mechanisms and report any deficiencies to the Company’s supervisory body.

Adopted Part 1, Chapters 7.1.2.III.38 and 7.1.3.III.50. 

IV.2. The Company or any entities with which it maintains a controlling relationship shall not engage the external auditor, or any entities in a group relationship with said external auditor or which are part of the same network, for services other than audit services. Should there be reasons for the engagement of such services – which shall be approved by the supervisory body and explained in the annual Corporate Governance Report, such services shall not exceed 30% of the total value of the services provided to the Company.

Adopted Part 1, Chapter 7.1.2.V.46 and 7.1.2.V.47 

IV.3. Companies shall promote the rotation of the auditor at the end of two or three terms of o ce, as they respectively are of four or three years. Their continuance beyond this period shall be grounded on a specific opinion of the supervisory body, which shall expressly consider the auditor’s independence conditions and the advantages and costs arising out of its replacement.

Adopted Part 1, Chapter 7.1.2.V.44.  

V. Conflicts of interests and transactions with related parties

V.1. Deals entered into between the Company and qualifying shareholders, or with entities in a relationship with such shareholders as set out in article 20 of the Portuguese Securities Code, shall be carried out under normal market conditions.

Adopted

Part 1,
Chapters 7.1.3.V.59. to 65.

V.2. The supervisory or monitoring body shall establish procedures and criteria that are required to define the relevant level of significance of business with holders of qualifying holdings – or entities with which they are in any of the relationships described in article 20(1) of the Portuguese Securities Code. Completion of a significantly relevant business is dependent upon prior opinion of that body.

Adopted

Part 1,
Chapters 7.1.3.IV.56. to 58.

VI. Information
VI.1. Companies shall provide,
their websites, in both Portuguese and English, access to information on their progress as regards their economic, financial and governance state of play.

Adopted   
VI.2 Companies shall ensure the existence of an investor support and permanent contact with the market o ce, which responds to requests from investors in a timely fashion and a record of the submitted requests and their processing shall be kept Adopted   

 

98 “Chapter” refers to CMVM’s Corporate Governance Code.

3. OTHER INFORMATION

The company shall provide any additional information which, not covered by the previous points, is relevant for understanding the governance model and practices implemented. REN is not in the possession of any additional information which is relevant for understanding the governance model and practices implemented.