Report relating to Netia S.A.’s compliance with the corporate governance rules in 2007 (14/2008)
a) The Management Board of the Company represents that in 2007 the Company complied with the corporate governance rules stated in the document entitled “Best Practices in Public Companies 2005” as per the Company’s declaration published in the current repost dated 21 March 2007 repeating declaration presented in the document published by the Company in the current report dated 30 June 2005. This document presented the Company’s position with respect to the scope of observance of the corporate governance rules and the grounds given for non-compliance with specific rules as designated by the Company. All the rules which the Company declared to observe have been complied with by the Company in 2007.
Since the “Code of Best Practice for WSE Listed Companies” became effective on 1 January 2008, the Management Board of the Company declares that it appreciates the importance of corporate governance rules provides in that document and the role played by those rules in enhancing the transparency of stock exchange listed companies, and it will exercise duly diligent efforts for those rules to be observed in Netia to the greatest extent possible.
b) Description of the operation of the General Shareholders’ Meeting and its fundamental authorities, and shareholders’ rights and ways in which they are exercised
Netia’s General Shareholders’ Meeting (“GSM”) operates on the basis of the Commercial Companies Code and Netia’s statute. The GSM are convened through announcements placed in Monitor Sądowy i Gospodarczy. Unless the Commercial Companies Code or the Statue provide otherwise, the resolutions of the GSM are adopted by absolute majority of votes cast with abstentions counted as votes cast.
Pursuant to the Statute of the Company, resolutions on a Company merger, Company dissolution or transfer of the Company’s enterprise or a material part thereof are adopted by a 3/4 majority of the votes cast. Resolutions on withdrawing the Company’s shares from public trading, or on de-listing the Company’s shares from the Warsaw Stock Exchange, or on a merger having the same effects, are adopted by a 4/5 majority of the votes cast with those voting representing at least ½ of the Company’s share capital. Resolutions of the GSM are required in matters provided for in the Commercial Companies Code, and in particular regarding decisions on the division and distribution of profit of the Company. No approval of the GSM is required for the purchase or sale of the ownership or the perpetual usufruct right to real estate or any share in such rights, irrespective of the value of such transaction.
The Management Board submits proposed GSM resolutions for a prior opinion of the Supervisory Board of the Company. Such draft resolutions are delivered to Supervisory Board members not later than ten days prior to the scheduled date of the GSM. If the Supervisory Board fails to give its opinion on any proposed resolution at least one day before the scheduled date of the GSM, the Supervisory Board is deemed to have not given its opinion. A negative opinion or the lack of an opinion of the Supervisory Board do not hinder the adoption of such resolution by the GSM.
The Shareholders may participate in the GSM and exercise their right to vote in person or by proxies. Members of the Management Board of the Company and the Company’s employees may not act as proxies at the General Shareholders’ Meeting. The Statute of the Company provides that the GSM may adopt By-Laws of the GSM to specify the rules governing the operation thereof.
According to the Company Statute, save for one thousand ordinary registered series A shares and one thousand preferred registered series A1 shares, the Company’s share capital consists of ordinary bearer shares. The holders of the preferred registered series A1 shares appoint and dismiss one member of the Company’s Supervisory Board. The transfer of any preferred registered series A1 shares shall result in the loss of the above referenced preferences. Exchange of registered series A1 shares into bearer shares is inadmissible. The rights of Company shareholders, including minority shareholder rights are exercised within the scope and in the manner which complies with the Commercial Companies Code.
c) Composition of and rules of operation of the management and supervisory authorities of the Company and the committees thereof.
1. The Company’s Management Board acts on the basis of the Commercial Companies Code and the Company Statute. Pursuant to the Company Statute, the Management Board consists of up to ten members, and the number of such members is established by the Supervisory Board. As of the date of this report the Company’s Management Board consists of: Mirosław Godlewski – President of the Management Board, Piotr Czapski, Jonathan Eastick, Bertrand LeGuern and Tom Ruhan. The Management Board members are appointed and dismissed by the Supervisory Board for a term of office of five years. The Supervisory Board establishes and changes the remuneration, and defines the terms of employment of the Management Board members, and it establishes and changes the incentive plans for the Management Board members. According to the Company Statute, the Management Board manages the activities of the Company, adopts resolutions necessary for performance of tasks and represents the Company before courts, authorities, offices and third parties. The Management Board handles the matters, which are not within the exclusive competence of the General Shareholders’ Meeting or the Supervisory Board. Resolutions of the Management Board are adopted by a simple majority of votes. Two members of the Management Board acting together or one member of the Management Board acting together with a commercial proxy (prokurent) are authorised to make declarations on behalf of the Company. The Supervisory Board may specify the rules governing the operation of the Management Board in the By-laws of the Management Board.
2. The Company’s Supervisory Board acts on the basis of the Commercial Companies Code, the Company Statute, and the By-laws of the Supervisory Board of Netia S.A. (link to the By-laws: http://investor.netia.pl/corporation,board_bylaw.html). The Supervisory Board consists of up to seven members. Members of the Supervisory Board are appointed and dismissed by the General Shareholders’ Meeting for a term of office of five years, provided that one member of the Supervisory Board is appointed and dismissed by the holders of series A1 shares. As on the date of this report the Supervisory Board consists of : Wojciech Sobieraj – Chairperson, Constantine Gonticas – Vice-Chairperson, Raimondo Eggink, Bogusław Kasprzyk, Bruce McInroy, Tadeusz Radzimiński and Pantelis Tzortzakis. The Chairperson and the Vice-Chairperson of the Supervisory Board are elected by the Supervisory Board from amongst the members of the Supervisory Board.
The Vice-Chairperson of the Supervisory Board performs the functions of the Chairperson of the Supervisory Board set forth in the Statute of the Company in case the mandate of the Chairperson of the Supervisory Board expires for any reason until a new Chairperson of the Supervisory Board is elected, as well as during their illness or when they are temporarily unable to fulfil their duties. The Chairperson has the casting vote in the event of a deadlock among the members of the Supervisory Board. In addition, the Chairperson has the right to call and preside over meetings of the Supervisory Board and other procedural rights normally associated with such office.
According to the Company Statute at all times at least two Supervisory Board members shall be independent members. As of the date of this report five Supervisory Board members satisfy the criteria of independence as stated by the Company’s Statute and the “Code of Best Practice for WSE Listed Companies”. The members of the Supervisory Board are remunerated for serving as Supervisory Board members in accordance with the Rules of Remunerating Supervisory Board Members adopted by the General Shareholders’ Meeting.
The powers of the Supervisory Board include general supervision of the activities of the Company. Resolutions of the Supervisory Board are required in matters provided for in the Commercial Companies Code and §16.3 of the Company Statute (link to the Statute: http://investor.netia.pl/corporation,statute.html). Save as prescribed otherwise in the Company Statute all resolutions of the Supervisory Board are adopted by an absolute majority of votes cast in favour of such resolution (abstentions being counted as votes cast). Resolutions of the Supervisory Board are only valid if a quorum is present at such meeting. The quorum consists of a majority of the total number of Supervisory Board members. According to the Statute the Meetings of the Supervisory Board are convened at least once every quarter. The Chairperson also convenes meetings of the Supervisory Board at the written request of the Management Board of the Company or any member of the Supervisory Board.
3. The Supervisory Board has two standing committees: the Audit Committee and the Nominations and Remuneration Committee. The Committee members are elected by the Supervisory Board from among its members. As of the date of this Report the membership of the committees is as follows: Audit Committee: Raimondo Eggink and Bruce McInroy; Nominations and Remuneration Committee: Constantine Gonticas and Bogusław Kasprzyk.
The duties of the Audit Committee include advising the Supervisory Board on issues of proper implementation of the budget and financial reporting standards and internal audit of the Company and the capital group (as defined in the Accounting Act dated 29 September 1994, as amended), and the cooperation with the statutory auditors of the Company. The Audit Committee meetings are held at least once every quarter prior to the Company’s publication of the financial statements.
The duties of the Nominations and Remuneration Committee is to support the Company’s achievement of its strategic objectives by presenting the Supervisory Board with opinions and motions related to the shaping of the management structure, including on organisation solutions, the remuneration system and selection of personnel having the qualifications required to ensure success of the Company.
The principles, scope and methods of operation of the Supervisory Board Committees have been regulated in detail in the By-laws of the Supervisory Board of Netia S.A. (link to the By-laws: http://investor.netia.pl/corporation,board_bylaw.html)
d) Description of the basic characteristics of the internal control and risk management systems applied by the Company in the preparation of its financial statements.
The Management Board of the Company is responsible for the internal control system at the Company and for the effectiveness thereof in the process of preparing financial statements and interim reports which are made and published in accordance with the standards stated in the Regulation dated 19 October 2005 on current and interim reports published by issuers of the securities.
The financial department headed by the Chief Financial Officer – Management Board member, is responsible for the preparation of the financial statements and interim reports of the Company.
The financial data which is the basis for the financial statements and interim reports are taken from the Company’s monthly financial and management reporting. Once the accounts for each calendar month are closed the mid level and senior management at the financial department headed by the Chief Financial Officer – Management Board member jointly analyse the financial results of the Company as compared to the assumptions made in the budget.
All identified errors are corrected in the Company’s books without delay in accordance with the accounting policy adopted by the Company. The Company applies the rule of independent review of the published financial reports whether or not such review or audit is required by law. The quarterly reports, interim statements and financial data which is the basis of the reports are reviewed by the Company auditor. The review applies in particular to the adequacy of financial data and the scope of the required disclosures. The results of the quarterly review or audit are presented by the auditor to the management of the Company financial department at summary meetings and to the Audit Committee. After the review or audit is completed, the financial statements and interim reports are delivered to the members of the Company’s Audit Committee. Moreover, prior to the Management Board’s approval of the interim financial statements for publication, the Chief Financial Officer – Management Board member presents the Audit Committee with important aspects of a quarterly/annual financial statement, particularly with changes in the accounting principles, if any, important revaluations or accounting opinions, material disclosures and business transactions. The interim financial statements are approved for publication after acceptance by the Audit Committee. Moreover, the auditors present the Audit Committee with information on any shortcomings of the control mechanisms which they established in the course of auditing the financial statements. Any recommendations made after a review of risk management procedures and internal control mechanisms are gradually implemented.