3. Corporate Governance of la Caixa. Corporate Governance of la Caixa. Social Responsibility Report 2006 la Caixa 26

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1 Corporate Governance of la Caixa Social Responsibility Report 2006 la Caixa 26

2 Index 3.1. Governing Bodies General Assembly Boards of Directors Steering Committee Applicable regime to members of Governing Bodies Other Corporate Governance measures 34 Social Responsibility Report 2006 la Caixa 27

3 Social Responsibility Report 2006 la Caixa 28

4 Corporate Governance of la Caixa 3.1. Governing Bodies The Caixa d Estalvis i Pensions de Barcelona, la Caixa, is a financial institution bound by Legislative Decree 1/1994, of 6 April, on savings banks of Catalonia and is recorded in the special register of the Generalitat Government. As a savings bank it is a social and foundational, non-profit financial institution. It is not attached to any other company and it is devoted to attracting, administering and investing the savings that are entrusted to it. The governance, regime, administration and control of la Caixa are incumbent on the General Assembly, the Board of Directors and the Steering Committee, in accordance with the competences set forth in the law and the Articles of Association General Assembly The General Assembly is the supreme governing and decision-making body of la Caixa. Notwithstanding the general powers of governance, the following functions exclusively and particularly fall within the competence of the General Assembly: To appoint members of the Board of Directors and the Steering Committee. To consider the reasons for removal and revocation of the members of the governing bodies prior to the end of their term of office. To approve and modify the Articles of Association and the Regulations of the election system for members of the governing bodies. To approve a change to the registered offices. To approve conversion of the institution, mergers with others and any decision affecting its status, in addition to dissolution and liquidation. To define the general lines of the yearly plan of action of the institution. To approve management of the Board of Directors, the report, the yearly balance sheet, the profit and loss statement, and the application of these for the purposes of la Caixa. To approve management of the Obra Social, or Social Work Programme, its yearly budgets and the liquidation of these. To confirm appointment of the CEO of the institution. To appoint the Institutions of Social Interest that can appoint general directors, at the proposal of the Board of Directors. Any other matter that may be submitted to it for consideration by the bodies empowered to do so. The General Assembly is the supreme body for governance and decision-making of la Caixa Social Responsibility Report 2006 la Caixa 29

5 STRUCTURE OF THE GENERAL ASSEMBLY 34 (21%) EMPLOYEES 48 (30%) FOUNDING INSTITUTIONS AND OTHERS OF SOCIAL INTEREST 20 (13%) 58 (36%) TOTAL: 160 LOCAL CORPORATIONS DEPOSITORS The members of the General Assembly, who will have the status of general directors, shall ensure that the interests of its depositors and clients are looked after, shall ensure that the institution s social purposes are carried out within its sphere of action and shall ensure the integrity of its assets, whilst establishing the guidelines for the institution s action. The groups of interest that merge on the General Assembly are represented on it. The Catalan act on savings banks groups them into 4 groups: a) depositors b) founding institutions and others of social interest c) local corporations d) staff of the institution The first three are always referred to in the sphere of territorial action of la Caixa and this requirement is implicit in the case of the fourth group. Pursuant to the law, the percentages of representation of each one of these groups must fall within the following parameters: a) between 30% and 40% representing the depositors. b) between 25% and 35% representing the institutions. c) between 15% and 25% representing local corporations. d) between 5% and 15% representing the staff. In its Articles of Association, the Caixa d Estalvis i Pensions de Barcelona specified these percentages in the following manner, based on a total of 160 members of the Assembly: a) 58 general directors representing the depositors, accounting for 36.25%. b) 48 representatives of the founding institutions and others of social interest, accounting for 30%. c) 34 representatives of local corporations, accounting for 21.25%. d) 20 representatives of the employees, accounting for 12.5%. General Assemblies can be ordinary or extraordinary. Ordinary Assemblies are held once a year during the first calendar semester in order to allow for approval, if necessary, of the report, the balance sheet, the profit and loss statement, the project for allocating funds to the Obra Social and the renewal, as appropriate, of posts on the Board of Directors and the Steering Committee. Likewise, they allow for the discussion and resolution of other issues and proposals that may be included in the agenda. Extraordinary Assemblies will be held whenever they are called and can only deal with the matter for which the meeting has been specifically called Boards of Directors Pursuant to the law, the Board of Directors is the representative body of the General Assembly. It is charged with governance, management and administration of the savings bank and can be composed of no less than 10 and no more than 21 members. Its structure must reflect that of the Assembly. The Board of the Caixa d Estalvis i Pensions de Barcelona is formed by 21 members. It should be pointed out that since it is the most widespread savings bank in Spain, it is pertinent that the maximum number of members to the Board has been chosen - as indeed is also the case with the General Assembly. This will achieve high levels of representation on the governing bodies, both from the standpoint of the 4 groups represented and from a geographical perspective, in the regions where the institution unfolds its activities. This is appropriate in light of the evident close ties that exist between banks and the areas where they unfold their activities, particularly in terms of the distribution of its Obra Social. The composition of the Board of Directors is as follows: 8 members representing the depositors, 6 of whom must be elected from general directors from this group and 2 of whom can be elected from non-general directors whenever they meet the professional requirements. Social Responsibility Report 2006 la Caixa 30

6 6 members representing the founding institutions or those of social interest, to be elected from general directors from this group. 4 members representing local corporations, 2 of whom must be elected from general directors from this group and 2 of whom can be elected from non-general directors whenever they meet the professional requirements. 3 members representing the employees, elected from general directors from this group. In addition to the members, the CEO of la Caixa, who has a vote pursuant to the law, will also be in attendance at meetings as will the Executive Assistants to the CEO. The Social Work Committee and the Executive Committee are delegate committees of the Board of Directors. The Social Work Committee The Social Work Committee is charged with proposing new social works, for which la Caixa has been requested for assistance, to the Board of Directors for their approval, as well as proposing budgets for existing works and their management and administration according to financial rationality criteria and to serve the general interests of the area they are to be carried out to the greatest extent possible. The Social Work Committee is formed by the Chair of the Board of Directors and 8 people elected from and by the Board of Directors, in proportion to the areas that make up the Board of Directors. In attendance at the meetings will be the CEO of la Caixa and the Executive Director in charge of the Obra Social. The Executive Committee The Executive Committee is the standing delegate body of the Board of Directors. Its powers include all those delegated to it by the Board of Directors. The Executive Committee is formed by the following members of the Board of Directors: the Chair, the Vice-chairs and 4 members, belonging to each of the groups represented on the Assembly. The CEO of la Caixa will be in attendance at meetings. The Investment Committee and the Remuneration Committee are committees created within the Board of Directors which have informational functions. The Investment Committee The task of this committee is to inform the Board of Directors or the Executive Committee about the investments and divestitures which, pursuant to current legislation, are strategic and stable in nature. It shall also inform about the financial viability of such investments and about how they fit in with the budgets and strategic plans of the institution. According to current legislation, strategic shall refer to the acquisition or sale of any major investment in a listed company or participation in business projects with presence in management and on its governing bodies when they entail a total contribution from la Caixa that is greater than 3% of their own accountable means. The Investment Committee is formed by the Chair of the Board of Directors and by 2 directors, who must be elected in view of their technical ability and professional experience. The CEO of la Caixa will be in attendance at meetings. Remuneration Committee The task of this committee is to inform the Board of Directors or the Executive Committee about the general remuneration and incentives policy for the members of the Board of Directors and the managerial staff. The Remuneration Committee is formed by the Chair of the Board of Directors and by 2 directors. The CEO of la Caixa will be in attendance at meetings. The Board of Directors passes resolutions on actions for developing the purposes and goals of la Caixa STRUCTURE OF THE BOARD OF DIRECTORS 8 EMPLOYEES FOUNDING INSTITUTIONS AND OTHERS OF SOCIAL INTEREST TOTAL: 21 LOCAL CORPORATIONS DEPOSITORS Social Responsibility Report 2006 la Caixa 31

7 The Steering Committee ensures the suitable management of the Board of Directors STRUCTURE OF THE STEERING COMMITTEE 3 EMPLOYEES 3 FOUNDING INSTITUTIONS AND OTHERS OF SOCIAL INTEREST 2 1 LOCAL CORPORATIONS DEPOSITORS Steering Committee The Steering Committee is set up as a body to oversee the Board of Directors, though it stands independently of the latter and is not subordinated to it. This task of overseeing does not merely entail economic factors, it also plays an overriding role in election processes. Likewise, this committee can even propose to the Ministry of Economy and Finance of the Generalitat Government that the resolutions of the Board be suspended whenever it seems that they breach current provisions. Its structure must proportionately reflect the representation of the various groups of interest of the Assembly. Additionally, no capacity may be duplicated, in other words, none of the institutions may simultaneously have a representative on both the Board and the Steering Committee. In order to perform these functions the Steering Committee has the following powers: To oversee management of the Board of Directors, whilst ensuring that the resolutions of the latter are fitting with the guidelines and resolutions of the General Assembly and with the purposes of the institution. To monitor the operation and tasks unfolded by the intervening bodies of the institution. To be familiar with the external audit report and any recommendations made by the auditors. To review the balance sheet and the profit and loss statement for each financial year and to make any suitable observations. To submit to the General Assembly information concerning the Steering Committee s action at least once a year. To request the Chair to call the General Assembly in extraordinary cases whenever it is deemed suitable. To check the election processes for forming the General Assembly and the Board of Directors, in conjunction with the Ministry of Economy and Finance of the Generalitat. Furthermore, the Steering Committee will frequently monitor the process for forming the renewed Steering Committee. To be familiar with the reports of the delegate committee for social work and to issue its opinion. To propose to the Ministry of Economy and Finance of the Generalitat that the resolutions of the Board of Directors be suspended whenever it seems that they breach current provisions. All the functions attributed to the Audit Committee in accordance with the additional provision of Act 24/1988, dated 28 July, on the Stock Market, in whatever area for which they have not previously been attributed functions, such as: a) To inform the General Assembly concerning matters that are raised and which fall within its area of competence. b) To propose to the Board of Directors the appointment of external accounts auditors. c) To supervise the internal audit services. d) To be familiar with the financial information process and the internal control systems. e) To maintain relations with the external auditors in order to receive information on matters that may pose a risk to their independence, matters concerning the audit procedure and any other disclosures foreseen in current legislation. Any other issue attributed to it by the General Assembly within the framework of the guidelines set out in the foregoing sections. The Steering Committee is formed by 9 people elected by the General Assembly from its members who do not have the capacity of member on the Board of Directors, as follows: 3 members from the depositors. 3 members from the founding institutions Social Responsibility Report 2006 la Caixa 32

8 and others of social interest. 2 members from local corporations. 1 member from the employees. In addition to the aforementioned bodies, it is important to highlight the figure of the CEO of la Caixa, as the executive to whom the law bestows the power to execute the resolutions passed by the Board of Directors and to likewise exercise those functions entrusted to him by the institution s Article of Association and Regulations. The CEO is of particular significance as, although the individual is appointed by the Board, the election must be ratified by the General Assembly, notwithstanding his cessation. Likewise, Catalan legislation provides that the CEO shall have a voice and a vote on the Board of Directors. Consequently, there is a variety of bodies possessing varied functions entailing control and the need to strike a balance. This ties in with the recommendations set forth in the good governance code. Within each of the governing bodies a suitable balance exists between different groups sharing the same proportionality Applicable regime to members of Governing bodies As far as the characteristics of the members of the Board of Directors are concerned, it is worth pointing out that with respect to savings banks there is no need to apply marks for practice in the governing codes, since there cannot be nominee directors as the institution is foundational in nature. All directors are attached to or represent a specific interest group, although within the depositors groups and those of local corporations directors may be appointed as members of the Board of Directors. There can be up to 2 members for each of these groups elected from people who do not have the capacity of members of the General Assembly and who meet the suitable professional requirements. This does not necessarily mean that representatives from the aforementioned groups who are members of the General Assembly can be present on the Board. With respect to the circumstances surrounding both the members of the Assembly and the members of the Board of Directors and the Steering Committee, applicable regulations stipulate various incompatibilities. Consequently, these posts cannot be taken up by: a) Debtors under bankruptcy or reorganisation proceedings not following rehabilitation, in addition to persons sentenced to penalties that entail being banned from holding public posts. b) Those who prior to appointment or during the exercise of their post breach their obligations with la Caixa. c) Administrators and members of governing bodies of more than three trading companies, delegate directors, members of the Board, directors, advisors and employees of other credit institutions or companies attached thereto, or of Caixa d Estalvis i Pensions de Barcelona and corporations and institutions promoting, supporting or warranting credit establishments or institutions. d) Officials serving the administration with functions that are directly linked to the activities of banks. e) Politically appointed public posts in public administrations and the president of the founding corporation or institution. f) Those who have exercised posts as a member of the Board or as CEO for more than 20 years at the same bank or at another takeover or merger. The duration of the post of the members of the Assembly, the Board and the Steering Committee is 6 years and members are eligible for re-election for a second term if they meet the necessary requirements. The Social Responsibility Report 2006 la Caixa 33

9 maximum continuous or intermittent period is a term of 12 years. Calculation of this limit does not include periods for which the post may have been held due to substitution as this will be calculated in its entirety for the person who was appointed in the first instance. After 8 years have elapsed since the completion of the last term, the limit will once again be calculated for up to 12 years. Similarly, general directors, members of the Board of Directors and the Steering Committee cannot be tied to la Caixa or any other company for which the latter holds over 25% as a result of a work, services or supply contract or tasks remunerated when said capacity is held or during the two years following cessation, except in the case of labour relations in which the capacity of director is held due to representation of staff. It is also important to bear in mind that the concession of credits, endorsements and guarantees to the members of the Board of Directors, the Steering Committee, to the CEO and his or her spouses, ascendants, descendents and collateral relatives up to the second degree, and also to companies for which these persons own a majority investment, either together or individually, or even for those companies in which they hold executive posts, must be approved by the Board of Directors and expressly permitted by the Ministry of Economy and Finance of the Generalitat. This regime is likewise applicable to operations of the aforesaid persons, whether individuals or legal entities, or any issued by the latter the purpose of which is to dispose of their assets in the institution, their property rights or values. Generally speaking, operations concerning individuals that are to a value under or equal to 128,719 euros and those that do not exceed 321,796 euros in the case of legal entities, are authorised. Nevertheless, operations with legal entities who hold director s post in representation of the institution and who have no other personal or family economic interest, either directly or through other persons are not bound by any authorisation. From another perspective, as an institution that issues securities, the Caixa d Estalvis i Pensions de Barcelona is bound by the Internal Regime on Conduct on the Stock Market, approved by the Spanish Confederation of Savings Banks, to which it signed up by means of the resolution of the Board of Directors dated 24 July 2003, ratified on 25 September These Regulations govern various areas such as respecting current legislation, market abuse, relevant information, general rules for action, action on behalf of others, action on the institution s behalf, operations on behalf of directors or employees of another institution, information on conflicts of interest, obligations of issuers, information barriers, the body charged with monitoring, and breach of Regulations. Thereby, rules are maintained which adapt to the latest changes in these matters, introduced by Act 44/2002, of 22 November, on measures for revising the financial system which, in turn, has been developed and completed by Development Rules approved by the institution. They have to do with a host of specific issues such as information barriers, the handling of privileged information and mandatory record books Other Corporate Governance measures Once the applicable legal regime has been disclosed to the governing bodies of the Caixa d Estalvis i Pensions de Barcelona, some of the measures adopted by the institution which affect corporate governance are detailed: 1) In order to address one of the reproaches that have traditionally been laid against banks, namely being subject to excessive political influence, the Caixa d Estalvis i Social Responsibility Report 2006 la Caixa 34

10 Pensions de Barcelona decided that the system for electing members to the General Assembly representing the depositors would be one of mediating members appointed by means of a draw and election from the directors in each district. The direct election system may distort the representation of these interests as there are few organisations the size of la Caixa, aside from political parties, who can organise bids and a genuine election campaign right across the region where they unfold their activity. The mediator system and the election of mediators in each district seeks to prevent the election of representatives for the depositors being affected by politics and from exerting an excessive influence on la Caixa. 2) As far as the functions the law attributes to the Audit Committee (the delegate body of the Board of Directors) in the sphere of corporations, pursuant to the Articles of Association of the Caixa d Estalvis i Pensions de Barcelona, it has been decided that they should be taken on by the Steering Committee. The reason for this is that this committee is a body that is not in any way related to the Board of Directors, thereby enabling it to fulfil recommendations for good governance with greater strictness. 3) It has been decided that the maximum age for holding the post of member on the Board of Directors - in addition to the members of the Steering Committee - will be set at 78 years. However, if this age is reached during a term, the post will continue to be held until the Ordinary General Assembly that is held subsequent to the aforementioned age being reached. Furthermore, in order to avoid shortterm appointments, it has been decided that the age of the candidate must be less than 75 years at the time of election. 4) The Articles of Association of the Caixa d Estalvis i Pensions de Barcelona stipulate an incompatibility. Specifically, any people who belong to the Board of Directors or to the Steering Committee of another savings bank or financial or credit institution cannot form part of this Board of Directors. Public or private institutions and local corporations that are represented on the Board of Directors or on the Steering Committee of another savings bank cannot have the same representatives on the Steering Committee of the Caixa d Estalvis i Pensions de Barcelona. Social Responsibility Report 2006 la Caixa 35