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CORPORATE GOVERNANCE FOREWORD

In document Board of Directors and Auditors (Page 77-82)

The Fiat Group adopted and adheres to the Corporate Governance Code for Italian Listed Companies issued in March 2006, with additions and amendments related to the specific characteristics of the Group.

In accordance with legal and regulatory requirements, every year the Company prepares an “Annual Report on Corporate Governance” which provides a general description of the corporate governance system adopted by the Group and contains information on its ownership structure and adherence to the provisions of the Corporate Governance Code, including key governance practices and the principal characteristics of the system of risk management and internal control over financial reporting. This Report, available in the Corporate Governance section of the Fiat Group website (www.fiatgroup.com), is divided into four sections: the first contains a description of the governance structure; the second gives information on our ownership structure; the third provides an analysis of the implementation of the Code and describes the principal characteristics of the system of risk management and internal control over financial reporting, in addition to the principal governance practices implemented; and, the fourth consists of summary tables and corporate governance documents for the Fiat Group, as well as a side-by-side comparison showing the principles of the Code and how they have been implemented. A summary of aspects relevant to the Report on Operations is provided below. The Corporate Governance Code is available on the website of Borsa Italiana S.p.A. (www.borsaitaliana.it).

DIRECTION AND COORDINATION

Fiat S.p.A. is not subject to direction and coordination of any other company or entity and is fully independent in the definition of its general strategic and operating guidelines. Pursuant to Article 2497-bis of the Civil Code, the Company’s direct and indirect subsidiaries in Italy, except in certain specific cases, have named Fiat S.p.A. as the entity which exercises direction and coordination over them. This activity consists in providing general strategic and operating guidelines for the Group and takes concrete form in the definition and updating of the internal control system, corporate governance model and corporate structure, the issue of a Code of Conduct which is adopted throughout the Group, and the establishment of general policies for the management of human and financial resources, purchasing of production materials, and marketing and communication. Furthermore, coordination of the Group includes specialised companies which provide centralised cash management, corporate and accounting, and internal audit services.

Direction and coordination undertaken at Group level enables subsidiaries, which retain full management and operating autonomy, to realize economies of scale by availing themselves of professional and specialised services with improving levels of quality and to concentrate their resources on the management of their core business.

BOARD OF DIRECTORS

Pursuant to the By-laws, the Board of Directors may have from nine to fifteen members. At the Annual General Meeting held on 27 March 2009, Shareholders elected fifteen Board members whose term of office expires on the date of the General Meeting held to approve the 2011 Financial Statements. Pursuant to the By-laws (Article 11), Board members are appointed through a voting list system which ensures that minority shareholders can elect a director. The minimum equity interest required for submission of a list of candidates is that established by Consob with reference to the Company’s market capitalisation for the last quarter of the final financial year of the mandate. Each list must indicate at least one candidate that satisfies the independence requirements imposed by law.

The voting list system for the election of the Board of Directors was used for the first time at the General Meeting on 27 March 2009. On that occasion, the Company invited shareholders who, individually or jointly with others, owned at least 1% of ordinary shares (as established by Consob with reference to Fiat’s average market capitalisation for the fourth quarter of 2008) to submit lists of candidates who satisfied the requirements of law and the Company’s By-laws. EXOR S.p.A., holder of 30.45% of ordinary shares, was the only shareholder to submit a list of candidates and, therefore, all candidates on the list were elected.

Under Article 16 of the Company By-laws, all directors with executive responsibilities are vested, separately and individually, with the power to represent the Company and under Article 12 the Vice Chairman, if appointed, shall act as Chairman if the latter is absent or unable to carry out his role. In application of this provision, the Board of Directors has, as in the past, adopted a model which delegates broad operating powers to the Chairman and the Chief Executive Officer who are empowered, separately and individually, to perform all ordinary and extraordinary acts that are consistent with the Company’s purpose and not reserved by law for, or otherwise delegated or assumed by, the Board of Directors itself. In practice, the Chairman has the role of coordination and strategic direction for the activities of the Board of Directors, while the Chief Executive Officer is responsible for the operational management of the Group. From an operational perspective, the Chief Executive is supported by the Group Executive Council (GEC), a decision-making body led by the Chief Executive and composed of the heads of the operating sectors and certain central functions.

The Board has established “Guidelines for Significant Transactions and Transactions with Related Parties” in which it reserves the right to prior examination and approval of any transaction having a significant impact on the Company’s earnings and financial position, including the most significant transactions with related parties, and has made all transactions with related parties subject to specific criteria in terms of substance and procedure. Therefore, decisions relating to significant transactions are excluded from the powers conferred on executive directors. “Significant transactions” are considered to be those transactions that, in and of themselves, the company is required to disclose to the market in accordance with specific rules established by the regulatory authorities. When the Company has the need to undertake a significant transaction, the executive directors are to provide the Board of Directors with a summary analysis of the strategic compatibility, economic feasibility and expected return for the Company a reasonable time in advance. Decisions regarding the most significant transactions with related parties are also excluded from the powers conferred on executive directors, with all such transactions being subject to specific criteria in terms of substance and procedure and requiring disclosure to the Board.

Pursuant to Article 12 of the By-laws, after receiving the opinion of the Board of Statutory Auditors, the Board of Directors shall appoint the manager responsible for the preparation of the Company’s financial reports. The Board may vest with the relevant functions more than one individual provided that these individuals perform such functions together and have joint responsibility. Only a person who has acquired several years of experience in the accounting and financial affairs at large companies may be appointed. In execution of this provision of the By-laws, the Board of Directors appointed the heads of the Group Control and Group Treasury functions as jointly responsible for preparing the Company’s financial reports, vesting them with the relevant powers.

At 31 December 2009, the Board of Directors was composed of three executive directors and twelve non-executive directors, who have not been delegated specific authorities or executive responsibilities at the Company or the Group, eight of whom (representing a majority) qualified as independent on the basis of the criteria approved by Shareholders on 27 March 2009, which were as previously adopted. As required by law and the By-laws, two of the directors (Gian Maria Gros-Pietro and Mario Zibetti) also meet the requirements of independence as stipulated in Legislative Decree 58/98.

The executive directors are the Chairman, the Vice Chairman, who substitutes for the Chairman if the latter is absent or prevented from carrying out his role, and the Chief Executive Officer. These directors also hold management positions at subsidiary companies: Luca Cordero di Montezemolo is Chairman of Ferrari S.p.A., John Elkann is Chairman of Itedi S.p.A., and Sergio Marchionne who, in addition to being Chairman of the principal subsidiaries including CNH Global N.V. (an NYSE-listed company), is also Chief Executive Officer of Fiat Group Automobiles S.p.A.

An adequate number of independent directors is essential to protect the interests of shareholders, particularly minority shareholders, and third parties. For this reason, and believing it to be significantly in the Company’s interests to maintain a high level of guarantees and protection against potential conflicts of interest, the Board of Directors proposed that for the elections held on 27 March 2009, Shareholders elect - in addition to the two independent directors required by law - an appropriate number of independent directors and confirm the criteria for determining independence adopted for previous elections.

REPORT ON

OPERATIONS CORPORATE GOVERNANCE

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The independence of directors is assessed annually and is based on the absence or non-relevance, during the previous three years, of economic or shareholding relationships or other relationships, whether direct, indirect or on behalf of third parties, with the Company, its executive directors and executives with strategic responsibilities, its controlling companies or subsidiaries, or any other party related to the Company. The results of these assessments are published in the Annual Report on Corporate Governance.

At the meeting held on 22 July 2009, the Board of Directors confirmed that Messrs. Roland Berger, René Carron, Luca Garavoglia, Gian Maria Gros-Pietro, Vittorio Mincato, Pasquale Pistorio, Ratan Tata and Mario Zibetti satisfied the requirements of independence.

Some directors also hold positions at other listed companies or companies of significant interest. Excluding the positions held by executive directors within the Fiat Group mentioned above, the most significant are as follows:

Andrea Agnelli: Director of EXOR S.p.A.;

Carlo Barel di Sant’Albano: Chief Executive Officer of EXOR S.p.A., Director of Juventus FC S.p.A., Sequana S.A., SGS S.A., Cushman & Wakefield and Vision Investment Management Ltd., Member of the Supervisory Board of Intesa Sanpaolo S.p.A.;

Roland Berger: Vice Chairman Wilhelm von Finck AG, Director of Telecom Italia S.p.A., Chairman of the Supervisory Board of Prime Office AG, SPAC Germany 1 Acquisition Ltd and WMP EuroCom AG, Member of the Supervisory Board of Schuler AG, Senator Entertainment AG, Fresenius SE and Loyalty Partner Holdings S.A.;

Tiberto Brandolini D’Adda: Chairman of Sequana S.A. and EXOR S.A., General Partner of Giovanni Agnelli & C. S.a.p.A., Vice Chairman of EXOR S.p.A., Director of SGS S.A. and Vittoria Assicurazioni S.p.A;

René Carron: Chairman of Crédit Agricole S.A. and Caisse Regionale de Crédit Agricole des Savoie, Vice Chairman of Confédération Nationale de la Mutualité de la Coopération et du Crédit Agricoles, Director of GDF-Suez and Member of the Supervisory Board of Lagardere SCA;

Luca Cordero di Montezemolo: Director of Poltrona Frau S.p.A., Tod’s S.p.A., Pinault Printemps Redoute S.A., Member of the International Advisory Board of Citi Inc.;

John Elkann: Vice Chairman and General Partner of Giovanni Agnelli & C. S.a.p.A., Chairman of EXOR S.p.A., Director of RCS Mediagroup S.p.A. and Banca Leonardo Group S.p.A., Member of the Supervisory Board of Le Monde S.A.;

Luca Garavoglia: Chairman of Davide Campari Milano S.p.A., Director of Indesit Company S.p.A.;

Gian Maria Gros-Pietro: Chairman of Autostrade per l’Italia S.p.A., Atlantia S.p.A. and Credito Piemontese S.p.A., Director of Edison S.p.A.;

Sergio Marchionne: Chief Executive Officer of Chrysler Group LLC, Chairman of SGS S.A., Non-executive Vice Chairman and Senior Independent Director of UBS AG, Director of Philip Morris International Inc.;

Virgilio Marrone: Director of Old Town S.A. and Member of the Management Board of Intesa Sanpaolo S.p.A.;

Vittorio Mincato: Director of Parmalat S.p.A. and Tecno Holding S.p.A., Vice Chairman of Nordest Merchant S.p.A., Chairman of Casa Editrice Neri Pozza S.p.A.; Pasquale Pistorio: Honorary Chairman of S.T. Microelectronics N.V., Director of Atos Origin S.A. and Brembo S.p.A.;

Ratan Tata: Chairman of The Indian Hotels Company Ltd, Director of Alcoa Inc., Antrix Corporation Ltd and JaguarLandRover Ltd (UK). Mr. Tata also serves as Chairman of the principal companies of the Tata Group;

Mario Zibetti: Director of Ersel Sim S.p.A.

COMMITTEES ESTABLISHED BY THE BOARD OF DIRECTORS

The Board of Directors established the Internal Control Committee, the Nominating and Corporate Governance Committee, which in 2009 was also allocated responsibility for sustainability issues and renamed the Nominating, Corporate Governance and Sustainability Committee, with responsibility for, among others, selecting and proposing nominees to serve as director, and the Compensation Committee, with an advisory role for compensation issues.

INTERNAL CONTROL SYSTEM

The Board established the “Guidelines for the Internal Control System”, which came into effect on 1 January 2003, and constituted a revision of the procedures established in 1999, including adoption of changes to the Corporate Governance Code. Essential elements of the Internal Control System are the Code of Conduct, adopted in 2002 to replace the Code of Ethics and subsequently revised in 2010, and the Compliance Program, adopted by the Board of Directors in implementation of regulations on the ‘Liability of Legal Persons’ pursuant to Legislative Decree 231/2001, as amended. The Code of Conduct embodies the principles of business ethics to which the Company adheres and with which directors, statutory auditors, employees, consultants and partners are required to comply.

During 2009, as a result of changes in law and legal precedent, the Compliance Program pursuant to Legislative Decree 231/2001 and the Guidelines for adoption of the Program by the Group’s Italian companies were revised.

With these amendments, new criminal offenses were included and the relevant sensitive processes were identified. In particular, the Compliance Program was amended to include crimes relating to: “Organised crime”, “Counterfeiting money, public credit cards, duty stamps, and distinguishing instruments or marks”, “Offences against industry and commerce”, “Offences related to the violation of copyright laws”, and “Induction offences for not making declarations or making false declarations to judicial authorities”.

The Compliance Program Supervisory Body is composed of the Compliance Officer, the Senior Counsel, and an external advisor. It has its own Internal Policies and Procedures and its activities are based on a specific Supervisory Program. This body meets at least once per quarter and reports to the Board of Directors (including through the Internal Control Committee) and the Board of Statutory Auditors.

In application of the Compliance Program, the Code of Conduct, and the provisions of the Sarbanes-Oxley Act, to which the Company was subject insofar as it was listed on the NYSE, on whistleblowing, the Whistleblowing Procedures were adopted as of 1 January 2005 for management of reports and claims filed by individuals inside and outside the Company in relation to suspected or presumed violations of the code of conduct, fraud involving company assets or financial reporting, oppressive behaviour towards employees or third parties, reports or claims regarding accounting, internal accounting controls, and independent audits.

The Procedure for the Engagement of Audit Firms regulates the engagement by Fiat S.p.A. and its subsidiaries of audit firms and those companies or professional firms that maintain an ongoing relationship (so-called network) with the audit firms, in order to safeguard the principle of independence of the firms engaged to audit the financial statements.

Fiat has put in place system of risk management and internal control over financial reporting based on the COSO Report model, according to which the internal control system is defined as a set of rules, procedures and tools designed to provide reasonable assurance of the achievement of corporate objectives. In relation to the financial reporting process, the objectives are the reliability, accuracy, completeness and timeliness of the information itself. Risk management constitutes an integral part of the internal control system. The periodic evaluation of the system of internal control over financial reporting is designed to ensure the overall effectiveness of the components of the COSO Framework model (control environment, risk assessment, control activities, information and communication, monitoring) in achieving those objectives. As mentioned previously, the principal characteristics of the system of risk management and internal control over financial reporting are provided in the Annual Report on Corporate Governance.

Documents and financial information regarding the Company are made public, including via the internet, in accordance with the provisions of the Disclosure Controls & Procedures adopted in the past to comply with the US regulation applicable at the time.

With reference to the “Conditions for the listing of shares of companies having control over companies incorporated and regulated under the laws of a non- EU member State”, pursuant to Articles 36 and 39 of the Market Rules, the accounting systems in place at the Company and its subsidiaries, as discussed in the Annual Report on Corporate Governance, enable public disclosure of the accounts prepared by companies included in the scope of application of the Regulation and used in preparation of the consolidated financial statements and are adequate for the regular provision to management and the Parent Company’s auditors of information necessary for preparation of the consolidated financial statements. In addition, there is an effective flow of information to the Parent Company’s auditors, including regular information on the composition of corporate bodies within all subsidiary companies and the position held by each member. The Company is also is responsible for systematically maintaining and updating centralised records of formal documents related to the By-laws and delegation of powers to members of the corporate bodies. The requirements of Article 36 (a) (b) and (c) of the Market Rules issued by Consob have therefore been satisfied.

During the year, no companies incorporated under the laws of a non-EU member State were acquired which, on an individual basis, are significant for the purposes of the aforementioned Regulation.

REPORT ON OPERATIONS

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CORPORATE

GOVERNANCE

BOARD OF STATUTORY AUDITORS

As required under Article 17 of the By-laws, the Board of Statutory Auditors is comprised of three regular auditors and three alternates, all of whom must be entered in the Register of Auditors and have at least three years’ experience as a statutory account auditor. They may, within the legal limit, also hold other positions as director or regular auditor.

Pursuant to Legislative Decree 58/98 and in accordance with Article 17 of the Company’s By-laws, appropriately constituted minority groups have the right to appoint one regular auditor, to serve as Chairman, and one alternate auditor. In accordance with the By-laws, the minimum equity interest required for submission of a list of candidates is set at a percentage no lower than that required by law for the submission of lists of candidates for the appointment of the Company’s Board of Directors. The lists presented, together with the documentation required by law and the Company’s By-laws, must be deposited at the Company’s registered office at least fifteen days prior to the date set for the General Meeting on first call, or, in specific cases, up to five days after that deadline. The Board of Statutory Auditors was elected by Shareholders on 27 March 2009 using the voting list system.

The Board of Statutory Auditors is currently composed of: Riccardo Perotta, Chairman; Giuseppe Camosci and Piero Locatelli, regular auditors; and Lucio Pasquini, Fabrizio Mosca and Stefano Orlando, alternate auditors. The regular auditors Giuseppe Camosci and Piero Locatelli were elected from the list

In document Board of Directors and Auditors (Page 77-82)