Corporate Governance

The Pirelli Corporate Governance system is based on: (i) the central role played by the Board of Directors, in its capacity as the supreme body in charge of strategic policy and overall company management , with authority to set general management policy and to take direct action on a series of significant decisions that are necessary or useful to pursuing the corporate purpose; (ii) the central role of independent directors who represent the majority of members on the Board of Directors; (iii) a consolidated practice in the disclosure of choices and processes of taking corporate decisions and an effective internal control system; (iv) an innovative system for managing risks proactively; (v) a remuneration system, in general, and an incentive system, in particular, for managers tied to medium and long-term economic objectives, through the creation of strong link between remuneration, on the one hand, and individual and Pirelli Group performance, on the other hand; (vi) rigorous rules governing conflicts of interest and solid principles of conduct for executing transactions with related parties.

For the second consecutive year Pirelli has been recognised for the “Best Corporate Governance in Italy” as part of the World Finance Corporate Governance Award 2012. Moreover, in January 2012 Governance Metrics International (GMI) confirmed its 10/10 rating of Pirelli corporate governance in its home market (the last ”Country Ranking” of September 2010 gave Italy an average rating of 5.25/10) and an 8/10 rating on the global market, the highest rating achieved by Italian companies. Among the 40 companies assessed in Italy at December 2011: (i) only two companies (one of which was Pirelli ) received a 10/10 rating on its home market and (iii) only three companies (including Pirelli ) received a 8/10 rating on the global market.

Pirelli & C. has adhered to the Corporate Governance Code of listed companies ever since it was first published by Borsa Italiana (in 1999; Pirelli subsequently adopted the new July 2002 version, and then the March 2006 version). At the Board of Directors meeting on March 12, 2012, Pirelli announced its acceptance of the new version of the Corporate Governance Code (December 2011), published at borsaitaliana.it.

Consistently with the provisions governing the traditional management and control system, the Board of Directors is in charge of managing the company. The Board plays a key role in its strategic guidance, as well as in supervision of all business activity, with the authority for overall management policy making and direct action in a series of decisions that are necessary or useful for pursuing the corporate purpose.

The Board of Directors relies on the support of its own internal committees to perform its duties. These standing committees have investigative, policy making and/or consultative duties. The Board is also supported by managerial committees whose members are drawn from Group senior management to implement the directives and policies issued by the Board and delegated bodies, with which they collaborate on the definition of proposals to be made to the Board of Directors as a whole.

Since 2004 the “voting list” mechanism assures non-controlling interests the right to designate one fifth of all Directors, in case of submission of two lists at least.

At December 31, 2011 the Pirelli Board of Directors had 18 Directors, who were elected by the Shareholders’ Meeting on April 21, 2011 (which had set the number of director seats at 20). Non-controlling interests were able to designate four directors, or one fifth of the total number.

After it was renewed, the Board of Directors elected Mr Marco Tronchetti Provera as Chairman and Chief Executive Officer and Mr Vittorio Malacalza and Mr Alberto Pirelli as Deputy Chairman. Since 2006, the absolute majority of seats on the Board of Directors have been held by independent directors.

Since November 2005, in view of further reinforcing the role of independent directors, the Board of Directors decided to introduce the position of lead independent director as the contact person for contact and coordination of motions and contributions made by the independent directors.

After its renewal on April 21, 2011, the Board of Directors established four committees: the Internal Control, Risks and Corporate Governance Committee, the Remuneration Committee, both composed only of independent directors, and for the first time, the Nominations and Succession Committee and the Strategies Committee.

In particular, definition of the duties of the Nominations and Successions Committee gave prominence to the growing importance that direct involvement by the Board of Directors in defining succession policies has for Pirelli and the market. This occurs (i) not only and not so much in consequence of any normal rotation of directors with executive authority (where shareholder decisions play a key role) but (ii) especially for top and senior management in order to monitor the strategies implemented by the Human Resources Department in view of assuring continuity in management activity.

The Strategies Committee instead has advisory and policy making functions in the definition of strategic business guidelines and identification and definition of the conditions and terms of strategic operations.

Beginning in the 2011 financial year, and thus one year ahead of the statutory deadline, Pirelli defined a Remunerations Policy, submitting it to vote by the shareholders. The aim of Pirelli human resource policy is to attract, motivate and retain resources possessing the professional qualifications necessary for profitable pursuit of Group goals.

The Remunerations Policy reflects that objective. The Policy is defined in such a way as to align management interests with those of shareholders, with the primary objective of creating sustainable value over the medium/long-term through a strong link between compensation, on the one hand, and individual and Group performance on the other. Definition of the Policy is the result of a clear and transparent process in which the Remuneration Committee and the Board of Directors play a key role.

Readers are referred to the Remuneration Policy for 2011 published on the Pirelli website. Pursuant to new laws and regulations, the Remuneration Report updated for the 2012 financial year will be submitted to the Pirelli Shareholders’ Meeting (that report will contain the Remuneration Policy for 2012 and the Report for 2011). The Remuneration Report for 2012 will be made available on the Pirelli website no later than 21 days before the Shareholders’ Meeting scheduled for May 10, 2012, and to which it will be submitted for consultation.

For more details on the Corporate Governance System, please refer to the “Annual Report on Governance and Share Ownership” – Volume B of the Annual Financial Report at December 31, 2011.