The rules for corporate governance and the scope of use

The rules for corporate governance introduced in the form of a document ‘Best Practices of Warsaw Stock Exchange Companies’

PKO Bank Polski SA applies the rules for corporate governance introduced in the form of a document ‘Best Practices of Warsaw Stock Exchange Companies’ approved by the Supervisory Board of the Warsaw Stock Exchange SA on 4 July 2007 (the Resolution No. 12/1170/2007 with subsequent amendments). The above mentioned document on corporate governance rules is publicly available at the website: https://www.gpw.pl/regulations_best_practices.

In 2015, PKO Bank Polski SA took necessary actions with an aim to fully obey the rules included in the document ‘Best Practices of Warsaw Stock Exchange Companies’.

On 24 May 2013 the Management Board of PKO Bank Polski SA informed of its decision not to apply the rule included in Chapter IV.10 of the Code of Best Practice for WSE listed companies, in accordance with which the Bank should ensure to its shareholders the option of participating in the General Shareholders’ Meeting using means of electronic communication.

The decision not to abide by that rule in accordance with which the Bank should, i.e. ensure bilateral real time communication to its shareholders in order for them to communicate during the General Shareholders’ Meeting from a place other than the location of the Meeting was taken due to legal, organisational and technical risks which could threaten the proper conduct of the General Shareholders’ Meeting if such a communication option was given to all shareholders.

In the Bank’s opinion, the rules currently binding at the Bank ensure that all shareholders may effectively exercise all rights vested in them and secure the interests of all shareholders.

The Bank does not eliminate the possibility of using this rule in the future, based on market standards developed by public companies.

Corporate governance principles contained in the document „Best Practices of Warsaw Stock Exchange Companies 2016”

On 13 October 2015, the Council of the Warsaw Stock Exchange adopted a Resolution No. 26/1413/2015 called "Best Practices of WSE Listed Companies 2016" effective as of 1 January 2016 ( "Best Practices 2016"). The above-mentioned text of the Best Practices 2016 is publicly available on the official website of the Stock Exchange in Warsaw at https://www.gpw.pl/regulations_best_practices.

The Management Board as the body and the members of the Board on 8 December 2015 adopted the use of Best Practices 2016, provided that the recommendation IV.R.2., enabling shareholders to participate in the General Meeting by means of electronic communication will not be used unless the General Shareholders’ Meeting will revise the Articles of Association of the Bank authorizing the Management Board to the organization of the General Meeting by means of electronic communication. A similar resolution, adopting the Best Practices 2016 was adopted by the Supervisory Board on 28 December 2015.

Due to the fact that the WSE Rules in article 29 paragraph. 3 requires the company to publish a report only if it intentionally does not use, incidentally or permanently, non-compliance specific rule and not the recommendation, on 1 January 2016, the Bank was not obliged to publicize a report on any non-compliance with the rules.

Since 1 January 2016 the information about the status of the application by the Bank of recommendations and principles contained in the Best Practices 2016 is available at the Bank's website (http://www.pkobp.pl/pkobppl-en/investor-relations/corporate-governance/best-practice-of-gpw-listed-companies-2016/). This information is drawn on the form established by the Stock Exchange. It shows the detailed status of compliance or non-compliance with each of the recommendations and principles and is direct settlement of the rule I.Z.1.13.

PKO Bank Polski SA took a number of measures to ensure compliance with the principles and recommendations contained in the Best Practices 2016, including:

Information policy and communication with investors

The Bank has taken measures to meet the widest scope of recommendations and principles contained in this section of Best Practices 2016 both in terms of maintaining proper and flexible ongoing communication with investors, enabling the use of modern communication channels and provide a lot of information also by posting them on the website.

PKO Bank Polski SA has endeavoured to publish all the Best Practices 2016 documents and information on the website, as well as made them easily accessible. The Bank continuously perfected form of communication to investors, so that both obtaining and processing data was relatively simple and user-friendly.

As part of adapting information publishing to the new requirements in terms of corporate governance there were materials added at the Bank's website. These are required under the Best Practice for 2016. Among other, information about the Bank's policy of diversity, material containing information on the state of compliance with good practices, more extensive information about the organizational structure of the Bank were added.

Materials submitted to the general meeting, including the assessment report and the position of the Supervisory Board resulting from compliance with the Best Practice for 2016 will be published on the Bank's website in a timely manner, allowing investors to get acquainted with them.

Management Board and Supervisory Board

Both the Management Board and the Supervisory Board adopted the use of Best Practice for 2016. As a result of a gap analysis carried out before this adoption it was found that most of the principles and recommendations contained in the set was so far and is complied with.

Steps were taken to implement the obligations under the Code of Best Practice in 2016, including the assessment of the independence of members of the Supervisory Board and performing the evaluations of the Bank’s policies by this body.

Internal systems and functions

Regulations and practices applicable in the Bank prior to the enforcement of the Best Practice 2016 had fully met the requirements specified in this chapter. The current system of internal control, risk management, compliance and internal audit function in a manner appropriate to market requirements, and the application of the principles of corporate governance in this area is constantly monitored.

General Shareholders’ Meeting and Investor Relations

In terms of organization of the general meetings, Bank decided not to apply the recommendations relating to enabling shareholders participation in the General Meeting by means of electronic communication, unless the General Assembly make appropriate amendments to the Articles of Association of the Bank authorizing the Management Board to the organization of the General Meeting by means of electronic communication. This decision was dictated by a number of organizational and legal risks resulting from the use of such method of communication.

According to the Bank the remaining scope of the General Assemblies was organized and managed in accordance with the requirements of corporate governance. The new rules about request justifications for resolutions, including those relating to breaks in the proceedings of general meetings will be practically implemented. For this purpose there are also planned amendments to the Regulations of the General Meeting.

The Bank is also taking measures to organize the ordinary general assemblies in a reasonably short period of time before the publication of the annual report.

Conflicts of interest and related party transactions

Internal regulations of the Bank in particular aiming the conflict of interests management, ensure compliance with the recommendations and rules contained in this section.

In terms of transactions with related parties and significant shareholders, Bank has reviewed the regulations and conducted an internal communication about the rules in this regard. Perhaps regulatory changes will also follow, including the statutory ones in order to formally implement the principles contained in Best Practices 2016.

Remunerations

In line with the requirements of the Best Practices 2016 in this report of the Management Board of PKO Bank Polski SA a report on the remuneration policy was firstly included. It contains the elements specified in the Best Practices 2016 and the Regulation on current and periodic information. In the Bank's opinion remuneration policy is linked with the strategy and short- and long-term goals, long-term interests and financial results.

According to the current PKO Bank Polski SA principles of Corporate Governance for supervised institutions, issued by the PFSA, the Supervisory Board will assess the functioning of the company payroll system and the results of this evaluation will be presented to the Annual General Meeting.

Corporate governance principles for supervised institutions, issued by the Polish Financial Supervision Authority

On 9 December 2014, the Bank’s Management Board adopted for use the Corporate Governance Principles for supervised institutions (adopted by the Polish Financial Supervision Authority at the meeting on 22 July 2014) concerning the responsibilities and obligations of the Management Board, i.e. conducting the Bank’s affairs and representing it, in compliance with the generally binding laws and the Bank’s Memorandum of Association, with the provision that paragraph 8, clause 4 of the Principles, insofar as it relates to allowing the shareholders the possibility to participate in the meetings of the decision-making authority electronically, will not be applied unless the General Shareholders’ Meeting makes appropriate amendments to the Bank’s Memorandum of Association authorizing the Management Board to organize the General Shareholders’ Meeting using electronic means of communication. Chapter 9 of the Principles, concerning the managing of assets at the client’s risk, will not be applied due to the fact that the Bank does not conduct such activities.

On 17 December 2014, the Bank’s Supervisory Board adopted for use the Corporate Governance Principles for supervised institutions concerning the responsibilities and obligations of the Supervisory Board, i.e. supervising the conducting of the Bank’s affairs in compliance with the generally binding laws and the Bank’s Memorandum of Association.

General Shareholders' Meeting convened for 25 June 2015 declared in resolution No. 50/2015 that acting in line with its competencies it will be guided by the principles of corporate governance for supervised institutions issued by the PFSA. However it ruled out the application of the principles set out in:

  • § 8 p.4 Principles for ensuring the possibility of electronic participation of shareholders in meetings of the decision-making body,
  • § 10 p.2 Principles for introduction of personal rights or other special rights for shareholders,
  • § 12 p.1 Principles on responsibility of shareholders for immediate recapitalization of supervised institution,
  • § 28 p.4 Principles of assessing by the decision-making body whether the determined remuneration policy promotes the development and security of the institution supervised.

Withdrawal from the application of principles set out in § 8 p.4 was in line with the prior decision of the AGM of PKO Bank Polski SA dated 30 June 2011, expressed through the failure to adopt the resolution on amendments to the Articles of Association of the Bank, whose aim was to enable participation in the General Meeting through electronic means of communication. The decision ruling out rule was taken because of legal and organizational-technical risks, which could jeopardize the proper conduct of the general meeting. Exclusion of the application of this principle by the AGM was consistent with the opinion of the Management Board not to use it, adopted due to the fact that the current rules of the Bank about participation in General Meetings allow shareholders the effective implementation of all rights from shares and protect the interests of all shareholders.

Withdrawal from other "Principles of Corporate Governance for supervised institutions", indicated in the resolution of OGM, was due to issuing of these proposals by a qualified shareholder of the Bank - Treasury and then adoption by the OGM through the adoption of resolution no. 50/2015. According to the substantiation presented by the State Treasury along with a proposal for draft resolutions of the OGM, resignation from application of the principles set out in § 10 p.2 and § 12 p.1 was justified by unfinished privatization process of the Bank by the Treasury.

Withdrawal from applying of principles set out in § 28 p.4 was substantiated, according to the request of the Treasury, with too wide range of remuneration policy evaluated by the decision-making body. In the opinion of the above mentioned shareholder, remuneration policy of the employees performing key functions but not being members of the governing body, should be subject to an assessment of their employer or principal, that is the Bank represented by the Management Board and controlled by the Supervisory Board.

The text of the Principles can be found on the website of the Polish Financial Supervision Authority at the following address: http://www.knf.gov.pl/en/Images/principles_of_corporate_governance_tcm81-39736.pdf