Statement on the application of corporate governance at Bank BPH in 2009
Introduction
Bank BPH SA conducts its activity upholds the highest standards of corporate governance and business ethics. By making internal regulations coherent and fully compliant with the applicable law and with ethical norm and standards set out by General Electric Company (GE) in its code of conduct, The Spirit & The Letter , the Bank reaffirms its commitment to the best practices of corporate governance and corporate social responsibility.
The main developments which influence the functioning of the Bank in 2009 was a closure of the legal merger with GE Money Bank (GEMB) and successful met of the challenges of a tough and changing macroeconomic environment. A unanimous approval of the Merger Plan and parity ratio of GEMB shares for BPH shares contributed to a smooth completion of the legal merger process on 31 December 2009. The merger has brought together two complementary banks with broad and innovative products ranges, strong capital base and experienced managerial staff.
Bank BPH does its utmost to comply with and to apply “The Best Practices of WSE Listed Companies”. The document was adopted by the Warsaw Stock Exchange Supervisory Board in its Resolution 12/1170/2007, of 4 July 2007, and was made applicable as of 1 January 2008 (please find the full text of the Resolution at: http://corp gov.gpw.pl/assets/library/english/best_practices_2007.pdf ). In 2009, the Bank respected all the requirements of the Best Practices by ensuring full transparency and ethical conduct in its activities. The Strategy for the Integrated Bank in 2009 2012, adopted by the Bank’s Management and the Supervisory Boards in July 2009, aims to build relationships with customers on principles of honesty, decency and transparency.
Joining of the GE Group required that Bank standards are brought in line with those applicable at our majority shareholder. Following a process of unification of internal regulations in 2009 the Bank BPH after the merger can combine its own best practices developed over more than 15 years presence on the Polish capital market with what GE Group has to offer.
In 2009, there were certain significant changes to the legal environment, including an amendment to the Code of Commercial Companies (CCC) adjusting it to European standards. The amendment, which came into force on 3 August, adapted a Directive of the European Parliament and of the European Council No. 2007/36/EC, dated 11 July 2007, on the exercise of certain rights of shareholders of listed companies It was intended to improve the standard of corporate governance in public companies by expanding rights of shareholders, and in particular their right to vote by proxy and to fully participate in general meetings using means of electronic communications. The Bank implemented necessary relevant modifications to its Articles of Association and to the Rules of the General Meeting and had them approved by the shareholders on 27 October.
The merger with GE Money Bank was major event of 2009 for Bank BPH, for its customers, employees and shareholders.
The merger came as a consequence of the GE Group’s acquiring a control stake in Bank BPH on 17 June 2008. The Management Boards of both Bank BPH and GE Money Bank, in their respective meetings on 29 July 2009, agreed the Merger Plan, which was subsequently approved by the Supervisory Boards of the two Banks.
1 The merger was executed by transferring all assets of GE Money Bank to Bank BPH and by simultaneously increasing the share capital of the latter bank. The parity ratio was fixed at 1.189, which meant that for each single share of GEMB its holder received 1.189 shares of BPH. The Management and Supervisory Boards of Bank BPH worked very closely together on the valuation process and determination of the parity ratio. In this activities they were supported by the investment bank JP Morgan plc, which issued its fairness opinion for the terms and conditions of the merger. GEMB was advised by Goldman Sachs International.
The shareholders voted unanimously for the approval of the Merger Plan at an Extraordinary General Meeting held on 27 October 2009. This was followed by an opinion from an audit of the Merger Plan issued by an independent court expert on 18 August and after the publishing, on 20 August, of the Bank BPH Management Board’s Report justifying the merger of Bank BPH and GE Money Bank. When the Polish Financial Supervision Authority approved the transaction the District Court for Krakow Śródmieście finally registered the merger of Bank BPH and GE Money Bank on 31 December 2009.
In consequence of the merger Bank BPH assumed all rights and obligations of GE Money Bank, including the ownership of the Treasury Shares, which it then redeemed and issued Merger Shares to GEMB shareholders.
1. Investor relations
Investors, analysts, rating agencies and other capital market players constitute a demanding and opinion making group of stakeholders to which the Bank addresses its coordinated communication policy. Investor relations are pinned on the principle of equal access to information for all. The main objective of capital market communication policy is to keep the capital market continuously attracted to the Bank’s stock, while assuring market players that our conduct is fully transparent and reliable and that the Bank is observing rights of minority shareholders who are crucial for the stock market’s liquidity. Bank BPH has a long history of investor relations both at the Warsaw Stock Exchange, where it have been listed for more than 15 years, and in London, where it has been present for nine years.
In 2009, our stock was popular among investors. They traded 460 million zlotys in shares and 5.5 million shares changed its owner, which accounts for nearly 20% of all shares.
At least on a quarterly basis, when publishing financial results, the Bank holds conferences where analysts and investors have an opportunity for a direct exchange of opinions with the Bank’s Management. On 30 July, we staged an additional event to present a revised Merger Plan and the Bank’s Strategy for 2009 2012. A teleconference featuring representatives of the majority shareholder drew much attention from investors and the media.
2009 was a year of preparation for the legal merger between Bank BPH and GE Money Bank, which has been described in detail above.
What should be outline also, the Bank in previous year was recognised as one of the socially most responsible companies. Bank BPH was included in the newly created RESPECT index on the Warsaw Stock Exchange, as one of just 16 issuers, including 3 listed banks. The index was compiled after a careful selection process based on an independent audit by Deloitte, which assessed corporate management practices in terms of corporate governance and business ethics. Bank BPH Annual Report was also highly rated, for the third time in a row, in a joint rating prepared by the Accounting and Tax Institute and the WSE. The Report was ranked 3rd among banks and financial institutions for the Best IFRS/IRS Annual Report of 2008.
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The Department of Investor Relations is responsible for the Bank’s overall investor relations (Tel: +48 22 531 86 03, e mail: [email protected]). Investors may also want to visit a dedicated section of our website in English: http://www.bph.pl/en/relacje_inwestorskie updated on an ongoing basis in two languages.
2. Description of the General Meeting, its main powers, rights of shareholders and how they are exercised
The General Meeting (GM) is a body responsible for taking key decisions with regards to the Bank’s operations. General Meetings are always held at the BPH registered address or in Warsaw. The General Meeting can be either ordinary or extraordinary. Pursuant to the Articles of Association of BPH an ordinary General Meeting should be held every year and not later than in June. It is called by the Management Board within six months of the end of the Bank’s financial year. An extraordinary General Meeting is called in cases defined by legal regulations, or by the BPH Articles of Association, or whenever it is deemed appropriate by bodies or persons authorised to call general meetings. BPH General Meeting is announced with at a least twenty six days’ notice before its planned date in an announcement on the BPH website and as a current report. The Management Board must ask for the Supervisory Board’s opinion before it includes items on the General Meeting agenda. Shareholders also ask the Management Board’s for an opinion on any items they want to propose. Draft resolutions intended to be motioned at the General Meeting and other important documents are presented to the shareholders complete with a justification and an opinion of the Supervisory Board prior to the General Meeting, unless such draft resolutions or documents are submitted at a time that makes a timely completion of the opinion procedure impossible. The documents should be presented to the shareholders with sufficient notice for shareholders to acquaint themselves with them and evaluate them.
Pursuant to provisions of the Code of Commercial Companies any modification of the Bank’s Articles of Association must be passed as a General Meeting resolution, entered in an official register and, in cases defined by the Banking Law, also approved by the Polish Financial Supervision Authority. The Articles of Association provide for no other amendment procedure.
In 2009, the Bank convened two General Meetings.
An ordinary GM, held on 27 May, approved the Bank’s and its Group’s financial statements for 2008, a Report of the Management Board from the Bank and the Bank’s Group activities, a Report of the Supervisory Board and the appropriation of profits from 2008, granted discharge to the members of the Management Board and Supervisory Board and elected new members of the Supervisory Board.
An extraordinary GM, held on 27 October, approved the Merger Plan of Bank BPH and GE Money Bank and changes to the Articles of Association of Bank BPH (covered in detail in a Supervisory Board section below), approved a BPH share capital reduction and adopted new Rules of the General Meeting.
Following a substantial change in the Code of Commercial Companies that brought Polish law in line with European standards, the Management Board proposed new Rules of the General Meeting, which the General Meeting approved. Pursuant to the new provisions of the CCC shareholders have acquired a right to vote differently on every share they own. Substantial changes were also made to regulations on
3 convening general meetings, shareholder participation in such general meetings and their communication with the company.
The new Rules list ways of electronic communication between shareholders and the Bank, including an option to submit motions, ask questions and transfer notices and documents, including power of attorney documents. Communication in electronic form shall be made using an email address.
As of 31 December 2009, the Bank had the following shareholder structure, which has not changed to this day:
SHAREHOLDER SHARES GM VOTES No. % No. % GE Investments Poland Sp. z o.o., 64 201 140 83.74 64 201 140 83.74 ultimately a subsidiary of General Electric Company Selective American Financial 2 457 643 3.21 2 457 643 3.21 Enterprise, ultimately a subsidiary of General Electric Company DRB Holdings B.V. (Holland), 1 691 005 2.21 1 691 005 2.21 ultimately a subsidiary of General Electric Company Customers of BZ WBK AIB Asset 4 618 314 6.02 4 618 314 6.02 Management Minority shareholders 3 699 809 4.82 3 699 809 4.82 TOTAL 76 667 911 100 76 667 911 100
All of the Bank BPH shares are ordinary bearer shares that carry no special control rights. The Bank BPH Articles of Association do not limit the right to transfer securities issued by the Bank whatsoever, or to the exercise of the right to vote, nor is there any provision that would separate the capital rights involved in the securities from the actual securities held. General Electric Company holds, through its subsidiaries, 89% of the Bank’s stock. On 21 December 2009, GE obtained a PFSA approval for exercising at least 66%, but no more than 75% of its votes at the General Meeting of Bank BPH.
3. Supervisory Board
The Supervisory Board is responsible for an on going supervision of the Banks operations and follows its own Rules. In particular the Supervisory Board is responsible for: • Appointing and dismissing all members of the Management Board and representing the Bank in matters between the Management Board and the Bank, • Signing and amending contracts with members of the Management Board, • Adopting the Rules of the Supervisory Board and the Rules of the Management Board, • Requesting reviews or audits of specific areas of the Bank’s activities to be performed by a specialised organisational unit of the Bank, • Defining policies and rules of credit authority levels and related procedures for the Bank’s decision making bodies, • Selecting a statutory auditor to audit the Bank’s financial statements, • Approving certain resolution of the Management Board. The Supervisory Board consists of between five and fourteen members appointed by the General Meeting for a common term of three years. The Supervisory Board elects its Chairperson and the First and Second Deputy Chairpersons from among the members. The
4 election is always held during a Supervisory Board meeting and an absolute majority formula is used in a secret ballot, unless all members present agree to hold an open ballot. Supervisory Board members may only perform their duties in person, there is no time limit of their dismissal and their mandates can also expire upon resignation or death. When the number of the Supervisory Board members falls below five, the Management Board has an obligation to immediately convene a General Meeting to appoint new members of the Supervisory Board to the required minimum. Outgoing members can be re elected.
During the reported period, an extraordinary General Meeting adopted a resolution amending the Articles of Association. The new Articles provide that at least half of the Supervisory Board members, including the Chairperson, should have a good knowledge of the Polish banking market, by which is meant that they should be permanent residents of Poland, have a good command of the Polish language, and have a suitable experience of the Polish market that can be useful in supervising the operations of BPH. The Articles also expanded the Supervisory Board’s responsibilities by adding, among other, the following areas: (i) supervision of the compatibility of the risk Bank’s policy with its strategy and the financial plan and the assessment of how effective and compliant with an official policy is the Management Board’s internal audit activity, (ii) supervision of risk and capital management systems and the internal audit system, including assessing the adequacy and effectiveness of these systems.
The Bank also made some changes to the Rules of the Supervisory Board, including bringing the Rules of the Risk Committee in line with the amended internal regulations of the Bank.
As of 1 January 2009, the Supervisory Board (SB) operated with the following members: Wiesław Rozłucki – Chairperson, Peter Franklin – First Deputy Chairperson, Dmitri Stockton – Second Deputy Chairperson, Aleš Blažek, Beata Gessel Kalinowska vel Kalisz, Denis Hall, Lesław Kuzaj, Sławomir Mirkowski, Des O’Shea, Tomasz Stamirowski, Dorota Podedworna Tarnowska, and Agnieszka Słomka Gołębiowska.
On 19 March 2009, Peter Franklin resigned from his membership of the Supervisory Board.
An ordinary General Meeting, held on 27 May 2009, appointed Robert Charles Green and Wilfried Mathias Seidel (as of 27 May 2009), as members of the Supervisory Board. Robert C. Green was elected, on 29 July 2009, as the First Deputy Chairperson.
As of 31 December 2009, the Supervisory Board consisted of the following members:
Wiesław Rozłucki Former President of the Warsaw Stock Exchange (1991 2006) (62) Graduated from Foreign Trade Faculty at SGPiS (currently SGH) and Chairperson received a PhD in human geography. Selected employers: Ministry of Finance and Ministry of Ownership Transformation. Co founder of the Polish Institute of Directors. Currently sitting on supervisory boards of several public companies, including TP SA, TVN and Polimex Mostostal. Robert C. Green (43) GE Senior Vice President, CFO of the Global Banking Division First Deputy Graduated from Maryland University, DC, USA. During his 19 years with Chairperson GE he was involved in international projects in several key business areas, including as Financial Director at GEMB (Retail Finance) and GE European Equipment Finance Ltd., UK, and VP and head of an audit group at GE Capital Corporation USA. Dmitri Stockton (44) GE Senior Vice President, President and CEO GE Global Banking Second Deputy Graduated from Financial Management. Completed a Financial Chairperson Management Programme and holds a BSc in accounting from North Carolina State University A&T. With General Electric since 1987, where he started as member of a Financial Management programme and
5 moved on to capital auditing, risk management and business development. Aleš Blažek (36) Legal counsel, GE Money CEE Graduate of Law at Charles University, Prague. Prior to joining General Electric was legal counsel at White&Case and Citigroup where he worked, among other areas, in: mergers and acquisitions, project management and product development. Beata Gessel – Legal counsel, managing partner of Gessel Law Firm. Kalinowska vel Author of numerous publications on mergers and acquisitions and Kalisz economic arbitration. Holds several prestigious positions, including of (44) an Arbiter at the Court of Arbitration at the Polish Chamber of Commerce, since 1999. In 2005, elected Deputy President of the Arbitration Tribunal at the Polish Confederation of Private Employers Lewiatan. Denis Hall (53) CRO at GE In banking since 1974. Previously worked, among others, for: Barclays, Citibank and Deutsche Bank where he dealt with banking risk. In 2007, joined GE Money as Director for Risk in Europe, Middle East and Africa (EMEA) and then took over responsibility for global banking risk management. Lesław Kuzaj (56) Regional Director GE Central Europe Graduated from the Cracow University of Economics. Co founder of Pierwszy Polsko Amerykański Bank. With GE since 1992, initially as General Director for Poland and then Supervisory Board member of General Electric Bank Mieszkaniowy, President of Expander Sp. z o.o. and of GE Investments Poland. Sławomir Mirkowski Partner at Grant Thornton Frąckowiak Sp. Z o.o., auditing and (37) consultancy company Graduated from Poznan University of Economics and Controlling School of Katowice. Since 2001, statutory auditor authorised to audit financial statements. From 2007, member of the National Chamber of Statutory Auditors. Des O’Shea (52) Chief Commercial Officer at GE Capital Global Banking In 1977, graduated from the University College Cork and in 1981 obtained the qualifications and membership of the Audit Committee Institute in Ireland. During 11 years at General Electric, he held senior positions involved in risk management and business development. In his current post he is responsible for GE Global Banking’s Joint Ventures, business development, sales and distribution. Dorota Doctor of economics Podedworna Lecturer at the Collegium of Business Administration at the Warsaw Tarnowska (34) School of Economics. Specialist and author of several publications in business finance management and financial market instruments. Previously worked i.a. as a consultant in the Ministry of State Treasury. She also served as a member and deputy chairman of the supervisory boards of several companies. Wilfried Mathias Head of Retail Risk at GE Capital Global Banking Seidel (51) Graduated and received an MBA from Cass Business School of London and an MA from Moscow State Institute of International Relations. He joined GE in 1998 and held several global executive positions in risk management. Agnieszka Słomka Doctor of economics Gołębiowska (32) Department Director at the Industrial Development Agency and
6 Lecturer at the Warsaw School of Economics. Specialises in corporate governance, restructuring and privatisation. Received an MBA from the French Institute of Management (IGF) and went on research internship in Germany and the USA. Published numerous articles and conference papers on corporate governance in Poland and abroad. Tomasz Stamirowski President of the Management Board Avallon Sp. z o.o. (40) Graduate of Foreign Trade Faculty of the University of Lodz and form the Management Faculty of the University of Grenoble, France. Since 2001, President of the Management Board Avallon Sp. z o.o., a private equity managing company, and of Avallon MBO S.A., an investor.
Independent members of the Supervisory Board
In keeping with the highest standards and the Best Practices of WSE Listed Companies the Bank’s Articles of Association require that at least 30% of our Supervisory Board members should be independent. The latest amended version of the Articles of Association has made the definition of an independent member more general: Independent members of the Supervisory Board should be free from any associations with the Bank, its shareholders, or employees that would affect significantly the capability of an independent member to take unbiased decisions. The Supervisory Board has also been obligated to make an annual review of its members’ independence.
During the reported period, the following members declared to be independent: Wiesław Rozłucki, Beata Gessel Kalinowska vel. Kalisz, Sławomir Mirkowski and Tomasz Stamirowski. Independent members Chair the Supervisory Board and the Audit Committee.
The Bank’s Articles of Association state that a majority of the independent members should be sought for any SB resolution approving: payments or any other benefit from the Bank or its affiliated entities to members of the Management Board, contracts between the Bank and its affiliated entities, Supervisory Board members, or Management Board members, or with entities related to these members, and the selection of an auditor for the Bank’s financial statements.
During 2009, the Supervisory Board had four meetings and adopted 52 resolutions. It conducted its business with the support of its four committees, including Remunerations, Audit, Risk and Investment Committee, which activities are covered in subsequent sections of the Report.
Throughout the year, the Supervisory Board monitored the key areas of the Bank’s operation on a regular basis, including the execution of the financial plan, the lending activity including the changing costs of risk and risk management. It also provided active support to the Management Board in the merger process with GEMB. The Supervisory Board approved the Merger Plan, the parity ratio and met with representatives of the investment bank JP Morgan plc to receive their fairness opinion. In Q4, the Supervisory Board adopted and approved a programme consisting of business plans aimed to bring the Bank back on the path of sustainable profitability and to improve its efficiency. This program was required under Art. 142 of the Banking Law after the Bank had reported a balance sheet loss.
The Supervisory Board also dealt with the matters of human resources to the extent permitted by its responsibilities. In its meeting on 14 December, the SB approved a change of the Management Board member in charge for the Financial Division by accepting the resignation of Kent Holding and appointing George Newcomb in his place. After the completion of the reported period, in its first meeting of 2010, the SB accepted the resignation of Kazimierz Łabno
7 from his position of the Management Board member in charge of the Division of Operations, IT, Settlement and Services, effective as of 31 January 2010. On this meeting two new members of the Management Board were also appointed as Vice Presidents: Richard Gaskin (effective as of 25 January 2010) and Ronald James Malak (effective as of 12 February 2010). Richard Gaskin has taken charge of the Integration and Strategy Division and is responsible for coordinating the activities of the Bank’s various divisions. Ronald James Malak has taken charge of the Division of Operations, IT, Settlement and Services. In the same meeting, Józef Wancer informed the Supervisory Board of his intention to resign from his Presidency of the Management Board in the second half of the year with a view to retire. On 26 February, the Supervisory Board established an ad hoc committee tasked to find candidates for the Presidency of the Management Board of Bank BPH. The Committee consists of two independent Supervisory Board members and two members related to the majority shareholder.
In its adherence to the rules of corporate governance the Supervisory Board always took great care to follow the approved set of best practices and to meet the related obligations. The Supervisory Board presented to the General Meeting an assessment of its own operations, a concise assessment of the Bank’s performance in 2009, and made recommendations due on all items which were then discussed by the General Meeting. The Supervisory Board achieved a 90% attendance rate at the meetings, which was higher than in 2008, and on many occasions absent members voted through their present colleagues. The Supervisory Board meetings were attended by members of the Management Board with the exception for when items involving personal matters were discussed.
The table below summarises the attendance of the Supervisory Board meetings.
SB members’ attendance in 2008
Membership in Participation Membership in Membership in Membership in Membership in Participation in Audit in AC Investment Remuneration Risk First and last name Position Related to SB SB meetings Committee meetings Committee Committee Committee Member from Member from A. Blažek Member GE from 24.06.2008 4/4 24.06.2008 4/5 24.06.2008 Member from B. Gessel Kalinowska vel Kalisz Member Independent from 24.06.2008 4/4 13.07.2009 Member to P. Franklin Member GE from 19.03.2009 0/1 19.03.2009 0/1 First Deputy Member from Member from R. Green Chairman GE from 27.05.2009 2/2 22.06.2009 2/2 22.06.2009 Chairman from D. Hall Member GE from 24.06.2008 4/4 24.06.2008
L. Kuzaj Member GE from 24.06.2008 3/4 Chairman from S. Mirkowski Member Independent from 24.06.2008 3/4 24.06.2008 5/5 Member from Member from D. O'Shea Member GE from 24.06.2008 4/4 24.06.2008 24.06.2008 Member from D. Podedworna Tarnowska Member MSP from 20.02.2008 4/4 10.03.2008 4/5 Chairman from Member from M. Seidel Member GE from 27.05.2009 1/2 22.06.2009 22.06.2009 Member from A. Słomka Gołębiowska Member MSP from 20.02.2008 3/4 24.06.2008 Member from T. Stamirowski Member Independent from 24.06.2008 4/4 24.06.2008 Second deputy Chairman from Member from D. Stockton Chairman GE from 24.06.2008 3/4 24.06.2008 24.06.2008 Member from W. Rozłucki SB Chairman Independent from 24.06.2008 4/4 24.06.2008 5/5
Report of the Audit Committee (AC)
The Audit Committee follows its own Rules, which are subordinate to the Rules of the Supervisory Board and compatible with provisions of the Act, dated 7 May 2009, on statutory auditors and their association, entities authorised to audit financial statements and on public supervision (Journal of Laws No. 77, item 649). Pursuant to its Rules the Audit Committee must include at least two independent members of the Supervisory Board, one of whom must hold
8 the Chairperson’s position of the Committee. The Chairperson must also meet criteria laid out in the Act. The Committee is responsible for supervising the Bank’s financial accounting process, internal audit and risk management. The Committee is also responsible for monitoring the work of the Bank’s statutory auditor. Among its wide range of powers the Committee can demand certain information from the Bank, should be informed about the method of booking significant and untypical transactions, and has a right to invite to its meetings members of the Management Board, the Head of the Audit Department, other employees of the Bank and representatives of the external auditor. The Committee unanimously adopts its recommendations and assessments, which are then presented to the Supervisory Board and to the President of the Management Board Bank.
As of 31 December 2009, the Committee consisted of:
• Sławomir Mirkowski (Chairperson) • Aleš Blažek • Robert Charles Green • Dorota Podedworna Tarnowska • Wiesław Rozłucki
In 2009, the Committee held five meetings.
Meeting date Main items/recommendations 26 February 2009 • Report from internal audits in 2009 • Summary of the AC activities in 2009 • Discussion of the Bank’s compliance functions • Mode of periodic report reviews by AC • Planned changes to the internal control system and internal audit organization 20 March 2009 • The Bank’s financial statements and the Management Board’s Report on the Bank’s activities in 2008, including the auditor’s opinion and report • A review of external auditor’s fees • Assessment of the co operation with the auditor and its independence • AC’s opinion on the Internal Audit Department’s 2009 plan and budget and its strategic plan for 2009 2011 • Discussion of drafts of the Supervisory Board Report assessing the Bank’s financial statements for 2008, Report assessing the Management Board’s Report of the Bank’s activities in 2008 and on the general condition of the Bank, the assessment of the Bank’s internal audit system and of the risk management system drafted for the Supervisory Board 14 May 2009 • Q1 2009 Internal Audit Report • Amount of compensation of the Head of the Internal Audit Department. • KPMG’s recommendations of 2008 included in a letter to the Management Board and the Management Board’s response to that letter. • Analysis of the auditor’s fees for the financial statement audits and reviews as compared to the market standards and to the Bank’s financial condition. • An introductory programme for members of the Committee on
9 the accounting standards used by Bank BPH, including on financial instruments, the interest, fee and commission revenues and expenses and the trading result. 18 August 2009 • A review of 1H financial statements in the presence of the CFO and KPMG representatives; • Q2 Internal Audit Report • Current status of the adoption of the MIFID and the Payment Services Directive; • An introductory programme on the analysis of the Bank’s financial condition – key indicators of the Bank’s condition and their interpretation 4 November 2009 • A review of the Bank’s Q3 financial statements with the participation of the CFO; • Q3 Internal Audit Report; • Compliance Office report on internal controls in Q2 and Q3 2009 • An opinion on a set of new regulations for the Merged Bank, including Rules of the Internal Audit Department and Rules of the Internal Control; • An opinion on a prospective new Head of the Internal Audit Department; • The implementation status of audit follow up recommendations in offering and selling currency options to the Bank’s customers.
In 2009, in the light of the imminent merger of BPH and GEMB, the Audit Committee gave much attention to the unification of the Internal Audit and the compliance functions and their procedures with the standards of the GE Group.
Remuneration Committee Report
The Remuneration Committee provides the Supervisory Board with its recommendations on the approval of new or amended contracts with the Management Board members, on their remuneration, on legal disputes between the Bank and Management Board members and on personnel and salary policy matters. Decisions of the Committee have to be adopt unanimously and can be taken by circular mode.
As of 31 December 2009, the Committee consisted of:
• Dmitri Stockton (Chairperson) • Des O’Shea • Mathias Seidel
In 2009, the Committee held five meetings. The Remuneration Committee provided the Supervisory Board with assistance by carefully analysing all personal matters of the Management Board submitted for the Supervisory Board’s decisions. The Committee also met to discuss selected topics of the human resource management. Other major items discussed by the Committee included the labour market situation in the banking sector, expected regulatory changes in the area of top management compensation and selected programmes targeted at key personnel.
10 Remuneration policy for members of the Management Board
A remuneration policy based on substantive criteria, a key element in any organisation, aims to attract, retain and recognise employees who make a significant contribution to achieving the organisation’s strategic objectives. At its core the policy is designed to build an environment that motivates employees to perform at their absolute best. An overall compensation package for members of the Management Board consists of: the base salary, moving components, llong term motivation plans, options (a GE programme involving General Electric shares) and additional benefits, including medical care, a company car, accident insurance, health insurance, etc. For each member of the Management Board a compensation package was defined, taking into account their responsibilities and years of service, to provide motivation and ensure their retention in the organisation. All of the aforementioned remuneration components are linked with the individual’s and the Bank’s performance. Each member of the Management Board has signed a separate non compete agreement. During such non compete period following the termination of employment with the Bank members of the Management Board are obligated to refrain form any involvement in any competing activities.
Remuneration policy for member of the Supervisory Board
A remuneration policy for members of the Supervisory Board aims to motivate them to an active and effective involvement in their functions. In view of the Supervisory Board’s internal organisation and the related responsibility differences the Bank divided the compensation packages into the base salary and the function benefit. Each Board member earns 9,000 zlotys in base pay per month plus a function benefit, where applicable. The Chairperson’s function benefit equals 8,000 zlotys, both Deputies and the Chairperson of the Audit Committee earn 3,000 each while Chairpersons of the other Committees earn 2,000 zlotys in function benefits. The Bank also covers expenses incurred by Board members on travel and accommodation related to the Board or Committee meetings and to any other duties entrusted to them by the Supervisory Board.
Risk Committee Report
The Risk Committee is responsible for monitoring the Bank’s risk management. The Committee reviews credit, market and operating risk management and the Bank’s compliance with relevant external regulations. The Committee also issues recommendations on credit decisions, such as these exceeding certain thresholds, and on the provisioning above certain amounts. Its Rules also provide that the Committee is authorised to receive internal regulations, procedures and policies related to risk management and updates of the Bank’s scope of operations. The Committee is also to give its recommendations on documents to be presented to the Supervisory Board. As of 31 December 2009 the Committee consisted of:
• Denis Hall (Chairperson) • Mathias Seidel • Des O’Shea • Dmitri Stockton
The Committee met four times during 2009 and dealt with a detailed analysis of necessary modifications of the Bank’s risk management system to limit potential effects of the financial
11 crisis on the Bank’s current operations. The Committee received updates on the quality of the lending portfolio with a special attention given to derivatives’ transactions. The Committee issued a positive opinion on the implementation at the Bank of a new methodology to calculate value at risk. The Committee also learned about proposed changes of risk regulations to be applicable at the Integrated Bank.
Regardless of the items mentioned above the Risk Committee pursued its regular responsibilities and made recommendations on credit exposures to customers above relevant authority thresholds.
Investment Committee Report
The Investment Committee is responsible for monitoring and making recommendations on investment spending, including investment projects and service purchasing, and any projects exceeding two million zlotys in value.
As of 31 December 2009 the Committee consisted of:
• Mathias Seidel (Chairperson) • Aleš Blažek • Beata Gessel Kalinowska aka. Kalisz • Agnieszka Słomka Gołębiowska • Tomasz Stamirowski
The Committee made recommendations on investment spending exceeding the set limit. In 2009, the Management Board submitted three such drafts: to extend a contract with a provider of computer system servicing and maintenance, to sign a contract for rebranding services and to continue cooperation with a customer services’ provider. All three drafts received positive recommendations from the Committee.
4. The Management Board
The Management Board, according to its own Rules, is responsible for managing the Bank’s operations and for representing it to the outside world. The Management Board consists of between three and ten members appointed to a common term of three years, including the President, Vice Presidents and members. At least half of the members should have a good knowledge of the Polish banking market, have a good command of the Polish language and a suitable experience on the Polish market, which can be used in managing BPH operations. In accordance with the modified Articles of Association members of the Management Board appointed to take charge of credit risk management, corporate banking, as well as the President of the Management Board should by approved by PFSA. While the Supervisory Board is responsible for appointing the Management Board, its members should be proposed by or at least consulted with its President. The Management Board is specifically responsible for making decisions to purchase or sell real estate, issue bonds, adopt strategies and policies of stable and conservative management of the Bank, to oversee the efficiency and effectiveness of risk management and to ensure the internal audit’s system adequacy. The Management Board takes its decision in the form of resolutions adopted by an absolute majority of votes. In justified cases the President of the Management Board or a person standing in for the President may decide that a resolution can be adopted by circulation. The Management Board has no authority to decide whether to issue or buy back shares.
12 The President of the Management Board is responsible for directing the operations of the Management Board, for representing the Bank, issuing the Bank’s internal regulations and defining functions of other members of the Management Board and for their appraisal. The President chairs the Management Board meetings and fixes their dates and agendas. A meeting of the Management Board must have a quorum of more than half of its members. Members of the Supervisory Board may take part in meetings of the Management Board either by consent of the Supervisory Board or at an invitation of the Management Board.
As of 1 January 2009, the Management Board consisted of Józef Wancer, President of the Management Board, and of Vice Presidents: Mirosław Boniecki, Grzegorz Dąbrowski, Kent Holding, Piotr Królikowski, Kazimierz Łabno, Cezary Mączka and Carl Normann Vökt.
On 14 December 2009, the Supervisory Board approved changes to the Management Board composition by receiving the resignation of Kent Holding, a Vice President in charge of the Financial Division, and by appointing George Newcomb in his place. Kent Holding will continue his career at GE International.
The current Management Board was approved at a Supervisory Board meeting on 8 January 2010 and includes:
Graduate of The City University of New York and the Webster University Józef Wancer (67) of Saint Louis, Missouri. For 23 years an employee of Citibank in New York President of the as Vice President and in executive positions of this bank in Japan, Management Austria, the UK and France. During 1995 2000, Vice President and Board President of the Management Board of Reiffeisen Centrobank in Warsaw. Since 1 March 2000, President of the Management Board of Bank BPH. Mirosław Boniecki Graduate of SGPiS (currently SGH). In banking since 1989. In October (47) 2001, appointed member of the Management Board of Bank BPH in Vice President of charge of, among other areas, international market, asset and liabilities the Management management and sales of treasury products. Since 16 October 2004, Board Vice President of the Management Board. Graduate of SGPiS (currently SGH). Initially with PBK where he was responsible, among other areas, for trade financing, strategic accounts Grzegorz and pricing policies. During 2002 2007, Director of the BPH Warsaw Dąbrowski (49) Macro Region for Corporate Banking. Between November 2007 and Vice President of January 2008, at Bank Pekao after its absorption of a part of Bank BPH. the Management Since January 2008, back at BPH; initially as General Director of the Area Board of Corporate Banking and Real Estate Finance and, following a PFSA approval, appointed Vice President of the Management Board. MBA from Henley Management College (UK). Started his career in 1984 at Richard Gaskin Lloyds Bank plc, and then moved on to Ford Motor Company (Ford Credit) (44) and to 3M Ltd. He joined General Electric in 1999. In 2002, he became Vice President of Quality Leader at GE Money in Switzerland. Between 2003 and 2005, the Management Managing Director at GE Capital Auto UK. In 2005, appointed CEO of GE Board Money Bank Russia and in 2009 took the same position at both GE Money Bank Russia and GE Money Bank Latvia. Graduate of the Warsaw Theological Academy, Albert Ludwig University Piotr Królikowski of Freiburg (Germany) and of the Executive Education Programme for top (43) management at INSEAD Fontainebleau (France). Since 1996, at Bank Vice President of Creditanstalt, Svenska Handelsbank, BIG Bank Gdański later Bank the Management Millennium. Prior to taking the post at the BPH Management Board he Board was member of the Management Board at Deutsche Bank S.A.
13 Studied German literature and international business at Kent State Ronald James University (Ohio, USA) and received an MBA from Thunderbird School of Malak Global Management (Arizona, USA). Joined GE in 2007 as President of the (58) Management Board of GE Money Rumania. Prior to joining GE he worked Vice President of with Citigroup where he had held, during 1992 2007, a number of the Management managerial posts to eventually become Director General at CitiFinancial Board Central and Eastern Europe. Between 1981 and 1992, he held managerial and analytical positions in the USA at Progressive Corporation, Standard Oil Company and Colgate Palmolive Company. Graduate of Law at the University of Gdańsk. Has completed an official Cezary Mączka prosecutor’s training scheme. Has an MBA from the Gdańsk Foundation (45) of Management Development and Strathclyde Glasgow Business School. Vice President of Since 2001 with GE where he has dealt with human resources. On 10 the Management March 2008, appointed Vice President of the Management Board of Bank Board BPH. Graduate of the Pennsylvania State University (accounting) and New York George Newcomb University (MBA). Joined GE in 1996 by holding positions of senior tax (43) manager and financial planning and analysis manager. He went on to Vice President of become Financial Director and CFO at GE Commercial Finance the Management Healthcare Financial Services. In 2009, he continued his career at GE Board Capital Americas Equipment Finance as CFO. On 14 December 2009, he was appointed Vice President of the Management Board of Bank BPH. Carl Normann Graduated from the Graz University (Austria) and studied in Mexico. Vökt (46) Previously with Bank Austria Creditanstalt S.A. He jointed BPH as Director Vice President of in charge of the Credit Area, Director General of the Risk Management the Management Division and, in 2007, joined the Management Board of Bank BPH. On 10 Board March 2008, appointed Vice President of the Management Board.
Members of the Management Board are responsible for coordinating and supervising the Bank’s operations in accordance with the division of responsibilities adopted by the Bank’s Management Board.
Division of competences in the Management Board the management structure
The Management Board may establish permanent or ad hoc committees on an opinion making, advisory or decision making nature. Currently, BPH has the following committees: • Assets and Liabilities Management Committee – ALCO, • Product and Software Development Committee – KRPiO, • Credit Committee,
14 • Operating Risk Committee, • Strategic Risk Management Committee.
As a sign of embracing top corporate governance standards the Bank is working on establishing a new Compliance Committee.
During 2009, the Management Board held 71 meetings and passed 310 resolutions. Many of the meetings, normally held on a weekly basis, were devoted to the preparations to the legal merger with GEMB, including the adoption of the Merger Plan, unification of internal legal acts and the product offerings and modifications of internal systems. The Management Board was kept abreast of the integration process and could actively support all of its aspects and respond quickly if problems arose.
5. Ensuring compliance with the law, norms and standards
Bank BPH in the conduct of its activities is guided by the highest standards and principles of ethical conduct. An important element of the Bank activities in 2009 was consolidation and strengthening of the compliance function. An independent Compliance Department was established to monitor the Bank’s compliance with the law, regulator recommendations, internal regulations and ethical standards.
The Bank adopted the GE’s The Spirit & The Letter as our code of conduct in 2008. The Code determines the most important principles of ethical conduct for every employee, manager, consultant, agent, sales representative, distributor and independent contractor.
The code is designed to help our employees identify situations where they may want to consider what is the right way to act, to ask for advice or to take the best decision from the perspective of the Bank, its shareholders, customers and partners.
The code of conduct provides an introduction to other important regulations applicable at Bank BPH.
In 2009, were adopted policies on conducting a business by Bank’s employees outside of the Bank, on the conflict of interest, on giving and receiving gifts, flagging violations of the law or of ethical conduct, on investing in financial instruments by persons related to the Bank or on their account.
The Bank was also introducing the best of the GE Group’s standards of responsible lending, debt recovery, addressing customer complaints, launching new products through involving relevant internal entities in the product design, product sales channels, customer service, product documentation and marketing materials.
The Bank's policy is that the excellent financial results and high standards of corporate governance and compliance with the principles of ethical conduct are not contradictory in fact, mutually reinforcing.
Bank BPH is building a compliance culture where the employees understand their responsibilities and may notify problems without obstacles, or fear of repression. The Bank promotes ethical and compliant behaviour and takes into account the employees’ efforts to observe the compliance principles when recognising and rewarding them.
15 6. Internal controls and risk management with regards to the preparing of financial statements
Preparing of financial statements is subject to a system of internal controls just as all other processes at the Bank.
The Bank has a three tier internal control system: 1) Tier 1: Internal controls implemented in every banking process involve control activities built into each banking process intended to mitigate risks identified in these processes (e.g. control procedures, self assessment, functional controls, manual and automatic controls, etc.), 2) Tier 2: Internal controls regularly applied by specific organisational units established by the bank to manage specific types of risks involved in the banking business. These controls are designed to assess the effectiveness of Tier 1 controls,
3) Tier 3: Monitoring of the control performed by Internal Audit Department and involving periodic auditing, evaluation and improvement of internal control mechanisms existing at the Bank and their practical application. The aim of control monitoring is to assess the effectiveness of Tier 1 and 2 controls.
With regards to the process of financial statements preparation the Bank has several reporting platforms for the statutory and internal reports which feature built in controls. These controls are both technical (numerical and logical control formulae in reporting systems implemented at individual steps of report generating processes) and substantive (system analysis of control reports). The report making processes are defined in procedures that identify every significant step of functional controls of Tier 1.
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