2013 CORPO RATE GOVERNANCE CONTENTS 2013 CORPORATE GOVERNANCE REPORT ON CORPORATE GOVERNANCE AND ON THE COMPANY’S OWNERSHIP STRUCTURE 2013 1 Introduction 5 Ownership Structure 9 Corporate Governance 17 Annexes 63 ANNUAL COMPENSATION REPORT 2013 93 Introduction 95 Section One 99 Section Two 107 Motion 115 This document has been translated into English for the convenience of readers outside Italy. The original Italian document should be considered the authoritative version. REPORT ON CORPORATE GOVERNANCE AND ON THE COMPANY’S OWNERSHIP STRUCTURE 201 3 Report on Corporate Governance and the Company’s Ownership Structure CONTENTS INTRODUCTION 5 Foreword 6 Profile of the Group 7 Governance Structure 8 OWNERSHIP STRUCTURE 9 Structure of the Share Capital 10 Composition 10 Rights of the Classes of Shares 10 Powers to Carry out Capital Increases and Authorizations to Purchase Treasury Shares 11 Restrictions to Transfers of Shares, Ownership Limitations and Acceptability Clauses 11 Stock Ownership 11 Shareholders with Significant Equity Interests 11 Special Controlling Rights 11 Mechanism for the Exercise of Voting Rights Within an Employee Stock Ownership Plan 11 Voting Right Restrictions 12 Agreements Deemed Significant Pursuant to Article 122 of the TUF 12 Change of Control Clauses 12 Financing Facilities 12 Commercial Agreements 12 Shareholders’ Agreements 13 Controlling Entity and Management and Coordination Authority 13 Other Information 14 Provisions Applicable to the Composition and Activities of the Board of Directors and Its Committees and to the Election and Replacement of Directors 14 Provisions Applicable to the Composition, Activities, Election and Replacement of the Board of Statutory Auditors 14 Provisions Applicable to the Activities of the Shareholders’ Meeting and Relevant Rights of Shareholders 15 Provisions Applicable to Amendments to the Bylaws 15 CORPORATE GOVERNANCE 17 Adoption of Corporate Governance Codes 18 Board of Directors 18 Role of the Board of Directors 18 Plan Review and Approval 19 Definition of Corporate Governance and the Group’s Structure 19 Definition of the Type and Level of Risks Compatible with the Issuer’s Strategic Objectives 20 Assessment of the Effectiveness of the Organizational, Administrative and Accounting Structure, with Special Emphasis on the Internal Control and Risk Management System 20 Assessment of the Overall Operating Performance and Reporting by Delegated Entities 21 Approval of Material Transactions Executed by the Company and Its Subsidiaries 21 Self-assessment by the Board of Directors and Its Committees 22 Rules of Operation of the Board of Directors 23 Meetings of the Board of Directors and Information for Directors 24 Election of Directors 26 Composition of the Board of Directors 27 Chairman and Executive Directors 29 Independent Directors 29 Lead Independent Director 30 Internal Committees of the Board Of Directors 31 Committee of Independent Directors and Related-party Transactions 31 Activities of the Committee of Independent Directors in 2013 34 Compensation Committee and Compensation of Directors 35 Compensation Committee 35 Compensation of Directors 38 Severance Indemnities for Directors 38 2 I 2013 Corporate Governance Report on Corporate Governance and the Company’s Ownership Structure Control and Risk Committee 38 Internal Control and Risk Management System 41 Parties Involved 41 Board of Directors 41 Director Responsible for Overseeing the Functionality of the Internal Control and Risk Management System 41 Control and Risk Committee 41 Internal Auditing Department 42 Other Parties Involved 43 Board of Statutory Auditors 43 Elements That Characterize the System of Internal Control 43 Structural Elements of the Control Environment 43 Tools to Ensure the Achievement of Operational Objectives 44 Tools to Ensure the Achievement of Compliance Objectives 46 Tools to Ensure the Achievement of Reporting Objectives 48 Tools to Monitor Internal Controls 48 Risk Management and Internal Control System in Relation to the Financial Disclosure Process and the Corporate Accounting Documents Officer 48 Overall Assessment of the Effectiveness of the Internal Control and Risk Management System 50 Coordination Among the Parties Involved with the Internal Control and Risk Management System 50 Treatment of Corporate Information 51 Board of Statutory Auditors 53 Composition and Election of the Board of Statutory Auditors 53 Composition of the Board of Statutory Auditors in 2013 54 Compensation of the Board of Statutory Auditors 54 Rules of Operation of the Board of Statutory Auditors 55 Relations with Shareholders 56 Shareholders’ Meeting 57 Convening of Shareholders’ Meetings 57 Activities of the Ordinary Shareholders’ Meeting 58 Activities and Attributions of the Special Meeting of Holders of Savings Shares 58 Right to Attend Shareholders’ Meetings 58 Holding Shareholders’ Meetings 58 Additional Shareholder Rights and Methods of Exercise 59 Independent Auditors 60 Attributions of Independent Auditors 60 Fees of Independent Auditors 61 ANNEXES 63 Board of Directors 65 Overview of the Structure of the Board of Directors and Board Committees 66 Posts held by Directors at December 31, 2013 67 Curricula of the Directors in Office at December 31, 2013 68 Curricula of the Directors Who Resigned Their Office in 2013 74 Board of Statutory Auditors 77 Overview of the Structure of the Board of Statutory Auditors 78 Posts held by Statutory Auditors at December 31, 2013 79 Curricula of the Statutory Auditors in Office at December 31, 2013 80 Bylaws 83 Current Bylaws 84 This Report on Corporate Governance and on the Company’s Ownership Structure (hereinafter the “Governance Report” or “Report”) and the Bylaws are available on the Company website (www.edison.it - “Governance - Bylaws and Corporate Governance Reports”) 2013 Corporate Governance I 3 4 I 2013 Corporate Governance The new Edison Building on Piazzale Cadorna, in Milan. INTRODUCTION 2013 Corporate Governance I 5 Report on Corporate Governance and the Company’s Ownership Structure FOREWORD As already explained in last year’s Report, on May 24, 2012, Electricité de France Sa (“ EDF ”) obtained control of Edison, upon its subsidiary WGRM Holding 4 Spa (“ WGRM ”) acquiring from Delmi Srl (“ Delmi ”), a 51% subsidiary of A2A Spa, a 50% interest in the share capital of Translapina di Energia Srl (“ TdE ”), which already held a controlling interest in Edison, owning 61.3% of its common share capital. Following this transaction, TdE, in compliance with the resulting obligation, which it incurred jointly with WGRM and MNTC Holding Srl (“ MNTC ,” also a wholly owned subsidiary of EDF and then owner of a 19.4% interest in Edison’s common share capital), launched a tender offer, pursuant to Article 102 and Article 106, Section 1, of Legislative Decree No. 58/1998 (“ TUF ”), for the Edison common shares not held by companies of the EDF Group (the “ Mandatory Offer ”) and subsequently purchased, pursuant to Article 108, Section 1, of the TUF, the remaining Edison common shares tendered in response to the Offer by shareholders other than the companies of the EDF Group (the “Purchase Obligation ”). At the end of the abovementioned process, EDF was thus the holder, through TdE and MNTC, of a 99.5% interest in Edison’s common share capital. Please also note that, due to the effects of the Mandatory Offer and to the actions taken to comply with the Purchase Obligation, as mentioned above, Borsa Italiana Spa (“ Borsa Italiana ”), by Resolution No. 7544 of August 7, 2012, delisted the Edison common shares from the online securities market (“ MTA ”) effective September 10, 2012. Subsequently, in accordance with the provisions of Article 6 of Edison’s Bylaws, the Company proceeded, during the period from November 2, 2012 to November 30, 2012, with the voluntary conversion of the savings shares into common shares, based on a ratio of 1 common share for each savings share held (the “ Voluntary Conversion ”), which ended with the conversion of 437,573 shares out of a total 110,592,420 savings shares originally outstanding. At the end of the Voluntary Conversion period, the savings shares continued to be listed on the MTA. Consequently, Edison continues to be subject to the legal requirements applicable to “companies with shares traded on a regulated market” and retains the status of a “listed issuer” pursuant to national laws. In this respect, please note that the Company elected to continue following the Corporate Governance Code promoted by Borsa Italiana, in the manner described below, but will no longer comply with the requirement to publish an information memorandum in connection with material transactions involving acquisitions, divestments, capital increases through asset conveyances, mergers and demergers. It is worth mentioning that, due to the delisting of the common shares and the continuing listing of the savings shares, by a resolution of the Extraordinary Shareholders’ Meeting on March 22, 2013 that went into effect on April 4, 2013 (date when the resolution was recorded in the Company Register), certain articles of the Bylaws were amended to take into account the different rules applicable to the common shares and the savings shares, and the respective holders, and as result of the different conditions under which the shares of these two categories can be traded. Moreover, it is important to keep in mind, that Edison debt securities totaling 1,800 million euros, issued in multiple increments within the framework of Euro Medium Term Note Programs