Applicationof corporate governance in 2019

  • 206-1
  • 102-11

Set of corporate governance rules

In 2019, the Company was subject to the corporate governance rules, described in the document Best Practices for WSE Listed Companies 2016 (Best Practices 2016), adopted by the WSE Supervisory Board in resolution no. 26/1413/2015 of 13 October 2015, which came into force on 1 January 2016.

The text of the Best Practices for WSE Listed Companies 2016 the Company is subject to is published on the WSE website.

The Company’s Management Board adopted the recommendations and rules specified in this document, with several exceptions, for application. The Company submitted a report on the non-application of detailed rules via the Electronic Information Base (EBI).

Abandoned rules of corporate governance

In 2019, the Company did not apply
the following detailed rules provided in the Best Practices 2016:

  1. IV.Z.2. concerning ensuring of publicly available real-time broadcasts of general meetings, due to the lack of the relevant provisions of the Company’s Articles of Association enabling the aforementioned broadcast. In order to enable the application of the rule, the Company’s Management Board requested the Ordinary GM of the Company to adopt the relevant amendment to the Company’s Articles of Association ensuring publicly available real-time broadcast of general meetings. However, the Ordinary GM of the Company convened on 8 June 2016 did not adopt the amendment to the Company’s Articles of Association proposed by the Company’s Management Board in this respect;
  2. VI.Z.1. concerning the construction of incentive schemes in a way necessary, among others, to tie the level of compensation of members of the Company’s Management Board and key managers to the actual long-term financial standing of the Company and long-term shareholder value creation as well as the Company’s stability. This rule was not applied due to the compensation and bonus system applicable at TAURON in relation to members of the Company’s Management Board and its key managers, which stipulates that the level of compensation will be tied to the financial situation of the Company within the annual perspective, in conjunction with the implementation of strategic objectives;
  3. VI.Z.2. concerning tying the compensation of members of the Management Board and key managers to the Company’s long-term business and financial goals. The period between the allocation of options or other instruments linked to the Company’s shares under the incentive scheme and their exercisability should be no less than two years. This rule was not applied due to the compensation and bonus system applicable at TAURON in relation to Members of the Company’s Management Board and its key managers does not provide that compensation should be tied to instruments linked with the Company’s shares.

In 2019, the following rules provided
in the Best Practices 2016 did not apply to the Company:

  1. I.Z.1.10. concerning posting the financial projections on the Company’s website – if the company has decided to publish them – published at least in the last 5 years, including information about the degree of their achievement. This principle did not apply to the Company due to the fact that the Company did not publish the financial forecasts;
  2. III.Z.6. stating that where the Company has no separate internal audit function in its organization, the audit committee (or the Supervisory Board if it performs the functions of the audit committee) should review on an annual basis whether such a function needs to be separated – due to the fact that the Company has a separate Internal Audit Department in its organizational structure.

Furthermore, the Company’s Management Board, adopting the detailed rules of Best Practices 2016 designated as: I.Z.1.3, I.Z.1.15, I.Z.1.16, II.Z.1, II.Z.6, II.Z.10.1, II.Z.10.2, II.Z.10.3, II.Z.10.4, V.Z.5, V.Z.6, VI.Z.4., indicated the manner of applying them. The detailed description of the manner of applying the above rules is provided in the Information on the status of the Company’s compliance with recommendations and principles included in the Best Practices 2016, provided on the Company’s website.

Information concerning abandonment of the recommendations provided in Best Practices 2016 for application

In 2019, the Company did not apply only the recommendation provided in Best Practices 2016, designated as IV.R.2., concerning ensuring a possibility to shareholders to participate in the GM using electronic communication means, due to the lack of such shareholders’ expectation. This decision is expressed by the failure of the Company GM on 8 June 2016 to adopt the relevant amendments to the Company’s Articles of Association ensuring publicly available real-time broadcast of general meetings.

Other recommendations provided in the Best Practices 2016 were applied by the Company in 2019.

Main internal control and risk management systems in relation to the process of generating financial statements and consolidated financial statements

The internal audit and risk management system with respect to the process of drawing up financial statements and consolidated financial statements is implemented on 3 levels:

Pursuant to the adopted internal regulations, the TAURON Group’s subsidiaries operate based on the organizational rules and regulations and have defined organizational structures where the applicable business units are assigned the responsibility for preparing financial statements and consolidated financial statements in place. Such units are obligated to perform ongoing control of the tasks vested and the functional control of their activities. Based on the TAURON Group’s Business Model put in place, the Process Documentation of Megaprocess 3.4 Accounting was implemented, containing, among others, processes associated with the financial reporting of the Company and the TAURON Group. The process documentation defines the responsibilities of the business units within the reporting processes.

TAURON has put the Risk Area in place, whose role is to oversee and establish the Group’s risk management system. These functions are implemented within the Company by the Corporate, Market and Credit Risk Management Teams. The purpose of risk management is to improve the predictability of attaining strategic objectives by TAURON, including stable creation of the financial result through early identification of threats allowing preventive activities to be undertaken. Risk management standards applicable at the Group have been defined in The TAURON Group’s Corporate Risk Management Strategy and in the policies for managing specific risks. The ERM system encompasses all of the Group’s lines of business and the business processes carried out within TAURON, including the process of preparing financial statements. The risks associated with this process are managed, monitored and reported within the ERM System. The goal of the standardization is to ensure consistency in managing the individual risk categories, defining the general principles, standards and tools of the system’s architecture. The oversight of the ERM system at TAURON is performed by the Risk Committee. The risk management system is described in more detail in section 3.2. of this report.

The Audit and Control Area is functioning within the TAURON Group, with the goal to plan and implement the audit tasks, including the advisory and opinion (feedback) providing activities as well as the performance of the control tasks, including the ad-hoc inspections commissioned. The audit and advisory activities are carried out by two teams: The Strategic Audit Team dealing with the strategic tasks covering the entire Group and the Operational Audit Team carrying out specialized operational tasks at the level of the individual subsidiaries and lines of business areas of TAURON. The control activities are organized in a similar manner, carried out at the group level by the Internal Control Team and at the level of the subsidiaries by the inspectors employed at these subsidiaries. In addition, within the Audit and Control Area, a specialized unit is in place, specializing in controlling the IT, OT, and security systems areas. Such organization of the area is aimed at enabling the scope of audits and controls to cover the entire operations of the organization both from the point of view of the needs of the Group and those of the individual subsidiaries. In addition, since 2018, the Audit and Control Area has been conducting works aimed at building and developing a model for a periodic assessment of the Internal Control System functioning at the Company and at the entire Group. The results of the assessment of the Internal Control System are presented to the Management Board and the Company’s Supervisory Board Audit Committee.

Most important aspects of internal control and risk management with respect to the process of drawing up financial statements and consolidated financial statements include:

  • Supervision over application of consistent accounting rules by the TAURON Group’s subsidiaries when developing reporting packages for the purpose of drawing up the Group’s consolidated financial statements
  • Procedures used to authorize and provide opinions on the Company’s financial statements and the TAURON Group’s consolidated financial statements
  • IT systems as well as financial and accounting processes
  • Subjecting the Company’s financial statements and the TAURON Group’s consolidated financial statements to an audit and reviews by an independent auditor
  • Rule related to changing the Company’s and the TAURON Group’s audit firm

In order to ensure consistent accounting principles based on International Financial Reporting Standards (IFRS), as endorsed by the European Union, the TAURON Polska Energia S.A. Group’s Accounting Policy (Accounting Policy) was developed and implemented by the TAURON Group. Where there are changes to the regulations, this document is updated accordingly. The rules defined in the Accounting Policy are applicable to TAURON’s standalone financial statements and the Group’s consolidated financial statements. The Group’s subsidiaries are obligated to apply the Accounting Policy when preparing the reporting packages that provide the basis for preparing the TAURON Group’s consolidated financial statements.

Furthermore, TAURON developed and implemented an intra-group regulation that comprehensively regulates issues related to the rules and deadlines for preparing the reporting packages for the purpose of consolidated financial statements. The reporting packages are validated by the holding company’s Consolidation and Reporting Team and by an independent auditor during an audit or review of the Group’s consolidated financial statements.

The Company has implemented financial statements’ authorization procedures. Quarterly, half-year and full-year financial statements of the Company and consolidated financial statements of the Group are approved by the Company’s Management Board before being published. Full-year financial statements of TAURON and consolidated financial statements of the TAURON Group are additionally presented for evaluation to the Company’s Supervisory Board before being published. Vice-President of the Management Board for the Company’s Finance (Chief Financial Officer) oversees the preparation of financial statements, while the Management Boards of the subsidiaries included in the consolidation is responsible for preparing reporting packages for consolidated financial statements of the TAURON Group.

The structure of the Company’s Supervisory Board includes the Supervisory Board Audit Committee of TAURON Polska Energia S.A., whose composition, competence and description of activities are provided in item 9.11.3. of this report.

The TAURON Group’s subsidiaries maintain accounting ledgers which constitute the basis for preparing financial statements using ERP financial and accounting computer systems, enabling system audits of the correctness of the document flow and classifying of business events. Consolidated financial statements are prepared using an IT tool used to consolidate financial statements, providing system control with respect to the coherence and timeliness of preparing the consolidation data.

The TAURON Group’s subsidiaries have implemented IT and organizational solutions that provide control of access to the financial and accounting system and ensure adequate protection and archiving of the accounting ledgers. Access to IT systems is restricted based on applicable access rights assigned to authorized personnel. Control mechanisms are applied in the process of granting and changing access rights to the financial and accounting systems. The rights granted are also subject to periodic verification.

Due to the integration of the accounting functions and the transfer of the Group’s material subsidiaries’ financial and accounting services to CUW-R (Shared Cervices Center – Accounting), the Group’s financial and accounting processes were gradually unified. The subsidiaries adjusted their own procedures to the flow of the financial and accounting processes, taking into account the specifics of the individual segments.

The TAURON Group’s Business Model clearly distributes responsibilities with respect to the financial and accounting processes between the Company (indicated as the Corporate Center) and the subsidiaries and CUW R, indicating that the Corporate Center is the owner of processes associated with accounting and reporting of the TAURON Group. With respect to the tasks of the Corporate Center, strategic functions associated with the development of the model of operations and standards of the Group were indicated in the area of accounting and supervision of the implementation of standards in the accounting area in the subsidiaries and CUW R. Corporate Center is responsible for drawing up the financial statements of the Company and the consolidated financial statements of the TAURON Group. A clear split of responsibilities and strong emphasis on the fulfillment of the supervisory functions by the Corporate Center in relation to CUW R and the subsidiaries is, inter alia, aimed at improving the process of preparing the financial statements.

Full-year financial statements of the Company and full-year consolidated financial statements of the TAURON Group are subject to an audit by an independent auditor. In 2018, the Company appointed an entity authorized to audit and review the financial statements of the Company and material subsidiaries of the Group and the consolidated financial statements. The agreement with the entity authorized to audit financial statements was concluded to conduct an audit of the financial statements and consolidated financial statements for the years 2019–2021 and to conduct a review of the interim financial statements and the interim consolidated financial statements for the half-year periods ended on 30 June 2019, 30 June 2020 and 30 June 2021.

The following rule was established in the Policy for selecting an audit firm to conduct an audit and review of the financial statements and consolidated financial statements of TAURON Polska Energia S.A., adopted by the Audit Committee of the Company’s Supervisory Board on 16 October 2017:

  1. maximum period of continuous orders for audits to be conducted by the same audit company or an entity related to that audit company or any member of the network operating in the European Union countries that such audit companies are members of, may not exceed 5 years;
  2. after a 5-year duration of the order, neither the audit company nor any member of its network operating within the European Union may conduct an audit of the Company for the subsequent 4 years;
  3. a key certified auditor may not conduct an audit of the Company for a period longer than 5 years;
  4. a key certified auditor may again conduct an audit of the Company after at least 3 years have elapsed from the completion of the last audit.

Rules for making amendments to the Company’s Articles of Association

Amendments to the Company’s Articles of Association are made in accordance with the provisions of the Commercial Company Code, in particular: amendments to the Company’s Articles of Association take place by means of resolution of the GM, passed by the majority of 3/4 of the votes, and then require issuing of a decision by a competent court on entering the change into the register of commercial undertakings. The consolidated text of the Company’s Articles of Association, including amendments passed by the General Meeting, is adopted by the Supervisory Board by means of a resolution.

In accordance with the Company’s Articles of Association, a material amendment to the subject of the operations requires 2/3 of the votes in the presence of persons representing at least half of the share capital.

Description of the policy of diversity applied with respect to the Company’s authorities

The TAURON Group’s Diversity Policy (Diversity Policy), put in place in 2017, was in force at the Company and the TAURON Group in 2019, with its goal to reinforce the awareness and organizational culture open to diversity.

In accordance with the above Diversity Policy, diversity and openness are an integral part of the Group’s business operations. TAURON applies the equal treatment policy and seeks to ensure diversity in terms of gender, educational background, age, and professional experience in relation to all employees, and in particular to the management bodies and its key managers. Also, actions have been undertaken to prevent discrimination by fostering appropriate work atmosphere as well as building and strengthening positive relationships among the personnel and developing organizational culture based on the corporate PGB values.

The Diversity Policy is also applied in the cooperation with the external partners of the Group, i.e. companies, universities, schools or other business entities.

  1. Policy of Compliance with the Principles of Ethics and Prevention of Mobbing and Discrimination at the TAURON Group;
  2. Policy of Respect for Human Rights defining the principles of respect for human rights and actions taken to prevent their violation and to support the atmosphere of dignity and mutual respect;
  3. Training and competence development programs conducive to and supporting the creation of an atmosphere for the development of each employee
  4. Regulations ensuring fairness and objectivity with respect to work organization and compensation, including among others:
    • The TAURON Group’s Compensation Principles,
    • Human Resources Management Policy in the TAURON Group,
    • regulations with respect to benefits (entitlements),
    • flexible forms of work time and ability to work remotely.
  5. Programs and regulations dedicated to women, ensuring equal opportunities for them and support in combining professional life with private life, e.g.:
    • reduced working time for pregnant women,
    • Program Mama pracuje działający w obszarze dystrybucji, którego celem jest budowanie przyjaznego środowiska pracy dla matek;
    • Mum works program put in place in the distribution line of business, with the goal to build a friendly work environment for mothers,
    • Magenta meetings program as part of the Women Power campaign for women students of electrical engineering faculties, whose goal is to provide support for girls, e.g. in selecting a career path.
  6. The TAURON Group’s Subsidiaries’ Employee Recruitment, Selection and Adaptation Policy,
  7. The TAURON Group’s Competence Model.

The detailed data and indicators related to diversity in terms of age, gender and the steps taken as well as the results stemming from the implementation of the Diversity Policy are provided in section 2.8 of this report.

With respect to the members of the corporate authorities of TAURON, i.e. the Management Board and the Supervisory Board, persons acting as Members of the Management Board are appointed by the Supervisory Board, while Members of the Supervisory Board are appointed by the Company’s GM and the Minister of State Assets acting within the statutory powers of the State Treasury.

Members of the Management Board are appointed by the Company’s Supervisory Board after conducting a qualification procedure designed to verify and assess their qualifications and selecting the best candidate. The notice of the qualification process is published on the Company’s website and in the Public Information Bulletin of the Ministry of State Assets. The competition is open for any person that meets the requirements provided in the Company’s Articles of Association and defined by the Supervisory Board, specified in the notice. Due to no special requirements placed on such features as, among others, gender, type of education, age and professional expertise, the Supervisory Board is able to ensure comprehensive and diverse approach when assessing and selecting candidates to the Company’s Management Board.

As of 31 December 2019, the Company’s Management Board was composed of 3 men, and the Company’s Supervisory Board included 5 women and 4 men. The age structure of the members of the Company’s Management Board was as follows: over 30–40 years – 1 person, over 40–50 years – 2 persons, while in case of the Company’s Supervisory Board: over 40–50 years – 5 persons, over 50–60 years – 1 person, above 60 years – 3 persons.

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