Corporate governance define the rules of conduct of public companies, thanks to which the company’s activity becomes transparent, the quality of communication between the company and its investors improves, and the protection of shareholders’ rights is strengthened.
Pursuant to § 70, clause 6, sub-clause 5) of the Regulation of the Minister of Finance of March 29, 2018 on current and periodic information disclosed by issuers of securities and conditions to acknowledge as equivalent information required by legal regulations of a non-member state (i.e. Journal of Laws of 2018, item 757), the Company’s Management Board presents the statement on the application of corporate governance in 2020.
In 2020 the Company was subject to the corporate governance rules, described in the document Best Practice of WSE (GPW) Listed Companies 2016 (Best Practice 2016), adopted by the Supervisory Board of the WSE (GPW) in resolution no. 26/1413/2015 of October 13, 2015, which came into force on January 1, 2016.
The text of the Best Practice 2016 that the Company is subject to is published on the gpw.pl/best-practice”>GPW website.
SET OF ABANDONED RULES OF CORPORATE GOVERNANCE
In 2020 the Company did not apply the following detailed rules provided in the Best Practice 2016:Export to Excel
|IV.Z.2.||The rule concerning the provision of the publicly available real-time broadcasts of the GM. The Company is monitoring, on an ongoing basis, the shareholding structure (composition) and in case changes take place that would justify the need to provide the publicly available real-time broadcasts of the general meeting, the Company will take relevant actions in order to provide the broadcast.|
|VI.Z.1.||The rule 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. That rule was not applied due to the compensation and bonus system applicable at TAURON in relation to members of the Management Board of the Company and its key managers that 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|
|VI.Z.2.||The rule 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 2 years That rule was not applied due to the compensation and bonus system applicable in TAURON in relation to Members of the Management Board of the Company and its key managers that does not provide that compensation should be tied to instruments linked with the Company shares.|
In 2020 the following rules provided in the Best Practice 2016 did not apply to the Company:Export to Excel
|I.Z.1.10||The rule concerning posting the financial projections on the Company 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.|
|III.Z.6.||The rule 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 function needs to be separated. That rule was not applied to the Company due to the fact that the Company had a separate internal audit unit within its organizational structure.|
The detailed description of the manner of applying the above rules is provided in the Information on the status of applying by the Company of the recommendations and rules provided in Best Practice 2016, provided on the Company’s website.
Information concerning abandonment of the recommendations provided in Best Practice 2016 for application
In 2020 the Company did not apply only the recommendation provided in Best Practice 2016, designated as IV.R.2 concerning ensuring a possibility to shareholders to participate in the GM using electronic communication means. The Company is monitoring, on an ongoing basis, changes in the shareholding structure (composition) that could affect the way the communication is conducted during the general meeting. In addition, if the Company receives requests from the shareholders to conduct a general meeting using the electronic means of communication, the Company will verify the technical possibilities that would ensure a safe conduct of the general meeting for the shareholders and the Company, and in the absence of any contraindications, the Company will take actions in accordance with this recommendation.
The other recommendations provided in the Best Practice 2016 were applied by the Company in 2020.
MAIN CHARACTERISTICS OF INTERNAL CONTROLS AND RISK MANAGEMENT SYSTEMS IN RELATION TO THE PROCESS OF GENERATING THE FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENTS
The internal audit and risk management system with respect to the process of drawing up the financial statements and consolidated financial statements is implemented on 3 levels:Export to Excel
|Pursuant to the adopted internal regulations TAURON Capital Group’s subsidiaries operate based on the organizational regulations and have defined organizational structures where the applicable business units are assigned the responsibility for preparing the financial statements and the consolidated financial statements. Such units are obligated to perform ongoing control of the tasks vested and the functional control of their activities.
Based on TAURON Capital Group’s Business Model put in place the Process Documentation of Mega-process 3.4 Accounting was implemented, containing, among others, processes associated with the financial reporting of the Company and TAURON Capital Group. The process documentation defines the responsibilities of the business units within the reporting processes.
|TAURON Capital Group has put the Risk Area in place, whose role is to oversee and establish TAURON Capital Group’s risk management system. These functions are implemented within the Company by the Corporate and Transaction Risk, Market and Credit Risk Management Teams. The purpose of the risk management is to improve the predictability of attaining strategic objectives by TAURON Capital Group, including stable creation of the financial result through early identification of threats allowing preventive activities to be undertaken. Risk management standards applicable at TAURON Capital Group have been defined in TAURON Group’s Corporate Risk Management Strategy and in the policies for managing the specific risks. The ERM system encompasses all of TAURON Capital Group’s lines of business and the business processes carried out within TAURON Capital Group, including the process of drawing up the 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 Capital Group is performed by the Risk Committee, which as an expert team, on a permanent basis and continuously, initiates, analyzes, monitors, controls and supports the functioning of TAURON Capital Group’s risk management system.|
|The Audit and Control Area is functioning within TAURON Capital 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 the Internal Audit Team carrying out the audit tasks both on the strategic level, covering TAURON Capital Group, as well as the specialized operational tasks on the level of the individual subsidiaries and lines of business areas of TAURON Capital Group. The control activities are organized in a similar manner, carried out on the group level by the Internal Control Team and on the level of the subsidiaries by the inspectors employed by such subsidiaries. In addition, the Internal Control Team carries out specialist audits (controls) of the IT, OT and security systems. 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 TAURON Capital Group and those of the individual subsidiaries.
In December 2020, the Audit and Control Area completed the design works aimed at building and developing a model for a periodic assessment of the Internal Control System functioning at the Company as well as at entire TAURON Capital Group. The results of the assessment of the Internal Control System are presented to the Company’s Management Board and the Audit Committee of the Company’s Supervisory Board.
Most important aspects related to internal audit and risk management with respect to the process of drawing up financial statements and consolidated financial statementsExport to Excel
|Supervision over application of consistent (uniform) accounting rules by TAURON Capital Group’s subsidiaries when developing reporting packages for the purpose of drawing up TAURON Capital Group’s consolidated financial statements||In order to ensure consistent accounting principles based on International Financial Reporting Standards (IFRS), approved by the European Union, the Accounting Policy of TAURON Polska Energia S.A. Capital Group (Accounting Policy) was developed and implemented by TAURON Capital Group. This document shall be accordingly updated in case there are changes to the regulations. The rules defined in the Accounting Policy shall be applicable to TAURON’s standalone financial statements and TAURON Capital Group’s consolidated financial statements. TAURON Capital Group’s subsidiaries shall be obligated to apply the Accounting Policy when preparing the reporting packages that provide the basis for preparing TAURON Capital Group’s consolidated financial statements.
Furthermore, TAURON Capital Group 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 shall be validated by the holding company’s Consolidation and Reporting Office and by an independent certified auditor during an audit or review of TAURON Capital Group’s consolidated financial statements.
|Procedures used to authorize and provide opinions on the Company’s financial statements and TAURON Capital 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 TAURON Capital Group’s consolidated financial statements shall be approved by the Company’s Management Board before being published. Full year financial statements of TAURON and TAURON Capital Group’s consolidated financial statements shall be 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) shall oversee the preparation of financial statements, while the Management Boards of the subsidiaries included in the consolidation shall be responsible for preparing the reporting packages for TAURON Capital Group’s consolidated financial statements.
Supervisory Board’s structure includes the Audit Committee of the Supervisory Board of TAURON Polska Energia S.A.
|IT systems as well as financial and accounting processes||TAURON Capital Group’s subsidiaries maintain accounting books (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 the business events. Consolidated financial statements are prepared using an IT tool used to consolidate financial statements, providing system control with respect to the consistency (integrity) and timeliness of preparing the consolidation data.
TAURON Capital 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 books. 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 TAURON Capital Group’s material subsidiaries’ financial and accounting services to CUW-R (Shared Cervices Center – Accounting) TAURON Capital 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.
TAURON Capital Group’s Business Model clearly distributes responsibilities with respect to the financial and accounting processes between the Company (indicated as the Corporate Centre) and the subsidiaries and CUW R, indicating that the Corporate Centre is the owner of processes associated with accounting and reporting of TAURON Capital Group. With respect to the tasks of the Corporate Centre, strategic functions associated with the development of the model of operations and standards of TAURON Capital 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. Moreover, it was indicated that the Company as the Corporate Centre is responsible for drawing up the Company’s financial statements and the consolidated financial statements of TAURON Capital Group. A clear split of responsibilities and strong emphasis on the fulfillment of the supervisory functions by the Corporate Centre in relation to CUW R and the subsidiaries is, inter alia, aimed at improving the process of drawing up the financial statements.
|Subjecting the Company’s financial statements and TAURON Capital Group’s consolidated financial statements to an audit and reviews by an independent certified auditor||The Company’s full year financial statements and TAURON Capital Group’s full year consolidated financial statements are subject to an audit by a certified auditor. In 2018, the Company selected an entity authorized to audit and review the financial statements of the Company and of TAURON Capital Group’s material subsidiaries, as well as the consolidated financial statements. The contract with the entity authorized to audit financial statements was concluded for the audit of the financial statements and the consolidated financial statements for the years 2019 -2021, as well as for the review (audit) of the interim financial statements and the interim consolidated financial statements for the 6- month periods ending on June 30, 2019, June 30, 2020 and June 30, 2021.|
|The rule related to changing the audit firm of the Company and TAURON Capital Group||In 2020, the Audit Committee of the Company’s Supervisory Board updated, on October 5, 2020, the Policy for selecting an audit firm to conduct an audit and review of the financial statements and the consolidated financial statements of TAURON Polska Energia S.A., which included the following rule:
Until October 5, 2020, the maximum continuous duration of audit engagements carried out by the same audit company or an entity related to that audit company or any member of the network operating in the EU countries that such audit companies are members of, could not have exceeded 5 years.