03. The Sacyr Vallehermoso Group

Corporate governance

Corporate governance practices

Our corporate governance practices are designed to guarantee efficient governance of the Company, safeguard the rights of all shareholders and ensure maximum transparency in reporting the Company’s operations and financial position.

Sacyr Vallehermoso complies with all legallyimposed corporate governance requirements and uses as its principal source of reference for ensuring best practices in its management in accordance with the recommendations set out in the Unified Good Governance Code issued by the Spanish Stock Exchange Commission (CNMV).

The management structure of Sacyr Vallehermoso ensures that powers and duties are properly distributed among the various governing bodies: the General Shareholders Meeting, the Board of Directors and the three committees that assist the Board in the execution of its duties, the Executive Committee, Audit Committee and the Appointments and Remuneration Committee.

This structure is governed by internal regulations consisting of the Bylaws, the Board of Directors’ Regulations, the General Meeting Regulations, and the Internal Code of Conduct, all of which can be consulted on the Group’s website.

Sacyr Vallehermoso complies with best corporate governance practices, notably in the following areas:

• The Sacyr Vallehermoso by-laws do not contain any “poison pills” limiting the maximum number of voting rights that can be exercised by any given shareholder or any other type of restriction designed to block a potential takeover bid through market share acquisitions.

• External directors easily outnumber executive directors, thereby ensuring the Board’s general oversight function.

• The distribution of different types of Sacyr Vallehermoso directors is a fair reflection of the Company’s shareholder structure. Over 60% of the capital is represented on the Board by different directors appointed by various shareholders who do not form a group of core shareholders. This diversity of proprietary external directors encourages a culture of mutual oversight that benefits all shareholders.

• There are two other Vice-Chairmen, both of who are external proprietary directors. Power is further decentralised through the Executive Committee, which comprises five directors.

• The members of the Board and its committees are more than mere figureheads. In 2011 the various governing bodies were active in many demanding areas of the Group’s operations requiring a total of 17 Board meetings, eleven meetings of Audit Committee meetings and ten Appointments and Remuneration Committee meetings.

• The members of the Board of Directors can consult any member of the Company and are also entitled to consult external advisors.

• Membership of executive directors reaching the age of 65 comes under review by the Board. In addition, membership of directors comes under review of the Board in other cases as well, thereby ensuring that directors who are no longer suitable for the position do not remain in the governing body.

• Total compensation paid to directors for performing their Board duties and their executive duties, if any, is deemed moderate in c

• As an additional transparency measure, the SyV Group discloses this compensation on an individual basis. In addition, in accordance with article 43.2 of the company’s by-laws, each year the shareholders remuneration paid to executive directors comes before the vote of the shareholders at the Annual General Meeting.

• All changes to the membership of the Board of Directors and Board committees, or to the remuneration of their members, are reported by the Appointments and Remuneration Committee, which is made up exclusively of external directors, following approval by the Board of Directors.

• The Audit Committee, also made up exclusively of external directors, carries out a broad range of tasks designed to reinforce the transparency of the company’s management.

• Interim financial information is drawn up using the same accounting principles and professional practices as the annual financial statements, in order to maximise the comparability of data.

• The company ensures that its shareholders have access to the information they require in accordance with recommendations on good corporate governance. As explained in the section entitled “Channels of stakeholder engagement”, the SyV Group has established various different channels, including the company’s website, the interim financial reports, personalised attention through the Investor Relations Department, etc.

• The procedures for proxy voting at annual general meetings have been broadened and improved, while participation at the meetings has increased with the introduction of remote appointment of proxies and remote voting through electronic and postal communications, and the implementation of the Shareholders’ e-Forum.

• To help shareholders exercise their vote to the best effect, separate votes are taken at the annual general meetings on materially separate items, so shareholders can express their preferences in each case, notably on the appointment or ratification of directors.

• SyV’s Board of Directors takes steps to periodically control and evaluate the quality and efficiency of its own operation and that of its committees, based on reports prepared by the committees. The Appointments and Remuneration Committee also evaluates the work of the Chairman. The evaluation process takes account of the level of fulfilment of responsibilities, ease of access to company information and whether directors and external advisors can be consulted and the advice sought obtained.

• The risk management and control policy is formally presented to and approved annually by the Board of Directors.

• A new Code of Conduct has been approved, regulating action which is forbidden or undesirable for the Group in a more explicit way, including the criminal risks for legal entities, set out in Act 5/2010 of 22 June on the reform of the Penal Code.

• In addition to this new Code of Conduct, a body has been established responsible for overseeing the Code and ensuring it is applied throughout the Group, and which shall be assisted by the Compliance Department.

• As part of this new Code of Conduct, the Ethics hotline has also been modified, and now has two new functions: one for consultation, and another to report breaches of rules set out in the Code of Conduct. The latter function ensures the confidentiality of the person reporting the breach and respect for the reported person’s rights.

• The Board of Directors’ Regulations specifically govern the procedures for avoiding conflicts of interest within the maximum governing body. In that regard, directors are required to notify the Board of any potential direct or indirect conflict between their own interests and those of the company. In the event of conflict, the Director affected shall refrain from participating and voting in the deliberations over the transactions to which the conflict relates.

The Sacyr Vallehermoso by-laws also state that, whenever the Executive Committee considers it necessary, the Audit Committee must report the transactions with SyV directors that give or could give rise to conflicts of interest. In addition, any conflicts of interest involving directors of the company must be disclosed in the Annual Corporate Governance Report.

The Internal Code of Conduct regulates management of insider information and confidential operations, operations carried out on their own account by individuals subject to this code, treasury stock transactions or conflicts of interest and related party operations.

• The Board of Directors encourages informed participation by shareholders at the annual general meetings and is committed to taking all appropriate measures to ensure that shareholders participating in these meetings can carry out their work efficiently and in compliance with the law and company by-laws. In particular, the Board of Directors adopts the following measures:

- Prior to the annual general meeting, the Board shall distribute to shareholders all information that might possibly be of interest and reasonably distributed, as well as all legally required information.

- The Board shall respond, to the best of its ability, to requests for information made by shareholders prior to the Annual General Meeting.

- The Board shall respond, to the best of its ability, to questions posed by shareholders during the Annual General Meeting.