Application of corporate governance principles

From among the detailed principles of the “Best Practice for WSE Listed Companies 2016”, mBank does not apply principle no. VI.Z.2., which reads as follows: “To tie the remuneration 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”. The principles for granting variable components of remuneration at mBank are compliant with the Regulation of the Minister of Development and Finance of March 6, 2017, on the Risk Management System, the Internal Control System, the Remuneration Policy as well as the Detailed Method for Banks’ Internal Capital Assessment (Journal of Laws of 2017, item 637) and EBA’s Guidelines on sound remuneration policies (EBA/GL/2015/22) of June 27, 2016, which do not provide for the premise indicated in item VI.Z.2 as a condition for granting a bonus.

In 2017, the bank started to comply with principle II.Z.8., which reads as follows: “The chair of the audit committee should meet the independence criteria referred to in principle II.Z.4.”, in connection with the changes in the composition of the Audit Committee following the appointment of a new Supervisory Board by the 30th Annual General Meeting of mBank S.A. on March 30, 2017. Previously, the bank did not comply with the above principle as the Audit Committee was chaired by a Member of the Supervisory Board who was related with the majority shareholder of mBank.

Moreover, from among all recommendations specified in the “Best Practice for WSE Listed Companies 2016”, mBank does not apply the following recommendations:

• items 2 and 3 of recommendation IV.R.2, which refer to conducting a General Meeting with the use of means of electronic communication. Item 2 concerns ensuring two-way communication in real time during the General Meeting, which allows shareholders to speak from a different location, whereas item 3 is related to exercising the voting right in person or by proxy during the General Meeting.
  For many years, mBank has broadcast General Meetings in real time, however, without the possibility to engage in two-way online communication by allowing shareholders to speak during the General Meeting from a different location.
  The bank’s By-laws and the Standing Rules of the General Meeting do not provide for the possibility to actively participate in General Meetings with the use of means of electronic communication. Moreover, in the opinion of the Management Board of the bank, the organisation of General Meetings with the use of means of electronic communication involves additional legal, organisational and technical risks. mBank has a stable majority shareholder, while a large part of minority shareholders are represented at each General Meeting even if participation in General Meetings with the use of means of electronic communication is not available.

• recommendation VI.R.3. concerning the remuneration committee. The recommendation stipulates, among others, that it is required that at least the majority of the committee members be independent. At mBank, the Remuneration Committee of the Supervisory Board is composed of four members, including one independent member. Three members do not meet the criterion of independence.

The “Principles of Corporate Governance for Supervised Institutions” cover relations with shareholders and clients, issues relating to the organisational structure, ensuring an effective and efficient internal control system, as well as the risks of business activities.

mBank has adopted the “Principles of Corporate Governance for Supervised Institutions”, excluding the principles laid down in Article 8 (4) and Article 16 (1).

The principle in Article 8 (4), which reads as follows: “A supervised institution, when justified by the number of shareholders, should strive for facilitating the participation of all shareholders in the meeting of the General Meeting of the supervised institution, among others, through ensuring the possibility of electronic active participation in the meetings of the General Meeting”, is similar to recommendation IV.R.2 of the “Best Practice for WSE Listed Companies 2016”. As a large part of mBank’s shareholders are represented at General Meetings, with a view to mitigating the risk inherent in active participation in General Meetings with the use of means of electronic communication, mBank has decided that non-compliance with the rule defined in Article 8 (4) was justified.

Likewise, mBank does not comply with the rule defined in Article 16 (1), which reads as follows: “It is proper that meetings of a management body shall be held in Polish. In case of need, necessary assistance of an interpreter should be ensured.”

The non-compliance derives from the fact that all Members of mBank’s Management Board speak fluent English. Communication without an interpreter is more effective as discussions and decisions can be made without the participation of a third party (interpreter). In some circumstances, the participation of an interpreter could make discussions at Management Board meetings more difficult or prolonged due to the complex nature of issues under discussion as well as the specialised language. Furthermore, given that Management Board meetings review information that constitutes the company’s secret, it is legitimate to limit to the bare minimum the participation of non-members of the Management Board in its meetings. At the same time, most of mBank’s Management Board Members speak Polish, which implies that the bank can be represented whenever participation of Management Board Members is required including communication in Polish without an interpreter. Furthermore, minutes of Management Board meetings as well as resolutions of mBank’s Management Board are prepared in two language versions, ensuring compliance with the provisions of Article 16 (2) of the “Principles of Corporate Governance for Supervised Institutions”.

The stand of shareholders as regards the “Principles of Corporate Governance for Supervised Institutions” was presented in resolution no. 31 of the 28th Annual General Meeting of mBank S.A. of March 30, 2015.

In the above resolution, the shareholders undertook:

• to participate in the performance of the statutory objectives of mBank, ensuring security of its operations and following its interest,
• not to violate the competence of other statutory bodies of mBank,
• to immediately solve any potential conflicts between shareholders to prevent infringing the interest of mBank and its clients.
• not to make decisions resulting in transferring assets from mBank to other entities, and in acquisition or alienation of or in conclusion of other transactions leading to mBank disposing of its assets under conditions other than market conditions or posing a threat to the security or interest of mBank; the individual rights will be granted to the given shareholder or shareholders when justified on the grounds of achieving significant objectives of mBank and not causing hindrance to proper functioning of the bodies of mBank or discrimination against other shareholders and reflected in the By-Laws of mBank,
• to provide, if needed, additional capital or grant financial support to the bank to the extent to which it is possible and compliant with authorisations, whereas it will only take place after the analysis of the entirety of reasons which led to such a necessity; the shareholders will take into consideration the possibility of providing support from the point of view of their financial situation, provisions of law and supervisory regulations the shareholders are bound to respect and considering the best interest of mBank and its clients.
• to make decisions with regard to dividend payment depending on the need for maintaining an appropriate level of equity and on the achievement of strategic objectives of mBank and to take into consideration general and individual recommendations issued by the supervisory authorities,
• to implement the recommendations of the KNF regarding the election of Members of the Supervisory Board of the Bank.

Apart from the corporate governance principles, mBank has for many years complied with best banking industry practices developed by the Polish Bank Association (ZBP). The currently applicable version of the “Code of Banking Ethics” was approved at the 25th General Meeting of the Polish Bank Association held on April 18, 2013. The “Code of Banking Ethics” is a set of principles referring to banks, their employees and persons acting as intermediaries in banking activities. The “Code of Banking Ethics” includes two parts: the “Code of Best Banking Practice” and the “Code of Employee Ethics”. The “Code of Banking Ethics” is available on the website of the Polish Bank Association.

The bank’s employees apply the Code of Conduct, which establishes the standards applicable in interactions between the bank’s employees and the bank’s business partners. This is meant to contribute to mutual trust. The guidelines related to behaviour include, among others, being guided by mBank’s values, creating a sustainable corporate culture, corporate social responsibility, pursuing a responsible credit policy, treating relationships with clients in a responsible way, honesty in business relationships, applying established standards in relationships with clients and in internal relationships, avoiding conflicts of interest, responsible use of social media and simplifying communication.

It is also worth mentioning that mBank has defined behaviours which are most important from the perspective of the organisation and which facilitate achieving individual and team results as well as contributing to customer satisfaction. The model of values and behaviours applicable at the bank, which sets mBank’s work standard, is based on the following organisational values: “client-centricity”, “looking ahead”, “simplifying”, “commitment” and “professionalism”.

mBank pursues a transparent, open, and reliable information policy, which builds mutual trust and loyalty of investors. When implementing its information policy, mBank complies with requirements arising from provisions related to information confidentiality and security, which it must abide by as a public company and a supervised institution.

The main means applied by the bank in its information policy towards investors relations include:

• current and periodic reports;
• meetings, tele- and video-conferences of representatives of the Management Board and the Analysis and Investor Relations Department with investors and analysts, both in Poland and abroad;
• quarterly presentations of financial results for investors and analysts provided directly and through interactive webcasts and teleconferences;
• ongoing contact by phone or e-mail with analysts and investors, including sending Newsletters on a monthly basis and, if necessary, other informational materials;
• participation of the representatives of the bank in domestic and foreign investor conferences and road-shows in selected European countries and in the United States of America;
• website of the company with a comprehensive investor relations section where information is published on, among others, the shareholders of mBank, the composition of the Management Board and Supervisory Board, General Meetings (including video recordings of General Meetings), ratings, the Euro Medium Term Note Programme, quotations of mBank’s shares on the WSE, analysts’ recommendations, the consensus on mBank Group’s expected performance and the target share price. On mBank’s website, there are annual, periodical and current reports and presentations, including presentations of the results of the Group for analysts and stock exchange investors as well as presentations for persons and entities investing in the bank’s debt securities, an online version of the annual report enabling interactive access to the audited financial data, an investor’s calendar and the mBank Analyser which makes it possible to analyse the financial and business data of mBank Group in different dimensions. In the section dedicated to corporate governance and best practice, the following is included: mBank’s by-laws and rules of the bank’s bodies, statements on the application of corporate governance principles and other required documents.

Feedback from investors provides a basis for drawing conclusions regarding future actions in the area of investor relations, among others, in respect of the scope of information materials. mBank ensures that every group of stakeholders is treated with equal care and attention when it comes to providing information. The bank treats all groups of stock exchange stakeholders equally and aims at providing individual investors with quick access to the material information on the company which can be accessed by institutional investors. It is worth mentioning that in 2017, as part of its actions targeted at individual investors, mBank participated in the WallStreet conference in Karpacz – Poland’s biggest meeting of individual investors.

Open communication with shareholders during the General Meetings manifests itself, among others, in the following aspects:

• providing stakeholders with answers and explanations by the members of the bank’s governing bodies,
• broadcasting the General Meeting online,
• enabling media representatives to participate in the General Meeting.