Application of corporate governance principles

In 2019, we applied the corporate governance principles contained in the “Best Practice for WSE Listed Companies 2016”, issued by the Warsaw Stock Exchange by way of Resolution No. 26/1413/2015 of the Supervisory Board of Giełda Papierów Wartościowych w Warszawie S.A. (the Warsaw Stock Exchange) dated October 13, 2015.

The text of the “Best Practice for WSE Listed Companies 2016” is available on the website of the Warsaw Stock Exchange, in the section dedicated to the corporate governance of listed companies.

The “Principles of Corporate Governance for Supervised Institutions” are available on the website of the Polish Financial Supervision Authority.

From among the detailed principles of the “Best Practice for WSE Listed Companies 2016”, we do 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 of the Best Practice.

Moreover, from among all recommendations specified in the “Best Practice for WSE Listed Companies 2016”, we do 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 allowing shareholders to speak from a different location. Item 3 is related to exercising the voting right in person or by proxy during the General Meeting. For many years, we have 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 mBank, the organisation of General Meetings with the use of means of electronic communication involves additional legal, organisational and technical risks.

• 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 as at the end of 2019 was composed of three members, including one independent member. Two members do not meet the criterion of independence. Despite changes in the composition of the Remuneration Committee, independent members did not represent a majority at any point throughout the year.

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

We have adopted the “Principles of Corporate Governance for Supervised Institutions”, excluding the principles listed in Article 8 (4) and in 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 our 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, we have decided that departure from the rule defined in Article 8 (4) is justified.

Likewise, we do not apply 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 departure derives from the fact that all Members of the 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 the Management Board Members speak Polish, which means that the bank can be represented whenever participation of Management Board Members is required including communication in Polish without an interpreter. 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.

Apart from the corporate governance principles, we have for many years complied with the 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 25^th 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.

Our 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 we have defined behaviours which are most important from the perspective of the organisation and which facilitate achieving individual and team results and contribute to customer satisfaction. mBank’s model of values and behaviours, which sets mBank’s work standard, is based on the following organisational values:

We pursue a transparent, open, and reliable information policy, which builds mutual trust and loyalty of investors. When implementing the information policy, we comply with requirements arising from information confidentiality and security laws, which we must abide by as a public company and a supervised institution. Our high ratings and awards for widely understood corporate governance and investor relations bespeak transparency and effectiveness of our information policy. In May 2019, we again won a distinction of the Institute of Accountancy and Taxes and Gazeta Giełdy Parkiet daily in the category “Transparent WIG20 Company of the Year.” In June 2019, we won the Złota Strona Emitenta (Issuer’s Golden Website) contest organised by the Polish Association of Listed Companies in the category “Leader of Online Communication” for large companies (listed companies included in WIG20 and mWIG40).

The main means we apply in our information policy with regard to investor 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;
• an 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 our representatives in domestic and foreign investor conferences and road-shows in selected European countries and in the United States of America;

• the company’s website with a comprehensive investor relations section where we published information on, among others, our shareholders, the composition of the Management Board and Supervisory Board, General Meetings (including video recordings of General Meetings), ratings, the Euro Medium Term Note Programme, price of mBank’s shares on the WSE, analysts’ recommendations, the consensus on mBank Group’s expected performance and the target share price. On our website, there are annual, periodical and current reports and presentations, including presentations of the results of the Group for equity analysts and investors as well as presentations for investors interested in the bank’s debt securities, online versions of integrated annual reports enabling interactive access to the audited financial data, and an Investor’s Calendar.

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;
• participation of media representatives in the General Meeting.