Application of corporate governance principles

The general corporate governance principles applicable at mBank, i.e. regulations and procedures determining the guidelines regarding the bank’s authorities’ actions, in particular towards stakeholders, arise from statutory regulations, in particular from the Code of Commercial Companies and Partnerships and the Banking Law Act, the provisions regulating the operation of the capital market and the rules laid down in the following documents: “Best Practice for WSE Listed Companies 2016”, “Principles of Corporate Governance for Supervised Institutions” issued by the Polish Financial Supervision Authority on July 22, 2014 and the “Code of Banking Ethics” issued by the Polish Bank Association.

In 2020, 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.

In November 2020, as a response to current trends in the area of corporate governance, changes in the market environment and regulatory environment and needs reported by capital market participants themselves, WSE Corporate Governance Committee has published a project of new corporate governance rules called “The Best Practice for WSE Listed Companies 2021”. We participated avidly in the public consultations related to this document which were set up by the WSE. We acknowledge the importance and values of the Best Practice and will strive to implement the new rules to the highest possible extent.

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.

Best Practice for WSE Listed Companies 2016

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.

We believe that mBank’s remuneration system effectively ties the remuneration of managers to the company’s long-term goals. Under the incentive scheme for Management Board Members and key managers of mBank a portion of their remuneration is paid in the form of subscription warrants. Bonuses paid to the Management Board and key managers are composed of a non-deferred part and a deferred part. Both parts are further divided into two equal portions: 50% paid in cash and 50% paid in subscription warrants. The non-deferred part in the form of subscription warrants is paid not earlier than after the lapse of 12 months from the date of the Annual General Meeting. The deferred part in the form of subscription warrants is paid in five equal annual tranches not earlier than after the lapse of 12 months from the date of approval of consolidated financial statements for the previous calendar year.

Moreover, from among all recommendations specified in the “Best Practice for GPW Listed Companies 2016”, we did not apply the following recommendations in 2020:

Item 2 and item 3 of recommendation IV.R.2. relating to General Meetings held using 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 concerns 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 of engaging 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 of actively participating in General Meetings with the use of means of electronic communication. The 33^rdAnnual General Meeting of mBank S.A. took place on March 27, 2020, i.e. before the entry into force of the act constituting the so-called The Anti-Crisis Shield, in which, inter alia, the Code of Commercial Companies was amended, making it possible to conduct a general meeting using means of electronic communication in joint-stock companies.

Recommendation VI.R.3. concerning the remuneration committee. This recommendation requires, among other things, that at least a majority of the committee members should be independent. At mBank, the Remuneration Committee of the Supervisory Board was composed of four members as at the end of 2020. Two members do not meet the independence criterion. Despite changes in the composition of the Remuneration Committee during the year, independent Supervisory Board Members did not represent a majority at any point. In the opinion of the Supervisory Board, a remuneration committee where half of the members are independent, whereas the other half represent the majority shareholder ensures efficient work of the committee and alignment of the basic remuneration principles with long-term objectives of mBank and Commerzbank Group, which controls mBank Group.

In accordance with the Commission Recommendation of 9 April 2014 on the quality of corporate governance reporting (2014/208/EU), we provide a brief description of application of recommendations laid down in the “Best Practice for GPW Listed Companies 2016” on the topics of most importance for shareholders.

Information policy and communication with investors (chapter 1)

We pursue a transparent, open, and reliable information policy, which builds mutual trust and loyalty of investors. We immediately react to any false information about the company by clearly expressing our stance.

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.

The main means we apply in our information policy with regard to investor relations include:

current and periodic reports; the timeline of publication of periodic reports enables investors to familiarise themselves with the financial results of the company as soon as possible after the end of a reporting period;
meetings, tele- and video-conferences of representatives of the Management Board and the Investor Relations team with investors and analysts;
quarterly presentations of financial results for investors and analysts provided directly and through interactive webcasts and teleconferences;
ongoing contact by phone, e-mail, Skype, and Microsoft Teams 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;
website of the company in Polish and English featuring all the information required by the “Best Practice”; In the comprehensive investor relations section 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, the price of mBank’s shares on the Warsaw Stock Exchange, analysts’ recommendations, the consensus on mBank Group’s expected performance and the target share price. On our website, there are annual, periodic and current reports and presentations, including presentations of results of the Group for analysts and stock exchange 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.

During the COVID-19 pandemic we had to change our work tools and routine, while increasing the frequency of contacts. We provided investors, analysts, and rating agencies with reliable information on the group’s financial standing and business situation and measures taken due to the pandemic. Investor relations were based primarily on the online channel.

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

providing shareholders with answers and explanations by the members of the bank’s governing bodies;
broadcasting General Meetings on the Internet;
participation of the media in General Meetings.

We pursue a policy of full transparency regarding sponsorship. The activity of mBank’s foundation is described in chapter mBank Foundation.

Management Board and Supervisory Board (chapter 2)

All Members of the Management Board and the Supervisory Board have the knowledge, experience, and skills required for their functions. The Members are chosen taking into account the principles of versatility and diversity. The Members of the Management Board are able to effectively manage the company, while the Members of the Supervisory Board supervise it to a sufficient extent and in a due manner thanks to their excellent competences, rich professional experience, and professionalism.

More information on the qualifications of Management Board Members and Supervisory Board Members can be found in the Statement of mBank on Application of Corporate Governance Principles in 2020.

The position in the managing body constitutes the main area of professional activity of Management Board Members. Some Management Board Members sit also on the supervisory boards of subsidiaries, which contributes to effective operation of the group. The Members of the Supervisory Board devote the necessary amount of time to performing their duties. In 2020, the Supervisory Board held eight meetings. Moreover, meetings of the four committees of the Supervisory Board took place. If a Supervisory Board Member resigned, they were replaced to fill in the vacancy.

Internal systems and functions (chapter 3)

We maintain effective internal control, risk management, and compliance systems. Tasks within the individual systems are performed by designated organisational units. The Management Board is responsible for the implementation, maintenance, and effectiveness of internal control, risk management, and compliance systems and the internal audit function.

The Internal Audit Department and the Compliance Department are supervised directly by the President of the Management Board. The Audit Committee of the Supervisory Board reviews and monitors the financial reporting process and operational effectiveness of the internal control system, including the operation of internal audit and compliance.

General Meeting and relations with shareholders (chapter 4)

When setting the date of an Annual General Meeting we not only take account of the statutory time limits, but also try to convene the meeting as soon as possible after the release of the annual report. In 2020 the annual report was published on February 28, while the Annual General Meeting of mBank took place on March 27.

We broadcasted the Annual General Meeting in real time. In the absence of appropriate provisions in corporate documents and prior to the entry into force of the provisions enabling the organization of remote general meetings, we could not provide the possibility for shareholders to speak during the General Meeting via means of electronic communication and thus exercise voting rights . We believe that during a pandemic it is important to hold the general meeting uninterruptedly, while ensuring the safety of participants, as well as equal access for shareholders to participate in the general meeting. We will be guided by this when organizing future general meetings.

Conflict of interest and transactions with related entities (chapter 5)

Members of the company’s authorities undertake to abstain from professional and non-professional activities which may result in a conflict of interest. The Rules of the Management Board include provisions on avoiding conflicts of interest and specify under which circumstances Management Board Members should be excluded from the decision-making process in the case of a conflict of interest or a potential conflict of interest. In accordance with the Rules of the Supervisory Board, its Members do not engage in activities which could give rise to a conflict of interest or negatively affect their reputation as Supervisory Board Members.

Transactions with related entities are executed on the basis of the applicable internal regulations of the bank in line with market standards and consistent policies.

In accordance with mBank’s By-laws, no resolution should be passed without consent of the majority of the independent Members of the Supervisory Board on the following matters:

any benefits provided by the bank or any entities related to the bank to the Members of the Management Board;
consent for the bank to enter into a significant agreement with an entity related to the bank, a Member of the Supervisory Board or the Management Board, and entities associated with them.

The Supervisory Board issues opinions concerning transactions with related entities if the planned total value of a single transaction exceeds 20% of the Bank’s own funds.

Remuneration (chapter 6)

The applicable remuneration policy and practices meet all legal requirements. They support sound and effective risk management in mBank Group and do not encourage employees to take excessive risk exceeding the acceptable general risk level of the bank approved by the Supervisory Board.

The remuneration policy and criteria for awarding variable remuneration components contribute to implementing the strategy of mBank Group by:

ensuring full commitment on the part of persons covered by the policy to their functions at the company,
offering incentives for accomplishing the strategy and objectives,
permanently tying persons covered by the remuneration policy to the company,
ensuring that the remuneration of persons covered by the policy matches the financial and business results of the group and
discouraging persons covered by the policy from taking excessive risk.

Remuneration of the Members of the Management Board includes a fixed and a variable part. The Supervisory Board has appointed a remuneration committee, but the independent Members of the Supervisory Board do not have a majority in the committee. Remuneration of Management Board Members, key managers, and Supervisory Board Members is sufficient to attract, retain, and motivate persons having the necessary competences to appropriately manage and supervise the company and matches tasks entrusted to these persons. Remuneration of the Supervisory Board does not depend on options, derivative instruments, or other variable components and is not tied to the company’s performance.

More information on the rules of remunerating Management Board Members and Supervisory Board Members can be found in the Statement of mBank on Application of Corporate Governance Principles in 2020.

Principles of Corporate Governance for Supervised Institutions

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.

In accordance with the declaration of the Management Board and Supervisory Board of December 11, 2014, 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 GPW 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 principle defined in Article 8 (4) is justified.

Likewise, we do not apply the principle 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 efficient 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 use of specialised language. Furthermore, given that during their meetings the Management Board Members discuss 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 provisions of Article 16 (2) of the “Principles of Corporate Governance for Supervised Institutions”.

The stance 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 with its interest in mind;
not to violate the powers 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; 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 an analysis of the entirety of reasons which led to such a necessity; the shareholders will consider the possibility of providing support from the point of view of their financial situation, provisions of law and supervisory regulations which the shareholders being regulated entities are bound to respect and considering the best interest of mBank and its clients;
to make decisions with regard to dividend payment conditional upon the need to maintain an appropriate level of equity and the achievement of strategic objectives of mBank and to take into consideration general and individual recommendations issued by the supervisory authorities; and
to follow the recommendations of the KNF regarding the election of Members of the Supervisory Board.

Code of Banking Ethics

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 Bank Employee Ethics. The Code of Banking Ethics is available on the website of the Polish Bank Association.

Rules on conduct towards business partners and the model of values and behaviours of mBank employees

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.

Moreover, we have defined behaviours which are most important from the perspective of the organisation and which facilitate the achievement of 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: