The financial crisis exposed widespread flaws and deficiencies in the regulation of many businesses worldwide, inevitably, leading to a sharpened interest in corporate governance practices. But an over-focus on implementing rules and regulations for companies in recent years has sparked concerns that there is now a box-ticking corporate governance culture of compliance or non-compliance.
For energy giant Iberdrola, one of the world’s five largest utilities and the world leader in renewable energy, being a company committed to the best business practices means that sound corporate governance should not be tick-the-box nor one-size-fits-all. Corporate governance, Iberdrola argues, is and must be a “sophisticated and dynamic discipline” where everything revolves around the creation of an ethical culture.
“We should never forget that the crisis we have been enduring was largely caused by a decline in moral principles and short-sighted approaches that put immediate success ahead of results that would be sustainable in the long term. Because results cannot come at any price; relativism or the widespread attitude that ‘the end justifies the means’ should be unacceptable concepts in twenty-first century society”says Ignacio Galán, Chairman of Iberdrola.
“Ethics should be prominent in every aspect of society: in the economy, in politics, in finances, and above all in people. Values such as honesty, loyalty, work and respect must be taught from the earliest ages, and guide people throughout their personal and professional lives.”
“There needs to be a transformation of our society towards a more sustainable, inclusive and responsible model, in which people and ethical values lie at the heart of decisions and ethics become an essential part of the business model and corporate culture.”
With over 100 years’ of experience and a workforce of over 30,000 people focused mainly on Spain, U.S., U.K, Mexico and Brazil, Iberdrola is a model of industrial success, having generated value, achieved profits, and maintained a strong shareholder remuneration for more than a century. The low-risk model of a company committed to the use of environmentally-friendly and competitive technologies for generating electricity, such as hydro and wind power, has seen a continually evolving corporate governance standard that reflects international recommendations and the most advanced practices, as well as its own policies.
In the case of Spain, the Company said it has taken as a reference the Unified Good Governance Code for Listed Companies, approved by the Spanish National Securities Market Commission, incorporating 53 recommendations under the “comply or explain” principle and adapting them to the specific needs and circumstances of the Company. “Good governance requires a constant effort to communicate corporate policies to all stakeholders, not just investors,” said Galán. “Our Company is a benchmark in this area because of its commitment to best practices and ethical business principles in all areas of its activity.
“With a diversified shareholder base which includes institutional funds and more than 650,000 retail shareholders throughout the world (as well as several millions more who invest through pension and investment funds), we’re focused on meeting their needs and protecting their interests.”
Engaging with shareholders
Iberdrola’s beliefs are that corporate sustainability and responsibility should be “embedded in every aspect of the company’s life” and has led to the adoption of a trident approach to the challenge of corporate governance – that is, continuous improvement in internal rules and practices, direct engagement with shareholders and maximum transparency in information communicated to the market. Indeed, putting the shareholder at the heart of business is at the forefront of Iberdrola’s commitment to transparency and best practices and the motive behind the establishment of its Corporate Governance System. Designed to serve its shareholders, the System is made up of by-laws governing the company; corporate policies reflecting the principles and standards governing its activities in various areas; and other internal codes and procedures for rules and regulations.
This approach of providing disclosure, transparency and participation by way of open and easy access to full details on the company, especially through its online communication, has been lauded by the international financial community. Investors and shareholders can easily find guidance on the Corporate Governance System at Iberdrola’s website in the form of an eBook that can be downloaded and read through devices including e-readers, tablets and smartphones, with updates notified via social media such as Twitter.
A Shareholders and Investors section on the website offers comprehensive and regularly updated information on Iberdrola’s strategy and governance model and includes the On-Line Shareholders system (OLS) where shareholders can ask questions and obtain a response within 48 hours, observe other shareholders’ questions and answers, and communicate with each other. Ignacio Cuenca, Iberdrola’s Investor Relations Director, says: “We are strongly focused on increasing our relationship with our shareholders and our OLS system is designed to meet the legal and personal requirements of all our investors. We are an independent company not controlled by any particular shareholder and we want to be close to all our shareholders and offer them the opportunity to ask anything at any time.”
This trail-blazing approach to engaging with shareholders and investors at the international level includes the introduction of holding regular corporate governance roadshows for shareholders, investors, proxy advisors, and analysts. Iberdrola’s efforts demonstrate that rather than avoid meetings and continuous contact with its shareholders, it welcomes them.
To this effect, Iberdrola has installed the General Shareholders’ Meeting as its main decision-making body. The company encourages shareholder participation and tries to increase attendance quorum year after year. Information is usually available 36 days in advance of the date of the meeting and shareholders can submit requests for written clarifications in person, by mail or email up to seven days prior to the date of the meeting. Similarly, shareholders have the right to attend the Shareholders’ Meeting, regardless of the number of shares they hold, and they may be represented by another person, who need not be a shareholder. They can also give a proxy or exercise their voting rights electronically or by mail.
According to Iberdrola, its Shareholders’ Office is in continuous contact with shareholders during the entire year and throughout the Shareholders’ Meeting. There is a Shareholders’ Club open communications channel for registered shareholders and an Investor Relations Office, which regularly provides personalised responses to questions from analysts and institutional investors.
A main concern when delving into a listed company’s management structure is its level of decentralisation: that is the degree to which employees and managers have the dispensation to make and execute strategic decisions. At Iberdrola, the Board of Directors is responsible for formulating the policies and strategy of the company and the basic management guidelines, and for general supervision and decision-making on matters of strategic significance. The 14-member Board, which nowadays includes 11 independent directors that have held office for less than 12 years, has three consultative committees made up exclusively of independent directors.
Corporate board diversity, mostly in the form of gender and professional profile diversity, has come under considerable focus over the past decade. Iberdrola is an example of international diversity, with members born in US, UK, Mexico, France and Spain.; five of its fourteen members are women – one of them is the Lead Independent Director and two chair different committees. Its Board is also an example of international diversity. Iberdrola has a strict rule regarding director conflicts of interest. If the conflict is isolated and non-recurring, the director must report it to the Company and refrain from deliberation on the item in question. The Company must also disclose it in the Corporate Governance Annual Report.
The company has an Executive Committee with a permanent delegation of duties from the Board, and which meets often – 22 meetings in 2013. In addition, the Board is supported by three consultative committees, which are chaired by and made up entirely of independent directors. These are the Audit and Risk Supervision Committee (14 meetings in 2013), the Appointments and Remuneration Committee (15 meetings), and the Corporate Social Responsibility Committee (15 meetings). The latter was one of the first of its kind in Spain. This Board structure operates jointly with the Company’s Business Model, which allows for an overall integration of its businesses (Networks, Liberalised, and Renewables) and focuses on maximising the operational efficiency of the various business units through the exchange of best practices among the companies involved.
Iberdrola’s commitment to its stakeholders has involved setting out policies and procedures to its employees that guarantee equality of opportunity and non-discrimination in selection and hiring processes; equality and diversity in the processes of training and professional development; the reconciliation of personal and work life; and high standards of health and safety, with an proactive goal of “zero accidents”. With its suppliers, Iberdrola encourages responsible activities along its subcontracting chain with respect to environmental behaviour, labour practices, health and safety, and respect for human rights. For this purpose, the Group has a Suppliers’ Code of Ethics and Purchasing Conditions, which incorporate the contractual requirements with which suppliers must comply.
In its relationship with society, through its investments, Iberdrola generates economic and social development in the areas in which it carries out its activities and supports various additional actions to benefit the community.
Striving to be a step ahead of the growing demands imposed by regulation, Iberdrola has been undertaking initiatives in integrated risk management and control for almost 20 years. Risks facing all the activities and businesses of the company, including corporate governance, market, credit, business, regulatory, operational and environmental, are managed by the company’s General Risk Control and Management Policy with further monitoring by the Audit and Risk Supervision Committee. The Compliance Unit of Iberdrola is responsible for the company’s Code of Ethics. The financial crisis and subsequent recession also led to huge interest in Director Remuneration Policies, an area that Iberdrola is firmly committed. Its policy is intended to align recognition of individual performance with the achievement of business goals and total shareholder return.
A variable component of remuneration, which is only received by the executive directors, is linked to the achievement of specific, predetermined, quantifiable goals aligned with the corporate interest, including payout and share performance.
Inaugural integrated report
Keen to communicate how Iberdrola creates value on a sustainable basis, the Company published its first integrated annual report in April 2014 following the guidance of the International Integrated Reporting Council. Unlike other reports, which focus on a single year, integrated reports include more long term data and make sustainability aspects more relevant to investors. A multidisciplinary team made up from the corporate businesses and areas of the Company was created to prepare the report. Galán said: “The integrated annual report offers reliable, relevant and concise data on the main strategic lines of the company. It includes systematic information on conditions in the markets where the Iberdrola operates, its business model, the regulatory environment, risks and opportunities of the different businesses, management of its assets to secure long-term value creation, its objectives and actions in community affairs, environment and the economy.”
According to Iberdrola, it takes a constant effort and commitment to follow best governance practices but insists this is a responsibility leading companies must step up to. “It is not possible for changes to be made in companies without true leadership that transmits values from the top down and which is backed by ethical and responsible policies and practices,” said Galán. “We work on a day-to-day basis with transparency, ethics and responsibility, based on the idea of a Company that is open and integrative.”