Red Eléctrica: Switched on to good governance

José Folgado – Chairman, Red Eléctrica Espana

Red Eléctrica has been recognised in the Ethical Boardroom Corporate Governance Awards 2017 for the best corporate governance of European companies in the utilities sector.

For Red Eléctrica, the award is testament to the company’s firm and continued commitment to best corporate governance practices and to developing a model based on ethics, integrity and transparency.

Since its creation in 1985 as transmission agent and operator of the Spanish electricity system, Red Eléctrica has been determined to use its role to serve society, making the adoption of best corporate governance practices an integral part of its objectives since it was first listed in the stock exchange in 1999.

This has been made possible not only by complying with the relevant legal regulations, but also by gradually implementing, in a proactive and voluntary manner and fostered by its board of directors, certain relevant practices, measures and initiatives in corporate governance that had been recommended by its shareholders (in particular, foreign shareholders; which represent almost 70 per cent), investors and the markets.

The Red Eléctrica Group establishes in its corporate governance policy the values ​​that govern its relationship with the various stakeholders, in all areas of its activity, and that contribute to the achievement of strategies and to the sustained maximisation of value of the company. These values are linked to reliability, responsibility, respect, leadership and creativity, and environmental awareness.

On the road to excellence

This policy seeks to align the interests of the company with those of its shareholders and other stakeholders by protecting and promoting shared value ​​for all; value that incorporates criteria within the economic, social, environmental and good governance scopes, not only to contribute to the sustainability, solvency and good reputation of the Red Eléctrica Group, but also to reinforce confidence, stability, progress and social and economic development.

The two activities of Red Eléctrica, the construction and maintenance of the high-voltage grid, on the one hand, and the operation of the electricity system, on the other, are key to guaranteeing the security and quality of the electricity supply and, consequently, the wellbeing of citizens.

Its activity, with the installation and commissioning of lines and substations, has a direct impact on the territory, so it is imperative to achieve maximum involvement and cooperation of public administrations and to pay special attention to the protection of natural capital through the application of environmental and social measures. This implies the integration of communication channels and establishing management systems capable of responding to the requirements of the various stakeholders.

The activities carried out by the company to maximise the integration of renewable energies into the electricity system and for the improvement of energy efficiency are essential for the achievement of European sustainability objectives and to respond to the social demand for an increasingly sustainable energy model.

Of particular note is the work  performed by the Control Centre of Renewable Energies (CECRE), a pioneer centre that has contributed to the fact that, on average over the last three years, 40 per cent of the electricity demand has been covered by renewable energies. In addition, in line with its strategy to combat climate change, Red Eléctrica has launched a climate change action plan that incorporates the challenge of reducing or offsetting 21 per cent of its CO2 emissions compared to the values of 2010.

Another fundamental aspect in ​​corporate responsibility is the firm’s backing for talent and its commitment to gender equality and opportunities, as evidenced by the fact that the vast majority of appointments to director positions that took place in the Group in 2015 were covered through internal promotion.

Also noteworthy is the increase in the number of women in the workforce and in management positions, as well as the creation of a Women’s Leadership Observatory whose objective is to propose actions to increase the presence of women in management positions. An important fact in this regard is that, in 2015, 31 per cent of the people who reached management positions through internal promotion were women.

Similarly, the company’s healthy workplace model constitutes a strategic commitment to the management, promotion and monitoring of the health and wellbeing of the people who make up the company. Thus, various initiatives have been carried out in this field related to the promotion of health, the work-life balance, and the prevention of occupational risks in the workplace. These commitments undertaken by the company contribute to improving the involvement of workers in the business project.

The company structures its commitments in the field of corporate responsibility through multi-year plans and annual programmes, both approved by the appointments and remuneration committee of the board, whose fulfilment has been linked since 2015 to management goals and the long-term objectives of the company’s management team. Many of the commitments made by Red Eléctrica in these programmes contribute to the achievement of the 17 Sustainable Development Goals approved in September 2015 within the framework of the 2030 Agenda of the United Nations.

All the above has made it possible for the company to renew its presence in both the Dow Jones World Sustainability Index and the European Sustainability Index as well as other sustainability indices. Similarly, the company has maintained the European Seal of Excellence 500+ according to the EFQM model, obtaining more than 700 points, which ranks it among the best valued companies in Europe and the world. Other recognitions have been: RobecoSAM’s Sustainability Yearbook; IISR Survey; CSR Observatory; RSE Observatory; Commitment and Transparency Foundation; Carbon Disclosure Project; FTSE4Good, and Euronext-Vigeo.

In this regard, the Chairman of Red Eléctrica, José Folgado, says: “We are convinced that good corporate governance contributes to the economic, environmental and social sustainability of the company, and thus to the stability, progress and social and economic development of our world. We are prepared for this. We have a team of people committed to innovation, excellence, quality and the corporate values; being this human factor a decisive element in paving the way for a brilliant performance in the coming years. We also have instruments in the areas of the work-life balance, training and promotion that allow us to establish a favourable working climate. This is how the levels of productivity are increased, which must be justly compensated. These measures also contribute to the pride we feel in belonging to this great company.”

Good practices in corporate governance

The award now granted by Ethical Boardroom highlights the important role that corporate governance plays in the creation of long-term value of the company.

Regarding the most recent practices undertaken by Red Eléctrica in this field, noteworthy was the process of the separation of the positions of chairman and CEO, which responds to the commitment undertaken by the board of directors and its chairman to adopt the best international practices in the field of corporate governance. The separation of the positions of chairman of the board of directors and chief executive officer of the company was submitted for approval at an Extraordinary General Meeting held in July 2015, and was completed in the last General Shareholders’ Meeting held in 2016, with the full separation of duties between both positions.

In addition to this process, despite it being on longer mandatory in Spain, the company has maintained the role of the lead independent director created in 2013, as the board considers that the responsibilities attributed to this role continue to provide value, efficiency and balance to the functioning of the board, as recognised by foreign shareholders and proxy advisors.

For chairman José Folgado, with the separation of positions, Red Eléctrica has fulfilled “a highly significant commitment made to its shareholders and which responds to the principles of anticipation, voluntariness and absolute transparency, included in the corporate governance policy of the company”.

Another example of the leadership of the Group in corporate governance is the promotion of gender diversity on the board of directors. Since 2009, Red Eléctrica has been ranked in the top positions of the IBEX 35 (main benchmark stock market index of the Spanish stock exchanges) in relation to the presence of women on its board (currently more than 36 per cent of the board). This commitment to gender diversity and equality is firmly maintained throughout the organisation.

The principles envisaged in Red Eléctrica’s corporate governance policy in the field of ​​appointments ensure adequate procedures for the selection of board members to ensure a reasonable balance and diversity in the board of directors for the adequate performance of its mission and responsibilities.

Regarding the board’s remuneration policy, a practice also highlighted, Red Eléctrica maintains a transparent model based on moderation and which is linked to the responsibilities assumed and the effective dedication of board members.

This model, which is aligned with the strategies and long-term interests of the company, its shareholders and other stakeholders, always takes into account the remuneration established by comparable companies and has incorporated for years, as a consolidated practice, the voluntary submission to the approval of the shareholders’ meeting of all proposals regarding the remuneration of the board. This remuneration policy aims to encourage the work of the board member without conditioning their independence when making decisions.

The permanent commitment to shareholders, investors and other stakeholders is another of the pillars of corporate governance of the company, which develops and fosters symmetrical dialogue mechanisms as well as dissemination and communication actions, in order to improve relations, increase sustainable commitment and strengthen trust in the company.

In application of this value, Red Eléctrica provides its shareholders with homogeneous and systematised information that reflects that the environmental, social and corporate governance objectives (ESG) are part of the social interest. As proof of this, these types of objectives have been incorporated into the annual and multi-year variable remuneration of the CEO and the management team.

But in addition to the management of all the principles included in the corporate governance policy, for Red Eléctrica it is essential to guarantee transparency and maximum information quality; hence its special dedication to presenting, in a clear, simple and understandable way for its stakeholders, all information on corporate governance through its dissemination channels and, especially, through its corporate website, which undergoes ongoing reviews, updates and improvements of its content and structure following international standards.

Proof of this transparency and quality of information is the recent publication on its website of the company’s ‘Governance Story’, which includes the main milestones since it was listed on the stock exchange in 1999. In a very graphic and visual way, it shows in detail the road travelled, the evolution and progress to date of the commitment of the board of directors for the implementation and continuous improvement of good governance in the company.

Integrity model of the Group

Red Eléctrica considers ethics, integrity and transparency as fundamental pillars for the proper functioning of its business activity and for carrying out the legal duties and responsibilities entrusted to it. This means acting with the utmost integrity in the fulfilment of its obligations, relationships with and commitments to its stakeholders.

For the undertaking and defence of these principles, Red Eléctrica has a series of corporate guidelines that establish the values and performance criteria that must be assumed by all the people that make up the Red Eléctrica Group in the execution of their professional activities.

One of the main guidelines is the Code of Ethics, whose first edition dates from 1987 and the most recent one from 2013, and whose objective is to provide an ethical and business conduct guide to the managers and employees of the Group, which sets out the values ​​and commitments that should govern their actions. Similarly, it seeks to take on board the requirements demanded by stakeholders and the recommendations of organisations of repute in this field.

Red Eléctrica has appointed an ethics manager to channel the doubts that may arise in application of the Code and to collate, analyse and resolve grievances received. The ethics manager, with direct reporting to the chairman and, if applicable, to the board of directors, maintains the confidentiality of processes at all times and is responsible for the development, consolidation and continuous improvement of ethical management in the Group.

Since the approval of the current edition of the Code, a plan for raising awareness around ethical management has been developed. Within the framework of this plan, awareness and discussion sessions have been held in all work centres, aimed at improving the knowledge of the ethics management system within the organisation.

Red Eléctrica also has a specific code applicable to its suppliers, which requires them to respect human rights, equality and the integration of people with disabilities, as well as the need to comply with environmental and occupational health & safety requirements.

The company also has a criminal risks prevention programme that aims to identify the rules, procedures and tools established in the Group to prevent the breaching of the legal regulations that may carry criminal implications applicable the organisation as a legal entity.

In addition to these rules of business conduct, in 2015 the board of directors also approved the guide for the prevention of corruption that develops corporate values and behavioural patterns contained in the Code related to the main manifestations of corruption.

Future plans regarding corporate governance matters

The commitment does not end here. As Red Eléctrica’s chairman points out: “It is necessary to incorporate new and better actions, because there is always a new challenge, a better way of doing things, a more adequate response to a request, even to those that have not yet been suggested.”

Among the relevant issues being discussed by the board of directors and its committees, noteworthy is the recent adaptation of the regulations of the board of directors to the latest legal reforms, corporate governance recommendations and the process of separation of the positions of chairman and CEO; the finalisation of the revision of the succession plan for the chairman of the board and the new succession plan for the CEO; the development of the board’s new annual self-assessment process with external support, and the strengthening of internal control and risk management functions, including the completion of the development and implementation of the new compliance system.

Other issues in which the board of directors considers it important to persevere, in order to strengthen its culture of good governance, are the consolidation of the remuneration policy and structure in accordance with the principles of moderation, transparency and comparability; the ongoing improvement of the corporate governance information contained on the website; and reaching new milestones in the preparation and publication of the annual information addressed to shareholders or other stakeholders under the principles of quality, clarity, integrity and informational simplicity.

Red Eléctrica firmly believes that continued progress in the field of good corporate governance is a key objective in order to strengthen the trust and ties between the company and its shareholders, through a sustainable dialogue and commitment, for the benefit of all.

About the Author:

Chairman of the Board of Directors of Red Eléctrica Corporacion – Spain