GOVERNANCE
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Internal Control System

The Company's Self-Regulatory Code defines the internal control system as a process aimed at ensuring the efficiency of corporate governance and business management, the transparency and oversight thereof, the reliability of accounting and management data, compliance with statutory and regulatory provisions and the safeguarding of the Company's integrity, also with a view to prevent fraud against the Company and the financial markets.

Telecom Italia Media internal control system is characterized by the following general principles:

  • separation of roles in undertaking the main activities pertaining to individual operating processes;
  • traceability and constant visibility of decisions, so as to allow for the identification of precise “points” of responsibility and the reasons underlying the decisions themselves;
  • objectivation of the decision-making processes so that decisions are not based on purely subjective assessments, but rather on pre-defined and identifiable criteria.

The Board of Directors is responsible for the internal control system, lays down the guidelines for the internal control system and checks the adequacy and proper functioning of the same with reference to corporate risk identification and management. In order to assess the proper functioning of the internal control system, the Board of Directors is seconded by the Internal Control and Corporate Governance Committee as well as by an independent party equipped with the resources necessary to undertake the required tasks.

In appointing the company Telecom Italia Audit s.c. a.r.l. as the party responsible for internal audits, Telecom Italia Media placed special emphasis on the now widespread international practice and legal doctrine that invests the internal control manager with responsibility for overseeing the suitability and effectiveness of the auditing system and for suggesting appropriate corrective action in the case of irregularities.

The Director entrusted with such task defines the tools and procedures for the implementation of the internal control system, in keeping with the guidelines established by the Board of Directors, and ensures the overall effectiveness of the system and its concrete functioning, adapting the system to changes in operating conditions or in the applicable legal and regulatory framework. The “maintenance” recommendations with regard to the internal control system put forward by the internal control manager from time to time shall be the responsibility of the various corporate sectors of the Company or other Group Companies, and in order to ensure the smooth functioning of the mechanism on the whole, Telecom Italia Media has appointed “implementation managers” selected from amongst the Companies managerial staff that enjoy specific personal standing and professional authority within the organization.

The Group has opted to entrust internal auditing tasks to a consortium specifically set up for such purpose (Telecom Italia Audit) in which Telecom Italia and TIM hold participating interests. The organizational solution allows the party placed in charge of internal control to operate absolutely independently of the Company's organizational structures, of which it is totally autonomous, reporting to the Director entrusted with such task, the Internal Control and Corporate Governance Committee and the Board of Statutory Auditors.

The Company's internal control system includes the “organizational model” that, moreover, goes beyond the requirements of legislative decree No. 231/2001 in so far as it incorporates the underlining principles of the Code of Ethics and Conduct that fundamentally shapes the behavior of all those who act in the name and on behalf of the Company.

In particular, this organizational model is divided into specific layouts of internal control, designed in light of the Code of Ethics and Conduct, as well as the principles of internal control and the specific guidelines for relations with public administrations, drawn up for such purpose.

In such regard, it must be pointed out that risks have been mapped and the already existing rigorous organizational systems checked for compliance with the current regulatory framework.

The organizational model was fully deployed by the pre-established deadline (June 2004). The procedures and rules applied to each of the processes implemented through the model, were subsequently checked to ensure compliance with the organizational model itself.

The task of overseeing the functioning, observance and updating of the models has been entrusted – in compliance with the regulatory provisions - to the Oversight Body , a panel made up of the independent Board member Mario Zanone Poma (Chairman of the Internal Control Committee), the internal control manager Stefano Braidotti (Board member of TI Audit S.c.a.r.l.) and the Acting Auditor Giovanni Fiori who was appointed Chairman of the Oversight Body.

This composition ensures that this Body will include all the different professional skills that contribute to controlling corporate management, also fully affirming the autonomy required by law.

The Body is seconded by a specific structure set up within Telecom Italia Audit, known as “ Support Group 231” , that supports the Body in the performance of its tasks and more specifically, periodically reports to the Supervisory Body on the results of the checks carried out to monitor compliance with the organizational model adopted by the Company.

The Supervisory Body shall remain in office until the expiry of the term of the Board of Directors (up to the approval of the financial statements for the year ended December 31, 2004). The Board of Directors has given the Supervisory Body the broadest powers required to ensure prompt and efficient supervision over the operation and observation of the organizational and management model adopted by the company, based on the provisions of Art. 6 of Legislative Decree 231/01.

Since it was set up in 2003, the Supervisory Body has met six times and reports to the Board of Directors, the Committee for Internal Control and Corporate Governance as well as the Board of Auditors.

Internal Control and Corporate Governance Committee

The Board includes an Internal Control and Corporate Governance Committee, made up solely of independent directors , and more specifically Mario Zanone Poma (Committee Chairman), Alessandro Ovi and Gianfranco Negri Clementi, invested with an advisory and propositional role .

The current composition complies with the Preda Code – from which TI Media Self-regulatory Code is inspired, which stipulates that – for stock-listed companies held by another stock-listed company – the Committee must be composed exclusively of independent directors.

Meetings are attended by the entire Board of Auditors, the Internal Control Manager as well as a representative from the External Auditing Firm.

The Internal Control Committee met 7 times in 2004. All the committee members were present at all the aforesaid meetings.

In addition to assisting the Board of Directors in drawing up guidelines for the internal control system and evaluating the same with reference to corporate risk management, the Committee:

  • assesses the adequacy of the internal control system;
  • assesses the operating plan drawn up by the person responsible for internal control to whom the Committee sends its periodic reports;
  • assesses, together with the Administrative Officers of the Company and the Independent Auditors, the correct use of the accounting principles and the uniformity of the same in preparing the consolidated financial statements;
  • assesses the proposals put forward by the External Auditors to obtain the audit assignment, the operating plan for carrying out the audit and the results thereof as laid down in the External Auditors' letter of suggestions;
  • reports to the Board of Directors, at least on a half-year basis in respect of its operations and the adequacy of the internal control system;
  • performs the other duties entrusted to it by the Board of Directors, particularly as regards relations with the auditing firm; and
  • monitors observance and periodic updating of corporate governance regulations.

In performance of its tasks, in 2004 the Committee examined and expressed a favorable opinion in respect of the amendments to the Bylaws, the new Code of Ethics and the new Procedure for the Disclosure of Price Sensitive Information to the Market, before the same were approved by the Board of Directors.

The Committee also checked and itemized the auditing activities for 2003, monitored the Audit Plan for 2004 and approved the Audit Plan for 2005.

The Committee examined the status of the CRSA (Control and Risk Self Assessment) method in order to integrate/improve the Internal Control System and support management in pinpointing realistic plans of action, for the goal of improving the profile of the risks that can be created for the Companies by a negative impact on (i) achieving objectives; (ii) safeguarding assets; (iii) ensuring the reliability and integrity of assets.

With regard to the transition towards the application of the new International Accounting Standards (IAS), the Committee assessed the accounting principles used by the Company and the uniform application thereof for the purposes of preparing the consolidated financial statements.

Group procedure for the appointment of External Auditing Firms

The Telecom Italia Group's Corporate Governance system includes a procedure that governs the conferment of mandates on External Auditing Firms. This procedure not only meets national statutory requirements but also takes into account the Parent Company's obligations as a registered company within the meaning of Section 12 of the Securities Exchange Act of 1934, subject to US securities-related regulations, and in particular the Sarbanes-Oxley Act of 2002 and the instructions for compliance imparted by the Securities and Exchange Commission (SEC). Under the procedure, relationships with external auditors are subject to centralized management, with a view to avoiding the assignment of tasks that are not in keeping with the applicable Italian and US regulatory framework and that could compromise the auditors' independence.

The procedure also governs the conferment of mandates on external auditors and the parties (consulting firms, professional partnerships, etc.) that serve and collaborate with the auditors on an ongoing basis. Telecom Italia has adopted the principle of appointing a single firm of external auditors for all Group companies; accordingly, the appointment of other auditors must receive prior approval from the Parent Company.

Last update: 08/04/2010, 15:39