CORPORATE GOVERNANCE 21

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1 CORPORATE GOVERNANCE 21

2 SUSTAINABILITY REPORT 2012 CORPORATE GOVERNANCE Mr Ignacio Benjumea Cabeza de Vaca General secretary and secretary of the board Mr Javier Botín-Sanz de Sautuola y O Shea Mr Juan Rodríguez Inciarte CORPORATE GOVERNANCE Board of s Banco Santander s board of directors is the highest decision-making and supervisory body, except for matters reserved for the general shareholders meeting. The board is responsible, among other things, for the Group s strategy. Its functioning and activities are regulated by the Bank s internal regulations and principles of transparency, efficiency and the defence of shareholders interests. The board oversees compliance with international best practices in corporate governance and is closely involved in risk policy decisions. The board is the body responsible for establishing and monitoring the Group s risk appetite, at the proposal of senior management. The board is balanced between executive and non- executive directors and all members are recognised for their integrity, independence, professional capacity and experience. In 2012, the following changes occurred: on January 23, Mr Francisco Luzón stepped down as executive director and head of the Americas division. At the AGM on March 30, Mr Antonio Basagoiti, Mr Antonio Escámez and Mr Luis Alberto Salazar- Simpson left the board and Mr Vittorio Corbo Lioi, who was first appointed in July 2011, was re-elected and ratified to continue. The appointment of Ms Esther Giménez-Salinas as a new, nonexecutive, independent director was approved, increasing the presence of women on the board to 18.8%. The financial experience of the non- executive directors is notable. They include chairmen and ex-ceos of banks, a former central bank governor and people with extensive financial knowledge of Latin America and the United Kingdom, two markets where the Group has a substantial share of its business. Mr Manuel Soto Serrano Fourth vice-chairman Additional information about the board can be found in the 2012 annual corporate governance report. Remuneration policy The remuneration policy for directors and the Bank s senior management is based on the following principles: Banco Santander corporate governance system Balanced and Equal rights Maximum Recognition Board of committed of shareholders transparency, from socially directors board especially responsible One share, one regarding investment The board of Of the 16 vote, one dividend directors, 11 are remuneration directors is indexes principle the body that non-executive No reinforcement Key for Santander has approves the and 5 executive measures in voting generating retained its place Group s corporate Fostering confidence and in the DJSI and strategy for informed security among FTSE4Good sustainability participation of shareholders and indexes since shareholders in investors 2000 and 2002 meetings respectively 22

3 Mr Guillermo de la Dehesa Romero Ms Esther Giménez- Salinas Ms Isabel Tocino Biscarolasaga Mr Rodrigo Echenique Gordillo Ms Ana Patricia Botín-Sanz de Sautuola y O Shea Lord Terence Burns Mr Ángel Jado Becerro de Bengoa Mr Fernando de Asúa Álvarez First vicechairman Mr Emilio Botín-Sanz de Sautuola y García de los Ríos Chairman Mr Alfredo Sáenz Abad Second vice-chairman and chief executive officer Mr Matías Rodríguez Inciarte Third vice-chairman Mr Abel Matutes Juan Mr Vittorio Corbo Lioi 1. Remuneration is consistent with rigorous risk management and does not foster inappropriate risk-taking. 2. It anticipates and adapts to regulatory changes in remuneration. 3. The board is involved in that it is the organ that approves the report on directors remuneration, at the proposal of the appointments and remuneration committee, and submits it to the vote at the AGM on a consultative basis and as a separate item on the agenda. The board approves the contracts and remuneration of directors and other senior managers under its supervision. 4. Transparency in information on remuneration. Remuneration of the board Total directors remuneration was 35% less in 2012 than in Details can be found in the report by the appointments and remuneration committee which forms part of Banco Santander s corporate documentation. Board activity report 2012 There were 11 board meetings. The 2nd vice-chairman and CEO presented ten management reports to the board and the third vice-chairman, as head of the risk division, presented ten risk reports. The board reviewed the progress of the Group s businesses and the liquidity and capital situations, among other things. Executive committee Risk committee Audit and compliance committee Appointments and remuneration committee International committee Technology, productivity and quality committee BOARD COMPOSITION Number of people 5 8 Executive director Non-executive independent director Non-executive proprietary director Other non-executive directors Read via the QR code Access more corporate governance info

4 SUSTAINABILITY REPORT 2012 CORPORATE GOVERNANCE Reputational risk management and regulatory compliance Reputational risk management and regulatory compliance are key elements of the Group s cautious risk strategy. The board receives compliance reports on a constant basis, usually from the audit and compliance committee. The remaining level of governance consists of corporate committes for: regulatory compliance, analysis and resolution, and marketing (the last two specialize in preventing money laundering, and marketing products and services). These committees have a global mandate and are replicated at local level. Reputational risk is risk connected with the perception that different groups, with which the Bank interacts in its day-to-day business, have of it. It includes internal and external perceptions and can have an adverse effect on results and business expectations. It involves legal, economic, financial, ethical, social and environmental aspects, among others. Regulatory risk in turn involves any risk of incurring sanctions, economic or otherwise, or being disciplined by supervisory bodies for failing to comply with laws, regulations or rules, or the organisation s own self-regulation standards, or codes of conduct. Organisational model In the field of compliance and reputational risk, the board is responsible for the Group s general code of conduct, its global policy for preventing money laundering and Triton Square, London. financing of terrorism, and the policy for marketing products and services. The risk committee proposes the Group s risk policy to the board and, as the body responsible for global risk management, it evaluates reputational risks in its operational and decison-making function. The audit and compliance committee is responsible for, among other things, supervising compliance with legal requirements, the efficiency of internal control and risk management systems, compliance with the Group s code of conduct in the securities markets, manuals and procedures for preventing money laundering and the Bank s general governance and compliance regulations. It proposes improvements and reviews compliance with measures resulting from the supervisory authorities reports or actions. The organisational model revolves around the corporate compliance and reputational risk area, which is part of the general secretary s office. General code of conduct The general code of conduct is the central element of the Group s compliance programme. It lays down the ethical principles and the rules of conduct that govern all Grupo Santander employees, complementing in certain respects the rules featuring in sectoral codes and manuals. The code also establishes the functions and responsibilities of the governance bodies and the Group departments and offices by compliance, the rules governing the consequences of breaches and a means of formulating and processing reports of suspected breaches. Responsibility falls to the corporate compliance office, under the supervision of the audit and compliance committee and the regulatory compliance committee, to watch over the effective implementation and monitoring of the general code of conduct. 24

5 MAIN ACTIVITY INDICATORS 2012 Subsidiaries reviewed* 162 Files under investigation 65,727 Communications to authorities 19,219 Participants in money 105,664 laundering courses * Subsidiaries reviewed by CDPML and local PMLUs. laundering or financing of terrorist activities. The regulatory compliance committee, chaired by the Group s secretary general, has competence in all areas belonging to the compliance function, without prejudicing those assigned to specialist bodies. It is made up of representatives of the internal audit department, general secretary s office, financial management, human resources and the business units most directly affected. The regulatory compliance committee met five times in Criminal risk prevention The Group compliance department is also responsible for management of the criminal risk prevention system introduced when Organic Law 5/2010, attaching criminal responsibility to legal persons for crimes committed for their own benefit or for the benefit of their administrators or representatives or insufficiently controlled employees, came into force. Implementation of the system in Spain was completed during Prevention of money laundering and financing of terrorism Santander runs an efficient, stateof-the-art system for preventing money laundering and financing of terrorist activities that meets all existing international regulations. This system has the capacity to deal Group data processing centre, Cantabria, Spain. with new techniques used by criminal organisations. Responsibility for the prevention of money laundering and financing of terrorism function rests with three bodies: The analysis and resolution committee. A corporate collegiate committee chaired by the Group s general secretary and made up of representatives from internal audit, the general secretary s office and human resources, as well as the business units most directly affected. Central department for prevention of money laundering. Its function is to establish, coordinate and supervise prevention systems and procedures across the whole Group. There is also a body of executives, responsible for the prevention of money laundering and financing of terrorism at four different levels: area, unit, branch and account. This body is closer to customers and operations and its mission is to support the anti-money laundering department. In 2012, none of the Group s units were subject to disciplinary measures or incurred sanctions from supervisory or regulatory bodies as a result of a partial or complete lack of compliance with rules on money A total of 105,664 employees took part in anti money laundering courses in This involved 156,693 hours of training. Distribution of products and services Grupo Santander manages risks that can arise from inappropriate sale of products or in line with corporate policy. This lays down a single corporate framework for all countries, businesses and entities. Specific developments and adaptations of these policies to local conditions and regulatory requirements are made via local internal rules in the different Group units, as authorised by the corporate compliance and reputational risk area. Managing the risk that can arise from an inappropriate sale of products and services involves the following bodies: Corporate commercialisation committee (CCC). This is the top decision-making body for approving products and services. It is chaired by the Group s general secretary and is made up of representatives of the risk, financial management, technology and operations divisions, the general secretary s office, the generalaudit and control department, internal audit, retail banking, global wholesale banking, private banking, asset management and insurance. 25

6 SUSTAINABILITY REPORT 2012 CORPORATE GOVERNANCE The boardroom, Santander Group City, Boadilla del Monte, Madrid. The CCC pays particular attention to adjusting products and services to the framework in which they are to be sold to ensuring that: Each product or service is sold by the appropriate sales representative. The customer receives the correct information. The product or service matches the customer s risk profile. Each product or service is assigned to the appropriate market, not only for legal or fiscal reasons, but also to ensure it fits that market s financial culture. Products and services comply with corporate commercialisation policies and the internal or external regulations that apply. In 2012, the CCC convened 14 times and examined 140 new products and services. Similarly, there are local committees which channel new product proposals tothe CCC. Global consultative committee (GCC). The global consultative committee is the advisory body for the CCC and comprises representatives of areas that contribute a vision of regulatory and market risks. The GCC normally meets every quarter and can recommend reviews of products affected by changes in markets, deterioration of solvency and other factors. The GCC met three times in 2012, as it did in 2011 and Corporate monitoring committee of monitoring (CMC). The CMC is the Group s top decision-making body in monitoring products and services. It is chaired by the general secretary and consists of representatives of the internal audit, legal, compliance and customer service departments, and the business areas affected in each case (the branch network has permanent representation). It meets once a week and looks at issues relating to the sale of products and services. The CMC convened on 44 occasions in Stock market conduct This is governed by the stock market code of conduct and complemented by, among other things, a code for analysts, the research policy manual and a procedure for detection, analysis and communication of operations that could involve abuse of market rules. The corporate compliance office, together with local compliance departments and the subsidiaries, check that obligations contained in the stock market code of conduct (CCMV) are observed by around 8,500 staff in the Group worldwide. Relations with supervisory bodies and dissemination of information in the markets The compliance department is charged with providing the information required by regulatory and supervisory bodies in Spain and other countries where the Group operates, monitoring the implementation of measures resulting from reports or inspections of such bodies, and supervising the way in which the Group conveys institutional information to the markets (transparently and in line with regulators requirements). The audit and compliance committee is informed, at each of its meetings, of the main issues in these areas. In 2012, the Bank reported 107 relevant facts, all of which are available for consultation on the Group s website and that of the Spanish National Securities Market Commission (CNMV). More detailed information on risk management is available on pages of the 2012 annual report. 26