Corporate governance

Corporate Governance is usually defined as the manner wherein companies are organised, managed and controlled. In this context, corporate governance is deemed to be good, where directors and officers responsible for governance proceed diligently, ethically and with transparency in the performance of their duties.

Section 5.4. of the Board of Directors´ Regulations reads as follows: “The Board of Directors shall perform its duties in accordance with the corporate interest, it being understood as the viability and the maximization of the Company’ s value in the long term for the common interest of all the shareholders, which shall not prevent taking into account also other lawful interests, whether public or private, concurring on the development of the business activity, especially those of the other “stakeholders” of the Company: employees, clients, suppliers and the civil society in general. The Board shall determine and review the business and financial strategies of the Company in the light of said criterion, seeking a reasonable balance between the proposals passed and the risks assumed.” Thus, the enhancement of the value of the company may only be understood as an ongoing process of building value for each and every stakeholder therein involved: employees, shareholders, clients, business partners, suppliers and society in general, i.e., a socially responsible business model that allows an ongoing dialogue and that serves the common interests of all the groups.

The concept of good corporate governance arises thus as a necessary instrument to help meet the goal of creating net worth in the long term, and it shall be necessarily embodied through a Management that shall act ethically and with transparency and subject to control and verification, both internal and external.

This good corporate governance is an active part of the concept of corporate social responsibility, in its broad definition, that becomes a strategic tool to increase the effectiveness of the company, to achieve competitive advantages, together with the social responsibility strictu sensu, and environmental sustainability.

In line with the foregoing, the Annual Corporate Governance Report (ACGR) approved by the Board of Directors of Inditex, in accordance with the statutory form, represents a document that furnishes full and reasoned information about the structure and governance practices of the company, so that the market and the stakeholders may obtain a true image and a full and grounded view of corporate governance of the Inditex Group, as well as of the degree of compliance with the recommendations on good governance approved for such purposes.

Regulations on Corporate Governance

The rules governing the corporate governance of Inditex are established in:

The Articles of Association, approved by the Annual General Meeting of Shareholders in July 2000, have been subject to different partial amendments, the latest of which has been approved by the AGM held on 17 July 2012.
The Regulations of the General Meeting of Shareholders, approved by this body on 18 July 2003 and amended in part by subsequent resolutions of the AGM. The lastest amendment to the Regulations of the General Meeting of Shareholders was approved by the AGM held on 17 July 2012.
The Board of Directors’ Regulations were approved by the Board of Directors in July 2000. Further to several partial amendments, the latest change to these Regulations was approved by said body in the meeting held on 12 June 2012.
The Internal Regulations of Conduct Regarding Transactions in Securities of Industria de Diseño Textil, S.A. and its Corporate Group was approved by the Board of Directors in July 2000 and amended in part by the Board in the meetings held on 20 March and 11 December 2003 and 13 June 2006.
The Code of Conduct and Responsible Practices and the Code of Conduct for Manufacturers and Supplies, approved by the Board of Directors in the meeting held on 17 July 2012.
The Manual on Criminal Risks Prevention, approved by the Board of Directors in the meeting held on 17 July 2012.

In the course of 2012, Inditex has continued enforcing and consolidating in practice the amendments carried out to the above referred regulations in order to adapt them to the Unified Good Governance Code for Listed Companies. Inditex has been able to meet almost all the recommendations of the above referred Code (in excess of 96% or recommendations which affect the company).

Throughout the year, the Articles of Association, the Board of Directors’ Regulations and the Regulations of the General Meeting of Shareholders were adapted to the regulatory changes introduced by Act 25/2011 of 1 August, whereby portions of the Act on Capital Companies were amended related to the exercise of certain rights of shareholders of listed companies; to the new wording of section 246 of the Act on Capital Companies; to Act 2/2011 of 4 March on Sustainable Economy; to the new sections 61 bis and 61 ter of Act 24/1988 of 28 July, on the Stock Exchange, regarding the obligation for listed companies to issue, on an annual basis a report on corporate governance and another on directors’ compensation and to recommendations number 44 and 54 of the Unified Good Governance Code for Listed Companies. Likewise, the powers of the Annual General Meeting of Shareholders, the Audit and Control Committee and the Nomination and Remuneration Committee were extended and any references to the repealed Spanish Corporation Act were removed to replace them with the relevant references to the Act on Capital Corporations. In addition, technical and editorial improvements were introduced.

Bodies and mechanisms in charge of Corporate Governance

Inditex’s corporate governance is implemented through the following institutional and operational bodies and mechanisms:

1.- The General Meeting of Shareholders. Inditex observes the “one share, one vote” rule; attendance to the AGM is not conditional upon holding a minimum number of shares, and the Articles of Association do not provide any control enhancing mechanism, so the degree of good governance thus achieved is optimum.

2.- The Board of Directors is made up of one executive director, three proprietary directors and five independent directors, all of them professionals of repute completely alien to the management team and to significant shareholders, and thus the percentage of independent directors – the majority–sitting on Inditex’s board is way higher than the share that would correspond to the Free Float of the company. During the 5 meetings held by such body in 2012, the Board of Directors acknowledged inter alia the business transacted by the Audit and Control Committee and the Nomination and Remuneration Committee; it reviewed and approved the results that the company is bound to submit regularly to the market and its supervisory bodies, approved the Annual Corporate Governance Report for FY 2011, the Triple Report and the annual report on directors’ compensation.

3.- The Audit and Control Committee. Ahead of statutory provisions and recommendations, this Committee comprises six directors, the majority of them independent as stated above. During FY2012 the Committee met six times and, in addition to reviewing the results of the Company and the information to be provided to the market, it dealt with relevant corporate governance issues such as the supervision of the Internal Audit function of the Inditex Group, the identification and assessment of Group risks, and the review of the annual report tabled by the Committee of Ethics.

4.- The Nomination and Remuneration Committee. This body is made up of six directors, the majority of them independent, and during FY2012 it held five meetings to review and issue reports, inter alia, on the appointment of officers, transactions with related parties, the human resources policy and the annual report on directors’ compensation.

5.- The Code Compliance Supervisory Board and the Code Compliance Office. Reporting directly to the Audit and Control Committee, the Code Compliance Supervisory Board is made up of the Chairman and Chief Executive Officer of the company, who chairs such Board, the General Counsel, who also serves as Code Compliance Officer, the Capital Markets Director, and the Head of Human Resources. The Code Compliance Supervisory Board is charged with promoting knowledge and ensuring compliance with the Internal Regulations of Conduct regarding transactions in securities of the Inditex Group. The Code Compliance Supervisory Board met three times during FY2012 to deal with certain transactions with Inditex’s securities.

6.- The Committee of Ethics. Detailed information on the Code of Conduct and Responsible Practices and the Committee of Ethics is available in the next pages.

Transparency and Information

Good Governance requires that stakeholders may have a regular and timely access to any relevant, appropriate and reliable information, both as regards corporate governance regulations and exercise, and the results achieved.

Therefore, in order to achieve maximum corporate transparency, in addition to including all relevant information and communications on its website, Inditex has kept the market regularly posted during fiscal year 2012 through the submission of the relevant “Results releases” and the proceedings with institutional investors described on the foregoing pages.

The 2012 Corporate Governance Report is included in the chapter Performance.