7. Related-party transactions and situations of conflict of interest

Transactions with related parties

The power to approve any transaction between the Company and a director or a significant shareholder is exclusively reserved to the Board of Directors. Prior to such approval, it is incumbent on the Audit and Control Committee to report on the transactions which entail or might entail any conflict of interest situation, on related-party transactions or transactions which entail the use of corporate assets.

Under no circumstance shall the Board of Directors approve the transaction if previously a report has not been issued by the Audit and Control Committee evaluating the transaction from the standpoint of market conditions.

In the event of transactions with significant shareholders, the Audit and Control Committee shall examine it also from the standpoint of an equal treatment for all shareholders.

In the case of transactions within the ordinary course of Company business and being of a customary or recurrent nature, a general authorization of the line of transactions and their conditions of execution will be sufficient.

The Company shall inform of the transactions conducted with directors, significant shareholders and Related Persons in the half-yearly public periodic information and in the Annual Corporate Governance Report, within the scope of the Law. Likewise, the Company shall include on the notes to the annual accounts information on the transactions carried out by the Company or any companies within the Inditex Group with directors and with those acting on their behalf, whenever they are alien to the ordinary course of trade of the Company or are not carried out in normal market conditions.

No Board authorization is required for those related-party transactions that meet at the same time the following terms:

  1. they are conducted under contracts with standard terms and conditions which apply en masse to many clients;
  2. they are conducted at prices or rates generally established by the suppliers of the good or service in question; and
  3. their amount is not in excess of 1% of the Company’s annual revenues.

The detail of the transactions carried out by the Inditex Group with related individuals or entities, and of significant transactions carried out by Inditex with other entities belonging to the same Group, provided that these are not eliminated in the process of preparing the consolidated financial statements and do not form part of the ordinary business of the Company as regards its object and conditions, is included in the relevant section of the Annual Corporate Governance Report.

Mechanisms to prevent conflicts of interest

The definition of “conflicts of interest” is provided in the Board of Directors’ Regulations, which also lay down the rules governing such situations. The rendering of professional services in competing companies, the use of corporate assets, the use of non-public company information for private ends, and the taking advantage of business opportunities of the Company are addressed therein. On the other hand, the heading “Duties of information of the director” of the Board of Directors’ Regulations provides the specific questions regarding which Directors must provide information to the Company.

Additionally, the Board of Directors’ Regulations provides that the rules of conduct established thereon for the Directors shall apply, to the extent that they are compatible with their specific nature, to the senior management of the company who are not directors. More particularly and with the due nuances, the following shall apply to senior executives: duty of confidentiality, 32 conflicts of interest, in connection with the duty of informing the Company, use of corporate assets, 34 non-public information, 35 business opportunities and prohibition to make undue influence of the office.

Likewise, with regard to significant shareholders, the Board of Directors’ Regulations provide the rules which apply to “Transactions with directors and significant shareholders”.

Among the duties it is entrusted with, it is incumbent on the Audit and Control Committee to report on the transactions which entail or might entail any conflict of interests, related-party transactions or which entail the use of corporate assets, and generally, on those topics covered under Chapter IX of the Board of Directors’ Regulations. In light of the report of the Audit and Control Committee, approval of the transaction, where appropriate, falls on the Board of Directors.

Meanwhile, section 5 of the Internal Regulations of Conduct regarding Transactions in Securities sets forth the principles that affected persons must abide by with regard to conflicts of interest (Independence, abstention and confidentiality) and provides that they shall undertake in writing to act independently in their activities and to make known to the Code Compliance Office those conflicts of interest to which they are subject due to their activities outside the Inditex group, their family relationships, their personal property, or for any other cause with suppliers, agents and franchisees or external advisors.

Additionally, section 4.8 of the Code of Conduct and Responsible Practices addresses the situations in which the employees must disclose to the Committee of Ethics the existence of a conflict between their personal interests and those of the Company.