[5.1] Corporate Governance Model

Foundations of Iberdrola’s corporate governance model

A. Corporate Governance System

Iberdrola is a multinational leader in the energy sector committed to ethics, transparency and good governance, and which pays special attention to the social dividend, for which reason it made changes to its Corporate Governance System in 2018 in order to include the SDGs within its strategy.

The intention of its Board of Directors is to have a diversity of gender and professional experiences, with a plurality of opinions and independent judgement. Female presence is significant not only because of the number of women but especially due to the positions they hold.

(1) As at the date of review of the report by the Board of Directors. (2) Juan Manuel González Serna is the lead independent director.

B. Governance model

Differentiation between the duties of strategy and supervision and those of guidance and management. Based on a system of checks-and-balances that avoids the accumulation of powers:

• Iberdrola’s Board of Directors, made up of a large majority of independent directors (one of whom is the lead independent director), focuses its activity on the determination, supervision and monitoring of the policies, strategies and general guidelines of the Iberdrola group.
• The chairman of the Board of Directors & chief executive officer and the rest of the management team are responsible for the organisation and strategic coordination of the group.
• In the principal countries in which the group operates, organisation and strategic coordination is implemented through country subholding companies, which group together equity stakes in the head of business companies and centralise the provision of common services. Each of these companies has its own CEO.

The Iberdrola group also has a country subholding company, Iberdrola Participaciones, S.A., that groups together the non-energy businesses.

Country subholding companies have boards of directors, including independent directors, and their own audit and compliance committees, internal audit divisions and compliance units or divisions.
Listed country subholding companies like Avangrid, Inc. have a framework of strengthened autonomy.

• The head of business companies are in charge of the day-to-day administration and effective management of each business. They also have boards of directors, which include independent directors and specific management teams.
• The Activities Report of the Board of Directors and of the Committees thereof reports on their operation.

Corporate and governance structure of Iberdrola, S.A.

(1) Company listed on the New York Stock Exchange.

C. Equity structure

Iberdrola has more than 600,000 shareholders throughout the world, and none of them has a controlling interest.

Status at 31 Dec 2018

External corporate governance awards/recognitions

Iberdrola’s response to the corporate governance challenge

A. Corporate governance strategy

The key elements defining Iberdrola’s corporate governance strategy are:

• Shareholder engagement
• Corporate structure and Governance Model
• Diverse and balanced composition of the Board of Directors
• Effective system of checks and balances.
• Social dividend and achievement of the SDGs
• Active listening to the legitimate interests of the Stakeholders
• Prudent and balanced management of risks

Corporate Governance System

B. Continuous Improvement of its corporate governance rules and practices

On corporate governance matters, the company looks to the Good Governance Code of Listed Companies published by the CNMV and generally accepted practices in the international markets.

Foreign institutional shareholders account for 66.27% of the capital. 71.4% of the directors are independent.

C. Commitment to shareholders and investors

• The Iberdrola group has a strong industrial and financial model based on balanced growth, focused on the regulated networks businesses, renewables, and long-term contract assets, focused on the achievement of growing profits and an increase in shareholder remuneration.
• The Shareholder Engagement Policy is intended to understand the opinions and concerns of the shareholders in the areas of corporate governance and sustainable development, encourage their sense of belonging and align their interests with those of Iberdrola.
• Boost shareholders’ participation throughout the year, especially at the General Shareholders’ Meeting.

The quorum in attendance at the 2018 General Shareholders’ Meeting was 76.09%.

D. Remuneration policy

• The Director Remuneration Policy was approved by the shareholders at the General Shareholders’ Meeting held on 13 April 2018.
• Director remuneration is aligned with strategic objectives and shareholder return.

Principal activities of the Board of Directors

Key topics in 2018

Iberdrola’s Board of Directors has focused its activities mainly in the following areas:

The Board of Directors has focused its work on defining strategy, monitoring the implementation and control of risks and advancing best corporate governance practices.