Machine Translated by Google MEXICO 2018 Machine Translated by Google Machine Translated by Google CODE OF PRINCIPLES AND BEST PRACTICES OF CORPORATE GOVERNANCE Machine Translated by Google All rights reserved are the property of the Business Coordinating Council. It is strictly prohibited, without the express and written authorization of the owner, under the sanctions established in the Federal Copyright Law, the total or partial reproduction of this work by any means or procedure, including computer processing, and the distribution of copies of it. Any form of unauthorized use will be prosecuted in accordance with the provisions of the Federal Copyright Law. Reserved Rights © Business Coordinating Council 2018 Machine Translated by Google INDEX MESSAGE FROM THE PRESIDENT 05 CHAPTER 1. INTRODUCTION 07 CHAPTER 2. CORPORATE GOVERNANCE 11 CHAPTER 3. SHAREHOLDERS' MEETING 15 3.1 INFORMATION AND AGENDA OF THE ASSEMBLY OF SHAREHOLDERS 3.2 INFORMATION AND COMMUNICATION BETWEEN THE BOARD OF DIRECTORS AND THE SHAREHOLDERS CHAPTER 4. BOARD OF DIRECTORS 21 4.1 GENERIC FUNCTIONS 4.2 INTEGRATION 4.3 STRUCTURE 4.4 OPERATIONAL ASPECTS 4.5 RESPONSIBILITIES OF THE DIRECTORS CHAPTER 5. AUDIT FUNCTION 35 5.1 GENERIC FUNCTIONS 5.2 SELECTION OF AUDITORS 5.3 FINANCIAL INFORMATION 5.4 INTERNAL CONTROL 5.5 RELATED PARTIES 5.6 REVIEW OF COMPLIANCE WITH PROVISIONS Code of Principles and Best Practices of Corporate Governance 03 Machine Translated by Google CHAPTER 6. EVALUATION AND COMPENSATION FUNCTION 45 6.1 GENERIC FUNCTIONS 6.2 OPERATIONAL ASPECTS CHAPTER 7. FINANCE AND PLANNING FUNCTION 51 7.1 GENERIC FUNCTIONS 7.2 OPERATIONAL ASPECTS CHAPTER 8. RISK AND COMPLIANCE FUNCTION 57 8.1 GENERIC FUNCTIONS 8.2 OPERATIONAL ASPECTS Business Coordinating Council 04 Machine Translated by Google MESSAGE OF THE PRESIDENT In recent years, the importance of Corporate Governance in companies has become clear. From June 1999, when the Code of Best Corporate Practices was published, to July 2018, when we presented this third revised version, various national and international events have highlighted its importance as a factor that gives value, competitiveness and permanence in time to a society. The Organization for Economic Cooperation and Development (OECD) published, in 2004, the first revised version of its Corporate Governance Principles applicable in member countries and in September 2015, the G-20 Corporate Governance Principles were released. -OECD. On this basis, the most advanced nations in the matter have also reviewed and updated their Code to incorporate new Principles and Best Practices. In Mexico, these new principles, the suggestions of international organizations and the experience of 19 years in the implementation of the recommendations of the Code have served to prepare this third revised version. In its elaboration and design, the characteristics of Mexican companies, their principles, values and culture, their corporate structure and the importance that certain partners or associates may have in their government and administration have been taken into account. The incorporation of the Principles and Best Practices of Corporate Governance recommended in the Code in the culture of the companies, will help them in their institutionalization, in the transparency of their operations and in the adequate disclosure of reliable information; to be competitive in a global world; to access financing sources under favorable conditions; to have stable succession processes and to be permanent over time for the benefit of its partners or associates and interested third parties. Code of Principles and Best Practices of Corporate Governance 05 Machine Translated by Google It should be noted that the recommendations of the Code are addressed to and are applicable to all companies, whether civil, commercial or social assistance, regardless of their size, their shareholding composition or whether or not they are listed on the stock market. This characteristic distinguishes us among most of the codes that exist in the world. In this third revised version, we have updated the Principles and revised the Best Practices derived from them. To properly reflect its content, the name of the Code has been changed to: “Code of Principles and Best Practices of Corporate Governance”; For reasons of precision, the term strategic vision has been changed to strategic course; the Principle of Honest and Responsible Driving of society has been included; A Best Practice is considered for: i) the prevention and resolution of disputes between shareholders and/or directors; ii) recommend the incorporation of women in the composition of the Board of Directors; iii) the selection, hiring, evaluation and compensation of directors; iv) the elaboration of a Family Agreement for their representation in the governing bodies. A new Risk and Compliance function has been developed to address this important issue independently. The principles of the Code are related to the contents of the Code of Business Integrity and Ethics also published by the Business Coordinating Council. We invite entrepreneurs, partners, investors, counselors, officials, advisers, academics and those interested in the subject, to support us in the dissemination and implementation of these recommendations. In particular, we trust that entrepreneurs, small and medium-sized companies will be able to benefit from these measures that will help them institutionalize and strengthen themselves to compete in an open economy, preserve their investment and generate jobs. Act. Juan Pablo Castañon Castañon. President of the Business Coordinating Council Business Coordinating Council 06 Machine Translated by Google INTRODUCTION CHAPTER 1 Machine Translated by Google Societies1 have a central role in promoting the economic development and social progress of our country; they are the engine of growth and have the responsibility to generate wealth, employment, social welfare, infrastructure, goods and services. Honest and responsible management, performance, efficiency and permanence of the company are in the public and private interest, therefore, Corporate Governance is one of the priorities on the national agenda. In a global economy there are a series of rules established by the countries that make up the world organizations; one of them, the Organization for Economic Cooperation and Development (OECD), of which Mexico has been a member since 1994, issued in 1999 the "OECD Principles for the Governance of Companies", which were revised in 2004 ; Similarly, in September 2015, the "OECD G-20 Corporate Governance Principles" were published. These principles are a reference for each country to issue its own, adapting them to its regulatory framework and business culture. In 1999, at the initiative of the Business Coordinating Council (CCE), the Committee for Best Corporate Governance Practices (the Committee) was created, which in that year issued the Code of Best Corporate Practices (Code) where recommendations are established for better governance corporate of companies in Mexico. The experience in its implementation during these years and the new considerations on the subject at the international level, have made the CCE, as responsible for the issuance, review and adequate dissemination of the Code, have updated its recommendations in the First Revised Version given disclosed in November 2006, in the Second Revised Version published in April 2010 and now in this Third Revised Version of July 2018. In its edition, the needs and characteristics of Mexican companies, their origin, their shareholding structure and the importance that certain groups of shareholders may have in their administration were taken into account. It seeks to help them become institutional, competitive and permanent over time; that they can access various sources of financing under favorable conditions and offer confidence to national and international investors. 1 The term society refers to those of a civil, commercial and assistance nature. Business Coordinating Council 08 Machine Translated by Google The principles of the Code are aimed at establishing a governance framework for companies with the Best Corporate Practices that contribute to improving the integration and functioning of the Board of Directors and its intermediate support bodies, which are applicable to all types of civil companies, commercial and social assistance, whether public or private, without distinguishing their size, their activity or their shareholding composition. Although the recommendations are voluntary, it is desirable that all companies incorporate them into their Corporate Governance; for this, each one will analyze them and define, according to their needs, the step and measure of their implementation. In this way, the societies of our country will be more competitive among themselves and with those of the rest of the world, since they will have the best internationally accepted corporate practices as a tool. It should be noted that companies that list their shares or issue debt securities on stock exchanges, financial institutions, retirement savings companies, insurance and surety institutions, etc., must observe the respective government regulations. corporate, which establish precise and strict compliance. To facilitate the measurement of the degree of progress in the implementation of the recommendations, Annex 1 of the Code contains the Questionnaire to Evaluate the Degree of Adherence, which may be used as a metric by the same company; The authorities; stock exchanges and stock brokers; financial institutions, analysts and investors; securities rating agencies and other interested parties. There are also various Annexes that deal with certain relevant issues contained in the Code, in order to explain them more broadly and precisely, seeking a similar understanding by all interested parties. The Code may be obtained on the website of the Business Coordinating Council, www.cce.org.mx, and questions and queries may be directed to the email address of the Committee for Best Corporate Governance Practices cmpc@cce.org.mx. Code of Principles and Best Practices of Corporate Governance 09 Machine Translated by Google Machine Translated by Google CORPORATE GOVERNANCE CHAPTER 2 Machine Translated by Google In order to establish a common language for societies in Mexico, similar to that used in most countries and international institutions that follow the principles of the Organization for Economic Cooperation and Development (OECD), the Committee has considered it convenient to start from the following bases: GOVERNMENT comes from the Latin "GUBERNARE", which means to command with authority, guide, direct, action and effect of governing. CORPORATIVE comes from the Latin “CORPUS”, which means body, belonging to or related to a corporation or community. PRACTICE comes from the Latin “PRACTICUS”, which means what is done or carried out according to its rules or custom. In this way, the original and internationally accepted concept states that corporate governance is “The system under which companies are directed and controlled”. The Committee considers that in said system the guidelines established by the shareholders of the company and the recommendations of the best corporate practices must be taken into account. In this context, it is clear that the work of the Board of Directors is to define the strategic direction, monitor the operation and approve the management, while the General Director is in charge of the management, conduct and execution of the businesses subject to the strategies and guidelines approved by the Board of Directors; As long as this distinction is maintained, it will be easy to determine the lines of authority and responsibility. In a broader concept, the OECD considers that corporate governance implies a set of relationships between the management of the company, its board, its shareholders and interested third parties2 . Corporate Governance also provides the structure through which the company's objectives are determined, as well as its performance and compliance is monitored. 2 The concept of interested third parties refers to any natural or legal person, other than shareholders, interested in the good performance, stability and permanence over time of the company. Business Coordinating Council 12 Machine Translated by Google The Committee considers that a good Corporate Governance system in Mexican companies must contain the following basic principles: 1 Equal treatment and respect and protection of the interests of all shareholders. 2 The generation of economic and social value, as well as the consideration of third parties interested in the good performance, stability and permanence over time of the company. 3 The issuance and responsible disclosure of information, as well as transparency in the administration. 4 Honest and responsible management of society. 5 Prevention of illicit operations and conflicts of interest3. 6 The issuance of a Code of Ethics for the company. 7 The disclosure of improper facts and the protection of informants. 8 Ensuring that the strategic direction of the company exists, as well as the surveillance and effective performance of the administration. 9 The exercise of the fiduciary responsibility4 of the Board of Directors. 10 The identification, management, control and disclosure of the strategic risks5 to which it is subject society. 11 Compliance with all legal provisions to which the company is subject. 12 Giving certainty and confidence to shareholders, investors and interested third parties about the honest and responsible conduct of the company's business. 3 Conflicts of interest occur in those circumstances in which the loyalty of the natural or legal person is compromised. 4 Fiduciary responsibility consists of acting in good faith, always seeking the best interests of the company and its shareholders. 5 The possibility that internal and/or external factors affect the stability and permanence of the company over time. Code of Principles and Best Practices of Corporate Governance 13 Machine Translated by Google In order to achieve an efficient functioning of the corporate governance system, the Committee suggests that the aforementioned Basic Principles and the Practices derived from them be adopted as part of the principles, values and culture of the company and observed by the Board of Directors. , the General Management, high-level officials and transmitted to all the staff that make up the different areas of the organization. Business Coordinating Council 14 Machine Translated by Google INVESTORS ASSEMBLY CHAPTER 3 Machine Translated by Google The Assembly of Shareholders is the supreme body of the company. Although this body meets annually in most cases, it is important that it act formally, transparently and efficiently, since it is a basic decision-making and control body for the life of societies, as well as for the protection of the rights and interests of all shareholders. It is recommended that there be guidelines to protect and facilitate the exercise of the rights of all shareholders and ensure equitable treatment, including minority and foreign shareholders. It is worth mentioning that the recommendations presented below apply to both Ordinary and Extraordinary Assemblies. 3.1 INFORMATION AND AGENDA OF THE SHAREHOLDERS' MEETING It is considered important that the agenda of the Shareholders' Meeting clearly specifies and determines the matters to be discussed, trying to analyze and discuss each issue separately. Due to the foregoing, it is recommended that there be no “Miscellaneous Matters” item. BEST PRACTICE 1 It is suggested not to group issues related to different topics in a single item on the agenda, as well as to avoid the item referring to “Miscellaneous Matters”. ... It is important that the shareholders have access, sufficiently in advance, to all the information necessary for their analysis, participation and proper decision-making at the Shareholders' Meeting. BEST PRACTICE 2 It is suggested that all the information on each item on the agenda of the Shareholders' or Partners' Meeting be available at least fifteen days in advance. Business Coordinating Council 16 Machine Translated by Google In order for the agents to be clear about the meaning in which they must exercise the rights of the shareholders they represent, in accordance with the items on the agenda, it is necessary that the latter provide them with all the information and documentation in detail, as well as as they are instructed regarding voting alternatives. BEST PRACTICE 3 It is suggested that through a form that contains in detail the information and possible voting alternatives on the items on the agenda, the shareholders can turn instructions to their representatives on the sense in which they must exercise the corresponding voting rights in each item on the agenda of the Assembly. ... It is important that there is a profile of the directors of the company and that the shareholders, when approving the directors, have all the necessary information that allows them to evaluate their profiles, their category of director and proceed to a more informed vote. BEST PRACTICE 4 It is suggested that the information delivered to the shareholders include the proposal for the composition of the Board of Directors and the CV of the candidates with sufficient information to assess their category and, where appropriate, their independence. 3.2 INFORMATION AND COMMUNICATION BETWEEN THE BOARD OF DIRECTORS AND THE SHAREHOLDERS It is the responsibility of the Board of Directors to guarantee effective communication between the company and the shareholders. The purpose of presenting an annual report to the Shareholders' Meeting is to show the financial position of the company, as well as the plans and activities that it has Code of Principles and Best Practices of Corporate Governance 17 Machine Translated by Google done and what it intends to do. In order to enrich the information generated by the company, it is recommended that shareholders have access to information regarding the activities of intermediate bodies. BEST PRACTICE 5 It is suggested that the Board of Directors include relevant aspects of the work of each intermediate body in its Annual Report to the Shareholders' Meeting. It is suggested that the reports of each intermediate body presented to the Board be made available to the shareholders together with the material for the Assembly, except for that information that must be kept confidential. In addition, it is recommended that the names of the members of each intermediate body be included in the Annual Report. ... The lack of participation of all the shareholders in the Assemblies and the limitations of these as a communication forum of the company with its investors, justify the establishment of the necessary communication mechanisms that allow the shareholders, the investors and the interested third parties, to be able to have adequate and timely access to information related to the progress of the company. BEST PRACTICE 6 It is suggested that the company have the necessary communication mechanisms that allow it to keep shareholders, investors and interested third parties adequately informed. ... The good relationship between the partners is important and necessary for an adequate performance of the functions of the Board of Directors and its governing bodies, because when there are differences between them, the image of the company can be damaged and its operation difficult to the detriment of all interested third parties. Business Coordinating Council 18 Machine Translated by Google BEST PRACTICE 7 It is suggested that the company have defined a procedure for the prevention and peaceful and negotiated solution of conflicts between shareholders and/or directors, prioritizing alternative dispute resolution mechanisms. Code of Principles and Best Practices of Corporate Governance 19 Machine Translated by Google Machine Translated by Google BOARD OF DIRECTORS CHAPTER 4 Machine Translated by Google The daily operation of a company is the responsibility of the CEO and his management team, while the task of defining the strategic direction, monitoring the operation and approving the management is the responsibility of the Board of Directors. In these tasks, all members of the Board of Directors have fiduciary responsibility, acting individually or collectively. In order to fulfill its objective, it is recommended that the Board have members who are not involved in the daily operation of the company and who can provide an external and independent vision. Likewise, to facilitate its tasks, the Council can rely on intermediate bodies dedicated to analyzing information and proposing actions on specific issues of importance to the Council, so that it has more information to make its decision-making more efficient. Additionally, it must be ensured that there are clear rules regarding the composition and operation of the Council and its intermediate bodies. 4.1 GENERIC FUNCTIONS Although it is true that the laws provide certain powers and obligations for the Board of Directors, the Committee considers that fulfilling the following functions helps to define its work and contributes to making the company's information more useful, timely and reliable . BEST PRACTICE 8 It is suggested that, in addition to the obligations and powers provided by the specific laws for each company, the following are included within the functions of the Board of Directors: 1 Make sure that all shareholders receive equal treatment, their rights are respected, protect their interests and give them access to company information. 2 Ensure the generation of economic and social value for the shareholders and the permanence in the society time. Business Coordinating Council 22 Machine Translated by Google 3 Promote society to consider third parties interested in making its decisions 4 Ensure honest and responsible management of society. 5 Ensure that the company issues its Code of Ethics. 6 Promote the disclosure of improper facts and the protection of informants. 7 Monitor the prevention of illicit operations and conflicts of interest. 8 Define the strategic direction. 9 Monitor the operation. 10 Approve management. 11 Incorporate Innovation into the culture and way of thinking of society. 12 Appoint the CEO and high-level officials6 of the company, as well as evaluate and approve their performance. 13 Ensure the responsible issuance and disclosure of information, as well as transparency in the administration. 14 Ensure the establishment of internal control and information quality mechanisms. 7 as well 15 Establish the necessary policies and approve operations with related parties, such as deciding on the hiring of third-party experts who issue their opinion in this regard. 6 Senior Officials refers to the category immediately below the Director General. 7 Includes operations between companies of the same economic entity or its associates and with natural or legal persons related to the shareholders, directors, the General Director and high-level executives of the company. Code of Principles and Best Practices of Corporate Governance 23 Machine Translated by Google 16 Promote the establishment of a Formal Succession Plan for the Director General and high-level officials. 17 Ensure the establishment of plans for business continuity and recovery of the information in case of disasters. 18 Ensure the establishment of mechanisms for the identification, analysis, administration, control and adequate disclosure of strategic risks. 19 Make sure that the company has the necessary mechanisms to verify that complies with the different legal provisions that are applicable to it. 20 Give certainty and confidence to investors and interested third parties, on the honest and responsible conduct of the company's business. ... The Committee considers that it is important to be very clear about the functions of the Board of Directors and not to involve it in other activities that are part of the daily operation of the company and, therefore, attributions of the CEO and his management team, as this would bring about confusion and dilution. of authority and responsibility. BEST PRACTICE 9 It is suggested that the functions of the Board of Directors not involve activities of the General Directorate and its management team, so that the lines of authority and responsibility are transparent. Business Coordinating Council 24 Machine Translated by Google 4.2 INTEGRATION The composition of the Board of Directors constitutes an essential element for its proper functioning. For this reason, it is considered necessary to have a minimum number of directors that generates a plurality of opinion within the Board. However, a maximum must be established to ensure that members effectively have the opportunity to express and discuss their points of view without falling into the inefficiency that can be caused by operating with an excessive number of directors. BEST PRACTICE 10 It is suggested that the Board of Directors be made up of a number between 3 and 15 directors. ... It is considered convenient that there are no substitute directors, but if there are, it is recommended that the proprietary director form a team with his substitute director, with the purpose of exchanging information and achieving a more effective participation. In this sense, it is recommended that the proprietary director participate in the selection process of his respective substitute and that he attend only in exceptional cases. BEST PRACTICE 11 It is recommended that there be no alternate directors, and if there are, each proprietary director suggests who their alternate should be and a communication process is established that allows them to participate effectively. ... The diverse composition of the Board of Directors is convenient for the achievement of its functions, so it is important to consider the figure of the independent director. Code of Principles and Best Practices of Corporate Governance 25 Machine Translated by Google This term is used to identify those directors who are not linked to the company's management team, have a more objective, impartial vision, free of conflicts of interest, are not subject to personal, patrimonial or economic interests and are called to be part of the Board of Directors due to their experience, capacity and professional prestige. To be considered independent, the director must not be in any of the following cases: 1 Be an employee or director of the company. 2 Having been an employee or director of the company during the last twelve months prior to the date of their appointment. 3 Without being an employee or director of the company, have significant influence8 or power of command9 about its directors. 4 Being an advisor to the company or partner or employee of firms that act as advisors or consultants to the company or its affiliates and whose income depends significantly10 on this relationship contractual. 5 Being a client, supplier, debtor or creditor of the company or partner or employee of a company that is an important client, supplier, debtor or creditor11. 6 Being an employee of a foundation, university, civil association or civil society that receives 12 significant donations from society. 7 Being the General Director or a high-level official of a company in whose board of directors the General Director or a high-level official of the company in question participates. 8 Being a relative13 of any of the persons mentioned in items 1 to 6 above, whose influence may reduce their independence. 8 Significant influence is considered to be the ownership of rights that allow, directly or indirectly, to exercise the vote with respect to at least 20% of the company's capital stock. 9 Power of command is considered to be the de facto capacity to decisively influence the resolutions adopted at the shareholders' meeting or the board of directors or in the management of the company. It is presumed that the shareholder who has control or is part of the control group has power of command. 10 Significant income is considered if it represents more than 10% of the advisor's or firm's income. 11 A client or supplier is considered important when the sales of or to the company represent more than 10% of the total sales of the client or the supplier, respectively. Likewise, a debtor or creditor is considered important when the amount of the credit is greater than 15% of the assets of the company or its counterparty. 12 Important donations are those that represent more than 15% of the total donations received by the institution. 13 This assumption applies to the spouse and up to the fourth degree in cases of consanguinity and affinity, for the cases of subsections (i) and (ii); and to the spouse and up to the first degree in cases of consanguinity and affinity, for the cases set forth in subsections (iii) to (vi). Business Coordinating Council 26 Machine Translated by Google It should be noted that, in the preceding paragraphs, when speaking of a company, the legal person(s) that make up the business group to which the company belongs must be included. A shareholder who does not exercise significant influence, or command power, or is linked to the company's management team, may be considered an independent equity director. It is considered necessary that the alternate director of an independent, if any, have the same character of independence. The independent director must be aware of his fiduciary duties and that when representing the interests of all the shareholders, his performance must be objective, impartial, honest and free of conflicts of interest. BEST PRACTICE 12 It is recommended that the independent director at the time of being appointed deliver to the Chairman of the Shareholders' Meeting a statement of compliance with the requirements of independence, of being free of conflicts of interest, not having his loyalty compromised and being able to perform his function in the best interest of society. ... In order for the independent directors to fulfill their purpose, it is necessary that they represent a significant percentage within the Board of Directors. BEST PRACTICE 13 It is recommended that independent directors represent at least 25% of the total number of directors. ... The participation of shareholders of the company in the Board of Directors is considered convenient. In particular, the participation of those shareholders who are not members of the Code of Principles and Best Practices of Corporate Governance 27 Machine Translated by Google part of the management team, even when they belong to the control group of the company, since their characteristics allow them to be suitable candidates to form part of the Board of Directors; These shareholders will be considered as proprietary directors. The officers of the company will be considered as related directors and if they are also shareholders, then they will be related proprietary directors. BEST PRACTICE 14 It is suggested that at least 60% of the Board of Directors be made up, jointly, of independent and proprietary directors. ... The Committee considers the incorporation of women in the composition of the Board of Directors to be important, since their abilities allow them to contribute different ideas and points of view to the affairs of society, thus enriching the diversity of knowledge and experiences. BEST PRACTICE 15 The incorporation of women in the composition of the Board of Directors is recommended. ... In order to be able to evaluate the composition of the Board of Directors, it is necessary for the company to provide information about the profile and category to which its directors belong. BEST PRACTICE 16 It is suggested that in the Annual Report presented by the Board of Directors, the category of each director be indicated and the professional activities of each one of them be mentioned as of the date of the report. Business Coordinating Council 28 Machine Translated by Google 4.3 STRUCTURE The Committee considers that there are at least four basic functions in which the Board of Directors must make important decisions for the company, which are: auditing; evaluation and compensation; finance and planning; risk and compliance. The Committee recommends the creation of one or several intermediate bodies to attend to the four functions mentioned, according to the needs of each company, as mechanisms to support the Board of Directors in its responsibilities; Structurally they are made up of directors and functionally they are an extension of the Council to provide support in the study of issues on various subjects. It is important to note that the intermediate bodies do not intervene in the operation of the company. For this reason, in order to fulfill their tasks, they will be able to rely on the work of the administrative structures; In this way, the intermediate bodies do not constitute an executive body nor do they assume the functions that correspond to the Board of Directors or to the operating areas of the company. BEST PRACTICE 17 It is recommended that, in order to make more informed decisions, the Board of Directors performs the functions of auditing, evaluation and compensation, finance and planning, risk and compliance, which are defined later in the Code, with the support of one or more intermediate organs as necessary. ... It is recognized that international practice calls “committees” the intermediate support bodies created to fulfill these specific functions. It is considered important that the independent directors participate in the work of the intermediate bodies of the Board of Directors. Code of Principles and Best Practices of Corporate Governance 29 Machine Translated by Google The Best Corporate Practices recommend that the committees be made up solely of independent directors; however, for its adoption, the stage in which the company is in its institutionalization process and whether it is subject to specific regulations on the matter must be considered. BEST PRACTICE 18 For intermediate organs the following is recommended: 1 One or several can be created as long as they have clear, precise objectives and their integration and operation. 2 That its members have no conflicts of interest. 3 That they are made up only of independent proprietary directors; however, the companies will be able to start their institutionalization process with a majority of independents and decide the step and extent to which they will observe the recommended practice. 4 That they are made up of at least three members and a maximum of seven, who must have sufficient experience in the area in which the intermediate body specializes. 5 That they report to the Board of Directors on their activities, at least quarterly, so that said information is included in the agenda of the board meeting 6 The President of each intermediate body may invite to its sessions the officials of the company whose responsibilities are related to the issues to be discussed. 7 That each independent director participates in at least one intermediate body. 8 That the intermediate body in charge of the Audit function be chaired by an independent director who has knowledge and experience in accounting, financial and control aspects. Business Coordinating Council 30 Machine Translated by Google 4.4 OPERATIONAL ASPECTS In order to adequately fulfill its functions and responsibilities, it is convenient that the Board of Directors meet with the necessary frequency to ensure the punctual and permanent follow- up of the affairs of the company. BEST PRACTICE 19 It is suggested that the Board of Directors meets at least 4 times a year, devoting the time and diligence necessary to properly attend to the affairs of the company. ... It is important that companies have mechanisms that guarantee openness within the Board of Directors itself, so that its operation does not depend on a single person or a small number of people. BEST PRACTICE 20 It is recommended that there be provisions by which a meeting of the Board of Directors can be called, with the agreement of 25% of the directors or by the president of some intermediate body. ... The active participation and responsibility of the members of the Board of Directors translates into a greater institutional nature of this body. To guarantee the foregoing, it is important to provide the information to the directors in advance so that they have the necessary elements to carry out their functions. Code of Principles and Best Practices of Corporate Governance 31 Machine Translated by Google BEST PRACTICE 21 It is recommended that the directors have access to the information that is relevant and necessary for decision making, according to the agenda contained in the call, at least five business days before the meeting. The foregoing will not be applicable in the case of matters that require confidentiality; however, in this case, the necessary mechanisms must be established so that the directors can adequately and promptly evaluate the proposals regarding said matters. ... The director appointed for the first time, before beginning his functions, must have the necessary information that allows him to duly carry out his position. For this purpose, it is convenient that you know the business; its culture, principles and values; Your activities; its strategic position; as well as the financial and operating situation of the company. BEST PRACTICE 22 It is suggested that when the directors are appointed for the first time, they be provided with the necessary information so that they are aware of the affairs of the company and can adequately fulfill their new responsibility. 4.5 RESPONSIBILITIES OF THE DIRECTORS The directors assume legal obligations and responsibilities when accepting their position; Ignorance of the same does not exempt them from their fiduciary duties, so it is important that they know the scope and legal implications, as well as the statutory implications of their functions. Business Coordinating Council 32 Machine Translated by Google BEST PRACTICE 23 It is recommended that each director be provided with the necessary information regarding the obligations, responsibilities and powers implied by being a member of the company's Board of Directors. ... The Committee considers it important for the company to have a document that establishes the rules of conduct that directors must adhere to in their performance. BEST PRACTICE 24 For the best fulfillment of the fiduciary duties and responsibilities of the directors, it is recommended to attend to the following: 1 Notify the Chairman and the other members of the Board of Directors of any situation in which a conflict of interest exists or may arise, refraining from participating in the corresponding deliberation. 2 Use the assets or services of the company only for the fulfillment of the corporate purpose and have clearly defined policies that allow, in exceptional cases, to use said assets for personal matters. 3 Dedicate the necessary time and attention to their function, attending at least 70% of the meetings to which it is summoned during the year. 4 Maintain absolute confidentiality about all the information they receive for the performance of their duties and, especially, about their own participation and that of other directors, in the deliberations that are carried out in the sessions of the Board of D administration. 5 The proprietary directors and, where appropriate, their respective alternates must keep each other informed about the matters dealt with in the sessions of the Board of Directors that they attend. Code of Principles and Best Practices of Corporate Governance 33 Machine Translated by Google 6 Support the Board of Directors with opinions and recommendations derived from the analysis of the company's performance, so that the decisions it adopts are duly supported. 7 Establish a mechanism for performance evaluation and compliance with the responsibilities and fiduciary duties of the directors. Business Coordinating Council 34 Machine Translated by Google AUDIT FUNCTION CHAPTER 5 Machine Translated by Google The Committee recommends that there be an intermediate body that supports the Board of Directors in the audit function, ensuring that both the internal and external audits are carried out with the greatest possible objectivity and independence; ensuring that the financial information that reaches the Board of Directors, the shareholders and the general public is issued and disclosed responsibly and transparently; at the same time, that it be sufficient, timely and reasonably reflect the financial situation of the company. The Committee also recommends that internal control and the process of issuing financial information be permanently validated; operations with related parties are analyzed and evaluated and attention is paid to identifying possible conflicts of interest. The Committee considers that the essential thing is that the elected intermediate body is in charge of fulfilling the functions indicated here and ensures that the proposals are taken to the Board of Directors so that it can make the corresponding decisions. 5.1 GENERIC FUNCTIONS It is important that there is coordination during all stages of the audit process between the internal auditor, the external auditor, the Examiner and the other parties involved. BEST PRACTICE 25 It is recommended that the intermediate body fulfill the following functions: 1 Recommend to the Board of Directors the candidates for external auditors of the company, the hiring conditions and the scope of professional work and supervise compliance with them. In the same way, recommend the approval of those additional services to those of auditing that the external auditors will provide. 2 To be the communication channel between the Board of Directors and the external auditors, as well as to ensure their independence, professional capacity and not have conflicts of interest. Business Coordinating Council 36 Machine Translated by Google 3 Review the work program, observation letters and internal audit reports and external and report to the Board of Directors on the results. 4 Follow up on the remediation of the internal and external audit findings by the areas responsible. 5 Meet periodically with the internal and external auditors, without the presence of company officials, to hear their comments and observations on the progress of their work. 6 Give its opinion to the Board of Directors on the policies and criteria used in the preparation of financial information, as well as the process for its issuance, ensuring its reliability, quality and transparency. 7 Contribute to the definition of the general guidelines for internal control, auditing internal and evaluate its effectiveness. 8 Verify that the mechanisms established to control the strategic risks to which the company is subject are observed. 9 Coordinate the work of the External Auditor, Internal Auditor and the Commissioner. 10 Contribute to the establishment of policies for operations with related parties. 11 Analyze and evaluate operations with related parties to recommend their approval to the Board of Directors. 12 Decide on the hiring of third-party experts who will issue their opinion on the operations with related parties or any other matter that allows the proper performance of its functions. 13 Be aware of the complaints for breaches of the Code of Ethics, the measures taken and the protection given to informants. Code of Principles and Best Practices of Corporate Governance 37 Machine Translated by Google 14 Assist the Board of Directors in the analysis of business continuity plans and recovery of information in case of disasters. 15 Verify that the necessary mechanisms are in place to ensure that the company complies with the different legal provisions that are applicable to it. 5.2 SELECTION OF AUDITORS In the selection process, the technical capacity of the auditors must be taken into account, as well as their independence and professional prestige. In this process, those circumstances that could affect the objectivity of the auditor must be observed, such as the fact that the firm's income depends significantly on the company or implies a conflict of interest. In the event that the auditors provide the company with services other than the audit itself, it is important that the nature and extent of said services be kept under review, in order to ensure that their objectivity is not affected by conflicts of interest. BEST PRACTICE 26 It is suggested to recommend to the Board of Directors that, for the external audit of the financial statements as well as for any other service, refrain from contracting an office in which the fees received for all the services provided to the company, represent a percentage greater than 10% of the total income of said office. ... The audit report provides the opinion of an independent third party on the reasonableness of the financial statements. If the person who gives an opinion is in charge of this function for a long time, there may be a risk that he will lose objectivity when issuing his opinion; for this reason, Business Coordinating Council 38 Machine Translated by Google The Committee considers it important that the company periodically change the person in charge of auditing the financial statements, as well as its working group. BEST PRACTICE 27 It is recommended that, at least every 5 years, the Partner who reports the financial statements of the company, as well as his work group, be changed, in order to ensure objectivity in their work and reports. ... As established in the General Law of Commercial Companies, the Commissioner of a company is appointed by the Shareholders' Meeting and is in charge, among other aspects, of reviewing both financial statements as the application of accounting policies. On the other hand, the external auditor must be appointed by the company's Board of Directors to give an opinion on the financial statements. Although some of the functions of the Commissioner and the external auditor are similar, those who appoint them do so for different purposes, so entrusting the Commissioner with the external audit creates conflicts of interest. BEST PRACTICE 28 It is recommended that the Commissioner be a person other than the one who reports the company's financial statements. ... BEST PRACTICE 29 It is recommended that the person designated as the company's Commissioner have the knowledge and professional experience that allow them to comply with their legal obligations. Likewise, it is recommended that the profile of the Commissioner be revealed in the Annual Report presented by the Board of Directors. Code of Principles and Best Practices of Corporate Governance 39 Machine Translated by Google 5.3 FINANCIAL INFORMATION The financial information presented by the General Management to the Board of Directors during the year generally contains unaudited figures, so it is advisable to have an opinion about the review processes of said information. BEST PRACTICE 30 To ensure that the Board of Directors makes decisions based on reliable financial information, the intermediate body that performs the audit function will support it with its opinion on said information, which must be signed by the General Director and the Director responsible for its preparation. ... The internal audit constitutes a valuable tool for the surveillance function of the company's operations, since it allows it to evaluate the financial information, its issuance process, as well as the effectiveness of the internal controls necessary for an orderly and reliable operation. BEST PRACTICE 31 It is suggested that the company have an internal audit area and that its general guidelines and work plans be approved by the Board of Directors. ... Maintaining the same accounting policy ensures consistency in the financial information and facilitates the formation of expectations about the future of the company, for which the Board of Directors must be informed about the accounting policies and criteria that are applied in the preparation of the statements. financial. Business Coordinating Council 40 Machine Translated by Google BEST PRACTICE 32 It is suggested that the accounting policies and criteria used to prepare the company's financial information be submitted for approval by the Board of Directors, and that it be informed of their consistent application. ... It is considered that, when exceptionally it is decided to change an accounting policy or add a new one, it is reported in a timely manner and with due explanation so that users can assess the effects of said change. BEST PRACTICE 33 It is recommended that the changes in the accounting policies and criteria be duly substantiated to be analyzed by the Board of Directors, before their approval. ... In order to promote confidence and certainty in the information provided to shareholders, it is important that the bases for preparing the annual information are consistent with those used during the year. BEST PRACTICE 34 It is recommended that the Board of Directors approve the necessary mechanisms to ensure the quality of the financial information presented to it; In the event that this corresponds to intermediate periods during the year, it will be ensured that it is prepared with the same policies, criteria and practices with which the annual information will be prepared. In this process, you may be assisted by the internal and external auditors and the company's Code of Principles and Best Practices of Corporate Governance 41 Machine Translated by Google 5.4 INTERNAL CONTROL Internal control14 constitutes the mechanism by which the Board of Directors ensures that the company operates in a general environment of control and gives greater certainty of the effectiveness and efficiency of management. BEST PRACTICE 35 It is suggested that the general Internal Control guidelines and, if applicable, revisions thereto, be submitted for the approval of the Board of Directors. ... It is important that the Board of Directors has information on the processes under which the company operates, that they are orderly and allow adequate control of operations. To comply with the foregoing, the reports issued by the internal and external auditors will serve as support to verify the effectiveness of the control systems. BEST PRACTICE 36 It is suggested that the Board of Directors be supported to ensure the effectiveness of internal control, as well as the process of issuing financial information. ... BEST PRACTICE 37 It is suggested that the internal and external auditors evaluate, in accordance with their normal work program, the effectiveness of the Internal Control as well as the quality and transparency of the process of issuing financial information, and that they discuss with them the results indicated in the letter of observations15. 14 Internal control is understood as the process executed by management to evaluate specific operations and which is designed to provide reasonable assurance of their effectiveness and efficiency, the reliability of financial information and compliance with laws and regulations; its structure includes the control environment, control activities, risk assessment, information and communication, as well as surveillance. 15 A letter of observations is understood as the document that reflects the significant deficiencies found in the design or operation of the internal control structure, which could negatively affect the organization's ability to record, process, summarize and report financial information. Business Coordinating Council 42 Machine Translated by Google 5.5 RELATED PARTIES During the normal operation of the company, it is common for transactions to occur with related parties (companies of the same business group, associates, shareholders, directors, CEO and high-level executives) which are recommended to be analyzed and compared with the policies established to ensure their adequate disclosure and transparency and to identify those situations that could lead to a conflict of interest; likewise, evaluate that the conditions under which they are carried out are equitable for society and are carried out as agreed. BEST PRACTICE 38 It is suggested that the Board of Directors be supported in establishing policies, as well as in the analysis of the approval process and contracting conditions, of operations with related parties. ... The Committee considers it important that transactions with related parties outside the company's normal course of business be submitted, prior to their execution, for the approval of the Board of Directors. However, if said operations represent more than 10% of the consolidated assets of the company, it is recommended to obtain the approval of the Shareholders' Meeting. Similarly, it recommends having the opinion of independent experts, in cases deemed appropriate. BEST PRACTICE 39 It is recommended to support the Board of Directors in the analysis of the proposals to carry out operations with related parties outside the normal business of the company that, if applicable, are presented by the General Director for approval. Likewise, it is recommended that when said operations represent more than 10% of the consolidated assets of the company, they be presented for the approval of the Shareholders' Meeting. Code of Principles and Best Practices of Corporate Governance 43 Machine Translated by Google 5.6 REVIEW OF COMPLIANCE WITH PROVISIONS The Committee considers it important that the company has a mechanism that allows the Board of Directors to be informed about compliance with all the legal provisions to which the company is subject. BEST PRACTICE 40 It is recommended that the existence of mechanisms be ensured to determine whether the company duly complies with all the legal provisions to which the company is subje Business Coordinating Council 44 Machine Translated by Google EVALUATION FUNCTION AND COMPENSATION CHAPTER 6 Machine Translated by Google The Committee recommends that the Board of Directors be supported in fulfilling the function of evaluating and compensating the directors, the General Manager and the company's high-level officials. The Committee considers that the proposals of the General Management be taken to the Board of Directors so that it can make the corresponding decisions. It is convenient that the evaluation and compensation system be disclosed in the annual report and its operation be carried out in a transparent manner to increase the confidence of shareholders and third parties interested in the administration. Taking into account the importance of the role that society plays in the development and well- being of the community, the Committee recommends that the company be conducted honestly and responsibly, consider interested third parties in its decisions, issue its Code of Ethics, and have a mechanism to report wrongdoing and protect whistleblowers. In order for the succession processes of the General Management and high-level officials to be orderly, stable and do not affect the progress and permanence of the company over time, the Committee recommends that it have a Formal Succession Plan . 6.1 GENERIC FUNCTIONS The following functions are aimed at ensuring that the company has adequate and reasonable evaluation and compensation policies that are in the best interest of the company, allowing it to be competitive, stable and permanent over time. BEST PRACTICE 41 It is recommended that the intermediate body fulfill the following functions: 1 Suggest to the Board of Directors criteria for appointing or removing the Director General and high-level officials. Business Coordinating Council 46 Machine Translated by Google 2 Propose to the Board of Directors the criteria for the evaluation and compensation of the CEO and high-level officials. 3 Recommend to the Board of Directors the criteria to determine separation payments for the company, the General Director and high-level officials. 4 Ensure that the talent and structure of the organization are aligned with the strategic plan approved by the Board of Directors. 5 Recommend the criteria to define the profile, as well as the hiring, evaluation of the performance and compensation of directors. 6 Analyze the proposal made by the Director General regarding the structure and criteria for staff compensation. 7 Analyze and submit to the Board of Directors for its approval, the Code of Ethics, as well as the information system for improper acts and the protection of informants. 8 Ensure the proper functioning of the information system of improper acts and of the whistleblower protection. 9 Analyze and propose to the Board of Directors the approval of the Formal Succession System for the General Director and high-level officials, as well as verify its compliance. 10 Ensure that there is an agreement in the shareholders' family that defines the way in which their interests will be represented on the company's Board of Directors. Code of Principles and Best Practices of Corporate Governance 47 Machine Translated by Google BEST PRACTICE 42 It is recommended that, in order to prevent a possible conflict of interest, the Director General and high-level officials refrain from participating in the deliberation of the matters mentioned in items 1, 2 and 3 above. 6.2 OPERATIONAL ASPECTS The Board of Directors must be assisted in evaluating the policies for determining the remuneration of the General Director and of the company's high-level officials. It is important that these policies consider aspects such as the previously set objectives, the metrics for individual performance and their contribution to the results of society. The Committee considers that the remuneration policies approved by the Board of Directors should be disclosed in the Annual Report to the shareholders. BEST PRACTICE 43 It is recommended that the policies for determining the remuneration of the Director General and high-level officials be reasonable and consider aspects related to their functions, the scope of their objectives, the evaluation of their performance, their contribution to the results and that they be aligned with the company's strategic plan. ... BEST PRACTICE 44 It is suggested that in the annual report presented by the Board of Directors to the Shareholders' Meeting, the policies used and the components that make up the remuneration packages of the General Director and of the company's high-level officials be reveale Business Coordinating Council 48 Machine Translated by Google In order to protect the company's assets, it is important that the Board of Directors be helped to avoid excessive payments to the General Director and high-level officials, for integrated compensation and indemnity, through prior review of the contracting conditions. BEST PRACTICE 45 It is recommended that the Board of Directors be supported by prior review of the hiring conditions of the General Director and high-level officials, in order to ensure that the probable payments for their separation from the company are reasonable and adhere to the guidelines established by the Board of Directors. ... The adequate performance of the directors is important to ensure the generation of economic and social value, as well as the achievement of the established objectives, for which it is recommended that the Board of Directors be supported in defining the profile of the directors, their objectives , as well as the mechanism for their hiring, evaluation and compensation. BEST PRACTICE 46 It is recommended that the Board of Directors be supported in defining the profile of the directors, their objectives, as well as the mechanism for their hiring, evaluation and compensation. ... The stability and permanence of the company in the long term is important to preserve the investment of the shareholders and the benefit of interested third parties, for which it is necessary to assist the Board of Directors to ensure that the company has a Formal Succession Plan. for the Director General and high-level officials, so that this process is carried out in a stable, planned and orderly manner. Code of Principles and Best Practices of Corporate Governance 49 Machine Translated by Google BEST PRACTICE 47 It is recommended that support be given to the Board of Directors to ensure that there is a Formal Succession Plan for the CEO and high-level officers of the company, aligned with the strategic plan, so that the process is carried out correctly. stable, planned and orderly. ... Considering that a significant number of companies in our country are family-based, it is important that the family or families reach an agreement that clearly indicates how their interests will be represented in the governing bodies of the company. society. BEST PRACTICE 48 It is recommended that the family have an agreement that clearly indicates how their interests will be represented in the Assembly and in the Board of Directors of the company Business Coordinating Council 50 Machine Translated by Google FINANCE FUNCTION AND PLANNING CHAPTER 7 Machine Translated by Google The Committee recommends that the Board of Directors be supported in the function of finances and planning and that the intermediate body ensure that the proposals are taken to the Board of Directors so that it can make the corresponding decisions. The Committee considers that the stability and permanence of the company over time are basic elements for the conservation of the shareholders' equity and the benefit of interested third parties. For this reason, it is important that there is a medium- and long-term strategic planning system that contemplates the course established by the Board of Directors, as well as the actions to be followed to preserve the value network of the company. The intermediate body that carries out this function will also support the Council in the analysis of investment and financing policies, as well as the premises for the preparation of the annual budget and its control system. It is important to consider that, in order to define responsibilities, the function of the intermediate body is to analyze the proposals of the Director General on these matters and give its opinion to the Board of Directors. 7.1 GENERIC FUNCTIONS The following functions are aimed at supporting the Board of Directors in defining the strategic course and validating policies and guidelines presented by the General Directorate related, among others, to the strategic plan, investments, financing and budget. BEST PRACTICE 49 It is recommended that the intermediate body fulfill the following functions: 1 Study and propose to the Board of Directors the strategic direction of the company to ensure its stability and permanence over time. Business Coordinating Council 52 Machine Translated by Google 2 Analyze the general guidelines presented by the General Directorate for the determination of the strategic plan of the company and monitor its implementation. 3 Ensure that the strategic plan contemplates the generation of economic and social value for the shareholders, as well as the sources of employment and the existence of interested third parties. 4 Ensure that the strategic plan is aligned with the long-term direction established by the Board of Directors. 5 Evaluate the investment and financing policies of the company proposed by the Management General and give its opinion to the Board of Directors. 6 Give an opinion on the premises of the annual budget presented by the Director General and monitor its application, as well as its control system. 7.2 OPERATIONAL ASPECTS The definition of the long-term direction is a necessary element to prepare the strategic plan, establish the objectives and the different activities of the company, as well as ensure its stability and permanence over time for the benefit of the shareholders and interested third parties. BEST PRACTICE 50 It is recommended that the Board of Directors dedicate time in one of the sessions of the year to defining or updating the long-term direction of the company, to ensure its stability and permanence over time. Code of Principles and Best Practices of Corporate Governance 53 Machine Translated by Google Strategic planning is necessary to shape the long-term course set by the Board of Directors, define establish plans the objectives to be achieved and achieve the stability and permanence , of thethat lead to over time. company The Strategic Planning System must be prepared by the General Directorate and submitted for the approval of the Board of Directors with the prior recommendation of the intermediate body that supports it. BEST PRACTICE 51 It is recommended that the Board of Directors be supported in reviewing the Strategic Plan submitted by the General Directorate for approval and that its implementation be followed up. ... The policies for the management of the treasury, for the contracting of derivative financial products, for investments in fixed assets, as well as for the contracting of liabilities of any nature, must be presented by the General Director for the approval of the Board of Directors, with the prior opinion of the intermediate body that supports it in this function. BEST PRACTICE 52 It is recommended that support be given to the Board of Directors in the analysis of the policies submitted for approval by the General Director, for the management of the treasury, for the contracting of derivative financial products, for the investment in assets and for the contracting of liabilities, ensuring their alignment with the strategic plan and that they correspond to the normal course of business. ... The budget is an important tool for the control of operations and the evaluation of management, so it is convenient to review the premises used by the General Directorate in its preparation and the system that will be implemented for its control. Business Coordinating Council 54 Machine Translated by Google BEST PRACTICE 53 It is suggested that the Board of Directors be assisted in reviewing the premises of the annual budget presented for approval by the Director General, as well as its control system, verifying its alignment with the strategic plan. Code of Principles and Best Practices of Corporate Governance 55 Machine Translated by Google Machine Translated by Google RISK FUNCTION AND COMPLIANCE CHAPTER 8 Machine Translated by Google The Committee recommends that the Board of Directors be supported in the risk and compliance function, and that the intermediate body ensure that the proposals are brought to the Board of Directors so that it can make the corresponding decisions. The Committee considers that the stability and permanence over time of the company are basic elements for the preservation of the shareholders' equity, and the benefit of interested third parties. Therefore, it is important that there are mechanisms for the prevention, detection and mitigation of identified risks, as well as for compliance with all legal provisions to which the company is subject. The intermediate body that carries out this function will support the Board of Directors in the analysis of the mechanisms implemented by the General Management for the identification, administration, control and disclosure of the risks to which the company is subject. The Board of Directors will permanently monitor the strategic risks identified and the General Management the rest of the identified risks related to the operation of the company. Similarly, the Board of Directors will ensure the proper functioning of the processes established for compliance with all legal provisions to which the company is subject. 8.1 GENERIC FUNCTIONS The following functions are aimed at supporting the Board of Directors in monitoring strategic risks and the legal provisions that the company must comply with. BEST PRACTICE 54 It is recommended that the intermediate body fulfill the following functions: Business Coordinating Council 58 Machine Translated by Google 1 Evaluate the mechanisms presented by the General Management for the identification, analysis, administration and control of the risks to which the company is subject and give its opinion to the Board of Directors. 2 Analyze the risks identified by the General Management. 3 Define the strategic risks that the Board of Directors will monitor. 4 Define the financial and operational risks that the General Management will monitor. 5 Evaluate the criteria presented by the General Director for the disclosure of the risks to which the company is subject and give its opinion to the Board of Directors. 6 Know the legal provisions to which the company is subject and strictly monitor its compliance. 7 Know pending legal matters and give its opinion to the Board of Directors. 8.2 OPERATIONAL ASPECTS In order to support the Board of Directors in its decision-making, it is considered important that it receive opinions on the different issues that make up the risk and compliance function, as well as recommend the priorities that it should assign. Due to the uncertainty that exists and the impact that they may have on the conservation of value, on the preservation of the source of wealth and employment, on the existence of interested third parties and on the permanence of the company over time, the Committee recommends that there are clear processes to prevent, detect and mitigate, among others, the following strategic risks: Code of Principles and Best Practices of Corporate Governance 59 Machine Translated by Google 1 Cyber attacks and information theft. 2 Use of the telephone, the internet, private networks and social networks within the facilities of the society. 3 Business continuity and information recovery in case of disasters. 4 Effects of economic and regulatory changes in the country and abroad. 5 Disruption in the business model. 6 Climate changes and their effects on the supply chain. 7 Geopolitical and social movements and migration. 8 Effects on reputation and trust in the brand. 9 Lack of innovation and development of new businesses. 10 Absence of a formal succession plan in the company. The identification, quantification and management of strategic risks is important to guide the different activities of the company, ensuring its stability and permanence over time for the benefit of shareholders and interested third parties. BEST PRACTICE 55 It is recommended that the Board of Directors dedicate time in one of the sessions of the year to assess strategic risks, to ensure the stability and permanence of the company over time. Business Coordinating Council 60 Machine Translated by Google The follow-up given by the Board of Directors to the mitigation of the strategic risks that have been identified is important. BEST PRACTICE 56 It is recommended that the Board of Directors be supported in monitoring the mitigation of the strategic risks that have been identified. ... The risks to which the company is subject play a fundamental role in its stability and permanence, to such an extent that they can jeopardize the investment of the shareholders, the sources of employment and the existence of interested third parties, so that their identification, evaluation, administration and control are very important, as are the mechanisms to reveal their effects. BEST PRACTICE 57 It is recommended that the Board of Directors be assisted in the evaluation of the mechanisms for the identification, analysis, administration and control of the risks to which the company is subject, as well as the criteria for their disclosure, which it submits for its approval. the General Directorate. ... It is necessary for the Board of Directors to be permanently informed by the General Manager about the risks that have been identified, the quantitative and qualitative impact that they may have on the company, and the measures that are being taken to manage them. BEST PRACTICE 58 It is recommended that the Director General present to the Board of Directors, in each of the sessions of the year, a report on the situation of the administration of each of the identified risks. Code of Principles and Best Practices of Corporate Governance 61 Machine Translated by Google The Committee considers it important that a periodic review be carried out and a report be issued on the state of compliance with all the legal provisions to which the company is subject. This mechanism reduces the possibility of the occurrence of any event or contingency that puts the company at risk or involves unforeseen costs and provides shareholders with certainty about the legal situation of the company. BEST PRACTICE 59 It is recommended that a periodic review be carried out and an updated and detailed report be issued on the status of compliance with all the legal provisions to which the company is subject and that it be presented, at least once a year, to the Board of D ... It is convenient for the Board of Directors to be aware of all legal disputes that are pending resolution and represent a possible risk for the company. BEST PRACTICE 60 It is recommended that, at least once a year, the necessary information be presented to the Board of Directors so that it is aware of all pending legal litigation that the company has and its possible risk. Business Coordinating Council 62 Machine Translated by Google THE CORPORATE GOVERNANCE BEST PRACTICES COMMITTEE IT IS MADE UP OF THE FOLLOWING MEMBERS: CP Roberto Danel Díaz (Chairman) Lic. Miguel Quintero Valladares Lic. Francisco Carrillo Gamboa CP José Manuel Rincón Gallardo Purón Efren del Rosal Calzada Lic. Bernardo M. Rivadeneyra Pérez Lic. Jorge E. Familiar Calderón Lic. Rafael Robles Miaja Lic. Félix Lic. Samuel García-Cuéllar Santa Cruz + Todd Piñeiro Lic. Thomas S. Heather Rodríguez Lic. Marta Vaca Viana Mtra. Sylvia Meljem Enriquez de Rivera Lic. Pedro Zorrilla Velasco SPECIAL GUESTS: Code of Principles and Best Practices of Corporate Governance 63 Machine Translated by Google INSTITUTIONAL SUPPORT Alejandro Arguelles de la Torre Jorge Smeke Zwaiman Barbara Ochoa Woodworth Jose Carlos Cardoso Castellanos Benjamin Diaz Villanueva Jose Lino Rodriguez Sanchez Bertha Guadalupe Steps Tellez Jose Raul Gonzalez Lima Carlos A. Carpy Morales Cecilia John Albert Adam Siade Perez Valencia Juan Manuel Olivo Tirado Celia Sanchez Palomo Juan Pablo Visoso Lomelin Clementina Ramirez de Arellano Lourdes Dominguez Moran Daniela Lopez Canton Luis Hernando Cervera Mondragon Diego Martinez Rueda-Chapital Luis Miguel Pando Leyva Emilia del Carmen Diaz Solis Manuel Cardona Zapata Eulalio Gonzalez Anta Maria Caridad Mendoza Barron Fernando Borja Mujica Monica Lenero Alvarez Fernando Colonel Landa Norma Cano Olea Francisca Rodriguez Padilla Octavio Ballinas Garcia German Reyna and Blacksmith Patricia Jimenez Diaz Gonzalo Alarcon Iturbide Pedro Salicrup Río de la Loza Ignatius I. Garcia Lascurain Valero Ramon Felipe Estrada Rivero Ignatius Jose Martin Cacho de la Riva Reyna Torrecillas Jacobo Germain Montenegro Sanchez Ricardo Gonzalez Escobar Jaime Cortes Rocha Sergio Alberto Martin Esquivel Jaime Sanchez Improved Fernandez Sergio Contreras Perez Jaime V. Sanchis Caves Silvia Davalos de la Rosa Jorge L. González Garcia Business Coordinating Council 64 Machine Translated by Google Machine Translated by Google cmpc@cce.org.mx www.cce.org.mx