A matrix organization combining function with geography ensures the linkage between Premium Carmakers and Consumers
To succeed on the international stage, Pirelli must have world class governance, embracing best practice from around the globe. We believe corporate governance is more than a matter of box-ticking. Transparency, accountability and scrutiny are, in fact, fundamental to profitability.
For a company which has always had an international footprint, such values are doubly important. We must adhere to local regulations and international standards. The board has 15 members including the chief executive, all on three-year terms of office. Seven members of the board are independent, where Italian law requires only two and the Italian exchange self-regulatory code only one third of total.
Of those 15 directors, three – or one fifth – represent minority shareholders. This arrangement has been codified in the company bylaws while the actual law requires just one minority shareholder. Over the last few years, there has been significant streamlining of structure and governance. Simplicity helps transparency.
Pirelli’s board is supported by four committees, from which it receives reports and recommendations: the Audit, Risks, Sustainability and Corporate Governance Committee (known as the Audit Committee); the Remuneration Committee; the Appointments and Successions Committee; and the Strategies Committee.
In their existence and mode of operation, the Audit Committee and Remuneration Committee adhere to the demanding self-regulatory code of the Italian stock exchange.
The Internal Control Committee monitors the activities of internal auditors and the governance structure, the management of sustainability and risk assessment. It has only independent directors and has always included one from a minority shareholder.
Understanding risk and taking steps to reduce its impact have been features of Pirelli’s spirit and professional approach since the company’s founding. The board uses a proactive risk-governance model. This allows board members and senior managers to assess, understand and mitigate risk. Management of risk – and not just financial risk – is crucial to Pirelli. We also analyse political uncertainty, and health and safety, along with legislative, environmental and sustainability risk.
The Remuneration Committee – again with entirely independent directors – deals with the compensation and long-term incentives of the chief executive and all the managers who have strategic responsibilities. Such compensation guidelines are submitted to shareholders for approval.
The Appointments Committee is responsible for advising the board on changes to the independent directors. It is also concerned with succession planning.
An extra level of scrutiny is provided by the Strategies Committee, composed of the chief executive, non-executive directors and independent directors. It looks at and examines plans and budgets before they go to the board.
The Committee of Related Party Transactions is another important check and balance. It must approve all transactions with related parties above €150,000. It is made up entirely of independent directors.
Transparency, accountability and scrutiny are, in fact, fundamental to profitability.
A matrix of excellence
The linkages between Premium car manufacturers and consumers are managed through four key cross-functional processes involving headquarters and local markets: product development, supply chain management, customer management and brand equity management
Pirelli’s global management follows a matrix organisation combining function with geography. This design ensures that functions optimize the linkage between car manufacturers and consumers who drive their cars over the entire life cycle of the vehicle, and that these levers are coherently deployed in all regions.
In particular, the value chain linkages are managed through four key cross-functional processes involving headquarters and local markets. These are: product development, supply chain management, customer management and brand equity management. At regional level, group guidelines and best practices are rolled out in plants, local development centres, and sales and marketing organisations.
Pirelli’s global management follows a matrix organisation combining function with geography.
Objectives tied to value creation
The way Pirelli rewards its staff has changed significantly in recent years. The company is now structured to reflect value creation in the short, medium and long term. Part of the executive’s Long-Term Incentive plan is tied to Pirelli shares’ total shareholder return. Sustainability and non-financial targets form part of Executives’ Long-Term Incentive plans. The annual Management by Objectives programme is built around 22 indicators.
All executives – some 330 people – and about 15 % of white collar staff are now on the Management by Objectives scheme.
Pirelli also uses the Hay Group salary benchmarking tools to compare pay and benefits with appropriate companies around the world.
Pirelli’s code of ethics provides for fairness and correctness in all dealings inside and outside the company. It calls for transparency, encourages debate and the exchange of information at all levels. It boosts value creation, professional excellence, social progress, concern for stakeholders, and higher standards of living and environmental quality.
The company’s philosophy is always to observe the substance of regulation, not just the legal formalities. We believe that innovation is about the way a company is run, as well as its technological prowess, and we will continue to pioneer new levels of best practice in corporate governance in coming years.