annual corporate governance report 2017 · directors succession policy was shared with the...

2017

ANNUAL CORPORATE GOVERNANCE

REPORT

Grupo Argos | Annual Corporate Governance Report | 20172

Corporate Governance is a system which determines the distribution of rights and responsibilities between the different actors of a company, and the way it interacts with different interest groups.

Grupo Argos has set a goal to generate sustainable value in the long term, and therefore, it is committed to adopting and maintaining the highest standards of corporate governance with a balanced vision of the sustainability of the business organization.

As a result of the aforementioned, Grupo Argos has adopted a series of business parameters, which are established in its Code of Good Corporate Governance. This is intended to generate bonds of trust and transparency with the Shareholders, the Market and Other Interest Groups.

The following annual report on Corporate Governance presents a summary of compliance with the commitments established in the Code of Good Corporate Governance.

© Santiago Vergara

In partnership with CuencaVerde, we are working to protect the water resources

that supply the Aburra Valley.

4 Grupo Argos | Annual Corporate Governance Report | 2017

Relevant Facts and Challenges for 2018I.

© Rodrigo Duran Bahamon Alliance for the conservation of Biodiversity, Territories and Culture.

Cabo Manglares is the �rst protected region thanks to the Alliance for the Conservation of Biodiversity, Territories and Culture.

5www.grupoargos.com

In compliance with our commitment to corporate governance, the following are some of the most remarkable facts regarding this matter during 2017:

RobecoSAM awarded us a Gold Medal as a recognition to our good practices in sustainability and corporate governance.

As part of strengthening our Corporate Governance, and based on the Relationship Policy approved by the Board of Directors in 2016, we developed an action model in 2017 that allows Grupo Argos to articulate and actively manage its investment portfolio.

Since the beginning of 2016 a process of elaboration and deliberation of the Appointment, Remuneration and Board of Directors Succession Policy was shared with the subsidiaries. This Policy was approved by the Shareholders’ General Assembly in a regular session held on March 30th, 2017.

The Country Code Survey was answered. It is reported that 141 out of the 148 recommended measures have been implemented, which shows an implementation well above average. According to the report provided by the Financial Superintendency agency in 2016, the level of implementation was 58.92%. The agency’s report with the results of implementation for 2017 will be available in the second quarter of 2018.

The IR Recognition granted by the Colombia Stock Exchange was maintained. As for the quantitative evaluation, which is developed by CESA, it was determined that Grupo Argos has an information disclosure level for adopting good practices equivalent to 80.7%, which is quite satisfactory, especially if we consider that the average achieved with this evaluation is of 67%.

During the year, several transactions were developed under full observation within the corporate governance framework of the Company. It is worth highlighting (i) the shares that the company owned in COMPAS S.A. This was a decision that was submitted to detailed scrutiny by the Independent Members of the Board of Directors, (ii) A public bid for the acquisition of shares owned by ODINSA S.A.'s minority shareholders and whose price was determined based on an independent appraisal.

In the month of December, the Board of Directors approved the Operations Management Policy for related companies. This has been shared with the subsidiaries for its implementation.


The following are the main challenges for this year:

To take the necessary measures to fully comply with the recommendations given by the IR Recognition of the Colombia Stock Exchange.

To have the Board of Directors implement the information Disclosure Policy.

To have the Audit, Finance and Risks Committee implement the Audit Bylaws applicable to the Company and Compliance Veri�cation Process in the Subsidiaries.

To Continue consolidating the uni�ed scheme for the entire Grupo Argos Business Group in administration matters, such as ethics, conduct and transparency.

To have Grupo Argos look further into the Risks Administration System in aims of achieving a wholistic view of the risks that affect the Grupo Argos Business Group.

7www.grupoargos.com

Property StructureII.

© Santiago Vergara

Water care is one of the priority initiatives that we execute in more than 2,500 hectares in the water

basins of the country.


Grupo Argos S.A. is the parent company of the Grupo Argos business group. Part of the subsidiaries are present in several countries of the American continent. They have active participation in the cement, energy, real estate and road and airport concessions. Grupo Argos is the controlling shareholder of Cementos Argos S.A., Celsia S.A. E.S.P., Odinsa S.A. and owns 50% of the share capital of Pactia S.A.S. Through the aforementioned subsidiaries, Grupo Argos controls more than 90 companies.

2. Holders of significant shareholdings

2.1. Regular Share

Subscribed Shares

Shares on the Market

Average Value

211.827.180

211.827.180

COP 62,5

651.102.432

645.400.000

COP 62,5

Regular Shares Preferential shares

Total Reacquired Shares 5.702.432

GRUPO DE INVERSIONESSURAMERICANA S.A.

GRUPO NUTRESA S.A.

FONDO DE PENSIONESOBLIGATORIAS PORVENIRMODERADO

AMALFI S.A.

FONDO DE PENSIONESOBLIGATORIAS PROTECCIÓNMODERADO

229.534.810

79.804.628

36.412.485

36.324.221

23.699.119

35,56%

12,37%

5,64%

5,63%

3,67%

Shareholder's Name Shares Percentage of participation

1. Social Capital

Information with a cutoff date of December 31st, 2017.

9www.grupoargos.com

FONDODO DE PENSIONESOBLIGATORIAS PROTECCIONMODERADO

FONDO DE PENSIONESOBLIGATORIAS PORVENIRMODERADO

HARBOR INTERNATIONALFUND

FONDO DE PENSIONESOBLIGATORIAS COLFONDOSMODERADO

FONDO BURSÁTILISHARES COLCAP

FONDO DE CESANTÍASPORVENIR

RUEDA GÓMEZ SAMUEL

VOL-MODER FONDDE PENSIONES PROTECCIÓN

FONDO DE PENSIONESOBLIGATORIAS PROTECCIÓNRETIRO

46.678.528

45.060.229

12.490.019

12.247.784

7.425.747

4.797.689

4.485.865

4.331.076

4.246.001

22,04%

21,27%

5,90%

5,78%

3,51%

2,26%

2,12%

2,04%

2,00%

Shareholder's Name Shares Percentage of participation

2.2. Shares with Preferential Dividend and without the Right to Vote

Information with a cutoff date of December 31st, 2017.


3. Types of relationships, such as family, commercial, contractual or of corporate nature, that exist between the significant shareholders and the company, or amongst significant shareholders themselves.

4. Negotiations that the members of the Board of Directors, from the Senior Management, and other Administrators, have performed with the shares and other securities issued by the company

Grupo Argos does not have direct commercial or contractual relationships with any of the signi�cant shareholders in their capital. Grupo Argos directly and indirectly holds 35.9% of Grupo de Inversiones Sura S.A. and 9.83% of Grupo Nutresa S.A. and shares some members of the Board of Directors.

Additionally, the company has commercial relationships with some of the companies from Grupo de Inversiones Sura S.A. and Grupo Nutresa S.A., which is developed under market conditions.

The following employees of the Company participate in the Boards of Directors of Grupo Sura S.A. and Grupo Nutresa S.A.

During 2017 there were no negotiations of this nature.

5. Summary of the agreements between shareholders that have been disclosed

Currently, the company has not been noti�ed of any agreement signed by shareholders.

6. Shares held by the company and shares issued during the period

During 2017, no new shares were issued. As indicated previously, the company has 5,702,432 reacquired shares.

Jorge Mario Velasquez

Alejandro Piedrahita

Maria Clara Aristizabal

Rol inGrupo Argos

Board of Directors they belong to

Name

Business Director of Urban Development

CEO

Corporate Finance Vice President

Grupo Sura S.A.

Grupo Sura S.A.

Grupo Nutresa S.A.

11www.grupoargos.com

Administration StructureIII.

© Fondo de Agua de Cartagena

Conservation work with fishermen's associations

allows quality care of water in the Canal del Dique.


The Grupo Argos Board of Directors consists of seven members, all of them are main members, �ve of them comply with the independence criteria established both in Colombian law as well as in the Code of Good Corporate Governance. None of the Board members is employed by the company.

The Board is chaired by Rosario Cordoba, an independent member of this board.

This committee is made up of 3 Independent Board Members, who have accounting and �nancial knowledge. Among the members of the committee there must be at least one with experience in corporate �nance matters and / or matters related to the design and implementation of internal control systems. The main purpose of the committee is to assess the accounting procedures, the management of the relationship with the Statutory Auditor and the supervision of the effectiveness of the control structure and the risk management system.

1. Structure of the Board of Directors and its Support Committees

RoleNameDate they were named for the first time

Rosario Cordoba

David Bojanini Garcia

Carlos Ignacio Gallego Palacio

Mario Scarpetta Gnecco

Ana Cristina Arango Uribe

Jorge Uribe

Armando Montenegro

Independent Member and Chair of the Board of Directors

Patrimonial Member

Patrimonial Member

Independent Member

Independent Member

Independent Member

Independent Member

March 23, 2011

March 20, 2004

March 26, 2014

March 29, 2006

March 25, 2009

March 25, 2015

March 25, 2015

The Board of Directors has three committees to support its work, made up of Independent or Patrimonial Members and chaired by an Independent Member. For members to be nominated, their pro�les, knowledge and professional experience is taken into account, and it is related to the purpose of each Committee. In addition, some of the company's senior management of�cers are part of the Committees, with a saying but without a vote.

1.1. Audit, Finance and Risk Committee


This committee is made up of 3 members of the Board, at least one member must be an Independent Member. The members must know about strategy, human resources and / or matters related to wage policies and related topics. The main goal of this committee is to support the Board of Directors in the execution of the functions associated with the matters of appointing and remunerating the members of the Board of Directors and Senior Management.

Likewise, the Chairman of the company, the Vice President of Corporate Finance, the Internal Auditor and the Fiscal Auditor take part in this committee.

1.2. Appointment and Remuneration Committee

Members of the committee:

Likewise, the Vice President of Human Resources and Administrative Management take part in this committee.

Committee President and Independent Member

Jorge Uribe Rosario Cordoba David Bojanini

Chair of the Board and Independent Member

Patrimonial Member


Armando Montenegro Rosario Cordoba Ana Cristina Arango


Independent Member



This committee is made up of three members of the Board, at least one member must be an Independent Member. The main goal of the committee is to assist the Board of Directors in its function of proposing and supervising Sustainability measures And company Corporate Governance.


Likewise, the Chairman of the company and the Vice President of Corporate Affairs take part in the committee. The details of the functions of the Board of Directors and the support committees, as well as, the resumes of the members of the Board of Directors can be found on the Grupo Argos website.

During 2017 there were no changes in the Grupo Argos Board of Directors.

1.3. Sustainability and Corporate Governance Committee


Mario Scarpetta Rosario Cordoba Carlos Ignacio Gallego


Patrimonial Member

2. Changes in the Board of Directors while in effect

Within the Board of Directors of the Grupo Argos subsidiaries there are no members of the Board of Directors from the parent company, nor do they occupy executive positions in those companies.

3. Members of the Board of Directors of the Holding that make up the Boards of Directors of the Subsidiaries or that hold executive positions in them

In aims of the commitment to maintain the highest standards in corporate governance, during the month of March 2017, the Shareholder’s General Assembly approved the Appointment, Remuneration and Succession of the Board of Directors Policy which complements the established in both the Social Bylaws and the Code of Good Corporate Governance.

4. Policies approved by the Board of Directors during the period

Likewise, in the development of what is established in both the Good Governance Code and in the Relationship Policy between related companies of the Grupo Argos Business Group. During the month of December the Board of Directors approved the Operations Management Policy for Related Companies.

In January 2018, in aims of transparency and the appropriate understanding of the company’s �nancial statements the Board approved modifying the policy of subsequent measurement for the Plant and Equipment Properties, in the category of Administrative Use buildings, moving from the cost model to the revaluation model, with applicability every 4 years, being 2017 the �rst year of the fair value and review its market value.

© Ecoral

The Jacquinia Armillaris, which has great landscape importance in Baru, is one of the protected

species in our project of sustainable development.


The basic principles, the general and particular competences, and the limitations of the candidates to join the Grupo Argos Board of Directors, are included in the Company Statutes, in the Code of Good Corporate Governance and in the Appointment, Remuneration and Succession of the Board of Directors Policy.

The Shareholder’s elect the Board of Directors in the General Assembly, bearing in mind the following:

5. Nomination process for the members of the Board of Directors

Directors cannot be over the age of 72 and they must have: (i) experience participating in boards of directors, (ii) some professional specialization that is relevant to the activity that the company performs, (iii) basic skills that allows them to perform the functions appropriately, for instance: analytical and management skills, a strategic vision of businesses, objectivity and the capacity to express a personal point of view, and the ability to evaluate superior managerial tables, (iv) ability to understand and question �nancial information and business proposals and work in an international environment.

In addition to basic skills, each board member must have other speci�c competences, which can allow them to contribute, in one or more ways, their special knowledge of the industry like �nancial and risk, business legal issues, commercial issues and crisis management.

The Directors may be (i) Executive Members, persons linked to the company by employment, (ii) Independent Members, persons who prove compliance with the requirements established in subparagraph E numeral 4 of Chapter III of the Code of Good Governance, or (iii) Patrimonial Members, persons who do

not have the status of Independent Members and are signi�cant Shareholders of the company or persons solely nominated by a signi�cant Shareholder or group of Signi�cant Shareholders.

When integrating the Board of Directors, there will be a tendency to have Independent Directors with experience in corporate �nance and / or internal control, who must be nominated to be part of the Audit Committee.

At least 50% of the Directors elected for a speci�c period must comply with the requirements to be considered as independent members, and they must declare so at the time of that they accept their inclusion. Independent Members will lose their status when they have maintained such condition for three consecutive periods. It should be noted that currently 5 of the 7 members meet the requirements to be considered independent.


Additionally, it is established that the candidates who are in any of the following circumstances are considered inadmissible to be a Director:

Candidates who directly or through an interposed person participate in activities that involve competition for the Company or any of its subsidiaries or in acts where there is a con�ict of interest.

Candidates who are employees or partners or spouses or have a relationship of kinship up to the third degree of consanguinity, second of af�nity or �rst civil company with litigious counterparts of the Company or any of its subsidiaries, or employees or partners of litigious counterparts of the Company or any of its subsidiaries.

Candidates who at the time of the election have the status of member of the Board of Directors in �ve (5) corporations, unless they solely express their intention to resign in case of being elected.

Candidates who, if elected, would make a majority within the Board with persons they are bound by marriage, or by kinship within the third degree of consanguinity or second of af�nity or �rst civil.

The procedure for the election is the following:

Prior to the calling, the Shareholders will be informed through the company's website about the professional pro�les that, according to the assessment done by the Appointment and Remuneration Committee, is recommended for the candidates.

The proposals for the election of members of the Board of Directors must be presented by the Shareholders at least 5 business days before the date set for the Shareholders’ General Assembly where the election will be held.

In order to ensure that the pro�le of the Directors proposed by the Shareholders conforms to the criteria indicated in the Code of Good Governance, the Appointment and Remuneration Committee is responsible for evaluating, and before the respective Shareholders' Meeting must issue their concept about the proposals presented. This concept will be published on the company's website.

For the election, the electoral quotient system and other aspects established in the Bylaws and law will be applied.


6. Remuneration policy of the Board of Directors

The remuneration of the Directors is set by the Shareholders' Meeting, according to the structure, obligations and responsibilities of the Board, as well as the personal and professional qualities, the time invested and the experience of the members.

The Directors receive a remuneration composed of the following elements for their services:

Additionally, when appropriate, the Appointment and Remuneration Committee will submit to consideration, during the Shareholders’ Assembly, a remuneration scheme, where the Directors receive as part of their compensation for their services, company shares or of the subsidiaries.

A �xed monthly fee that will be determined each year by the Shareholders’ in the Assembly.

A �xed fee for each session of the committees supporting the Board where they are members.

In no case may this remuneration imply that any of the Directors may hold more than 1% of the outstanding shares of the Company or its subsidiaries.

In the event that the implementation of a remuneration scheme such as the one described is chosen, the applicable methodology for its determination must be measurable in an objective manner and therefore susceptible to be audited, and must be disclosed on the Company's website.

In the event that an Executive Member participates in the Board, they will not receive additional remuneration for in their condition of Director.

The Chairman of the Board, subject to the decision at Shareholders' Meeting, may have a higher remuneration than the other Directors in consideration of the fact that he/she performs additional functions.


7. Remuneration of the Board of Directors and members of Senior Management

As approved at the regular Shareholders’ General Assembly in 2017, between April 2017 and March 2018 two monthly fees of COP 6.9 million were paid to the members of the Board of Directors. In addition, they received as a fee, COP 6.9 million for their participation in the different support committees of the Board of Directors.

In regard to the remuneration of the members of Senior Management, this is disclosed in greater detail with the data provided, in accordance with Article 446 of the Commercial Code, this information is part of the �nancial statements and can be seen on the company's website.

© Esteban Alzate

The banana tree frog is a species whose habitat is found in areas that are part of our programs of

conservation in Sucre and Bolivar.


8. Attendance data for the Board of Directors meetings

8.1. Number and type of meetings held

8.2. Attendance

Onsite

Offsite

12

3

Type of Meetings Number of Meetings

Total Meetings 15

Percentage of attendance

Average Percentage of attendance

97,63%

Member of the Board of Directors

Rosario Cordoba Garces

David Bojanini Garcia

Carlos Ignacio Gallego Palacio

Mario Scarpetta Gnecco

Ana Cristina Arango Uribe

Jorge Uribe Lopez

Armando Montenegro Trujillo

91,7%

100,0%

100,0%

91,7%

100,0%

100,0%

100,0%


Allow the Board of Directors to establish and ef�ciently implement the strategic direction of company.

Coordinate and plan the functions of the Board of Directors through the establishment of an annual work plan based on the assigned duties.

Conduct the convening of the meetings, directly or through the Secretary of the Board of Directors.

Prepare the agenda of the meetings, in coordination with the CEO of the company and the Secretary of the Board of Directors.

Ensure the delivery, in a timely manner, of the information to the members of the Board of Directors, directly or through the Secretary of the Board of Directors.

Preside over the meetings and mediate in the debates.

Ensure the implementation of the agreements of the Board of Directors and follow up on their orders and decisions. Monitor the active participation of the members of the Board of Directors.

Lead the annual assessment process of the Board of Directors and the Committees, except his/her own assessment.

The Chair of the Board of Directors is in charge of following duties:

9. Chair of the Board of Directors

In accordance with the established in the Code of Good Corporate Governance, only one of its members who has the status of Independent Member can be elected and serve as Chairman of the Board of Directors.

Rosario Cordoba Garces is currently serving as Chairman of the Board.


According to what is established in the Bylaws, the Secretary General will be a high level employee of the company, appointed by the Board of Directors at the proposal of the Chairman of the company and with a prior concept of the Appointment and Remuneration Committee.

Camilo Abello, Vice President of Corporate Affairs is Currently acting as Secretary General.

The Code of Good Corporate Governance states that the duties of the Secretary General, in addition to those established by law, the Bylaws, the Board of Directors, the President of the company and other regulations or internal codes, are as follows:

Keep the company documentation, strictly re�ecting in the minute books, the development of the sessions, and attest to the agreements of the Board.

Ensure that the actions of the Board of Directors comply with applicable standards and ensure that its governance procedures and rules are respected and regularly reviewed, in accordance with the established in the Bylaws and other internal regulations of the company.

Process con�icts of interest that arise in the company and that should be reported to the Board of Directors.

Inform the Board of Directors about the registration system of actions andcontrol situations in the company.

Provide legal advice to the Board of Directors and report on matters of material importance for the activity of company and the management of the Administrators.

Communicate the decisions of the Board of Directors to the different departments and company of�cials.

Ful�ll the functions delegated by the Board of Directors.

10. Secretary of the Board of Directors


During 2017, the Statutory Auditor was present at all the meetings that took place for the Audit, Finance and Risks Committee.

Additionally, it is noteworthy that the company has a Corporate Controller who, in addition to being responsible for the design and monitoring of the Risk Management System of the entire business group, maintains permanent contact with the Statutory Auditor to address concerns and act as a facilitator of communication between the Statutory Auditor and the Company.

11. Relationships of the Board of Directors with the Fiscal Auditor, financial analysts, investment banks and rating agencies of the year in effect

12. External advice received by the Board of Directors

During 2017, meetings were scheduled with experts in each of the sectors where the company has its main investments, so in May the Real Estate Business Manager delivered a detailed presentation of the behavior of the real estate market in the city of Barranquilla; in June JP Morgan presented the behavior of the cement market in the world and especially in the countries where Cementos Argos is present and in November Credit Suisse presented the behavior and future expectations of the energy sector.

13. Information Management of the Board of Directors

In order to guarantee a �owing, timely and con�dential communication channel, as of 2014 there is a special application (app) where information is shared with the members of the Board of Directors. However, due to new developments and facilities in 2017, a site was developed on the Company's intranet. And as of 2018 it will replace the aforementioned application. This site is more user-friendly. This channel is con�dential and exclusively for Board members and Senior Management, and allows to store and share all the information necessary for the development of the functions of the members of the Board of Directors.


The meetings of the three Board Support Committees were attended 100% by its members.

In addition to the recurring topics, such as the approval of the �nancial statements to be disclosed and the review of the audit reports, the main topics discussed in the sessions held during 2017 were the following:

The the following were the main topics discussed in the meetings held in 2017:

14. Attendance data and activities of the Board of Directors Committees

14.2. Sustainability and Corporate Governance Committee:

14.1. Audit, Finance and Risk Committee:

Detailed analysis of quarterly �nancial statements.

Establishment of the pro�t distribution proposal.

Assessment of compliance and progress of internal audit activities.

Assessment of compliance and progress of internal control activities, risks and audit.

Approval of the Audit Plan 2017 - 2018.

Assessment of the progress made in the Sustainability Action Plan 2017, and de�nition of the 2018 challenges.

De�nition of the performance appraisal form for the Board of Directors.

Establishment of the proposal policy for Operations Management between related companies.


The main topics discussed at the meetings held in 2017 were the following:

14.3. Appointment and Remuneration Committee:

PRO Proposal 2017 Approval.

Design of the proposal for the compensation Model.

Proposal for the Establishment of the Appointment, Remuneration and Succession of the Board of Directors Policy.

De�nition of the scheme for identifying key human capital in the organization.

De�nition of the performance appraisal scheme for the CEO of thecompanies.

Due to the fact that Grupo Argos, being it the holding company for the Grupo Argos Business Group, is responsible for maintaining an active participation in the management of companies where their main investments are concentrated. This is, Cementos Argos S.A., Celsia S.A. E.S.P and Odinsa S.A. In addition to participating in the corresponding Boards of Directors, the Strategy Committees have been created so that the representatives of the Senior Management of Grupo Argos and the corresponding company take part.

On the other hand, in order to maintain the unity of purpose and total coherence in a harmonized management of the

15. Other procedures of interaction

companies, there are Topic Committees (Sustainability and Corporate Governance, Financial, Human Resources) made up of the Vice Presidents in charge of each of these matters, both in the holding company and in the Subsidiaries. In these Committees, the direction to be given to each topic is discussed and the recommendations of procedures or improvements that are created should be implemented within the companies.

Additionally, there are transversal committees made up of people from different levels of the different companies whose purpose is to arrange positions in topics such as sustainability, audit, risks, accounting and others alike.


16. Information on the execution of the assessment processes of the Board of Directors and Senior Management, as well as a summary of the results

The Board of Directors is annually assessed, alternating external evaluations with self-evaluations. The external evaluation is performed by an independent external �rm which is selected by the Sustainability and Corporate Governance Committee. This assessment contemplates both quantitative aspects as well as qualitative ones, and is the basis for adopting corrections or modi�cations as well as to establish the member training plan.

The Code of Good Governance establishes that: (i) the summary report along with the conclusions of the evaluations will be published in the company’s website, (ii) the evaluation scheme is intended to analyze the reasonableness of the internal standards, as well as the dedication and performance of the Directors and (iii) the regular Shareholders' General Assembly must be informed by the Administration about the operation and the main activities developed by the Board of Directors, the Board Committees and the Presidency of the company during the last period.

During 2017, the Board of Directors carried out their performance appraisal. Copy of the results report of the assessment will be published on the company's website.


IV.IV. Operations with related partiesIV.

© Sergio Chaparro

The Blue horn sapphire is one of the 30 species of birds identi�ed in our ecological restauration areas in the Caribbean region.

In accordance with the established in the Bylaws, one of the functions of the Board of Directors is to authorize transactions with related parties, when this is the case.

For its part, the Code of Good Governance establishes as one of the main functions of the Audit, Finance and Risk Committee, among others: (i) to know about and recommend to the Board of Directors the approval of perations that the company carries out with Related Parties, Signi�cant Shareholders or with members of the Board of Directors, Directors of the company or with Related Parties of any of the foregoing when they have Material Impact, are outside the ordinary course of business or are in other conditions different to the usual market conditions and ( ii) evaluate and report to the Board of Directors any potential con�icts of interest that may arise between the company and its Related Parties or between related companies, and propose mechanisms to manage the situation.

In 2015, Grupo Argos developed, along with its subsidiaries, the Relationship Policy for Related Companies with the Grupo Argos Business Group. An explicit declaration is made of the uni�ed purpose that should guide the actions of all the companies that make up the business group and whose purpose is the establishment of the rules and principles to be observed by the companies that are part of the Grupo Argos Business Group, its Directors, Administrators and Employees in their economic, legal, administrative and operational relationships.

1. Rights of the Board of Directors regarding this type of operations and situations of conflicts of interest

In the Operations Management with Related Companies Policy (OMRCP), approved in December 2017, it is established that to carry out Operations between Related Companies, the following procedure should be followed:

When two Related Companies intend to develop any type of Operation, they must analyze if it is a Material Operation or Non-Material Operation, according to the de�nitions established in the OMRCP.

If it is a Non-Material Operation, the Companies can negotiate it, and execute it freely and subsequently, the Audit, Finance and Risks Committees are informed of its conclusion.

If it is a Material Operation or there is doubt as to whether it is or not, the Presidents of the corresponding Companies must inform it in a sustained manner to their Audit, Finance and Risks Committees and it can only be held after complying with the procedure described below.


The Board of Directors of each of the Related Companies must analyze the report prepared by its Audit, Finance and Risks committee, and decide on the approval of the Material Operation that was submitted to their consideration.

The Audit, Finance and Risks Committees should analyze the Material Operation and prepare a report addressed to the corresponding Board of Directors indicating, at least, the following:

The Related Companies that, directly or indirectly, intend to contract with each other.

Cost of the Operation Determining whether or not it is within market conditions and if it is or is not a High Incident Material Operation.

Possible effects of carrying out the Material Operation and that may be contrary to equal treatment due shareholders.

The generation of value for the Companies.

Recommendations for the Board of Directors as to whether it should be carried out or not.

Results of the external evaluation in case it has been requested.

If any of the members of the respective Board of Directors is an Interested Person, he/she will be prevented from participating in the deliberation and decision, and therefore, cannot be called on to the respective meeting and, if they have been called on, they must withdraw from the meeting before the Material Operation is submitted tor consideration.

The Board of Directors, in its analysis of the Material Operation, will determine who is the of�cer of each of the Companies in charge of annually reviewing the terms of the Material Operation when Transaction is an ongoing contract or has a term greater than 5 years.



The approval of the Material Operation must have a favorable vote from all Independent Members of the Board of Directors, when they are enough to integrate the quorum and the legal and bylaw decision-making majority.

In the event that the Independent Members are not enough to integrate the quorum or to validly make the decision, in order to prevent the decision from being made by Interested people, the Board of Directors, after meeting with the legal quorum and statutorily, will vote unanimously on the decision, as unanimously indicated by the Independent Members.

Once the Boards of Directors approve the Material Operation, the Related Companies may carry out and execute the Material Operation, as well as all acts, operations and contracts required for it.

On the other hand, the Code of Conduct of Grupo Argos, which was approved by the Board of Directors, establishes the parameters for the identi�cation, disclosure and prevention of potential con�icts of interest. As established by this code, before the identifying of a con�ict of interest or a situation that may eventually generate a con�ict of interest, company of�cials must make a timely and appropriate disclosure, describing the situation in a complete and detailed manner, documenting the event and supplying all the information that is relevant to the taking the respective decision. For purposes of the disclosure of Con�ict of interest, the company requires that all its employees annually complete a Declaration form of Potential Sources of Con�icts of Interest. In the event that the issue is present during two annual declaration periods, it must be informed to the Business Conduct Of�cer, through the established forms. The of�cer then will make a decision based on the parameters that are established the Business Conduct Committee. If on the contrary it is beyond the parameters, it will be taken to the Business Conduct Committee. The Con�icts of Interest will be settled by following principles: when the interests of the Grupo Argos Business Group, Shareholders, Administrators or a third party linked to it are affected. The interest of the Grupo Argos Business Group will always prevail. Whenever the interests of Shareholders, its Administrators or a third party linked come into con�ict, the interest of the Shareholders will prevail.


© Rodrigo Duran Bahamon Alliance for the Conservation of Biodiversity, Territory and Culture

We work with National Parks and other organizations to protect the diversity of eight ecosystems in the country.


Details of the operations with the most relevant Related Parties according to the company, including inter-company transactions of the Conglomerate

The details of the operations carried out between the companies of the Grupo Argos Business Group is included in the Special Report made under Article 29 of the Law 222 of 1995, which is part of the documentation that is available for the shareholders during the right of inspection, and will be delivered to shareholders with the assembly documentation.

During 2017, there were no con�ict of interest from the Members of the Board of Directors.

2.

Procedures to solve conflicts of interest between companies from the same Conglomerate and its implementation during the year

In the Relationship Policy established for Related Companies of the Grupo Argos Business Group, some general parameters have been set in aims of managing the operations between these companies. As mentioned before, during the month of December the aforementioned guidelines were approved.

In 2017, before the approval of the Operations Management Policy between Related Companies, anoperation was carried out where Celsia S.A. E.S.P. (Celsia) made the decision to issue regular shares, among other things to acquire, through a Public Bid, up to 14% of the outstanding shares of EPSA S.A. E.S.P. Grupo Argos owns 11% of this company’s shares.

In order to prevent any con�icts of interest the following measures were implemented:

4.

Conflicts of interest and actions of the members of the Board of Directors

3.

The price of the regular shares was determined in a meeting where only Independent Members of the Board of Directors of Celsia participated. The price was set based on a methodology that used the average price of the shares in the stock market.

The decision to participate and buy the shares was made by the Grupo Argos Board of Directors with a favorable vote of all Independent Members which make up the majority.


The price of the takeover bid for EPSA ordinary shares was determined at a meeting where only the Independent Members of the Celsia Board of Directors participated. Celsia was advised by Itau, an independent investment bank of recognized prestige.

The Grupo Argos Board of Directors ordered the hiring of independent investment banks in order to establish whether the price of the Share Bid proposed by Celsia to acquire the EPSA shares was appropriate to the interests of Grupo Argos and its shareholders.

The decision to participate as a seller in the Public Bid will be adopted by the Grupo Argos Board of Directors with a favorable vote of all the Independent Members which make up majority, therefore the recommendations made by the independent bankers will be taken into account.

© Savia Botánica collection

This orchid is part of the Savia Botánica collection. We have distributed more than 10,000 books to libraries and public schools in Colombia.


© Julie Larsen

Thanks to the Life Conservation program, the Andean bear can move freely for more than 11,000 square kilometers.

Risk Management SystemV.


The Grupo Argos Internal Control System is supported by a solid structure made up by the Audit, Finance and Risks Committee, Internal Audit, the Compliance Management, the Statutory Auditor and the Risks department. Additionally, in 2015, the Grupo Argos Corporate General Controller was created, in aims of strengthening the Internal Control System, and through the design and in coordination with Related Companies that make up the Control Structure.

The Board of Directors has in its best interests to have of a solid environment of control for the Business Group, where standardization is sought out based on the internal control system, thus, promoting a culture of risk prevention with reporting lines clearly established.

One of the roles of Audit and Finance Committee is to support the Board of Directors in supervising the effectiveness of different components of the Control Structure applicable to the business group. Likewise, it is in charge of supervising the compliance regulatory function

ef�ciency and the prevention of money laundering and terrorism �nancing activities.

On the other hand, Internal Audit, through the development of its independent activity is responsible for assessing the quality and effectiveness of the system of control in an objective manner and provide consulting and advice to add value in the execution of the operations of the company. In order to guarantee its independence, Internal Audit directly reports to the Audit, Finance and Risks Committee.

Explanation of the Internal Control System (ICS) and its modifications during the year

1.


The Compliance Department is responsible for promoting the design of procedures aimed at ensuring the ful�llment of all the rules applicable to the company, proposing the policies that favor the adequate compliance with the precepts of business conduct, designing the training sessions related to the competition issues, as well as elaborate and monitor the matrix of the risks associated to their work.

In the Risk Area, the risk matrix is consolidated and the risks that can affect the achievement of the strategic goals of the conglomerate are monitored. The Integral Risk Management covers all types of risks, including social, environmental and economic. As a fundamental part of the strategy and vision of the company in sustainability, Grupo Argos supervises the status of the principal risks of its subsidiaries through the Audit, Finance, and Risk Committee on a quarterly basis.

The Grupo Argos Statutory Auditor belongs to a prestigious internationally recognized �rm. The �rm was designated by the Shareholders’ General Assembly. In order to guarantee its independence, it is prohibited for the Statutory Auditor to perform or provide services different to those of its role for the companies of the Conglomerate. During the year 2016, the Statutory Auditor did not identify incompatibilities or disabilities provided by law.

The Code of Good Governance establishes that the contract between the company and the Statutory Auditor must indicate that in the event of back to back reelections, the maximum term of the contract will be 10 years and the designated natural persons to exercise the position of principal and substitute should be changed at least every 5 years. Those people can only go back to performing as Grupo Argos Statutory Auditors after at least 2 years have passed since they were in that role.


Description of the risk policy and its applicability during the year,and the response and supervision plans for the main risks

2.

Grupo Argos has a Comprehensive Risk Management Model that includes an integral analysis of the subsidiaries’ performance and the sectors in which they participate. During 2016, this model continued in order to de�ne the corporate risk pro�le, strengthen the system based on the challenges of Grupo Argos as a matrix, consolidate the corporate risk map and the actions that allow to evaluate its management and follow-up.

The risk policy is uni�ed for the entire business group and is complemented with a series of complementary policies and guidelines that seek to frame the strategy, projects and processes, within the best government, corporate and sustainability standards. The risk strategy proposed for the organization contains 4 fundamental pillars: government, culture, methodology (best practices) and information technology. Each of these elements is the basis for the analysis of risks for further treatment.

Risk culture is a fundamental pillar within the adopted model and it is the fundamental premise to ensure that Risk management works as a dynamic model in the company. The risk culture strategy, called "being aware is taking reliable steps", seeks to promote the recognition of the risk factors that affect the strategy, the projects, the processes and the facilities in the different levels of the organization. This campaign is complemented with trainings sessions, internal methodologies for evaluation and delegation of risks and with surveys of maturity and risk culture.


Shareholders' General AssemblyVI.

© Sergio Chaparro

The work that Grupo Argos carries out along with other allies from different

sectors has laid the groundwork to protect more than two million hectares in Colombia.


Differences in the functions of the Assembly between the minimum regime and the current regulations that are defined by the Statutes and Regulations of the Company’s Assembly

1.

The following are the best-established practices in the different corporate documents of Grupo Argos. These have been implemented by the company to ensure greater transparency and respect for the rights of shareholders in the Development of the Shareholders’ General Assembly:

The summon for the regular meetings is done in advance, no less than 30 calendar days and for extraordinary meetings in advance and no less than 15 calendar days.

In no case will there be a calling with bullet points such as "Miscellaneous" or "Other Business" or similar, which could prevent someone from accurately knowing all of the topics to be developed in the respective meeting. This does not prevent that point from being included so that the shareholders may present any proposals that they consider important.

During the summon term, Shareholders can visit the website, and the company’s administration of�ces for the documents related to the Assembly, including the minutes of the previous meeting. During the same term, upon express and written request from any shareholder,

a copy of the documents that speci�cally indicated in the request can be consulted anywhere the company has administrative of�ces.

When in a meeting, and the election of members of the Board of Directors is anticipated, the information available to shareholders must include the proposal of candidates to integrate the Board. For such effect, shareholders must send their proposals to join the Board in advance no less than �ve business days to the date of the meeting. The proposal for being part of the Board of Directors must include a copy of the resumes of the members, as well as the Declaration of Independence form subscribed by the people who have such a character and the Declaration of Con�icts of Interest form.


In the event that the Assembly intends to deal with a substantial company purpose change, it will forfeit the right to preference in the subscription of regular shares. The change of registered address, early dissolution or segregation of the company, such matters have to be indicated expressly in the summon. Additionally, in these events it is permitted the right to withdraw on the same terms and conditions that are established in the law for events such as mergers and divergence.

During the summon period subsidiary �nancial information must be available to the Shareholders.

In order to encourage active and enriching communication with shareholders, the company has been advancing on several strategies for several years to know its shareholders. Within these strategies, the CRM platform (a computer system to support the management of customer relationship or some interest group) has been implemented. We now count on a systematic management and administration of the shareholders’ data. Likewise, and as established in the Dialogue System with Stakeholders of the company, during the month of November several focus group sessions were held with different interest groups, such as the company shareholders. These sessions are spaces that allow to establish effective communication channels with different interest groups, in search of knowing their main interests and needs.

Measures taken during the year to encourage the participation of the shareholders

2.

The company provides electronic means for the shareholders during the meeting so that those shareholders who cannot attend have knowledge of what is happening in the meeting in real time.


Information to shareholders and communication with them

3.

The channels used by Grupo Argos to communicate with its shareholders and deliver information are:

Website: www.grupoargos.com.

Fiduciary Shareholder Service Center Bancolombia, on phones: + (57 4) 404 2371, + (57 4) 404 2362, + (57 4) 404 2453, + (57 4) 404 2451, + (57 4) 404 2452.

Investor Relationship Of�ce, which is administered by the Corporate Finance Vice President ([email protected]) and the Director of Investor Relations ([email protected]).

Website of the Financial Superintendency Agency where relevant Information is disclosed to the market: www.super�nanciera.gov.co.

© Ecoral


Number of petitions and issues where shareholders have requested information from the company

4.1. First Semester 2017

4.

Petition

Tax Certificates

Change of deposit

Novelty on dividend payment

General Certificate

Electronic transfer

Novelty on information update

Forewarning measure

Petition rights

Record certificates

771

46

24

20

5

3

2

2

1

Total

Petition

Phone calls

Office customer service visits

25

7

Quantity

Total Shareholders petitions 874

Total shareholders received 32


Petition

Tax Certificates

Change of deposit

General Certificate

Novelty on dividend payment

Record certificates

Electronic transfer

Novelty on information update

312

35

29

13

13

10

8

Total

Total processes 420

Petition

Phone calls

Office customer service visits

58

24

Quantity

Total shareholders received 82

4.2. Second semester 2017


Shareholders’ General Assembly attendance data

Below is the most relevant data presented regarding attendance to the regular Shareholder’s Assembly meeting in 2016:

During the regular Shareholders’ General Assembly meeting, which took place in 2017, the following topics were approved:

The minutes of the regular Shareholders’ General Assembly meeting of 2017 may be accessed during the right of inspection term on the company's website.

5.

Detail of the main agreements6.

Represented shareholders

Attendees

Represented shares

Active shares

Percentage of represented shares

728

278

558.089.078

645.400.000

86,47%

2017 Regular Shareholders' meeting for Grupo Argos S.A. Shareholders

The Financial Statements with a cutoff date of December 31, 2016.

The Board of Directors and the Chair's Management Report.

Presentation of the Fiscal Reviewer's Report.

Pro�t Distribution Project.

The remuneration for the Board of Directors.

The remuneration for the Statutory Auditor.

Apportionment for social bene�t.

Statute reform.

The Appointment, Remuneration and Board Succession Policy.

ANNUAL CORPORATE GOVERNANCE REPORT - 2017

GRUPO ARGOS S.A.

annual corporate governance report 2017 · directors succession policy was shared with the...

Documents