Corporate governance and ethics

Corporate governance

Our corporate governance acts perennially and sustainably, with ethics, transparency, equity, accountability to society and corporate responsibility. This is done in accordance with policies developed jointly with Eletrobras, all in accordance with Law No. 13,303, Decree No. 8,945, and the Rules of the B3 (Brasil, Bolsa, Balcão) Program in State Governance. We follow the best practices of corporate governance, among which we highlight:

• Board of Directors composed of 28.5% of independent members;
• Permanent Fiscal Council, with competences and performance defined in Internal Regulations and compliant to legal requirements;
• members of Eletrobras’ Board of Executive Officers participating in the Board of Directors;
• adoption of a single Code of Ethical Conduct and Conduct by all Eletrobras companies;
• different channels of communication for receiving complaints and/or denouncements;
• Directors and Fiscal Council members subject to the evaluation of the requirements and prohibitions set forth in Law No. 13,303/2016 and Decree No. 8,945/2016;
• committees to support the Board of Directors, the Audit and Statutory Risks Committee and the People Management and Eligibility Committee; and
• annual evaluation of the members of the Board of Directors, Board of Executive Officers and the Fiscal Council.

Corporate governance structure

Leadership selection and development

The selection process for the members of the Board of Directors respects the guidelines set forth in the Chesf Bylaws, and the election is the responsibility of Eletrobras, the controlling shareholder and holder of 100% of the common shares, entitled to vote. The exception is the member representing the employees, chosen by direct vote of their peers among the active employees and in an election organized by Chesf together with the representative union entities.

The administrators and Fiscal Council members are evaluated annually by a consulting firm hired by Eletrobras through an online questionnaire for self-assessment and evaluation of the board, a face-to-face interview to verify aspects defined based on the guidelines established by Eletrobras, including competencies, and the evaluation of results and attributions.

Business ethics and integrity

Main documents guiding ethics and integrity at Chesf:

• Code of Ethical Conduct and Integrity;
• Anti-corruption policy of Eletrobras companies;
• Conflict of Interest Management Policy of Eletrobras companies; and
• Regulation of the Eletrobras Companies Integrity Program (represents a tactical unfolding of the strategic guidelines of the Anticorruption and Conflict of Interest Management Policies).

We have adopted the Eletrobras Companies Integrity Program, also called the “Eletrobras Five Dimensions Program”, whose objective is to prevent, detect and remedy situations of fraud and corruption. The following infographic shows the composition of the Program.

We execute controls related to the Sox Certification (Sarbanes-Oxley Act), which are tested annually by internal and external audits. It is worth mentioning that, in the 2019 cycle, there were no reports of deficiencies related to the Integrity Program. We can also mention the integrity audits carried out by control agencies, such as the Office of the Comptroller General of Brazil, in a process carried out in 2019, 88% of the recommendations recorded by the agency in previous work in 2016 were considered to have been complied with and the rest is covered by action plans. Additionally, the following indicators are monitored quarterly:

• employees trained in anti-corruption policies and procedures;
• supplier due diligence;
• critical suppliers trained in fighting corruption; and
• business partners trained in fighting corruption.

Also, in 2019, we consolidated the process of evaluating the integrity of third parties, which involves:

• supplier evaluation with automation of the due diligence form application, improvement of the background check tool and improvements in integrity reports;
• evaluation of sponsorships, donations, agreements and social actions;
• evaluation of governance members (board directors and members) with the improvement of the background check tool and with a broader scope of the opinion issued by the integrity area; and
• integrity assessment in disinvestment processes.

Reporting channel and Integrity Management

Channel that can be used by anyone to report violations or suspected violations of Eletrobras’ various companies’ codes of ethical conduct and integrity, the Integrity Program and anticorruption laws. We ensure the anonymity and confidentiality of reports, as well as no retaliation against the whistleblower. The channel is available in Portuguese, English and Spanish, every day, 24 hours a day and the whistleblower can follow the progress of his or her report by means of individual protocols and passwords, which makes the process transparent and ensures that all contacts received are responded and verified. Of the 69 complaints received in 2019, 100% were processed that same year. Of these, 43 were resolved, the equivalent of 62.32%. Fifteen complaints were considered unfounded (21.74%).

We also count on the Ombudsman’s Office, a body linked to the Board of Directors that can also receive complaints in person. Our Ombudsman channel is a management tool that guides, transmits information and contributes to the continuous improvement of processes, always in accordance with ethics and current legislation. Through it, we act in an exempt manner, normally when the other access channels have already been activated, leading the proceedings to a satisfactory solution.

The management of the Citizen Information Service (SIC) is also an Ombudsman’s task. Through the SIC, demands for information of private or collective interest are received and the proper management of this system guarantees the Company’s compliance with the Access to Information Law, No. 12,527/2011, in force since 2012.