CORPORATE GOVERNANCE REPORT - Páginas · For ISA, corporate governance is the set of values, prin-ciples, policies, rules, means, practices and processes by ... there was a merger

CORPORATE GOVERNANCE REPORT

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For second consecutive year, ISA won ALAS20 award as Leading Company in Corporate Governance, in recognition of its good practices related to how the company communicates to its stakeholders, and particularly to investors, the adoption of the best practices of corporate governance, beyond legal and regulatory compliance.

For ISA, corporate governance is the set of values, prin-

ciples, policies, rules, means, practices and processes by

which it is governed, operated, and controlled, always loo-

king for corporate efficiency, promoting growth and foste-

ring investor’s reliability in national and international con-

texts. For this purpose, ISA is regulated by transparency

and coherence practices in their actions. It also obtains be-

tter funding conditions by the perception of lower risk from

creditors and investors, respects those who invest in ISA,

and fulfills commitments with its stakeholders.

By complying with the provisions of Bylaws and the

new Good Corporate Governance Code, ISA’s Board pre-

sents the corresponding report for the 2016 period, which

describes the compliance with the corporate governance

practices adopted by the Company, following the structure

recommended by Country Code.

CORPORATE GOVERNANCE REPORT

In addition, ISA conducted and remitted in a timely manner to the Financial Superin-

tendence the report of implementation of best corporate practices corresponding to

2016, which is published on the corporate website.

See Country Code detailed report

PROPERTY’S STRUCTUREISA is a Public Utility Mixed Company with state and private shareholders. The Nation,

by means of the Ministry of Finance and Public Credit is the ISA’s major shareholder

or comptroller by being the holder of 51,41% of the share capital.

Shareholders Shares %

State investors 682,078,108 61.58

The Nation 569,472,561 51.41

Empresas Públicas Medellín 112,605,547 10.17

Companies with mixed capital 18,448,050 1.67

Empresas de Energía de Bogotá 18,448,050 1.67

Private investments 407,151,736 36.76

Institutional 240,925,173 21.75

Foreign investment funds 92,307,506 8.33

Natural persons 56,364,266 5.09

Legal persons 17,222,241 1.55

ISA ADR Program 332,550 0.03

Subscribed and paid-up outstanding capital 1,107,677,894 100

→ Shareholder structure (Dec 31 -2016)

Corporate Governance Report /16

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SHARE CAPITAL

Authorized capitalCOP 45,000,000,000 divided into 1,371,951,219 shares.

Subscribed capitalCOP 36,916,334,931 divided into 1,125,498,016 shares.

Paid-up capitalCOP 36,916,334,931 divided into 1,125,498,016 shares.

Repurchased sharesCOP 584,500,002 divided into 17,820,122 shares.

In the corporate website, the list of the 20 main shareholders is published.

See ISA’s shareholder structure

Structure of the corporate group’s propertyInterconexión Eléctrica S.A. E.S.P. is the parent company of ISA’s Corpora-

te Group, made up by affiliates and subsidiaries present in Colombia and

abroad, which mainly develop businesses on Energy Transmission, Road

Concession, Information Technology and Telecommunication, and Real-Ti-

me Systems Management.

→ Direct, indirect, and effective participation of ISA and its companies

SECTOR COMPANY COUNTRY ISA'S DIRECT %

INDIRECT % OF OTHER SUBSIDIARIES

ISA'S EFFECTIVE PARTICIPATION THROUGH THE SUBSIDIARY

ENERGÍA

TRANSELCA S.A. E.S.P. Colombia 100.0 0.00 100.0

RED DE ENERGIA DEL PERÚ –REP Peru 30.0 30.00 60.0 TRANSELCA S.A. E.S.P.

CONSORCIO TRANSMANTARO SA Peru 60.0 0.00 60.0

ISA PERU S.A. Peru 45.1 54.85 100.0 TRANSELCA S.A. E.S.P.

ISA BOLIVIA S.A. Bolivia51.0 48.99

100.0TRANSELCA S.A. E.S.P.

0.0 0.01 25.3

INTERLIGACAO ELETRICA NORTE E NORDESTE S.A. – IENNE Brazil 0.0 35.95 6.3 ISA CAPITAL DO BRASIL S.A.

INTERLIGACAO ELETRICA DE MINAS GERAIS S.A. – IEMG – Brazil 0.0 25.00 25.3CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELETRICA PINHEIROS S.A. - IEPINHEIROS Brazil 0.0 100.00 25.3CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELETRICA SUL S.A. - IESUL Brazil 0.0 100.00 12.7CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELETRICA DO MADEIRA S.A. - IEMADEIRA - Brazil 0.0 50.00 12.9CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELÉTRICA SERRA DO JAPI Brazil 0.0 51.00 25.3CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELÉTRICA SERRA DO JAPI Brazil 0,0 100.00 25,3CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -


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ENERGY

INTERLIGAÇÃO ELÉTRICA GARANHUNS S.A. Brazil 0.0 51.00 12.9CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

EVRECY Brazil 0.0 100.00 25.3CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELÉTRICA PARAGUAÇU S.A. Brazil 0.0 50.00 12.7CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELÉTRICA AIMORÉS S.A. Brazil 0.0 50.00 12.7CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERLIGAÇÃO ELÉTRICA ITAÚNAS S.A. Brazil 0.0 100.00 25.3CTEEP - COMPANHIA DE TRANSMISSÃO DE ENERGIA ELÉTRICA PAULISTA -

INTERCONEXIÓN ELÉCTRICA COLOMBIA-PANAMA S.A. Panama 50.0 0.0 50.0 Control compartido

INTERCONEXIÓN ELÉCTRICA COLOMBIA-PANAMA S.A.S ESP Colombia 1.2 97.66 50.0 INTERCONEXIÓN ELÉCTRICA COLOMBIA-PANAMA S.A.

EMPRESA PROPIETARIA DE LA RED S.A. - EPR Central America 11.1 0.00 11.1

INTERCHILE S.A. Chile 82.35 17.65 100.0 ISA INVERSIONES CHILE LTDA

INTERCOLOMBIA S.A. E.S.P. Colombia

99.997 0.00

100

INTERNEXA S.A.

0.00 ISA PERU S.A.

0.00 PROYECTOS DE INFRAESTRUCTURA DEL PERÚ .A.C.

0.00 INTERVIAL COLOMBIA S.A.S

FINANCIAL

ISA CAPITAL DO BRASIL S.A. Brazil 70.44 0,00 70.44

INTERNEXA PARTICIPAÇÕES S.A.Brazil 0.0 67.24

66.9INTERNEXA S.A.

0.00 INTERNEXA S.A. (PERU)ISA INVERSIONES CHILE LTDA. Chile 100.000 0.00 100.0 INTERNEXA S.A. ISA INVERSIONES MAULE Chile 100.0 0.00 100 INTERNEXA S.A.

ISA INVERSIONES TOLTEN Chile 0.00.01

100.000ISA INVERSIONES CHILE LTDA.

99.99 Intervial ChileFinanciera de Desarrollo Nacional S.A. Colombia 0.001 0.00 0.001CAMARA DE RIESGO CENTRAL DE CONTRAPARTE DE COLOMBIA S.A. -CRCC- Colombia 0.000 8.07 8.048 XM S.A. E.S.P.Linear Systems RE LTD Bermudas 100,0 100.0

TELECOMMU-NICATIONS

INTERNEXA S.A. Colombia 99.4 0.00 99.4 TRANSELCA S.A. E.S.P. INTERNEXA S.A. (PERÚ) Peru 0.0 100.00 99.4 INTERNEXA S.A.INTERNEXA CHILE S.A. Chile 0.0 99.00 98.4 INTERNEXA S.A.INTERNEXA BRASIL OPERADORA DE TELECOMUNICAÇOES S.A. Brazil 0.0 100.00 66.9 INTERNEXA PARTICIPAÇÕES S.A.

Transamerican Telecomunication S.A. (INTERNEXA ARGENTINA S.A.) Argentina0.0 99.10

99INTERNEXA S.A.

0.0 0.90 INTERNEXA PERUREDCA Central America 0.0 11.11 11.0 INTERNEXA S.A

TRANSNEXA S.A. E.M.A. Ecuador0,0 5.00

50INTERNEXA S.A.

45.00 INTERNEXA PERU

INFRASTRUC-TURE

PROYECTOS DE INFRAESTRUCTURA DEL PERU S.A.C. Peru 99.97 0.03 100.0 TRANSELCA S.A. E.S.P.


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SMART MA-NAGEMENT OF REAL-TIME SYSTEMS

XM S.A. E.S.P. Colombia 99.7 0.00 99.7DERIVEX S.A.

Colombia0.0 49.95

50XM S.A. E.S.P.

0.0 0.03 INTERNEXA S.A.Sistemas Inteligentes en Red S.A.S. Colombia 15.0 85.00 99.8 XM S.A. E.S.P.

VIAS

INTERVIAL CHILE S.A. Chile0.0 54.990

100.000ISA INVERSIONES CHILE LTDA.

45.000 ISA INVERSIONES MAULE LTDA.0.010 INTERNEXA S.A.

Ruta del Maipo Sociedad Concesionaria S.A. Chile0.0 100.000

100.000INTERVIAL CHILE S.A.

0.0 0.000 ISA Tolten

Ruta del Maule Sociedad Concesionaria S.A. Chile0.0 99.999


0.0 0.001 ISA Tolten

Ruta del Bosque Sociedad Concesionaria S.A. Chile0.0 99.991


0.0 0.009 ISA ToltenRuta de los Rios Sociedad Concesionaria S.A. Chile 0.0 75.000 75.000 INTERVIAL CHILE S.A.

Ruta de la Araucanía Sociedad Concesionaria S.A. Chile0.0 100.000


0.0 0.000 ISA ToltenINTERVIAL Colombia S.A Colombia 100.0 0.000 100.000

NOTA: From 31 March 2015, there was a merger through absorption by INTERNEXA BRASIL OPERADORA DE TELECOMUNICAÇOES S.A. regarding the following companies: ITX CAPITAL PARTICIPACOES LTDA, INTERNEXA INVESTIMENTOS GLOBAIS LTDA (NQIG), INTERNEXARJ OPERADORA DE TELECOMUNICACOES LTDA (Internexa Rio) and INTERNEXA RJ SVA LTDA (IPNET)

Information of shares belonging to Board Members and the voting rights they representNone of the Board Members is owner of ISA’s shares.

Family, commercial, contractual, or corporate relationships that exist between the holders of significant share participations and the company, or between the holders of significant share participations with respect to each otherAt the end 2016, the Inter-Administrative Contract GSA 57 of 2009 - ISA 4000763 between the

State (Ministry of Mines and Energy) and ISA, which includes technical assistance for general

administration and execution of FAZNI funds to construct the 115 kV Popayan-Guapi line and

associated substations was signed on October 13, 2009, and extended until March 31, 2017 to

reach a total value of COP 305,622 million.

Negotiations that the Board Members, Senior Managers, and other Administrators have carried out with the shares and other securities issued by the companyISA’s administrators are prohibited from negotiating, either directly or through an intermediary, Com-

pany’s shares based on speculation and, in any case, they require authorization of the Board, granted

with the favorable vote of two thirds of its members, excluding the petitioner, or the General Assembly

of Shareholders, with the favorable vote of the regular majority provided in Bylaws, excluding the

petitioner, as it is enshrined in the Code of Good Corporate Governance and Agreement 60 of 2006

of the Board. During the term, no administrator requested authorization to negotiate ISA’s shares.

Synthesis of agreements between known shareholdersThe Company has not been notified of any agreement entered into among shareholders.

Own shares held by the CompanyThe number of own shares held by ISA is 17,820,122


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ISA’S BOARD OF DIRECTORS [G4-56] [G4-38] [G4-39]

Board and Corporate Governance Board Committee and Corporate

Governance’s President Business Business Committee’s President Corporate Audit Corporate Audit Committee’s President

Independent members

→ Board’s Committees

OF INDEPENDENT MEMBERS

78%

average attendance to assemblies

96%

15

AS

SE

MB

LIES HELD DURING TH

E Y

EA

R

COP3,06 millionper meeting attended

Compensation

Santiago Montenegro Trujillo Board’s President Nominated by Pension and Severance Fund

No labor link with the company

Camilo Zea Gómez Nominated by Pension and Severance Fund

Carlos Felipe Londoño Álvarez Nominated by the Ministry of Finance and Public Credit

María Ximena Cadena Nominated by the Ministry of Finance and Public Credit

Jesús Aristizábal Guevara Nominated by Empresas Públicas de Medellin

Carlos Mario Giraldo Moreno Nominated by the Ministry of Finance and Public Credit

Carlos Caballero Argáez Nominated by the Ministry of Finance and Public Credit

Henry Medina González Nominated by ECOPETROL

Ana Milena López

Nominated by the Ministry of Finance and Public Credit


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The General Assembly of Shareholders annually elects ISA’s Board, which is

comprised of nine core members, seven of whom are independent in accor-

dance with the provisions of Law 964 of 2005 and the Good Governance Code

of the Company.

None of the board members can hold a senior position in the Company.

Also, to execute a better job as administrator of the parent company, some

Board members of ISA participate in the assemblies of subordinated compa-

nies. In addition, no employee of ISA can be a member of the Board and no

employment ties must exist between the members of the Board of Directors

and the members of the Company.

The following members of the Board hold public positions within the cen-

tral administration, and therefore, they have a relationship with the Nation, the

major shareholder of ISA:

⇢ Vice Minister General of Ministry of Finance and Public Credit.

⇢ Director of Public Credit and of the National Treasury and Ministry of Finan-

ce and Public Credit.

Description Line 1 Line 2 Line 3 Line 4 Line 5 Line 2 Line 7 Line 8 Line 9

Name Carlos Caballero Argáez

María Ximena Cadena Ordónez

Ana Milena López Rocha

Carlos Mario Giraldo Moreno

Carlos Felipe Londoño Alvaréz

Jesús Aristizábal Guevara

Henry Medina González

Santiago Montenegro Trujillo

Camilo Zea Gómez

Company where he/she works Universidad de Los Andes

Ministry of Finance and Public Credit

Ministry of Finance and Public Credit Grupo Éxito

Engineering School of Antioquia

Independent / Business Consultant

Vitol IncColombian Association of Administrators of Pension and Severance Funds

Pronus

Position Professor Vice-Minister General

Director of Public Credit and National Treasury

CEO University Presi-dent

Colombia y Desarrollo Latino América's CEO (Colombia and Latin Ameri-can Development's CEO)

CEO Partner

Seniority on the Board of Directors Since 2016 Since 2015 Since 2015 Since 2013 Since 2011 Since 1999 Since 2014 Since 2007 Since 2013

Skills and experience related to economic, environmental, and social impacts

YES YES YES YES YES YES YES YES YES

Skills and experience related to risk management YES YES YES YES YES YES YES YES YES

Participation in other Boards 4 2 3 4 6 3 4 2 3

Shareholder of an important supplier or client NO NO NO NO NO NO NO NO NO

Member or affiliate to social groups with under-representation (minorities)

NO NO NO NO NO NO

Global Council for the Res-ponsible Mineral Resource Management of the World Economic Forum

Advisory Council for Science, Technology, and innovation (Colombia) Andes University Superior Council

NO

→ Competences of ISA’s Board [G4-34] [G4-38]


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When the Board members realize that there could be a conflict of interest on a

specific topic discussed, they must disclose it and abstain from participating in

the discussion and decision. During the period, there were no conflicts.

The definition of conflict of interest is included in the Bylaws, Code of Good

Governance, and Code of Ethics. For the management of conflicts of interest

arising from Board members and other ISA’s managers, the Board approves

the procedures to adopt.

As of December 31, 2016, there were no trade links either between the Com-

pany and the Board members, their relatives to the second degree of consangui-

nity or affinity, or first civil degree, nor their spouses or permanent partner, and

legal entities in which they have participation or perform management positions.

Changes in the Board during the periodFrom April 2016 to March 2017, no changes were made to the Board of Directors.

Policies approved by the Board of Directors during the period reportedIn 2006, no new policies were approved.

Board members’ nomination processFor nominating candidates to be part of the Board of Directors and aiming at

having a balance, complementarity, and diversity, to assure a suitable per-

formance, it is assured that candidates are not under any of the inabilities or

incompatibilities set forth in the law and that they have the knowledge, experti-

se, academic background, skills, strengths, independent criteria, and enough

availability to be candidates for the board of directors. In the Succession

Policy of the Board of Directors approved by the General Assembly of Share-

holders, the principles applied to postulate the best candidates to form the

Board of Directors of ISA, as well as the knowledge and experience required to

guarantee their proper functioning and contribution to the goals, are set. The

corporate website includes the whole text.

See Succession Policy of the Board of Directors

Before the meeting of the General Assembly of Shareholders where the Board

of Directors was appointed, the corresponding proposals that included can-

didates and their resumes were published in the corporate website, indica-

ting the shareholder that nominated each candidate and his independent of

non-independent status.

Extract of Minutes 106 of the Ordinary General Assembly of Shareholders

of March 31, 2016, published in the corporate website, includes the lists sent

by the Ministry of Finance and Public Credit to the Legal Vice Presidency of ISA

to designate the Board of Directors.

The Board of Directors was elected by means of the electoral quotient sys-

tem by considering criteria related to professional, suitability and recognized

moral solvency, according to the provisions of the Board’s Succession Policy.

Member’s resumes can be consulted on the corporate website.

See Board’s resumes

After designation, the members expressed in writing their acceptance and that

they have not inabilities or incompatibilities to be members of the Board. This

event was registered before Medellin’s Chamber of Commerce for Antioquia

where the Company has its seat. The independent members responded the

questionnaire attached to Decree 2555 of 2010 previously submitted to Pen-

sion Funds, ISA’s shareholders.


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The members of the Board of Directors designated for the first time received a

proper training in which they were informed to have a vast specific knowledge

of ISA, its businesses, and sectors in which it participates, responsibilities,

obligations, and attributions as Board members, as well as the Company’s do-

cuments. It is essential to know all these aspects so members can perform

their position.

Board’s remuneration policyThe Remuneration Policy of the Board approved by the General Assembly of

Shareholders, reviewed each year, and published on the website of the Com-

pany, establishes the criteria for adequate remuneration of its members. Mo-

reover, the Ordinary General Meeting of Shareholders is responsible for appro-

ving each year the fees expressed in terms of Unit Tax Value (UVT), consistent

with the duties and responsibilities of the members, characteristics of the Com-

pany, among other criteria.

See Remuneration Policy of the Board

Remuneration of the Board of Directors and Senior Management membersISA does not implement special payment or remuneration mechanisms in the

Company’s shares for Board members. For negotiating these shares, it should

have authorization from the Board. To attend Board meetings and its commi-

ttees, members received in 2016 a remuneration of 103 UVT per meeting,

equivalent to COP 3,064,559.

The remuneration of the Senior Management members is revealed in the

Financial Statements, according to the provisions of the Code of Commerce

and the applicable accounting standards. ISA does not use special mecha-

nisms of payment or remuneration in Company’s shares or share options for

Board and Senior Management members.

Board’s Quorum To deliberate validly, the Board of Directors requires a quorum of at least five

members (deliberation quorum) and decisions are made by most the votes

present (decision-making quorum). All meetings had deliberation and deci-

sion-making quorums.

Attendance data regarding Board meetings and its CommitteesFrom April 2016 to March 2017, the Board met 15 times (12 ordinary mee-

tings, 2 extraordinary meetings and 1 voting session in writing). The average

of each meeting was 5 hours. The agenda scheduled for each session was

always fulfilled.


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Members Nominated by Attendance(15 meetings

Carlos Caballero Argáez (*)Ministry of Finance and Public Credit

14/15

Ministry of Finance and Public CreditVice Minister General


14/15

Ministry of Finance and Public Credit.Director of Public Credit and National Treasury


14/15

Carlos Mario Giraldo Moreno (*)Ministry of Finance and Public Credit

15/15

Carlos Felipe Londoño Álvarez (*)Ministry of Finance and Public Credit

15/15

Jesús Aristizábal Guevara (*)Empresas Públicas de Medellín

15/15

Henry Medina González (*) ECOPETROL 15/15

Santiago Montenegro Trujillo (*)Pension and Severance Funds

13/15

Camilo Zea Gómez (*)Pension and Severance Funds

15/15

(*) Independent members according to the provisions of the Code of Good Governance and Law 964 of 2005.

→ ISA’s Board of Directors

Board Members

Board Committees

Board and Corporate Governance Businesses Corporate Audit

Carlos Caballero Argáez (*) 7/12

Ministry of Finance and Public CreditVice Minister General

10/11 11/12

Ministry of Finance and Public Credit.Director of Public Credit and National Treasury

10/11 9/12

Carlos Mario Giraldo Moreno (*) 11/11

Carlos Felipe Londoño Álvarez (*) 11/11 10/10

Jesús Aristizábal Guevara (*) 10/10

Henry Medina González (*) 12/12

Santiago Montenegro Trujillo (*) 10/11 8/12

Camilo Zea Gómez (*) 10/10

(*) Independent members according to the provisions of the Code of Good Governance and Law 964 of 2005.

→ Attendance to Board Committees


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Agreements, policies, and procedures approved by the Board of Directors during the periodTo perform updates in the standards and practices of ISA’s corporate gover-

nance, the Board of Directors approved the following Agreements, policies,

and procedures:

⇢ Agreement 105 of November 25, 2016, by which the Operating Regulations

of the Board was established.

⇢ Agreement 106 of November 25, 2016, by which the Board Committee and

the Corporate Governance were regulated.

⇢ Agreement 107 of November 25, 2016, by which the Business Committee is

regulated.

⇢ Agreement 108 of December 16, 2016, by which the Regulation for Acqui-

ring Goods and Services was amended and its compilation was authorized.

These documents can be verified on the corporate website.

In Board sessions, priority was given to topics related to comprehensive risk

management, corporate strategy, sustainability, financial statements, share’s

behavior, growth opportunities, human management talent and their remune-

ration, among others.

Board’s PresidentThe Board, in Session 774 of April 29, 2016, appointed Santiago Montenegro

Trujillo (an independent member) as President.

The President’s duties are provided in Article 28 of the Bylaws and Agree-

ment 105 of November 25, 2016, which regulate the Board’s operations, and

can be consulted on the corporate website.

See Duties of the Board’s President.

Board’s SecretaryAccording to Bylaws, the Legal Vice President of the Company is the Board’s

Secretary.

The Secretary’s duties are those provided in Article 28 of the Bylaws and

Agreement 105 of November 25, 2016, which regulate the Board’s operations,

and can be found on the corporate website.

See Duties of the Board’s Secretary

Relationships during the year of the Board of Directors and the Statu-tory Auditor, financial analysts, investment banks and rating agenciesDuring the last period, the Statutory Auditor presented before the Corporate

Audit Committee the results related to the review of relevant controls for prepa-

ring and submitting financial statements, as well as his opinion regarding their

reasonableness.

External advice received by the Board of DirectorsNo external advice was hired in 2016.

Management of information by the Board of DirectorsThe Board’s Secretary, no later than five (5) days in advance to each meeting,

provided (by means of an exclusive access server for the Board members) the

documents related to the topics to be addressed in the Board sessions, as well

as the additional information requested.

Board’s Committees According to the Operating Regulation of the Board, in ISA, the Board Com-

mittee and Corporate Governance, the Business Committee and the Corporate

Audit Committee operate in an institutional manner.


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Board Committee and Corporate GovernanceThe main responsibilities of this committee consist of assisting the Manage-

ment on strategic, sustainability, risk, and human talent matters. In addition,

in the corporate governance aspect, its responsibility is to study reforms to the

Corporate Bylaws and recommend the appointment and remuneration of the

Board and Senior Management members, as well as ensuring compliance with

the Code of Good Governance, the action framework, and assessing the Com-

pany’s CEO. There were 12 meetings during 2016.

Business CommitteeIts functions are to analyze and recommend investment initiatives included

in the growth strategy of ISA and its companies, and monitoring businesses

under execution. There were 12 meetings during 2016.

Corporate Audit CommitteeThis body guides and facilitates internal control. It aims at ensuring availability

to the organization of an effective corporate control system, which includes the

evaluation of the accounting procedures, the relationship with the Statutory

Auditor, the audit to the risk management system, among others. Its recom-

mendations are related to the improvement of controls established in gover-

nance, administrative, financial, technical and information technology issues;

as well as topics on ethical management and the Risk Management System of

Money Laundering and Financing of Terrorism. In 2016, it met ten (10) times.

Board’s AssessmentThe Company conducts an annual evaluation of the Board of Directors to me-

asure its effectiveness as a collegiate body, and welcoming the recommenda-

tion of best practices in this field, to alternate between methodologies such as

self-assessment and evaluation by external consultants. In 2016, a qualitative

self-assessment was executed. The following results were obtained with a sam-

ple of nine (9) persons:

⇢ Individual performance of Board members, 94%

⇢ Individual performance of committee members, 94%

⇢ Group performance of Board, 95%

⇢ Group performance of Board, 95%

⇢ Performance and participation of management, 87%

In relation to individual performance, the following strengths of the Board mem-

bers were highlighted: knowledge, rigor, commitment, and active participation.

In relation to group performance, the following is highlighted: diversity

of opinions and knowledge, capacity to reach agreements, respect for other

members and management, and adequate spaces for the participation of in-

dependent members.

In relation to improvement opportunities, it is highlighted the need to ad-

dress strategic and innovation topics at more frequent intervals and improve

timeliness of their members.


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→ Senior Management

According to the Board Committee and Corporate Governance’s regulation,

this committee aims to annually evaluate the management of the Company’s

CEO, which was held at a session on February 23, 2017, and approved by the

Board of Directors at Session 786 on February 24, 2017.

During the 2016 management evaluation for Bernardo Vargas Gibsone, ISA’s

CEO, a leader of the corporate group, several aspects regarding his responsibi-

lity in the guidance of the corporate group were considered:

⇢ Management results.

⇢ Transformative action.

Bernardo Vargas, together with the Board of Directors, continues advancing

according to the established in the strategy planning process of ISA. In 2016,

in-depth strategic analyses were carried out with the Group Committee and

the Board of Directors, which allowed ratifying the countries initially selected

as focus of the strategy; the current businesses of ISA and the aspirations in

the search of greater profitability; and establishing the additional emphasis that

reflects the ongoing concern of ISA about the sustainability of their businesses.

Outstanding management results are showed below:

⇢ The compensation risk by the early renewal of the CTEEP Concession in

Brazil was favorably resolved.

⇢ The award of projects in Brazil and Colombia for USD 300 million in the

Energy Transmission business.

⇢ A favorability index of 78% was reached in the measurement of organizatio-

nal environment in ISA and its Companies with an increase of 6% in respect

of the measurement from previous year. ISA’s evaluation as a company led

to a result of 83%, improving by 4% the measurement in 2015.

⇢ The leadership index of ISA and its companies showed an increase of 5%

respect of the previous year (from 75% to 80% favorability). For ISA, the

result was 88% with an increase of 8% in relation to the previous year

Senior Management

DEPENDENCY NAME

CEO Bernardo Vargas Gibsone

Vice Presidency of Energy Transmission César Augusto Ramírez Rojas

Vice Presidency of Finance Carlos Alberto Rodríguez López

Vice Presidency of Strategy Olga Patricia Castaño Díaz

Vice Presidency of Legal Affairs Sonia Margarita Abuchar Alemán

Vice Presidency of Growth and Business Development

Andrés Baracaldo Sarmiento

Vice Presidency of Corporate Audit Carlos Ignacio Mesa Medina

Vice Presidency of Organizational TalentCarlos Humberto Delgado GaleanoDiana Cristina Posada Zapata

Vice Presidency of Information Technology Olga Lucía López Marín

Corporate Directorate of Road Concessions Jorge Iván López Betancur

Corporate Directorate of Communications Carmen Elisa Restrepo Vélez

Senior Management According to the bylaws, the Chief Executive Officer and the Vice Presidents

are part of the Senior Management. The website shows the professional quality

and experience of ISA’s directors.


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The Board of Directors showed its satisfaction due to the solid financial results,

whose main indicators present a behavior far higher than the estimated budget:

⇢ Net income had an increase of 205% respect previous year and a budget

compliance of 291%

⇢ The operating margin indicators and the net margin also had outstanding

increases; the operating revenue achieved 195% compliance and an in-

crease of 130% respect 2015.

⇢ Operating costs and expenses presented 99% compliance and an increase

of 29% compared to previous year.

⇢ Results for 2016 were positive and favored by the recognition to the sub-

sidiary in Brazil – CTEEP – of the value regarding the Basic Network of

the Existing System (RBSE). However, if such effect was discounted, then

results will exceed the budgetary goals. Consequently, operating revenue

would reach COP 6,610,534 million with 106% budgetary compliance and

25% growth. EBITDA will increase to COP 3,396,106 million, with 116 bu-

dgetary compliance and 18% growth. Finally, net income would amount

to COP 763,887 million with 104% budgetary compliance and 9% growth

compared to previous year.

Some outstanding transformational actions are as follow:

⇢ Purchase and sale contract of shares to acquire 14,9% TAESA’s share capi-

tal in Brazil, by an approximate amount of BRL 1,056 million. This is equi-

valent to 41% of the control block and involves a shareholders’ agreement

with the majority shareholder (CEMIG) which gives ISA Group characteris-

tics related to the joint political control, despite being a minority partner.

⇢ ISA was selected in the Dow Jones Sustainability Index list for the second

consecutive year. Likewise, ISA has promoted a promising sustainability stra-

tegy that will be executed through the Conexión Jaguar program.

⇢ Strengthening of risk management, as the high-level management case to

decrease the occurrence of tax risk in Peru by interpretation of the SUNAT

regarding depreciation rates used in Consorcio Transmantaro –CTM–.

⇢ The strategic and organizational transformation of INTERNEXA: to move from a

product “focus” to a “value offer”, commercial and market perspective, change in

leadership style.

⇢ New initiatives to optimize and generate value in existing assets.

⇢ ALAS20 Award to ISA, for second consecutive year, due to its management of cor-

porate governance and transparency.

⇢ Connection to the MIT as a strategic ally in innovation. In general, there is an in-

creasing emphasis in innovation that reflects the management of the group’s com-

panies, particularly in Peru.

In short, the advancement in compliance with the strategy, the vision of current and

new business development, the management of human talent and outstanding finan-

cial results of 2016, are evidence of the managerial capabilities, the focus on achie-

vements, the strategic vision, and the leaderships of Dr. Vargas, who, with his energy,

proactivity, and commitment, leads the ISA Group.

In view of the ratings obtained in Dow Jones surveys, Stakeholders and Reputation,

the Board of Directors expresses its confidence that efforts to strengthen areas related

to human talent management and innovation will continue. In addition, it highlights the

importance of maintaining a right balance between results-oriented success and how

such results are obtained, so it is possible to maximize the spirit of coexistence, good

treatment, cordiality, and respect for differences.

Finally, recognition is given to all directors and, in general, to all the ISA’s work team,

as a human group characterized by its commitment, dedication, and sense of co-res-

ponsibility to contribute in an effective way to fulfill the mission and the corporate goals.


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TRANSACTIONS WITH RELATED PARTIESBoard’s attributions related to this type of transactions and situations of conflicts of interestTitle 6 of the Code of Good Corporate Governance establishes the Related

Parties of ISA, according to the international standards and regulations appli-

cable to ISA. Likewise, transactions required to be approved by the Board of

Directors are defined.

Detail of transactions with the most important Related Parties under the criterion of the Company, including operations between companies of the ConglomerateThe description of the transactions with ISA’s Related Parties is found in the

Financial Statements.

Due to the legal nature of the Mixed Public Utility Company, ISA is subject to

a regime of inabilities and incompatibilities applicable to state contracting, which

prohibits entering into contracts between the Company and the Board members,

their relatives to the second degree of kinship or first civil status, their spouses or

permanent couples, and legal persons where they have participation or perform

management positions, according to the terms provided by Law.

Conflicts of interest presented and actions taken by the Board membersNo conflicts of interest were caused within the operational framework with

Related Parties.

RISK MANAGEMENT SYSTEMSistema de Control Interno (SCI) de la Sociedad o Conglomerado y sus modificaciones durante el ejercicioThe company, along its continued inspection and control process, answered effi-

ciently and timely the requests for information and/or documents presented by

government control bodies and it obtained credit ratings from authorized agencies.

Durante el último período, la organización fortaleció su Sistema de Control

Interno con la incorporación de nuevas prácticas de gobierno las cuales estu-

vieron implementadas en las últimas reformas de estatutos, así como el ajuste

a las políticas corporativas y la definición de directrices para el nuevo modelo

de auditoría corporativa.

External control entitiesISA provided the reports requested by the following external entities:

⇢ General Accounting Office of the Nation.

⇢ Comptroller General of the Republic.

⇢ Colombian Financial Superintendence.

⇢ Superintendence of Domiciliary Public Services.

⇢ Ministry of Finance and Public Credit.

⇢ National Administrative Department of Statistics.

The Gestión y Auditoría Especializada firm served as external auditor of mana-

gement and results for the period and in its report published in national press

on July 14, 2016, it expressed: “The internal control system is strong, qualified

as low risk. Also, for the period between January 01 and December 31, 2015,

it effectively complied with the control objectives provided by the Management

and fulfills the aspects set out in Law 142 of 1994 and Resolution 053 of 2000,

issued by The Energy and Gas Regulation Commission (CREG). The report was

submitted to the Superintendence of Domiciliary Public Services.

Between April 2016 and March 2017, the Ernst & Young firm held the

statutory audit. In fact, by complying with its legal duty, the firm will submit to

the General Assembly of Shareholders, an opinion concerning management,

financial statements, and management of the Company.

Ratings for corporate risk and local and international bond issues, granted

by specialized agencies, ratified the strength and financial soundness of ISA


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and its companies, the stability and predictability of their cash flows, the promi-

nent position as energy transporter in Latin America, and its role as participant

in the Chilean road concession business.

Standard & Poor’s –S&P– maintained ISA’s rating in BBB and Fitch Ra-

tings raised to BBB+ the long-term international rating of local and foreign cu-

rrency, with stable perspective on May 2016. However, the rating agencies, in

the first half of 2016, adjusted the ratings perspective of Colombia from stable

to negative, which directly affected ISA’s perspective from stable to negative.

Moody’s kept the rating in Baa2 with stable perspective. This way, the three

most important international rating agencies worldwide have the company ra-

ted in investment grade.

To the knowledge and analysis of shareholders and investors, the Statutory

Auditor’s report, the opinion of the External Auditor and the evaluation of risk

rating agencies are published on the Company’s website.

The following procedures were carried out at the Chamber of Commerce

of Medellin: presentation of financial statements, renewal of the mercantile re-

gister and single roster of proponents, filing of the minutes of the Ordinary and

Extraordinary Shareholders’ Meeting, election and acceptance of the Board of

Directors members, statutory auditor and legal representatives and their alter-

nates, and updating of ISA’s shareholding participation in its companies.

It is important to add that no requests for special audits were made by

shareholders or investors during the period and no investigations that compro-

mised ISA were conducted by control and inspection entities.

Órganos de control internoThe internal control system of ISA and its companies is based on the interna-

tional standard of the Committee of Sponsoring Organizations of the Treadway

Commission (COSO). Through this standard, the company seeks to: reasona-

bly guarantee achievement of corporate objectives; strengthen trust on inte-

grity of information delivered to stakeholders; adequately monitor corporate

governance instruments, transparency practices and business inherent risks

and timely answer them.

According to the annual plan, the Vice-Presidency of Corporate Audit per-

forms, for ISA and its companies, evaluations of their prioritized processes

with the impartiality, objectivity, and independence necessary to comply with

its duties as established by international auditing principles and practices. To

this end, and together with the individual audit committees of each company, it

designs work plans, which according to the individual risk levels and particula-

rities of each company, provide guidelines and strategies to follow.

In 2016, audits on operational processes pertaining to business units, as

well as evaluations of administrative, technological, and financial processes,

were conducted to strengthen the Internal Control System. Evaluations con-

ducted by the Corporate Audit office confirmed abidance by internal and exter-

nal regulations and did not find any evidence of significant or material deviation

that may jeopardize the business continuity of ISA and its companies; this

opinion goes in line with the evaluations of external control bodies who issued

favorable opinions about the internal control system.

Additionally, instruments such as the Code of Ethics, the Antifraud Code,

and the Money Laundering and Terrorism Financing Risk Administration Sys-

tem (SARLAFT, for its Spanish initials), allow increased security levels at ISA

and its companies for risks related to the principles they refer to.

Risk ManagementISA and its companies abide by the Policy for Comprehensive Risk Management

identifying, evaluating, and implementing measures to manage the risks they are

exposed to.

Each company has its own risks map and evaluates risks according to

their likelihood of occurrence and severity of consequences on its fundamental

resources giving priority to the most relevant for its operations and achieve-

ment of strategy. Likewise, it monitors its status and defines and implements


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measures to improve its management. Periodically, the companies present ad-

vances in their management and the major events that have been executed.

On the website and in the 2016 Integrated Report, ISA publishes its risks

map, the most significant events and the main administration measures imple-

mented to prevent and mitigate their impact.

Materialization of risks during the periodThis information is described in the 2016 Comprehensive Management Report, in

section “Comprehensive Risk Management”, available at the Company’s website.

Response plan and supervision of main risksThis information is described in the 2016 Comprehensive Management Report, in

section “Comprehensive Risk Management”, available at the Company’s website.

GENERAL ASSEMBLY OF SHAREHOLDERS

Differences in the functioning of the Board between the minimum scheme

of the current regulation and the scheme defined by the Bylaws and the re-

gulations of the Company’s Assembly.

In two newspapers, one of wide national circulation and a local newspaper, on

February 28, 2016, the call for the Ordinary General Assembly of Shareholders

of March 31, 2016 was published. This summon was made with a longer term

than the one provided by Law.

Additionally, to facilitate the exercise of the right of information of sharehol-

ders and promote their participation, ISA revealed through its corporate websi-

te the call notices, the agenda, the proposals that were submitted for conside-

ration during the Assembly, and the candidates’ lists and resumes to form the

Board. Moreover, information related to the grant of powers to be represented

in the Board was published.

Through the national press, the Company reminded shareholders that the

Ordinary Assembly will be held on March 27, 2016.

For the ordinary Assembly, shareholders received the documents provi-

ded by the Bylaws and Law for the execution of the right of inspection during

the fifteen (15) working-day term.

The Ordinary Assembly had a quorum demanded by Law (88,66% atten-

dance). Topics in the agenda were submitted for consideration of shareholders

and decisions were made according to the majorities demanded in the Bylaws.

The attendance data related to each meeting of the General Assembly of Sha-

reholders are included in the minutes extracts. The Ordinary General Assem-

bly was broadcasted on real-time streaming by internet.

The Corporate Bylaws, the Operating Regulation of the General Assembly

of Shareholders, and the Code of Good Corporate Governance establish good

practices addressed to consolidate and facilitate the right to information and

participation of its shareholders at the Assembly’s meetings, such as:

⇢ For ordinary meetings of the General Assembly of Shareholders, a summon

should be communicated at least thirty (30) calendar days in advance. For

extraordinary meetings, a summon should be communicated at least fifteen

(15) calendar days in advance.

⇢ Use electronic means of communication such as the corporate website and

electronic messaging systems. among others, to disclose all the information re-

lated to the General Assembly of Shareholders, from the summon to the Agen-

da, the proposals and the decisions made after it its carried out.

⇢ The points of the Agenda will be expressed in a clear and precise manner

to facilitate the understanding and analysis thereof by shareholders. It will

be intended to perform a joint vote of topics or proposals only if topics are

relevant and directly related to each other.

⇢ The right of shareholders (regardless of their shareholding participation)


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Report of cases by source. Requirements of management unit and call center between 01-01-2016 and 31-12-2016

Source Number of cases %

Línea de servicio 13.770 83,14

Chat 1.131 6,83

E-mail 943 5,69

Llamada de salida 179 1,08

Visita Oficina Medellín 162 0,98

Llamada Oficina Medellín 102 0,62

Internet 97 0,59

Buzón Telefónico 94 0,57

Carta-fax 55 0,33

Contacto Fiduciaria 25 0,15

Depositantes Directos 2 0,01

Requerimiento Supervalores 1 0,01

Tramite Interno 1 0,01

Total general 16.562 100

→ Number of requests and matters upon which the shareholders have required information to the Company

to request (within at least five (5) business days in advance before the Ge-

neral Assembly of Shareholders is carried out) information or explanations

deemed necessary, through traditional channels and/or if required, related

to new technologies and regarding issues included in the Agenda of the

General Assembly of Shareholders.

⇢ The right of shareholders (regardless of their shareholding participation) to

propose the introduction of one or more points of debate in the Agenda of

the General Assembly of Shareholders, within the following five (5) calendar

days to the publication of the summon and provided that the request of new

points is supported by a justification.

⇢ To minimize the use of delegations of blank votes, without voting instruc-

tions, ISA promotes the use of model powers available on the corporate

website. The model includes the Agenda points and the corresponding pro-

posals of the Agreement that will be submitted to the shareholders’ consi-

deration, so the shareholder (if necessary) indicates the meaning of its vote

to its proxy or legal representative.

⇢ The Board members and the Company’s CEO will attend the Assembly to

respond to the concerns of the shareholders.

⇢ The right that a number of shareholders (representing at least 20% of the

total subscribed shares of the Company) request the Company’s CEO or the

Statutory Auditor to call extraordinary meetings of the General Assembly of

Shareholders.

Information and communication with shareholdersThe Good Governance Code adopted by the Board of Directors establishes

communication channels dedicated to the attention of its shareholders, throu-

gh which it resolves requests and requirements, such as telephone hotline and

the service center to the shareholder. Additionally, on the website www.isa.co,

Investor Relations section, we may found everything related to the mechanisms

of relationship with shareholders and investors.


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Attendance data to the General Assembly of ShareholdersAttendance to the Ordinary General Assembly of Shareholders was 88,66%.

Description of main agreements madeBesides considering and deciding own issues of ordinary meetings indicated in

the Bylaws and Law, the Ordinary General Assembly of Shareholders approved

the reform of Bylaws, Board’s Remuneration Policy, and Board’s fees. This is

executed by means of the adoption of recommendations of the Country Code in

relation to the good practices of corporate governance, addressed to generate

value and foster trust of investors.

The Ordinary Assembly’s minutes was signed by the President and the

Secretary of the Assembly and by the corresponding commission, in which the

topics addressed, approvals and authorizations granted by the Assembly were

submitted, as well as the remarks and comments of shareholders. In addition,

the minutes was registered in the Medellin’s Chamber of Commerce and its

copy was sent to the Financial Superintendence of Colombia and to the Super-

intendence of Domestic Public Utilities.

Shareholders can access the corporate website to verify the extract publi-

shed regarding Minutes 106 corresponding to the Ordinary General Assembly

of Shareholders of March 31, 2016.

In the Ordinary General Assembly of Shareholders of March 31, 2016, the

Board of Directors was elected for the April 2016 - March 2017 period.

STAKEHOLDERS In this report, ISA publishes its commitments to stakeholders and presents in

detail the mechanisms for compliance and key aspects of the relationship. The

website shows news and relevant information for these groups.

To keep shareholders and investors with relationships based on the provision of

timely and reliable information ISA conducted the following activities:

⇢ General Shareholders Meeting: 831 represented shareholders reaching

88,6% participation.

⇢ Quarterly, ISA published financial statements, which were presented to the

financial community through face-to-face meetings and webcast.

⇢ ISA held face-to-face meetings with market analysts in Bogota and Medellin.

⇢ ISA participated in four international events.

⇢ ISA used relationship marketing strategies: e-mails, newsletters, and deli-

very of tax certificates and extracts.

⇢ ISA has a service center for shareholders that received 16,562 cases, from

which 100% cases were resolved through the service line, shareholders’

chat, and e-mail. The service center to institutional investors received 200

interactions with an average response of one day.

Commitments to the Majority ShareholdersAt the end of 2016, the Inter-Administrative Contract GSA 57 of 2009 - ISA

4000763 between the State (Ministry of Mines and Energy) and ISA, which

includes technical assistance for general administration and execution of “Fon-

do de Apoyo Financiero para la energización de las Zonas No Interconectadas

FAZNI” (Financial Support Fund for the energization of Non-Connected Zones)

to construct the 115 kV Popayan-Guapi line and associated substations. This

contract was signed on October 13, 2009, and extended until March 31, 2017

to reach a total value of COP 305,622 million.

GOOD GOVERNANCE CODE During 2016, the company monitored compliance. The central pillars for the

verification of this Code are the supply of information through the website,

report to control and surveillance organisms and reports presented to the

Board of Directors.


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Verifications annually executed upon compliance of the Good Go-

vernance Code by Transparencia por Colombia and the Statutory

Auditor did not suggest findings that would compromise complian-

ce with commitments.

In addition, shareholders and the public did not report any

non-compliance with the Code through telephone hotlines or emai-

ls available:

It must be pointed out that in addition to the above; the Colombian

Financial Superintendence is available to shareholders, especially,

minority shareholders. This entity has the power to implement me-

asures to avoid the violation of rights, ensure the return to balance,

and the principle of equal treatment to all shareholders.

Shareholders’ Support Line (toll-free):

National: 01 8000 115000Medellin: (574) [email protected]

Ethics Line (toll-free):

01 8000 [email protected]

Santiago Montenegro Trujillo

Board’s President


Documents

CORPORATE GOVERNANCE REPORT - Páginas · For ISA, corporate governance is the set of values, prin-ciples, policies, rules, means, practices and processes by ... there was a merger