Telefónica O2 made a commitment to the principles of Good Corporate Governance already in its 2001 Annual Report; it has been making regular statements in its annual reports, concerning the progress of implementation of the principles of Good Corporate Governance in its practices. The Company has been meeting all the main criteria and observing the principles and recommendations of the Czech Code of Good Corporate Governance based on OECD Principles, which was published in 2004 (the Code). The Code is available at the website of the Ministry of Finance of the Czech Republic (www.mfcr.cz). An exception to this rule are the principles of Good Corporate Governance that are not in direct control of the Company’s governing bodies and are dependent on the decisions of its owners (in particular the criterion concerning the number of independent members of the Supervisory Board). The Board of Directors regularly oversees the good practice of Corporate Governance in subsidiaries controlled by Telefónica O2.

Corporate Governance

The proven Corporate Governance model, which Telefónica O2 has been developing continually since 2006, was changed in April 2009 by decision of the General Meeting which passed an amendment to the Company’s Articles of Association that led to the institution of a new independent body – the Audit Committee. The model, as per the Articles of Association, is based on interaction between the executive Board of Directors, made up exclusively of executive managers of the Telefónica O2 Group, and the Supervisory Board. The Supervisory Board has powers to control key decision-making processes (using the mechanism of “prior standpoints” of the Supervisory Board to selected issues) and monitor other important aspects of the Company’s operation. The powers of the Supervisory Board and their discharge make a full and active use of advisory and initiative roles of the Supervisory Board’s committees. The controlling, supervisory and review function in the model of Corporate Governance in Telefónica O2 has been strengthened by the independent position of the Audit Committee. An integral part of the model is the combination of the Chief Executive Officer’s function with the function of Chairman of the Board of Directors, which the Company finds efficient and acceptable given the strong role of the Audit Committee and the active involvement of its committees.

The activities of the governing bodies of the Company in 2009 confirmed the relevance and effectiveness of the Corporate Governance model of Telefónica O2, including its fast adaptation to the existence of the independent Audit Committee with broad powers – which resulted in a higher quality of Corporate Governance in the Company.

An Ordinary General Meeting of the Company was held on 3 April 2009. The agenda of the Company’s supreme governing body comprised standard items relating to the operations of the joint-stock company, and matters relating to the institution of the Audit Committee as a new body of the Company. The proposed amendment to the Company’s Articles of Association included, in addition to insertion of provisions dealing with the institution of the Audit Committee and the dissolution of the Audit and Control Committee, which had been a mandatory committee established by the Supervisory Board. Other amendments to related articles concerned, for example, the extra powers granted to the General Meeting, especially in the matter of nominations to the Audit Committee, and in relation to awarding bonuses and other benefits to members of this body. Newly the General Meeting now also has the authority to pass a decision on the selection of the external auditor of the Company to carry out the obligatory audit. Telefónica O2 was the first corporation in the Czech Republic to have responded to the adoption of the EU Directive 2006/43/EC on statutory audit of annual accounts and consolidated annual accounts into the Czech national law (by way of the Czech law on auditors), and already before the legislative process was completed, it modified its Corporate Governance model. More information about the Audit Committee is given below. A detailed overview of the conclusions of the Ordinary General Meeting is available on the Company’s website and was also published in the 2009 Half-year Report. Information about the dividends, the record and disbursement dates for the dividend payment is given in section Other information for shareholders and investors of this Annual Report. The decision making procedure at the General Meeting is outlined in the Company’s Articles of Association (Articles 10 and 11); the Articles of Association are available on the Company’s website (see also sub-section Transparency and open information policy) and also form a part of the Rules of Procedure of the General Meeting, the key principles of which are highlighted in sub-section Shareholder relations; the sub-section Governing bodies of Telefónica O2 Czech Republic details information on the scope of authority of the supreme governing body of the Company.

The Board of Directors held twenty five meetings in 2009, thus complying with the duty to hold a minimum of twelve meetings each year. The personnel changes in the Board of Directors in the period January-March 2009 were detailed in the 2008 Annual Report. In October 2009, the Supervisory Board discussed a resignation of Juraj Šedivý, the 1st Vice Chairman of the Board of Directors, from his membership in the Board of Directors (Mr. Šedivý’s decision to leave the Telefónica Group also meant that he stepped back as the Statutory Representative and Chief Executive Officer of the subsidiary Telefónica O2 Slovakia, s.r.o.); in his stead, the Supervisory Board elected John McGuidan as member of the Board of Directors. John McGuidan also succeeded Juraj Šedivý in both of his previous positions in Telefónica O2 Slovakia. Jesús Pérez de Uriguen was elected 1st Vice Chairman of the Board of Directors. On 1 February 2010, the previously announced alternation in the position of Chief Executive Officer of Telefónica O2 took place; Salvador Anglada Gonzalez, who is leaving for an executive position in the parent Telefónica, S.A., was succeeded by Luis Antonio Malvido, who was also elected member, and subsequently also Chairman of the Board of Directors of the Company. The full list of members of the Board of Directors, including their professional résumés, and the personnel changes in the Board of Directors are given in sub-section Board of Directors.

The decision making procedure at meetings of the Board of Directors is laid down in the Company’s Articles of Association (Articles 16–18); the activities of the Board of Directors observe the Rules of Procedure. Both documents are available on the Company’s website (see also sub-section Transparency and open information policy).

The Supervisory Board held five meeting in 2009, which was in accordance with the Company’s Articles of Association. The practice has settled on the most effective pattern of regular quarterly meetings (February, April, July, October) dedicated, among other things, to the discussion of regular (periodic) financial statements given by the Company to its shareholders; in addition, one meeting is held primarily in preparation for the General Meeting. The personnel changes in the Supervisory Board in the period January-March 2009 are detailed in the 2008 Annual Report. In the remaining period of 2009 and in the first quarter of 2010 (until 15 March 2010), no personnel changes occurred in the Supervisory Board; only the Ordinary General Meeting of the Company, which was held on 3 April 2009, the membership of co-opted members of this body were confirmed by election at the Ordinary General Meeting which was held on 3 April 2009. The members were: Eduardo Andres Julio Zaplana Hernández-Soro, Anselmo Enriquez Linares and Enrique Used Aznar. The full list of personnel changes in the Supervisory Board in the given period, including its current personnel composition as at 15 March 2010 and professional résumés of all members of this body, is given in sub-section Supervisory Board. None of the Supervisory Board members as at 15 March 2010 met the criterion of independence.

The decision making procedure at meetings of the Supervisory Board is laid down in the Company’s Articles of Association (Articles 22–24); the activities of the Supervisory Board observe the Rules of Procedure. Both documents are available on the Company’s website (see also sub-section Transparency and open information policy).

The Audit Committee (AC) of the Company is an independent body of the Company holding special powers in matters relating to statutory audit, compilation and auditing of the financial statements and assessing the effectiveness of the internal control system of the Company. The position and scope of authority of the AC are laid down in Article 26a of the Company’s Articles of Association. The committee has six members; by decision of the Ordinary General Meeting of 3 April 2009, the following members were elected: Alfonso Alonso Durán, Ángel Vilá Boix, Jaime Smith Basterra, Pavel Herštík, Maria Pilar López Álvarez and Enrique Used Aznar, all members of the Company’s Supervisory Board. Alfonso Alonso Durán and Ángel Vilá Boix, respectively, were elected Chairman and Vice Chairman of the AC. The full list of members of the Audit Committee is given also in sub-section Audit Committee. Since its institution on 3 April 2009, the AC held three meetings: in April, July and October (i.e. once in a quarter). Previously in 2009, the predecessor body, the Audit and Control Committee of the Supervisory Board (see sub-section Committees established by the governing bodies of the Company below), held two meetings. The Audit Committee is in close contact with the external auditor and also with the Internal Audit and Risk Management Unit. The committee receives and evaluates information about matters that could jeopardise the independence of the external auditor or the process of auditing the Company’s accounts, which includes, among other things, also the mechanism of mandatory review of proposals for engaging the services of the external auditor for non-auditing activities in the Company by the Audit Committee, prior to their possible approval by the Company’s Board of Directors. The AC has the authority to make recommendations to the General Meeting which selects the external auditor for the statutory audit. Other key activities of the AC include the review of audit reports presented by the Internal Audit and, as per the Internal Audit Charter, the related mandatory participation in the setting and approval of the annual plan of internal audits, approval of the Internal Audit budget and the annual evaluation of the performance of the Internal Audit Unit. Via the CG Portal (see below), members of the AC have a non-stop access to all current and archived documents and reports from Internal Audit and Risk Management.

The rules for the remuneration of the Audit Committee are based on the rules for the remuneration of members of the Supervisory Board; however the remuneration principle (a set amount for each meeting of the committee) and the individual amounts of remuneration for the performance of the office of a member, vice chair and chair of the committee stay the same as in the case of the dissolved Audit and Control Committee of the Supervisory Board. The rules for the remuneration of members of the Audit Committee, whose key principles are outlined above, implement a two-component monthly flat remuneration, which comprises the following:

• an amount covering mandatory payments (e.g. taxes, health insurance contributions, etc.) which the member of the Audit Committee is liable to pay due to the fact that they are covered by a liability insurance for any damage arising from the performance of a member of the Audit Committee, and mandatory payments arising from the provision of the amount as per this sentence. This amount depends on the amount of insurance premium attributable to the member of the Audit Committee; the overall amount is calculated using methods common in the business of insurance;
• an amount attributable to the individual categories of Audit Committee members for the number of meetings attended: (i) member of the Supervisory Board: CZK 20,000; (ii) Vice Chair of the Supervisory Board: the amount as in (i) increased by CZK 12,000; Chair of the Supervisory Board: the amount as in (ii) increased by CZK 15,000.

In 2009, members of the Audit Committee received pecuniary income in the amount of CZK 2,490,516, and in-kind income in the amount of CZK 1,519,209 from the Company; of these amounts, CZK 120,000 for membership in the Audit Committee and no in-kind income. In 2009, members of the Audit Committee did not receive any pecuniary or in-kind income from companies controlled by Telefónica O2.

A member of the Audit Committee may, in their agreement for discharge of the office of a member, commit to the so-called non-competition covenant, i.e. a pledge not to do business, after the termination of the office, either individually or for the benefit of another person, in the field of telecommunications in the Czech Republic (nor in the field of advisory or consulting services related to the telecommunications industry), unless such business is done in another member of the Group. The agreement for discharge of the office of a member (including the non-competition covenant) must be approved by the General Meeting.

Compensation for the commitment to the non-competition covenant is based on the following principles:

• the non-competition covenant is accepted for a period of six months as of the termination of office;
• the Company is obliged to provide to the member of the Audit Committee in question, for committing to the non-competition covenant, compensation equalling the amount to which members of the Supervisory Board are eligible, i.e. amounting to six times the average flat remuneration as laid down in the Rules for the Remuneration of Members of the Supervisory Board, in an amount attributable to one member of the Audit Committee, in the month preceding the month in which the member of the Audit Committee terminated their position in the Audit Committee; the fact that any member of the Supervisory Board has or has not made a claim to their remuneration is not considered in the calculation of the average flat remuneration.

The rules for provision of non-claim perquisites to members of the Audit Committee are a modified form of the updated rules for awarding discretionary benefits to members of the Supervisory Board of the Company (the benefits include the same voice and data services and products of the Company for business and private use, communication and IT equipment, damage liability insurance for members of governing bodies and healthcare; the committee chair is also entitled to a company payment card). The rules for provision of non-claim perquisites to members of the Audit Committee stipulate the principle according to which a member of the committee who is at the same time a member of the Supervisory Board of the Company cannot claim the same item (form) of benefit twice – only once.

The decision making procedure at meetings of the Audit Committee is laid down in the Company’s Articles of Association (Articles 26c–26e); the activities of the Audit Committee observe the Rules of Procedure. Both documents are available on the Company’s website (see also sub-section Transparency and open information policy).

For the sake of expedient and effective acquaintance with the Company, new members of the Board of Directors, Audit Committee, the Supervisory Board and its committees have, already upon assuming their function, a special set of comprehensive and structured Corporate Governance information and documents available to them, as well as having access to all other current and archived documents which they may require for the due discharge of their function. The information is disseminated via the Corporate Governance Portal of the Telefónica O2 Group (CG Portal).

The previously existing position of Company Secretary is at the executive level in the new corporate governance model of Telefónica O2 formally combined with that of General Counsel. The Company Vice-Secretary assists in and provides for the Corporate Governance processes in the Telefónica O2 Czech Republic Group; the Company Vice-Secretary is the secretary to the Board of Directors, the Audit Committee and to the Supervisory Board and its committees.

As part of performing internal controls in the area of financial reporting, the Company has implemented the key requirements of the Sarbanes-Oxley Act (SOX), which it is bound to respect – principally as a result of the fact that the shares of the parent Telefónica, S.A. are listed on the US capital markets. Twice a year the Company performs an evaluation of its internal controls in the area of financial reporting in the scope of the regulatory framework introduced by SOX Section 404, including an evaluation of the controlling mechanism in the area of the Company’s information systems that could have a potential impact on the bottom line of the Company. The audits verify the standard of the description, configuration and form of walkthrough tests and compliance tests of transactions, as well as the effectiveness of controlling mechanisms in the area of financial reporting. The audit results are discussed with the external auditor of the Company. The audits performed in 2009 concluded that the internal controls, as applied, were of a standard which meets the SOX requirements. The quarterly declaration of the management (Chief Executive Officer and Vice President, Finance Division) attesting to the veracity of the information contained in the financial statements, implementation and application of effective internal controls, and other matters required by SOX Section 302 (including the information about any changes in the Company’s accounting policy, one-off/extraordinary or material items having an impact on the Company’s results for the quarter, and the overview of material reserves created by the Company in order to cover for its contingent risks and liabilities – e.g. from litigation) form an integral part of the SOX compliance procedures in the general area of Corporate Governance. The above documents are presented internally to the Board of Directors and to the Audit Committee for review and discussion.

In 2009, the internal audit and risk management function in the Company continued to be developed; the organisation of these functions (which are consolidated into one organisation unit), the line management of the Chief Executive Officer and the functional subordination to the Corporate Governance area in the Company (in the first quarter of 2009 to the Audit and Control Committee and later to the Audit Committee) remained as before. From 1 April 2009, Andrés Romero Dexeus was appointed Director, Internal Audit and Risk Management, based on a recommendation by the Audit and Control Committee and the positive standpoint of the Supervisory Board. Mr. Romero’s résumé is given in half-year report 2009.

Internal Audit represents an important instrument of Corporate Governance and it provides the Company’s governing and executive bodies with independent and professional assessment of the Company’s internal control system and the situation and trends in the given area compared to current best practice, the rules and regulations in force, and work orders and instructions issued. In 2009, Internal Audit and Risk Management carried out 41 audits and controls (including the regular audit of internal controls per SOX 404 requirement), as per the annual plan of Internal Audit or as mandated by the governing bodies and the Chief Executive Officer. In addition to performing audits and controls in Telefónica O2, the Internal Audit unit also acts as internal auditor of Telefónica O2 Slovakia. The audit conclusions were used by the management to formulate actions to redress the issues identified. Internal Audit monitors the implementation of such actions and reports to the governing bodies and the executive management. The work of Internal Audit is monitored on a regular basis by the Audit Committee (by the Audit and Control Committee in the first quarter of 2009). The activities of Internal Audit and its main processes are laid down in the Internal Audit Charter of Telefónica O2 Czech Republic, which also stipulates the principle of independence of the Internal Audit function and the principle of objectiveness of internal auditors. The Charter was last amended in July 2009; the change was only technical and related to the institution of the Audit Committee as an independent body of the Company.

In 2009, the Company continued in the development of its Risk Management function and in its harmonisation with the methodology and practice in the global Telefónica Group, which creates more space for the sharing of experience and knowledge in the area of mitigation of specific risks with the parent company and other members of the Group. The risk management system covers all areas of operations of Telefónica O2, including its subsidiary Telefónica O2 Slovakia, and provides for the identification, assessment and mitigation of risks, which it continues to monitor throughout. The Board of Directors and the Supervisory Board receive regular monthly reports containing information about key risks and their development over time. The Audit Committee is concerned with the risk management primarily from the point of assessing its effectiveness and adequacy (whether the key risks of the Company are adequately identified and managed); to this end, the committee receives regular reports from the Risk Management Unit of Telefónica O2 Czech Republic, and information about the methods used, the processes of risk management, etc. More information about risk management is given in sub-section Risk management of the Annual Report.

An electronic platform, the so-called CG Portal, is operated and continually developed in Telefónica O2 Czech Republic. It supports the exercise of powers of all governing bodies and provides for efficient administration of Corporate Governance in Telefónica O2 Czech Republic and its group. It is a comprehensive and modern solution with archiving, distribution, organisation, education and information functions, which are used both by regular employees and the members of the governing bodies of the Company and its subsidiaries. The system supports the configuration of several levels of access privileges and has a secure remote access to all data through fixed line and mobile technology. The instrument confers equal access to archived and current documents and information to all members (executive and non-executive) of the relevant governing bodies, irrespective of any local or time limitations. The document management system of the Company stores several dozens of thousand open domain and classified documents (both in Czech and in English); in addition to the minutes of meetings, the system also stores internal audit reports and risk reports, information about the Telefónica O2 Czech Republic Group and its subsidiaries, etc. For more detail of the content and the main functions of CG Portal please refer to the 2006 Annual Report. The portal is currently used also as a platform for supporting and administrating other activities in the general sphere of Corporate Governance. It is mainly the agenda of the Business Principles (including the operation of a confidential whistle-blowing channel for reporting of suspected ethical malpractices), and other priority areas of the Company’s Compliance Programme. The focus of attention is on risk prevention; to this end, the Company employs online courses as a primary instrument. The results achieved in this area in 2009 are recapitulated in sub-section Business principles and compliance.

A strict compliance with all the statutory rights of shareholders, commitment to the principle of equal treatment of all shareholders of a similar standing, while respecting the specific statutory rights of minority shareholders belong among the key guiding principles of Corporate Governance of Telefónica O2. In 2009, too, the Company fully honoured its commitment to the shareholders. Moreover, it went beyond practice usual in the Czech Republic and beyond its statutory duties and published ahead of time on its website a set of proposals and documents which were presented to the Ordinary General Meeting of the Company.

The Company is scrupulous about the timely and full information to all shareholders about the developments in the Company, its financial results and business plans; in doing so, the Company has always strived and managed to exceed the scope of minimum statutory disclosure. The Company uses it website as the main platform for communication (section About Us). The Company publishes regular press releases with the quarterly financial results and announces all significant events and developments.

When organising General Meetings, the Company proceeds in a way that guarantees the compliance with all the statutory conditions and with the Articles of Association, whilst observing to the maximum extent possible the requirements of the Code which concern the rights of shareholders and their fair treatment. The Company publishes the date of the General Meeting well in advance on its website; the date, time and venue of the General Meeting are chosen on the merit of ready access and availability. The Rules of Procedure of the General Meeting, despite the fact that they haven not deviated from the standard language, are approved at each meeting of the governing body. Despite the fact that they have not deviated from the standard language the shareholders have not made any motions to amend the Rules of Procedure. The Rules of Procedure allow shareholders to participate effectively in decision-making on fundamental changes in the Company and to ask questions and seek information on matters included on the agenda of the General Meeting. The draft Rules are available to shareholders on the Company’s website and in Telefónica O2 headquarters on the day of the publication of the date of the General Meeting. The proposal of the Rules of Procedure for the upcoming General Meeting was, also in 2009, available to the shareholders on the Company’s website and at its registered address already upon the publication of the announcement of the General Meeting. The Rules of Procedure of the General Meeting contains the following main provisions:

• Shareholders can exercise their rights at the General Meeting either in person or by proxy; they can vote on the proposed items on the agenda, receive, in accordance with the Commercial Code, explanations in matters relating to the Company, or any undertakings controlled by it, as the case may be, provided the explanation is necessary for understanding the matter addressed by the General Meeting, and they also have the right in accordance with the Commercial Code to raise proposals an counterproposals. Shareholders may lodge a protest against a decision of the General Meeting and demand that it be recorded in the Minutes of the General Meeting.
• As a rule, any requests for explanation, proposals, counterproposals and protests must be made by shareholders in writing, and filed with the information centre. Upon making the motion it must be specified whether it is a request for explanation, proposal, counterproposal or a protest. Any requests for explanation, proposals, counterproposals and protests submitted in writing must be legibly undersigned by the shareholder in question or their proxy.
• In keeping with the Commercial Code and the Company’s Articles of Association, the Board of Directors is obliged to provide an explanation upon request, in matters concerning the agenda of the General Meeting.
• At the General Meeting, a proposal by convener of the General Meeting is subjected to a vote first; if not passed, other proposals and counterproposals relating to the point in question are voted on, in the order in which they were submitted. As soon as a motion is passed, other counterproposals are not subjected to a vote. The Chairperson of the General Meeting is obliged to ensure that, prior to voting at the General Meeting, the shareholders are informed of all proposals and counterproposals made by shareholders in relation to the item of the agenda of the General Meeting which is put to a vote.

Also in 2009, all the necessary documents were available to all shareholders in print form, in two languages (Czech and English). The shareholders had the opportunity to study the principal documents (financial statements, report on the relationships with related undertakings, and any proposed amendments to the Articles of Association that may be on the agenda) within the statutory period prior to the date of the General Meeting in the premises of the Company’s headquarters; upon registration for the General Meeting, they received a full file of documents to be discussed at the meeting, including an overview of statements to be made by members of the Board of Directors in respect of the main points on the agenda. All the documents for the General Meeting and other relevant documents (e.g. the Articles of Association) were available to the shareholders also at the information centre which the Company operates for its shareholders at every General Meeting. Each point on the agenda was voted on separately, after the discussion on that point had been concluded. In addition to members of the Board of Directors and of the Supervisory Board (including its committees), as well as the representatives of the external auditor, were also available to take questions from shareholders throughout the General Meeting. A public notary is present for the whole duration of the General Meeting.

All motions (questions, requests for explanation, counterproposals and proposals) made by shareholders during the Ordinary General Meeting of 3 April 2009 (twenty one in total) were adequately addressed by the members of the Board of Directors and subsequently they were, together with the answers, recorded in the Minutes of the General Meeting. Shareholders did not raise any questions to Supervisory Board members, the chairpersons of the Supervisory Board committees and to representatives of the Statutory Auditor.

Telefónica O2 scrupulously and diligently complies with all national and community laws and the principles of the Code. In line with its mandatory duties and voluntary commitments, Telefónica O2 continually and pro-actively provides shareholders and investors with all vital information on its business, financial standing, ownership structure and governance issues. Furthermore, the Company is very scrupulous in seeing that all price-sensitive information and facts are disclosed in a full and timely manner. The Company also publishes various information beyond the scope of the disclosure duties on its website, and intends to continue its open information policy toward shareholders. The Company strives to provide the shareholders and investors with everything they may need for making qualified decisions regarding the ownership of the Company stock, and in voting at General Meetings. To this end, the Company uses various information channels and instruments: print media (Commercial Bulletin, Hospodářské noviny, annual and half-year reports, etc.), but more importantly the means of electronic communications, especially the Company website. The website (particularly the section About Us) provides investors and shareholders with all corporate documents and various information about the Company in the Czech and English languages. The Company regards the electronic platform for disseminating information as key, especially since many of its shareholders are international legal and natural persons; the website facilitates access to information about the Company, especially for the international institutional investors and for small shareholders. This in turn improves their opportunities for their active, effective and valid participation in the decisions relating to the matters of the Company.

The policy of transparency dictates that the Company makes sufficient disclosure about the remuneration of members of the Board of Directors and the Supervisory Board of the Company (and of the Supervisory Board committees). This matter is addressed in detail in sub-section Principles of remuneration of persons with executive powers in the issuer, which describes and explains the principles of the system for the remuneration of members of the Board of Directors, the Supervisory Board and other persons, and iterates other emoluments provided by the Company to these persons. The subsequent section (Other information relating to persons with executive powers) gives an account of benefits claimed in the past period. The Company’s website contains the current and previous versions of documents in this area (Rules for the Remuneration of Members of the Board of Directors, Rules for the Remuneration of Members of the Supervisory Board, Rules for the Granting of Discretionary Benefits to Members of the Supervisory Board). Members of the Board of Directors and of the Supervisory Board are entitled only to emoluments approved by the General Meeting, while the consideration of the adequacy and mechanisms of the remuneration system, and any changes thereto, are in the remit of the Nomination and Remuneration Committee of the Supervisory Board. The same principle and scope of transparency apply to the remuneration of the newly instituted Audit Committee as an independent body of the Company (information about the rules for the remuneration of members of this committee, and the value of pecuniary and in-kind benefits granted to members of the Audit Committee in 2009 is given in sub-section Organisation of Corporate Governance).

In line with its Business Principles, Telefónica O2 practices a zero tolerance of conflicts of interest. The procedures for the consideration and decisions in the governing bodies are aligned in a way that prevents members of the governing bodies from voting on matters which could compromise their impartiality (affiliated transactions). Potential conflicts of interests stemming from membership in the governing bodies of other companies, involvement in commercial transactions and other defined situations are subject to a regular review by the Ethics and Corporate Social Responsibility Committee (see sub-section Committees established by the governing bodies of the Company below).

The Company is scrupulous about the prevention of insider trading for unlawful personal enrichment in trading in the Company’s shares; in this respect, it is compliant with the applicable community and Czech laws, as well as with rules adopted by the UK Financial Services Authority. The Company has adopted a strict internal policy, which sets the limits for the disposal of shares issued by the Company or by undertakings that it controls. Telefónica O2 keeps a regularly updated list of persons (members of governing bodies, employees, external persons) who would qualify as insiders in possession of such information.

The Supervisory Board committees have been an integral part of the Company’s system of Corporate Governance since 1996 and continue to play a major role in discharging the powers of the Supervisory Board. In the definition of the remit and role of the committees, the Company observes the Code and the Commission Recommendation 2005/162/EC on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board, which was amended by Recommendation 2009/38/EC from April 2009. Basic information about the committees established by the Supervisory Board is given in sub-section Governing bodies of Telefónica O2 Czech Republic.

The decision making procedure at meetings of the committees of the Supervisory Board is laid down in the Company’s Articles of Association (Article 26); the activities of the committees observe the Rules of Procedure. All documents are available on the Company’s website (see also sub-section Transparency and open information policy).

The Audit and Control Committee (ACC) worked in Telefónica O2 until 3 April 2009, when it was dissolved by decision of the Ordinary General Meeting which passed an amendment to the Company’s Articles of Association; in its stead, the Audit Committee was instituted as an independent body of the Company. The ACC had five members and in the first quarter of 2009 (until 3 April 2009) it had the following members: Alfonso Alonso Durán, Chairman; Ángel Vilá Boix, Vice Chairman; Maria Pilar López Álvarez, Jaime Smith Basterra and Pavel Herštík, members. No member of the committee had been a certified accountant; all ACC members nevertheless met, by virtue of their education, professional path, practical experience and continued education in the field, all the requirements for due discharge of the office of a member of this key committee. The role and scope of the ACC authority were described in the Company’s 2008 Annual Report (Section Corporate Governance). In 2009 (until 3 April 2009) the ACC held two meetings.

The Nomination and Remuneration Committee (NRC) has five members and is, as per the Articles of Association, a mandatory committee of the Supervisory Board. The committee reviews in particular all matters relating to personnel changes in the Board of Directors, the Audit Committee, the Supervisory Board and the Supervisory Board committees. The committee also gives a standpoint on any nomination proposals for vacancies in the governing bodies of members of the Telefónica O2 Czech Republic Group. The NRC’s remit extends to reviewing the remuneration and other benefits granted to members of the Board of Directors and the Supervisory Board. The committee continually monitors and assesses the performance of members of the Board of Directors, the Audit Committee, the Supervisory Board and its committees; in this respect, the NRC also assesses the need for and promotes further education of members of the governing bodies, in particular in professional disciplines and languages.

The committee held two meetings in 2009. The NRC worked in the same composition throughout the year. As at the end of 2009, the committee had the following members: Jaime Smith Basterra, Chairman; Alfonso Alonso Durán, Vice Chairman Luis Lada Díaz, Guillermo José Fernández Vidal and Anselmo Enriquez Linares, members.

The Ethics and Corporate Social Responsibility Committee (ECSRC) is a voluntary committee of the Supervisory Board with six members, whilst observing the rule that a half of the ECSRC’s members are always Supervisory Board members elected by the employees, and the other half Supervisory Board members elected by the General Meeting. Every year, the committee addresses the issue of a potential conflict of interest; members of the Board of Directors, the Audit Committee, the Supervisory Board and members of the governing bodies in subsidiary companies are examined in this respect. The ECSRC regularly monitors compliance with the Company’s Business Principles, and the functioning of the confidential whistle-blowing channel, and it is regularly informed about the activities undertaken as part of the Compliance Programme for the prevention of unethical conduct. Another primary area of interest for the ECSRC is the promotion of Corporate Social Responsibility.

The committee held two meetings in 2009 and worked in the same composition throughout the year. As at the end of 2009 the ECSRC had the following members: Pavel Herštík, Chairman; Dušan Stareček, Vice Chairman; Jaime Smith Basterra, Tomáš Firbach, Luis Lada Díaz and Guillermo José Fernández Vidal, members.

Telefónica O2 values Corporate Social Responsibility (CSR) as an integral part of its operations and business. Given the scope and volume of the Company’s CSR initiatives, the Annual Report now contains a separate section (Corporate Social Responsibility (CSR)) dedicated to Corporate Social Responsibility.