Report on Compliance and Ethics

Transcription

1 AVANGRID, Inc. CORPORATE COMPLIANCE 14 / February / 2018 Report on Compliance and Ethics

2 I. Introduction This report describes actions taken by Avangrid and subsidiary management in connection with the companies Compliance and Code of Business Conduct and Ethics Program (collectively Compliance Program ). This report is made annually to the Avangrid Audit and Compliance Committee ( ACC ) and acknowledged by the Avangrid Board of Directors. The Board of Directors of Avangrid, Inc. (the Company or Avangrid ) oversees the management of Avangrid and its business with a view to enhancing the long-term value of Avangrid for its shareholders. Avangrid s corporate governance system is inspired by, and based, on a commitment to ethical principles, transparency and leadership in the application of best practices in good governance and is designed to be a working structure for principled actions, effective decisionmaking and appropriate monitoring of both compliance and performance. The Company s By-Laws, the Corporate Policies, the internal corporate governance rules and the other internal codes and procedures approved or adopted by Avangrid's Board of Directors form the framework of governance of Avangrid. Avangrid s corporate governance system is periodically reviewed by the Board of Directors, and is subject to modification from time to time. Avangrid is a member of the Iberdrola group of companies, of which Iberdrola, S.A. is the controlling member. Reflecting the mission, vision and values of the Iberdrola group, the Iberdrola corporate governance system articulates the rules and principles governing the organization, operation, and conduct of Iberdrola group. Avangrid s Compliance and Ethics Program (the Program ) serves as a resource for establishing a culture of high ethical standards and compliance with applicable laws and regulations. The Program is administered by the Company s Compliance and Ethics Division, and is based on the criteria for an effective compliance program established under Chapter 8 of the U.S. Federal Sentencing Guidelines. Central to the Program is a focus on continuous improvement and adoption of industry best practices. The following are examples of key components of the Program: a. AVANGRID Code of Business Conduct and Ethics The Company s Board of Directors has adopted a Code of Business Conduct and Ethics (the Code ) applicable to all Avangrid directors, officers and employees. The Code describes the Company s core values, such as Corporate Ethics and Responsibility, Respect for the Environment, Safety and Reliability, and Customer Focus. Consistent with these values, the Code establishes standards of conduct and provides guidance for employees to make appropriate decisions when faced with issues of an ethical nature. b. Annual Ethics Training Employees are trained annually on the Code of Business Conduct and Ethics. The training focuses on key areas of ethics and compliance and scenarios that implicate the Code and reinforces the Company s commitment to ethics and compliance with applicable laws and regulations. Completion rates for this training have historically achieved near 100% through a commitment of the Company s leadership and employees. This training is supplemented by additional trainings for certain employee groups that face particular areas of compliance risk in their operations. c. Communications Program Through a collaboration of the Company s Corporate Communications and Compliance groups, employees receive regular communications intended to provide guidance and raise awareness on common ethics and compliance issues faced in the workplace. 1

3 d. Helpline Avangrid has established a 24/7 Helpline available to employees, contractors, consultants, and suppliers. The Helpline is used both to seek guidance on ethics and compliance-related matters, and to report situations that may require investigation, such as questionable accounting or auditing practices, unprofessional behavior, and potential violations of laws or company policies. Callers are given the option of reporting through the Helpline anonymously. Avangrid strictly prohibits retaliation against employees who in good faith report ethics and compliance concerns. e. Compliance Risk Assessments The Company regularly conducts risk assessments of its business operations that involve important compliance-related activities. These assessments help the Company identify key areas of risk, ensure that internal controls have been implemented for compliance, and focus compliance resources in a risk-based manner. II Report Avangrid and its subsidiaries Avangrid Networks and Avangrid Renewables all have compliance programs designed to meet the United States Department of Justice Guidelines for effective compliance programs. These compliance programs provide for the appointment of a senior officer of the company as the Chief Compliance Officer with direct access to the CEO and to the Board of Directors, as well as the preparation of compliance reports. The Avangrid Audit and Compliance Committee ( ACC ) Charter, Section 4(2)(e), establishes that the ACC is responsible for overseeing the operation of the Company s compliance program. The Company s ACC periodically reviews the Company s compliance program, including reports on the FERC Compliance Program and Separation of Activities. This report describes actions taken by the Avangrid Compliance Division and subsidiary management in connection with the Company s Compliance Program and 2017 Master Compliance Plan (the Compliance Plan ). The Compliance Plan was approved on December 14, 2016, by the ACC. This report is made annually pursuant to the ACC Charter adopted by Avangrid s Board of Directors. Based on the overall results of the Compliance Plan and other compliance-related initiatives taken by Avangrid and its subsidiaries in 2017, including, without limitation, those reflected in this report, the Avangrid Chief Compliance Officer certified that for 2017 the Compliance Program was effective and complied in all material respects with applicable legal and regulatory requirements for such programs. In addition, pursuant to a Crime Prevention Program described below, the Avangrid Chief Compliance Officer certified to the Avangrid ACC that Avangrid had implemented internal controls, policies and procedures designed to ensure Avangrid s material compliance with certain laws with criminal penalties applicable to Avangrid s activities. The following are some of the actions taken in 2017 that support the certification made by the Chief Compliance Officer: III. The Company s subsidiaries have established compliance programs designed to meet United States Department of Justice guidelines for effective compliance programs The Avangrid operating subsidiaries, Avangrid Networks and Avangrid Renewables, conduct annual training for compliance regarding certain regulations, including market rules and standards for separation of conduct. In addition, the Avangrid operating subsidiaries have adopted the Avangrid Code of Business Conduct and Ethics and provide periodic training on ethics in the workplace, business conduct, and government relations. The compliance plan adopted by Avangrid in 2017 focused on a coordination of the subsidiary compliance plan activities of its subsidiaries. 2

4 IV. Adoption of New Avangrid Code of Business Conduct and Ethics In 2017, the Board of Directors adopted a substantially reformatted Code of Business Conduct and Ethics, designed to enhance readability and ease of use. The principles and standards in the Code remain the same, but are presented in a new and more visual layout, including numerous examples and FAQs to better explain how the Code is applied. The new Code of Business Conduct and Ethics was adopted as part of a larger refreshment of the Company s corporate governance system and came in response to feedback from some employees that the Code and other corporate governance documents were too legalistic and difficult to understand. These improvements also align the Code with U.S. best practices in governance, ethics, and compliance for leading companies. The new Code is publicly available on the Company s website at V. Training on the Avangrid Code of Business Conduct and Ethics The Company s annual Code of Business Conduct and Ethics training was launched to all Avangrid employees and to select third-party service providers in the second quarter of The training reinforced the expectations and requirements for working in a corporate culture that prioritizes ethical behavior and compliance with the Code, applicable laws, and regulations. All employees were required to complete the training, excluding certain employees unable to take the training due to reasons such as extended sickness or disability leave or retirement. The following were notable features of the 2017 training: The training was substantially redesigned to use a more stimulating format, including videos and point-and-click interaction. A supplemental module was included to reflect U.S.-specific concepts, including restrictions on affiliate transactions, and state law gift and hospitality restrictions applicable to government employees. A test was included at the end of the training to confirm retention of key concepts. Statements regarding compliance with the Code of Business Conduct and Ethics were included for confirmation by employees. This training is supplemented by other compliance-related training programs in key aspects of the Company s operations. Key areas that groups of employees were trained in included: FERC Standards of Conduct NERC and Cyber Security Reporting of compliance-related issues in the workplace VI. Reports made to the Compliance Division for the purpose of (i) reporting suspected or actual compliance violations; or (ii) seeking guidance on ethics and compliance matters and policies The following bullets summarize ethics and compliance reports made directly or indirectly to the Company s or its subsidiary s Compliance Divisions during 2017, including those made using the 24/7 reporting service (the Helpline ). The Company offers the Helpline to its employees, subsidiaries and third parties for purposes of reporting suspected or actual ethics and compliance violations, and for seeking guidance on ethics and compliance 3

5 questions. Contact information for the Helpline is communicated to employees and available on the Company s public website. The Helpline allows callers to make anonymous reports, and is administered by an outside service provider. Helpline reports were received with respect to various matters during Reports made during 2017 included both anonymous and identified reports. Certain of these reports were found to be not compliance-related, but instead customer or business-related, or to relate to outside contractor activities. Such reports were referred to the appropriate Business Area or outside contractor for resolution. Compliance-related reports were screened and investigated. Substantiated reports resulted in employee discipline, including employment termination, and process and control improvements. The totals, trends, and significant matters were reviewed with the CEO and the ACC. An analysis by the Company s Compliance Division suggests that subject areas for Helpline allegations were typical of the types of complaints received by other companies in the United States using helpline reporting services. Certain reports made to the Compliance Division were inquiries seeking ethics and policy guidance. The volume of inquiries seeking guidance is an indicator of a mature compliance program, as employees seek guidance prior to taking questionable actions. The Company continues to take steps to encourage its employees to seek ethical guidance when appropriate. VII. Annual conflict of interest survey and compliance statement A conflict of interest survey (the Survey ) was distributed to Avangrid officers in The Survey completion rate was 100%. The questions on the Survey were intended to facilitate disclosure of outside activities and potential conflicts of interests. The questions were also intended to facilitate disclosure of potential violations of the Iberdrola Code of Ethics that had not previously been reported to the Compliance Division, Human Resources, or other appropriate Company management. Responses were reviewed to identify potential conflicts of interest and other compliance issues. At the end of the Survey, respondents were asked to confirm a statement regarding their obligation as Avangrid employees to comply with the Code of Ethics and applicable Company policies and procedures. VIII. Compliance-related training and corporate governance actions taken by the Avangrid Board of Directors In addition to the revised Code, the Avangrid Board of Directors and the ACC approved a number a new Anti-Corruption Policy in support of the Compliance Program. The Board of Directors and ACC were trained on compliance-related subjects during the year, including, without limitation, the operations of the Compliance Program, the Board s corporate governance and oversight obligations with respect to ethics and compliance, and the Company s Crime Prevention Program. In addition, the Compliance Division met with the ACC regularly in 2017 to provide updates and to discuss the status of the Compliance Plan and other compliance-related matters. 4

6 IX. Crime Prevention Program In 2017, the Avangrid Compliance Division, pursuant to direction from its Board of Directors, continued to administer a Crime Prevention Program intended to enhance and support Avangrid s existing Compliance Program. This program is in furtherance of the Company s Crime Prevention and Anti-Fraud Policy and Anti-Corruption Policy, which require the Company to implement an effective program for the prevention of criminal offenses. In a company-wide collaboration including Legal Services, outside consultants, affected Business Areas, and the Avangrid Compliance Division, certain criminal laws applicable to Avangrid s activities were identified and Business Areas within the Company were designated as responsible for compliance. These Business Areas then underwent a process of identifying controls applicable to these laws. Consistent with the Company s approach to other elements of the Compliance Program, the Crime Prevention Program is subject to continuous improvement and refinement efforts. In addition, in 2017 the international law firm Hogan Lovells completed an assessment of the Avangrid Crime Prevention Program, of which the Company s program is a part. The following is an excerpt from Hogan Lovell s report The findings contained in this report demonstrate that the Crime Prevention Program implemented at the Company enhances and supports Iberdrola S.A. s world-wide compliance program. Having reviewed all of the information and documentation that we have deemed necessary to audit AVANGRID s Crime Prevention Program, all of which were duly provided, we conclude that the Company s internal controls are effectively designed and implemented to mitigate the risk of criminal conduct.... AVANGRID s Crime Prevention Program fulfills the United States Sentencing Guidelines ( U.S.S.G. or Guidelines ) broad directive to prevent and detect criminal conduct and to promote an organizational culture that encourages ethical conduct and a commitment to compliance with the law. U.S.S.G. 8B2.1(a). The Company s risk-based approach to compliance, in which AVANGRID evaluates compliance risks and prioritizes how to address those risks, is endorsed in the United States Department of Justice s and Securities and Exchange Commission s relevant guidance documents. See, e.g., A Resource Guide to the U.S. Foreign Corrupt Practices Act, United States Department of Justice and Securities and Exchange Commission, November 14, 2012, at ( FCPA Guide ).... We issue a favorable technical opinion of the Company s internal controls, which, in our view, are useful to significantly mitigate the risk of violations of law, regulations, and the Company s internal policies. X. Ethical Boardroom Corporate Governance Award In 2017 Avangrid was awarded the Best Corporate Governance for North American Utilities Award by Ethical Boardroom for the second consecutive year. Ethical Boardroom s Corporate Governance Awards recognize companies with outstanding corporate governance practices that play an essential role in protecting and enhancing long-term value for all stakeholders. 5

7 XI. Ethics and compliance communications to Avangrid employees In collaboration with the Company s Corporate Communications function, the Compliance Division continued its communication plan intended to provide guidance and raise awareness among employees on common ethics and compliance issues. This communication plan included articles disseminated by newsletter and . Examples of topics included: Gifts, hospitality, and use of the Company s gift register Conflicts of Interest Use of company assets Workplace harassment Helpline reporting and retaliation Political activity in the workplace XII. Background check screening of new employees, persons promoted to Director-level or higher, and third-party contractors Pursuant to Company policy, all prospective employees are subject to a criminal background check prior to being hired. Persons promoted or hired into a Director-level or higher position are subject to both criminal and civil background checks. Such persons are considered by Avangrid to be substantial authority personnel under the U.S. Federal Sentencing Guidelines. Human Resources is responsible for ensuring that background checks are initiated and processed in compliance with Company policies and applicable law. Human Resources confirmed to the Compliance Division that required background checks were conducted on all new hires and all persons promoted to Director-level or higher. The Company has also implemented a Contractor Background Check Rule for certain subsidiaries (the Rule ). The Rule generally requires that affected contractors periodically conduct criminal background checks on their employees who have regular access to the Company s sensitive assets, computer systems, and confidential information. The Avangrid Business Area that engages an outside contractor is responsible for enforcing the Rule. Affected Avangrid Business Area Leaders certify compliance with the Rule on an annual basis (after appropriate due diligence). XIII. Compliance Division personnel All Avangrid and Avangrid subsidiary Chief Compliance Officers have been certified as Certified Compliance & Ethics Professionals ( CCEPs ). This concludes the Avangrid Annual Report on Compliance and Ethics. ************************************************************************************************************************************* 6