ETERNIT’S CORPORATE GOVERNANCE MODEL IS BASED ON BEST MARKET PRACTICES

Constantly evolving, enhancing its management model and strengthening its business are all part of Eternit's story. Over its history stretching back 75 years, Eternit has always pursued best industry practices, especially with regard to ethics and transparency, which it considers core values. The company's position, recognition and solidity in the Brazilian market attest to its growth trajectory underpinned by sustainable operations and transparency in its accountability to society.

Governance structure

Listed on the Novo Mercado special listing segment of the BM&FBOVESPA since 2006, Eternit strives to adopt practices that exceed the requirements of Brazilian Corporation Law, the Novo Mercado Listing Regulations and the Securities and Exchange Commission of Brazil (CVM). As part of its continuous maturation and evolution, Eternit’s governance structure provides a transparent account of its activities to ensure the company’s perpetuity and respect for the environment and to create value for all of society. The guidelines established in Eternit’s bylaws are transparent, solid and constantly evolving to guarantee its prospects over the long term. Eternit was also a pioneer in the country for adopting, already in 2007, the International Financial Reporting Standards (IFRS).

In 2015, the governance structure comprised the Board of Auditors, the Board of Directors and their Advisory Committees: Audit, Controllership and Treasury Committee; Reporting, Social and Environmental Responsibility and Legal Committee; Strategic Planning Committee; and Human Resources Committee, in addition to the Executive Board and the Internal Controls and Internal Audit departments.

BOARD OF DIRECTORS

The Board of Directors, which is elected by the Annual Shareholders' Meeting, is an independent, collective body that, among other functions, determines the Company's strategic guidelines. Its activities, responsibilities and relationship with the Executive Board and other corporate bodies are defined in the Company's Bylaws and in its Charter. In 2015, the term of office of the Board of Directors and Executive Board changed from one to two years, taking effect as of the 2016 elections.

Formed by up to seven members, on December 31, 2015, the Board consisted 100% of independent directors, in accordance with the concept adopted by the Novo Mercado regulations of the BM&FBOVESPA. The Board holds at least six meetings every year and extraordinary meetings are held whenever necessary or called by one of the directors. Six meetings were held in 2015 and the main topics discussed included strategy, investments, legal issues related to chrysotile, exiting the American Depositary Receipts (ADR) program, the share repurchase program, etc.

To ensure the integrity of the decisions and comply with Brazilian Corporation Law, directors refrain from voting or acting on matters in which they have a potential conflict of interest with the Company.

Board Evaluation: Every year, the Board of Directors assesses its performance with a view to enhancing its functions based on pre-established criteria. The performance evaluation also contemplates each director's individual performance to ensure alignment with the short and long term interests of the Company and its shareholders.

Board Compensation: Directors are entitled to fixed and/or variable compensation. The fixed compensation is linked to their effective participation in Board meetings, i.e., directors who fail to attend meetings to consider and vote on matters are not entitled to payment for the corresponding month. Variable compensation can reach an aggregate amount of up to 1% of net income for the previous fiscal year and is paid after approval of the balance sheet by the Annual Shareholders' Meeting.

For detailed information on director compensation, please refer to the Reference Form 2016 available on the website of the Securities and Exchange Commission of Brazil (CVM) (www.cvm.gov.br) and on the Investor Relations website of the Company (www.eternit.com.br/ir).

Building Relationships

Talk to the Board: Eternit has a dedicated channel for communicating with the Board of Directors. Through the corporate website (http://www.eternit.com.br/fale-com-o-conselho), shareholders and anyone interested can get answers to questions and submit criticisms, compliments or suggestions.

ADVISORY COMMITTEES

The Board of Directors has four advisory committees established in accordance with its Charter: Audit, Controllership and Treasury; Reporting, Social and Environmental Responsibility and Legal; Strategic Planning; and Human Resources. The committees meet prior to the meetings of the Board of Directors and extraordinary meetings may be called and scheduled by any member of the Committee. The committees are formed by Directors, Officers and other professionals, and their purpose is to assist the Board of Directors on relevant matters, as per the predetermined agenda. After each meeting, a report is prepared by the committee's secretary.

Audit, Controllership and Treasury Committee: is charged with examining and approving matters related to the areas of Controllership, Financial, Accounting, Internal Controls and Audit, both internal and external, originating from the Executive Board, to submit them for consideration and vote by the Board of Directors, whenever necessary, in addition to proposing strategic guidelines for such areas.

Reporting, Social and Environmental Responsibility and Legal Committee: is charged with examining and approving matters related to the areas of Social and Environmental Responsibility, Investor Relations, Corporate Governance, Communication, Corporate Image and Legal originating from the Executive Board, to submit them for consideration and vote by the Board of Directors, whenever necessary, in addition to proposing strategic topics for such areas, with a special focus on the issue of chrysotile mineral.

Strategic Planning Committee: is charged with examining and handling topics related the areas of Development and New Business, including Strategic Planning, originating from the Executive Board, to submit them for consideration and vote by the Board of Directors, whenever necessary, in addition to proposing strategic guidelines for the growth of the Eternit Group.

Human Resources Committee: is charged with analyzing and handling topics related to the areas of compensation, succession, performance assessment and others related to the area of Human Resources, originating from the Executive Board, to submit them for consideration and vote by the Board of Directors, whenever necessary. It is also responsible for implementing the Share Repurchase Plan for the Executive Board.

AUDIT BOARD

Since 2013, shareholders convened in the Annual Shareholders' Meeting have considered installing the Board of Auditors, whose main responsibility is to supervise the Company's financial and accounting situation. Due to its installation, the Advisory Board, a body charged with advising the Board of Directors, remained vacant during 2015.

For detailed information on director compensation, please refer to the Reference Form available on the website of the Securities and Exchange Commission of Brazil (CVM) (www.cvm.gov.br) and on the Investor Relations website of the Company (www.eternit.com.br/ir).

Executive board

The Executive Board is responsible for establishing the management policies in accordance with the guidelines of the Board of Directors, while acting in conformity with the Bylaws and the Charter. The Executive Board meets whenever necessary to align and make decisions related to matters involving execution of the strategic plan, while monitoring the Group’s results and promoting synergies across its areas and companies.

INTERNAL CONTROLS

The Corporate Internal Controls department reports to the Chief Executive Officer and is responsible for protecting the Company's assets by adopting administrative standards and the proper execution of the procedures determined for each activity of the Group’s companies to ensure internal alignment with the particularities of each business. In 2015, the Internal Controls department adopted Control Self-Assessment (CSA) in its process for maintaining mandatory operational documentation at Eternit and Precon units to help them enhance their internal controls management.

INTERNAL AUDIT

Eternit has an independent Corporate Internal Audit department that reports to the Chief Executive Officer and conducts the verifications established in the annual calendar for validating compliance with its policies, procedures, code of ethics and legal requirements. It also receives solicitations from the Executive Board, the Audit, Controllership and Treasury Committee, the Board of Directors and/or the Board of Auditors for adaptations to the practices and activities of Eternit and its subsidiaries and jointly controlled company.

In 2015, 100% of the Group's companies were audited, a process through which the consistency of the information generated is meticulously assessed. The audit identifies all points of non-compliance and opportunities for improvement in processes, including those that do not generate financial losses.

EXTERNAL AUDIT

The external audit services related to the annual financial statements and conducted in accordance with the requirements of the Securities and Exchange Commission of Brazil (CVM) have been rendered by Ernst & Young since March 2012.

Policy and guidelines

Eternit understands that to build lasting relationships, it must establish clear guidelines for its business to support interaction between it and its various stakeholders. In 2006, Eternit and Precon Goiás established the Management Excellence Program, which, in 2012, was reformulated to become the Integrated System Policy