VNET strictly complies with relevant laws and regulations of our operation and listing areas, and constantly improves the modern corporate governance structure. Our robust governance structure consists of the general meeting of shareholders, the Board of Directors and its subordinate committees and management. Under the supervision and guidance of these Board committees, the Board of Directors provides consultation and suggestions on the management of various divisions, including formulating relevant strategies, supervising their implementation, and monitoring the operational and financial performance of the Group, ensuring soundness of internal control and risk management systems.
We value the independence and diversity of Board members. The Audit Committee, the Nomination and Corporate Governance Committee and the Compensation Committee of the Board of Directors are all led by non-executive independent directors. Various factors, including but not limited to expertise, industry experience and qualifications, educational and cultural background, gender, race, etc., are considered in the selection process and the appointment of Board members. This course of action ensures that an appropriate balance is maintained in terms of skills, experience and diversity of views, thereby enhancing the effectiveness of the Board.
As of the end of the reporting period, the Board of Directors consisted of six members, including one executive director and five independent non-executive directors. Independent directors account for 83% of the total.
The Group encourages our directors to participate in appropriate professional training and courses, as well as providing them with legal and regulatory updates for reference and study, aiming to enhance the Board's compliance awareness and performance. We invest in anti-corruption training for them, focusing on anti-corruption training for directors. In 2022, all directors of the Group have participated in various forms of anti-corruption training.
VNET's Board of Directors and management are responsible for ensuring that the Group's ESG strategy and related activities, including climate-related issues, are both relevant and effective. The Group has established an ESG governance structure with the Board of Directors taking the responsibility, management taking the lead, enhancing cross-functional cooperation and cross-level collaboration. The Group has incorporated ESG management philosophy into Group's major decisions to promote high-quality development of the enterprise.
Tier 1: The Board of Directors steers the ESG strategy of the Group and takes ultimate responsibility for ESG-related matters. The Strategic Advisory Committee takes the role of supervision to effectively supervise and manage the implementation of the ESG-related work at the Group level.
Tier 2: Led by the CEO, the ESG Execution Committee is comprised of senior management of relevant departments. The Committee is mainly responsible for developing ESG strategies, annual performance targets and plans of key improvement areas. The Committee reports the progress of ESG-related work to the Board of Directors on a quarterly basis. As the coordinating organization, the ESG Center is responsible for coordinating the planning, promotion and implementation of ESG-related work.
Tier 3: The ESG Working Group, consisting of leaders from respective functional departments, promotes both the internal and external ESG-related work.
Tier 4: The Group platform, our subsidiaries and affiliates implement the ESG-related work with the assistance of coordinating department and professional consultants.
VNET firmly believes that the effective risk management and internal control hold the key to the success of the Group operation. In accordance with the NASDAQ's Corporate Governance Guidelines and other guidelines, we develop risk management and internal control systems tailored to the characteristics of our business development. We identify and give early warnings to financial and nonfinancial risks in the operation process to form an effective risk prevention and control mechanism. We also clearly define the roles and responsibilities of the Board of Directors, management, internal control teams and external audit agencies in the risk prevention and control system to ensure both soundness and effectiveness.
Based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), VNET follows the three lines of defense for risk management under the Sarbanes- Oxley Act, clarifies the level and role of risk management and develops specific control procedures for various risks.
This year, VNET further strengthened the identification, assessment, management and supervision of risks within the business. We updated and issued the Risk Management Policy to clarify the definition and process of risk identification, classification, assessment, control, etc. to standardize risk prevention and control, effectively avoid and reduce data center operation risks, and ensure safe and reliable data center operation. At the same time, we strengthened personnel training and evaluation to enhance the team's risk awareness and coping capability.
VNET pays close attention to risks that are highly sensitive to corporate operations, including the risk of relevant transactions, implement a comprehensive and forward-looking risk management work, and effectively control potential risks such as climate change and energy supply risks. We have formulated a series of emergency response guidelines, such as the Response System for Sudden onset Emergencies, and obtained the disaster recovery information security service qualification certification issued by China Cybersecurity Review Technology and Certification Center, which safeguards the normal business operation of the Group amid potential risks.
This year, the Group further carried out risk identification and materiality assessment, including risks of information security, human resource, and climate change. The risk assessment results and internal control system effectiveness were reported to the Board of Directors and accepted its supervision.
We conduct annual test and self-evaluation of the effectiveness in the design and execution of the internal control system, and invite external auditors annually to assess the effectiveness of the internal control of financial reports and disclose the significant defects of the internal control identified in non-financial reports. The full text of financial and internal control audit reports presented by the auditors are published on our official website for review and supervision by all stakeholders.
We believe in the importance of upholding business ethics in the fiercely competitive and fast-changing global business environment and pledge to conduct business operations in accordance with the highest ethical standards. We formulated and issued the Code of Business Conduct and Ethics, requiring employees of the Group and third-party agencies to engage in business activities accordingly, and also conducted ethical training for all employees (including part-time) and contractors.
VNET adheres to the concept of "conduct business with integrity". We strictly abide by relevant laws and regulations, including the Company Law of the People's Republic of China, the Anti-Unfair Competition Law of the People's Republic of China, the Anti-Monopoly Law of the People's Republic of China, the Foreign Corrupt Practices Act of the United States, and the Sarbanes-Oxley Act. We have also established a complete and sound compliance management system tailored to the Group. The Group formulated and issued the Regulations on Compliance and Information Security Management and other systems, which specify issues such as anti-corruption, antimonopoly, intellectual property and confidentiality, and form a three-tier compliance management system.
The Group gives high priority to the construction of compliance culture and actively organizes publicity and education on compliance. We set up a series of compliance courses through the VNET E-learning platform. In addition, all employees are required to enhance their compliance awareness and improve the business ethics of compliance, veracity and integrity.
VNET adopts zero-tolerance policies towards corruption. Adhering to the principles of education, supervision, punishment, and protection, we establish a complete integrity management system and formulate various policies, such as the Gift Registration System, the Integrity Inspection System, the Integrity and Whistleblowing Rewards Program, and the Whistleblowing and Whistleblower Protection Policy. In addition to specifying the anti-corruption system, supervision management, integrity education, whistleblowing, and investigation, we also require all employees and third-party suppliers to sign the Anti-bribery Commitment Letter, and implement an effective anti-corruption mechanism, to ensure the access in advance, early warning in the process, and law enforcement afterwards, thus ensure the healthy, stable and long-term development of the Group.
VNET establishes an anti-corruption risk identification management process, conducts regular bi-annual inspections to identify risks and urge relevant departments to resolve risks in a timely manner. We develop the risk identification, assessment and control process, and identify potential integrity risks and management loopholes within the Group in the daily work based on the risk identification and evaluation system model. After confirming the existence of risks, relevant departments will conduct investigations and carry out quantitative analysis of integrity risks. According to the complaints from external channels, we also investigate post responsibilities and corruption risks, identify the risks of corruption events and solve them promptly.
This year, VNET organized various departments of the Group to carry out a bribery risk assessment to identify, analyze, evaluate and address bribery risks involved in the departments and evaluate the effectiveness of countermeasures.
VNET has developed an effective whistleblowing process and whistleblower protection system, and resolutely fights non-compliant misconducts such as accepting, giving or seeking bribes, and kickbacks. Any external and internal stakeholders can make a report or complaint, either using their name or remaining anonymous, by e-mail, phone, or other means.
For reports and complaints that requires further investigation, we will immediately initiate investigation process and set up an investigation team to carry out the work. The investigation process and results are reported directly to both the management and the Board of Directors.
This year, there was no corruption and bribery related lawsuits against the Group or its employees.
The Group respects and protects every whistleblower. We adhere to the "protection of whistleblowers and anonymous investigations" to firmly safeguard their interests. We also strictly control the access to whistleblowing-related information within the Group. Confidential materials that are involved in the investigations are protected through such means as technical encryption and physical isolation. We will not disclose the whistleblower-related information without the whistleblower's consent. We will also strictly limit the scope of disclosure when the identity of the whistleblower is required to be disclosed for investigative purposes or as required by law. The Group also accepts anonymous whistleblowing and makes the channels available.
The Group seriously deals with the investigators who violate the confidentiality of whistleblowing and/or improperly perform their duties, as well as those who retaliate against the whistleblowers or take hostile measures against the investigators, in accordance with the law. If the circumstances are serious enough to constitute a crime, they shall be transferred to judicial authorities.
In 2022, VNET further improved the Whistleblower Protection System, clarified the key aspects of the whistleblower protection mechanism and popularized self-protection methods to employees.
VNET highly values the anti-corruption training and focuses on building a corporate culture of transparency and integrity. The Group has set up an Integrity Education column on the i-Vnet platform to regularly post integrity education content and warning cases to establish employees' awareness of clean practices. We have included anti-corruption training courses in our employee training system to popularize the Group's anti-bribery culture, penalties for bribery, reporting requirements and whistleblower protection. Furthermore, we have included anti-corruption training test results in new employee assessments during their probation period. In 2022, VNET achieved 100% coverage of anti-corruption training for directors and employees as well as 100% pass rate in anticorruption training exams for new employees.
Based on the business characteristics of departments, we carry out integrity training and educational seminars tailored to those departments and positions with higher corruption risks, and supervise their behaviors in daily management. Since VNET joined the Anti-Fraud Alliance (hereinafter referred to as "the Alliance") in 2019, we have participated in online courses and offline training sessions organized by the Alliance regularly to ensure the best practice of business ethics and compliance requirements are met.
As a participant of United Nations Global Compact (UNGC), VNET has always unswervingly supported and protected internationally recognized human rights. We strictly comply with the Labor Law of the People's Republic of China, the Provisions on the Prohibition of Using Child Labor, and other relevant domestic laws and regulations. Meanwhile, we commit to abide by international human rights conventions and incorporate them into the Group's governance activities, including Universal Declaration of Human Rights of United Nations, Guiding Principles for Business and Human Rights of United Nations, the Ten Principles of the United Nations Global Compact, Core Labor Standards of International Labor Organization, and the Convention on the Elimination of All Forms of Discrimination against Women of International Labor Organization.
We oppose any disregard or violation of human rights, and never tolerate any unlawful discrimination or harassment against race, ethnicity, region, gender, age, nationality or class, etc. We incorporate personal privacy protection, employee rights protection, and supply chain human rights protection into our business activities. We also respect the rights to subsistence and development for the impoverished, the disabled and other special groups, and offer support to the development of human rights in disadvantaged and remote areas.
