LOREAL_Registration_Document_2017

2 Corporate governance *

SUMMARY TABLE OF THE RECOMMENDATIONS OF THE AFEP-MEDEF CODE WHICH HAVE NOT BEEN APPLIED

SUMMARY TABLE OF THE RECOMMENDATIONS OF THE 2.7. AFEP-MEDEF CODEWHICHHAVE NOT BEEN APPLIED

Recommendations of AFEP-MEDEF Code

L’Oréal’s practices and justifications

Independence criteria for the Directors (point 8.5 of the code) Criterion providing that in order to be considered as independent a Director must not “have been a Director for more than twelve years”.

The Board of Directors carefully examined the situation of Mr Xavier Fontanet and Mr Bernard Kasriel whose tenures have exceeded 12 years. The Board of Directors took into account the objectivity that Mr Xavier Fontanet and Mr Bernard Kasriel have always shown at the time of the debates and decisions of the Board, their ability to express their convictions from specific and different angles and provide a balanced judgement under all circumstances during Board discussions, notably, with regard to General Management. They have consistently shown, thanks to their experience as senior management executives at the very highest levels of large international groups and their current and previous eminent duties outside of the Board, an independent spirit, perspective and remarkable freedom to speak, enabling them to simultaneously challenge and support General Management in defining the Group’s strategy. Their good knowledge of the Group adds to their well-informed, critical judgment capacity. Furthermore, the Board considered that the personality, leadership and commitment shown by Mr Xavier Fontanet, recognised by L’Oréal’s shareholders, 98.28% of whom approved the renewal of his tenure on 17 April 2014, were all guarantees of his independent-mindedness. The tenure of Mr Fontanet expires at the close of the Annual General Meeting on 17 April 2018. Mr Fontanet has informed the Board of Directors that he did not wish to renew his tenure. The Board also considered that the freedom of speech, close involvement and critical mind of Mr Bernard Kasriel, whose tenure was renewed by 98.49% of the shareholders on 20 April 2016, are all qualities proving his independence. These qualities, combined with a deep understanding of the Group, enable them to understand the challenges facing the Company in order to make an effective contribution to the work of the Board in the sole interest of the Company and to provide perspective on its decisions while ensuring the continuity of the Board's debates. The Audit Committee consists of 60% of independent Directors ( i.e. , three out of five, excluding Directors representing the employees). The committee is chaired by Mrs Virginie Morgon, an independent Director. The Board of Directors considers this composition satisfactory in light of the necessary presence of two Directors from L’Oréal’s majority shareholders and its choice of maintaining a limited number of members in order to ensure the efficiency of the work of this committee which requires a certain level of expertise in finance or accounting. The Appointments and Governance Committee currently consists of 50% independent Directors. The committee is chaired by Mrs Sophie Bellon, an independent Director. Furthermore, it should be noted that the Haut Comité du Gouvernement d’Entreprise specified that “an Audit Committee that consists of three independent members out of five, or a Remuneration Committee with two out of four, remains in keeping with the spirit of the code as long as they are chaired by an independent Director” (report of October 2014) The Board of Directors considered that the objective pursued by this recommendation can be fully achieved by maintaining the suspension of the employment contract and clearly separating out the benefits related to the employment contract on the one hand from those relating to his corporate office on the other. Furthermore, the Board of Directors has decided to eliminate all right to any indemnity in the event of termination of the corporate office. This position of the Board applies to the current office of Mr Jean-Paul Agon and, in future, to any new executive officer appointed who has over 15 years’ length of service in the Group at the time of appointment. L’Oréal’s ongoing policy has been to appoint employees who have completely succeeded in the various stages of their career in the Group as executive officers. This is how Mr Jean-Paul Agon, then Deputy Chief Executive Officer, was appointed as Chief Executive Officer of L’Oréal in April 2006, following a brilliant career spanning 27 years with L’Oréal. The Board of Directors noted that if, in accordance with the AFEP-MEDEF recommendation, Mr Jean-Paul Agon’s employment contract with L’Oréal was to be terminated, Mr Agon would lose the status he acquired as a result of the twenty-seven years he spent working for the Group as an employee. Indeed, the AMF considers that a company complies with the AFEP-MEDEF Code when it justifies the maintenance of its executive officer’s employment contract on the basis of his length of service as an employee in the Company and his personal situation (2014 AMF report on Corporate Governance and Executive Compensation).

Composition of the board committees: proportion of independent members on the committees (points 15.1, 16.1 and 17.1 of the code): The proportion of independent Directors on the Audit Committee must be at least two-thirds.

The Selection or Appointments Committee and the Remuneration committee must be composed of a majority of independent Directors.

The executive officer’s employment contract (point 21 of the code): It is recommended, though not mandatorily required, that when a senior manager or executive becomes a corporate officer of the Company, his/her employment

contract with the Company or another company of the Group should be terminated by agreed termination or by resignation.

REGISTRATION DOCUMENT / L'ORÉAL 2017

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