Economic Aspects - ST Management Approach

Disclosure on Management Approach
Corporate Governance
Our consistent commitment to the principles of good corporate governance is evidenced by:

• Our corporate organization under Dutch law that entrusts our management to a Managing Board acting under the supervision and control of a Supervisory Board totally independent from the Managing Board. Members of our Managing Board and of our Supervisory Board are appointed and dismissed by our shareholders.
• Our early adoption of policies on important issues such as “business ethics” and “conflicts of interest” and strict policies to comply with applicable regulatory requirements concerning financial reporting, insider trading and public disclosures.
• Our compliance with Dutch law, because we are a company incorporated under the laws of the Netherlands, as well as our compliance with American, French and Italian securities laws, because our shares are listed in these jurisdictions, in addition to our compliance with the corporate, social and financial laws applicable to our subsidiaries in the countries in which we do business.
• Our broad-based activities in the field of corporate social responsibility, encompassing environmental, social, health, safety, educational and other related issues.
• Our implementation of a non-compliance reporting channel (managed by a third party) for issues regarding accounting, internal controls or auditing. A special ombudsperson has been appointed by our Supervisory Board, following the proposal of its Audit Committee, to collect all complaints, whatever their source, regarding accounting, internal accounting controls or auditing matters, as well as the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.
• Our Principles of Sustainable Excellence (“PSE”), which require us to integrate and execute all of our business activities, focusing on our employees, customers, shareholders and global business partners;
• Our Ethics Committee, whose mandate is to provide advice to management and employees about our PSE and other ethical issues;
• Our Chief Compliance Officer, who reports to the Chief Administrative Officer and the Audit Committee, acts as Executive Secretary to our Supervisory Board and chairs our Ethics Committee; and
• Our Head of Internal Audit, who reports to our Audit Committee.

As a Dutch company, we are subject to the Dutch Corporate Governance Code, as may be revised from time to time. As we are listed on the NYSE, Euronext Paris, the Borsa Italiana in Milan, but not in the Netherlands, our policies and practices cannot be in every respect consistent with all Dutch "Best Practice" recommendations. We have summarized our policies and practices in the field of corporate governance in the ST Corporate Governance Charter, including our corporate organization, the remuneration principles which apply to our Managing and Supervisory Boards, our information policy and our corporate policies relating to business ethics and conflicts of interests, which has been approved by our shareholders. We are committed to informing our shareholders of any significant changes in our corporate governance policies and practices at our annual shareholders' meeting. Along with our Supervisory Board Charter (which includes the charters of our Supervisory Board Committees) and our Code of Business Conduct and Ethics, the current version of our ST Corporate Governance Charter is posted on our website (www.st.com) and all such documents are also available in print to any shareholder who requests them

Supervisory Board
Our Supervisory Board advises our Managing Board and is responsible for supervising the policies pursued by our Managing Board and the general course of our affairs and business. Our Supervisory Board consists of such number of members as is resolved by the annual shareholders' meeting upon a no-binding proposal of our Supervisory Board, with a minimum of six members. Decisions by our annual shareholders' meeting concerning the number and the identity of our Supervisory Board members are taken by a simple majority of the votes cast at a meeting, provided quorum conditions are met (15% of our issued and outstanding share capital present or represented). Resolutions of the Supervisory Board require the approval of at least three-quarters of its members in office. The Supervisory Board must meet upon request by two or more of its members or by the Managing Board. The Supervisory Board has established procedures for the preparation of Supervisory Board resolutions and the calendar for Supervisory Board meetings. The Supervisory Board meets at least five times a year, including once a quarter to approve our quarterly and annual accounts and their release. Our Supervisory Board has adopted a Supervisory Board charter setting forth its duties, responsibilities and operations; this charter is available on our website.
There is no mandatory retirement age for members of our Supervisory Board pursuant to Dutch law. Members of the Supervisory Board may be suspended or dismissed by the shareholders' meeting. The Supervisory Board may make a proposal to the shareholders' meeting for the suspension or dismissal of one or more of its members. The members of the Supervisory Board receive compensation as authorized by the shareholders' meeting. Each member of the Supervisory Board must resign no later than three years after appointment, as described in our Articles of Association, but may be reappointed following the expiry of such member's term of office. 

Audit Committee
The Audit Committee was established in 1996 to assist the Supervisory Board in fulfilling its oversight responsibilities relating to corporate accounting, reporting practices, and the quality and integrity of our financial reports as well as our auditing practices, legal and regulatory risks, execution of our auditors' recommendations regarding corporate auditing rules and the independence of our external auditors.

Compensation Committee
Our Compensation Committee proposes to our Supervisory Board the compensation for our President and Chief Executive Officer and sole member of our Managing Board, as well as for our Chief Operating Officer, including the variable portion of such compensation based on performance criteria recommended by our Compensation Committee. It also approves any increase in the incentive component of compensation for our executive officers. The Compensation Committee is also informed of the compensation plans for our executive officers and specifically approves stock-based compensation plans for our executive officers and key employees.

Strategic Committee
Our Strategic Committee was created to monitor key developments within the semiconductor industry and our overall strategy, and is particularly involved in supervising the execution of strategic transactions. 

Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee was created to establish the selection criteria and appointment procedures for the appointment of members to our Supervisory Board and Managing Board, and to resolve issues related to corporate governance. 

Managing Board
In accordance with Dutch law, our management is entrusted to the Managing Board under the supervision of the Supervisory Board. Mr. Carlo Bozotti, initially appointed in 2005 for a three-year term, and reappointed for successive three-year terms in 2008 and 2011, with a present mandate that will expire at our annual shareholders' meeting in 2014, is currently the sole member of our Managing Board and performs the function of President and Chief Executive Officer. Mr. Didier Lamouche serves as Chief Operating Officer, reporting to Mr. Bozotti. Since its creation in 1987, the Managing Board has always been comprised of a sole member. The member of the Managing Board is appointed for three-year terms, which may be renewed one or more times in accordance with our Articles of Association upon a non-binding proposal by our Supervisory Board at the shareholders' meeting adopted by a simple majority of votes cast at a shareholders' meeting where at least 15% of the issued and outstanding share capital is present or represented. Our shareholders' meeting may suspend or dismiss one or more members of our Managing Board at a meeting where at least one-half of the outstanding share capital is present or represented. 

Financial reporting
We report our financial statements in US dollars and prepare our Consolidated Financial Statements in accordance with generally accepted accounting principles in the United States ("U.S. GAAP"). We also report certain non-U.S. GAAP financial measures (net operating cash flow and net financial position) which are derived from amounts presented in the financial statements prepared under U.S. GAAP. Furthermore, since 2005, we have been required by Dutch law to report our statutory and Consolidated Financial Statements, previously reported using generally accepted accounting principles in the Netherlands, in accordance with International Financial Reporting Standards ("IFRS"), as adopted in the European Union. The financial statements reported in IFRS can differ materially from the statements reported in U.S. GAAP. 

Note:
For more details on our governance and management approach, please refer to our current annual report on Form 20-F, filed with the Securities and Exchange Commission (“SEC”) in Washington, D.C and available on the SEC’s website at www.sec.gov.