Los cocientes L 0

Board of Directors

Number of meetings and attendance

The Caisse’s Board of Directors met 13 times in 2005, including eight times after May 16. The members’ rate of attendance at the Board meetings was 90%.

Director Meetings attended / Total meetings

Pierre Brunet 8 / 8 Henri-Paul Rousseau 13 / 13 Yvan Allaire 8 / 8 Bernard Bonin 13 / 13 Claudette Carbonneau 9 / 13 Louise Charette 7 / 8 Steven M. Cummings 10 / 13 Alban D’Amours 12 / 13 Sylvie Dillard 12 / 13 Claude Garcia 8 / 8 A. Michel Lavigne 7 / 8 Henri Massé 12 / 13 Pierre Prémont 12 / 13 Duc Vu 11 / 13 John T. Wall 11 / 13

Board member remuneration

The Chairman of the Board received a total annual remuner- ation of $125,000 for his services.

The Board members, other than the Chairman and the President and Chief Executive Officer, received no remuner- ation of any kind for the services they rendered to the Caisse.

Board mandate

The Board of Directors ensures the Caisse’s management complies with the provisions of its constituting statute and regulations and that the institution takes the necessary measures to achieve the objectives stated in its mission, namely to achieve an optimal return on depositors’ capital and to contribute through its operations to the development of Québec’s economy.

The Board passes regulations and approves the Caisse’s main guidelines and policies with respect to investment opera-

The Board approves the Caisse’s strategic plan, business plan, budgets and annual filings. The Board evaluates the integrity of the internal controls, disclosure controls and computer systems, and approves a financial disclosure policy. Moreover, the Board approves the human resources policies as well as the remuneration standards and scales and the other employment conditions of the Caisse’s officers and employees. It also determines the remuneration standards and scales and the other employment conditions of the President and Chief Executive Officer, according to the parameters that the government determines after consul- tation with the Board. On the recommendation of the President and Chief Executive Officer, the Board appoints the members of senior management.

The Board approves the rules of ethics and professional con- duct applicable to the members of the Caisse’s Board of Directors as well as to the officers and employees of the Caisse and its subsidiaries.

The Board of Directors provides for the constitution of the Audit Committee, the Human Resources Committee and the Governance and Ethics Committee, and may create other committees to study specific matters or to facilitate the proper functioning of the Caisse.

Lastly, the Board is seized of any investment proposal or any other matter that requires special attention, particularly as a result of its intrinsic importance or impact on the Caisse’s portfolio or asset allocation.

Report on the Board’s activities

Implementation of the Caisse’s constituting statute Throughout the year, the Board monitored the progress of work to ensure the Caisse complies with the provisions of its constituting statute. It therefore received from senior management a complete report presenting all activities accomplished or to be carried out.

Pursuant to the provisions of the Act, the Board delegates the review of specific matters to the Audit Committee, the Governance and Ethics Committee and the Human Resources Committee. The Board also created the Risk Management Committee. The Board established the man- dates of its four committees. These mandates can be con- sulted in the "Committee reports” section of this Annual Report.

Strategic planning and business plans

The Board carried out a strategic planning exercise for the period from 2006 to 2008, which involved reviewing and approving the Caisse’s strategic plan. Guided by the Caisse’s mission and fundamental values, which are excellence, bold- ness, ethics and transparency, the Board approved the Caisse’s vision, ambition and objectives. It also approved the strategic plan setting out the priorities, strategies and strategic action to be initiated or continued in the 2006- 2008 period.

As part of this process, the Board reviewed analyses of external trends, the organization’s strength and weak- nesses, depositor requirements, return forecasts and investment strategies. Each business unit of the Caisse made a presentation to the Board on its business plan, including objectives, challenges, related risks and inherent human and financial considerations. These analyses gave the Board a detailed overview of the Caisse’s projects so that it can effectively oversee operations.

Financial results, internal control and management system After each meeting of the Audit Committee, the Board received from it a report on all its activities, including mon- itoring of quarterly financial statements and budgetary monitoring of operating expenses. On the recommendation of the Audit Committee, the Board approved the Caisse’s annual financial statements and annual budget.

In co-operation with the Audit Committee, the Board reviewed the processes used for internal control, risk man- agement and resource optimization. To sustain co-ordina- tion, documentation and control for all the Caisse’s opera- tions, the Board approved the implementation of a management framework, on the recommendation of the Audit Committee.

In addition, considering the nature and importance of the Caisse’s operations as a manager of institutional funds from public bodies, as well as the Caisse’s will to ensure exemplary reporting, the Board adopted a financial certification policy, on the recommendation of the Audit Committee. This pol- icy, which is based on the industry’s best practices, enables the President and Chief Executive Officer and the Executive Vice-President, Finance, Treasury and Strategic Initiatives, to publicly certify the reliability of the annual filings and the financial statements, implementation and application of dis- closure controls and procedures as well as internal controls. The certificate signed by the President and Chief Executive Officer and that signed by the Executive Vice-President, Finance, Treasury and Strategic Initiatives, are in the “Information disclosure and financial certification” section of this Annual Report.

Moreover, to achieve a balance between the desire for transparency and the obligation to protect depositors’ interests, the Board adopted an information disclosure pol- icy, on the recommendation of the Audit Committee. This policy provides mechanisms for processing any financial or other information and disclosing it to the media and the public. In this way, the Caisse ensures complete and accu- rate communication.

Risk management

With assistance from the Risk Management Committee, the Board has identified the main risks faced by the Caisse and ensured that an efficient framework is in place to deal with them. After each meeting of the Risk Management Committee, the Board therefore received the Committee’s report on all its activities.

On the Committee’s recommendation, the Board approved the necessary changes to the integrated risk management policy and the investment policies governing the specialized portfolios. The Board also reviewed arguments submitted in favour of a request to deviate from the investment policy of a specialized portfolio and, on the Committee’s recom- mendation, authorized it for a limited period.

Each quarter, after the review conducted by the Risk Management Committee, the Board received from the Executive Vice-President responsible for risk management a report on monitoring of returns and market risk.

124

In addition, the Board approved the Committee’s recom- mendation regarding revision of the investment-approval thresholds. It examined and, where appropriate, approved investments requiring its authorization. In each instance, the Board paid special attention to the analysis of the invest- ment’s risks and its impact on the risk level and concentra- tion of the portfolios concerned. The Board also received a report on investments requiring the authorization of Caisse senior management.

Operational agreements

Considering the intrinsic importance of certain agreements with Caisse suppliers and their impact on the institution’s proper functioning, senior management submitted to the Board for approval proposals involving renewal or amend- ment of two of these agreements. The Board examined and approved the proposed terms.

Senior management oversight

The Board approved the objectives of the President and Chief Executive Officer of the Caisse. Moreover, at its meetings, senior officers regularly made presentations on their busi- ness units. These meetings provided the opportunity for frank discussions during which Board members exchanged ideas freely with members of senior management. In addition, with assistance from the Human Resources Committee, the Board reviewed the performance of the most senior officer of the Caisse, as a function of the objec- tives established at the beginning of the year. It also exam- ined his evaluation of the performance of the senior officers. With assistance from the Human Resources Committee, the Board closely monitored staffing for all the Caisse’s business units, approved a restructuring of several business units and redefined certain positions. Moreover, as it had requested after the strategic planning exercise, the Board reviewed, in particular with the Executive Vice-President responsible for human resources, the outlook for the period from 2006 to 2008. The Board was satisfied with the strategies presented.

On the recommendation of the Human Resources Committee, the Board approved the 2005 salary conditions and the 2004 bonuses for the Caisse’s employees and members of senior management.

Corporate governance

In co-operation with the Governance and Ethics Committee, the Board develops and oversees implementation of the Caisse’s rules, procedures and policies regarding corporate governance. The Board received a report from the Committee after each of the Committee’s meetings. On the Committee’s recommendation, the Board approved the mandates given to its four committees. The activity reports of the Board’s committees are found on the pages that follow.

With respect to rules of ethics and professional conduct, the Board adopted the Code of Ethics and Professional Conduct for Directors as submitted by the Governance and Ethics Committee. This Code includes the obligation to act with loyalty, honesty and integrity, to avoid conflicts of interest and to protect confidential information.

On the Committee’s recommendation, the Board also adopted a process for preauthorization of Board members’ personal transactions as well as a form for the declaration of all interests held by each director.

Regarding the performance of the Board of Directors, the Governance and Ethics Committee and the Human Resources Committee proposed the adoption of an exper- tise and experience profile for the appointment of the Board’s independent members. The Governance and Ethics Committee also suggested a method for evaluating the Board’s performance. The Board approved these proposals. Evaluation of the Board’s performance will begin in 2006. Lastly, the Board adopted a resolution specifying the cases and circumstances in which a director’s repeated absence from Board meetings constitutes a vacancy.

Report of the

Orientation and ongoing training

The members of the Board of Directors all took part in the Claude Prieur Strategy Planning Session. This information and discussion session on the challenges facing the Caisse is attended by representatives of all the institution’s stake- holders. At this event, the directors furthered their under- standing of the environment in which the Caisse operates as well as the depositors’ concerns.

In addition, at the request of the Governance and Ethics