Corporate governance statement including Corporate governance report
Corporate governance encompasses the entire system of management and supervision within a company. In particular, this includes organisation, internal and external systems of control and monitoring as well as guidelines relating to business policy. Good corporate governance promotes trust among investors, customers and employees as well as the general public, which is a key factor in the long-term success of a company.
A. Corporate governance statement pursuant to Section 289a of the German Commercial Code
I. Relevant corporate governance practices
Corporate governance at SIMONA AG (hereinafter referred to as "SIMONA"), as an exchange-listed German stock corporation, is determined primarily by the requirements of the German Stock Corporation Act (Aktiengesetz – AktG) and the provisions within the German Corporate Governance Code in its amended version. Beyond this, readers are kindly requested to refer to the organisational procedures and measures outlined in the Group management report under the headings "Internal management system", "Significant elements of the internal control and management system" as well as "Quality, environment and energy". Other elements of corporate governance include the system of management encompassing the Management Board and Supervisory Board, the appointment of shareholder and staff representatives to the Supervisory Board under the provisions of Sections 96 (1), 101 (1) AktG and Section 4 of the One-Third Participation Act (Drittelbeteiligungsgesetz) concerning employee representation on the Supervisory Board as well as shareholders' rights of co-administration and supervision at the General Meeting of Shareholders.
II. Description of the procedural methods adopted by the Management Board and Supervisory Board – Composition and duties of committees
The Management Board acts as the executive body of SIMONA; it is responsible for directing the company with the aim of achieving profitable growth for the purpose of safeguarding the company's future in the long term. The Supervisory Board is strictly separated from the executive body as regards the specific members appointed to the respective bodies. The Supervisory Board appoints, supervises and advises the Management Board. In the interests of the company, the Management Board and Supervisory Board work in cooperation with each other on a basis of trust and in a manner that is conducive to an exchange of information.
The Management Board develops the corporate strategy and ensures that this strategy is implemented accordingly. It is responsible for formulating company policy, planning investments, sales and human resources as well as managing the respective areas of business. Ordinary Management Board meetings are convened by the Chairman of the Management Board. SIMONA uses the Balanced Scorecard (BSC) as a strategic management and monitoring instrument. Within this context, the Management Board is responsible for the BSC-related corporate goals, as well as being accountable for regularly reviewing the efficacy of the BSC process as part of an overall assessment of the management system and initiating adjustments to the BSC process and the BSC-related corporate goals. The BSC cascades down to the company's other management levels.
The Management Board currently consists of three members and has assigned individual duties relating to specific areas of management.
The Supervisory Board discharges its duties under legal regulations and the company's Articles of Association. It regularly advises the Management Board on issues relating to the governance of the company, in addition to assessing and monitoring its management activities. It reviews the company's risk management and compliance. The Supervisory Board convenes regularly as part of scheduled and, where necessary, extraordinary meetings; where required it may also convene without the Management Board being present. In accordance with Section 95 sentence 2, Section 96(1), 4th alt. and Section 101(1) of the German Stock Corporation Act (Aktiengesetz – AktG), Section 1(1) no.1, Section 4 of the One-Third Participation Act (Drittelbeteiligungsgesetz) and Article 13 of the Articles of Association of SIMONA AG, the Supervisory Board of SIMONA AG is comprised of four members representing the shareholders and two members representing the staff of the company.
From its members, the Supervisory Board has established an Audit Committee and a Personnel Committee. The committees regularly provide the Supervisory Board with extensive information relating to their activities. The Audit Committee is responsible mainly for addressing issues relating to accounting and year-end auditing, risk management and acquisitions. The principal duties of the Personnel Committee are centred around compensation as well as the conclusion, amendment and termination of Management Board members' employment contracts.
For information relating to the current composition of the committees, please refer to www.simona.de (Company / Investor Relations / Key Facts / Management Board and Supervisory Board).
Cooperation between Management Board and Supervisory Board
The Management Board and Supervisory Board consult with each other concerning the strategic direction of the company and regularly discuss the status of strategy implementation. The Supervisory Board is directly involved in all decision-making processes of fundamental importance to the company. The Management Board informs the Supervisory Board as part of regular written and verbal reports, furnished in a timely and comprehensive manner. The reports focus in particular on issues relating to corporate planning, the strategy, the course of business and the position of SIMONA AG and its subsidiaries, including the risk situation, risk management, compliance and transactions of significant importance to the company.
The Chairman of the Supervisory Board regularly maintains contact with the Management Board, also in between meetings of the Supervisory Board and its committees, for the purpose of discussing issues relating to strategy, current business development and performance as well as risk management, in addition to consulting with the Management Board on specific issues and decisions considered to be of significance. The Supervisory Board also deliberates on the implementation of the provisions and recommendations of the German Corporate Governance Code within the company and, where applicable, initiates measures aimed at fulfilling the new requirements, working in close cooperation with the Management Board.
The Management Board and the Supervisory Board have drawn up by-laws for the purpose of specifying the responsibilities of the Management Board and collaboration with the Supervisory Board. Among other aspects, the by-laws govern the individual duties and areas of competence, as well as determining transactions that are subject to prior approval.
Declaration of Conformity
Pursuant to Section 161 of the German Stock Corporation Act (Aktiengesetz – AktG), the supervisory board and management board of exchange-listed stock corporations are obliged to issue at least once per year a declaration stating that the recommendations of the German Corporate Governance Code have been and will continue to be complied with or, if applicable, specifying which recommendations have not been or will not be applied, as well as outlining the reason for non-compliance. The Management Board and the Supervisory Board most recently issued the following Declaration of Conformity on 23 February 2017:
"Since the last Declaration of Conformity issued on 23 February 2016, SIMONA AG (hereinafter referred to as "SIMONA") has complied and continues to comply with the recommendations of the Government Commission of the German Corporate Governance Code in the applicable version of 5 May 2015, as published by the Federal Ministry of Justice in the official section of the Federal Gazette, with the exception of the following departures:
Section 3.8 paragraph 3: A D&O insurance policy taken out for the Supervisory Board shall include a deductible of at least 10% of the loss up to at least the amount of one and a half times the fixed annual compensation.
Explanation: The Supervisory Board discharges the duties incumbent upon it with the utmost sense of responsibility. A deductible in respect of D&O insurance would represent no improvement and would provide no additional incentive.
Section 4.2.3 paragraph 4 sentences 1 and 3: In concluding Management Board contracts, care shall be taken to ensure that payments made to a Management Board member on premature termination of his/her contract do not exceed the value of two years’ compensation (severance pay cap) and compensate no more than the remaining term of the employment contract; calculations shall be made on the basis of total compensation.
Explanation: The current Management Board contracts include no provisions for capping in respect of payments made to a Management Board member on premature termination of his/her contract. The Supervisory Board deems as inappropriate the use of such a severance pay cap.
Section 4.2.5 paragraph 3: The company shall present in its compensation report the components of compensation, detailing specific compensation parameters and using the model tables provided, for each member of the Management Board.
Explanation: On 10 June 2016, the Annual General Meeting of Shareholders of SIMONA agreed by the requisite three-quarter majority to disclose Management Board compensation in an aggregated format, divided into fixed and performance-related components, rather than disclosing each amount by name. Therefore, no itemised presentation for each Management Board member, detailing specific compensation parameters and using the recommended model tables, shall be provided by the company.
Section 5.3.3: The Supervisory Board shall form a Nomination Committee.
Explanation: The shareholder representatives on the Supervisory Board already discuss nominations on a separate basis. Therefore, in the Supervisory Board's opinion the formation of a Nomination Committee is unnecessary given the fact that the Supervisory Board only consists of four shareholder representatives.
Section 5.4.1 paragraphs 2 and 3: The Supervisory Board shall specify concrete objectives regarding its composition, whilst considering the specifics of the enterprise and taking into account aspects relating to diversity.
Explanation: The Supervisory Board supports the fundamental importance of diversity to the company with regard to its composition. However, contrary to the recommendations set out in Section 5.4.1 of the Code, the Supervisory Board has decided against specifying concrete objectives in the form of quotas or absolute figures. As regards its nominations submitted to the General Meeting, the Supervisory Board primarily takes into consideration the individual abilities, knowledge and professional experience of male and female candidates. With this in mind, no regular limit with regard to length of membership for members of the Supervisory Board has been defined. The Supervisory Board is of the opinion that, in particular, the expertise of experienced Supervisory Board members with a proven track record spanning many years and a demonstrable understanding of the industry and enterprise should be made available to the company.
Section 5.4.6 paragraph 1 sentence 2: When determining the compensation of Supervisory Board members, both chairmanship and deputy chairmanship of the Supervisory Board as well as chairmanship and deputy chairmanship of committees shall be taken into consideration.
Explanation: The Articles of Association of SIMONA include provisions outlining special compensation in respect of the role of chairperson and deputy chairperson of the Supervisory Board. Additionally, membership of Supervisory Board committees is subject to special compensation. By contrast, no separate compensation is payable in respect of the chairmanship of a committee, and such a policy is not deemed necessary at present.
Section 7.1.2 sentence 4, first half sentence: The consolidated financial statements shall be publicly accessible within 90 days of the end of the financial year.
Explanation: SIMONA publishes its consolidated financial statements in compliance with statutory schedules of disclosure. Owing to the procedures defined for the preparation of financial statements, the aim being to deliver the greatest possible transparency and accuracy, earlier publication would not be feasible.
Kirn, 23 February 2017
Supervisory Board and Management Board"
This is a translation from German into English. Only the German document shall be considered authoritative.
Notes to specifications made pursuant to Section 76(4) and Section 111(5) AktG
On 30 July 2015, the Supervisory Board defined a target figure for the percentage of women appointed to the Management Board and Supervisory Board. The target figure for the aforementioned bodies is one (1) female member in each case; this target is to be achieved by 30 June 2017.
On 21 September 2015, the Management Board defined target figures for the percentage of women appointed to the two management levels below the Management Board. A target figure of twenty (20) per cent was specified for these two echelons. The target is to be achieved by 30 June 2017.
B. Other information on corporate governance
Shareholdings of the Management Board and the Supervisory Board
Ownership interests held by members of the Management Board or the Supervisory Board are presented in the consolidated financial statements or in the compensation report, which is an integral part of the management report. Furthermore, the ownership interests are presented online insofar as the company was notified of any movements above or below the thresholds necessitating disclosure.
Share option plans
SIMONA has no share option plans or similar securities-based incentive systems in place.
Avoidance of conflicts of interest
Dr. Roland Reber was re-appointed to the Supervisory Board of SIMONA AG on 10 June 2016. Dr. Roland Reber also holds the position of Managing Director at Ensinger GmbH, Nufringen. The two entities maintain business relations with each other on arm’s length terms. Should a material conflict of interest arise in specific areas as a result of the mandate held by Dr. Roland Reber, the latter will inform the Supervisory Board about such conflict of interest and will not take part in discussions or, if applicable, voting on any such points on the agenda. No conflicts of interest occurred in 2016.
Disclosure of other information on corporate governance
As regards details of corporate governance at SIMONA, please also refer to the report issued by the Supervisory Board. This information is also published on the internet at www.simona.de within the Company / Investor Relations / Corporate Governance section. In addition, all facts deemed to be of relevance are disclosed on the corporate website in order to reach a broad audience and establish a level playing field for shareholders, analysts and other stakeholders.
Kirn, April 2017
Management Board and Supervisory Board
This is a translation from German into English. Only the German document shall be considered authoritative.