13. Corporate Governance Report
This Corporate Governance Report also constitutes the report pursuant to Section 3.10 of the German Corporate Governance Code.
13.1 Declaration on Corporate Governance*
* not part of the audited management report
Declaration by the Board of Management and Supervisory Board
concerning the German Corporate Governance Code (May 15, 2012 version) pursuant to Section 161 of the German Stock Corporation Act**
Under Section 161 of the German Stock Corporation Act, the Board of Management and the Supervisory Board of Bayer AG are required to issue an annual declaration that the company has been, and is, in compliance with the recommendations of the “Government Commission on the German Corporate Governance Code” as published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette (Bundesanzeiger), or to advise of any recommendations that have not been, or are not being, applied and the reasons for this. An annual declaration was last issued in December 2011 and amended in February 2012.
With respect to the past, the following declaration refers to the May 26, 2010 version of the Code. With respect to present and future corporate governance practices at Bayer AG, the following declaration refers to the recommendations in the May 15, 2012 version of the Code.
Pursuant to Section 161 of the German Stock Corporation Act, the Board of Management and Supervisory Board of Bayer AG hereby declare as follows:
- The company has been in compliance with the recommendations of the Code since issuance of the last annual compliance declaration in December 2011 with the temporary exception stated in the amendment thereto dated February 2012. The recommendation given in Section 5.4.6 Paragraph 2 of the May 26, 2010 version of the Code was not complied with.
The Annual Stockholders’ Meeting 2012, acting on a proposal from the Board of Management and the Supervisory Board, resolved to introduce a new system of Supervisory Board compensation comprising fixed compensation only by way of an amendment to the Articles of Incorporation. Section 5.4.6 Paragraph 2 of the May 2010 version of the Code contained a recommendation that performance-
related compensation be paid in addition to fixed compensation. The May 15, 2012 version of the Code no longer contains this recommendation.
- All the recommendations of the Code are now being complied with in full.
Leverkusen, December 2012
|For the Board of Management
||For the Supervisory Board
This is an English translation of a German document. The German document is the official and controlling version, and this English translation in no event modifies, interprets or limits the official German version.
Bayer in compliance with the recommendations of the German Corporate Governance Code
Bayer has always placed great importance on responsible corporate governance and will continue to do so. In 2012 the company was able to issue a declaration that it had complied with the recommendations of the German Corporate Governance Code in the past with one temporary exception and was now fully compliant again. The deviation from Section 5.4.6 Paragraph 2 Sentence 1 of the May 26, 2010 version of the German Corporate Governance Code, stated in the February 2012 amendment to the previous declaration, no longer applies because the recommendation given in this section of the Code has since been altered.
In 2012, the Board of Management and Supervisory Board again addressed the question of compliance with the Corporate Governance Code, particularly in light of the Code amendments of May 15, 2012. The resulting declaration, which is reproduced on the previous page, was issued in December 2012 and posted on Bayer’s website along with previous declarations.
Duties and activities of the Board of Management
Bayer AG is a strategic management holding company, run by its Board of Management on the Board’s own responsibility with the goal of sustainably increasing the company’s enterprise value and achieving defined corporate objectives. The Board of Management performs its tasks according to the law, the Articles of Incorporation and the Board’s rules of procedure, and works with the company’s other governance bodies in a spirit of trust.
The Board of Management defines the long-term goals and the strategies for the Group, its subgroups and its service companies, and sets forth the principles and directives for the resulting corporate policies. It coordinates and monitors the most important activities, defines the portfolio, develops and deploys managerial staff, allocates resources and decides on the Group’s financial steering and reporting.
The members of the Board of Management bear joint responsibility for running the business as a whole. However, the individual members manage the areas assigned to them on their own responsibility within the framework of the decisions made by the entire Board. The allocation of duties among the members of the Board of Management is defined in a written schedule.
The entire Board of Management makes decisions on all matters of fundamental importance and in cases where a decision of the entire Board is prescribed by law or otherwise mandatory. The rules of procedure of the Board of Management contain a list of topics that must be dealt with and resolved by the entire Board.
Meetings of the Board of Management are held regularly. They are convened by the Chairman of the Board of Management. Any member of the Board of Management may also demand that a meeting be held. The Board of Management makes decisions by a simple majority of the votes cast, except where unanimity is required by law. In the event of a tie, the Chairman has the casting vote.
According to the Board of Management’s rules of procedure and schedule of duties, the Chairman bears particular responsibility for leading and coordinating the Board’s work. He represents the company and the Group in dealings with third parties and the workforce on matters relating to more than one part of the company or the Group. He also bears special responsibility for certain departments of the Corporate Center and their fields of activity.
The schedule of duties also assigns particular areas of specialist responsibility to the other three members who served on the Board of Management in 2012 with respective responsibility for Finance; Innovation, Technology and Sustainability; and Strategy and Human Resources. Each of these members also represents certain geographical regions.
No committees of the Board of Management have been set up in view of the small number of members and the role of Bayer AG as a strategic management holding company.
Supervisory Board: Oversight and control functions
The role of the 20-member Supervisory Board is to oversee and advise the Board of Management. Under the German Codetermination Act, half the members of the Supervisory Board are elected by the stockholders, and half by the company’s employees. The Supervisory Board is directly involved in decisions on matters of fundamental importance to the company, regularly conferring with the Board of Management on the company’s strategic alignment and the implementation status of the business strategy.
The Chairman of the Supervisory Board coordinates its work and presides over the meetings. Through regular discussions with the Board of Management, the Supervisory Board is kept constantly informed of business policy, corporate planning and strategy. The Supervisory Board approves the annual budget and financial framework. It also approves the financial statements of Bayer AG and the consolidated financial statements of the Bayer Group, along with the combined management report, taking into account the reports by the auditor.
Committees of the Supervisory Board
The Supervisory Board currently has the following committees:
Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory Board along with a further stockholder representative and a further employee representative. The Presidial Committee serves primarily as the mediation committee pursuant to the German Codetermination Act. It has the task of submitting proposals to the Supervisory Board on the appointment of members of the Board of Management if the necessary two-thirds majority is not achieved in the first vote at a plenary meeting. Certain decision-making powers in connection with capital measures, including the power to amend the Articles of Incorporation accordingly, have also been delegated to this committee.
Audit Committee: The Audit Committee comprises three stockholder representatives and three employee representatives. The Chairman of the Audit Committee in 2012, Dr. Klaus Sturany, satisfies the statutory requirements concerning the independence and the expertise in the field of accounting or auditing that a member of the Supervisory Board and the Audit Committee is required to possess. The Audit Committee meets regularly four times a year. Its tasks include examining the company’s financial reporting along with the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group, the combined management report, the proposal for the use of the distributable profit of Bayer AG, and the interim financial statements and management reports of the Bayer Group, all of which are prepared by the Board of Management. On the basis of the auditor’s report on the audit of the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the combined management report, the Audit Committee develops proposals concerning the approval of the statements by the full Supervisory Board. The Audit Committee is also responsible for the company’s relationship with the external auditor. The Audit Committee submits a proposal to the full Supervisory Board concerning the auditor’s appointment, prepares the awarding of the audit contract to the audit firm appointed by the Annual Stockholders’ Meeting, suggests areas of focus for the audit and determines the auditor’s remuneration. It also monitors the independence, qualifications, rotation and efficiency of the auditor.
In addition, the Audit Committee oversees the company’s internal control system – along with the procedures used to identify, track and manage risk – and the internal audit system. It also deals with corporate compliance issues and discusses developments in this area at each of its meetings.
Human Resources Committee: On this committee, too, there is parity of representation between stockholders and employees. It consists of the Chairman of the Supervisory Board and three other members. The Human Resources Committee prepares the personnel decisions of the full Supervisory Board, which resolves on appointments or dismissals of members of the Board of Management. The Human Resources Committee resolves on behalf of the Supervisory Board on the service contracts of the members of the Board of Management. However, it is the task of the full Supervisory Board to resolve on the total compensation of the individual members of the Board of Management and the respective compensation components, as well as to regularly review the compensation system on the basis of recommendations submitted by the Human Resources Committee. The Human Resources Committee also discusses the long-term succession planning for the Board of Management.
Nominations Committee: This committee carries out preparatory work when an election of stockholder representatives to the Supervisory Board is to be held. It suggests suitable candidates for the Supervisory Board to propose to the Annual Stockholders’ Meeting for election. The Nominations Committee comprises the Chairman of the Supervisory Board and the other stockholder representative on the Presidial Committee.
Objectives for the composition of the Supervisory Board
The Supervisory Board should be composed in such a way that its members together possess the necessary expertise, skills and professional experience to properly perform their duties. In view of Bayer AG’s global operations, the Supervisory Board has set itself the goal of always having several members with international business experience or an international background. A further objective concerning the composition of the Supervisory Board is that, absent special circumstances, its members should not hold office beyond the end of the next Annual Stockholders’ Meeting following their 72nd birthday. With a view to avoiding potential conflicts of interest, the Supervisory Board has set itself the goal that more than half of the stockholder representatives be independent and also that at least three quarters of the total Supervisory Board membership (stockholder and employee representatives) be independent. The Supervisory Board assesses the independence of its members according to the recommendation contained in Section 5.4.2 of the May 15, 2012 version of the German Corporate Governance Code. In assessing independence, the Supervisory Board also considers the criteria given in the recommendation of the European Commission of February 15, 2005.1
Another goal for the composition of the Supervisory Board is to increase the proportion of women on the Supervisory Board to at least 20% in the medium term and for the female membership to be distributed as evenly as possible between the stockholder and employee groups. It is intended to achieve this goal when the entire Supervisory Board is elected in 2017.
The goals described refer to the Supervisory Board as a whole unless resolved otherwise. However, since the Supervisory Board can only nominate candidates for election as stockholder representatives, it can only take the targets into account in these nominations.
Implementation status of the objectives
The Supervisory Board has several members with international business experience and other international connections. The target maximum age of 72 is not exceeded by any member of the Supervisory Board. One member of the Supervisory Board, Werner Wenning, was the Chairman of the company’s Board of Management until 2010. One member, Ernst-Ludwig Winnacker, has been a member of the Supervisory Board since 1997, and thus has served more than three terms of office. However, neither Mr. Wenning nor Mr. Winnacker has any personal or business relationship with the company or a governance body of the company that in the opinion of the Supervisory Board gives rise to a material conflict of interest of a more than temporary nature. The elections to the Supervisory Board held in 2012 resulted in an increase in the proportion of women on the Supervisory Board from 10% to 15%.
Disclosure of securities transactions by members of the Board of Management or Supervisory Board
Members of the Board of Management and Supervisory Board and their close relatives are legally required to disclose all transactions involving the purchase or sale of Bayer stock where such transactions total €5,000 or more in a calendar year. Bayer publishes details of such transactions immediately on its website and also notifies the German Financial Supervisory Authority accordingly. This information is provided to the company register for archiving. No such transactions were reported to Bayer AG in 2012.
Information filed with the company by members of the Board of Management and Supervisory Board shows that, on the closing date for the financial statements, their total holdings of Bayer AG stock or related financial instruments were equivalent to less than 1% of the issued stock.
Common values and leadership principles
Bayer has committed itself to the values of Leadership, Integrity, Flexibility and Efficiency, or “LIFE” for short. These values provide guidance to all Bayer employees, both in business dealings and in working together within the company. All employees are obligated to align their work to the LIFE values. This is taken into account in human resources development and the regular performance evaluations.
Systematic risk management
The established control system enables the company to identify any business or financial risks at an early stage and take appropriate action to manage them. This control system is designed to ensure that risks are monitored in a timely manner, all business transactions are properly accounted for, and reliable data on the company’s financial position is always available.
When acquisitions are made, we aim to bring the acquired units’ internal control systems into line with those of the Bayer Group as quickly as possible.
However, the control and risk management system cannot provide absolute protection against losses arising from business risks or fraudulent actions.
Our corporate activity is governed by national and local laws and statutes that place a range of obligations on the Bayer Group and its employees throughout the world. Bayer manages its business responsibly and in compliance with the statutory and regulatory requirements of the countries in which it operates.
Bayer expects legally and ethically impeccable conduct from all of its employees in daily business operations, as the way they carry out their duties affects the company’s reputation. By ensuring regular dialogue between employees and their supervisors and providing training courses involving the responsible Compliance Officers, the company endeavors to acquaint its employees with internal codes of behavior and with the numerous statutory and regulatory requirements of the countries where they work that are of relevance to them. This lays the foundation for managing the business responsibly and in compliance with the respective applicable laws.
The Board of Management states in the Corporate Compliance Policy that Bayer is unreservedly committed to corporate compliance and will forgo any business transactions that would violate compliance principles. The Policy also details the organizational framework for corporate compliance and specifies areas in which violations of applicable law can have particularly serious adverse consequences, both for the entire enterprise and for individual employees. The principles set forth in the Corporate Compliance Policy are designed to guide employees in their business-related actions and protect them from potential misconduct. Its core requirements are:
adherence to antitrust regulations,
integrity in business transactions and the ban on exerting any kind of improper influence,
the observance of product stewardship and the commitment to the principle of sustainability,
the strict separation of business and personal interests, and
the commitment to ensure fair and respectful working conditions across the enterprise.
Employees may contact their respective supervisors or compliance functions for support and advice on ensuring legally compliant conduct in specific business situations.
Each country has a Compliance Officer, and some have several local compliance functions with clearly defined responsibilities for the different business units. The main responsibilities of each local compliance function include:
providing advice to the operational business units,
monitoring and assessing risks,
running or arranging compliance training programs,
investigating any reports of possible compliance violations and initiating appropriate corrective action, and
satisfying reporting obligations defined at Group level.
The local Compliance Officers report to Group headquarters and ultimately to the Group Compliance Officer appointed by the Group Management Board. The Group Compliance Officer and the Head of Corporate Auditing jointly report at least once a year to the Audit Committee of the Supervisory Board on any compliance violations that have been identified.
The topic of integrity is a firmly established part of the performance objectives agreed with all managerial employees. By virtue of their positions, these employees have a special obligation to set an example, spread the compliance message increasingly within their companies and take organizational measures to implement it.
To maximize transparency, we provide regular and timely information on the Group’s position and significant changes in business activities to stockholders, financial analysts, stockholders’ associations, the media and the general public. Bayer complies with the recommendations of the Corporate Governance Code by publishing reports on business trends, financial position, results of operations and related risks four times a year.
In line with statutory requirements, the members of the Group Management Board provide an assurance that, to the best of their knowledge, the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the combined management report provide a true and fair view.
The financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the combined management report are published within 90 days following the end of each fiscal year. During the fiscal year, stockholders and other interested parties are kept informed of developments by means of the half-year financial report and additional interim reports for the first and third quarters. The half-year financial report is voluntarily subjected to an audit review by the auditor, whose appointment by the Annual Stockholders’ Meeting also relates specifically to this audit review.
Bayer also provides information at news conferences and analysts’ meetings. In addition, the company uses the internet as a platform for timely disclosure of information, including details of the dates of major publications and events, such as the annual report, quarterly financial reports (Stockholders’ Newsletters) or the Annual Stockholders’ Meeting.
In line with the principle of fair disclosure, all stockholders and other principal target groups are treated equally as regards the communication of valuation-relevant information. All significant new facts are disclosed immediately to the general public. Stockholders also have immediate access to the information that Bayer publishes locally in compliance with the stock market regulations of various countries.
In addition to our regular reporting, we issue ad-hoc statements on developments that otherwise might not become publicly known but have the potential to materially affect the price of Bayer stock.
Annex 2 to the recommendation of the European Commission of February 15, 2005, on the role of non-executive or supervisory directors of listed companies and on the committees of the (supervisory) board (2005/162/EC)