Statement on Corporate Governance Pursuant to Sections 289f and 315d German Commercial Code (HGB)

Diversity on the Executive Board (Code recommendation B.1)

According to recommendation B.1 of the Code, the Supervisory Board shall take diversity into account when appointing Executive Board members. When appointing the members of the Executive Board, the Supervisory Board cannot also take into account diversity because the Company currently has only two Executive Board members. Given that the Executive Board comprises just two members – a number the Company believes to be adequate and whose positions will remain filled for the foreseeable future – the recommendations in the Code to aim for diversity do not appear feasible for the time being. Furthermore, the Supervisory Board does not consider it appropriate to select Executive Board members based on criteria such as orientation or race, but instead to rely on personality and expertise only.

Independence of shareholder representatives (Code recommendation C.7)

According to recommendation C. 7 of the Code, more than half of the shareholder representatives shall be independent from the Company and its Executive Board. Supervisory Board members are to be considered independent from the Company and its Executive Board if they have no personal or business relationship with the Company or its Executive Board that may cause a substantial – and not merely temporary – conflict of interest.

When assessing the independence of Supervisory Board members from the Company and its Executive Board, shareholder representatives shall particularly take into consideration the following aspects; whether the respective Supervisory Board member – or a close family member:

• was a member of the Company's Executive Board in the two years prior to appointment;
• currently is maintaining (or has maintained) a material business relationship with the Company or one of the entities dependent upon the Company (e.g. as customer, supplier, lender or advisor) in the year up to their appointment, directly or as a shareholder, or in a leading position of a non-group entity;
• is a close family member of an Executive Board member; or
• has been a member of the Supervisory Board for more than 12 years.

Supervisory Board member Dr. Klaus Fuchs has a business relationship with the Company. Nevertheless, Dr. Fuchs is regarded as independent. The reasons for this are given in the Statement on Corporate Governance in accordance with Code recommendation C.8. Aside from this, two shareholders – Mr. Matthias Weber and Mr. Andreas Kratzer – that have no personal or business relationship with the Company or its Executive Board have been represented on the Supervisory Board since May 6, 2022. This means more than half of the shareholder representatives have been independent from the Company and its Executive Board since May 6, 2022, taking into account the indicators set out in recommendation C.7.

Formation of a Nomination Committee (Code recommendation D.4)

According to Code recommendation D.4, the Supervisory Board shall form a Nomination Committee, composed exclusively of shareholder representatives, which names suitable candidates to the Supervisory Board for its proposals to the General Shareholders’ Meeting.

To date, the Company has not established a Nomination Committee. Given that the Supervisory Board comprises only three members, all of whom are elected by the General Shareholders’ Meeting, it is not considered necessary to form a Nomination Committee.

No consideration was given to the relationship between the remuneration of senior managers and the workforce as a whole when determining the remuneration for the Executive Board (Code recommendation G.4)

Recommendation G.4 of the Code recommends that the Supervisory Board consider the relationship between the remuneration of the Executive Board and that of senior management and the relevant workforce as a whole, particularly in terms of its development over time. When the current directors’ contracts of the Executive Board members were concluded, the Supervisory Board ensured – in compliance with the requirements of the German Stock Corporation Act – that the overall remuneration appropriately reflects the tasks and performance of the respective Executive Board member and does not exceed what is a customary level of remuneration.

Using the customary calculation method, the determination of the Executive Board’s remuneration was oriented on the Company’s scope of business, its economic and financial position and the structure of the Executive Board remuneration in place at comparable companies. Furthermore, consideration was given to the respective Executive Board member’s individual tasks and scope of responsibilities. To the extent that the Code, as amended, specifies reviewing the vertical appropriateness of Executive Board remuneration, which is required by the German Stock Corporation Act, and provides a more detailed definition of both the peer groups relevant for comparison and the time period to which such a comparison applies, the Company as a precaution declares that it deviates from the Code. When reviewing vertical appropriateness, the Supervisory Board did not distinguish between the peer groups of the recommendation and did not collect any data regarding the development over time of the wage and salary structure, either, because no comparison parameters exist due to the absence of a senior management group.

Benefits granted at contract termination (Code recommendations G.12 and G.13)

According to recommendation G.12 of the Code, if an Executive Board member’s contract is terminated, the disbursement of any remaining variable remuneration components attributable to the period up until contract termination shall be based on the originally agreed targets and comparison parameters, and on the due dates or holding periods stipulated in the contract.

Softing deviates from this recommendation. In the event that an Executive Board member is dismissed for cause without good reason for terminating their director’s service agreement, the Executive Board member receives a severance payment for their contractually agreed remuneration claims in the form of the basic remuneration, short-term incentive and long-term incentive that would still have accrued for the remainder of their director’s service agreement. The amount of the variable remuneration components is then calculated based on the claims realized from this in the previous year, provided that the calculation of the short-term incentive program is based on a notional update of the relevant earnings performance indicator from the previous year (e.g. EBITDA) in future months for the remainder of the agreement.

In accordance with recommendation G.13 of the Code, any payments made to an Executive Board member due to early termination of their Executive Board activity shall not exceed twice the annual remuneration (severance cap) and shall not constitute remuneration for more than the remaining term of the employment contract.

Softing deviates from this recommendation. If the contract period is less than one year, the remuneration will be paid for a full year. In the opinion of the Company, this is appropriate compensation.

Committee work not taken into account in the remuneration (Code recommendation G.17)

Recommendation G.17 sets out that the remuneration of Supervisory Board members shall take into account, in an appropriate manner, the higher time commitment of the Chairman and the members of committees. This is not currently envisaged for the Audit Committee formed at the Company and is not considered necessary because the members of the Audit Committee are the same as the Supervisory Board members.

Performance-related remuneration shall be geared to the long-term development of the Company (Code recommendation G.18).

In addition to fixed remuneration, the members of the Supervisory Board also receive performance-related remuneration based on consolidated EBIT before taking into account the Supervisory Board’s variable remuneration. The Company’s Articles of Incorporation do not expressly require a link to the Company’s long-term development. The Company continues to believe that basing performance-related remuneration on consolidated EBIT of the respective financial year is a sensible approach, because due to the nature of its business, deliberate deferrals of expenses and income are hardly possible. Consolidated EBIT is a key performance indicator. Furthermore, no generally accepted model for basing the remuneration of Supervisory Board members on a company’s long-term development has established itself in the capital markets to date. For the time being, the Company will continue to monitor the situation.

Softing AG is a stock corporation under German law. The two-tier system comprising the Executive Board and the Supervisory Board as corporate bodies, each of which having distinct responsibilities, is a fundamental element of German corporate law. The collaboration between the Executive Board and the Supervisory Board of Softing AG in managing and supervising the Company is very close and trusting.

Both the Executive Board and the Supervisory Board are committed to safeguarding and furthering the corporate interests of Softing AG. There were no conflicts of interest in the financial year just ended that would have had to be disclosed to the Supervisory Board without delay. The members of the Executive Board did not hold any positions on supervisory boards of listed stock corporations outside of the Group.

Executive Board

Softing AG's Executive Board may comprise one or several persons. The Executive Board currently comprises two members: Dr.-Ing. Dr. rer. oec. Wolfgang Trier and Ernst Homolka. Dr. Trier is currently responsible for the Industrial, Automotive and IT Networks operating segments and for Investor Relations, while Mr. Ernst Homolka is responsible for Finance and Human Resources.

The members of the Executive Board are jointly responsible for corporate management as a whole. They work together in a spirit of cooperation and keep each other informed of important activities and events in their areas of responsibility on an ongoing basis. Each individual member of the Executive Board is responsible for managing the area of responsibility assigned to them. The Executive Board generally adopts its resolutions in meetings that shall take place on a weekly basis. Every member of the Executive Board may ask that a meeting be convened, subject to notification of the issue to be deliberated. Likewise, every Executive Board member may ask that a topic be included in the agenda of a particular meeting. The Executive Board adopts its resolutions by the simple majority of all votes cast. The subsidiaries' managing directors receive regular information from the members of the Executive Board on important measures and matters concerning the respective functions.

Together with the Executive Board, the Supervisory Board ensures long-term succession planning for the Executive Board. In this context, the Supervisory Board prepares a requirements profile for each position in the Executive Board that in addition to the legal requirements also takes the specific criteria as regards skills, experience and expertise into account. These requirements profiles are continuously reviewed and adjusted as necessary. On the basis of the requirement profiles, the Supervisory Board regularly discusses with the Executive Board suitable successors from the Softing Group as candidates for Executive Board positions.

Supervisory Board

The Supervisory Board advises and monitors the Executive Board with regard to its management of the Company. The Supervisory Board is integrated in corporate strategy and planning, as well as all aspects of fundamental importance to the Company. Under the rules of procedure for the Executive Board, significant transactions — for example, determining the Company's annual planning or major investments — require the approval of the Supervisory Board. The Chairman of the Supervisory Board coordinates the work of the Supervisory Board, chairs its meetings and represents the Supervisory Board externally.

The Executive Board informs the Supervisory Board in a timely and comprehensive manner — both in writing and at regularly scheduled meetings — of the Group's planning, performance, situation and risk management. Extraordinary Supervisory Board meetings are convened as necessary in connection with material events. The Supervisory Board adopted Rules of Procedure for its own work.

Pursuant to the Company's Articles of Incorporation, the Supervisory Board of Softing AG comprises three members, who are elected by the shareholders. These three members have identical terms of office. The Supervisory Board's term of office is approximately five years. Its members’ current terms of office end with the General Shareholders' Meeting in 2023. The current members of the Supervisory Board are Mr. Matthias Weber (Chairman; member since May 2022), Mr. Andreas Kratzer (Deputy Chairman, member since May 2013) and Dr. Klaus Fuchs (member since February 2011).

In accordance with Section 107 (4) AktG, the Supervisory Board has established an Audit Committee, which as of December 31, 2022 comprised the Supervisory Board members Matthias Weber, Andreas Kratzer and Dr. Klaus Fuchs (Section 107 (4) sentence 2 AktG). The Audit Committee is chaired by Andreas Kratzer. In particular, the Audit Committee monitors financial reporting and the accounting process as well as the auditing of the financial statements and the services rendered by the auditor. The Chairman of the Audit Committee regularly meets with the auditor to discuss the progress of the audit outside of meetings and reports back to the Committee on this.

All members of the Audit Committee are familiar with the sector in which the Company operates. In Matthias Weber, the Supervisory Board and Audit Committee have at least one member with expertise in the area of accounting and, in Andreas Kratzer, at least one additional member with expertise in the field of financial statement auditing. According to the Code, the Chairman of the Audit Committee should be an expert and independent in at least one of these two areas. The Chairman of the Audit Committee, Andreas Kratzer, meets these requirements.

Matthias Weber has worked for many years as a finance director or chief financial officer at various companies; these professional activities mean he contributes specific knowledge and experience in applying accounting principles and using internal control and risk management systems. In the course of his professional activities, he has also gained expertise in the area of sustainability reporting and the auditing of such reports. As a result of his training and professional experience as an auditor as well as his professional roles as a finance director and CEO at various companies, Andreas Kratzer has specific knowledge and experience in the area of auditing, including sustainability reporting and the auditing of such reports, as well as special knowledge and experience in applying accounting principles and using internal control and risk management systems, which means he also has expertise in the field of accounting.
In accordance with recommendation C.1 of the German Corporate Governance Code, the Supervisory Board has drawn up a profile of skills and identified the following objectives, taking into account the principle of diversity in the Supervisory Board:

• The Supervisory Board shall not include any persons who are officers or directors of or serve in an advisory capacity for any of the Company’s principal competitors or who have a personal relationship with a principal competitor.
• The Supervisory Board aims to achieve sufficient diversity in its composition with regard to age distribution, gender, professional background, expertise and experience, and internationality, taking into account the following criteria:
  • At least one-third of the Supervisory Board members to be elected by the General Shareholders’ Meeting shall differ in terms of nationality and/or gender and/or age (there shall be an age difference of at least 20 years between the oldest and the youngest Supervisory Board member).
  • In addition, at least one-third of the Supervisory Board members to be elected by the General Shareholders’ Meeting shall have relevant international professional experience and English-language skills as well as an understanding of global economic contexts (“internationality”).
• The age limit for Supervisory Board members is set at the age of eighty at the time of election.
• No more than two former members of the Executive Board shall be members of the Supervisory Board.
• At least two members of the Supervisory Board should have expertise on the sustainability issues relevant to the Company. In particular, this involves the environmental, social and responsible corporate governance issues of a listed company with an international focus.
• A regular limit of 15 years (i.e. three full terms of office) applies to members of the Supervisory Board. The Company may deviate from the regular maximum limit with the approval of the Supervisory Board if it is in the Company’s interest, in particular if it serves to meet other composition criteria.

The Supervisory Board considers the profile of skills as of December 31, 2022 to be fulfilled. With regard to Dr. Horst Schiessl, who has been a member of the Supervisory Board since March 2000, which is more than 15 years, the Supervisory Board had agreed to an exception to the regular limit because it attaches particular importance to Dr. Horst Schiessl’s membership of the Supervisory Board due to his longstanding experience. Since May 6, 2022, the regular limit has been observed for all three members of the Supervisory Board.

The Supervisory Board believes a number of at least two independent Supervisory Board members is adequate. As of December 31, 2022, the Supervisory Board considered all three of its members to be independent from the Company and the Executive Board. Supervisory Board member Dr. Klaus Fuchs does have a business relationship with the Company. Nevertheless, Dr. Fuchs is regarded as independent. Contrary to Code recommendation C.7, the Supervisory Board does not believe that business relationships are a suitable criterion for defining independence since, in the opinion of the Supervisory Board, no conclusion can be drawn from the existence of a business relationship with the Company as to the respective member’s independence and, moreover, there has been no indication to date that Dr. Klaus Fuchs lacks independence. Dr. Fuchs has also been a member of the Supervisory Board of Softing AG for more than 12 years since February 2023. However, in the opinion of the Supervisory Board, no conclusion can be drawn from the length of membership on the Supervisory Board as to the respective member’s independence, which is why the Supervisory Board considers to regard Dr. Fuchs as independent from this point of view as well.

Based on the requirements for the Supervisory Board members’ profile of skills, the Supervisory Board’s self-assessment shows that in its current composition the Board covers the following skills requirements:

The Supervisory Board assesses its effectiveness in discharging its duties at least once a year by way of a self-assessment using an extensive questionnaire that scrutinizes various areas and aspects of the Supervisory Board's work. During this process, all members of the Supervisory Board can submit their assessment of the effectiveness of the Supervisory Board's working practices and suggest potential improvements. After the questionnaires have been evaluated, the results and potential improvements are usually discussed at the next regular Supervisory Board meeting. The Supervisory Board examines the results in detail and derives any necessary improvements from them. The most recent self-assessment was carried out at the Supervisory Board meeting on December 19, 2022.

For the Report of the Supervisory Board, please see the 2022 annual report.

Provisions according to the German Act on the Equal Participation of Women and Men in Executive Positions in the Private and Public Sector

For listed companies, Section 111 (5) of the German Stock Corporation Act now stipulates that the Supervisory Board must set targets for the proportion of women on the Supervisory Board and the Executive Board along with deadlines for their achievement.

The Supervisory Board of Softing AG regularly addresses this issue in detail and in March 2021 set a target of 0% each for the proportion of women on the Executive Board and the Supervisory Board. A deadline of no later than December 31, 2023 applies for each of these targets. The Supervisory Board of Softing AG exclusively bases its proposals for the nomination of Supervisory Board members and persons to fill Executive Board positions on the suitability of the male and female candidates with the aim of creating a Supervisory Board and an Executive Board whose members as a group possess the knowledge, skills and professional experience required to properly complete its tasks. Since the Supervisory Board comprises only three members, the Supervisory Board is of the opinion that taking other criteria into consideration would impose a disproportionate limitation on the selection of candidates. The Company's Executive Board comprises two members, a number the Supervisory Board considers adequate. In respect of the term of office of the Executive Board members, no changes in the composition of the Executive Board are planned in the medium term, i.e., up to April 2026 at least. It would therefore not be possible to implement a quota of women in the Executive Board without expanding the Executive Board.

Diversity policy

The Executive Board and Supervisory Board have not yet developed a diversity plan. Since the Executive Board currently comprises just two members – a number the Company believes to be adequate and whose positions will remain filled for the foreseeable future – the recommendations in the Code to aim for diversity do not appear feasible for the time being. Furthermore, the Supervisory Board does not consider it appropriate to select Executive Board members based on criteria such as orientation or race, but instead to rely on personality and expertise only. Nevertheless, the Supervisory Board has adopted a profile of skills according to which at least one third of the Supervisory Board members to be elected by the General Shareholders’ Meeting should differ with regard to gender, among other things. The Executive Board and the Supervisory Board also believe that, in addition to the objectives for the composition of the Executive Board and Supervisory Board and the diversity measures implemented and targeted in the Company to date, an additional diversity plan does not entail any substantial added value. Rather, the individual professional and personal suitability of the candidate is decisive in each case. Irrespective of this, age limits have been set for members of the Executive Board and the Supervisory Board: Members of the Executive Board must not have reached the age of 70 at the time of appointment; members of the Supervisory Board should not have reached the age of 80 at the time of appointment. In the 2023 financial year, the Executive Board and Supervisory Board will again examine whether it makes sense to draw up a separate diversity plan.

Corporate governance practices

Acting responsibly with a view toward the long term and in a spirit of social awareness has always been fundamental to Softing AG's corporate culture. Among other things, this includes integrity in the Company's relationships with customers, employees, business partners, shareholders and the public at large.

Softing defines compliance as abiding by requirements under the law and the Company's Articles of Incorporation as well as internal rules and regulations. The Company has not committed itself voluntarily to any external codes or rules and regulations. Instead, it has given itself a comprehensive mission statement and a set of written management principles. The Company's mission statement expresses the way the Company, its executive bodies and its employees perceive themselves. It also includes recommendations regarding proper dealings with customers, business partners and co-workers.

Please see the Company's web page for more information on quality assurance at Softing AG, as certified under DIN ISO 9001.

Remuneration of the Executive Board and the Supervisory Board

The Supervisory Board is responsible for determining and reviewing the remuneration of the Executive Board and the remuneration system. The Supervisory resolved on a remuneration system pursuant to Section 87a (1) AktG that was adopted by the 2021 Annual General Shareholders’ Meeting. Furthermore, the 2021 General Shareholders’ Meeting confirmed the Supervisory Board remuneration set out in Article 14 of the Articles of Incorporation including the underlying remuneration system. The current remuneration system for the Executive Board and the most recent resolution on the remuneration of the Supervisory Board are available on the Company’s website at https://investor.softing.com/corporate-governance/declaration-of-compliance-regarding-the-german-cgc.html.

The remuneration system and the auditor’s report pursuant to Section 162 AktG are also available on the Company’s website at https://investor.softing.com/corporate-governance/declaration-of-compliance-regarding-the-german-cgc.html.