Statement on Corporate Governance Pursuant to Section 289a of the German Commercial Code
Statement on Corporate Governance
The Executive Board of Softing AG reports on issues of corporate governance in this statement – also on behalf of the Supervisory Board – pursuant to both Section 3.10 of the German Corporate Governance Code and Section 289a para. 1 of the German Commercial Code (HGB).
The Executive Board and the Supervisory Board of Softing AG support many suggestions and rules of the German Corporate Governance Code and declare that they were and will be in compliance in the future with the recommendations regarding conduct contained in the Code's current and applicable version in the 2016 financial year, taking into account the exceptions and comments listed below. The Executive Board and Supervisory Board issued the Declaration of Compliance in December 2016. Below, the Executive Board and the Supervisory Board disclose and explain any deviations from the Code. You can download the full text of the Code from the Investor Relations section of our website at www.softing.com.
|1.||Softing AG (hereinafter: the Company) will comply with the recommendations of the German Corporate Governance Code, as amended on February 7, 2017, with the following exceptions:|
|a.|| The Executive Board’s duties to inform and report to the Supervisory Board are not specified in greater detail (Section 3.4 para 1 sentence 3 of the Code). |
The Supervisory Board has not specified the Executive Board’s duties to inform and report in greater detail because the Executive Board is already legally obligated to regularly inform the Supervisory Board about all material business transactions without delay. In addition, the Supervisory Board has not had any reason to find fault with the Executive Board’s information policy to date.
|b.|| The Company currently has not agreed a deductible for the D&O insurance taken out on behalf of the members of its Supervisory Board (Section 3.8 para 3 of the Code). |
The Company does not believe that such a deductible could enhance the motivation and responsibility of the members of the Company’s Supervisory Board in carrying out their duties.
|c.|| The Company does not maintain Declarations of Compliance with the German Corporate Governance Code at its website for five years (Section 3.10 sentence 3 of the Code).|
It does not believe that it is necessary to store non-current Declarations of Compliance with the German Corporate Governance Code on its website for five years. Such postings do not offer new information relevant to the capital market.
|d.|| No consideration was given to the relationship between the remuneration of senior management and the staff overall, when determining the remuneration for the Executive Board (Section 4.2.2 para 2 sent. 3 of the Code)|
Section 4.2.2 para 2 sentence 3 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 staff overall, particularly in terms of its development over time. When the current director’s 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 individual tasks and scope of responsibilities of the respective Executive Board member. 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 Code recommendation and did not collect any data regarding the development over time of the wage and salary structure, either.
|e.|| Variable remuneration components with a multiple-year, forward-looking assessment basis (Section 4.2.3 para 2 sent. 3 of the Code)|
Executive Board remuneration already includes a multiple-year assessment basis. However, this multiple-year assessment basis does not have essentially forward-looking characteristics. The Company believes that additional, essentially forward-looking characteristics do not currently represent additional incentives for the Executive Board. The Supervisory Board and the Executive Board will, however, discuss a change in the assessment basis for variable remuneration during the next year.
|f.|| Diversity in the Executive Board (Section 5.1.2 para 1 sent. 2 of the Code)|
When appointing the members of the Executive Board, the Supervisory Board cannot also respect 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 be 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.
|g.|| The Supervisory Board has not set up any committees (Sections 5.3.1, 5.3.2, 5.3.3 of the Code). |
Given the size of the Supervisory Board (three members), setting up committees is not considered necessary.
|h.|| No age limit has been specified for members of the Executive Board and the Supervisory Board (Section 5.1.2 para 2 sent. 3 and Section 5.4.1 para 2 of the Code).|
A specific age limit could be an undesired criterion to exclude qualified members of the Executive Board or the Supervisory Board.
|i.|| Specification of concrete objectives regarding the composition of the Supervisory Board and preparation of a profile of skills and expertise (Section 5.4.1 para 2, 3 and 4 of the Code). |
The Company’s Supervisory Board will not specify any concrete objectives regarding its composition, nor has it prepared a profile of skills and expertise for the entire Supervisory Board. Up to now, the Supervisory Board has exclusively based its proposals for the nomination of Supervisory Board members on the suitability of the male and female candidates with the aim of creating a Supervisory Board whose members as a group possess the knowledge, skills and professional experience required to properly complete its tasks. The Supervisory Board firmly believes that this approach works, which is why it does not see any need to change this practice. In particular, the Company does not intend to implement the recommendation to set a regular limit of length of membership because as a rule, the Company wishes to have access to the expertise of experienced Supervisory Board members as well. The Supervisory Board does not consider a predetermined limit for the maximum period of service appropriate, since the term of office for Supervisory Board members stipulated in the law and Articles of Incorporation provide for a reasonable period for Supervisory Board mandates. Since the Supervisory Board accordingly does not set specific targets regarding its composition and does not prepare a profile of skills and expertise, either, the recommendations in Section 5.4.1 para 3 can not be followed. For this reason, the Company also cannot follow the recommendations in Section 5.4.1 para 4, according to which proposals by the Supervisory Board to the General Meeting shall take these targets into account, while simultaneously aiming at fulfilling the overall profile of required skills and expertise of the Supervisory Board. The implementation status can therefore not be published in the Corporate Governance Report, either.
|j.|| Performance-related remuneration shall be linked to sustainable growth of the company (Section 5.4.6 para 2 sent. 2 of the Code)|
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 thus do not expressly require a link to sustainable growth of the Company. 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 sustainable development has established itself in the capital markets to date. For the time being, the Company will continue to monitor the situation.
|k.|| The Supervisory Board does not discuss quarterly or half-yearly financial reports with the Executive Board prior to publication (Section 7.1.2 sent. 2 of the Code).|
The Company believes that a separate discussion of the reports is not necessary because the Supervisory Board is informed regularly of the business transactions.
|2.||Since the publication of its most recent Declaration of Compliance in December 2015, Softing AG has generally been in compliance with the recommendations contained in the German Corporate Governance Code as amended on February 7, 2017. The Company has not observed the following recommendations: Section 3.4 para 1 sentence 3; Section 3.8 para 3; Section 3.10, sentence 3; Section 4.1.3 sentence 2; Section 4.2.2 para 2 sentence 3; Section 4.2.3 para 2 sentence 3; Section 5.1.2 para 1 sentence 2; Section 5.3.1; Section 5.3.2; Section 5.3.3; Section 5.1.2 para 2 sentence 3; Section 5.4.1 paras 2, 3 and 4; Section 5.4.6 para 2 sentence 2; and Section 7.1.2 sentence 2. Please see the explanations under no. 1 for the reasons for not observing the recommendations of the Code stated under no. 2.|
Compensation for the active members of the Supervisory Board in the 2016 financial year is presented in the 2016 annual report.
Disclosures regarding directors’ dealings pursuant to Section 15a German Securities Trading Act (Wertpapierhandelsgesetz - WpHG): Directors´ Dealings .
Procedures of the Executive Board and the Supervisory Board
Softing AG is a stock corporation under German law. The dual management system comprising the Executive Board and the Supervisory Board as corporate bodies, both of which have distinct responsibilities, is a fundamental element of German corporate law. The collaboration between the Executive Board and the Supervisory Board of Softing AG in running and supervising the Company is very close and trusting.
Softing AG's Executive Board may comprise one or several persons. The Executive Board currently comprises one member: Dr.-Ing. Dr. rer. oec. Wolfgang Trier. Dr. Trier is currently responsible for the operating segments Industrial Automation and Automotive Electronics as well as for Investor Relations and for Finance and Human Resources.
The Executive Board is responsible for managing the Company in its entirety. The subsidiaries' managing directors receive regular information from the Executive Board on important measures and matters concerning the respective functions.
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, financial condition 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 includes an adequate number of independent individuals, who, except in their capacity as shareholders, do not maintain any professional or personal ties to the Company or its Executive Board. The Supervisory Board's term of office is four years. Its current term of office ends with the General Shareholders' Meeting in 2017. The Supervisory Board did not establish any committees, given its size. Instead, the full Supervisory Board is responsible for all tasks and decisions. The current members of the Supervisory Board are: Dr. Horst Schiessl (Chairman), Dr. Klaus Fuchs (Deputy Chairman) and Mr. Andreas Kratzer.
On May 1, 2015 the German Act to Promote the Equal Participation of Women and Men in Management Positions in the Private and Public Sector (Gesetz für die gleichberechtigte Teilhabe von Frauen und Männern an Führungspositionen in der Privatwirtschaft und im öffentlichen Dienst) entered into force. For exchange-traded companies, Section 111 (5) of the German Stock Corporation Act (Aktiengesetz - AktG) now stipulates that the Supervisory Board must set targets for the proportion of women in the Supervisory Board and the Executive Board along with deadlines for their achievement. The first targets must be set by September 30, 2015 at the latest, though the time periods to be initially defined may not extend beyond June 30, 2017.
The Supervisory Board of Softing AG has discussed this matter at length. Currently, the proportion of women in the Executive Board and Supervisory Board is 0% in each case. Up to now, the Supervisory Board of Softing AG has exclusively based its proposals for the nomination of Supervisory Board members and executives 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 in the selection of candidates. What is more, the term of office of the acting Supervisory Board members still runs until the end of the Annual General Meeting that formally approves their actions for financial year 2017. This Annual General Meeting will probably be held in May 2018, which means that changes in the composition of the Supervisory Board prior to June 30, 2017 would require one of the acting members to step down or the Supervisory Board to be expanded to six members. However, this is not even envisaged for the statutory minimum quota applicable to exchange-traded and codetermined companies. The company's Executive Board currently comprises two members, a number the Supervisory Board considers adequate at the present time. 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 2018 at least. It would therefore not be possible to implement a quota of women in the Executive Board before June 30, 2017 without expanding the Executive Board.
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.
For the Report of the Supervisory Board, please see the 2016 annual report.
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 corporate vision and a set of written management principles. The Company's vision expresses the way the Company, its corporate bodies and its employees perceive themselves. It has also adopted 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.