Corporate Governance Statement and 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 289f 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 combined management report of SIMONA Group and SIMONA AG under the headings "Internal control system", "Risk management system", "Internal control system (ICS) relating to financial reporting – Report pursuant to Section 289(4) and Section 315(4) HGB" and "Quality". The Group management report can be accessed at www.simona.de under Company/Investor Relations/Financial Calendar & Reports/Financial Reports. 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) 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.
As a global plastics processing company, SIMONA is acutely aware of the considerable responsibility it has towards the environment, its customers and business partners, its employees, its financing partners and investors, and the general public at all of its sites. In the context of these social responsibilities, it is also imperative that we abide by applicable laws at all times and wherever we operate, while also respecting fundamental ethical values and behaving in an exemplary manner. These responsibilities must be embraced by each and every one of us, be it our Management Board, our executives or our members of staff. Further information relating to compliance and the company's code of conduct can be found at www.simona.de under Company/Investor Relations/Corporate Governance/Compliance. The non-financial statement in accordance with Section 289b to Section 298e HGB, containing information on environment, energy, social and employee-related matters as well as respect for human rights and anti-corruption and bribery matters has been included in the combined Group management report and can be accessed at www.simona.de under Company/Investor Relations/Financial Calendar & Reports/Financial Reports.
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 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 corporate goals. The BSC cascades down to the company's other management levels.
In accordance with the company's Articles of Association, the Management Board consists of at least two 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 96(1) of the German Stock Corporation Act (Aktiengesetz – AktG), Section 4 of the One-Third Participation Act (Drittelbeteiligungsgesetz) and Section 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.
Information relating to the current composition of the committees can be accessed at www.simona.de (Company/Investor Relations/Key Facts/Management Board and Supervisory Board).
Profile of skills and expertise
The Supervisory Board has defined the following profile of skills and expertise for members of the Supervisory Board. It outlines key requirements with regard to professional expertise, skills and experience as well as in respect of personal credentials and integrity:
The Supervisory Board is committed to ensuring that its members are individuals of integrity who embrace the principles of the social market economy and possess expertise and extensive experience in managing and/or advising commercial enterprises or entities closely affiliated with the business sector. Among the preferred credentials are experience and specialist knowledge relating to the company's principal fields of activity. The Supervisory Board should include, at the very least, one independent financial expert as well as, at the very least, one member whose professional track record suitably reflects the international nature of the company. Additionally, the aim is to ensure that at least half of the shareholder representatives on the Supervisory Board are independent. Potential candidates should not hold advisory or governance roles at significant competitors, customers or suppliers. The age limit agreed at the time of elections to the Supervisory Board shall also be taken into consideration when selecting candidates.
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.
III. 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 22 February 2019:
"Since the last Declaration of Conformity issued on 23 February 2018, 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 7 February 2017, with the exception of the following departures:
Section 3.8 paragraph 3 – D&O insurance deductible for Supervisory Board
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 – Severance pay cap
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 – Itemised presentation of Management Board compensation
Explanation: On 10 June 2016, the Annual General Meeting of Shareholders of SIMONA agreed by the requisite majority of three-quarters 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 – Nomination Committee within Supervisory Board
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 – Diversity concept regarding composition of Supervisory Board and regular limit regarding term of office
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 - Remuneration for Chair of Supervisory Board committees
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 – Publication deadline for consolidated financial statements
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, 22 February 2019
Supervisory Board and Management Board"
IV. Notes to specifications made pursuant to Section 76(4) and Section 111(5) AktG
At its meeting on 20 April 2017, the Supervisory Board set its target figures for the Supervisory Board and the Management Board of one female member on each board. The targets are to be achieved by 30 June 2022.
As regards the first managerial level below the Management Board, the Management Board of SIMONA AG has specified 25 per cent as its target figure, while the target figure for the second managerial level below the Management Board has been set at 20 per cent. Both targets are to be achieved by 30 June 2022.
V. Diversity concept
The Supervisory Board and Management Board support the fundamental idea of diversity as regards their composition and the importance of this concept to the company. The Supervisory Board has defined the following profile of skills and expertise for members of the Supervisory Board. It outlines key requirements with regard to professional expertise, skills and experience as well as in respect of personal credentials and integrity.
In addition, target figures for the number of women on the Supervisory Board and Management Board and an age limit for members of the Supervisory Board and Management Board were adopted. Beyond this, no formal diversity concept has been adopted to date, as the Supervisory Board primarily takes into consideration the individual abilities, knowledge and professional experience of male and female candidates in respect of its nominations submitted to the General Meeting. 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.
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 combined 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 2018.
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 2019
Management Board and Supervisory Board
This is a translation from German into English. Only the German document shall be considered authoritative.