Declaration on corporate governance in accordance with Section 289a of the German Commercial Code (HGB)
Contents also in accordance with Clause 3.10 of the German Corporate Governance Code (Corporate Governance Report)
Declaration on corporate governance in accordance with Section 289a of the German Commercial Code (HGB) (in the version applicable up to April 18, 2017)
Responsible corporate governance has always been of great importance at KWS SAAT SE. Since it was founded more than 160 years ago, our company’s successful development has been founded on thinking long term and acting in terms of sustainability.
KWS complies almost fully with the code’s recommendations
The Executive Board and the Supervisory Board once again examined in the year under review whether the company complies with the stipulations of the German Corporate Governance Code. As a result, the following declaration of compliance was issued, to the effect that the company complies almost fully with the code’s recommendations; the declaration can also be found at www.kws.de/corporate-governance. It is printed in the 2016/2017 Annual Report as well.
Compliance declaration in accordance with section 161 AktG (German Stock Corporation Act)
The Executive Board and the Supervisory Board of KWS SAAT SE declare in compliance with Section 161 AktG (German Stock Corporation Act) that the company has complied with the recommendations of the German Corporate Governance Code in the version dated May 5, 2015, since the last compliance declaration in October 2016, and with the recommendations of the German Corporate Governance Code in the version dated February 7, 2017, since its publication in the official section of the Federal Official Gazette on April 24, 2017, and does now comply and will comply with them in the future, with the following exceptions:
In accordance with Clause 4.2.2 (2) Sentence 3 of the German Corporate Governance Code, the Supervisory Board shall consider the relationship between the compensation of the Executive Board and that of senior management and the workforce overall, particularly in terms of its development over time, whereby the Supervisory Board shall determine how senior managers and the relevant staff are to be differentiated. This recommendation is not complied with, since the compensation of the Executive Board, senior management and staff is based on variable criteria that defy rigid definition. These criteria include not only generally applicable yardsticks such as degree of responsibility, tasks, personal performance, expertise and the like for the Executive Board, but also the company’s economic situation, success and future prospects.
In accordance with Clause 5.4.1 (2) Sentence 2 of the German Corporate Governance Code, the Supervisory Board is to set a limit on the length of time members can serve on the Supervisory Board. This recommendation is not complied with, since in a business with a tradition of family ownership such as KWS SAAT SE it would significantly restrict the rights of the family shareholders, who hold a majority stake in the company.
Clause 7.1.2 Sentence 3 of the German Corporate Governance Code states that the consolidated financial statements shall be publicly accessible within 90 days of the end of the fiscal year and interim reports within 45 days of the end of the reporting period. KWS SAAT SE publishes its consolidated financial statements and interim reports within the period of time defined in the regulations for the Prime Standard of the German Stock Exchange. The company’s seasonal course of business means that it cannot ensure compliance with the recommended periods in the German Corporate Governance Code.
Einbeck, October 2017
The Supervisory Board The Executive Board
Relevant corporate governance practices above and beyond requirements prescribed by law
The various regulations enshrined in national and international law and the recommendations drawn up by the Government Commission for the German Corporate Governance Code form the framework for corporate governance at KWS SAAT SE. We have also developed our own governance practices above and beyond the requirements prescribed by law. Many of them have been published in a portal on the subject and can be called up by our employees at all times. Worthy of particular note is our compliance culture, which is implemented and developed further at the KWS Group under the responsibility of a separate department, the Corporate Compliance Office. The KWS Compliance Management System (CMS) is used to control all aspects and areas of compliance work that are the responsibility of the Corporate Compliance Office.
The CMS is based on seven criteria in accordance with IDW PS 980: culture, objectives, risks, program, organization, communication and monitoring. In order to continuously develop the CMS further, we primarily use findings from compliance risk assessments, analysis of self-assessments on the minimum requirement checks and auditing projects. If adaptations to the system are required due to growth, expansion of our international business activity into new markets, an increase in the workforce or other factors, the steps that need to be initiated are examined.
KWS’ compliance regulations are binding on our employees in all markets worldwide in which we operate. They are geared toward the strictest legal regulations within our field of activity. The KWS Group’s “International Anti-Corruption Policy” prohibits corruption, for example. It also applies in countries where the law does not proscribe bribery as an offense or where individual acts of bribery are not punishable. In this policy, we have also clearly defined the constraints that apply to gifts, donations, invitations and other benefits. The fundamental document relating to compliance work is the “Code of Business Ethics” (CoBE), which is binding on all employees of the KWS Group and which we also have published in a short version on our website at www.kws.de/corporate-governance. In addition to statutory regulations, it specifies ethical standards in everyday business and what the response of the company is to misconduct.
Our human resource strategy contains clearly defined stipulations relating to various aspects of labor and social standards. We have concretized these stipulations in our Human Resource Rules, Guidelines and Procedures. Key points include the prohibition of child labor and any form of forced or compulsory labor, equal opportunity for men and women, and the unequivocal commitment to extensive measures to promote occupational safety and health protection for our employees.
Description of the working practices of the Executive Board and the Supervisory Board and the composition and working practices of their committees
KWS SAAT SE has a system of dual management with a transparent and effective separation of management of the company and supervision of that management between the Executive Board and the Supervisory Board, a Supervisory Board that is made up of shareholder and employee representatives, and rights of codetermination and control by shareholders at the Annual Shareholders’ Meeting. Both bodies have strictly separated competencies and different members. While the Executive Board is responsible for managing the company, the Supervisory Board supervises and advises the Executive Board.
KWS SAAT SE’s Executive Board and Supervisory Board work together constructively in a spirit of mutual trust. Both bodies are committed to the common goal of generating sustainable and long-term growth on the basis of the established corporate philosophy. There is constant close contact between the Chairman of the Supervisory Board and the Chief Executive Officer and individual members of the Executive Board. There are also monthly meetings between the Chairman of the Supervisory Board and the Executive Board as a whole. Among other subjects, the company’s current business development, its strategy, occurrences of special importance and risk management are discussed intensively at these meetings.
Working practices of the Executive Board
The members of the Executive Board are jointly responsible for conducting the company’s business in accordance with the law, the company’s Articles of Association and the bylaws, with the goal of increasing the company’s value lastingly and achieving the defined corporate objectives. It observes the recommendations of the German Corporate Governance Code and reports on deviations from it.
The Executive Board’s task areas are divided into divisions, documented in writing in the distribution-of-business plan and published on the homepage at www.kws.de/corporate-governance. The individual members are directly responsible for the divisions assigned to them; this does not affect the fact that they have joint responsibility for managing the company’s business. The Executive Board decides in its entirety on significant matters relating to the company. These are specified in the Executive Board’s bylaws, which can also be viewed in the above-mentioned section of our Internet site.
The Executive Board develops the company’s strategic orientation, coordinates it with the Supervisory Board and ensures that it is implemented. It coordinates and controls the company’s main activities and decides on how resources are distributed. It defines the guidelines and principles of the corporate policy and is responsible for ensuring compliance with them and with statutory regulations.
The Executive Board convenes every week (for half a day) or every two weeks (for a whole day). These meetings are used to adopt resolutions by the Executive Board as a whole as well as to reach mutual agreement and provide information on all important events at the individual divisions. Any member of the Executive Board can ask for a meeting of the body to be convened. According to the bylaws, necessary resolutions must be adopted unanimously or, after prior discussion, by the majority of the votes.
The Chief Executive Officer, who is appointed by the Supervisory Board, represents the Executive Board and the company publicly in matters of principle. He is responsible for organizing the Executive Board meetings and for monitoring implementation of the resolutions adopted by the Executive Board.
The Executive Board provides the Chairman of the Supervisory Board with regular, prompt and extensive information on all questions of relevance to the company relating to planning, the business performance, the risk situation, risk management and compliance at the company.
As in the previous year, the Executive Board did not form any committees in the year under review. No conflicts of interest on the part of individual members were reported to the Supervisory Board in the past fiscal year. At the end of fiscal 2016/2017, the Executive Board comprised four persons and had the same composition as the previous year.
Working practices and composition of the Supervisory Board
The Supervisory Board is tasked with regularly advising and monitoring the Executive Board in its management of the company. The Supervisory Board is involved in decisions of fundamental importance for the company at an early stage. Significant business transactions and fundamental decisions on KWS SAAT SE’s further development require the Supervisory Board’s approval. A simple majority is sufficient to adopt such resolutions. The Supervisory Board still consists of six members. The Supervisory Board also conferred the title of “Honorary Member of the Supervisory Board” on its former member Dr. Arend Oetker. He is not a member of the Supervisory Board or of equal rank to one; in particular, he does not have the rights vested in a member of the Supervisory Board.
The Supervisory Board appoints a Chief Executive Officer, who coordinates the work of the Executive Board. It also endeavors to ensure a consistent orientation in management of the company and can demand information on individual matters from the Executive Board’s members at any time.
KWS’ Supervisory Board has the following objectives for its composition: With regard to KWS’ international business activity, the Supervisory Board is to have an adequate number of members with international experience in accordance with the requirements of the German Corporate Governance Code. All the shareholder representatives elected to the present board by the Annual Shareholders’ Meeting hold responsible functions at or posts on management bodies of internationally operating family-run companies, with the result that the Supervisory Board meets its objective in this regard.
In accordance with Clause 5.4.1 of the German Corporate Governance Code, the Supervisory Board addressed the question of an adequate number of independent members representing the shareholders on the Supervisory Board and set it at 50% under the resolution adopted on June 24, 2017. The Supervisory Board regards Mr. Hubertus von Baumbach and Ms. Catharina Claas-Mühlhäuser to be independent members and so has also achieved its target for 50% of the shareholder representatives on the Supervisory Board to be independent. In examining which of its members should be regarded as independent, the Supervisory Board was also guided by Commission Recommendation 2005/162/EC in conjunction with Article 1 Paragraph 1 (d), (bb), of the Seventh Council Directive 83/349/EEC.
Only candidates who are not 72 or above are to be proposed to the Annual Shareholders’ Meeting for election to the Supervisory Board. Aspects that are to be taken into account here also include independence and diversity. The related objectives for the Supervisory Board are currently being implemented.
Given the current composition of the Supervisory Board, all the objectives decided on in relation to its composition have thus been fulfilled. Moreover, the competence profile for the Supervisory Board as a whole has been satisfied. The competences of the board as a whole are such that its members overall have the knowledge, skills and professional experience required so that it can discharge its duties properly.
The Chairman of the Audit Committee, Mr. Hubertus von Baumbach, has specialist know-how and experience in applying accounting principles and internal control procedures, i.e. he qualifies as a financial expert.
At least two meetings of the Supervisory Board are held every calendar half-year. Any member of the Supervisory Board or the Executive Board can convene the Supervisory Board immediately, stating the purpose and reasons. The Supervisory Board convened for a total of five meetings in the year under review. Information on the focal topics at the individual meetings can be found on pages 5 to 9 of the 2016/2017 Annual Report. Every member of the Supervisory Board must disclose conflicts of interest to the Supervisory Board immediately. Conflicts of interest that have arisen are reported to the Annual Shareholders’ Meeting. Conflicts of interest on the part of individual members were not reported to the Supervisory Board or, if they involve the Chairman, to the Deputy Chairman of the Supervisory Board in the past fiscal year.
In fiscal 2016/2017, Dr. Marie Theres Schnell was elected as a new member of the Supervisory Board by the Annual Shareholders’ Meeting on December 15, 2016, after Dr. Arend Oetker resigned from office. There were no other changes in the Supervisory Board’s composition.
Supervisory Board committees
In the year under review, the Supervisory Board still had three committees, which – where permissible under the law – discharge the tasks entrusted to them in the name of and on behalf of the Supervisory Board as a whole. They are the Committee for Executive Board Affairs, the Audit Committee and the Nominating Committee. The Chairman of each committee reports to the Supervisory Board on its discussions and resolutions. The current composition of the committees can be found on page 7 of the 2016/2017 Annual Report; there have been changes in the Committee for Executive Board Affairs and the Nominating Committee over the previous year. The composition of the Audit Committee has not changed compared to the previous year.
The Committee for Executive Board Affairs comprises the Chairman of the Executive Board, his Deputy Chairman and a further member of the Supervisory Board. It prepares the decisions of the Supervisory Board as a whole relating to the conclusion, extension, modification and termination of contracts of employment between the company and the members of the Executive Board. Its tasks also include drawing up a proposal on the structure of the compensation system for the Executive Board, as well as regularly reviewing and setting the total compensation for the individual members of the Executive Board. In addition, the committee decides on the legal arrangements between the company and Executive Board members who have left it, approves contracts of KWS SAAT SE or its subsidiaries with Supervisory Board members in accordance with Section 114 AktG (German Stock Corporation Act) and approves loans to members of the Executive Board and Supervisory Board in accordance with Sections 89 and 115 AktG (German Stock Corporation Act).
The Audit Committee consists of the Chairman of the Supervisory Board and two other members of the Supervisory Board and convenes at least three times a year. The Chief Financial Officer and/or the Chief Executive Officer usually take part in the meetings and telephone conferences as well. Hubertus von Baumbach, who is the current Chairman of the Audit Committee and presided over it in the past fiscal year, fulfills the statutory requirements regarding independence and expertise in the fields of accounting and auditing of financial statements. The Audit Committee monitors the correctness of the company’s financial statements, as well as risk management and compliance. Its tasks also include submitting a proposal on appointment of the independent auditor to the Supervisory Board, defining the focal areas of the independent auditor’s audit, examining the independent auditor’s independence and qualifications, agreeing on its fee and awarding the audit assignment.
The audit assignment was awarded to Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Hanover, pursuant to the resolution adopted by the 2016 Annual Shareholders’ Meeting. Before the proposal on appointing the auditor was submitted to the Annual Shareholders’ Meeting, a statement of independence from the auditor was obtained in accordance with Clause 7.2.1 of the German Corporate Governance Code. It was agreed with the independent auditor that the Chairman of the Supervisory Board or the Audit Committee be informed immediately of possible reasons for excluding the auditor or for establishing a lack of impartiality that arise during the audit, unless these were remedied immediately. Moreover, the independent auditor reports immediately to the Supervisory Board on all findings and occurrences that are of importance to the Supervisory Board and Audit Committee in discharging their duties and that arise in the course of its audit of the financial statements. A further task of the Audit Committee is to discuss the adequacy and proper functioning of the internal control system for financial reporting with the Executive Board. As part of preparation of the annual and consolidated financial statements, the Audit Committee is responsible for conducting a preliminary examination of the documents relating to the single-entity and consolidated financial statements and the Combined Management Report. The Audit Committee prepares the decisions of the Supervisory Board as a whole on approval of the annual financial statements of KWS SAAT SE and the consolidated financial statements of the KWS Group on the basis of the report by the independent auditor and draws up a proposed resolution by the Executive Board on the appropriation of profits. The Audit Committee also discusses the quarterly reports, the semiannual financial report and the accompanying press releases in direct dialogue with the Chief Financial Officer and the Chief Executive Officer.
The company’s Nominating Committee is composed of three shareholder representatives to be elected from the Supervisory Board members. It submits nominations for the elections of the shareholder representatives on the Supervisory Board. It proposes suitable candidates to the Supervisory Board as a whole for its nominations to the Annual Shareholders’ Meeting and obtains all the information required to assess the candidates’ suitability.
More details of the work of the Supervisory Board and its committees are presented in the Report of the Supervisory Board on pages 5 to 9 of the KWS Group’s 2016/2017 Annual Report.
KWS SAAT SE’s shareholders exercise their rights of codetermination and control at the Annual Shareholders’ Meeting, which is held at least once a year. The tasks of the Annual Shareholders’ Meeting are to elect four of the six members of the Supervisory Board – namely the shareholder representatives on the Supervisory Board – and to adopt resolutions on the ratification of the acts of the Executive Board and Supervisory Board, appropriation of the net retained profit, any capital measures, authorization to issue and buy back shares in the company, amendments to the Articles of Association and the appointment of the independent auditor. In principle, each share in KWS SAAT SE entitles its holder to one vote. Every shareholder has the right to participate in the Annual Shareholders’ Meeting, which is traditionally held at the company’s headquarters in Einbeck, to speak on the items on the agenda, submit countermotions and demand information on the Company’s affairs, provided this information is required to permit proper assessment of an item on the agenda. 84.4% of the voting rights were represented at the Annual Shareholders’ Meeting on December 15, 2016.
Information on the defined target figures and periods in accordance with Section 76 (4) and Section 111 (5) AktG (German Stock Corporation Act)
In accordance with Section 111 (5) AktG (German Stock Corporation Act) and Clause 5.4.1. of the German Corporate Governance Code, the Supervisory Board must define a target for the ratio of women on the Supervisory Board and the Executive Board and the date by which that target is to be achieved. The Supervisory Board adopted resolutions to that effect for the first time in 2015. The ratio of female members representing the shareholders on the Supervisory Board should be at least 25% and be achieved by June 30, 2017. It was achieved by the set date. The regulations for election of employee representatives on the Supervisory Board do not specify any targets or minimum figure for the ratio of women and men. Consequently, the above target for the board as a whole is calculated as being 16.6%. The ratio of female members on the Executive Board is to be at least 25% and likewise be achieved by June 30, 2017. It was likewise achieved.
In 2015, the Executive Board also defined concrete target figures for the ratio of women in the two management tiers below KWS SAAT SE’s Executive Board in accordance with Section 76 (4) AktG (German Stock Corporation Act). The Executive Board adopted a target of achieving a ratio of female employees of 15% in management tier 1 and of 10% in management tier 2 by June 30, 2017. Neither target was able to be reached by the set date. A vacancy in the first management tier had not been filled by that date. There were no changes in personnel in the second management tier up to the set date, which meant the target figure could not be achieved.
When the statutory period of time ended on June 30, 2017, the target figures and dates for achieving them had to be redefined:
The Supervisory Board thus decided in accordance with Section 111 (5) AktG (German Stock Corporation Act) that the ratio of female and male members representing the shareholders on the Supervisory Board is to be at least 25% each and the ratio of female and male members on the Executive Board of KWS SAAT SE is likewise to still be 25% each. These targets are to be achieved by June 30, 2022.
The Executive Board defined new target figures for the ratio of women in the two management tiers below KWS SAAT SE’s Executive Board and the date by which they must be achieved in accordance with Section 76 (4) AktG (German Stock Corporation Act). The Executive Board has consequently set a target of achieving a ratio of 15% in management tier 1 and 10% in management tier 2 by June 30, 2022.