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Corporate Governance Report*
* This Corporate Governance Report also constitutes the report pursuant to Section 3.10 of the German Corporate Governance Code; it does not form part of the audited Management Report.
Declaration by the Board of Management and the Supervisory Board of Bayer AG
| concerning the German Corporate Governance Code (June 6, 2008 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. The declaration pursuant to Section 161 of the Stock Corporation Act shall be available to shareholders at all times. An annual declaration was last issued in December 2007. With respect to the past, the following declaration refers to the June 14, 2007 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 June 6, 2008 version of the Code. The Board of Management and the Supervisory Board of Bayer AG hereby declare that the company 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 and has been in compliance since issuance of the last declaration of conformity in December 2007. Leverkusen, December 2008
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* 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 again in compliance with all recommendations of the Corporate Governance Code
Bayer has always placed great importance on responsible corporate governance and will continue to do so. Last year the company was again able to renew its declaration that it is in full compliance with the recommendations of the German Corporate Governance Code.
In 2008 the Board of Management and Supervisory Board again addressed the question of compliance with the Corporate Governance Code, particularly in light of the new recommendations included in the amended version of the Code published on June 6, 2008. The resulting declaration of conformity, reproduced above, was published in December 2008 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 four 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 vote, the Chairman has the deciding 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 of the Board of Management, who are respectively responsible for Strategy and Human Resources; Finance; and Innovation, Technology and Environment. 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, 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 two stockholder representatives and two employee representatives. 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 relating to capital measures have also been delegated to this committee.
Audit Committee: The Audit Committee, comprising three stockholder representatives and three employee representatives, 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 and the management reports of Bayer AG and the Bayer Group, all of which are prepared by the Board of Management. It also examines the proposal for distribution of the balance sheet profit of Bayer AG and the interim financial statements and management reports of the Bayer Group. 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 management reports of Bayer AG and the Bayer Group, 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 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. It also bears responsibility for corporate compliance issues and discusses developments in this area at each of its meetings. The internal Corporate Auditing department reports regularly to the Audit Committee.
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, one other stockholder representative and two employee representatives. 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, in accordance with a recommendation of the Corporate Governance Code issued in 2008, the compensation system for the Board of Management and the principal provisions of their contracts are the responsibility of the full Supervisory Board. 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.
Detailed information on the work of the Supervisory Board and its committees is provided in the Report of the Supervisory Board.
Information on the remuneration of the Board of Management and the Supervisory Board (Compensation Report)
To avoid dual presentation of the data, this Corporate Governance Report explicitly adopts, and makes reference to, the information given in the Compensation Report. This also applies to the description of the stock-based compensation for the Board of Management and employees (see Note [26.6] to the consolidated financial statements).
Personal liability in place of a deductible
The company meets the recommendation in the German Corporate Governance Code regarding deductibles for any Directors’ & Officers’ (D&O) liability insurance by obtaining personal declarations from each member of the Board of Management and Supervisory Board to the effect that, should they cause damage to the company or third parties through gross negligence (as defined by German law) in the performance of their duties, they undertake to pay for such damage up to the equivalent of half their total annual remuneration for the year in which such damage occurs. The members of the Supervisory Board undertake to pay for such damage, if caused by them, up to the equivalent of the variable portion of their respective annual remuneration as Supervisory Board members for the relevant year. There is no insurance coverage for intentional breach of duty.
Disclosure of securities transactions by members of the Supervisory Board and Board of Management
To comply with Section 15 a of the German Securities Trading Act, members of the Board of Management and Supervisory Board and their close relatives are 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.
The following transactions were reported to Bayer AG in 2008:
Willy Beumann, Supervisory Board | ||||||
|---|---|---|---|---|---|---|
Date / Place | Security / | ISIN | Transaction | Price / | Quantity | Total |
May 13, 2008 / Xetra | Shares | DE0005752000 | Purchase | €55.72 | 261 | €14,542.92 |
Dec. 22, 2008/Over-the-counter | Shares | DE0005752000 | Purchase | €39.20 | 68 | €2,665.60 |
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.
Systematic monitoring of all business activities
Bayer has a control system in place enabling it 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 timely and accurate accounting for all business processes and the constant availability of reliable data on the company’s financial position.
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.
Corporate Compliance
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 in compliance with the statutory and regulatory requirements of the countries in which it operates.
The Board of Management has also issued internal directives to achieve this goal. These are summarized in the Corporate Compliance Policy – the revised version of the former Corporate Compliance Program – which contains binding rules for fair competition, integrity in business dealings and adherence to the principle of sustainable development.
To avoid conflicts of interest, every employee is required to separate corporate and private interests. The Corporate Compliance Policy also lays down clear rules for the establishment of fair and respectful working conditions and the responsible handling of insider information.
Compliance Committees have been established for Bayer AG, the HealthCare, CropScience and MaterialScience subgroups and the service companies Bayer Business Services, Bayer Technology Services and Currenta.
The role of these committees is to initiate systematic, business-specific training programs and oversee their implementation in line with the Corporate Compliance Policy. They are also responsible for investigating any suspected violations of the Corporate Compliance Policy and, if necessary, taking remedial action. All Compliance Committees report at least once a year to a coordination committee chaired by the Chief Financial Officer. The Group Compliance Officer and the Head of Corporate Auditing regularly report to the Audit Committee of the Supervisory Board on any compliance violations.
All Bayer employees are required to immediately report any violations of the Corporate Compliance Policy. Special telephone hotlines have been set up in all countries to allow this to be done anonymously. By far the majority of these hotlines connect callers to specialist law firms retained by us.
Starting in the fall of 2008, the revised Corporate Compliance Policy was introduced worldwide using the slogan “Compliance W.I.N.S.” (Worldwide Integrity is Necessary for Success).
A global communications campaign was launched to illustrate how compliance contributes to long-term success for the company as a whole and for each employee. The message to employees is: “Compliance makes everyone a winner.”
Common values and leadership principles
To supplement the Corporate Compliance Policy, Bayer has drawn up a Group mission statement setting out the principles underlying Bayer’s corporate strategy. It outlines our corporate philosophy and the framework for our business activity to stockholders, customers, employees and the general public. Common values and leadership principles are considered essential for all employees in their daily work. The values include a will to succeed; a passion for our stakeholders; integrity, openness and honesty; respect for people and nature; and the sustainability of our actions. The assessment of managers’ performance on the basis of defined leadership principles helps to ensure adherence to these values throughout the enterprise.
Detailed reporting
To maximize transparency, we provide regular and timely information on the company’s position and significant changes in business activities for 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 company’s Board of Management provide an assurance that, to the best of their knowledge, the annual financial statements and management report of Bayer AG and the consolidated financial statements and management report of the Bayer Group provide a true and fair view.
The annual financial statements of Bayer AG and the consolidated financial statements of the Bayer Group are published within 90 days following the end of each fiscal year. During the fiscal year, stockholders and other interested parties are kept informed about the company’s performance through the half-year financial report and additional interim reports as of the end of 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 and interim reports or the Annual Stockholders’ Meeting.
In line with the principle of fair disclosure, we provide the same information to all stockholders and other principal target groups. 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.
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