Corporate Governance Report
Pursuant to the recommendation of Subsection 3.10 of the German Corporate Governance Code, the Management Board and the Supervisory Board of METRO AG deliver the following report on corporate governance at METRO GROUP.
The Management Board and the Supervisory Board of METRO AG are firmly committed to the principles of transparent, responsible corporate governance and supervision. They attach great importance to good corporate governance standards. Their voluntary commitment to the German Corporate Governance Code is reinforced by the following provision in the Boards’ by-laws:
“The Management Board and the Supervisory Board of METRO AG base their actions on the relevant valid recommendations of the German Corporate Governance Code and only deviate from the Code’s recommendations in well-founded exceptional cases. If the Management Board or Supervisory Board intends to deviate from a recommendation, the organs inform each other of the planned move prior to its implementation.”
Implementation of the German Corporate Governance Code
During financial year 2013/14, the Management Board and the Supervisory Board of METRO AG discussed METRO GROUP’s implementation of the recommendations of the German Corporate Governance Code in detail and issued the following declaration pursuant to § 161 of the German Stock Corporation Act (AktG) in September 20141:
“The Management Board and Supervisory Board of METRO AG hereby declare
that the recommendations of the Government Commission on the German Corporate Governance Code published by the Federal Ministry of Justice in the official section of the Federal Bulletin in the version of 13 May 2013 have been complied with in full since the last declaration of compliance was issued in September 2013.
The Management Board and Supervisory Board intend to comply with the recommendations in the version of 13 May 2014 in future.”
This and the declarations pursuant to § 161 of the German Stock Corporation Act (AktG) made over the last five years are permanently available to METRO AG shareholders on the website www.metrogroup.de.
In addition to recommendations, the German Corporate Governance Code contains suggestions that listed companies can – but do not have to – address. METRO AG follows the vast majority of these suggestions. In financial year 2013/14, there was only one suggestion that the company did not fully implement:
Subsection 2.3.3 of the German Corporate Governance Code calls for enabling shareholders to follow the Annual General Meeting via modern communication media such as the Internet. As in previous years, METRO AG only broadcast the speech by the Chairman of the Management Board in financial year 2013/14. This practice will be continued.
1 After approving this Corporate Governance Report, the Management Board and Supervisory Board of METRO AG issued a new declaration pursuant to § 161 of the German Stock Corporation Act (AktG); it has been made permanently available on the website www.metrogroup.de.
Division of duties and areas of responsibility between the Management Board and the Supervisory Board
The clear division between corporate management and corporate supervision is a key element of corporate governance for German stock corporations. Duties and areas of responsibility are clearly divided between the Management Board and the Supervisory Board.
The Management Board of METRO AG, which has four members, is responsible for running the company. The management duties of the Management Board of METRO AG include defining corporate objectives and determining the strategic positioning for the group as well as managing the company, monitoring and planning. In addition, the Management Board of METRO AG ensures the availability of investment funds, decides on their allocation within the group and is responsible for attracting and supporting highly qualified managers.
Pursuant to the German Co-determination Act (MitbestG), the German Stock Corporation Act (AktG) and the Articles of Association, the Supervisory Board of METRO AG is composed of ten shareholder representatives and ten employee representatives. The Supervisory Board appoints the members of the Management Board, advises them and monitors their corporate management, including the attainment of long-term corporate objectives. The Supervisory Board is brought into the planning of the development of METRO GROUP by the Management Board to the same degree that it is included in decisions about important measures. Aside from its legally prescribed approval obligations, the Supervisory Board has determined its own approval requirements for certain actions and business dealings of the Management Board.
For more information about members of the Management Board and Supervisory Board, see the notes to the consolidated financial statements of METRO AG in no. 55 Corporate Boards of METRO AG and their mandates.
The modes of operation of the Management Board and Supervisory Board, the composition and functions of the Supervisory Board committees and information on key corporate management practices are described in the statement on corporate management pursuant to § 289 a of the German Commercial Code (HGB). The declaration of compliance pursuant to § 161 of the German Stock Corporation Act (AktG) also appears in full in this report.
The statement on corporate management is available on the website www.metrogroup.de in the section Company – Corporate Governance.
Objectives regarding the composition of the Management Board and Supervisory Board
To properly carry out its duties, the Management Board and the Supervisory Board must possess a broad range of knowledge, skills and experience.
Requirements related to appointments to the Management Board
The decisions taken by the Supervisory Board regarding the composition of the Management Board are based on careful analysis of current and future business challenges. Potential members of the Management Board must not only have solid general qualifications, but must also be individuals capable of helping the company to address its current situation and future challenges.
Diversity on the Management Board
In selecting members of the Management Board, the Supervisory Board also heeds the recommendations of the German Corporate Governance Code. In particular, the Supervisory Board considers the issue of diversity and strives to provide adequate consideration of women. In the calendar year 2017, the share of women on the Management Board of METRO AG should amount to at least 25 per cent (total as of September 2014: 0 per cent). To reach this target, the Supervisory Board will consider this issue as it searches for suitable candidates for the Management Board in the future.
The Supervisory Board’s planning corresponds with the Management Board’s goals regarding the promotion of female executives at METRO GROUP. As part of this effort, the share of women in the first two management levels below the Management Board of METRO AG should also amount to 25 per cent in 2017 (total as of September 2014: 23.7 per cent).
Requirements related to appointments to the Supervisory Board
To ensure that the Supervisory Board of METRO AG can duly perform these responsibilities, its members have formulated certain objectives regarding appointments. These objectives are:
Diversity on the Supervisory Board
Bearing in mind METRO GROUP’s international expansion, the Supervisory Board should include both retailing experts for Western European markets and individuals with in-depth experience in the growth regions of Eastern Europe and Asia. The current composition of the Supervisory Board fulfils this objective. Employee representatives on the Board contribute experience from each of the group’s sales lines in Germany. Two shareholder representatives are former METRO executives who have special national and international retailing expertise. Other shareholder representatives have gained extensive experience in the growth regions of Eastern Europe and Asia while serving in high-ranking managerial positions.
As early as 2010, an objective regarding female representation on the Supervisory Board was defined to make better use of the pool of qualified candidates available for appointment to the Supervisory Board. Following the Supervisory Board election in 2013, at least 20 per cent of the Board’s seats were to be held by women. The objective for 2018 was set at 30 per cent. The company not only fulfilled the first step of this objective in 2013, but also surpassed it, achieving 25 per cent.
In September 2014, the Supervisory Board of METRO AG updated and raised its target: following the regularly scheduled Annual General Meeting in 2016, women and men should each make up at least 30 per cent of representatives on the Supervisory Board. The minimum requirement should be fulfilled by representatives of both shareholders and employees. The new objective reflects the plans of Germany’s governing coalition regarding the continued promotion of women and men in management positions. At the beginning of December 2014, the share of women on the Supervisory Board amounted to [25 per cent]. Broken down, the share of female shareholder representatives was [20 per cent] and the share of employee representatives was 30 per cent.
Impartiality of the Supervisory Board
In accordance with legal stipulations, the Supervisory Board of METRO AG is composed of ten employee representatives and ten shareholder representatives. At least five shareholder representatives are to be impartial in accordance with Subsection 5.4.2 of the German Corporate Governance Code. The current composition of the Supervisory Board of METRO AG fulfils this objective.
Accounting and Audit Committee, impartiality of the committee Chairman
To ensure a qualified appointment to the Accounting and Audit Committee from the members of the Supervisory Board, at least one member of the Board must fulfil the requirements stipulated for the chairperson of the Accounting and Audit Committee. Pursuant to the by-laws of the Accounting and Audit Committee, the committee chairperson must be impartial and possess professional knowledge in the areas of accounting and auditing as well as internal control measures (financial expert). The other committee members should possess sufficient professional knowledge and experience in these areas. Ideally, one potential member of the Accounting and Audit Committee should also possess special knowledge in the area of compliance.
These objectives are implemented through the current composition of the Supervisory Board and its Accounting and Audit Committee. The committee is chaired by Dr jur. Hans-Jürgen Schinzler.
Potential conflicts of interest on the Supervisory Board/age restrictions
To prevent potential conflicts of interest, members of the Supervisory Board of METRO AG may not assume board functions, consulting tasks or memberships on the supervisory boards of German or international, direct and material competitors. This requirement, which is laid down in the by-laws of the Supervisory Board, must be considered in the identification of candidates for the Supervisory Board. The same rule applies to another regulation in the by-laws that stipulates that members of the Supervisory Board may not remain in office, except in justified exceptional cases, after the end of the Annual General Meeting following their 75th birthday. The Supervisory Board decides what constitutes a justified exceptional case at its own discretion.
The Supervisory Board of METRO AG currently meets these objectives. No member of the Supervisory Board has passed the age limit of 75 years, and no member has a seat on the supervisory board of a direct and material competitor. One member of the Supervisory Board will turn 75 in 2015 and is to remain on the Board until the end of the Annual General Meeting that will formally approve the actions of the Management Board for financial year 2016/17. As a result, the Supervisory Board of METRO AG identified one justified exceptional case in the short financial year 2013. The Board determined that the in-depth knowledge and experience of the member in question were particularly valuable to the future work of the Supervisory Board.
Compliance and risk management
The activities of METRO GROUP are subject to various legal stipulations and self-imposed standards of conduct. METRO GROUP has bundled its measures securing compliance with these rules and regulations in its group-wide compliance management system.
The aim of the compliance management system is to systematically and sustainably prevent regulatory infringements within the company. METRO GROUP regularly identifies behavioural compliance risks, establishes the necessary organisational structures and rigorously monitors and controls these risks through the responsible divisions. The company practises systematic group reporting. This ensures that the key compliance risks and measures are transparent and documented. The need for the further development of the compliance management system is ascertained from the results of regular employee surveys, internal reviews and audits.
METRO GROUP’s risk management forms another integral component of value-oriented corporate management. This takes the form of a systematic, group-wide process that helps company management identify, assess and manage risks and opportunities. As such, risk and opportunity management is a uniform process. Risk management renders unfavourable developments and events transparent at an early stage and analyses their implications. This allows us to put the necessary countermeasures in place. At the same time, it allows us to systematically exploit emerging opportunities. Both the risk and opportunity management system and the compliance management system are continually refined.
In addition to these systems, further management systems include internal control systems (ICS) and internal auditing. In financial year 2013/14, METRO AG further modified its management systems. In addition, selected subsystems were tested to determine their effectiveness. The results of the reviews have confirmed that METRO GROUP has adequate management systems. The reviews also provide an important foundation for the continued improvement of the systems and their continuous modification in response to changing business processes in METRO GROUP.
For more information about the subjects of compliance and risk management, see the combined management report in chapter 12 Risk and opportunity report as well as the statement on corporate management pursuant to § 289 a of the German Commercial Code (HGB). The declaration is available on the website www.metrogroup.de in the section Company – Corporate Governance.
Transparent corporate management
Transparency is an essential element of good corporate governance. The website www.metrogroup.de serves as an important source of information for METRO AG shareholders, the capital market and the general public. Aside from a host of information on METRO GROUP’s business segments and sales lines, the site contains the financial reports and ad hoc statements of METRO AG as well as investor news and other publications pursuant to the German Securities Trading Act (WpHG). METRO GROUP publishes the dates for the most important regular publications and events (announcements of annual sales results, annual reports as well as quarterly and half-year reports, the annual business press conference and the Annual General Meeting) in a financial calendar on its website with a reasonable lead time. The website also offers information shown as part of annual business conferences, roadshows, investor conferences and information events for private investors. Furthermore, an electronic investor relations newsletter can be subscribed to.
The Annual General Meeting
The Annual General Meeting of METRO AG gives shareholders the opportunity to exercise their legal rights – in particular, to exercise their rights to vote (where these apply) as well as to address questions to the company’s Management Board. To help shareholders exercise their individual rights at the Annual General Meeting, METRO AG posts documents and information for each Annual General Meeting in advance on its website.
The registration and legitimisation procedure for the Annual General Meetings of METRO AG complies with German stock corporation law and international standards. Each shareholder who would like to participate in an Annual General Meeting of METRO AG and exercise his or her voting right there must register and supply proof of the right to participate and exercise voting rights. Written proof of share ownership in German or English from the institution maintaining the securities deposit account satisfies this requirement. A deposit of shares is not necessary. Proof of share ownership corresponds to the beginning of the 21st day before each Annual General Meeting. Like the registration for the Annual General Meeting, it must be submitted to METRO AG at the address specified in the invitation within the time frame specified by law and in the Articles of Association. Concrete registration and participation conditions are made public in the invitation for each Annual General Meeting.
Shareholders who are unable to attend the Annual General Meeting in person may exercise their voting rights through a proxy. The necessary voting right authorisation must be provided in writing. To the benefit of shareholders, eased formal stipulations apply in certain cases. These are described in the invitation to the Annual General Meeting, for example, for issuing voting right authorisations to banks or shareholder associations.
Shareholders may also authorise company-appointed proxies to exercise their voting rights (known as proxy voting). The following rules apply: in addition to voting right authorisations, shareholders must also provide instructions on how to exercise these voting rights. The proxies appointed by the company are obliged to vote according to these instructions. For the assignment of voting rights during the Annual General Meeting for those shareholders who initially participate in the Annual General Meeting but who want to leave early without forgoing the exercise of their voting rights, proxies appointed by METRO AG are also available. Naturally, the right to appoint other proxies to exercise one’s voting rights is not affected by this. The details on proxy voting are listed in the invitation to each Annual General Meeting.
In the interest of shareholders, the Chairman of the Annual General Meeting, as a rule the Chairman of the Supervisory Board, works to ensure that the Annual General Meeting is conducted efficiently and effectively. The objective is to complete a regular METRO AG Annual General Meeting within four to six hours at the most.
Directors’ dealings, share ownership by members of the Management and Supervisory Boards
Pursuant to § 15 a of the German Securities Trading Act (WpHG), members of the Management and Supervisory Boards must inform METRO AG of any transactions involving their own METRO shares or related financial instruments (directors’ dealings). This obligation also applies to persons who have a close relationship with members of these two corporate bodies. No disclosure requirement applies as long as the transactions conducted by a member of the Board and the person who has a close relationship with the member of the Board do not reach a total amount of €5,000 by the end of the calendar year.
Notifications of directors’ dealings during financial year 2013/14 have been published on the website www.metrogroup.de in the section Investor Relations – Legal Announcements.
The ownership of METRO AG shares held by all members of the Management and Supervisory Boards totalled less than 1 per cent of the shares issued by the company as of 30 September 2014.
On 12 February 2014, the Annual General Meeting of METRO AG elected KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) to be the auditor for financial year 2013/14. The Supervisory Board’s commissioning of the contract to carry out the accounts audit considered the recommendations listed in Subsection 7.2 of the German Corporate Governance Code.
Throughout the audit, which was completed in November 2014, KPMG made no reports to the Supervisory Board regarding grounds for disqualification or conflicts. There was also no evidence that any existed. Furthermore, in the course of the audit, there were no unexpected substantial findings or events concerning Supervisory Board functions. As a result, an extraordinary report from the auditor to the Supervisory Board was not required. The auditor found no deviations from the Management and Supervisory Boards’ statements of compliance with the German Corporate Governance Code.
The auditor fulfils two key functions. The auditor supports the Supervisory Board in exercising corporate control. In addition, the audit activities provide the basis for the trust of the general public and capital market participants, in particular, in the accuracy of the annual accounts, notes to the financial statements and the management reports. The auditor’s impartiality is a key precondition of fulfilling these two functions. To strengthen the impartiality of METRO AG’s auditor, the Management Board – after coordination with the Supervisory Board’s Accounting and Audit Committee – decided – at the end of 2011 to introduce a voluntary commitment going beyond the legal regulations and recommendations of the German Corporate Governance Code. Under this commitment, the annual fees for non-audit services rendered by the elected auditor and the members of its network must amount to no more than one third of the total annual fee for the audit and audit-related services starting in 2012. The Management Board requires the approval of the Accounting and Audit Committee to commission or approve non-audit assignments exceeding this threshold.
For more information about the topic of corporate governance at METRO GROUP, see the website www.metrogroup.de in the section Company – Corporate Governance.