Declaration by Corporate Management pursuant to Section 289a and Section 315, Paragraph 5, of the German Commercial Code
The declaration on corporate governance Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency. The German Corporate Governance Code sets out basic principles for the management and oversight of publicly listed companies. for Bayer AG and the Bayer Group pursuant to Section 289a of the German Commercial Code forms part of the Combined Management Report. The information provided pursuant to Section 289a and Section 315, Paragraph 5, of the German Commercial Code is unaudited pursuant to Section 317, Paragraph 2, Sentence 3, of the German Commercial Code.
Declaration concerning the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act
The declaration issued in December 2016 concerning the German Corporate Governance Code is published on the Bayer website along with previous declarations: www.bayer.com/en/corporate-governance.aspx
In 2016, the Board of Management and the Supervisory Board of Bayer AG again issued a declaration that they fully complied with the recommendations of the German Corporate Governance Code in the past and intend to maintain full compliance in the future.
Information on corporate governance practices
Objectives for the composition of the Supervisory Board
The Supervisory Board should be composed in such a way that its members together possess the necessary expertise, skills and professional experience to properly perform their duties. In view of Bayer AG’s global operations, the Supervisory Board has set itself the goal of always having several members with international business experience or an international background. A further objective concerning the composition of the Supervisory Board is that, absent special circumstances, a member should not hold office beyond the end of the next Annual Stockholders’ Meeting following his or her 72nd birthday. With a view to avoiding potential conflicts of interest, the Supervisory Board has set itself the goal that more than half of the stockholder representatives be independent. In addition, the Supervisory Board aims for at least three quarters of its total membership (stockholder and employee representatives) to be independent. The Supervisory Board assesses the independence of its members according to the recommendation contained in Section 5.4.2 of the the German Corporate Governance Code. In assessing independence, the Supervisory Board also considers the criteria given in the recommendation of the European Commission of February 15, 2005. Finally, the Supervisory Board has set a standard limit on the duration of any person’s membership of the Supervisory Board in line with the recommendation in Section 5.4.1, Paragraph 2 of the Code. Absent special circumstances, no person should remain a member of the Supervisory Board for more than three full terms of office. For members of the Supervisory Board serving at the time the standard limit was introduced (September 2015) who have already exceeded this limit or will exceed it by the end of their current term of office, the limit will be applied with effect from the conclusion of their current term of office.
The stated objectives refer to the Supervisory Board as a whole unless otherwise determined. However, since the Supervisory Board can only nominate candidates for election as stockholder representatives, it can only take the objectives into account in these nominations. The objective for Supervisory Board elections held after January 1, 2016, is that neither women nor men account for less than 30% of the membership.
Implementation status of the objectives
The Supervisory Board has several members with international business experience or an international background. The objective that a member should step down from the Supervisory Board at the Annual Stockholders’ Meeting following his or her 72nd birthday – absent special circumstances – is being met. Two members of the Supervisory Board were previously members of the company’s Board of Management: Werner Wenning was Chairman of the Board of Management until 2010, and Prof. Dr. Wolfgang Plischke was a member of the Board of Management until 2014. However, neither Werner Wenning nor Prof. Dr. Wolfgang Plischke has any personal or business relationship with the company or a governance body of the company that in the opinion of the Supervisory Board gives rise to a material conflict of interest of a more than temporary nature.
There are no indications of any possible lack of independence in the case of the other Supervisory Board members. Thus the Supervisory Board considers all of its members to be independent. The proportion of women is currently 25% on the Supervisory Board as a whole and 30% among the stockholder representatives. The election of new employee representatives to the Supervisory Board with effect from the end of the 2017 Annual Stockholders’ Meeting and the election of stockholder representatives by the 2017 Annual Stockholders’ Meeting will result in an increase in the proportion of women on the Supervisory Board as a whole to at least 30%.
Objectives regarding the proportion of women on the Board of Management and the first two management levels
In the future, there should be at least one woman on the Board of Management.
The Supervisory Board aims to ensure that there is at least one woman serving on the company’s Board of Management. This corresponded to a share of 12.5% for the eight-member Board that existed at the beginning of the year, or about 14.3% for the seven-member Board now serving. The Board of Management has set objectives of 20% women on the first management level and 28% women on the second management level. These objectives are to be attained by June 30, 2017.
Securities transactions by members of governance bodies
Members of the Board of Management or Supervisory Board and persons with whom they have close relationships are legally obligated to report own-account transactions in shares or debt securities of Bayer AG, associated derivatives or other associated financial instruments to Bayer AG and the German Federal Financial Supervisory Authority (BaFin) in Germany as soon as the total volume of their transactions within a calendar year has reached the €5,000 threshold. The transactions reported to Bayer AG in 2016 were duly published and can be viewed on the company’s website.
The Board of Management and Supervisory Board members’ total holdings in Bayer AG shares or associated financial instruments, as reported to the company, on the closing date for the financial statements were equivalent to less than 1% of the issued shares.
Description of the procedures of the Board of Management and Supervisory Board and the composition and procedures of their committees
Online annex: A 4.1-1limited assurance
Duties and activities of the Board of Management
The Board of Management runs the Company on its 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 of Bayer AG defines the long-term goals and the strategies for the company and the Group 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 full Board. The allocation of functions among the members of the Board of Management is defined in a written schedule.
The full Board of Management makes decisions on all matters of fundamental importance and in cases where a decision of the full 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 full 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 convened. 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, the Chairman has the casting vote.
According to the Board of Management’s rules of procedure and the functional responsibilities assigned to its members, 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 functions.
Effective January 1, 2016, the Board of Management was enlarged by three members as part of the Bayer Group’s sole focus on the Life Science Life Sciences This term describes Bayer’s activities in health care and agriculture and comprises the Bayer Group excluding its legally independent subsidiary Covestro. It refers to the businesses of the Pharmaceuticals, Consumer Health and Crop Science divisions and the Animal Health business unit. business and the associated reorganization. In addition to the function of Board Chairman and the three functions newly created as of January 1, 2016, each of which has special responsibility for one of the operating divisions, there were initially four further functions: Strategy and Portfolio Management; Finance; Human Resources, Technology and Sustainability (the incumbent also serving as Labor Director); and Innovation. With the appointment of the new Chairman of the Board of Management effective May 1, 2016, the Strategy and Portfolio Management function was allocated to the Chairman.
A Deal Committee was established within the Board of Management to make the final decisions on corporate acquisitions, divestments or licensing transactions above a defined medium size. There are no other committees within the Board of Management.
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 Supervisory Board’s members 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 along with the combined management report, taking into account the reports by the auditor.
Committees of the Supervisory Board
The Supervisory Board has the following committees:
Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory Board along with a further stockholder representative and a further employee representative. 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 in connection with capital measures, including the power to amend the Articles of Incorporation accordingly, have also been delegated to this committee. In addition, the Supervisory Board may assign specific responsibilities to the Presidial Committee on a case-by-case basis. The Presidial Committee may also make preparations for Supervisory Board meetings.
Audit Committee: The Audit Committee comprises three stockholder representatives and three employee representatives. The Chairman of the Audit Committee in 2016, Dr. Klaus Sturany, meets the statutory requirements concerning the expertise in the field of accounting or auditing that a member of the Supervisory Board and the Audit Committee is required to possess. The Audit Committee meets regularly four times a year. Its principal tasks are to oversee the financial reporting process, the effectiveness and ongoing development of the internal control system, the risk management system, the internal audit system, the compliance system and the audit of the financial statements. It prepares the decisions of the Supervisory Board pertaining to the financial statements, the management report, the proposal for the use of the distributable profit, the consolidated financial statements, the Group management report and the agreements with the external auditor, including, in particular, the audit contract, the definition of audit priorities and the fee agreement. The Audit Committee submits a proposal to the Supervisory Board concerning the auditor’s appointment and takes appropriate steps to ascertain and oversee the auditor’s independence. In particular, it verifies whether the financial statements were prepared in accordance with the statutory requirements and give a true and fair view of the net assets, financial position and results of operations of the company and the Group. At each of its meetings, the Audit Committee discusses new developments in the area of compliance where necessary. The Chairman of the Board of Management and the Chief Financial Officer regularly attended the meetings. Representatives of the auditor also attended all of the meetings, reporting in detail on the audit work and the audit reviews of the quarterly financial reports.
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 and three other Supervisory Board members. The Human Resources Committee prepares the personnel decisions of the full Supervisory Board, which resolves on appointments or revocations of appointments 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, it is the task of the full Supervisory Board to resolve on the total compensation of the individual members of the Board of Management and the respective compensation components, as well as to regularly review the compensation system on the basis of recommendations submitted by the Human Resources Committee. 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.
Innovation Committee: The Innovation Committee is primarily concerned with the innovation strategy and innovation management, the strategy for protection of intellectual property, and Bayer’s major research and development projects. Within its area of responsibility, the committee advises and oversees the management and prepares any Supervisory Board decisions. The committee comprises the Chairman of the Supervisory Board and five other members, with parity of representation between stockholder and employee representatives. The Chairman of the Board of Management and the member of the Board of Management responsible for innovation regularly attend the meetings of the Innovation Committee.
The Report of the Supervisory Board in this Annual Report provides details about the work of the Supervisory Board and its committees.
1 Annex 2 to the recommendation of the European Commission of February 15, 2005, on the role of nonexecutive or supervisory directors of listed
companies and on the committees of the (supervisory) board (2005/162/EC)