Declaration of Corporate Governance
In accordance with Section 289a German Commercial Code (HGB), listed stock corporations must include a declaration of corporate governance in their management report or make such a declaration publicly accessible on their company website.
In addition to the declaration of compliance, Section 161 German Stock Corporation Act (AktG) stipulates that it shall also contain relevant details on corporate governance practices and a description of how the Executive Board and Supervisory Board work along with the composition and working method of their committees. This is to ensure that key information on the corporate governance practices and methods in use in the company is easily available to the shareholders. They shall be given a direct insight into the structure and working method of the management bodies.
Management and control structure – working practices of the Executive Board and Supervisory Board
As an European corporation (Societas Europaea – “SE”), F U CHS P E T RO LU B SE, with its registered office in Mannheim, is subject in particular to the provisions of the SE Regulation and of the German Stock Corporation Act (AktG), on the basis of which the German Corporate Governance Code was also developed. A basic principle in German stock corporation law is the two-tier board system with the Executive Board and Supervisory Board bodies, each of which has independent responsibilities. This two-tier board system was also retained following the conversion to an SE. Sound corporate governance requires continuous further development of this two-tier board system, with all divisions being included. This begins with independent and responsible corporate management by the Executive Board which is advised and monitored by the Supervisory Board.
Corporate management by the Executive Board
The Executive Board holds responsibility to act as the management body and is bound both to the company’s interests and to sustainably increasing company value. The members of the Executive Board together hold responsibility for the entire company management. Notwithstanding the overall responsibility of the Executive Board, the individual members of the Executive Board also manage the divisions assigned to them under their own responsibility within the scope of Executive Board resolutions. Rules of procedure specify in more detail the work of the Executive Board. The distribution of responsibilities to the individual members of the Executive Board is set out in the schedule of responsibilities. For certain business processes – such as specifying annual planning or major acquisitions – the company’s Articles of Association and additionally the rules of procedure for the Executive Board require approval to be obtained from the Supervisory Board.
The Executive Board reaches decisions on key issues regarding corporate policy and strategy, as well as annual and multi-year planning. The Executive Board ensures appropriate opportunity and risk management in the company. It works towards compliance with legal regulations, regulatory stipulations and internal company guidelines (compliance). It also pays attention to diver- sity and ensuring appropriate consideration is given to women when filling management positions at the company. In doing so, F U CHS strives for systematic and targeted promotion of qualified women considering them appropriately when filling Executive Board and management positions.
The Executive Board of F U CHS P E T RO LU B SE comprises five people, including one woman. The composition of the Executive Board and the allocation of duties within the Executive Board (organization of responsibilities, regions and segments) are shown in detail in the Annual Report on pages 7 et seqq.
Monitoring of corporate management by the Supervisory Board
The Supervisory Board appoints the members of the Executive Board and both advises and monitors the Executive Board in its management of the company. It is included in strategy and plan- ning, as well as in all questions of fundamental importance for the company. The Chairman of the Executive Board maintains regular contact with the Chairman of the Supervisory Board. The continuous dialog between the Executive Board and Supervisory Board, which is based on mutual trust, forms an important foundation for the company’s success.
The Supervisory Board at F U CHS P E T RO LU B SE is made up of four shareholder members, who are elected by the Annual General Meeting, as well as two members who are elected by the European Works Council (SE Works Council) of F U CHS P E T RO LU B SE, which represents the European employees of the company. The Supervisory Board reaches its decisions through resolutions, which are passed by a simple majority of those members of the Supervisory Board participating in the vote. In the event of a tied vote, the Chairman has the casting vote.
The Supervisory Board at F U CHS P E T RO LU B SE is composed in a way that ensures qualified advising and monitoring of the Executive Board by the Supervisory Board. Based on their knowledge, skills and specialist experience, the candidates to be proposed for election to the Supervisory Board should be capable of performing the duties required of a member of the Supervisory Board at an international group operating in the lubricants industry and preserving the reputation of the F U CH S Group in the public arena. Relevant qualifications, in compliance with diversity and appropriate involvement of women, are the key factors for the composition of the Supervisory Board. In this context “diversity” is understood to mean diversity in terms of internationality (not in the sense of citizenship, but rather origin, upbringing, training and career), gender and age. Based on Section 5.4.1 of the Code, the Supervisory Board has set the following targets for its composition:
- The required knowledge, skills and specialist experience refer in particular to the management of an international company
- Special economic knowledge and experience is to be considered
- Special knowledge and experience in the application of financial accounting principles and internal control procedures
- Technical expertise, in particular in the field of (special) chemicals is to be considered
- Appropriate involvement of women in the Supervisory Board for new appointments
- An appropriate number of independent members of the Supervisory Board; of the four shareholder representatives on the Supervisory Board, at least two should be independent as per the Corporate Governance Code
- Prevention of significant and not only temporary potential conflicts of interest; in particular, no performance of board functions or consulting duties at significant competitors
- Consideration of the (standard) age limit of 70 years at the time of election
- Consideration of the (standard) membership limit of 15 years The Supervisory Board complies with the diversity requirements.
The Supervisory Board also believes that it includes an appropriate number of independent shareholder representatives.
Dr. Dr. h. c. Manfred Fuchs, a former member of the Executive Board at F U CHS P E T RO LU B SE, has been a member of the Supervisory Board since 2004. He is the only member of the Supervisory Board that holds an appreciable number of shares in the company and that has a personal relationship both to the company and its Executive Board. The members of the Supervisory Board hold or used to hold executive positions at other companies. However, all business between F U CHS Group companies and these companies was conducted under the same conditions as with third parties (arm’s length transactions). In our opinion, these transactions do not have any impact on the independence of the affected members of the Supervisory Board.
The term of office of the Supervisory Board is five years. The next term of office starts with the end of the Regular Annual General Meeting 2020.
The composition of the Supervisory Board and its committees, the participation in meetings, as well as details on the work undertaken by the Supervisory Board in the reporting year are presented in more detail in the Report of the Supervisory Board (see Annual Report, pages 12 et seqq.).
The main features of the compensation system and the individual compensation of members of the Executive and Supervisory Boards are described in the compensation report (see Annual Report, pages 23 et seqq.).
Targets for women in management positions
In compliance with the law on equal participation of women and men in management positions in both the private and public sec- tor, in 2015 the Supervisory Board defined targets for the proportion of women on the Executive Board and Supervisory Board. These targets were to be achieved by June 30, 2017, in each case. The target of 17% for the Supervisory Board was specified taking into account in particular the current proportion of 17% and the term in office of the current members of the Supervisory Board. The Supervisory Board set a target of one woman for the Executive Board of F U CHS P E T RO LU B SE. Both targets were achieved. In 2016, the Supervisory Board again defined targets for the Supervisory Board and Executive Board ahead of time.These targets apply until December 12, 2021. The targets remained unchanged at a proportion of 17% women on the Supervisory Board and one woman on the Executive Board.
The Executive Board has defined the two management levels of F U CHS P E T RO LU B SE below the Executive Board as follows: The first management level comprises the members of the Group Management Committee and the division leaders within F U CHS P E T RO LU B SE; the second management level is made up of the department heads of F U CHS P E T RO LU B SE. In 2015, the Executive Board specified targets for the percentage of women at these management levels and the date by which the respective target was to be achieved (June 30, 2017). The target for the percentage of women at the first management level was 10%, at the second management level 30%. The target for the second management level was achieved (40%); the target for the first management level was just missed (8%). In 2016, the Executive Board again specified targets for the percentage of women at the two management levels below the Executive Board ahead of time. These targets are to be implemented within the next five years (by December 12, 2021). The target for the first management level remains 10%; the target was set at 30% for the second management level.
Committees of the Supervisory Board
The Supervisory Board at FUCHS PETROLUB SE has formed three professionally qualified committees, which prepare and also supplement its work. The duties, responsibilities and work processes comply with the binding regulations of the German Stock Corporation Act (AktG) and are aligned with the requirements of the Corporate Governance Code.
The Personnel Committee and Audit Committee meet several times a year, while the Nomination Committee convenes for meetings only when these are necessary based on its allocation of duties. The respective chairmen of the committees regularly report to the Supervisory Board on the work of the Committees.
Ownership of shares in the company by members of the Executive and Supervisory Boards
As at December 31, 2016, Stefan Fuchs held directly and indirectly 9,660,799 ordinary shares and 11,754 preference shares. The other members of the Executive Board together held 18 ordinary shares and 22,483 preference shares as at December 31, 2016.
As at December 31, 2016, Dr. Dr. h. c. Manfred Fuchs held directly and indirectly 1,843,957 ordinary shares and 486 preference shares. The other members of the Supervisory Board together held 1,358 ordinary shares and 9,836 preference shares as at December 31, 2016.
As per Article 19 of the Market Abuse Regulation, members of the Executive Board and the Supervisory Board of F U CH S P E T RO LU B SE are legally obliged to declare any acquisition or sale of shares in the company or any other related financial instruments if the value of these transactions conducted by the members or persons related to them reaches or exceeds the sum of €5,000 within one calendar year. The transactions reported to F U CHS P E T RO LU B SE in the reporting year were duly published and can be viewed on the company’s website at www.fuchs.com /directorsdealings.
Shareholders and the Annual General Meeting
F U CHS P E T RO LU B SE has issued both ordinary and preference shares. The holders of ordinary shares represented at the Annual General Meeting reach decisions on all tasks assigned to the Annual General Meeting by law, such as appropriation of earnings, amendments to the Articles of Association, election of members of the Supervisory Board, approval of the Executive Board and the Supervisory Board, measures affecting the capital structure and selection of the auditor. Each ordinary share authorizes the holder to one vote. The Schutzgemeinschaft Familie Fuchs holds around 54% of the ordinary shares. While the preference shares only grant voting rights in the cases prescribed by law, they grant the holders a preference right on the distribution of unappropriated profit and entitle them to an additional dividend (preference).
The holders of ordinary and preference shares exercise their co- determination and control rights at the Annual General Meeting held at least once a year. In compliance with the statutory and legal conditions, every shareholder is entitled to participate in the Annual General Meeting. Shareholders who do not wish to or are unable to attend the Annual General Meeting in person can have their voting right exercised by a voting representative (proxy), such as a bank, a shareholders’ association or a voting representative appointed by the company, by granting an appropriate power of attorney.
The Regular Annual General Meeting typically takes place in May. The reports, documents and information required by law to be submitted for Annual General Meetings, including the annual report, can be accessed on the Internet, where the agenda of the Annual General Meeting and any counter-motions or nominations of shareholders to be made public can also be found.
In accordance with the Articles of Association, the Chairman of the Supervisory Board chairs the Annual General Meeting. He determines the order in which proceedings are conducted as well as the type and form of voting. He is also authorized to limit the shareholders’ rights to pose questions and to speak to a reasonable period of time.
Corporate governance guidelines
The Articles of Association of F U CHS P E T RO LU B SE, all Declarations of Compliance, the F U CHS Code of Conduct, the Declaration of Corporate Governance and further documentation on corporate governance, such as the Anti-Corruption Directive, the Anti-Trust Directive or the F U CHS Sustainability Guideline, can be called up on the company’s website.
We understand compliance to mean observing rights, laws and the company’s Articles of Association, adhering to internal rules and standards, as well as making voluntary personal commitments. The main guideline for the actions of all employees is observing applicable law. The management and employees are called upon without exception to observe applicable laws, directives and social standards within the scope of their duties, regard- less of whether these are international, national or local regulations. Unlawful behavior harbors the risk of damaging the company’s image, weakening our market position and may even cause us economic harm.
The Compliance division is assigned directly to the Executive Board. This includes a Chief Compliance Officer and a Compliance Organization, which together implement, guide and further develop the Compliance Program, as well as supporting and advising employees all over the world. There is a Compliance Officer for each national unit, who is also available to local staff as a contact for individual questions. All FUCHS employees are required to actively contribute to implementing the Compliance Program in their area of responsibility. The compliance system is regularly reviewed and, if necessary, modified.
The FUCHS Code of Conduct, which was laid down as early as 2004 and updated in 2016, represents a binding framework for ensuring lawful and social-ethical behavior in the Group. The Code of Conduct is supplemented by information and training measures, the consistent processing and sanctioning of compliance infringements, a compliance hotline for reporting criminal or anti-cartel infringements against laws or provisions, regular compliance reporting, as well as a special compliance audit performed by the Internal Audit department. In addition to this, there is a digital whistleblower portal that gives users the opportunity to enter into a dialog with the Chief Compliance Officer while, if desired, remaining anonymous.
Commitment to sustainable, success-driven and value-oriented corporate governance
The FUCHS Code expresses a common leadership position and thereby offers general orientation for responsible actions. This common basic understanding is in line with the five central values practiced at F U CHS: Trust, creating value, respect, reliability and integrity. These values are considered to be a benchmark for internal objectives and form the basis for individual actions.
In November 2016, FUCHS PETROLUB signed the “Mannheim Declaration on Living Together in Diversity”. The Mannheim Declaration formulates key moral-normative conditions and requirements for respectful cooperation and is an expression of a value base shared by the signing institutions, which actively campaign for successful coexistence in Mannheim. The Declaration is drafted as a declaration of understanding and agreement on the part of the alliance partners. By signing the Mannheim Declaration, F U CHS P E T RO LU B asserts that it will, to the best of its ability, (continue to) work against discrimination and for respectful coexistence in diversity, to collaborate in the alliance as part of a voluntary partnership and to join forces to create togetherness with equal opportunities for all.
F U CHS P E T RO LU B SE participated in an initiative of German economic leaders that presented a Code of Responsible Conduct for Business in November 2010 under the patronage of the Witten- berg Center for Global Ethics. The model explicitly addresses critical points being discussed in the public arena, such as profits, morals, downsizing, manager remuneration and rule infringements. As a subscriber to the model, the Executive Board is committed to a success-driven and value-oriented system of corporate governance in the sense of the social market economy. In accordance with the Code, this includes fair competition, social partnership, the performance principle and sustainability.
We have summarized our basic principles for sustainable business activities in the F U CHS Group in the form of a comprehensive Sustainability Guideline. The Executive Board bears overall responsibility for sustainability at F U CHS. The Chief Sustainability Officer supports all activities relevant to sustainable business activities throughout the company as well as our social commitment. We have established a Local Sustainability Officer at every national unit with production operations. These sustainability officers act as the interface for the Chief Sustainability Officer at the Group H Q and are available as a point of contact for any specific questions that might arise in this regard. Further information on the topic of sustainability at F U CHS can be found in the sustainability report.
Opportunity and risk management
Sound corporate governance also includes responsible handling of opportunities and risks by the company. The Executive Board ensures appropriate opportunity and risk management in the company. The Supervisory Board is informed regularly by the Executive Board of existing opportunities and risks, their development and any measures that have been taken in this regard.
The Audit Committee, set up by the Supervisory Board, monitors the financial accounting process and examines the effectiveness of the internal control system, the risk management system and the audit system as well as the audit. The internal control system, the risk management system and the internal audit system are continuously further developed and brought in line with the ever changing framework conditions. Details on this can be found in the opportunity and risk report (separate chapter in the combined management report).
High degree of transparency through comprehensive information
F U CHS P E T RO LU B SE places great emphasis on keeping capital market participants up-to-date on the economic situation of the Group and key events through regular, prompt, uniform and comprehensive information. This reporting takes the form of an annual report and interim financial reports. In addition to this, FUCHS PETROLUB SE also provides information through scheduled and ad-hoc press releases. All information can be viewed on the Internet at www.fuchs.com/group. The website also offers a financial calendar that contains the scheduled dates and times of all important events and publications.
As far as managers’ transactions are to be reported, these are published on the website.
The members of the Executive Board and Supervisory Board are committed to the interests of the company. In reaching their decisions, they must neither pursue any personal interests nor business opportunities available to the company for their own personal gain. Any conflicts of interest must be declared to the Supervisory Board immediately. If applicable, the Annual General Meeting is also to be informed of conflicts of interest that have occurred and how they are being handled. There were no such conflicts of interest in the reporting year.
Accounting and audit
The consolidated financial statements and half-year financial report of F U CHS P E T RO LU B SE are prepared in accordance with the International Financial Reporting Standards (I FR S) in the way in which they are to be applied in the European Union. The statutory annual financial statements of F U CHS P E T RO LU B SE, relevant for the distribution of dividends are prepared in accordance with the provisions of the German Commercial Code (HG B). After preparation by the Executive Board, the annual and consolidated financial statements, as well as the combined management report, are audited by the auditor appointed at the Annual General Meeting and approved by the Supervisory Board on the basis of its own examination. The annual financial statements are then adopted.
An agreement is reached with the auditor that he will immediately inform the Chairman of the Supervisory Board and / or the Chair- man of the Audit Committee of any issues uncovered during the audit that might give rise to statements of exclusion or reservation in the auditors’ report, unless these issues can be resolved immediately. The auditor is also to immediately report on all findings or conclusions important for the duties of the Supervisory Board that become apparent when performing the audit. The auditor is also to inform the Supervisory Board or make a note in the audi- tor’s report if he detects any facts while performing the audit that render inaccurate any part of the Declaration of Compliance sub- mitted by the Executive Board and Supervisory Board pursuant to Section 161 of the German Stock Corporation Act.
Information on the auditor
Following the proposal of the Supervisory Board, the Annual General Meeting on May 4, 2016, elected KPMG AG Wirtschaftsprüfungsgesellschaft as auditor of the annual and consolidated financial statements of F U CH S P E T RO LU B SE for the financial year 2016. KPMG has been the auditor of F U CHS P E T RO LU B SE since the 1991 consolidated financial statements and the 1995 annual financial statements. Since the audit of the financial year 2013, the auditor responsible has been Hans-Dieter Krauß.
Text of declaration of compliance
Declaration of compliance 2016 of the executive Board and the Supervisory Board of FUCHS PETROLUB SE pursuant to Section 161 AktG
F U CHS P E T RO LU B SE complies with all recommendations of the German Corporate Governance Code as amended on May 5, 2015 and published by the Federal Ministry of Justice on June 12, 2015 in the official section of the Federal Gazette and will continue to comply accordingly.
Since the last declaration of compliance dated December 10, 2015, F U CHS P E T RO LU B SE has complied with all recommendations of the German Corporate Governance Code as amended on May 5, 2015 and published by the Federal Ministry of Justice on June 12, 2015 in the official section of the Federal Gazette.
Mannheim, December 13, 2016
Dr. Jürgen Hambrecht
(Chairman of the Supervisory Board)
Stefan R. Fuchs
(Chairman of the Executive Board)
The Declaration of Compliance was made available on the company’s website at www.fuchs.com/declaration-of-compliance on December 13, 2016
Mannheim, March 21, 2017
F U CHS P E T RO LU B SE
The Executive Board