The Corporate Governance Statement issued pursuant to Section 289f and Section 315d of the German Commercial Code (Handelsgesetzbuch – HGB) includes, in particular, the Declaration of Conformity in respect of the German Corporate Governance Code, relevant details of corporate governance practices that go beyond the legal requirements, a description of the procedural methods adopted by the Management Board and the Supervisory Board, and details of the composition and procedural methods of Committees of the Supervisory Board as well as further disclosures on circumstances relevant to the company. This Corporate Governance Statement represents a combined document for ElringKlinger AG and the Group.
Pursuant to Section 161 of the German Stock Corporation Act (Aktiengesetz – AktG), the supervisory board and management board of exchange-listed stock corporations are obliged to issue an annual declaration stating that the recommendations of the "Code of the Government Commission on German Corporate Governance" have been and will continue to be complied with and, if applicable, specifying which recommendations have not been or will not be applied. Any departures from the recommendations must be explained.
The Management Board and Supervisory Board of ElringKlinger AG hereby issue a Declaration of Conformity pursuant to Section 161 AktG, stating that the company has complied with, currently complies with and will in future comply with the recommendations of the "Government Commission German Corporate Governance Code" in the version dated April 28, 2022, with the following exceptions.
Compensation system and compensation report
The company has made publicly available at www.elringklinger.com/en/company/corporate-governance the currently applicable Management Board compensation system pursuant to Section 87a(1) and (2) sentence 1 AktG, the system having been approved by the Annual General Meeting on May 19, 2022, and the resolution adopted by the Annual General Meeting on the same date pursuant to Section 113(3) AktG on the compensation of the members of the Supervisory Board. The compensation report and the auditor's report in accordance with Section 162 AktG will also be made publicly available in the Annual Report, which is available at www.elringklinger.com/en/publications/financial-reports.
Relevant details of corporate governance practices
Business at ElringKlinger is based on and guided by statutory requirements and the regulations arising from the German Corporate Governance Code, as stated in the Declaration of Conformity issued by ElringKlinger. As part of their responsibilities, the Management Board and Supervisory Board are obliged to ensure compliance with these requirements. ElringKlinger has also adopted more specific internal standards and guidelines, which are outlined below.
In addition to the above-mentioned principles, policies, and guidelines, there are further regulations, instructions and rules precisely stipulating how each division should implement both the legal requirements and other, self-imposed standards insofar as this is relevant. This particularly applies to compliance with environmental standards, information security and data protection, the avoidance of hazards, and the prevention of corruption.
Procedural methods of the Management Board and Supervisory Board
The Management Board directs the company and conducts its business. The Management Board consists of three members with one chairperson. The Management Board's tasks are divided into areas of responsibility according to functional criteria, which in turn comprise the so-called Business Units (operating units with responsibilities for revenue) and the so-called Corporate Units (supporting units). The Area of Responsibility directed by the Chairman of the Management Board, Dr. Stefan Wolf, consists of the Aftermarket business unit and the Original Equipment, Sales, Human Resources, Legal & Compliance, Marketing & Communications, and Strategic Communications corporate units, in addition to specific subsidiaries of ElringKlinger AG. Within his Area of Responsibility, Reiner Drews is accountable for the Lightweighting/Elastomer Technology, Metal Sealing Systems & Drivetrain Components, and Metal Forming & Assembly Technology business units as well as the Quality & Sustainability Management, Real Estate & Facility Management, Production, and Product Risk Management corporate units, in addition to the production plants of the ElringKlinger Group. In his Area of Responsibility, Thomas Jessulat oversees the Electric Drive & Battery Technology sub-units with its associated plants and investees as well as the Finance, Information Technology, Procurement & Supply Chain Management, M&A and Innovations, and Global Strategy & Digital Transformation corporate units.
Under the by-laws defined by the Management Board, each member of the Management Board directs his area of responsibility independently. Irrespective of this, the Management Board bears overall responsibility for the management of the company. Fundamental decisions are made jointly or are presented to the Management Board as a whole for the purpose of its decision-making. Management Board meetings are to be held at least twice a month. Decisions are to be made by mutual agreement as far as possible. If this is not possible, the decision is that of the majority of the Management Board members. In the case of a majority decision, the chairperson of the Supervisory Board is to be informed of this situation as well as the underlying circumstances. The chair is responsible for conducting the Management Board meetings and reporting to the Supervisory Board. The by-laws set out in detail the Management Board’s reporting requirement to the Supervisory Board in particular regarding the risk situation, risk management and compliance. Under the provisions of the by-laws, the prior agreement of the Supervisory Board is required for important business such as acquisitions, property transactions or divestments. Beyond this, the Supervisory Board is free to decide that further deals are dependent on its agreement, taking into account the allocation of rights and duties according to stock corporation law. In addition, the by-laws dictate the approach to be taken in the event of conflicts of interest, absence of Management Board members and the taking on of further offices, which always requires the agreement of the chair of the Supervisory Board.
The Supervisory Board monitors the managerial actions of the Management Board and advises it in particular on issues relating to the strategic direction to be taken by the company. It must be involved in decisions that are fundamental for the company. The Supervisory Board is composed of six shareholder representatives and six employee representatives in accordance with the Codetermination Act (Mitbestimmungsgesetz). The Supervisory Board meets at least once a quarter so that the Management Board can report on business development and significant events. As a rule, these are held as in-person meetings. In exceptional cases, the meetings can also be held in a virtual format. To aid preparation, the Management Board shall provide the members of the Supervisory Board with full written information on each of the agenda items in good time prior to the arranged meeting. If necessary, the Supervisory Board shall convene without the Management Board being present.
The Supervisory Board shall be convened whenever the Management Board or a member of the Supervisory Board has good cause to request this. Furthermore, the Supervisory Board chairperson remains in regular contact with the Management Board. At the close of the financial year, the Supervisory Board undertakes an efficiency audit regarding its activities by means of a questionnaire. The results are evaluated and discussed.
In accordance with the provisions of the Articles of Association of ElringKlinger AG, the Rules of Procedure of the Supervisory Board, which can be viewed at www.elringklinger.com/en/company/supervisory-board, define the election of the Chairman and the Deputy Chairman. They contain provisions on how Supervisory Board meetings shall be conducted and define the convening and quorum of the Supervisory Board. Supervisory Board decisions are decided by simple majority. In urgent cases, they may be made by telephone, in writing, or by e-mail, provided that no member of the Supervisory Board objects to the procedure. The Management Board members participate in the Supervisory Board meetings if the Supervisory Board does not make other arrangements on an individual basis. Minutes are to be kept of the Supervisory Board’s meetings.
Committees of the Supervisory Board
From its members, the Supervisory Board has formed an Audit Committee, a Personnel Committee, a Nomination Committee, and – pursuant to the provisions set out for codetermined entities – a Mediation Committee.
The Audit Committee is made up of Messrs. Eberhardt, Merch, and Strauß. The committee is chaired by Mr. Merch. The Supervisory Board determines the composition of the Audit Committee in accordance with the terms of reference of the Audit Committee. In particular, the Chairman of the Audit Committee, Mr. Merch, and Mr. Eberhardt have special knowledge and experience in the field of accounting and internal control and risk management systems as well as in the field of auditing. This also includes sustainability reporting and the review of such reports. Until December 31, 2022, Mr. Merch held the position of Chief Financial Officer of the listed corporation Rheinmetall AG for many years. Prior to that, he held senior positions in finance. In these functions, he dealt extensively with the aforementioned topics. This also applies to sustainability reporting, which is of particular importance to listed companies. Mr. Eberhardt also has many years of relevant management experience in these areas, in particular through his role as Chairman of the Management Board of Rheinmetall AG, a position he held for many years. Thus, Mr. Merch and Mr. Eberhardt are particularly familiar with the areas of accounting, internal control, and risk management systems, and auditing due to their own extensive practical experience and the management and control functions they have performed in these areas. Both closely follow developments in the aforementioned areas, especially with regard to sustainability reporting, which has now become a focal point. Mr. Strauß can also draw on relevant knowledge and experience due to his long-standing function as a shareholding managing director and his duties relating to supervisory bodies.
The Audit Committee convenes at least three times per year, or more frequently if required. Regulations with regard to convening the Audit Committee and passing resolutions therein are largely comparable to those defined within the terms of reference of the Supervisory Board. For a quorum to be formed, all committee members must participate in the act of passing a resolution. The duties of the Audit Committee are defined more closely by the terms of reference. Under these terms, the Audit Committee monitors the financial accounting and reporting and prepares resolutions related thereto for subsequent discussion by the Supervisory Board. It analyzes the internal control system, the risk management system, the compliance system, and the efficiency of the internal audit function. It also receives reports on the issues of sustainability and related topics centered around so-called corporate social responsibility. It also monitors compliance with the German Corporate Governance Code and the work of the auditor. For this purpose, the auditor is required to report to the Audit Committee on the audit itself, the procedures of the audit and its focal points, in addition to any findings it makes. Furthermore, it monitors the independence of the auditor and deals with additional services provided by the audit firm, the definition of auditing focal points, and the negotiation of fees. The Audit Committee is responsible for preparing the audit of the annual financial statements of ElringKlinger AG, the consolidated financial statements, the combined management report of the company and the Group, the combined non-financial report of the company and the Group, and the audit report relating to the separate and consolidated financial statements to be performed by the Supervisory Board and submits recommendations. Finally, it submits to the Supervisory Board a reasoned recommendation for the appointment of an auditor and prepares the audit mandate.
The Personnel Committee is currently made up of three members. These are Mr. Eberhardt, who holds the Chair of this committee, Mr. Siegers, and Ms. Sons. The structure, procedures and duties are defined within the terms of reference. The Supervisory Board is responsible for determining the appointment and chairmanship of the Personnel Committee. The chairperson shall be independent of the company and the Management Board. The procedures to be applied with regard to convening the Personnel Committee, passing resolutions and forming a quorum are equivalent to those defined for the Audit Committee. Personnel Committee meetings are convened as required. The Personnel Committee is responsible for preparing appointments to the Management Board by selecting and recommending suitable candidates as Management Board members, drawing up suggestions with regard to the structure of the employment contract and compensation, concluding contracts of employment with the approval of the Chairman of the Personnel Committee and the Supervisory Board, conducting meetings with directors, preparing extensions to contracts and reviewing Management Board compensation on a regular basis, which also includes submitting recommendations to the Supervisory Board with regard to the adjustment of compensation levels.
The Nomination Committee is made up of two members. They are Mr. Eberhardt, who also holds the Chair, and Mr. Strauß. The task of the Nomination Committee is to make proposals in respect of suitable candidates for the election of shareholder representatives to the Supervisory Board.
The Mediation Committee, the formation and composition of which conforms with applicable regulations under the German Codetermination Act, essentially comprises four members. They include the ex-officio members Mr. Eberhardt and Mr. Siegers as Chairman and Deputy Chairman of the Supervisory Board, as well as Ms. Monteiro Munz and Ms. Sons. The sole duty of the Mediation Committee is to submit to the full Supervisory Board recommendations for the appointment of Management Board members if the full Supervisory Board is unable to agree on a candidate with the requisite majority.
Independent shareholder representatives on the Supervisory Board
According to the assessment by the shareholder representatives of the Supervisory Board, the following members of the Supervisory Board are to be considered independent of the Management Board and the company within the meaning of the German Corporate Governance Code: Mr. Eberhardt, Mr. Kraut, Mr. Merch, and Ms. Sons. With the exception of Mr. Eberhardt, the aforementioned Supervisory Board members are also independent of the controlling shareholder. This corresponds to a share of two-thirds and half, respectively, of the shareholder representatives of the Supervisory Board and is considered appropriate.
Profile of skills and expertise for the Supervisory Board, including qualification matrix
The current profile of skills and expertise and thus also the objectives for the composition of the Supervisory Board were resolved in 2022. Among other things, it states:
"The Supervisory Board should be composed of individuals who, taken as a whole, provide a range of skills and expertise that help to ensure the provision of comprehensive and effective advice to and supervision of the Management Board with regard to the entire business activities of ElringKlinger AG, including its strategy and the ability to address the issue of new social and technological challenges."
The integral components of the skills and expertise represented on the Supervisory Board as a whole should include corporate management in an international environment, particularly relating to the management and supervision of comparable companies, industry experience, knowledge of the development, manufacture, and distribution of ElringKlinger products, and an understanding of the company's business model and strategy and strategy development. In addition, knowledge and experience in the areas of accounting, control and risk management systems and auditing, corporate governance, especially of listed companies, compliance, sustainability, digitalization, and IT security as well as in the area of co-determination are considered desirable. Furthermore, Supervisory Board members are expected to demonstrate a willingness to undertake further training on a regular basis. Alongside an appropriate consideration of the genders, at the very least in accordance with the provisions of the Stock Corporation Act, the Supervisory Board has also set itself the goal of ensuring that diversity is to be taken into account in the composition of the Supervisory Board. In this context, diversity is understood in a broad sense and includes, in particular, aspects such as professional expertise, international experience, age, and cultural and ethnic background. The Supervisory Board has not yet formally adopted a diversity concept that goes beyond these parameters. The Supervisory Board is committed to ensuring that it includes an appropriate number of independent Supervisory Board members representing shareholders. Furthermore, Supervisory Board members shall not be members of governing bodies of, or exercise advisory functions at, competitors of the enterprise and shall not hold any personal relationships with such an enterprise. In accordance with the requirements of the German Corporate Governance Code, a qualification matrix of the Supervisory Board has been attached to this declaration.
(The qualification matrix will be published on 28.3.2023.)
Target figures for filling management positions, proportion of women and men on the Supervisory Board and on the Management Board, diversity and competences, succession planning
In 2017, the Supervisory Board had agreed a target figure of 0% in respect of the proportion of women appointed to the Management Board, taking into account the current term of Management Board appointments. In the period under review, the Management Board consisted of four male members until March 31, 2022, and three male members as from April 1, 2022. The composition of the Supervisory Board in respect of male and female members was fully compliant with statutory provisions in the reporting period. For the period up to June 30, 2027, the Supervisory Board has resolved that the target in respect of the composition of the Management Board shall be one female member. If the Management Board consists of three members, as is currently the case, this corresponds to one third or 33.33%. There is no necessity to set targets in respect of the proportion of women on the Supervisory Board, as the requirement as to the minimum ratio under Section 96(2) or (3) AktG already applies to the Supervisory Board.
The Management Board had determined target figures of 10% and 15% respectively for the first and second management level below the Management Board; they were to be achieved by June 30, 2022. The target for the second management level below the Management Board was met. For the first management level below the Management Board, the target attainment level stood at 8% as of June 30, 2022. This is attributable to the fact that filling the corresponding positions with women presupposes that such positions become vacant or are newly created. In fact, the level of fluctuation within the relatively small management circle is very low. Thus, a consistent increase in the proportion of women in the form of filling vacant or newly created positions can only be achieved in the long term by filling vacant or additional positions with women in a targeted manner. At the same time, ElringKlinger is committed to filling management positions from within its own ranks. This is aimed in particular at providing employees with prospects for career development. The proportion of women in the company, especially in the engineering/technical fields, remains low at 15% overall. Consequently, the pool of suitable female candidates is small. Attracting women to engineering professions in particular remains a challenge that ElringKlinger cannot solve in isolation from prevailing social circumstances.
For the period up to June 30, 2027, the Management Board has set targets of 20% and 25% respectively for the first and second management levels below the Management Board. ElringKlinger AG will report on the implementation of its target figures in accordance with statutory provisions. Irrespective of the attainment of its targets and the definition of target figures, ElringKlinger is committed to steadily increasing the percentage of women appointed to executive and specialist positions. Alongside its efforts to steadily increase the proportion of women in management positions, ElringKlinger's aim is to reflect the diversity of an international Group to an even greater extent when filling and developing management positions. To this end, existing development programs were expanded, with suitable employees from all regions in which ElringKlinger operates being included in appropriate programs.
As yet, no diversity concept has been determined for the Management Board, except for the target figure determined in respect of the proportion of women. Nevertheless, when appointing members to the Management Board, the Supervisory Board ensures that the personal, professional, and strategic competences required by the company as well as the necessary experience are represented to the largest extent possible. In this respect, not only the competence and the experience-related background of the respective person intended or proposed for a certain function shall be considered but also to a particular extent the circumstances of how the Management Board is composed so that they can meet the different requirements for the management or supervision of the company in all its facets. The Supervisory Board therefore ensures that diversity of skills and experience is appropriately represented. In this respect, the focus is not only on requisite industry-related experience but also on knowledge of the various international markets as well as different professional and personal biographies.
The criteria and competences outlined above form the basis for long-term succession planning as regards the filling of Management Board positions by the Supervisory Board. This includes planning in good time when which board functions are to be newly filled and with which areas of responsibility. Strategic developments relating to the company must be taken into account, particularly with regard to the competence profile. ElringKlinger has always endeavored to fill Management Board positions with successors from within the company. This requires that potential candidates are identified in good time, fostered, and developed and prepared through various functions at home and abroad. To this end, the Supervisory Board and the members of the Personnel Committee also obtain an overview of the company's staff development measures. This does not mean, however, that internal candidates would be afforded a priority status as a matter of principle. A key factor in this respect is also which function shall be filled with which requirements in the future. Regular exchange, especially between the Chairman of the Supervisory Board and the CEO, and the involvement of the Personnel Committee are essential elements of succession planning.
Share transactions engaged in by members of corporate bodies
Members of the Management Board and of the Supervisory Board are legally obliged by Article 19 of Regulation (EU) No. 596/2014 of the European Parliament and of the Council of April 16, 2014, on market abuse (market abuse regulation) to disclose dealings involving ElringKlinger AG shares or debt instruments or related derivatives or other related financial instruments, to the extent that the total amount of the transactions carried out by the member or related persons reaches or exceeds the sum of EUR 20,000 within a calendar year. The transactions reported to ElringKlinger AG in the past financial year were duly published and are available on the company’s website at www.elringklinger.de.
General Meeting and shareholder communications
Shareholders exercise their rights at the General Meeting. The Annual General Meeting is held regularly in the first five months of the financial year. It resolves, among other things, on the appropriation of profits, the formal approval of the actions of the members of the Management Board and of the Supervisory Board, and the election of the auditors. Furthermore, amendments to the Articles of Association and capital measures are resolved by the Annual General Meeting. Shareholders can submit motions on resolutions proposed by the Management Board and Supervisory Board and challenge resolutions adopted by the Annual General Meeting. Shareholders who hold at least EUR 100,000 of the share capital can also demand that a special auditor be appointed by a court to review certain transactions. The reports, documents, and information required by law for the Annual General Meeting, including the Annual Report, are available online, as are the agenda for the Annual General Meeting and any countermotions or election proposals from shareholders that are to be made accessible. The Annual General Meeting on May 19, 2022, was held as a virtual general meeting without the physical presence of shareholders or their proxies due to the exceptional circumstances of the covid-19 pandemic.
As part of our investor relations work, we provide information on developments at the company. In addition to quarterly reports, half-yearly financial reports, and annual reports, we publish earnings releases, ad hoc announcements, analyst presentations, and press releases, as well as the financial calendar for the current year, which includes key publication dates for financial communications and the date of the Annual General Meeting. Further information about the company can be found on the ElringKlinger website.