Corporate Governance at ThyssenKrupp
ThyssenKrupp has always attached great importance to responsible and transparent corporate governance aimed at creating value on a sustainable basis. Our Company complies with all the recommendations of the German Corporate Governance Code, including the Code amendments resolved by the Government Commission on the German Corporate Governance Code on June 14, 2007. In the reporting period a key area of corporate governance activities was the further development of the ThyssenKrupp compliance program.
Corporate Governance report
The Executive Board – also on behalf of the Supervisory Board – reports in the following on corporate governance at ThyssenKrupp in accordance with section 3.10 of the German Corporate Governance Code:
ThyssenKrupp has always been guided by internationally and nationally recognized standards of good and responsible corporate management. We regard corporate governance as an issue which embraces all areas of the Group. We aim to justify on a sustained basis the trust placed in us by investors, financial markets, business partners, employees and the general public and to continuously further develop corporate governance in the Group. We are convinced that good corporate governance is an essential element of the Company's success.
Detailed information on corporate governance at ThyssenKrupp is also available on our website. The current Declaration of Conformity and previous Declarations of Conformity can also be accessed from the website.
Unqualified Declaration of Conformity again
On October 01, 2007 the Executive Board and Supervisory Board issued the statutory Declaration of Conformity in accordance with Art. 161 of the Stock Corporation Act (AktG), stating that ThyssenKrupp complies with all the recommendations of the German Corporate Governance Code as amended on June 14, 2007.
Beyond this, with one exception, ThyssenKrupp also complies with the suggestions of the Code, including the new provisions introduced in the Code on June 14, 2007 on the so-called severance payment cap. ThyssenKrupp will comply with these suggestions when concluding and renewing Executive Board contracts. The only suggestion we continue not to implement is that in section 5.4.6 of the Code on the election and re-election of Supervisory Board members at different dates and for different periods of office. In the interests of the continuity of Supervisory Board work, we consider it expedient to stick to a common period of office, especially for the stockholder representatives.
At our exchange-listed subsidiary Eisen- und Hüttenwerke AG, the German Corporate Governance Code is implemented taking into account the particularities of its membership in the Group. Variances are set out in the company's Declaration of Conformity of September 19, 2007.
Services and internet information for our stockholders
Stockholders, analysts, stockholder associations, the media and interested members of the public are kept regularly informed about important recurring dates, such as the date of the Annual General Meeting, by a financial calendar which is published in the Annual Report, the quarterly reports and on the Company's website. As part of our investor relations activities, we hold regular meetings with analysts and institutional investors. In addition to the annual analysts' conferences on the annual financial statements and half-year financial statements, conference calls for analysts are organized to coincide with the publication of the interim reports on the 1st and 3rd quarters. All the presentations we prepare for these events and also for roadshows and investors' meetings are accessible on the internet. The venues and dates of roadshows and investors' meetings are also available online.
The Annual General Meeting of ThyssenKrupp is organized and conducted in such a way as to ensure all stockholders receive all the information they need quickly and efficiently before and during the meeting. We also aim to make it easier for them to register for the Annual General Meeting and exercise their rights. Ahead of the Annual General Meeting, stockholders therefore receive detailed information on the past fiscal year and the individual agenda items for the meeting in the Annual Report and the invitation to the meeting. All documents and information on the Annual General Meeting as well as the Annual Report are also available on our website. Other information is made available on our website seven days before and during the Annual General Meeting. We also publish the attendance figure and voting results directly after the Annual General Meeting. This promotes and simplifies the exchange of information between us and our stockholders on all matters relating to the Annual General Meeting.
Stockholders unable to attend the Annual General Meeting can view it on the internet in full. Stockholders can exercise their voting rights in person or by proxy, for which they can authorize a representative of their choice or a company-nominated proxy acting on their instructions. Proxy voting instructions can also be issued in advance and during the meeting up to the end of the general debate by electronic media.
Close cooperation between Executive Board and Supervisory Board
The Executive Board and Supervisory Board work closely together in the interest of the Company. Their joint goal is to increase the value of the enterprise on a sustainable basis. To ensure independent advice and supervision of the Executive Board, the Supervisory Board comprises no more than two former Executive Board members. The Executive Board provides the Supervisory Board with regular detailed updates on all issues of relevance to the Company related to planning, business development, the risk situation and the risk management system. These updates explain and give reasons for variances between the actual course of business and the Company's plans and targets. The Executive Board's reports also include the subject of compliance, i.e. the measures in place at ThyssenKrupp to ensure compliance with statutory provisions and the Group's internal policies. Under the Articles of Association, important business transactions are subject to Supervisory Board approval. For more details, please turn to the Report by the Supervisory Board.
The Company has taken out directors and officers (D&O) liability insurance with an appropriate deductible for the members of ThyssenKrupp AG's Executive and Supervisory Boards.
Again this year, the only case of a consultancy or other service contract between members of the Supervisory Board and the Company related to Dr. v. Schenck, who is both a member of our Company's Supervisory Board and a partner in the international law firm Clifford Chance. Insofar as this law firm acted in a legal advisory capacity for the Company during the reporting period, the engagement was approved by the Supervisory Board Personnel Committee. Conflicts of interest of Executive or Supervisory Board members, which must be disclosed immediately to the Supervisory Board, did not occur.
The period of office of the stockholder representatives on the Supervisory Board ends at the close of the Annual General Meeting which resolves on discharging the Supervisory Board from responsibility for fiscal 2008/2009. The period of office of the employee representatives ends at the close of the Annual General Meeting which resolves on discharging the Supervisory Board from responsibility for fiscal 2007/2008.
Responsible risk management
Good corporate governance involves dealing responsibly with risks. The Executive Board ensures that an appropriate risk management and risk control system is in place in the Company. The systematic risk management activities performed as part of our value-based Group management approach identify and assess risks at an early stage and optimize risk exposure. The Executive Board keeps the Supervisory Board informed about existing risks and their development. The risk management system is continuously evolved and adapted to changing conditions. For more details, please turn to the Risk Management section.
Compliance as a key management duty of the Executive Board
Compliance, in the sense of measures to ensure adherence to statutory provisions and internal Company policies, is a key management duty at ThyssenKrupp. A compliance program was introduced directly after the merger of Thyssen and Krupp in 1999. It has been regularly reviewed and revised as necessary ever since. The Groupwide compliance activities focus on antitrust law and anticorruption policies.
In April 2007 the Executive Board of ThyssenKrupp AG unequivocally reiterated its rejection of antitrust violations and corruption in the ThyssenKrupp Compliance Commitment. Antitrust violations and corruption will not be tolerated and will result in sanctions against the persons concerned. All employees are requested to cooperate actively in their areas of responsibility in implementing the compliance program. The compliance commitment is supplemented by various Group policy statements and publications which explain the underlying statutory provisions in more detail.
The segments are responsible for implementing the compliance program. Their legal and compliance departments hold regular training sessions to inform employees about the relevant statutory provisions and internal policies and are available to answer individual questions. Classroom training sessions are supplemented by a Groupwide interactive e-learning program, which around 20,000 employees have taken part in to date.
To supplement the compliance program we also introduced a whistleblower hotline in the reporting period which is operated by a law firm appointed by us.
The whistleblower hotline is available to employees of the Group to report possible infringements of laws or policies, in particular antitrust violations and corruption, at ThyssenKrupp companies. The hotline can be contacted from anywhere in the world and is toll-free for employees. Information can be submitted by telephone or e-mail. Contact data are available on our website.
Further compliance measures relate to capital market law and compliance with the corresponding Group policy. To supplement the prohibition of insider dealing under Art. 15a of the Securities Trading Law (WpHG), an insider policy sets out principles for dealing with inside information and ensures the requisite transparency. The Group has a long-established clearing office for ad hoc disclosures in which representatives of various specialist departments carry out assessments to identify any matters subject to ad hoc reporting requirements, with a view to ensuring potential inside information is handled in compliance with the law. All persons with access to inside information are entered in an insider register.
Active and transparent communications
To maximize transparency and ensure equal opportunities for everyone, the aim of our corporate communications is to make the same information available to all target groups at the same time. Stockholders and potential investors have access to the latest news and developments at the Group on our website. All press and stock exchange (ad hoc) announcements made by ThyssenKrupp AG are published online. The Company's Articles of Association and the Rules of Procedure for the Executive Board, Supervisory Board and Audit Committee can also be viewed on our website, as can the annual report, interim reports and details of how ThyssenKrupp is implementing the recommendations and suggestions of the German Corporate Governance Code. All stockholders and interested readers can subscribe to an electronic newsletter which reports news from the Group.
According to Art. 15a of the Securities Trading Law (WpHG) the members of the Executive Board and Supervisory Board of ThyssenKrupp AG are obligated to disclose the purchase and sale of ThyssenKrupp shares and related financial instruments. This also applies to specific employees with management duties and parties closely related to them. At September 30, 2007 ThyssenKrupp AG had received two notifications for the reporting period which are published on our website. These state that Dr. Ulrich Middelmann and Dr.-Ing. Ekkehard D. Schulz purchased shares as follows:
| Name | Date Place |
Function | Type of transaction |
Volume | Price in € |
Total volume in € |
||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Dr. Ulrich Middelmann | 01-22-2007 Düsseldorf | Executive Board member | Purchase | 7,140 | 34.99 | 249,853.77 | ||||||
| Dr.-Ing. Ekkehard D. Schulz | 08-10-2007 Xetra | Executive Board member | Purchase | 13,450 | 37.22 | 500,586.84 |
At September 30, 2007 the total volume of shares in ThyssenKrupp AG held by all Executive and Supervisory Board members was less than 1% of the shares issued by the Company. There were therefore no cases of share ownership subject to disclosure under section 6.6 of the German Corporate Governance Code at this date.
The other directorships held by Executive and Supervisory Board members are listed in the sections Other directorships held by Executive Board members and Other directorships held by Supervisory Board members. Details of related party transactions are given in the Notes to the Consolidated Financial Statements.
Financial-statement audit by KPMG
Since fiscal year 2005/2006 accounting at ThyssenKrupp has been based on the International Financial Reporting Standards (IFRS). For the reporting period we again agreed with the auditors KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Berlin that the Chairman of the Audit Committee would be informed immediately of any possible grounds for exclusion or bias arising during the audit insofar as they are not immediately eliminated, and that the auditors would report immediately on any findings and occurrences during the audit which have a significant bearing on the duties of the Supervisory Board. It was also agreed that the auditors would inform the Supervisory Board or make a note in the audit report of any facts ascertained during their examination which are inconsistent with the Declaration of Conformity issued under Art. 161 Stock Corporation Act (AktG) by the Executive Board and Supervisory Board.
Focus on good corporate governance to continue
Compliance with the principles of good corporate governance will continue to be a central management duty for us in the current fiscal year. We will continue to be guided by the rules of the German Corporate Governance Code and will implement the Code accordingly. This also applies to the Code's most recent rules adopted in June 2007 on the severance payment cap and the nomination committee, which was established by the Supervisory Board of ThyssenKrupp AG in September 2007. The Executive Board and Supervisory Board will continue their close cooperation based on trust and will jointly discuss all major business transactions. We will offer our stockholders the usual facilities for authorizing proxies and exercising their voting rights for the Annual General Meeting on January 18, 2008, and we will transmit the meeting live on the internet. The implementation of our Groupwide compliance program on antitrust law and combating corruption is likewise an ongoing management duty which we will systematically pursue.
Compensation report
Performance-based compensation for Executive Board
The overall compensation paid to Executive Board members consists of a number of compensation components. These are fixed compensation, a bonus, a long-term incentive component as well as additional benefits and pension plans.
The structure of this compensation system is discussed and regularly reviewed by the Supervisory Board at the proposal of the Personnel Committee. Determining the compensation of individual Executive Board members is the duty of the Personnel Committee, which decides on appropriate compensation.
Compensation is based in particular on the duties of the individual Executive Board member, his/her personal performance and that of the Executive Board as well as on the business situation, success and prospects of the Company relative to its peers.
In the future, when Executive Board contracts are concluded or renewed the following is to be included in the contract: If an Executive Board member's activity is terminated prematurely without cause, payments to him/her shall not exceed the value of two years' compensation including benefits. Executive Board contracts at ThyssenKrupp do not contain a promise of payments in the event of premature termination of their Executive Board activity resulting from a change of control.
Compensation for Executive Board members comprises non-performance-related and performance-related components. The non-performance-related components are the fixed compensation, additional benefits and pension plans, while the performance-related components are the bonus and the long-term incentive components.
The basic non-performance-related fixed compensation is paid out as a monthly salary. It is reviewed every three years among other things on the basis of the general salary trend in the Group. The Executive Board members also receive additional non-cash benefits mainly comprising the tax value of real property, related incidental costs, insurance premiums and the use of Company cars for private purposes. The Executive Board members are responsible for paying tax on these additional benefits as compensation components. In principle they are available in the same way to all Executive Board members; they vary in amount according to the personal situation of the individual member. As in the previous year, no loans or advance payments were granted to members of the Executive Board in the year under review.
The first component of performance-related compensation is the bonus. The bonus amount is based equally on the development of EBT (earnings before taxes) and ROCE (return on capital employed). From fiscal year 2006/2007 part of the bonus paid to the Executive Board members who are chairmen of the segment holding company executive boards will depend on their segment's key indicators (EBT, ROCE). This means that the bonus as a performance incentive is linked to the performance indicators used in the Group and also takes into account the performance of the segments. In addition to their bonus, Executive Board members receive a variable compensation component with a long-term incentive effect under the Mid Term Incentive plan (MTI). The bonus system and MTI plan are based on a policy which was issued by the Supervisory Board Personnel Committee in 2002 and modified in 2007.
Overall compensation to active members of the Executive Board for their work in fiscal 2006/2007 was €25.4 million (prior year: €23.1 million).
The compensation includes the stock rights granted to the Executive Board members under the 5th installment of the MTI at the beginning of January 2007. The stock rights are disclosed at their value at grant date, calculated in accordance with the requirements for international accounting. The number of stock rights issued under the MTI is adjusted at the end of a three-year performance period on the basis of a comparison of the average ThyssenKrupp Value Added (TKVA) over the three-year performance period – starting from October 01 of the fiscal year in which the stock rights were awarded – with the average TKVA of the previous three fiscal years. For every €50 million change in TKVA, the number of stock rights changes by 10%. More information on TKVA can be found in section Business management – Goals and strategy. At the end of a performance period the stock rights awarded are paid out on the basis of the average price of ThyssenKrupp shares in the first three months after the end of the performance period.
The following table shows the breakdown of compensation for the individual Executive Board members in the 2006/2007 fiscal year. The prior-year figures are shown in brackets:
Tabelle: Executive Board compensation 2006/2007
The increase in bonuses against the previous year is attributable to the considerable improvement in EBT and ROCE in the past fiscal year: EBT rose from €2,623 million to €3,330 million and ROCE from 17.9% to 20.7%.
The above table also provides details of the Executive Board members' pensions. Pensions are paid to former Executive Board members who have reached the normal age limit of currently 60 years, become permanently incapacitated for work or whose employment contract taking into account other income has been prematurely terminated or not renewed. The pension of an Executive Board member is based on a percentage of the final fixed salary component he/she received prior to termination of his/her employment contract. This percentage increases with the duration of the Executive Board member's appointment. In general it is 30% from the start of the first five-year period of appointment, 50% from the start of the second and 60% from the start of the third. The pension of the Executive Board Chairman is 65%. Under a no longer valid agreement, two Executive Board members continue to receive a chauffeur-driven car and specific insurance benefits for a period of five years after entering into retirement on account of their having served on the Executive Board for over ten years. Current pensions are adjusted annually in line with the consumer price index. Under the surviving dependants' benefits plan, a widow receives 60% of the pension (previously 75%) and each dependant child (generally up to the age of 18, maximum age 27 years) 20%, up to a maximum of 100% of the pension amount. For these future pension entitlements the Company recognizes pension accruals on the basis of IFRS. In the year under review, allocations to the pension accruals for active Executive Board members amounted to €4,790,000 (prior year: €3,755,000). This amount comprises service costs of €2,818,000 (prior year: €2,110,000) and interest costs in the amount of €1,972,000 (prior year: €1,645,000).
No further payments have been promised to any Executive Board members in the event that they leave their post. No members of the Executive Board received payments or corresponding promises from third parties in connection with their Executive Board positions in the past fiscal year.
The MTI, the 2nd installment of which was paid out in fiscal year 2006/2007, replaced the Long Term Management Incentive plan (LTMI) which expired at the beginning of 2006. The value of the 2nd installment of the MTI was based on the increase in the average TKVA in the three fiscal years 2000/2001 - 2002/2003 against the average TKVA of the three-year performance period 2003/2004 - 2005/2006. On the basis of the significant increase in average TKVA from -€291 million to €1,026 million in the performance period, and the increase in the share price from €14.24 at the grant date to €29.90 at the end of the three-year performance period the Executive Board members received the following payments under the 2nd installment of the MTI. For the purpose of comparison, the share-based compensation payments of the previous year are shown in brackets: Dr. Schulz €1,889,000 (€1,508,000), Dr. Middelmann €1,431,000 (€1,142,000), Dr. Berlien, Mr. Eichler, Dr. Kirsten and Mr. Labonte €1,145,000 (€914,000) each, Dr. Mörsdorf €859,000 (€168,000), Mr. Elliott and Dr. Köhler €763,000 (€251,000) each, and Mr. Fechter €477,000 (€209,000). Under the 3rd to 5th installments of the MTI the Executive Board members also have a total of 231,908 stock rights which have been awarded but are not yet payable.
Total compensation paid to former members of the Executive Board and their surviving dependants amounted to €15.1 million (prior year: €15.5 million). In accordance with IFRS an amount of €157.8 million (prior year: €157.8 million) was accrued for pension obligations benefiting former Executive Board members and their surviving dependants.
Share-based compensation for further executives
Alongside the Executive Board, further selected executives of the ThyssenKrupp Group receive part of their remuneration in the form of share-based compensation. This relates to the MTI and also to a program for the purchase of ThyssenKrupp shares at a discount.
Beginning with the 2nd installment of the MTI, which was issued in 2004, the group of employees eligible to receive stock rights was expanded on modified terms to include the executive board members of the segment holding companies and other selected executive employees. The MTI for this group of beneficiaries resulted in expense of €46.5 million in the reporting period (prior year: €30.2 million).
For fiscal year 2006/2007 the Executive Board of ThyssenKrupp AG again resolved to offer selected executive employees who are not beneficiaries of the MTI a compensation instrument in the form of the discount share purchase plan. On expiry of a specified performance period, beneficiaries are offered the chance to purchase ThyssenKrupp shares up to a fixed euro amount at a discount, which is paid by the employer. The remaining amount is the contribution to be paid by participants. The discount amount depends on the (Group) TKVA over the performance period and can be up to 80%. The shares are purchased by participants on the stock market after expiry of the performance period. These shares are subject to a three-year blocking period.
With the discount share purchase plan, the variable compensation related to each company's performance has been expanded to include a Group-related element which integrates the central performance indicator TKVA in the incentive system. The aim of the share- and value-based compensation component is to promote concentration on the Group's targets and strengthen executives' identity with the Group.
In the reporting period the discount share purchase plan resulted in expense of €12.6 million (prior year: €2.7 million). The Executive Board of ThyssenKrupp AG will take a new decision on whether to reissue the plan in fiscal 2007/2008.
New Supervisory Board compensation structure in the Articles of Association
The compensation of the Supervisory Board is determined by the Annual General Meeting and is regulated in Art. 14 of the Articles of Association. It is based on the duties and responsibilities of the Supervisory Board members and on the situation and performance of the Group. The current compensation arrangement was resolved in the Annual General Meeting on January 19, 2007 with effect for the reporting period.
In addition to reimbursement of their expenses and a meeting attendance fee of €500, Supervisory Board members receive compensation comprising three elements: a fixed component of €50,000 and two performance-related elements. The first is a bonus of €300 for each €0.01 dividend by which the dividend paid out to stockholders for the past fiscal year exceeds €0.10 per share. On top of this, there is an annual compensation, based on the long-term performance of the Company, of €2,000 for each €100,000,000 by which average earnings before taxes (EBT) in the last three fiscal years exceeds €1 billion.
The Chairman receives three times the above fixed compensation, bonus and long-term performance-based component, and the Vice Chairman double these amounts. In accordance with the German Corporate Governance Code, chairmanship and membership of the Supervisory Board committees are compensated separately. Supervisory Board members who only serve on the Supervisory Board for part of the fiscal year receive a proportionally reduced compensation amount. If a Supervisory Board member does not attend a meeting of the Supervisory Board or a committee meeting, his/her compensation is reduced proportionally. In view of the fact that the Nomination Committee was only formed in September 2007 and did not meet in the reporting period, by mutual agreement no compensation will be paid to the members of this committee.
On the basis of the proposed dividend, members of the Supervisory Board will receive total compensation, including meeting attendance fees, of €3.4 million (prior year: €2.7 million). The individual Supervisory Board members will receive the amounts listed in the following table. The corresponding amounts for the previous year are shown in brackets:
Tabelle: Supervisory Board compensation 2006/2007
Members of the Supervisory Board of ThyssenKrupp AG will additionally receive fixed compensation of €150,075 (prior year: €152,691) for supervisory board directorships at Group subsidiaries in fiscal 2006/2007. The individual members of the Supervisory Board will receive the amounts shown in the following table:
| 2005/2006 | 2006/2007 | |||
|---|---|---|---|---|
| Markus Bistram | 25,000 | 21,904 | ||
| Wolfgang Boczek (until November 30, 2005) | 4,178 | – | ||
| Theo Frielinghaus (from January 04, 2007) | – | 27,000 | ||
| Klaus Ix | 31,486 | 31,500 | ||
| Hüseyin Kavvesoglu | 34,000 | 34,000 | ||
| Thomas Schlenz | 30,000 | 30,000 | ||
| Wilhelm Segerath | 5,753 | – | ||
| Gerold Vogel (until December 31, 2006) | 22,274 | 5,671 | ||
| Total | 152,691 | 150,075 |
Beyond this, with one exception, as in the previous year Supervisory Board members received no further compensation or benefits in the reporting year for personal services rendered, in particular advisory and mediatory services. The international law firm Clifford Chance, one of whose partners is Supervisory Board member Dr. v. Schenck, received a total of €333,556 (prior year: €32,676) for consultancy services for subsidiaries of ThyssenKrupp in the past fiscal year. As in the previous year, no loans or advance payments were granted to members of the Supervisory Board, nor were any guarantees or other commitments entered into in favor of Supervisory Board members.
Former Supervisory Board members who left the Supervisory Board prior to October 01, 2006, receive a proportion of the long-term compensation component in the total amount of €29,567 (prior year: €97,793) for the time they served on the Supervisory Board. The breakdown is shown in the following table:
| 2005/2006 | 2006/2007 | |||
|---|---|---|---|---|
| Dieter Schulte, Vice Chairman (until January 23, 2004) | 6,350 | – | ||
| Dr. Karl-Hermann Baumann (until January 21, 2005) | 13,225 | 3,295 | ||
| Wolfgang Boczek (until November 30, 2005) | – | 12,421 | ||
| Carl-L. von Boehm-Bezing (until January 21, 2005) | 13,225 | 3,295 | ||
| Udo Externbrink (until January 23, 2004) | 3,175 | – | ||
| Herbert Funk (until January 23, 2004) | 3,175 | – | ||
| Dr. Klaus Götte (until March 31, 2004) | 5,053 | – | ||
| Reinhard Kuhlmann (until January 21, 2005) | 13,225 | 3,295 | ||
| Dr. Mohamad-Mehdi Navab-Motlagh (until January 21, 2005) | 13,225 | 3,295 | ||
| Dr. Friedel Neuber (died October 23, 2004) | 10,740 | 671 | ||
| Ernst-Otto Tetau (until January 23, 2004) | 3,175 | – | ||
| Bernhard Walter (until January 21, 2005) | 13,225 | 3,295 | ||
| Total | 97,793 | 29,567 |