Corporate Governance Report 2014

euromicron Aktiengesellschaft communication & control technology (also referred to in the following as "euromicron AG"), a listed German stock corporation, is governed in particular by stock corporation, capital market and other statutory regulations in Germany, the company's Articles of Association and recommendations of the German Corporate Governance Code (also referred to in the following as "Code" or "GCGK").

On the balance sheet date December 31, 2014, euromicron AG complied with the currently applicable recommendations of the Code in the version dated June 24, 2014, apart from four justified exceptions. The Executive Board and Supervisory Board of euromicron AG have dealt in detail with compliance with the Code’s stipulations and existing deviations and the reasons for them. On the basis of these discussions, the annual declaration on conformance for the year 2104, including the reasons for the deviations from the Code, was adopted on December 9, 2014. This document has been published on our Internet site and can be found in the section "Corporate governance declaration in accordance with Section 289a HGB (German Commercial Code)".

Due to the delays in publishing the consolidated financial statements of euromicron AG for the fiscal year 2014 and the first quarterly report for 2015, the deadlines recommended in Section 7.1.2 Sentence 4 DCGK – 90 days after the end of the fiscal year and 45 days after the end of the period under review – could not be observed. The Executive Board and Supervisory Board therefore adopted updated declarations on conformance, which are available at all times on the company’s Internet site, on April 15, 2015 (with regard to publication of the consolidated financial statements) and on May 11, 2015 (with regard to publication of the first quarterly report for 2015).

1.1 Composition and workings of the Executive Board and Supervisory Board

In compliance with the requirements of the German Stock Corporation Law (AktG), euromicron AG has a dual management system under which the Executive Board is tasked with managing the company and the Supervisory Board with advising and overseeing the Executive Board. 

1.1.1 The Supervisory Board

In accordance with Section 95 of the German Stock Corporation Law (AktG) and Section 8 (1) of the Articles of Association of euromicron AG, the Supervisory Board consists of three members and is currently made up solely of shareholder representatives in accordance with Section 96 of the German Stock Corporation Law (AktG). The German Act on the Codetermination of Employees (MitBestG) and Act on One-Third Participation do not apply to the composition of euromicron AG’s Supervisory Board.

The regular term of office of the current members of the Supervisory Board expires at the end of the General Meeting that decides on discharge of the Supervisory Board members for fiscal year 2015 (the General Meeting in 2016).

The composition of the Supervisory Board did not change in 2014. The composition of the Supervisory Board corresponds (with the exception of representation of women) to the following general requirements and concrete objectives for its composition. These take into account the Code's recommendations and, since the resolution adopted by the Supervisory Board in May 2012, are as follows:

General requirements for members of the Supervisory Board

• Every member of the Supervisory Board must fulfill the requirements defined by the law and Articles of Association to become a member of the Supervisory Board (cf. in particular Section 100 (1) to (4) of the German Stock Corporation Law (AktG)).
• Every member of the Supervisory Board must have the knowledge and skills required to properly discharge the tasks incumbent on him/her under the law and the Articles of Association.
• At least one independent member of the Supervisory Board must have expertise in the fields of preparing and auditing financial statements within the meaning of Section 100 (5) of the German Stock Corporation Law (AktG).

Concrete objectives for the composition of the Supervisory Board

• Ideally, the members of the Supervisory Board in its entirety should have the following qualifications and qualities; a combination of several qualifications and qualities in one person is also possible:
• At least two independent members within the meaning of Section 5.4.2 Sentence 2 of the German Corporate Governance Code are to belong to the Supervisory Board.
• The members of the Supervisory Board are to have different educational backgrounds and expertise from different areas of business life. In particular, expertise in the fields of business management, preparing and auditing financial statements and in banking and finance is desirable.
• At least one member with expertise in the field of the euromicron Group’s international business is to sit on the Supervisory Board.
• The composition of the Supervisory Board is to represent as broad a range of experience of life as possible. No member of the Supervisory Board is to be older than 70 years of age.
• Anyone who is expected to be subject to a conflict of interests frequently or permanently in exercising his or her office is not to be elected as a member of the Supervisory Board.
• Adequate representation of women is to be aimed for in the Supervisory Board’s composition.

As in the past, the above criteria of relevance to the qualification of a person for membership of the Supervisory Board should also be taken into account for nominations for the next regular elections to the Supervisory Board, thus ensuring the focus on what is best for the company.

In the opinion of the Supervisory Board, all its members are independent within the meaning of Section 5.4.2 of the Code. Where members of the Supervisory Board hold a high-ranking post at other companies with which euromicron AG – directly or indirectly – has business relationships, these transactions are conducted at terms and conditions as with third-party companies and, in our opinion, do not affect the independence of the affected members of the Supervisory Board.

The Supervisory Board advises the Executive Board in running the company, supervises its activities and is directly integrated in decisions of fundamental importance for the company. The Supervisory Board discusses the company’s business development and strategy as well as planning and implementation of the latter in regular meetings together with the Executive Board.

The Supervisory Board examines the annual financial statements, the consolidated financial statements, the respective management report and the proposal on appropriation of the net retained profits. It deals with the quarterly and half-yearly reports and is also responsible for adoption of the annual financial statements and approval of the consolidated financial statements, taking into account the audit reports of the independent auditor.

The Supervisory Board also deals with compliance with legal requirements, official regulations and internal guidelines on conduct by the company.

Furthermore, the Supervisory Board has the task of appointing the members of the Executive Board, setting the number of its members and defining spheres of authority. The Supervisory Board has defined rules for the work of the Executive Board in bylaws, where this is not already stipulated by the Articles of Association. In particular, the Supervisory Board has defined which important decisions by the Executive Board – such as large acquisitions, divestments and financial measures – require its consent.

The Chairman of the Supervisory Board coordinates its work. Supervisory Board committees have not been formed.

The persons making up the Supervisory Board are presented in the section "Supervisory Board and Executive Board" of the Financial Report 2014. The specific work of the Supervisory Board is presented in the section "Report of the Supervisory Board" of the Financial Report 2014. The remuneration of the members of the Supervisory Board is explained in the section "Compensation Report" of the Financial Report 2014.

1.1.2 The Executive Board

The members of the Executive Board manage the company’s business and run it in joint responsibility with the goal of creating sustainable value. They develop the strategic orientation as well as annual and multi-year planning, decide on fundamental matters relating to business policy, agree these with the Supervisory Board and ensure they are implemented. The members of the Executive Board are assigned individual spheres of authority by the Supervisory Board, meaning there are clear responsibilities.

One member of the Executive Board, which consisted of two members in fiscal 2014, was Dr. Willibald Späth, who was appointed as Chairman of the Executive Board by the Supervisory Board. The Executive Board likewise consists of two members at present; the Supervisory Board has appointed one member (Ms. Bettina Meyer) as Spokeswoman of the Executive Board. The duties of the Chairman of the Executive Board and now the Chairwoman of the Executive Board include coordinating the work of the Executive Board, in particular as regards chairing its meetings, and representing the company.

The Executive Board prepares the quarterly and half-yearly financial statements of the company, the annual financial statements of euromicron AG and the consolidated financial statements. In addition, the Executive Board ensures compliance with legal requirements, official regulations and internal guidelines on conduct at the company and works to ensure compliance with them at the companies in the euromicron Group as well. You can find more information on the compliance program and related measures in fiscal 2014 in the section "Compliance Report".

The Executive Board and Supervisory Board work closely together to the benefit of the Group. The Executive Board regularly informs the Supervisory Board promptly and extensively about all matters of relevance to the company as a whole relating to strategy, planning, development of its business, financial position and results of operations, commercial risks and compliance.

In filling management posts, the Executive Board ensures adequate representation of women, as well as a wide range of skill structures (diversity).

The persons making up the Supervisory Board are presented in the section "Supervisory Board and Executive Board" of the Financial Report 2014. The remuneration of the members of the Executive Board is explained in the section "Compensation Report" of the Financial Report 2014.

1.2 Shareholders and General Meeting

All shares in euromicron AG are equal and in principle each share entitles the holder to one vote. Shareholders exercise their voting right, in addition to their other rights under the law and Articles of Association, before or during the General Meeting.

The annual Ordinary General Meeting is held within the first eight months of a fiscal year in accordance with Section 14 of the Articles of Association. The Executive Board submits the annual financial statements, the management report, the consolidated financial statements and the group management report to it. The General Meeting decides on the appropriation of profits, as well as discharge of the Executive Board and Supervisory Board, and regularly elects the shareholder representatives on the Supervisory Board. The General Meeting also decides on changes to the Articles of Association, measures relating changes in equity, company agreements, the issue of new shares and other important commercial measures, which are then implemented by the Executive Board.

The General Meeting is convened along with details of the agenda and an explanation of the rights of shareholders. Documents that have to be made accessible and relate to the items on the agenda can be obtained on the homepage of euromicron AG.

1.3 Transparency

Our goal is to provide institutional investors, private shareholders, financial analysts, employees and interested members of the public equally with regular and up-to-date information on the company’s situation. We publish press releases, ad-hoc announcements, voting rights notifications, all financial reports and other important information on our homepage. All documents relating to our General Meeting can also be found there. We publish details on recurring events, such as the date of the next General Meeting or quarterly reports, in a financial calendar, which is published on the company’s homepage.

In accordance with Section 15a of the German Securities Trading Act (WpHG), members of the Executive Board and Supervisory Board or persons related to them are obligated to report transactions of shares in euromicron AG that require disclosure if the value of the transactions within a calendar year is €5,000.00 or more (directors' dealings). There were no dealings that required reporting in fiscal 2014. 

PricewaterhouseCoopers (PWC) was appointed as the independent auditor of the financial statements of euromicron AG and as the auditor of the consolidated financial statements for the first time in 2010. The responsible audit partner since fiscal 2013 has been Dr. Ulrich Störk.

The corporate governance declaration in accordance with Section 289a HGB (German Commercial Code) is part of the management report of euromicron AG and the group management report. In accordance with Section 317 (2) Sentence 3 HGB, the disclosures specified in Section 289a HGB (German Commercial Code) do not have to be included in the audit. 

Wording of the declaration on conformance (Section 161 of the German Stock Corporation Law (AktG) for the year 2014 dated December 9, 2014

The Executive Board and Supervisory Board of listed stock corporations are obligated under Section 161 of the German Stock Corporation Law to declare once a year that their company has complied and will continue to comply with the recommendations of the government commission on the "German Corporate Governance Code" or which recommendations it has not applied or will not apply. In the latter case, reasons must be given why the company did not and will not comply with the recommendation in question.

The Executive Board and Supervisory Board of euromicron Aktiengesellschaft communication & control technology (referred to in the following as "euromicron AG") issued the last declaration on conformance in accordance with Section 161 AktG (German Stock Corporation Law) on December 12, 2013.

The following declaration relates for the period from December 13, 2013, to September 29, 2014, to the recommendations of the German Corporate Governance Code ("Code" or "DCGK") in its version dated May 13, 2013, as published on June 10, 2013, in the Federal Official Gazette ("2013 version").

The following declaration relates for the period from September 30, 2014, to the recommendations of the Code in its version dated June 24, 2014, as published on September 30, 2014, in the Federal Official Gazette ("2014 version").

This having been stated, the Executive Board and the Supervisory Board of euromicron AG declare in accordance with Section 161 of the German Stock Corporation Law:

euromicron AG complied and will comply with the recommendations of the government commission on the "German Corporate Governance Code", with the following exceptions:

1. Capping of the overall compensation and variable compensation components for the Executive Board (Section 4.2.3 (2) Sentence 6 DCGK)
The contracts of employment of the serving members of the Executive Board provide for a cap to the level of the fixed compensation and the variable compensation components. However, the contracts of employment do not provide for a cap for the "overall compensation". The company has therefore not complied in full with the recommendation in Section 4.2.3 (2) Sentence 6 of the Code (2013 and 2014 version) since June 10, 2013.

Reason:
The lack of a cap to the "overall compensation" does not result in a situation where the compensation to be awarded to Executive Board members might exceed reasonable bounds. Even though the total compensation in the contracts with Executive Board members has not been calculated, the cap is ensured by the maximum limits for the individual compensation components.

2. Individualized presentation of the compensation for Executive Board members (Section 4.2.5 (3) et seq. DCGK)
In accordance with the recommendation in Section 4.2.5 (3) et seq. DCGK that was newly introduced in the 2013 version, the compensation for Executive Board members is to be disclosed in individualized form using model tables for fiscal years beginning after December 31, 2013. The model tables in the Code's appendix are to be used for disclosing this information. The company currently deviates from Section 4.2.5 (3) et seq. of the Code.

Reason:
The compensation for Executive Board members is disclosed in compliance with statutory provisions. The company will probably not provide any further disclosures on or breakdowns of the compensation using the model tables due the work involved in this change and the extra administrative overhead in 2014.

3. Formation of Supervisory Board committees (Section 5.3.1 to 5.3.3 DCGK)
The Supervisory Board of euromicron AG has not formed any committees in the past and will also not do so in future, meaning euromicron AG deviates from the recommendations in Sections 5.3.1 to 5.3.3 of the German Corporate Governance Code.

Reason:
In compliance with the Articles of Association, the Supervisory Board of euromicron AG consists of just 3 members. The formation of committees would not make the work of the three-member Supervisory Board easier, since the committees which adopt decisions would also have to have at least three members of the Supervisory Board on them.

4. No list of third party companies (Section 7.1.4 DCGK)
euromicron AG does not publish a list of third party companies in which it has a shareholding that is not of minor importance for the enterprise, including the disclosures in accordance with Section 7.1.4 Sentence 3 of the German Corporate Governance Code.

Reason:
euromicron AG follows the recommendation of Section 7.1.4 of the German Corporate Governance Code insofar as it presents a list of holdings in the form of clear charts of the company structure. In addition, extensive details of the purpose and role in the Group of the companies that are not of minor importance to the existence and development of euromicron AG and the Group are given. More detailed publication is dispensed with in order to avoid competitive disadvantages as a result of disclosure of details on valuations and the earnings power of individual holdings.

Updated declarations on conformance in 2015

Due to the delays in publishing the consolidated financial statements of euromicron AG for the fiscal year 2014 and the first quarterly report for 2015, the deadlines recommended in Section 7.1.2 Sentence 4 DCGK – 90 days after the end of the fiscal year and 45 days after the end of the period under review – could not be observed. The Executive Board and Supervisory Board therefore adopted updated declarations on conformance, which are available at all times on the company’s Internet site, on April 15, 2015 (with regard to publication of the consolidated financial statements) and on May 11, 2015 (with regard to publication of the first quarterly report for 2015).

The wording of the additionally declared and justified deviations under the section "Reporting" (Section 7.1.2, sentence 4 DCGK) is as follows in the latest declaration on conformance dated May 11, 2015:

Contrary to the recommendation in Section 7.1.2 Sentence 4 DCGK, which euromicron AG had complied with since the introduction of the German Corporate Governance Code – with the exception of the publication of the consolidated financial statements for fiscal year 2010 –, the consolidated financial statements for fiscal year 2014 and the first quarterly report for fiscal year 2015 will not be publicly accessible within 90 days of the end of the fiscal year and within 45 days after the end of the period under review. euromicron AG intends to comply with the recommendation in Section 7.1.2 Sentence 4 DCGK with regard to publication of the subsequent interim reports and consolidated financial statements for the fiscal year 2015 and future fiscal years.

Reason:
Mistakes in the measurement of individual projects were discovered during preparation of the consolidated financial statements for the fiscal year 2014 and have to be corrected. These corrections require time and must be subsequently examined by the independent auditor of euromicron AG. In view of that, publication of the consolidated financial statements of euromicron AG for fiscal year 2014 within a period of 90 days of the end of the fiscal year and of the first quarterly report for 2015 within 45 days after the end of the period under review is not possible.

Disclosures on corporate governance practices

The company's Code of Conduct contains corporate governance practices that go further than the statutory requirements. It can be viewed on the company’s homepage at www.euromicron.de/en/company/code-of-conduct. The Code of Conduct contains in particular guidelines on business dealings with customers and suppliers, conduct toward competitors, third parties and employees, use of information, avoiding conflicts of interest, and health, safety and environment issues.

Description of the workings of the Executive Board and Supervisory Board

The persons on the Executive Board and Supervisory Board are stated in the section “Executive Board and Supervisory Board” of the Financial Report 2014.. A general description of the tasks and workings of the Executive Board and Supervisory Board can be found in the section “Composition and workings of the Executive Board and Supervisory Board” in the Corporate Governance Report of the Financial Report 2014. The latter is also published in the Internet on our homepage on the section "Corporate Governance".

For the Executive Board of euromicron AG, corporate governance based on integrity means morally and legally responsible conduct toward executives, employees and all business partners. These maxims are actively practiced by the Executive Board, Supervisory Board and employees and have been incorporated in the company’s Code of Conduct, which is intended to ensure that everyone in the Group acts and behaves consistently and ethically. The Code of Conduct can be viewed on the company’s homepage at www.euromicron.de/en/company/code-of-conduct.

3.1 Focus of compliance

In addition to the general guidelines for compliance in practice, the Executive Board – in coordination with the compliance officer of euromicron AG – selects each year a special area of focus so as to ensure adequately at all times that our individual divisions are able to cope with the changes that they are subject to. The aim of this is to address the changes in requirements from operational business and in the market environment. Our divisions are to be developed further on the basis of the created compliance structure with reference to the separately defined areas of focus.

IT security was one of the focuses in fiscal 2014. Following further development of the IT security organization, a data loss prevention software was rolled out throughout the Group.

3.2 Compliance training

Various training measures ensure that the high standards euromicron AG demands of all executives and employees are implemented and practiced. In addition to on-the-job training in the form of e-learning, the compliance officers identify specific groups of executives and employees to attend in-person courses and learn what compliance involves. As a result, the specific requirements of our various divisions can be better addressed.

3.3 Compliance organization

The Executive Board has created an effective organizational structure to enforce, control and further develop the compliance principles and ensure that the Group lives up to its mission of complying with the law and company agreements. Local compliance officers have been appointed at all Group companies; information on compliance violations can be reported to them or directly to the Chief Compliance Officer of euromicron AG. The Chief Compliance Officer is in regular contact with the Executive Board in relation to all compliance issues and also reports regularly to the Supervisory Board.

Meetings of all compliance officers in the euromicron Group ensures that information and experience are shared and that the guidelines on conduct issued by the Executive Board are carried through effectively and filled with life. To enable that, the compliance and IT officers are in close dialog with the Group’s Data Protection Officer.

As a result, the compliance organization of euromicron AG is firmly established in all of the company’s units and ensures an effective structure to which employees can address their questions and information.

3.4  More information

To make sure that the contents of compliance are practiced not only by employees and executives, but also with our business partners, they are also implemented in our general standard terms and conditions of trade and other contractual agreements.