16.2 Governance*

*not part of the audited management report

Bayer in compliance with the recommendations of the German Corporate Governance Code

Bayer has always placed great importance on responsible Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency. The German Corporate Governance Code sets out basic principles for the management and oversight of listed companies. . This will remain the case in the future. In 2015, the company was again able to issue a declaration that it had fully complied with the recommendations of the German Corporate Governance Code in the past and continued to do so.

In 2015, the Board of Management and Supervisory Board again addressed the question of compliance with the German Corporate Governance Code, including the Code amendments of May 5, 2015. The resulting declaration, which is reproduced on the previous page, was issued in December 2015 and posted on Bayer’s website along with previous declarations.

Duties and activities of the Board of Management

The Board of Management runs the company on its own responsibility with the goal of sustainably increasing the company’s enterprise value and achieving the defined corporate objectives. The Board of Management performs its tasks according to the law, the Articles of Incorporation and the Board’s rules of procedure, and works with the company’s other governance bodies in a spirit of trust.

The Board of Management of Bayer AG defines the long-term goals and strategies for the company and the Group and sets forth the principles and directives for the resulting corporate policies. It coordinates and monitors the most important activities, defines the portfolio, develops and deploys managerial staff, allocates resources and decides on the Group’s financial steering and reporting.

The members of the Board of Management bear joint responsibility for running the business as a whole. However, the individual members manage the areas assigned to them on their own responsibility within the framework of the decisions made by the full Board. The allocation of functions among the members of the Board of Management is defined in a written schedule.

The full Board of Management makes decisions on all matters of fundamental importance and in cases where a decision of the full Board is prescribed by law or otherwise mandatory. The rules of procedure of the Board of Management contain a list of topics that must be dealt with and resolved by the full Board.

Meetings of the Board of Management are held regularly. They are convened by the Chairman of the Board of Management. Any member of the Board of Management may also demand that a meeting be convened. The Board of Management makes decisions by a simple majority of the votes cast, except where unanimity is required by law. In the event of a tie, the Chairman has the casting vote.

According to the Board of Management’s rules of procedure and the functional responsibilities assigned to its members, the Chairman bears particular responsibility for leading and coordinating the Board’s work. He represents the company and the Group in dealings with third parties and the workforce on matters relating to more than one part of the company or the Group. He also bears special responsibility for certain corporate functions.

In 2015 special responsibility was assigned to different members of the Board of Management for each of the following functions:

  • Strategy and Portfolio Management
  • Finance
  • Human Resources, Technology & Sustainability (this member also serving as Labor Director)
  • Innovation

In addition, three of the members of the Board of Management were each responsible for geographical regions.

Effective January 1, 2016, functional responsibilities were reallocated in light of the Bayer Group’s sole focus on the Life Science business and the enlargement of the Board of Management by three members. In addition to the function of Board Chairman and the four other existing functions, three functions were created that each have special responsibility for one of the operating divisions. Responsibilities for the geographical regions were redistributed among four members.

A Deal Committee was established within the Board of Management to make the final decisions on corporate acquisitions, divestments or licensing transactions above a defined medium size. The membership of this committee varies from case to case. The members responsible for Strategy and Portfolio Management and for Finance always participate in its decision-making. The third member of the Board of Management involved in the decisions of the Deal Committee is either the member responsible for the division to which the transaction relates or – in the case of a transaction of the Bayer Life Science Center – the member responsible for Innovation. There are no other committees within the Board of Management.

Supervisory Board: oversight and control functions

The role of the 20-member Supervisory Board is to oversee and advise the Board of Management. Under the German Codetermination Act, half of the Supervisory Board’s members are elected by the stockholders, and half by the company’s employees. The Supervisory Board is directly involved in decisions on matters of fundamental importance to the company, regularly conferring with the Board of Management on the company’s strategic alignment and the implementation status of the business strategy.

The Chairman of the Supervisory Board coordinates its work and presides over the meetings. Through regular discussions with the Board of Management, the Supervisory Board is kept constantly informed about business policy, corporate planning and strategy. The Supervisory Board approves the annual budget and financial framework. It also approves the financial statements of Bayer AG and the consolidated financial statements of the Bayer Group along with the combined management report, taking into account the reports by the auditor.

Committees of the Supervisory Board

The Supervisory Board has the following committees:

Presidial Committee: This comprises the Chairman and Vice Chairman of the Supervisory Board along with a further stockholder representative and a further employee representative. The Presidial Committee serves primarily as the mediation committee pursuant to the German Codetermination Act. It has the task of submitting proposals to the Supervisory Board on the appointment of members of the Board of Management if the necessary two-thirds majority is not achieved in the first vote at a plenary meeting. Certain decision-making powers in connection with capital measures, including the power to amend the Articles of Incorporation accordingly, have also been delegated to this committee.

Audit Committee: The Audit Committee comprises three stockholder representatives and three employee representatives. The Chairman of the Audit Committee in 2015, Dr. Klaus Sturany, satisfies the statutory requirements concerning the independence and the expertise in the field of accounting or auditing that a member of the Supervisory Board and the Audit Committee is required to possess. The Audit Committee meets regularly four times a year. Its tasks include oversight of the company’s financial reporting process, the effectiveness and ongoing development of the internal control system, the risk management system, the internal audit system, the compliance system and the audit of the financial statements. It prepares the decisions of the Supervisory Board pertaining to the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group, the combined management report, the proposal for the use of the distributable profit of Bayer AG, and the interim financial statements and management reports of the Bayer Group, all of which are prepared by the Board of Management. On the basis of the auditor’s report on the audit of the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the combined management report, the Audit Committee develops proposals concerning the approval of both sets of financial statements by the full Supervisory Board. The Audit Committee is also responsible for the company’s relationship with the external auditor. The Audit Committee submits a proposal to the full Supervisory Board concerning the auditor’s appointment, prepares the awarding of the audit contract to the audit firm appointed by the Annual Stockholders’ Meeting, suggests areas of focus for the audit and determines the auditor’s remuneration. It also monitors the independence, qualifications, rotation and efficiency of the auditor.

Human Resources Committee: On this committee, too, there is parity of representation between stockholders and employees. It consists of the Chairman of the Supervisory Board and three other members. The Human Resources Committee prepares the personnel decisions of the full Supervisory Board, which resolves on appointments or revocations of appointments of members of the Board of Management. The Human Resources Committee resolves on behalf of the Supervisory Board on the service contracts of the members of the Board of Management. However, it is the task of the full Supervisory Board to resolve on the total compensation of the individual members of the Board of Management and the respective compensation components, as well as to regularly review the compensation system on the basis of recommendations submitted by the Human Resources Committee. The Human Resources Committee also discusses the long-term succession planning for the Board of Management.

Nominations Committee: This committee carries out preparatory work when an election of stockholder representatives to the Supervisory Board is to be held. It suggests suitable candidates for the Supervisory Board to propose to the Annual Stockholders’ Meeting for election. The Nominations Committee comprises the Chairman of the Supervisory Board and the other stockholder representative on the Presidial Committee.

Innovation Committee: The Innovation Committee was established in September 2015. It is primarily concerned with the innovation strategy and innovation management, the strategy for protection of intellectual property, and major research and development programs. Within its area of responsibility, the Committee advises and oversees the management and prepares any Supervisory Board decisions. The Committee comprises the Chairman of the Supervisory Board and five other members of the Supervisory Board, with parity of representation between stockholder and employee representatives.

Detailed information on the work of the Supervisory Board and its committees is provided in the Report of the Supervisory Board of this Annual Report.

Objectives for the composition of the Supervisory Board

The Supervisory Board should be composed in such a way that its members together possess the necessary expertise, skills and professional experience to properly perform their duties. In view of Bayer AG’s global operations, the Supervisory Board has set itself the goal of always having several members with international business experience or an international background. A further objective concerning the composition of the Supervisory Board is that, absent special circumstances, a member should not hold office beyond the end of the next Annual Stockholders’ Meeting following his or her 72nd birthday. With a view to avoiding potential conflicts of interest, the Supervisory Board has set itself the goal that more than half of the stockholder representatives be independent and also that at least three quarters of the total Supervisory Board membership (stockholder and employee representatives) be independent. The Supervisory Board assesses the independence of its members according to the recommendation contained in Section 5.4.2 of the the German Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency. The German Corporate Governance Code sets out basic principles for the management and oversight of listed companies. Code. In assessing independence, the Supervisory Board also considers the criteria given in the recommendation of the European Commission of February 15, 2005.[4] Finally, the Supervisory Board has set a standard limit on the duration of any person’s membership of the Supervisory Board in line with the recommendation in Section 5.4.1 Paragraph 2 (May 5, 2015 version of the Code). Absent special circumstances, no person should remain a member of the Supervisory Board for more than three full terms of office. For members of the Supervisory Board serving at the time the standard limit was introduced (September 2015) who have already exceeded this limit or will exceed it by the end of their current term of office, the limit will be applied with effect from the conclusion of their current term of office.

The stated goals refer to the Supervisory Board as a whole unless specified otherwise. However, since the Supervisory Board can only nominate candidates for election as stockholder representatives, the goals can only be taken into account in these nominations.

Upon elections to the Supervisory Board to be held after January 1, 2016, it must be ensured that at least 30% of the members are women and at least 30% are men.

Implementation status of the objectives

The Supervisory Board has several members with international business experience and other international connections. The objective that a member should step down from the Supervisory Board at the Annual Stockholders’ Meeting following his or her 72nd birthday – absent special circumstances – is being met. One member, Ernst-Ludwig Winnacker, who has been elected to serve until the Annual Stockholders’ Meeting in 2016, had already reached 72 years of age at the time of the Annual Stockholders’ Meeting in 2014. However, he was proposed for reelection at that Meeting so that the Supervisory Board would continue to have one member with particular expertise in research until one or more members with similar experience can be appointed. One member of the Supervisory Board, Werner Wenning, served as Chairman of the company’s Board of Management until 2010. One member, Ernst-Ludwig Winnacker, has been a member of the Supervisory Board since 1997, and thus has served more than three terms of office. However, neither Werner Wenning nor Ernst-Ludwig Winnacker has any personal or business relationship with the company or a governance body of the company that in the opinion of the Supervisory Board gives rise to a material conflict of interest of a more than temporary nature. There are no indications of any possible lack of independence in the case of the other Supervisory Board members. Thus the Supervisory Board considers all of its members to be independent. The proportion of women on the Supervisory Board is currently 20%. It is planned to nominate a further female candidate for election to the Supervisory Board at the Annual Stockholders’ Meeting in 2016. If this candidate is elected, the proportion of women among the stockholder representatives will rise to 30% and on the full Supervisory Board to 25%.

Targets regarding the proportion of women on the Board of Management and the first two management levels

The Supervisory Board aims to ensure that there is at least one woman serving on the company’s Board of Management. This corresponds to a share of 12.5% on the eight-member Board. The Board of Management has set targets of 20% women on the first management level and 28% women on the second management level. These targets are to be attained by June 30, 2017.

Disclosure of securities transactions by members of the Board of Management or Supervisory Board

Members of the Board of Management or Supervisory Board and their close relatives are required by law to disclose all transactions involving the purchase or sale of Bayer stock where such transactions total €5,000 or more in a calendar year. Bayer publishes details of such transactions immediately on its website and also notifies the German Financial Supervisory Authority accordingly. This information is provided to the company register for archiving. The following transactions in 2015 were reported to Bayer AG:

Securities Transactions by Members of the Board of Management or Supervisory Board

Date / place

 

Name /
function

 

Financial instrument

 

ISIN

 

Transaction

 

Price / currency

 

Quantity

 

Total transaction volume

March 3, 2015 / Xetra

 

Werner Wenning,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

678

 

EUR 89,992.16

March 3, 2015 / Xetra

 

Dr. Klaus Sturany,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

452

 

EUR 59,994.77

March 3, 2015 / Xetra

 

Dr. Paul Achleitner,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

339

 

EUR 44,996.08

March 3, 2015 / Xetra

 

Dr.Clemens Börsig,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

226

 

EUR 29,997.39

March 3, 2015 / Xetra

 

Thomas Ebeling,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

226

 

EUR 29,997.39

March 3, 2015 / Xetra

 

Dr. Helmut Panke,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

291

 

EUR 38,624.95

March 3, 2015 / Xetra

 

Prof. Dr. Ernst-Ludwig Winnacker,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

226

 

EUR 29,997.39

March 3, 2015 / Xetra

 

Prof. Dr.-Ing Thomas Fischer,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

339

 

EUR 44,996.08

March 3, 2015 / Xetra

 

Michael Schmidt-Kiessling,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

226

 

EUR 29,997.39

March 3, 2015 / Xetra

 

Dr. Simone Bagel-Trah,
Supervisory Board

 

Shares

 

DE000BAY0017

 

Purchase

 

EUR 132.73

 

152

 

EUR 20,175.23

March 3, 2015 / Over the counter market (OTC)

 

Sue H. Rataj,
Supervisory Board

 

Bayer AG American Depositary Receipts (ADR)

 

US072730302

 

Purchase

 

US$ 148.57

 

226

 

US$ 33,576,82

Information filed with the company by members of the Board of Management and Supervisory Board shows that, on the closing date for the financial statements, their total holdings of Bayer AG stock or its derivatives were equivalent to less than 1% of the issued stock.

Common values and leadership principles

Bayer has committed itself to the values of Leadership, Integrity, Flexibility and Efficiency, or “LIFE” for short. These values provide guidance to all Bayer employees, both for business dealings and for their collaboration within the company. All employees are obligated to align their work to the LIFE values. This is taken into account in human resources development and the regular performance evaluations.

Systematic risk management

Risk management forms an integral part of our control processes. It ensures that we are mindful of risks involved in our activities and can identify any financial or nonfinancial risks at an early stage. We attempt to avoid or mitigate risks by taking appropriate countermeasures, or to transfer them to third parties (such as insurers) to the extent possible and economically acceptable.

The internal control system (ICS) applied to our accounting processes enables timely risk monitoring. This ensures the accuracy of our financial reporting along with the prevention or, where necessary, rectification of errors in the processing of business transactions. It also ensures the availability of reliable data on the company’s financial situation.

However, the control and risk management system cannot provide absolute protection against losses arising from business risks or fraudulent actions.

Detailed reporting

To maximize transparency, we provide regular and timely information on the Group’s position and significant changes in business activities to stockholders, financial analysts, stockholders’ associations, the media and the general public. Bayer complies with the recommendations of the Corporate Governance Code by publishing reports on business trends, financial position, results of operations and related risks four times a year.

In line with statutory requirements, the members of the company’s Board of Management provide an assurance that, to the best of their knowledge, the financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the combined management report provide a true and fair view.

The financial statements of Bayer AG, the consolidated financial statements of the Bayer Group and the combined management report are published within 90 days after the end of each fiscal year. In addition, stockholders and other interested parties are kept informed of developments during the fiscal year by means of financial reports issued for the half-year and the first and third quarters within 45 days after the end of the respective reporting period. The half-year financial report is voluntarily subjected to an audit review by the auditor, whose appointment by the Annual Stockholders’ Meeting also relates specifically to this audit review.

In addition, Bayer also provides information at news conferences and analysts’ meetings. The company also uses the internet as a platform for the timely announcement of the issue dates of major publications, such as the annual report and the quarterly financial reports (interim reports), and the date of the Annual Stockholders’ Meeting.

In line with the fair disclosure principle, all stockholders and the other main target groups are treated equally as regards the communication of valuation-relevant information. All significant new facts are disclosed immediately to the general public. Stockholders also have immediate access to the information Bayer publishes locally in compliance with the respective stock market regulations.

In addition to our regular reporting, we issue ad-hoc statements on developments that otherwise might not become publicly known but have the potential to materially affect the price of Bayer stock.

4 Annex 2 to the recommendation of the European Commission of February 15, 2005, on the role of nonexecutive or supervisory directors of listed companies and on the committees of the (supervisory) board (2005/162/EC)