Corporate Governance Report

Corporate governance stands for the management and control of companies in a way that is responsible and geared to creating value over the long term. The corporate governance and corporate culture of the Deutsche Wohnen Group comply with statutory requirements and – with one exception – the additional recommendations of the German Corporate Governance Code. The Management Board and Supervisory Board of Deutsche Wohnen SE feel obligated to pursue good corporate governance; all areas of business are orientated towards this purpose. Our focus is on values such as competence, transparency and sustainability.

Declaration of Compliance

The Management Board and Supervisory Board were also careful to meet the standards of the German Corporate Governance Code in the financial year 2017. In doing so, they took account of the Code of 7 February 2017, which was published in the German Federal Gazette on 24 April 2017, in accordance with section 161 of the German Stock Corporation Act [AktG], they submitted their declaration of compliance with the recommendations of the Code for the financial year 2017 and outlined in detail the position they held in deviation from the Code. The declaration is available for inspection by shareholders and interested parties on our website at http://ir.deutsche-wohnen.com/websites/deuwo/English/8300/declaration-of-compliance.html.

General management structure comprising three executive bodies

Deutsche Wohnen SE, as a listed European public limited company (Societas Europaea, SE), has its registered office in Berlin and is subject not only to German corporate and capital markets law but also to the European legislation governing SEs, the German Act Implementing Regulation (EC) No 2157/2001 and the provisions of its own Articles of Association. With its two bodies, the Management Board and the Supervisory Board, the company has a two-tier management and supervisory structure. Above, there is the Annual General Meeting at which the shareholders are involved in fundamental decisions concerning the company. Together, these three bodies are obligated to act in the best interests of the shareholders and for the benefit of the company.

The Management Board works in the best interests of the company

The Management Board manages the company and conducts the enterprise’s business under its own responsibility. In this task, it is bound by the goal of sustainable value creation in the company’s interests. The members of the Management Board are appointed by the Supervisory Board. Pursuant to clause 8 (2) Articles of Association in conjunction with article 46 of Regulation (EC) No 2157/2001, the members of the Supervisory Board are appointed for five years at most. It is allowed to reappoint each member of the Supervisory Board for five years at a time. The age limit for members of the Management Board has been set by the Supervisory Board at the legal retirement age. The target for female membership of the Management Board for the target attainment period up to 30 June 2017 was set at 0% in light of the fact that there were no female members of the Management Board, the employment contracts for the current members of the Management Board provided for contractual terms extending beyond the cut-off date, and there were no plans to appoint additional members to the Management Board solely in response to the legislative amendment. This target was met at the end of the target attainment period. With the before mentioned considerations, the Supervisory Board set the new target figures in July 2017 with the same value for the time of implementation until 30 June 2020. The selection of the members of the Management Board is based, in particular, on the knowledge, skills and professional experience required for the fulfilment of the tasks of the Management Board.

The Management Board had three members in the financial year 2017 and has a chairman. The work of the Management Board is governed in detail by the Rules of Procedure, which, among other things, provide for a division of tasks according to functional aspects.

The Management Board develops the strategic direction of the company, agrees upon this with the Supervisory Board, and ensures its implementation. It also bears the responsibility for appropriate risk management and control within the company, as well as regular, timely and comprehensive reporting to the Supervisory Board. The approval of the Supervisory Board is required for certain transactions and activities of the Management Board.

The members of the Management Board must immediately disclose any conflict of interest to the Supervisory Board and their colleagues on the Management Board. Significant business transactions between members of the Management Board, as well as parties closely related to them, and the company require the approval of the Supervisory Board. Equally, the acquisition of secondary employment outside the company, requires such approval, too.

D&O group insurance policies comprising a deductible which is in line with the requirements of section 93(2) of the German Stock Corporation Act (AktG) in conjunction with article 51 of Regulation (EC) No 2157/2001, have been taken out for the members of the Management Board and the Supervisory Board.

The Supervisory Board advises and monitors the Management Board

As a general rule, the Supervisory Board is composed of six members. During the period between 2 June 2017, the date of the departure of Mr Wolfgang Clement upon the expiration of his regular term of office, and the date of the commencement of the term of office of Mr Jürgen Fenk, the new member of the Board appointed by the Annual General Meeting held on 2 June 2017, and 1st October 2017, the Supervisory Board was composed of five members. The Supervisory Board is not subject to any rules governing employee participation. All members are elected to represent the shareholders at the Annual General Meeting. Their term of office is strictly five years in accordance with the provisions of statute and the Articles of Association. Members of the Supervisory Board are selected, in particular, based on the knowledge, skills and professional experience required for fulfilling their tasks. At the same time, attention should be paid to independence, diversity in terms of different professional experience and a sufficient gender diversity, accordingly to the defined competence profiles. The target proportion of female members for the attainment period until 30 June 2022 is set at 16.67%. Only persons who at the time of appointment have not yet completed their 73rd year should be proposed for election as members of the Supervisory Board. Each person of the Supervisory Board makes certain, that the appropiate time being necessary for fulfilling the position in the Supervisory Board, is made. The Supervisory Board is made up in accordance with the aims and requirements mentioned above.

The Supervisory Board advises and monitors the Management Board on its management of the company on a regular basis within the framework established by law, the Articles of Association and the Rules of Procedure. It works closely with the Management Board for the benefit of the company and is involved in decisions of fundamental importance to the company.

The Supervisory Board has Rules of Procedure; its work takes place both in plenary sessions and committees. The work of the committees is intended to increase the efficiency of the work of the Supervisory Board. The committee chairperson reports regularly to the Supervisory Board on the work of their committee. Currently, there are four committees:

  • The Executive Committee is responsible for liaising with the Management Board and providing ongoing advice. It also prepares the meetings of the Supervisory Board, insofar as this is appropriate with regard to the scope and importance of the items to be discussed. In accordance with the resolutions of the full Supervisory Board, the Executive Committee is responsible for the conclusion and the content of the contracts for members of the Management Board. It is also responsible for giving advice and – insofar as this is permitted – making decisions about urgent issues.

    Members: Uwe E. Flach (Chairman), Matthias Hünlein, Dr. Andreas Kretschmer
  • The Nomination Committee proposes suitable individuals to the Supervisory Board for it to recommend to the Annual General Meeting.

    Members: Uwe E. Flach (Chairman), Dr. Andreas Kretschmer, Claus Wisser
  • The Audit Committee is responsible for the preliminary examination of the documentation for the annual financial statements and the consolidated financial statements, the preparation of the adoption or approval of these reports and the preparation of the Management Board’s proposal on the utilisation of the profits by the Management Board. It discusses the interim statements (quarterly) and half-year reports before publication. In addition, the committee discusses the principles of accounting, compliance, risk assessment, risk management and the adequacy and effectiveness of the internal control system with the Management Board. The responsibilities of the Audit Committee also include the preparation of the appointment of the auditors by the Annual General Meeting, which among other things includes an examination of the auditor’s required independence, the subsequent award of the auditing contract and the determination of the audit priorities. The members of the Audit Committee have expertise in accounting and auditing regulations and the composition of the Committee meets all stipulations for independence within the meaning of the recommendations of the German Corporate Governance Code.

    Members: Dr. Andreas Kretschmer (Chairman), Uwe E. Flach, Dr. Florian Stetter
  • The Acquisition Committee prepares the groundwork for the decisions of the Supervisory Board regarding corporate and/or portfolio acquisitions.

    Members: Uwe E. Flach (Chairman), Dr. Florian Stetter, Claus Wisser

Important decisions are made at the Annual General Meeting

In line with the opportunities provided by the Articles of Association, the shareholders exercise their rights at the Annual General Meeting and, in so doing, exercise their voting rights. Each share carries one vote.

The Ordinary Annual General Meeting is held during the first six months of each financial year in accordance with the stipulations of clause 13(2) of the Articles of Association and Article 54(1), sentence 1, of Regulation (EC) No 2157/2001. The agenda of the Annual General Meeting and the reports and documents required for the Annual General Meeting and are published on the website of Deutsche Wohnen SE.

Fundamental resolutions are passed by the Annual General Meetings. These include those relating to the appropriation of profits, the formal approval of the actions of the Management Board and the Supervisory Board, the selection of members of the Supervisory Board and the auditor, amendments to the Articles of Association and measures which affect the capital structure of the company. The Annual General Meeting provides a good opportunity to the Management Board and Supervisory Board to communicate directly with shareholders and to discuss and agree with them on the further development of the company.

In order to make it easier to personally exercise their rights, Deutsche Wohnen SE provides its shareholders with a proxy who is bound by the instructions given to him by the shareholders and who can also be reached during the Annual General Meeting. The invitation to the Annual General Meeting explains how instructions may be given in advance of the Annual General Meeting. In addition, shareholders are at liberty to be represented at the Annual General Meeting by a proxy of their choice.

The system of remuneration for the Management Board is subject to regular consultations, review and revision in the plenary sessions of the Supervisory Board. The Management Board contracts of Deutsche Wohnen SE contain fixed and variable remuneration components. The variable component for all members of the Management Board is adjusted to the requirements of section 87(1), sentence 3, of the German Stock Corporation Act. [AktG]. It is tied to the achievement of the company’s economic goals and is calculated primarily based on multiyear assessment criteria. The variable remuneration may only be claimed if there has been a correspondingly positive development in the company’s business. In this way, the compensation structure is aligned to sustainable corporate development and the incentive and risk effects of the variable remuneration are optimised.

The detailed Remuneration Report of Deutsche Wohnen SE for the financial year 2017 can be found on the company’s website under https://ir.deutsche-wohnen.com/websites/ deuwo/English/8460/report-on-compensation.html.

Remuneration of the Supervisory Board

The remuneration of the Supervisory Board was established by the Annual General Meeting in clause 10(7) of the Articles of Association. Accordingly, the members of the Supervisory Board receive a fixed annual remuneration in the amount of EUR 75,000. The Chairman of the Supervisory Board receives three times the standard remuneration; the Deputy Chairman receives one-and-a-half times the standard remuneration. Each Supervisory Board member receives a lumpsum amount of remuneration of EUR 15,000 per financial year for his or her membership of the Audit Committee of the Supervisory Board, with the Chairman receiving twice this amount. Remuneration for membership of other Supervisory Board committees is paid in the amount of EUR 5,000 per member, committee and financial year, with the Chairman receiving double this amount in each case. The total amount of all remuneration paid to each member of the Supervisory Board, plus any remuneration paid for membership of Supervisory Board committees and comparable executive bodies of Group companies, may not exceed EUR 300,000 (excluding VAT) per calendar year. Expenses are reimbursed. In addition, the company can, at its expense, include the members of the Supervisory Board in a D&O insurance policy for institutions and managers, and has done so. A deductible, payable by the members of the Supervisory Board, was agreed for this in accordance with the requirements of section 93(2) of the German Stock Corporation Act. (AktG) in conjunction with Article 54 of Regulation (EC) No 2157/2001.

No performance-based remuneration is paid to members of the Supervisory Board. Details of the remuneration paid to the members of the Supervisory Board can be found in the remuneration report.

Directors‘ Dealings and shareholdings subject to mandatory disclosure

The members of the Management Board and the Supervisory Board of Deutsche Wohnen SE and their closely related parties are required pursuant to art. 19 of the Market Abuse Regulation (MAR) to disclose transactions in shares or securitised debt of Deutsche Wohnen SE or related financial derivatives and instruments without delay, as soon as the total volume of EUR 5,000 is reached within one calendar year. The company will publish these transactions immediately after they have been reported to it. The following transactions were notified to Deutsche Wohnen SE in the financial year 2017. Member of the Management Board Philip Grosse purchased 10,500 shares in total and chairman of the Management Board Michael Zahn accepted within the framework of the share option programme of the company 35,377 share options, member of the Management Board Lars Wittan accepted 18,867 share options in total and member of the Management Board Philip Grosse accepted 10,613 share options. These notifications are published on the website https://ir.deutsche-wohnen.com > Financial News > Directors’ Dealings

Ms Kretschmer held 3,091 shares of Deutsche Wohnen SE as at 31 December 2017; none of the other members of the Supervisory Board held any shares in Deutsche Wohnen SE at that date. Michael Zahn, the Chief Executive Officer, held 26,389 shares, and two natural persons who are closely associated with him held a total of 4,000 shares in the company as at 31 December 2017. The member of the Management Board Lars Wittan held 11,104 shares at this time and the member of the Management Board Philip Grosse held 11,000 shares in the company as at 31 December 2017.

Thus, the total number of shares of Deutsche Wohnen SE held by the aforementioned group of individuals as at 31 December 2017 amounted to approximately 0.016% of the approximately 354.7 million shares issued by the company.

Comprehensive compliance

Compliance with legal provisions and the standards of the German Corporate Governance Code, as well as the fair treatment of business partners and competitors, are principles that are important to Deutsche Wohnen SE. The company’s Compliance Officer assumes responsibility for this. The Compliance Officer manages the company’s insider register and informs management, employees and business partners of the relevant legal framework and the consequences of violating insider regulations. In addition, the Compliance Officer serves as the main contact person for questions and reports of suspected violations. Furthermore the company established a whistle- blowers system, that enables employees and contractual partners to report possible indications of severe breaches of law or rules to a compliance lawyer.

All business divisions and processes within Deutsche Wohnen are subject to regular review with regard to compliance risks. If asked for, this can be done anonymously; whistle-blowers are protected through the professional discretion of the lawyer of confidence.

Our code of conduct, which prescribes and defines conduct in accordance with the law, applies compulsorily to all of the company’s employees. Every new employee receives and agrees to follow these guidelines upon starting their job. In addition, supervisors make their employees aware of significant compliance-related risks. Employees are trained in the fundamentals of compliance with an online training course. The training includes a final test. After completing the course successfully, the employee gets a certificate. The training is obligatory.

In particular, our employees are not permitted to accept gifts in exchange for promising a possible business transaction. The guidelines also prohibit unlawfully influencing business partners through favours, gifts or the granting of other advantages.

Appropiate management of opportunities and risks

Deutsche Wohnen SE considers it to be very important to deal responsibly with opportunities and risks. This is ensured by an extensive opportunity and risk management system, which identifies and monitors major opportunities and risks. This system is continuously being developed and adapted to changing conditions.

Detailed information is available in the Management Report. The risk management system and corporate strategic opportunities of Deutsche Wohnen SE are presented in the Risk and Opportunity Report from page 58 onwards, while information on the consolidated accounts can be found in the Notes from page 100 onwards.

Committed to transparency

As part of ongoing Investor Relations activities, all events which are of importance to the shareholders, investors and analysts are published in the financial calendar at the beginning of the year for the duration of financial year in question. The financial calendar, which is updated on a regular basis, can also be viewed on the company’s website at http://ir.deutsche-wohnen.com/websites/deuwo/English/7000/financial-calendar.html.

The company informs shareholders, analysts and journalists according to uniform criteria. The information is transparent and consistent for all capital market participants. Ad hoc statements and press releases, presentations to the press and analysts and roadshows as well as finance reports are immediately available on our website.

Accounting

Insider information as well as finance reports (ad hoc publicity), voting rights notifications and directors’ dealings are disclosed by Deutsche Wohnen SE without delay in accordance with statutory provisions.

The accounting within Deutsche Wohnen Groupis based on the international Financial Reporting Standards (IFRS) as applicable in the European Union. The annual financial statement of Deutsche Wohnen SE is generated according to German law, in particular the German Commercial Code [HGB].

KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) was appointed as the auditor for the annual financial statement and the consolidated financial statement at the 2017 Annual General Meeting. KPMG has provided an advance statement that no business, financial, personal or other relationships exist between the auditor, its executive bodies and lead auditors on the one hand, and the company or members of its executive bodies on the other hand, which could give rise to any doubts as to its independence. The individual financial statement as well as the consolidated financial statement for the financial year 2017 have been properly audited by KPMG, Berlin office, with Mr René Drotleff as responsible auditor, and have been certified without qualification. Mr René Drotleff has been the financial year 2016 the responsible auditor of KPMG for the company since 2016.

Deutsche Wohnen SE endeavours to abide by the publication deadlines described by the German Corporate Governance Code of 90 days after the end of the financial year for the consolidated financial statement and 45 days after the end of the reporting period for interim reports in 2017.

Further information

Further information about the activities of the Supervisory Board and its committees and its cooperation with the Management Board can be found in the report from the Supervisory Board.

Berlin, March 2018

Supervisory Board     Management Board

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