Corporate Governance Report

Corporate Governance stands for a responsible and long-term value-driven management and control of companies. The corporate governance and corporate culture of the Deutsche Wohnen Group comply with statutory requirements and – with a few exceptions – the additional recommendations of the German Corporate Governance Code. The Management Board and Supervisory Board of Deutsche Wohnen AG 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 2016. In doing so, they took account of the Code in the version as at 5 May 2015 and published in the German Federal Gazette (Bundesanzeiger) on 12 June 2015, and in December 2016, in accordance with sec. 161 of the German Stock Corporation Act (AktG), they submitted their declaration of compliance for the financial year 2016 with the recommendations of the Code and outlined in detail the position they held in the few instances of deviations 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 with three bodies

Deutsche Wohnen AG, registered in Frankfurt/Main, is subject to the provisions of the German stock corporation law and capital market legislation and the provisions of its 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 organs 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. The age limit for members of the Management Board has been set by the Supervisory Board at the legal retirement age. The target for the proportion of women as members of the Management Board has been set at zero for the target achievement period until 30 June 2017. The selection of 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.

In the financial year 2016, the Management Board consisted until the appointment of Mr Philip Grosse as of 1 September 2016 of two members and afterwards of three members and has a Chairperson. The work of the Management Board is governed in detail by the by-laws, 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 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 intended 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 have been concluded for the members of the Management Board and the Supervisory Board. Since 1 July 2010, these include a deductible that meets the requirements of sec. 93 para. 2 of the German Stock Corporation Act (AktG).

The Supervisory Board advises and monitors the Management Board

The Supervisory Board consists of six members. It is not subject to any employee participation requirements. All members are elected by the Annual General Meeting as representatives of the shareholders. Their term of office is generally five years in accordance with statutory provisions 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 shall be paid to the independence and sufficient gender diversity; nevertheless, when determining the targeted proportion of women it was initially left at the current status quo. Only persons who at the time of appointment have not yet completed their 73rd year of life should be proposed for election as a member of the Supervisory Board.

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 by-laws. 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 by-laws; its work takes place both in plenary sessions and in 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 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 (Vorsitzender), Wolfgang Clement, Dr. Andreas Kretschmer
  • 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 reports (quarter and half-year) 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 appointment 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 recommendation of the German Corporate Governance Code.

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

    Members: Uwe E. Flach (Vorsitzender), 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 exercise their voting rights. Each share carries one vote.

The Annual General Meeting is held annually during the first eight months of the financial year. The agenda of the Annual General Meeting and the reports and documents required for the Annual General Meeting are published on the website of Deutsche Wohnen AG.

Important resolutions are passed at the General Meetings. These include those relating to the appropriation of profits, formal approval of the actions of the Management Board and the Supervisory Board, the selection of members of the Supervisory Board and the auditors, amendments to the articles of association and measures which affect the capital structure of the company. The General Meeting provides a good opportunity to the Management Board and Supervisory Board to communicate directly with shareholders and to discuss and coordinate with them about the further development of the company.

In order to make it easier to personally exercise their rights, Deutsche Wohnen AG 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 General Meeting. It is explained in the invitation to the General Meeting how instructions may be given in advance of the General Meeting. In addition, shareholders are at liberty to be represented at the General Meeting by a proxy of their choice.

Remuneration of the Management Board

The remuneration system of the Management Board is the subject of regular consultations, review and redesign at the plenary sessions of the Supervisory Board.

The remuneration system of the Management Board is the subject of regular consultations, review and redesign at the plenary sessions of the Supervisory Board. The Management Board contracts of Deutsche Wohnen AG contain fixed and variable components. The variable component for all members of the Management Board is adjusted to the requirements of sec. 87 para. 1 sent. 3 of the German Stock Corporation Act (AktG). It is tied to the achievement of the company’s economic goals and is primarily based on multi-year assessment criteria. The variable remuneration may only be claimed if there has been a corresponding positive development in the business. In this way, the compensation structure is aligned to sustainable business development and the incentive and risk effects of the variable remuneration will continue to be optimised.

The detailed remuneration report of Deutsche Wohnen AG for the financial year 2016 can be found on http://ir.deutsche-wohnen.com/websites/deuwo/English/8460/report-on-compensation.html.

Remuneration of the Supervisory Board

The remuneration of the Supervisory Board has been established by the General Meeting in sec. 6 para. 6 of the Articles of Association. Accordingly, the members of the Supervisory Board receive a fixed annual remuneration of EUR 60,000. The Chairman of the Supervisory Board receives double the standard remuneration; the Deputy Chairman receives one and a half times the standard remuneration. Each member of the Supervisory Board’s Audit Committee additionally receives lump-sum remuneration in the amount of EUR 10,000 per financial year, the Chairman of the Audit Committee double this amount. Membership in other committees of the Supervisory Board, with the exception of the Nomination Committee, shall be compensated in the amount of EUR 5,000 per financial year, per member and committee. Each member of the Nomination Committee receives EUR 2,500 per meeting. Cash expenses are reimbursed. In addition, the company can, at its expense, include the members of the Supervisory Board in a D&O group insurance for executive bodies 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 sec. 93 para. 2 of the German Stock Corporation Act (AktG).

No performance-based remuneration for members of the Supervisory Board is paid. The remuneration report contains disclosure of the remuneration of the individual members of the Supervisory Board.

Directors’ Dealings and shareholdings subject to mandatory disclosure

The members of the Management Board and the Supervisory Board of Deutsche Wohnen AG and their closely related parties are obligated in accordance with sec. 15a of the German Securities Trading Act (WpHG) (until 1 July 2016) or art. 19 Market Abuse Regulation (since 2 July 2016) to disclose without delay transactions in shares or securitised debt of Deutsche Wohnen AG or related financial derivatives and instruments. The company will publish these transactions immediately after they have been reported to it. In the financial year 2016, no transactions of this nature have been reported to Deutsche Wohnen AG.

As at 31 December 2016, Mrs Kretschmer held 3,091 shares in Deutsche Wohnen AG. As at that date, the Supervisory Board member Dr h.c. Wolfgang Clement and his wife together held 1,000 shares. The other members of the Supervisory Board held no shares in Deutsche Wohnen AG as at 31 December 2016. The Chief Executive Officer Michael Zahn held as at 31 December 2016 26,389 shares and two natural persons being closely associated with him held 4,000 shares in total. 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 500 shares as at 31 December 2016.

Thus, the total holdings of the aforementioned groups of individuals of shares of Deutsche Wohnen AG as at 31 December 2016 amounted to about 0.01 % of the approximately 337.5 million issued shares by the company.

Comprehensive compliance

Compliance with legal provisions and the standards of the German Corporate Governance Code, as well as fair treatment of business partners and competitors, are principles that are important to Deutsche Wohnen AG. 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.

All business divisions and processes within Deutsche Wohnen AG are subject to regular review with regard to compliance risks.

Our code of conduct, which prescribes and defines acting in accordance with the law, applies mandatorily to all company employees. Every new employee receives and agrees to follow the guidelines upon starting their job. In addition, supervisors make their employees aware of significant compliance risks.

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

Adequate opportunity and risk management

Deutsche Wohnen AG considers it to be very important to deal responsibly with opportunities and risks. This is ensured by a comprehensive opportunity and risk management system, which identifies and monitors the 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 AG are presented in the risk and opportunity report from page 82 and the information on the consolidated accounts can be found in the notes from page 106.

Committed to transparency

As part of ongoing Investor Relations activities all events that are important to the shareholders, investors and analysts are published at the beginning of the year for the duration of each financial year in the financial calendar. The financial calendar, which is updated regularly, can also be viewed on the company’s website att 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, as well as presentations of press and analysts conferences and roadshows are immediately available on our website.

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

Accounting

KPMG AG Wirtschaftsprüfungsgesellschaft was selected as the auditor at the Annual General Meeting 2016. KPMG AG Wirtschaftsprüfungsgesellschaft has provided an advance statement that no business, financial, personal or other relationships exist between the auditor, its executive bodies and audit leaders on the one hand, and the company or members of its executive bodies on the other, which could give rise to doubts as to its independence.

Deutsche Wohnen AG is committed to abide by the publication deadlines prescribed 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. Although these deadlines, with the exception of one interim report that was published only 46 days after the end of the period under review, were also met in the financial year 2016, due to the time needed to carefully prepare financial statements and company reports, no binding commitment can yet be given that these publication deadlines will be met.

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 of the Supervisory Board.

Frankfurt/Main, March 2017

Supervisory Board     Management Board

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