The Board of Management and Supervisory Board issued the following declaration of conformity with the German Corporate Governance Code for Talanx AG before the annual financial statements were adopted:
The German Corporate Governance Code (DCGK) sets out the key statutory provisions governing the management and supervision of listed German companies and contains both internationally and nationally recognised standards of good, responsible enterprise management. The purpose of the Code is to promote the trust of investors, customers, employees and the general public in German company management. Section 161 of the German Stock Corporation Act (AktG) requires the boards of management and supervisory boards of listed German companies to issue an annual declaration of conformity with the recommendations of the Government Commission on the German Corporate Governance Code published by the Federal Ministry of Justice, or alternatively to explain which recommendations were not and are not complied with and why (“comply or explain”).
I. German Corporate Governance Code 2014
The Board of Management and Supervisory Board declare in accordance with section 161 of the AktG that Talanx AG, in its implementation of the German Corporate Governance Code in the version dated 24 June 2014, departed from the recommendations of the Code for three items.
1. Section 4.2.3(2) of the Code (maximum limits on variable remuneration components in Board of Management contracts)
Part of the variable remuneration of members of the Board of Management is granted in the form of Talanx share awards. The maximum number of share awards granted at the time of allocation depends on the total amount of variable remuneration, which is capped. This means that the allocation of share awards is subject to the maximum limit. Share awards are subject to a four-year lock-up period. This means that members of the Board of Management share in both positive and negative developments at the Company during this period, as reflected in the share price. After the lock-up period, the equivalent value of the share awards is paid out to members of the Board of Management. The amount paid out is determined based on the price of Talanx shares on the payout date, plus an amount equal to the total dividends per share distributed during the lock-up period. This means that the share awards are aligned with the economic performance of Talanx shares.
The amount of variable remuneration resulting from the grant of the share awards is therefore limited at the time of allocation of share awards, but not on the payout date. The Company believes that it is unreasonable to impose a further limit as of the payout date on the amount of variable remuneration resulting from the grant of share awards, given that the share awards are intended to align the interests of the shareholders and members of the Board of Management of Talanx AG. From the Company’s perspective, payment in Talanx share awards represents, in economic terms, a compulsory investment in Talanx shares with a four-year holding period.
Talanx AG therefore formally declares a departure from section 4.2.3(2) of the Code as a highly precautionary measure.
2. Section 4.2.3(4) of the Code (caps on severance payments in Board of Management contracts)
Early termination of the contract of service without cause is only possible by mutual agreement. Even if the Supervisory Board sets a severance cap when signing or renewing a Board of Management contract, this does not rule out the possibility of negotiations extending to the severance cap if a member of the Board of Management leaves. In addition, the scope for negotiations on such a departure could be restricted if a severance cap was agreed, which can be particularly disadvantageous in cases where there is ambiguity about the existence of a cause for dismissal. In the opinion of Talanx AG, it is therefore in the interest of the Company to depart from the recommendation in section 4.2.3(4) of the Code.
3. Section 5.2(2) of the Code (chairmanship of the Audit Committee)
The current Chairman of the Finance and Audit Committee is also the Chairman of the full Supervisory Board. Although other members of the Finance and Audit Committee have specialist knowledge of and experience in the application of accounting principles and internal control procedures, the current Chairman of the Committee is the only person who has spent his whole career in the insurance sector. He can look back on 29 years on the boards of management of insurance and insurance holding companies, including 20 years as Chairman of the Board of Management, where he shared direct responsibility for the earnings of the companies concerned and for the presentation of this information in the financial statements. In his double role as Chairman of the Finance and Audit Committee and the full Supervisory Board, he coordinates the work of both committees and can therefore optimise the efficiency of their activities. His position does not lead to a concentration of power on either the Finance and Audit Committee or the full Supervisory Board, as he only has one vote in each of these, just like the other members. In light of this, the Company believes that the current Chairman of the Supervisory Board is the most suitable person to act as Chairman of the Finance and Audit Committee. It is therefore in the interests of the Company to depart from the recommendation in section 5.2(2) of the Code.
II German Corporate Governance Code 2013
Additionally, the Board of Management and Supervisory Board declare in accordance with section 161 of the AKtG that, since the last declaration of conformity dated 25 February 2014 was issued, Talanx AG has continued to depart from the following recommendations in the version of the Code dated 13 May 2013:
1. Section 4.2.3(2) of the Code (maximum limits on variable remuneration components in Board of Management contracts)
The reasons for the departure from section 4.2.3(2) are explained in section I.1. above.
2. Section 4.2.3(4) of the Code (caps on severance payments in Board of Management contracts)
The reasons for the departure from section 4.2.3(4) of the Code are explained in section I.2. above.
3. Section 5.2(2) of the Code (chairmanship of the Audit Committee)
The reasons for the departure from section 5.2(2) of the Code are explained in section I.3. above.
Apart from the above-mentioned exceptions, the Company will continue to comply with the recommendations of the German Corporate Governance Code.
Hannover, 25 February 2015
For the Board of Management For the Supervisory Board
A. Introduction
In this Report on Corporate Governance regarding the application of Corporate Governance Rules specified in the “Code of Best Practice for Warsaw Stock Exchange Listed Companies” Talanx AG gives notice of the non-application of certain corporate governance rules set forth in this Code along with an explanation why these rules were not applied. The recommendations defined in section I of the “Code of Best Practice for WSE Listed Companies” are not subject of the declaration given by Talanx AG which is incorporated under the laws of Germany, and whose corporate standing, rules of operation as well as the rights of shareholders are governed by the provisions of German corporate law. In certain areas, these provisions differ from the relevant provisions of Polish law.
Additionally, the information provided should be assessed together with the annual reports of Talanx AG which contain general information about the structure of the Talanx group and its corporate governance system.
According to the German Stock Corporation Act, Talanx AG operates under a system based on three corporate bodies – the Annual General Meeting of shareholders, the Supervisory Board and the Board of Management.
The Board of Management and Supervisory Board submitted a declaration of conformity with the German Corporate Governance Code (“DCGK”) for Talanx AG prior to approval of the annual financial statements. This declaration of Conformity is part of the annual report of Talanx AG and published on the company´s website (http://www.talanx.com/investor-relations/finanzberichte/talanx-group.aspx?sc_lang=en). The DCGK sets out major statutory requirements governing the management and supervision of German listed companies and contains both internationally and nationally recognised standards for good and responsible enterprise management.
By good Corporate Governance, the Board of Management and Supervisory Board of Talanx AG understand a responsible enterprise management and supervision geared towards sustainable value creation. The company´s understanding of good corporate governance is being summarised in Talanx AG’s Corporate Governance Principles which were adopted by the Board of Management and Supervisory Board in August 2012 (http://www. talanx.com/investor-relations/corporate-governance).
B. Information as to which corporate governance rules defined in section II-IV were not applied by Talanx AG and an explanation under what circumstances and for what reasons these rules were not applied
Chapter II Best Practices for Management Boards of Listed Companies
Rule II. 1. A company should operate a corporate website and publish on it, in addition to information required by legal regulations:
2a) on an annual basis, in the fourth quarter – information about the participation of women and men respectively in the Management Board and in the Supervisory Board of the company in the last two years;
7) shareholders’ questions on issues on the agenda submitted before and during a General Meeting together with answers to those questions;
9a) a record of the General Meeting in audio or video format;
14) information about the content of the company’s internal rule of changing the company authorised to audit financial statements or information about the absence of such rule
Partial non-application of the rule.
Company´s explanations:
Talanx AG makes relevant information and documents available for review by shareholders on the corporate website (www.talanx.com).
2a) The actual participation of women and men in the Management Board and Supervisory Board is published annually on the corporate website. There is no obligation under German law to publish such information for the last two years.
7) Talanx AG reports the detailed results on all votes via a Company Release and via its website shortly after the General Meeting has ended.
9a) Talanx AG limits – consistent with German law - the broadcast of the General Meeting to such parts which do not show private investors or their representatives [in order to protect their personal rights].
14) The changing of the company authorised person to audit financial statements is not defined in internal corporate rules within Talanx AG. According to German law, the responsible auditor for a capital market oriented company has to rotate after seven years.
Rule II. 8. If a company’s Management Board is informed that a General Meeting has been summoned pursuant to Article 399 § 2–4 of the Code of Commercial Partnerships and Companies, the company’s Management Board shall immediately perform the actions it is required to take in connection with organising and conducting a General Meeting. This rule shall also apply if a General Meeting is summoned on the basis of authorisation given by the registration court pursuant to Article 400 § 3 of the Code of Commercial Partnerships and Companies.
Partial non-application of the rule.
Company´s explanations:
According to German and Polish rules governing the conflict of laws, solely German law is applicable in respect of corporate legal processes, particularly regarding the way of convening a General Meeting.
Chapter III Best Practices for Supervisory Board Members
Rule III.1. In addition to its responsibilities laid down in legal provisions the Supervisory Board should:
1) once a year prepare and present to the Ordinary General Meeting a brief assessment of the company’s standing including an evaluation of the internal control system and the significant risk management system;
Partial non-application of the rule.
Company´s explanations:
The Management Board of Talanx AG provides information about the internal control system and the risk management system in the context of the regular reporting to the Supervisory Board. A detailed report of the Supervisory Board is published in the annual report of Talanx AG in order to inform the Ordinary General Meeting and other stakeholders; however, this is not an explicit item on the agenda of the General Meeting.
Chapter IV Best Practices of Shareholders
Rule IV.10 A company should enable its shareholders to participate in a General Meeting using electronic communication means through:
1) real-life broadcast of General Meetings;
2) real-time bilateral communication where shareholders may take the floor during a General Meeting from a location other than the General Meeting.
Partial non-application of the rule.
Company´s explanations:
German law does not require companies to broadcast General Meetings online over the Internet or to publish audio or video format recordings on the company website. Companies are not required to enable shareholders’ participation in General Meetings by electronic means of communication through real life broadcast or real-time bilateral communication. However the General Meeting of Talanx AG allows for personal vote and representation in the General Meeting as well as for vote via the internet proxy voting system NetVote.
Apart from the above divergencies, Talanx AG complies and will continue to comply with the rules of the Code of Best Practice for Warsaw Stock Exchange Listed Companies.
Talanx AG
The Board of Management