Corporate Governance Report including the Declaration on Corporate Governance
(The Corporate Governance Report including the Declaration on Corporate Governance is part of Group Management Report)
Corporate Governance stands for responsible and transparent management and corporate control orientated towards a sustainable increase in value. These principles apply to all corporate functions and are an essential foundation for sustainable corporate success. We are convinced that good corporate governance enhances the confidence placed in our Group by our shareholders, business partners, employees and the financial markets.
The following report includes the Corporate Governance Report and the Declaration on Corporate Governance issued by the Executive Board and Supervisory Board.
• Dual board system
• Composition and working methods of the Executive Board
• Composition and working methods of the Supervisory Board
• Avoiding conflicts of interest
• Declaration by the Executive Board and Supervisory Board purs. to § 161 AktG
• Suggestions of the German Corporate Governance Code fulfilled
• Relevant management practices
• Compliance and risk management within the adidas Group
• Transparency and protection of shareholders' interests
• Share ownership of the Executive Board and Supervisory Board
• Accounting and annual audit
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Dual board system
As a globally operating public listed company with its registered seat in Herzogenaurach, Germany, adidas AG is, inter alia, subject to the provisions of German stock corporation law. A dual board system, which assigns the management of the company to the Executive Board and advice and supervision of the Executive Board to the Supervisory Board, is one of the fundamental principles of German stock corporation law. These two boards are strictly separated in terms of membership and duties and responsibilities. In the interest of the company, however, both Boards cooperate closely.
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Composition and working methods of the Executive Board
Our Executive Board consists of four members. There are no Executive Board committees. The Executive Board is responsible for independently managing the company, determining the Group's strategic orientation, agreeing this with the Supervisory Board and ensuring its implementation. Further, it defines business targets, corporate policy and the organisation of the Group. Additionally, the Executive Board ensures appropriate risk management and risk control as well as compliance with statutory regulations and internal guidelines. It is bound to the company's interests and obligated to strive for a sustainable increase in company value. When filling management positions in the company, the Executive Board takes diversity into consideration. It especially aims for an appropriate consideration of women. We plan to increase the number of women in management positions from currently 28% to between 32% and 35% worldwide by 2015.
Irrespective of the Executive Board's overall responsibility, its members are individually responsible for managing their respective business areas in accordance with the Executive Board's Business Allocation Plan. The CEO is responsible in particular for leading the entire Executive Board as well as for management of the Group's business policy. The members of the Executive Board keep each other informed on all significant events in their business areas and align on all cross-functional measures. Further details on collaboration within the Executive Board are governed by the Rules of Procedure of the Executive Board and the Business Allocation Plan. These documents specifically stipulate requirements for meetings and resolutions as well as for cooperation with the Supervisory Board.
At the Supervisory Board meetings, the Executive Board reports in writing and orally on the agenda items and resolution proposals and answers all questions from the individual Supervisory Board members. Additionally, the CEO regularly consults with the Chairman of the Supervisory Board on key aspects of strategy, planning and business development as well as on questions of risk management and compliance within the Group.
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Composition and working methods of the Supervisory Board
Our Supervisory Board consists of six shareholder representatives and six employee representatives in accordance with the German Co-Determination Act (Mitbestimmungsgesetz – MitbestG). The Supervisory Board currently has two female members. Five members of the Supervisory Board have many years of international experience. The composition of the Supervisory Board is characterised by a high degree of diversity resulting from the different professional backgrounds of the members and comprehensive knowledge of various industries. The members of our Supervisory Board do not exercise directorship or similar positions or advisory tasks for key competitors of the company. Further, they do not have business or personal relations with adidas AG or its Executive Board which may cause a substantial and not merely temporary conflict of interest.
At its meeting held on February 9, 2011, and in accordance with the recommendations of the German Corporate Governance Code (“the Code”), the Supervisory Board determined the following objectives for its composition:
Maintain the composition of the Supervisory Board including members with international background to the current extent.
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Maintain two female members on the Supervisory Board until the next election of the Supervisory Board in 2014.
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Increase the degree of female representation on the Supervisory Board as of the next election of shareholder representatives and employee representatives in 2014; the Supervisory Board strives for at least three female members on the Supervisory Board, at least one of them on the side of the shareholder representatives.
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Maintain the independence of all Supervisory Board members while considering the work relationships of the employee representatives vis-à-vis the company.
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Consider the age limit of, in general, 72 at the time of election.
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In view of the amendments to the Code resolved upon in May 2012, at its meeting in February 2013, the Supervisory Board reviewed the objectives for its future composition especially the independence criteria, determined already in February 2011. Following prior consultation, the Supervisory Board, in principle, reconfirmed the objectives for its composition determined in 2011. With regard to independence, it considers that the employment contracts of the employee representative alone do not give any grounds to doubt their independence as defined by the Code. The independence of all Supervisory Board members remains one of its objectives.
The present composition of the Supervisory Board is in compliance with the aforementioned objectives. An increase in the percentage of female members is to be endeavoured at the next regular Supervisory Board elections, to be held at the Annual General Meeting in 2014. In selecting nominees, in the interest of mutually complementing cooperation within the Supervisory Board, sufficient diversity in terms of different professional backgrounds, expert and industry knowledge as well as experience in, inter alia, applying accounting principles and internal control systems are furthermore to be taken into account.
Irrespective of the consideration of these objectives and criteria, the best interests of the company will continue to play a decisive role for the Supervisory Board when nominating candidates for election. The Nomination Committee was provided with the aforementioned objectives that are to be taken into account when nominating candidates. The Supervisory Board does not, however, have a right to nominate candidates for the election of employee representatives to the Supervisory Board. Notwithstanding the above, the Supervisory Board members strive to achieve the aforementioned objectives while taking into account the employee representatives.
The Supervisory Board supervises and advises the Executive Board in matters relating to the management of the company. The Executive Board reports to the Supervisory Board regularly, expeditiously and comprehensively on business development and planning as well as the risk situation including compliance and coordinates the strategy of the company and its implementation with the Supervisory Board. Moreover, the Executive Board provides the Supervisory Board with the annual financial statements of adidas AG and the annual consolidated financial statements of the adidas Group for its approval, taking into consideration the auditor's reports. Certain business transactions and measures of the Executive Board with particular significance are subject to Supervisory Board approval.
In order to increase the efficiency of its work, the Supervisory Board has formed five permanent expert committees from within its members, which, inter alia, prepare its resolutions and, in certain cases, pass resolutions on its behalf. These committees are the Steering Committee, the General Committee, the Audit Committee, the Mediation Committee in accordance with § 27 section 3 MitbestG and the Nomination Committee. In addition, the Supervisory Board has four project-related ad hoc committees, which were established in 2009 and 2012. The chairmen of the committees report to the entire Supervisory Board on the results of the committee work on a regular basis. The composition of the committees and their respective tasks can be found on our website.
Apart from the tasks and responsibilities, the Rules of Procedure of the Supervisory Board and of the Audit Committee also set out the individual requirements expected of the members and the procedure for meetings and passing resolutions. These Rules of Procedure are available on our website. The activities of the Supervisory Board and its committees in the financial year are outlined in the Supervisory Board Report.
The members of the Supervisory Board are individually responsible for undertaking any necessary training and further education measures required for their tasks and, in doing so, are supported by adidas AG. The company informs the Supervisory Board regularly about current legislative changes as well as opportunities for external training, and provides the Supervisory Board with relevant specialist literature.
Every two years, the Supervisory Board and the Audit Committee examine the efficiency of their work, including the collaboration with the Executive Board. Therefore, suggestions for even better cooperation can be made. The examination is conducted using questionnaires covering various areas and criteria of the Supervisory Board's work. Interviews are also conducted with several individual Supervisory Board members. Subsequently, the results are discussed within the Supervisory Board and/or Audit Committee. The current efficiency examinations commenced in December 2012. The analysis of the questionnaires was carried out by an external consultant. The results of the Supervisory Board's efficiency examination were presented and discussed at the Supervisory Board meeting in February 2013. No major efficiency deficits were detected. The results of the Audit Committee's efficiency examination will be presented and discussed at one of its upcoming meetings.
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Avoiding conflicts of interest
The members of the Executive Board and Supervisory Board disclose any conflicts of interest to the Supervisory Board without any delay. Substantial transactions between the company and members of the Executive Board or persons in close relationship with them require Supervisory Board approval. The Supervisory Board reports any conflicts of interest, as well as the handling thereof, to the Annual General Meeting. In the year under review, neither the members of the Executive Board nor the members of the Supervisory Board faced conflicts of interest.
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Declaration by the Executive Board and Supervisory Board of adidas AG pursuant to § 161 German Stock Corporation Act (Aktiengesetz - AktG) on the German Corporate Governance Code
The Executive Board and Supervisory Board of adidas AG issued their last Declaration of Compliance pursuant to § 161 AktG on February 13, 2012. For the period from the publication of the last Declaration of Compliance up to June 15, 2012, the following Declaration refers to the German Corporate Governance Code (hereinafter referred to as the “Code”) as amended on May 26, 2010. For the period as of June 16, 2012, the dollowing declaration refers to the recommendations of the Code as amended on May 15, 2012, which was published in the Federal Gazette on June 15, 2012.
The Executive Board and Supervisory Board of adidas AG declare that the recommendations of the “Government Commission on the German Corporate Governance Code” have been and are met with the following deviations:
Agreeing severance payment caps when concluding Executive Board service contracts (section 4.2.3 subsection 4)
In accordance with the recommendations of the Code, contracts with a term of more than three years provide for a severance payment cap. We believe that for contracts with a term of up to three years the short contractual term agreed in connection with further contractual provisions offers sufficient protection from inappropriate severance payments. Hence, no formal severance payment cap is planned.
Compensation of the Supervisory Board (section 5.4.6 subsection 2 old version)
In order to ensure the independence of the Supervisory Board in their supervisory functions, the members of the Supervisory Board do not receive any performance-related compensation.
This no longer counts as a deviation from the Code, as the recommendation regarding performance-related Supervisory Board compensation no longer exists as a recommendation in the new version of the Code dated May 15, 2012.
Disclosure of the shares held by the individual members of the Executive Board and Supervisory Board or financial instruments related thereto (section 6.6 sentence 1)
Insofar as no further statutory obligations exist, we report the ownership of shares or related financial instruments if it exceeds 1% of the shares issued by adidas AG, but we do not report this on an individual basis for the members of the Boards. Instead, we publish the total holdings of all members of the Executive Board and all members of the Supervisory Board separately in order to safeguard the Board members' protectable interests.
Herzogenaurach, February 13, 2013
For the Supervisory Board For the Executive Board
signed Igor Landau signed Herbert Hainer
- Chairman of the Supervisory Board - - Chief Executive Officer -
The aforementioned Declaration of Compliance dated February 13, 2013 has been published on and can be downloaded at www.adidas-Group.com/corporate_governance.
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Suggestions of the German Corporate Governance Code fulfilled
The Code suggests that in the Corporate Governance Report statements are also made on those suggestions that can be deviated from without disclosure. These statements have been integral to our reporting for some time. The suggestion that Supervisory Board meetings shall be prepared separately by shareholder representatives and employee representatives, which our Supervisory Board follows if necessary, no longer exists as a suggestion in the new version of the Code dated May 15, 2012. We are thus now fully compliant with all suggestions.
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Relevant management practices
Performance, passion, integrity and diversity are the values of our Group. They are actively lived by our Executive Board members, Supervisory Board members and our employees and have been incorporated into our Code of Conduct. Our business activities are oriented towards the legal systems in the various countries and markets in which we operate. This implies a high level of social and environmental responsibility.
Compliance with working and social standards:
The development of company guidelines with regard to social minimum standards, work safety as well as health and environmental protection and the monitoring thereof at the production facilities of the adidas Group and its business partners is an integral component of our corporate policy. Our Group has a separate Code of Conduct for the supply chain, the “Workplace Standards”. These standards are oriented towards the conventions of the International Labour Organization (ILO) and follow the code of conduct of the World Federation of the Sporting Goods Industry (WFSGI). They help us to only choose such business partners who fulfil the Group's Workplace Standards and business practices. We have appointed an expert team especially for the coordination of compliance with, and control of, the Workplace Standards. We report on our sustainability programme in this Annual Report and publish more detailed sustainability reports regularly on our corporate website.
Environmental responsibility and social commitment:
For long-term, successful management of the Group, sustainable actions that embrace, in particular, social and environmental responsibility towards present and future generations are essential. Our Social & Environmental Affairs department, with its worldwide team, has for many years been dealing with the rights of employees in the supply chain as well as with the coordination of the environmental strategy and product safety management.
In line with the Group-wide sustainability programme, the adidas Group developed the Environmental Strategy 2015. The objective of the Strategy is to make processes more efficient and environmentally friendly at every stage of the value chain. This ranges from areas such as product design, development and sourcing, logistics and IT systems, to improving the efficiency of company-owned locations. Optimising the value chain makes it possible for the adidas Group to offer more sustainable products and improve the company's environmental performance in the future. With our Environmental Strategy, we have the long-term goal of becoming a carbon-neutral company on a global level. A key element of this goal is the introduction of uniform environmental management systems at company-owned locations, in compliance with ISO 14001.
We strive to support the positive development of the regions in which our Group operates by cooperating with charity organisations in order to improve the quality of life for people, especially children and young people, by means of sports. Moreover, we are committed to education, science and humanitarian initiatives in various projects worldwide.
With the objective of making affordable shoes available for the poorest of the poor, we started our cooperation with Nobel Peace Laureate Professor Muhammad Yunus. The results from the pilot projects in Bangladesh and India, however, show that we still have a long way to go to the production of a correspondingly affordable shoe. We are thus reviewing our initial strategy and critically reflecting whether it is possible to sustainably realise a social business model in the low-price segment. We will intensively utilise the knowledge gained for the further development of future sourcing models.
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Compliance and risk management within the adidas Group
Our Compliance Management System is closely aligned with the Group's Risk Management System. Together, these systems create the organisational requirements for Group-wide awareness of the respective governing law as well as of our internal rules and guidelines and for ensuring their observance. We see compliance as all-encompassing, spanning all business functions throughout the entire value chain, from supply chain through to the end consumer.
Compliance:
In order to ensure standardised and exemplary actions and behaviour, in 2006, we introduced our Code of Conduct, which is applicable in all regions and business areas. It stipulates guidelines for behaviour in everyday work and is available both on our website and on our intranet.
The Compliance Management System based on the Code of Conduct is founded on three pillars: prevention, detection and response. Guidelines and processes which provide all employees with clear and precise behaviour instructions create an appropriate control, audit and reporting environment with the goal to ensure timely detection of potential infringements of statutory regulations or internal guidelines. Appropriate sanction mechanisms are used to react promptly to possible infringements. Insights gained from the investigation of past violations are used to continuously improve the risk and compliance system. A vital part of prevention is the web-based Code of Conduct training, which is mandatory for all employees worldwide, as well as a web-based data protection training. Additionally, the Group has a “Marketing Guide” to raise our employees' awareness with regard to data protection when in contact with customers. Employees who work in sales receive regular personal training concerning matters of competition and anti-trust law. Before our products enter the market, our Intellectual Property department researches the technologies, trademarks, logos and designs to identify possible infringements of the rights of third parties as well as product safety.
In close cooperation with the employee representatives, we have established a global network of designated local Compliance Officers reporting directly to the Chief Compliance Officer of the Group as contact persons, to whom complaints and information concerning possible compliance infringements can be reported. The Chief Compliance Officer regularly reports to the Executive Board on the further development of the compliance programme and on major compliance cases, which are also reported to the Audit Committee. Further, he reports to the Audit Committee at one of its meetings at least once a year concerning the contents and the further development of the compliance programme.
Risk management:
The adidas Group has a company-wide Risk Management System which is linked to the Compliance Management System on an organisational level. Within the scope of this system, strategic and operational risks, legal and compliance-related risks as well as financial risks are continuously identified and assessed throughout the company by risk owners (all key decision-makers reporting to the Executive Board of adidas AG as well as the Managing Directors of all our markets) and are reported to Group Risk Management. The Executive Board receives the consolidated and aggregated information from Group Risk Management. This approach aims to ensure that significant risks are reported to the Executive Board in good time and that appropriate measures for minimising the risks are developed and initiated.
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Transparency and protection of shareholders' interests
It is our goal to inform all institutional investors, private shareholders, financial analysts, employees and the interested public about the company's situation, at the same time and to an equal extent, by regular open and up-to-date communication. We publish all essential information such as press releases, ad hoc announcements and voting rights notifications as well as all presentations from analyst conferences and all financial reports online. Our Investor Relations department provides a full range of services to the financial community and our shareholders.
In addition, we also provide all documents and information on our Annual General Meeting on our website. At our next Annual General Meeting, taking place on May 8, 2013 in Fuerth (Bavaria), Germany, we will again provide our shareholders with the best possible service and support them in exercising their rights at the Annual General Meeting. Shareholders have the possibility, inter alia, to electronically register for the Annual General Meeting or to participate in online voting by granting powers of representation and voting instructions to the proxies appointed by the company. Further, all shareholders can follow the Annual General Meeting live and in full length online.
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Share ownership of the Executive Board and Supervisory Board
At the end of 2012, the total number of shares or related financial instruments held by the members of the Executive Board of adidas AG amounted to less than 1% of the shares issued by the company.
At the same time, the members of the Supervisory Board owned 1.76% of the shares issued by the company or related financial instruments.
A detailed overview of Directors' Dealings in 2012 is published on our website at www.adidas-Group.com/directors_dealings.
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Accounting and annual audit
adidas AG prepares the annual financial statements in accordance with the provisions of the German Commercial Code (Handelsgesetzbuch – HGB) and the German Stock Corporation Act (Aktiengesetz - AktG). The annual consolidated financial statements are prepared in accordance with the principles of the International Financial Reporting Standards (IFRS), as adopted by the European Union (EU).
KPMG AG Wirtschaftsprüfungsgesellschaft was appointed as auditor for the 2012 annual financial statements and annual consolidated financial statements by the Annual General Meeting. The Supervisory Board had previously assured itself of the auditor's independence.
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