Corporate Governance Report including the Declaration on Corporate Governance
(The Corporate Governance Report including the Declaration on Corporate Governance is part of the combined Management Report for adidas AG and the adidas Group)
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 to a large extent
• Relevant management practices
• Transparency and protection of shareholders' interests
• Appropriate risk management
• Share ownership of the Executive Board and Supervisory Board
• Accounting and annual audit
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Dual board system
In accordance with statutory provisions, adidas AG has a dual board system, which assigns the management of the company to the Executive Board and advising and supervision of the Executive Board to the Supervisory Board. These two boards are strictly separated in terms of membership and duties and responsibilities.
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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, developing the Group's strategic orientation, agreeing this with the Supervisory Board and ensuring its implementation. Additionally, the Executive Board is responsible for establishing and monitoring an efficient risk management system. It is bound to the company's interests and obligated to achieve a sustainable increase in company value.
Irrespective of the Executive Board's overall responsibility, its members are individually responsible for managing their respective business areas. The CEO is responsible in particular for leading the entire Executive Board as well as for management of the Group's business policy. In addition, he is in charge of various fields such as Global Sales, Internal Audit and Social & Environmental Affairs as well as Compliance. The business areas Finance, Global Brands and Global Operations are each assigned to a different member of the Executive Board. The Rules of Procedure and the Business Allocation Plan of the Executive Board set out the tasks and responsibilities of the Executive Board. 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. Furthermore, the CEO discusses the Group's strategy and business development with the Chairman of the Supervisory Board on a regular basis.
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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 and comprehensive knowledge of the industry resulting from the different professional backgrounds of the members. The members of our Supervisory Board do not exercise directorship or similar positions or advisory tasks for key competitors of the company. With the exception of one already expired project-related consulting agreement concluded between the company and a financial consultancy, which one Supervisory Board member is a partner of, they do not have business or personal relations with adidas AG or the Executive Board.
At its meeting held on February 9, 2011, and in accordance with the recommendations of the German Corporate Governance 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
- Maintain two female members on the Supervisory Board until the next election of the Supervisory Board in 2014
- 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
- Maintain the independence of all Supervisory Board members while considering the work relationships of the employee representatives vis-à-vis the company
- Consider the age limit of, in general, 72 at the time of election
In the 2011 financial year, the composition of the Supervisory Board did not change. 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, further criteria that we consider to be important for members of the Supervisory Board are also taken into account, such as expert and industry knowledge, as well as particular knowledge of and experience in applying accounting principles and internal control systems.
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 also recommends that the employee representatives consider the determined objectives, while observing the fundamental principles for the election of 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 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 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, a committee responsible for the handling of real estate matters was established ad hoc in 2009. 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 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. The company supports the Supervisory Board members by offering a professional training programme tailored to the needs of the Supervisory Board, 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 examines the efficiency of its work. The last efficiency examination took place in 2010. For the first time, an individual efficiency examination of the Audit Committee was conducted. The analysis of both examinations was carried out by an external consultant. The results were presented and discussed at the Supervisory Board meeting in November 2010 and at the Audit Committee meeting in February 2011, respectively. Based on the discussion, possibilities for improvement were debated which, however, did not leave room for doubt concerning the efficiency of either the Supervisory Board's or the Audit Committee's activities. The next efficiency examination is planned for 2012.
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Avoiding conflicts of interest
The members of the Executive Board and Supervisory Board disclose any conflicts of interest to the Chairman of the Supervisory Board in his capacity as Chairman of the General Committee without delay. The Supervisory Board reports any conflicts of interest, as well as the handling thereof, to the Annual General Meeting. Apart from the case presented in the Supervisory Board report, neither the members of the Executive Board nor the members of the Supervisory Board faced any conflicts of interest in the year under review.
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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 11, 2011. For the period from the publication of the last Declaration of Compliance, the following Declaration refers to the German Corporate Governance Code (hereinafter referred to as the “Code”) as amended on May 26, 2010, which was published in the electronic Federal Gazette on July 2, 2010.
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.
- Number of mandates of an Executive Board member (section 5.4.5 sentence 2)
In the past, Chief Executive Officer Herbert Hainer has held four non-Group supervisory board or supervisory body mandates with similar requirements. With effect from February 28, 2011, Herbert Hainer has resigned from his position at Engelhorn KGaA. Consequently, as of March 1, 2011, all Executive Board members meet the recommendation of the Code.
- Compensation of the Supervisory Board (section 5.4.6 subsection 2)
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.
- 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 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, 2012
For the Supervisory Board For the Executive Board
signed Igor Landau signed Herbert Hainer
- Chairman of the Supervisory Board - - Chief Executive Officer -
The above Declaration of Compliance dated February 13, 2012 has been published on our website, where it can be downloaded at www.adidas-Group.com/corporate_governance.
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Suggestions of the German Corporate Governance Code fulfilled to a large extent
adidas AG complies with the suggestions of the Code with one exception: Pursuant to section 3.6 of the Code, Supervisory Board meetings should be prepared separately by the Supervisory Board members representing the shareholders and by those representing the employees. The members of our Supervisory Board meet for such preparation meetings as needed.
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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 orientated towards the legal systems in the various countries and markets in which we operate. We bear significant responsibility for the people living in these regions and for the environment as a whole.
- Compliance within the adidas Group:
Our compliance system creates 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 perceive compliance as being all-embracing and significant to the product cycle from the supply chain to the final consumer.
In order to ensure standardised and exemplary actions and behaviour, in 2006 the adidas Group introduced a Code of Conduct which is applicable in all regions and business areas. Guidelines for day-to-day behaviour in everyday work are stipulated in this Code. The Code of Conduct is available both on our website and on our intranet.
The internal compliance programme based on the Code of Conduct includes, inter alia, web-based training which is available to all employees worldwide. Furthermore, on a global level we have 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. In the area of data protection, we have also established a web-based training programme for all employees. 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 training concerning matters of competition law. Before our products are launched on the market, our Intellectual Property department researches the technologies, trademarks, logos and designs to identify possible infringements of the rights of third parties.
The Group's Chief Compliance Officer reports to the Executive Board regularly concerning the implementation of the compliance programme as well as information about corporate issues. Further, he reports to the Audit Committee at one of its meetings at least once a year concerning the contents and the implementation of the compliance programme.
- 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 Group policies. Our Group has an individual Code of Conduct for the supply chain, the “Workplace Standards”. These standards are orientated 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 in accordance with our values. 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 sustainability reports regularly.
- 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 members, has for many years been dealing with the rights of employees in the supply chain and coordinating product safety standards.
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 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 will make it possible for the adidas Group to offer more sustainable products and improve the company's environmental performance in the future.
With our “Green Company” initiative, we combine all approaches regarding climate protection and resource conservation at our locations under one umbrella programme in order to realise the long-term goal of becoming a carbon-neutral company on a global level. A key element of the “Green Company” initiative is the introduction of uniform environmental management systems at certain adidas Group 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 local people by means of sports. Moreover, we are involved in education projects as well as science and humanitarian initiatives in various projects around the world.
With the objective of making affordable shoes available for the poorest of the poor, we have started working on a “Social Business” project in Bangladesh within the framework of our cooperation with Nobel Peace Laureate Professor Muhammad Yunus. The project is based on the adidas Group's core competencies and is positioned within the Reebok brand. Currently, it is being considered whether the project can be realised in India as well, as a working “Social Business” based on the principles of Professor Yunus.
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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 financial reports online. In addition, we also provide all documents and information relating to our Annual General Meeting on our website. At our next Annual General Meeting, taking place on May 10, 2012 in Fuerth (Bavaria), Germany, we will again provide our shareholders with the best possible service. All shareholders can follow the Annual General Meeting live and in full length online. Our Investor Relations department provides a full range of services to the financial community and our shareholders.
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Appropriate risk management
The adidas Group has a company-wide risk management system which was comprehensively reviewed in 2010 and further developed in 2011. Within the scope of this system, strategic and operational risks, compliance-related risks as well as financial risks are identified and assessed throughout the company and cross-divisionally by key decision-makers, and are reported to the Executive Board. This approach aims to ensure that significant risks are reported to management in good time and that appropriate measures for minimising the risks are developed and initiated.
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Share ownership of the Executive Board and Supervisory Board
At the end of 2011, the total number of shares held by members of the Executive Board of adidas AG amounted to less than 1% of the shares issued by the company.
At the same time, members of the Supervisory Board owned 1.92% of the shares issued by the company.
A detailed overview of Directors' Dealings in 2011 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 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 2011 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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