The German Corporate Governance Code
Beyond the legal requirements of German stock corporation, codetermination and capital market legislation, Daimler AG has followed and continues to follow the recommendations of the German Corporate Governance Code (“Code”) in the Code version dated February 7, 2017, with the exceptions disclosed and justified in the declaration of compliance.
The deviation from Clause 5.4.5 Paragraph 1 Sentence 2 of the Code relates to Joe Kaeser’s exceeding the maximum number of memberships on supervisory boards recommended therein for management board members of listed corporations. The maximum number of memberships was exceeded in this case when Joe Kaeser became a member of the Supervisory Board of Mercedes-Benz AG. The Board of Management and the Supervisory Board are of the opinion that although this additional membership of a supervisory board within the Daimler Group does increase the workload associated with the membership of the Supervisory Board of Daimler AG, it does so to an extent substantially less than would be the case if the additional membership were to relate to a third-party company.
Daimler AG has followed and continues to follow the suggestions of the Code with just one exception: Deviating from the suggestion in Clause 2.3.3, which stipulates that companies should enable shareholders to view the Shareholders’ Meeting with modern communications media such as the Internet, the Shareholders’ Meeting is not transmitted in its entirety on the Internet, but only until the end of the report by the Board of Management, in order to protect the character of the Shareholders’ Meeting as a meeting attended by our shareholders in person. An additional factor is that continuing the broadcast after that point, in particular broadcasting comments made by individual shareholders, could impair the discussion between shareholders and management.
The principles guiding our conduct
Our business conduct is based on Group-wide standards that go beyond the requirements of relevant legislation and the German Corporate Governance Code. These standards are based on our four corporate values integrity, respect, passion and discipline. In order to achieve long-term and thus sustainable business success on this basis, our goal is to ensure that our activities are in harmony with the environment and society. This is due to the fact that we, as one of the world’s leading vehicle manufacturers, also strive to be a leader in sustainability. We have defined the most important principles in our Integrity Code, which serves as a frame of reference for all employees at Daimler AG and the Group and supports them in making the right decisions even in difficult business situations.
Our Integrity Code
Employees from different departments and units throughout the Group and around the world helped us develop our Integrity Code, which was revised in 2019. Our Integrity Code defines the central corporate principles that guide our behavior in daily business, our interpersonal conduct within the company and our conduct toward customers and business partners. These corporate principles include compliance with laws, as well as fairness, transparency, a commitment to diversity, and responsibility. In addition to the corporate principles, our Integrity Code includes requirements and regulations concerning respect for and the protection of human rights and dealing with conflicts of interest. It also prohibits all forms of corruption. The Integrity Code applies to all companies and employees of the Daimler Group worldwide. The Integrity Code is available on the Internet at daimler.com/dai/caag.
We have also reached agreement on “Principles of Social Responsibility” with the World Employee Committee. These principles apply at Daimler AG and throughout the Group. In the Principles of Social Responsibility, Daimler commits itself to the principles of the UN Global Compact and thus to internationally recognized human and workers’ rights, freedom of association, sustainable protection of the environment and the proscription of child labor and forced labor. Daimler also commits itself to guaranteeing equal opportunities and adhering to the principle of “equal pay for equal work.”
Expectations for our business partners
We also require our business partners to adhere to clear stipulations because we regard our business partners’ integrity and behavior in conformity with regulations as a precondition for trusting cooperation. When selecting our direct business partners, we therefore pay close attention to ensure that they comply with the law and follow ethical principles, and that they pay the same attention themselves to other partners in the supply chain. For the expectations we place on our business partners, see also daimler.com/sus/obr.
Risk management at the Group
Daimler has a risk management system commensurate with its size and position as a company with global operations. (See »Risk and Opportunity Report« of the Annual Report 2019). The risk management system is one component of the overall planning, controlling and reporting process. Its goal is to enable the company’s management to recognize significant risks at an early stage and to initiate appropriate countermeasures in a timely manner. At least once a year, the Audit Committee of the Supervisory Board of Daimler AG discusses the effectiveness and functionality of the risk management system with the Board of Management. The Chairman of the Audit Committee reports to the Supervisory Board of Daimler AG on the committee’s work at the latest in the meeting of the Supervisory Board following each committee meeting. The Supervisory Board of Daimler AG also deals with the risk management system on the occasion of the audit of the annual company and consolidated financial statements. The Chairman of the Supervisory Board has regular contacts between Supervisory Board meetings with the Board of Management, and in particular with the Chairman of the Board of Management, to discuss not only the Group’s strategy and business development but also the issue of risk management. In addition, the Board of Management of Daimler AG regularly informs the Audit Committee and the Supervisory Board of the most important risks facing the company and the Group as a whole. The Legal Affairs Committee, which was established by the Supervisory Board during the reporting period to operate until further notice, supports the Supervisory Board in carrying out its tasks with respect to the complex proceedings relating to emissions regulations and antitrust law with which Daimler AG and its subsidiaries are confronted. The Internal Auditing department monitors adherence to the legal framework and to Group standards by means of targeted audits and initiates appropriate actions as required.
Accounting and the external audit
Daimler prepares its consolidated financial statements and interim financial reports in accordance with the International Financial Reporting Standards (IFRS), as adopted by the European Union. The annual financial statements of Daimler AG are prepared in accordance with the accounting standards of the German Commercial Code (HGB). Daimler prepares both half-yearly and quarterly financial reports. The annual company financial statements and consolidated financial statements of Daimler AG are audited by external auditors; interim financial reports are reviewed by external auditors. The consolidated financial statements and the Group management reports are made publicly accessible via the Company’s website within 90 days from the end of the reporting year; the interim financial reports are made publicly accessible in the same manner within 45 days from the end of the reporting period.
Based on the recommendation of the Audit Committee, the Supervisory Board submits a decision proposal to the Shareholders’ Meeting of Daimler AG for the election of the external auditors for the annual company financial statements, for the consolidated financial statements and for the auditors’ review of the interim financial reports. At the Annual Shareholders’ Meeting on May 22, 2019, KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin was elected to conduct the audit of the annual company financial statements and the consolidated financial statements, and the external auditors’ review of interim financial reports, for financial year 2019, as well as the external auditors’ review of interim financial reports for financial year 2020 in the period leading up to the Shareholders’ Meeting in 2020. KPMG AG Wirtschaftsprüfungsgesellschaft has been conducting the audit of the annual company financial statements and consolidated financial statements of Daimler AG since the 1998 financial year; since 2014, the responsible auditor commissioned to carry out the external audit has been Dr. Axel Thümler.
Prior to issuing its recommendation to the Annual Shareholders’ Meeting, the Audit Committee of the Supervisory Board obtained a declaration from the external auditors under consideration. The external auditors were requested to state whether any business, financial, personal or other relationships existed between the external auditors and their bodies and audit managers on the one hand, and the Company and the members of its bodies on the other, which could justify concerns regarding a conflict of interest. This statement also describes the extent to which other services were performed for the Daimler Group in the previous year or had been contractually agreed upon for the following year.
The Audit Committee instructed the external auditors to immediately inform the Committee Chairman of any indications of partiality or grounds for exclusion uncovered during the audit or the auditors’ review of interim financial statements, and of all key findings and events relevant to the tasks of the Supervisory Board, particularly findings or events related to suspected irregularities in accounting. The Audit Committee also reached an agreement with the external auditors stipulating that the external auditors would inform the Audit Committee, and make a note in the audit report, of any facts uncovered during the annual audit that would reveal inaccuracies in the Board of Management’s and the Supervisory Board’s declaration of compliance with the German Corporate Governance Code.