Code Section 161 of the German Stock Corporation Act (AktG) (2022 - 2023)

 

08.12.2022

DECLARATION OF COMPLIANCE PURSUANT TO SECTION 161 OF THE GERMAN STOCK CORPORATION ACT (AKTG) OF MASCHINENFABRIK BERTHOLD HERMLE AG ON THE RECOMMENDATIONS OF THE GOVERNMENT COMMISSION ON THE GERMAN CORPORATE GOVERNANCE CODE

The Management Board and the Supervisory Board declare that apart from various individual points the recommendations of the Government Commission on the German Corporate Governance Code as amended on 28 April 2022, which came into force on 17 May 2022 (GCGC 2022), are not complied with. This is justified in that Maschinenfabrik Berthold Hermle AG conducts its operations in accordance with the principles of open information policy that it has put in place to date, which were implemented as part of the rules of procedure of the Management Board and the Supervisory Board. In that respect, the mandatory requirements were complied with in full.

The Management Board and the Supervisory Board hold the view there are various reasons for not implementing recommendations of the GCGC 2022 that extend beyond this. As detailed below, Maschinenfabrik Berthold Hermle AG therefore deviates considerably from the recommendations of the GCGC 2022, whereby it may be assumed for the following statements that all GCGC 2022 recommendations that are not identified as being positively regarded in the following have been deviated from.

The recommendations under B. regarding the appointment of members to the Management Board are largely not complied with. In view of the successful, decade-long practice in the appointment of Management Board members and the continuity in the Management Board, the previous framework conditions for the appointment of board members shall essentially be retained and no further restrictions shall be deliberately imposed – albeit in compliance with all legal framework conditions and requirements.

The recommendations under C. on composition, under D. on working methods, under E. on conflicts of interest and under F. on transparency and external reporting of the Supervisory Board are largely not complied with, as the applicable legal regulations together with the rules of procedure of the Management Board and the Supervisory Board are judged to be fully sufficient for the topics dealt with there. Furthermore, we believe that the Code recommendations under C. to F. are geared towards international major DAX-listed Groups but not to an SME with a limited number of ordinary shareholders who, in part and also on the basis of a right of delegation under the articles of association, are represented personally in the supervisory committees.

Finally, the recommendations on the remuneration of the Management Board and the Supervisory Board under G. (GCGC 2022) are essentially not complied with. In addition to the basic provisions for the remuneration of Management Board members in accordance with Section 87 of the AktG for DAX-listed companies in Section 87 a of the AktG, the legislator has regulated the obligation to establish a remuneration system that is to be put before the shareholders’ general meeting in accordance with Section 120 a, Para. 1 of the AktG, whereby with only a few exceptions the specified, comprehensive individual requirements of the remuneration system are only then to be implemented in the remuneration system if they are indeed part of contractual agreements with Management Board members. Correspondingly, in accordance with Section 162 of the German Stock Corporation Act (AktG) the obligation pertains to draw up a remuneration report containing, in particular, evidence of compliance with the remuneration system. In accordance with Section 120 a, Para. 4 of the AktG, this is to be approved by the shareholders' meeting for the respective previous business year. To date, Maschinenfabrik Berthold Hermle AG has completely fulfilled all these legal requirements within the timespan prescribed by the legislator and will also do this in future. Maschinenfabrik Berthold Hermle AG also considers these requirements by the legislator to be absolutely sufficient to ensure appropriate remuneration for the Management Board and the Supervisory Board and also transparency in this regard. In particular, we expressly view the individual complexities designated in the recommendations under G of the GCGC 2022 as being unsuitable for a company of our dimensions with regard to ensuring fair and transparent remuneration of the Management Board members that remains beneficial to the company as well. In addition, in the past Maschinenfabrik Berthold Hermle AG had variable remuneration based on the company's results, but no share-based remuneration for the board members, and from today's perspective such share-based remuneration is not planned for the future.

Overall, in view of the relative lower market capitalisation of the company, the shareholder structure, the very lean and therefore efficient company organisation to date as well as the additional costs associated with full implementation, Maschinenfabrik Berthold Hermle AG has decided in favour of a merely very limited implementation of the recommendations of the GCGC.

However, Maschinenfabrik Berthold Hermle AG complies with various individual regulations of the GCGC 2022 that go beyond the legal requirements; these are listed below:

Recommendation A.2    Observance of diversity when filling management positions

Recommendation A.4    Compliance Management System with disclosure of the principles

Recommendation A.5    Disclose and statement in the management report on the main features of the internal control system and the risk management system and on the appropriateness and effectiveness of these systems.

Recommendation A.7    Limitation of the time of the shareholders' meeting to a maximum of four to six hours

Recommendation B.1    Observance of diversity in the composition of the Management Board

Recommendation B.4    Reappointment of the Management Board before the end of one year prior to the end of the term of appointment only in the case of special circumstances

Recommendation C.4    Multiple mandates of Supervisory Board members

Recommendation C.11 Supervisory Board mandates for former Management Board members

Recommendation C.12 Position of Supervisory Board members towards competitors

Recommendation D.5    Consultation of the Chair of the Supervisory Board with the Management Board on issues of strategy, business development, risk situation, risk management and compliance of the company

Recommendation D.7    Information on Supervisory Board meetings in the report of the Supervisory Board

Recommendation D.8    Agreement on immediate notification of the Supervisory Board by the auditor in the event of significant findings and occurrences

Recommendation D.9    Agreement on the provision of information to the Supervisory Board by the auditor in the event that incorrect declarations regarding the Code are identified

Recommendation E.3    Secondary activities of Management Board members

Recommendation F.3    Publication of quarterly reports or information during the year on significant changes in the business outlook and the risk situation

Recommendation F.5    Publication of the declaration of compliance on the website for five years

Recommendations G.12-G.14    Benefits in the event of termination of contracts of Management Board members

Recommendation G.15 Offsetting the remuneration for intra-group Supervisory Board mandates in the Management Board remuneration

Recommendation G.16 Decision of the Supervisory Board on the offsetting of remuneration for Supervisory Board mandates outside the group in the Management Board remuneration

Recommendation G.18 Fixed remuneration of Supervisory Board members