High regard for corporate management based on responsibility
The term “corporate governance” refers to the practice of administering and controlling a company according to strict rules of accountability and principles of responsibility. At MTU, corporate governance has been held in high regard for many years. Two central elements play a major role: Promoting the trust of investors, customers and employees in the company’s executive and controlling bodies, and increasing the value of the company in a sustainable manner.
The basic principles of good corporate governance are that it should be based on mutual trust and efficient collaboration between the Board of Management and the Supervisory Board, respect the shareholders’ interests, and allow for open and transparent communication. As a globally operating company, MTU acts in compliance with the relevant national and international standards. In Germany, where the company has its headquarters, these standards are laid down principally in the Stock Corporation Act (AktG), in the Co-Determination Act (MitbG) and in the German Corporate Governance Code (the “Code”).
The Code, now in the amended version of June 6, 2008, first came into force in 2002 and describes the nationally and internationally recognized standards of responsible corporate leadership together with the statutory regulations for the management and supervision of German listed companies. MTU’s Board of Management and Supervisory Board have actively worked towards ensuring that the recommendations of the Code are met. Their declaration of conformity can be found on page 299.
The following contains a report by the MTU Board of Management – also on behalf of the Supervisory Board – as stipulated in Section 3.10 of the Code, on corporate governance at the company in the 2008 financial year.
MTU is a stock corporation organized under German law. In accordance with these legal provisions, its governing bodies consist of the Board of Management, the Supervisory Board and the Annual General Meeting. Corporate management relies on close and trust-based cooperation between all of these bodies as well as a reliable and constant flow of information. The Annual General Meeting, in particular, offers shareholders the opportunity to present questions to MTU executives and personally exercise their voting rights, or do so through a proxy.
The company is managed by a Board of Management whose members work together as a team. Members complement each other with a variety of qualifications and professional experience. The Board of Management sets MTU’s strategic direction, plans and establishes the company’s budget and monitors the individual business units. It informs the Supervisory Board of the company’s current situation, potential risks, strategic decisions and their implementation, in a timely manner and on a regular basis. Important Board of Management decisions require the approval of the Supervisory Board, in particular the approval of the budget. For further information on this topic, please refer to the Supervisory Board report on page 306.
In line with statutory requirements, the Supervisory Board comprises six shareholder representatives and six employee representatives. It oversees the work of the Board of Management and provides advisory support. All Supervisory Board members are qualified for these tasks and perform their mandated duties correctly. The Supervisory Board’s rules of procedure make provision for its members to form committees. MTU’s Supervisory Board has four committees, details of which may be found on page 307.
In 2008, no consulting agreements or contracts for services or similar contractual arrangements existed between MTU Aero Engines Holding AG or any of its associates and any member of the Supervisory Board. No conflicts of interest requiring disclosure have arisen.
In the financial year 2008, directors’ and officers’ liability insurance with an appropriate deductible was in effect for MTU Board of Management and Supervisory Board members.
Compensation for members of the Board of Management and Supervisory Board is established according to clear, transparent criteria, which are fully described in the management compensation report on pages 300 to 305.
The Board of Management is accountable for the reporting of the consolidated financial statements, which are drawn up in accordance with International Financial Reporting Standards (IFRS). The financial statements of group companies are compiled according to the provisions of the German Commercial Code (HGB). An internal system of controls coupled with the application of uniform principles of accounting ensure that the earnings, financial situation, net asset position and cash flows of all group companies are accurately presented. MTU has a differentiated system in place to identify and monitor business and financial risks.
The corporate culture at MTU places great store on the values of trust and mutual respect. Nevertheless, the risk can never be entirely excluded that the unauthorized behavior of isolated individuals might lead to contravention against the law. MTU does everything in its power to minimize this risk as far as possible, and is committed to uncovering and pursuing all acts of misconduct, as in the case of corruption. The applied preventive measures include awareness training and regular scheduled inspections of all business units by the internal auditing teams.
The observance of judicial and ethical rules and principles plays a central role in this respect. These include nonviolation of the law and the upholding of professional values in dealings with customers, suppliers, competitors, government authorities, holders of public office, and members of the general public, both in Germany and abroad, and the strict separation of professional and personal affairs in order to avoid conflicts of interest. All of these compliance aspects are documented in a code of conduct drawn up and introduced by the MTU Board of Management and Group Works Council, which also deals with the responsible use of insider information. It embodies MTU’s corporate culture and reflects its resolve to strictly comply with the stipulations of the relevant public laws and internal regulations. The code of conduct is intended as a company-wide guide to ethical business relations and as a public statement of MTU’s commitment to corporate social responsibility and environmental protection.
Compliance is an important aspect of all management functions at MTU. All managers are expected to verify that each member of their staff has read and understood the code of conduct and is abiding by its rules. These activities are supplemented by internal training courses designed to accentuate employees’ awareness of compliance risks and to reinforce and augment their knowledge of the relevant requirements. Corruption prevention is one of the major topics dealt with during these training courses.
MTU has set up a Compliance Board that reports directly to the Board of Management and offers its advice on relevant issues. The members of the Compliance Board, which consists of the heads of the legal, auditing and security departments, meet once a quarter. The board’s duties include identifying and evaluating legal and reputation risks. It also proposes preventive measures based on an analysis of the way compliance aspects are integrated in business processes, and issues instructions to the relevant specialist departments concerning their implementation.
As the result of an agreement between the Board of Management and the Group Works Council, an internal contact office for unethical conduct has been created. It allows employees, customers and suppliers to report suspected cases of irregular or criminal practice.
The Supervisory Board oversees the Board of Management’s compliance activities with the assistance of the Audit Committee. In the year under review, it was briefed on the awareness training courses, the meetings of the Compliance Board, and the information submitted to the contact office charged with dealing with suspected cases of illegal or unethical conduct. Other issues dealt with by the Compliance Board included updates to the compliance guidelines, the audits carried out by the Compliance Board and the training measures planned for 2009.
A full information service
In keeping with the principles of good corporate governance, MTU issues a regular flow of comprehensive, timely information on the company’s activities and any major changes in its business situation to shareholders, shareholder associations, financial analysts, the media and other interested parties. The company publishes a full range of informative documentation, press releases and a financial calendar on the MTU website at www.mtu.de. MTU also publishes quarterly reviews of its business activities. Through these interim reports and related publications, the Board of Management keeps investors, analysts and the media up to date on the company’s quarterly and yearly business results. Any new developments likely to have a significant impact on the MTU share are disclosed in accordance with statutory requirements in the form of ad hoc releases.
Information is also posted on the MTU website whenever members of the Board of Management or Supervisory Board or related persons have purchased or sold MTU shares or related derivatives. Section 15a of the German Securities Trading Act (WpHG) stipulates that such transactions must be disclosed if and when their value reaches or exceeds € 5,000 within a single calendar year.
Declaration of conformity with the German Corporate Governance Code by the Board of Management and Supervisory Board of MTU Aero Engines Holding AG, pursuant to Section 161 of the German Stock Corporation Act (AktG)
The Board of Management and the Supervisory Board of MTU Aero Engines Holding AG declare that the recommendations of the Government Commission on the German Corporate Governance Code, as published in the amended version of June 6, 2008 by the Federal Ministry of Justice in the official section of the electronic Federal Gazette, have been and are being complied with. The Board of Management and the Supervisory Board of MTU Aero Engines Holding AG also intend to follow these recommendations in the future. The only recommendations of the German Corporate Governance Code that have not been and will not be applied are the following:
1. Form and details of Supervisory Board compensation (Section 5.4.6, paragraph 2 of the Code):
The members of the Supervisory Board do not receive performance-related compensation. It is our considered view that a fixed compensation arrangement is appropriate and that it should not be linked to the company’s performance. In our opinion, performance-based compensation is not suitable to furthering the control function exercised by the Supervisory Board.
2. Reporting of the total ownership of shares in the company (Section 6.6 of the Code):
The number of shares in the company held by members of the Board of Management and the Supervisory Board will not be reported separately in respect of each Board. As the members of the Board of Management and the Supervisory Board do not consult with one another regarding the exercise of their stock rights, we do not consider such reporting to be appropriate. No corresponding provision has yet been specified in current legislation, as such information is not deemed necessary.
Munich, December 2008
|For the Board of Management||For the Supervisory Board|