Maschinenfabrik Berthold Hermle AGMaschinenfabrik Berthold Hermle AG

Corporate Governance Statement

CORPORATE GOVERNANCE STATEMENT PURSUANT TO SECTION 289F AND 315D OF THE GERMAN COMMERCIAL CODE (HGB)

General

In this statement, the Management Board of Maschinenfabrik Berthold Hermle AG - also on behalf of the Supervisory Board - provides information on corporate governance issues pursuant to
Sections 289f and 315d of the German Commercial Code (HGB).

Hermle AG is a public company (Aktiengesellschaft) under German law. A basic principle of German corporate law is the dual management system consisting of a management board and a supervisory board, both of which have independent competences. The Management Board and the Supervisory Board of Hermle AG manage and oversee the work of the company together in a trustworthy and honest manner.

The structure of the corporate management and supervision of Hermle AG is as follows:

 

Shareholders and Annual General Meeting

The shareholders of Maschinenfabrik Berthold Hermle AG exercise their rights at the company’s Annual General Meeting (AGM). The AGM is always held in the first eight months of the business year. The AGM is chaired by the Chair of the Supervisory Board. The AGM decides on all matters assigned to it by law and the articles of association. The ordinary shares of the company are entitled to vote. Subject to mandatory legal provisions, reference shares do not grant voting rights.

Invitation to and participation in the AGM are in accordance with the statutory provisions and the articles of association.

 

Supervisory Board

The Supervisory Board of Maschinenfabrik Berthold Hermle AG consists of six members, of whom at least three and a maximum of four are elected by the AGM. There is a special right of delegation for a Supervisory Board regulated pursuant to Section 8 (2) of the articles of association. Two members are elected by the employees of the company. This ensures the interests of shareholders and employees are represented on the Supervisory Board. The Chair of the Supervisory Board is elected by the Supervisory Board from among its members. The Supervisory Board was elected in 2016 for a period of five years. 

The Supervisory Board appoints the members of the Management Board. It supervises and advises the Management Board in the management of the company. Essential decisions of the Management Board require the approval of the Supervisory Board. The Supervisory Board holds two meetings per calendar half-year. As a rule, there should be one meeting per calendar quarter. The Supervisory Board shall constitute a quorum if at least four members participate in the passing of resolutions. Resolutions of the Supervisory Board are usually passed in meetings. Outside of meetings, resolutions may be adopted in writing, by telex, by telephone, by fax or by e-mail at the direction of the Chair of the Supervisory Board. Such resolutions shall be recorded in writing by the chair and circulated to all members. The rules of procedure of the Supervisory Board stipulate that committees may be formed. A presidential committee was formed consisting of the chair and two deputies. It was not necessary for the Supervisory Board to convene at other times in 2020.

 

Management Board

The Management Board’s role is to manage the company on its own responsibility and in accordance with the statutory provisions, the articles of association and the rules of procedure for the Management Board. The Board consists of three members. Management Board meetings are usually held once a week and additionally to address individual topics, as required. Due to the size of the Management Board, no committees were formed.

No other corporate governance practices apply.

 

Diversity concept and information on Section 76, 111 of the German Stock Corporation Act (AktG)

The diversity concept for the Management Board and the Supervisory Board of Maschinenfabrik Berthold Hermle AG ensures people of various age groups, professional qualifications and, if possible, genders are represented on both boards. In principle, the best qualified person from the group of applicants shall be considered for all positions. The increase in the proportion of women is planned for the entire workforce. Further information on the corresponding results can be found in the Employee chapter of the Group Management Report.

As part of the Act on Equal Participation of Women and Men in Management Positions, the Supervisory Board of Maschinenfabrik Berthold Hermle AG has decided that the number of women on the Supervisory Board, which currently includes one woman, should remain constant. The Supervisory Board has set this target for the period until expiry of the current term of office of the Supervisory Board elected on 6 July 2016, i.e. until 30 June 2021.

With regard to the composition of the Management Board, the Supervisory Board has decided that the number of women on the Management Board, which currently does not include any women, should remain constant. The Supervisory Board has set this target for the period until 30 November 2024, as the Supervisory Board intends to secure the very successful activities of the previous members of the Management Board for Hermle AG by extending their contracts beyond 31 December 2020 for at least another 5 years and there are currently no plans to increase the size of the board.

The Management Board of Maschinenfabrik Berthold Hermle AG has decided that the proportion of women should remain constant at the current level of 10% at the first management level below the Management Board (senior executives) and at the current level of 5% at the second management level (employees paid over and above standard salary). In the event of new appointments, the most professionally and personally suitable applicants shall continue to be considered. These targets apply until 30 June 2022.

All target quotas are currently being met.


Declaration of compliance pursuant to Section 161 of the German Stock Corporation Act (AktG)

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 16 December 2019, which came into force on 20 March 2020 (GCGC 2020), 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. The legal requirements, including the Act Implementing the Second Shareholders’ Rights Directive (ARUG II), which came into force on 1 January 2020, are fully complied with.

The Management Board and the Supervisory Board hold the view there are various reasons for not implementing recommendations of the GCGC 2020 that extend beyond this.

The recommendations under B. regarding the appointment of members to the Management Board are largely not complied with. In view of the successful decades of 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.

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, however, to an SME with a limited number of ordinary shareholders who, in part, are represented personally in the supervisory committees - also due to a right of delegation under the articles of association.

Finally, the recommendations on the remuneration of the Management Board and the Supervisory Board under G. (GCGC 2020) are essentially not complied with. In addition to the principles for the remuneration of board members according to Section 87 of the German Stock Corporation Act (AktG), the legislator has standardised for us as a listed company in Section 87 (a) of the German Stock Corporation Act (AktG) a remuneration system with complex individual requirements, in Section 162 of the German Stock Corporation Act (AktG) the obligation to prepare a remuneration report and in Section 120 (a) of the German Stock Corporation Act (AktG) the requirement to obtain a vote at the AGM on the remuneration system and the remuneration report. We will fully comply with all of these legal requirements within the time frame set by the legislator, but we also consider 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 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 Hermle AG has decided in favour of a merely very limited implementation of the GCGC

However, Maschinenfabrik Berthold Hermle AG complies with various individual regulations of
the GCGC 2020, which are listed below:

Recommendation A.1        Observance of diversity when filling management positions

Recommendation A.2        Compliance Management System with disclosure of the principles

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.6        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.8        Information on Supervisory Board meetings in the report of the Supervisory Board

Recommendation D.9        Agreement on immediate notification of the Supervisory Board by the auditor in the event of significant findings and occurrences

Recommendation D.10      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 C.18      Fixed remuneration of Supervisory Board members

This statement is permanently available to the general public on the Hermle website at www.hermle.de (menu item: Investor Relations/Pflichtveröffentlichungen/Kodex §161 AktG).

This Corporate Governance Statement pursuant to Sections 289f and 315d of the German Commercial Code (HGB) can also be accessed on our website www.hermle.de under the menu item Investor Relations/Pflichtveröffentlichungen/Erklärung zur Unternehmensführung.

The documents referred to in Section 289 Paragraph 2 (1a) of the German Commercial Code (HGB) will be prepared within the statutory provisions and will subsequently also be available on the aforesaid website.

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