Corporate Governance report
Disclosures on corporate governance practices
DIC Asset AG attaches great value to corporate governance with the Company and the Group. The Management Board and Supervisory Board feel that they have an obligation to ensure the Company’s continued existence and the generation of sustained value added through responsible corporate governance with a long term focus. For DIC Asset AG, good corporate governance also includes managing risks in a responsible manner. The Management Board therefore makes sure that risks are appropriately managed and controlled in the Company and ensures that the Company complies with the law by maintaining a compliance management system that reflects the Company’s exposure to risk. As described in its annual Declaration of Conformity, the Company is in compliance with the recommendations of the German Corporate Governance Code as amended on 7 February 2017. The Management Board regularly informs the Supervisory Board of any existing risks and their development. The Company’s internal control, reporting and compliance structures are continuously reviewed, enhanced and adjusted to changes in the general environment.
Compliance Guidelines are in place for the DIC Asset Group and a Compliance Officer supervises observance of material compliance requirements. In addition, a whistleblower system for reporting misconduct and violations has been set up. Based on the Compliance Guidelines, the employees of DIC Asset AG and its subsidiaries are obliged to act in a responsible and legal manner. This includes the principles of ethics and integrity within the Company, in particular compliance with legal requirements, internal company guidelines and self-imposed values. The cornerstones of the Compliance Guidelines are described in the current report on risks and opportunities which is part of the Group management report of DIC Asset AG.
In our opinion, more sophisticated corporate governance tools, such as in-house corporate governance principles, are not required given the company-specific circumstances. Should the implementation of additional tools become necessary, the Management Board and Supervisory Board will respond without delay.
Working practices and composition of the Management Board and Supervisory Board
As a listed corporation, DIC Asset AG has a dual management structure comprising a Management Board and a Supervisory Board. The two Boards are clearly separated from each other – both in terms of personnel and function – allowing each of them to perform their different duties independently. While the duty of the Management Board is to manage the Company independently, the Supervisory Board’s duty is to monitor this management.
Close cooperation between the Management Board and the Supervisory Board
The Management Board and the Supervisory Board work closely together in the interests of the Company and the Group. This ensures that optimal use is made of the professional expertise of the Board members and speeds up decision-making processes. The Management Board keeps the Supervisory Board regularly, promptly and comprehensively informed of strategy, planning, risk position and risk management, the internal control system, compliance, as well as current business developments. The Chairman of the Supervisory Board is also notified of material developments and decisions by the Management Board between meetings.
The Management Board performs its management role as a collegial body. It determines corporate objectives, strategic orientation, corporate policy and Group organisation and coordinates these with the Supervisory Board and ensures that they are implemented. In this process, the Management Board is bound to the Company’s Group-wide interests and committed to the sustained increase of enterprise value, and to the needs of shareholders, customers, employees and other groups associated with the Company. The members of the Management Board are jointly responsible for managing the entire business. Notwithstanding their overall responsibility, the individual Management Board members manage the departments assigned to them independently and within the parameters of the Management Board resolutions. The allocation of duties between the members of the Management Board is derived from the Schedule of Responsibilities. The Management Board has a quorum if at least the majority of its members participate in the resolution and adopts its resolutions by a simple majority. In the event that the Management Board consists of more than two members, the Chairman will have the casting vote in the event of a tie.
The Supervisory Board appoints and dismisses members of the Management Board. The Supervisory Board monitors the Management Board in its leadership and management of the Company. In the case of specifically defined actions of material significance – such as major capital expenditures – the Rules of Procedure for the Management Board require the approval of the Supervisory Board. The Supervisory Board has also adopted Rules of Procedure. Supervisory Board resolutions are generally passed at meetings by a simple majority of the votes cast. At the instruction of the Chairman of the Supervisory Board, resolutions can also be passed outside meetings if no member objects to this process. The Chairman of the Supervisory Board coordinates work within the Supervisory Board, chairs its meetings and attends to the affairs of the Supervisory Board externally.
An overview of the Supervisory Board’s activities during the 2019 financial year is presented in the Supervisory Board report.
Composition of the boards
Since 1 September 2019, the Management Board of DIC Asset AG has consisted of two members: Sonja Wärntges as Chairwoman (CEO), also responsible for Finance & Controlling as well as Asset, Property and Portfolio Management, and Johannes von Mutius (CIO), responsible for Transaction Business.
The Supervisory Board of DIC Asset AG consists of six members, who are all elected by the General Shareholders’ Meeting. The Supervisory Board has elected a Chairman and a Vice Chairman. Members of the Supervisory Board are elected for a term of office ending at the conclusion of the General Shareholders’ Meeting that formally approves their actions during the fourth financial year following the start of their term of office. The financial year in which the term of office begins is not included in this calculation. The current terms in office end at different times due to different appointment dates.
The specific composition of the Supervisory Board in the 2019 financial year and the disclosures pursuant to section 285 no. 10 HGB are listed in the notes to the consolidated financial statements.
Succession planning for the Management Board, diversity concept
The Supervisory Board works with the Management Board on long-term succession planning. When making decisions on filling Management Board positions, the key suitability criteria are professional qualifications for the division being run, leadership qualities, past performance and acquired skills as well as knowledge of DIC Asset AG.
With regard to the composition of the Management Board, the Supervisory Board follows a diversity concept that primarily includes the following aspects:
- Members of the Management Board should have the knowledge, skills and experience required to properly complete their tasks.
- Members of the Management Board must be familiar with the commercial real estate sector. At least some members of the Management Board should also have knowledge or experience of funds/asset and property management as well as capital markets and financing. As a minimum, the member of the Management Board responsible for Finance must have accounting or auditing expertise and some members of the Management Board should contribute experience of leading a medium-sized company.
- Diversity should also be taken into account when searching for qualified individuals for the Management Board. There should also be an appreciation of how different complementary professional profiles, work and life experiences and balanced gender representation can benefit the work of the Management Board.
- As a rule, members of the Management Board should be under 65 years old. Age should therefore also be taken into account when appointing Management Board members.
- The Supervisory Board stipulated targets for the share of women on the Management Board and a deadline for their achievement in accordance with section 111 (5) AktG as outlined below.
The diversity concept should benefit the work of the Management Board overall. When deciding which individual should fill a specific Management Board position, the Supervisory Board acts in the best interests of the Company while taking into account all circumstances in each individual case.
The Management Board of DIC Asset AG currently consists of two members professionally and personally qualified in different areas, including a female member, Sonja Wärntges, as CEO. The Supervisory Board believes that the diversity concept has been satisfied during the reporting period.
Objectives of the Supervisory Board with regard to its composition, skills profile and diversity concept
The Supervisory Board defined targets for its composition, taking the recommendations of the German Corporate Governance Code as amended on 7 February 2017 into account in accordance with the Declaration of Conformity. These targets include the skills profile for the Supervisory Board as a whole as well as the diversity concept it pursues for its composition.
- As a group, the Supervisory Board should have the knowledge, skills and professional experience required to properly complete its tasks. Members of the Supervisory Board must generally be familiar with the sector in which the Company operates.
- It should be ensured that at least some individual members of the Supervisory Board have the following knowledge or experience: (i) familiarity with the commercial real estate sector, (ii) knowledge of funds/asset and property management, (iii) knowledge of capital markets and financing, (iv) accounting or auditing expertise for at least one Supervisory Board member, (v) experience of leading a medium-sized company. The individual qualifications of individual members may complement each other in achieving this objective.
- Independence and avoiding conflicts of interest are also important objectives: The Supervisory Board should include an adequate number of independent members. At least half of Supervisory Board members should be independent as defined by clause 5.4.2 of the German Corporate Governance Code as amended 7 February 2017. The Supervisory Board is in compliance with the recommendations of the German Corporate Governance Code with regard to conflicts of interest. The Supervisory Board should not include any members who perform an executive or advisory role with significant third-party competitors of the Company or Group. The Supervisory Board should not include more than two former Management Board members.
- Requirements for individual Supervisory Board members include: Only persons under 70 should be proposed for election to the Supervisory Board. Supervisory Board members should have business or operational experience. They should be able to assess the profitability, expediency and legality of the business decisions being evaluated as part of the Supervisory Board’s work as well as key accounting documents, with the support of the auditor where appropriate. They should be willing to get involved in the substance of the business to a reasonable extent. Each Supervisory Board member ensures that they can dedicate the expected time to properly exercising their Supervisory Board mandate.
- The Supervisory Board may also include members who are particularly qualified for international requirements. However, in view of DIC Asset AG’s focus on the German property market, the decision was made not to stipulate the aspect of internationality as an objective.
- Diversity should also be taken into account when searching for qualified individuals for the Supervisory Board. There should also be an appreciation of how different complementary professional profiles, work and life experiences and balanced gender representation can benefit the work of the Supervisory Board. The Supervisory Board stipulated targets for the share of women on the Supervisory Board and a deadline for their achievement in accordance with section 111 (5) AktG as outlined below.
The aforementioned targets should benefit the work of the Supervisory Board overall. The targets for the composition of the Supervisory Board are taken into account in the Supervisory Board’s proposals for the election of Supervisory Board members submitted to the General Shareholders’ Meeting. When preparing and approving candidate proposals to the General Shareholders’ Meeting for the appointment of Supervisory Board members, the Supervisory Board should be guided by the best interests of the Company in each case, observe legal requirements and focus on the professional and personal qualifications of the candidate.
The Supervisory Board believes that with the exception of the target for the share of women on the Supervisory Board the current composition of the Supervisory Board complies with the objectives set. All of the members of the Supervisory Board are familiar with the property sector relevant for the Company’s activities, with at least one Supervisory Board member having accounting or auditing expertise. The Supervisory Board has an adequate number of independent members. In the opinion of the Supervisory Board, at least four Supervisory Board members are independent as defined in clause 5.4.2 of the German Corporate Governance Code as amended on 7 February 2017: Prof. Dr. Ulrich Reuter as Chairman of the Audit Committee, Dr. Anton Wiegers, Eberhard Vetter and René Zahnd.
Stipulations of targets for the share of women on the Supervisory Board, on the Management Board and at the executive level below the Management Board
As a listed company not subject to co-determination, DIC Asset AG is required by law to stipulated targets for the share of women on the Supervisory Board, on the Management Board and at the two executive levels below the Management Board, to the extent that these exist.
With effect from 1 July 2017, the Supervisory Board adopted targets of 1/6 (corresponding to around 16.66 %) for the share of women on the Supervisory Board and 25 % (1/4) for the share of women on the Management Board. A deadline of 30 June 2022 has been set for achieving these targets. With a ratio of 1/2 (50%), the target for the Management Board is currently exceeded. The target for the share of women on the Supervisory Board is currently not achieved with a ratio of 0%. When proposing to the General Shareholders’ Meeting to elect member of the Supervisory Board, the Supervisory Board takes into account the objectives set by the Supervisory Board for its composition and the skills profile for the Supervisory Board as a whole, while focusing on the professional and personal qualification of the candidate.
With effect from 1 July 2017, the Management Board adopted a target of 15.38 % (2/13) for the share of women at the executive level below the Management Board and a deadline for achieving this target of 30 June 2022. As of the reporting date, this target has been missed with a ratio of 14.28% (2/14). This shortfall is due to the expansion of the management level below the Management Board as a result of the GEG acquisition in June 2019.
Disclosure of conflicts of interest
Each member of the Management Board and Supervisory Board discloses potential conflicts of interest in compliance with the German Corporate Governance Code. No conflicts of interest arose in financial year 2019. Board disclosed to the Supervisory Board in the 2019 financial year and their treatment are described in the Supervisory Board report.
Establishment of the Audit Committee
The Supervisory Board established an Audit Committee, which supports the Board in the performance of its duties and regularly reports to it. The Audit Committee primarily monitors the financial reporting process, the effectiveness of the internal control system, the risk management system, Group-wide compliance and, finally, the audit of financial statements. It assesses and monitors the independence of the auditors (also taking into account the additional services provided by the auditors) and the quality of the audit, and determines the areas of emphasis of the audit in consultation with the auditors. The Audit Committee mainly meets as needed.
The Audit Committee has the following three members:
- Prof. Dr. Ulrich Reuter (Chairman of the Audit Committee)
- Prof. Dr. Gerhard Schmidt
- Dr. Anton Wiegers
The Chairman of the Audit Committee is independent and has particular knowledge and experience in financial reporting and the auditing of financial statements. All of the members of the Audit Committee are familiar with the property sector.
A Directors & Officers (D&O) insurance policy is in place for members of the Management Board and the Supervisory Board. It provides insurance for claims for damages by the Company, shareholders or third parties, which may be asserted due to Board members’ failure to exercise due care. DIC Asset AG bears the costs of the insurance policy. The members of the Management Board have to pay a deductible in the event of a claim.
DIC Asset AG
Remuneration system for the Management Board
The Supervisory Board sets the total remuneration of individual members of the Management Board, and adopts and regularly reviews the remuneration system for the Management Board.
Total remuneration adequately reflects the tasks of each member of the Management Board, their personal performance, the economic situation, the success and future prospects of DIC Asset AG, and it is also appropriate when measured against its peer group and the Company’s overall remuneration structure. The remuneration structure establishes long-term behavioural incentives particularly through share-based payments and is generally focused on ensuring long-term and sustainable business growth. At the same time, remuneration is focused in such a way that it is competitive.
Components of the remuneration of the Management Board
The remuneration of the Management Board comprises three components: (i) a fixed remuneration and fringe benefits, (ii) a variable remuneration that is contingent on the achievement of specific targets (short-term performance-related component) and (iii) share-based payment (long-term incentive component)
(i) Fixed remuneration and fringe benefits
The fixed remuneration is paid in equal monthly instalments. The fringe benefits consist of the provision of a company car, a mobile telephone and capped insurance subsidies, particularly for accident, medical and pension insurance or some other private form of pension provision.
(ii) Variable, performance-related remuneration
The Management Board’s variable, performance-related remuneration (bonus) is based on the operating result of the DIC Asset Group and therefore take account of both positive and negative developments.
Members of the Management Board are granted a bonus only if the DIC Asset Group reports an operating profit. The amount of the bonus is based on the extent to which corporate and personal targets were achieved. Corporate and personal targets are each given a 50 % weighting by the Supervisory Board when setting the bonus. No bonus cap has been specified in the director’s contracts. The Supervisory Board decides on the bonus once a year by 31 May of the following year. The bonus is paid on the last bank working day of the month in which the Supervisory Board makes its decision on the bonus.
(iii) Share-based payment as a long-term incentive
In addition, members of the Management Board hold options on phantom stocks in DIC Asset AG, which also take account of both positive and negative developments. The number of options granted is specified in individual contracts and capped. The options are designed such that they only grant the right to cash payment. The exercise of the options is linked to a specific number service years (vesting period). The duration of the vesting period is regulated by contract (see table “Phantom stock options”). When the options are exercised, the special remuneration is determined as the positive difference between the average of the closing prices during a reference period of ten trading days preceding the exercise of the options and the contractually agreed exercise price of EUR 5.88 per phantom stock. The members of the Management Board may therefore benefit from the shares’ upside potential during the reference period. No cap has been set on the participation in the upside potential at the time the option is exercised. The fair value of the options on 31 December 2019 was EUR 792 thousand.
Activities carried out by the members of the Management Board in executive management and/or supervisory functions for DIC Asset AG’s subsidiaries or investees are covered by the Management Board remuneration paid for DIC Asset AG.
Regulations regarding the termination of director’s contracts
The director’s contracts of the Management Board members do not expressly provide for severance pay. In deviation from clause 4.2.3 of the German Corporate Governance Code as amended on 7 February 2017, it has not been agreed that payments made to Management Board members on premature termination of their director’s contract including fringe benefits do not exceed the equivalent of two years’ remuneration (severance pay cap) and compensate no more than the remaining term of the director’s contract.
If a Management Board member dies during the term of their director’s contract, the fixed annual salary and the variable remuneration are to be paid pro rata temporis to their surviving dependants for a period of six months after the end of the month in which the Management Board member died. If a Management Board member becomes permanently incapable of working during the term of their director’s contract, the contract will end three months after the end of the half-year in which the member’s permanent incapacity was established. In the event of illness, the benefits will be paid for a term of six months, but no longer than until the director’s contract ends.
Management Board members have not been promised a post retirement employee benefit.
Benefits paid to former Management Boardmembers in financial year 2019
Mr Dirk Hasselbring, who left the Management Board effective 31 August 2019, did not receive any further remuneration in financial year 2019 in addition to the above remuneration for his service on the Management Board until 31 August 2019. An additional provision of EUR 152,400.00 was recognised as at 31 December 2019 for the remaining share-price related remuneration. On 1 September 2019, Dirk Hasselbring moved to the Man-agement Board of DIC Asset subsidiary GEG German Estate Group AG, where he is responsible for institutional business.
Mr Karaduman (CEO until 30 September 2017) exercised his 75,000 share options at the beginning of the year and received a total of EUR 314,025.00 in return, of which EUR 240,000.00 had already been accounted for by way of a provision as at 31 December 2018.
Remuneration of Supervisory Board members
Supervisory Board remuneration is based on article 10 of the Articles of Association of DIC Asset AG.
Components of the Supervisory Board remuneration
Supervisory Board remuneration is based on article 10 of the Articles of Association of DIC Asset AG. Accordingly, each member receives appropriate remuneration for their work that is composed of fixed remuneration and variable performance-related remuneration. The members of the Supervisory Board receive fixed remuneration of EUR 25,000.00 for each full financial year of membership of the Supervisory Board. Such remuneration shall be payable after the end of the financial year and shall be posted as an expense. Each member also receives EUR 2,500.00 annually for each percentage of the dividend over the rate of ten percent, calculated on the amount of the share capital that is distributed, but no more than EUR 25,000.00. The Chairman is paid twice the fixed and variable remuneration, and the Vice Chairman is paid one-and-a-half times the fixed and variable remuneration.
Supervisory Board members who are members of a Supervisory Board committee that has met at least once during the financial year receive an annual remuneration of EUR 5,000.00 per committee for each full financial year of their membership of this committee, but no more than EUR 10,000.00 in total. The Chairman of a Supervisory Board committee receives double this amount of additional remuneration.
In addition to the remuneration, each member of the Supervisory Board receives reimbursement of their expenses, including value added tax.
The total remuneration of the Supervisory Board members amounted to EUR 394 thousand in 2019. Supervisory Board members were also reimbursed travel expenses totalling EUR 1 thousand. A total of EUR 190 thousand (previous year: EUR 388 thousand) in remuneration for services purchased was paid to the law firm of Weil, Gotshal & Manges LLP, of which the Chairman of the Supervisory Board, Prof. Dr. Gerhard Schmidt, is a partner. The Supervisory Board had approved of this retention in July 2019, with the Chairman of the Supervisory Board abstaining from the vote. The fees paid for services in financial year 2019 concerned project-related legal consulting services on specific issues of company law.