Corporate Governance

The corporate governance of Salzgitter AG (SZAG) is geared to ensuring the sustainable development and long-term success of the company in harmony with the principles of a social market economy and in observance of its corporate responsibility for people and the environment. This is based on the provisions set out under German stock corporation law and the recommendations laid down in German Corporate Governance Code (http://www.dcgk.de/en/home.html). It is therefore both intrinsically important to us and our obligation to ensure that the prevailing laws are complied with at all times, that generally accepted basic values in dealing with people and companies are observed, and that nature is preserved in conducting the company’s business.

The Executive Board and Supervisory Board submitted the following declaration in respect of the recommendations of the German Corporate Governance Code, pursuant to Section 161 of the German Stock Corporation Act (AktG):

“In 2021, Salzgitter AG conformed – and currently continues to conform – to all of the recommendations of the Government Commission on the German Corporate Governance Code published by the Federal Ministry of Justice and for Consumer Protection in the official section of the Federal Gazette, with the exception of the recommendation B.3 stipulating that an executive board member should be initially appointed for a maximum period of three years, recommendation G.10 sentence 1 stipulating that variable remuneration amounts should mainly be granted in shares of the company or based on shares, as well as G.13 stipulating that, if executive board activity is prematurely terminated, the amount of payment to an Executive Board member should not exceed two year’s remuneration.

In the case of a new successor joining the Executive Board from 2021, the member was initially appointed for three years and four and a half months to allow for a time lag between the time when the new Executive Board member is appointed and the time when the appointment of other Board members elapses.

The variable remuneration amounts granted to Executive Board members are 36 % based on shares. The Supervisory Board considers this proportion appropriate.

In accordance with their current employment contracts and under certain conditions, Executive Board members are entitled to a settlement of up to a maximum of three year’s remuneration if they leave the company’s service prematurely due to a change of control. This arrangement corresponded to the recommendations of the Code valid up until March 2020, but does not accord with the new version of the Code drawn up in 2020, however. In view of current employment contracts, the new version cannot or should not be complied with in the interest of equitable treatment of the Executive Board members.“

Beyond the statutory requirements placed on managing companies and the recommendations of the German Corporate Governance Code, we have developed a mission statement by the name of "YOUNITED" for our Group. In this process, employees from all Group companies across all hierarchical levels defined a shared system of values, among other things. This system includes values such as reliability, fairness and sustainability. You will find our mission statement on our website at https://www.salzgitter-ag.com/en/company/mission-statement-younited.html.

Moreover, the Executive Board has defined a set of clear rules regulating conduct for all the Group’s employees in the form of a Code of Conduct that they are to follow in carrying out their activities. This Code of Conduct also includes compliance with the law, commitment to fair competition and the rejection of corruption of any kind. In addition, these rules enable the trustful cooperation of the employees among themselves and honest dealings with one another and with business partners. The Code of Conduct can also be accessed on our website at https://www.salzgitter-ag.com/en/corporate-social-responsibility.html.

The shareholders principally exercise their rights at general meetings of shareholders. Each shareholder of SZAG is entitled to participate in the Annual General Meeting of Shareholders, which takes place at least once a year, to ask pertinent questions and submit relevant motions and to exercise their voting rights. Fundamental decisions affecting the company, such as changes to the Articles of Incorporation, the appropriation of annual profit, the election of shareholder representatives to the Supervisory Board, the raising or lowering of capital, or the selection of the annual independent auditor are reserved for the Annual General Meeting of Shareholders. It also decides on the remuneration of the Supervisory Board. We facilitate the process of shareholders exercising their voting rights without having to personally take part in the Annual General Meeting of Shareholders: They can appoint a proxy of the company and instruct this person on how they wish to exercise their voting rights.

At https://www.salzgitter-ag.com/en/investor-relations/shareholders-meeting.html, you will find the results of the 2021 Annual General Meeting of Shareholders.

The Executive Board manages the company under its own responsibility in accordance with the German Stock Corporation Act. It determines the strategic direction and the future development of the company together with the Supervisory Board. In carrying out these activities, the Executive Board is bound by the interests of the company. It strives to achieve the highest possible return on capital employed within the scope of the corporate purpose. The Supervisory Board has determined that certain business transactions may only be carried out with Supervisory Board approval.

The Executive Board currently comprises three members consisting of the Chief Executive Officer, the Chief Financial Officer and the Chief Personnel Officer. The Supervisory Board has assigned each Executive Board member a portfolio of responsibilities for specific organization units and has specified the decisions for which all Executive Board members are jointly responsible. The management of the four business units is the joint responsibility of all the members. A Group Management Board is at hand to assist them. Members of this board are the three Executive Board members and generally one manager from each of the four business units who coordinates the activities of his respective business unit (business unit manager).

The members of the Executive Board are liable to the company for any dereliction of duty. The company’s D&O insurance provides for an appropriate deductible that accords with statutory requirements.

The Executive Board members are appointed by the Supervisory Board for a maximum of five years. The Supervisory Board ensures long-term successor planning together with the Executive Board. As part of this process, the Supervisory Board discusses in good time before the expiration of a contract whether the incumbent should be offered a renewal of his/her employment contract. The Supervisory Board informs the Executive Board member accordingly of the result. In the event of replacement or recruiting a newly created Executive Board position, the Supervisory Board’s Presiding Committee approves a requirement profile and searches for suitable candidates, generally with the support of external consultants. Following a pre-selection process, the Presiding Committee then presents one or a selection of several candidates for appointment.

When appointing Executive Board members, the Supervisory Board takes account of the fact that the period of office of the person appointed does not exceed the age of 65. As part of the Board’s diversity concept, it also gives consideration to the following:

• that the member to be appointed possesses the personal competence, skills and expertise necessary for professionally and responsibly performing their tasks; this includes, on the one hand, the specific skills and knowledge for heading up the executive portfolio in question and, on the other, the necessary leadership skills for participating in the management of both company and Group by the entire Executive Board,
• that, along with their suitability in terms of personal competence, skills and expertise, consideration is also given to age as far as possible, on the one hand in order to permit service to the company for a number of years so as to promote continuity and sustainability in corporate management and, on the other, to have younger persons who are familiar with more recent specialist knowledge and management methods as well as older persons on the Executive Board who have greater professional, life and management experience represented on the Executive Board,
• that, in the case of equal suitability of personal competence, skills and expertise, as far as possible both male and female persons are represented on the Executive Board, with the Supervisory Board targeting a proportion of women of at least 30 % by June 30, 2025 in the event of any future opening for a successor,
• that, along with their suitability in terms of personal competence, skills and expertise, members of the Executive Board have as wide a range of educational backgrounds as possible, including technical, business, legal and other humanistic and scientific disciplines.

Along with suitability in terms of personal competence, skills and expertise for the individual Executive Board member portfolio, and while taking account of company-specific requirements, the concept applied to the composition of the Executive Board is aimed at contributing through the greatest possible diversity to a professional and responsible performing of the management duties of the entire Executive Board.

The Supervisory Board realizes the concept of diversity in the composition of the Executive Board by taking account within the greatest scope possible of the aspects of diversity under this concept when selecting members to be appointed to the Executive Board. The search for suitable persons is incumbent upon the Supervisory Board’s Presiding Committee that uses various tools to assist it in this task.

The diversity concept for the composition of the Executive Board is implemented to the highest degree possible.

The Executive Board holds regular meetings and telephone conferences for the purpose of discussion and decision-making. It has not currently formed any standing committees.

In its management and control of the subsidiaries and affiliates, the Executive Board deploys the following instruments, while also consulting with the Group Management Board:

• rules and regulations on reporting duties and approval requirements in corporate guidelines and the articles of association of Group companies pertaining to specific areas of business,
• defining of the Group’s management principles in the policy entitled “Management and Organization”,
• obligation of all Group companies to prepare annual shipment and sales budgets as well as investment, financial and personnel planning,
• the regular monitoring of progress made throughout the year in all Group companies; if necessary, the taking of appropriate measures,
• regular audits and special case-by-case audits performed by an internal audit department,
• operating of a groupwide monitoring system for the early detection of risks and a risk management system, and
• agreeing of the goals and deciding of a performance-oriented remuneration component for managers and senior executives of the Group companies.

The core tasks of the Supervisory Board are to advise and supervise the Executive Board in its management of the company. In accordance with the law, certain fundamental decisions may only be made with its approval. It has determined that, in addition, certain types of transactions require its approval. The members of the Supervisory Board are liable to the company for any dereliction of duty.

The Supervisory Board comprises 21 members, specifically ten shareholder and ten employee representatives plus one other member. This composition has been laid down under the provisions of the Co-Determination Amendment Act applicable to the company, in conjunction with Article 7 of the company’s Articles of Incorporation. In the proposals for election or, in the case of the judicial appointment of Supervisory Board members, the Supervisory Board ensures that the candidates have generally not reached the age of 70 at the start of their term of office and, in the case of judicial appointments, when they join the Supervisory Board. Once the mandate has been accepted, SZAG supports new members of the Supervisory Board by offering them an onboarding program that presents the Group and its business activities. In addition, each Supervisory Board member is provided with an extensive manual comprising information on the Group relevant to Supervisory Board activities. Furthermore, SZAG supports Supervisory Board members with measures for continuous professional development. The Supervisory Board regularly assesses how effectively it performs its tasks overall and the effectiveness of its committees. No self-assessment was carried out in the financial year 2021, but is planned again for the financial year 2022, an assessment having been conducted in the financial year 2020 on the basis of a questionnaire addressed to the Executive Board and Supervisory Board.

The shareholder representatives serving on the Supervisory Board consider at least six independent shareholder representatives on the Supervisory Board to be an appropriate number. In the opinion of the shareholder representatives, the following shareholder representatives can be considered independent within the meaning of the German Corporate Governance Code: Dr. Bernd Drouven, Roland Flach, Reinhold Hilbers, Prof. Dr. Susanne Knorre, Heinz Kreuzer, Klaus Papenburg, Prof. Dr. Joachim Schindler, Prof. Dr. Dr.-Ing. Birgit Spanner-Ulmer and Heinz-Gerhard Wente.

The shareholder representatives also consider Dr. Drouven to be independent. In the year of his appointment in 2018, Dr. Drouven was a member of the Supervisory Board of Aurubis AG in which the company holds a participating investment. He nevertheless withdrew from the Supervisory Board of Aurubis AG in the same year.

In December 2017, the Supervisory Board defined the objectives set out below as further important goals for its composition and competence profile: Along with all statutory requirements placed on the individual Supervisory Board members, they should possess the necessary expertise and personal competence anchored in expert knowledge, capabilities and experience, as well as in their personal suitability for assuming the tasks incumbent on them. As a whole, they must be familiar with the sectors of steel and mechanical/plant engineering. Among the members there should be persons with technical expertise, experience in managing companies and in developing corporate strategies, with knowledge of financial instruments and preferably international experience. At least one member must be specially qualified in accounting and the auditing of financial statements (in view of the meanwhile new legislation under Germany’s Financial Market Integrity Strengthening Act (FISG), at least one member must be specially qualified in accounting and one other member in the auditing of financial statements). Similarly, at least one member must have special knowledge and experience in applying accounting standards and in internal control procedures. With Supervisory Board proposals to be put to the 2018 Annual General Meeting of Shareholders and in 2021 for the by-election of Supervisory Board members, the objectives of the Supervisory Board for its composition and the competence profile that it has drawn up for the entire Board have been fulfilled; this also applies to the meanwhile more extensive legal requirements.

In selecting candidates for its proposals for the election of Supervisory Board members to be put forward to the Annual General Meeting of Shareholders, the Supervisory Board gives consideration to the following:

• that the personal competence, skills and expertise necessary for professionally and responsibly performing the duties of the Supervisory Board – essentially the appointing of Executive Board members, the supervising of the Executive Board’s management of the company, as well as the examination of the annual financial statements and management reports – are represented on the Board as a whole; this includes particularly technical expertise, experience in corporate management and the crafting of corporate strategies, knowledge of financial instruments and experience in international business with regard to the sectors in which the companies of the Salzgitter Group operate and also with respect to the management tasks of SZAG,
• along with suitability in terms of personal competence, expertise and skills, that younger persons exercising their professions as well as older persons more experienced in professional life and life in general are represented on the Supervisory Board,
• along with suitability in terms of personal competence, skills and expertise, that female and male persons are represented on the Supervisory Board, whereby the entire Supervisory Board must consist of at least 30 % women and at least 30 % men in accordance with legal requirements,
• along with suitability in terms of personal competence, expertise and skills, that such persons come as far as possible from the widest educational backgrounds – including technical, business, legal and other humanistic and scientific disciplines – with different professional backgrounds – including professionals from technical, business, scientific and legal professions.

In terms of the composition of the Supervisory Board, and while taking account of the company-specific requirements, the diversity concept is aimed at contributing to the professional and responsible performing of the duties of the entire Supervisory Board through the greatest possible diversity of the personal competences, skills and expertise represented on the Board, the educational and professional backgrounds, as well as different assessment aspects based on age and gender.

The Supervisory Board endeavors to implement the diversity concept applied to its composition by taking the aspects of this concept into account as far as possible in the election of Supervisory Board members, along with other aspects to be considered when selecting appropriate candidates for its proposals for the election of Supervisory Board members. The search for suitable candidates and their pre-selection are incumbent on the Supervisory Board’s Nomination Committee that uses various tools to assist it in this task. The ultimate decision on the composition of the Supervisory Board is the province of SZAG’s shareholders in the Annual General Meeting of Shareholders.

The diversity concept applied to the composition of the Supervisory Board is implemented to the greatest extent possible.

The Supervisory Board meets a minimum of four times a year, has the Executive Board report in detail, and discusses the development of business and the situation of the company with the Executive Board. It takes receipt of written reports submitted by the Executive Board at regular intervals on the course of business and the performance of the company.

The Supervisory Board deploys the following instruments in particular in performing its advisory and supervisory function:

• defining the allocation of duties at Executive Board level, with clear assignment of areas of competence,
• obligation of the Executive Board to submit regular, timely and comprehensive reports to the Supervisory Board,
• regular discussion of the planning, business development and the strategy with the Executive Board,
• determination of the type of transactions and measures of the Executive Board that necessitate Supervisory Board approval,
• obligation of the Executive Board to submit a longer-term corporate plan on an annual basis and to report on the execution of such a plan, and
• agreeing variable remuneration components for Executive Board members.

In order to prepare its meetings and decisions the Supervisory Board has currently formed four standing committees:

The Presiding Committee undertakes the preparatory work in connection with the appointing of Executive Board members and, in place of the Supervisory Board plenum, makes decisions on business measures requiring urgent approval. Members of the Presiding Committee in the financial year 2021, were as follows: Heinz-Gerhard Wente (Chairman), Hasan Cakir, Reinhold Hilbers and Dr. Hans-Jürgen Urban.

• The Audit Committee focuses on the following:
• accounting (preparatory examination of the separate financial statements and the consolidated financial statements, as well as the non-financial report, discussion of financial reports during the year with the Executive Board),
• monitoring of the accounting process, the effectiveness of the internal control system, the internal audit system and the risk management system,
• compliance with the provisions applicable to the company (corporate compliance), and
• the audit of the financial statements (recommendation to the Supervisory Board for the selection of the external auditor, assignment of the audit engagement and determination of key audit areas, monitoring the quality of the audit carried out on the financial statements and the independence of the external auditor, approval of additional services provided).

The Audit Committee comprised the following members: Prof. Dr. Joachim Schindler (Chairman and member with special expertise in the auditing of financial statements), Konrad Ackermann, Roland Flach (member with special expertise in accounting), Bernd Lauenroth (until June 30, 2021) and Manuel Bloemers (as from September 9, 2021).

The Strategy Committee consults in depth with the Executive Board on the corporate strategy whenever necessary. The Strategy Committee consisted of the following members: Heinz-Gerhard Wente (Chairman), Konrad Ackermann, Hasan Cakir, Dr. Bernd Drouven, Reinhold Hilbers, Bernd Lauenroth (until June 30, 2021), Prof. Dr. Dr.-Ing. Birgit Spanner-Ulmer, Dr. Hans-Jürgen Urban and Manuel Bloemers (as from September 9, 2021).

The Nomination Committee, which is exclusively comprised of representatives of the shareholders, proposes suitable candidates to the Supervisory Board that, in turn, presents its proposals to the Annual General Meeting of Shareholders for the election of shareholder representatives to the Supervisory Board. The Nomination Committee was formed by the shareholder representatives Reinhold Hilbers and Heinz-Gerhard Wente.

The remuneration report on the financial year now ended and the auditor’s report pursuant to Section 162 AktG, the current remuneration system pursuant to Section 87a para. 1 and 2 sentence 1 AktG, and the resolution on remuneration passed by the Annual General Meeting of Shareholders on July 8, 2020 pursuant to Section 113 (3) AktG have been made available at https://www.salzgitter-ag.com/en/investor-relations/news-and-publications/reports.html.

The Executive Board is responsible for compliance with the relevant statutory requirements and company guidelines and acts, among other things, by deploying the following measures and through their observance by the Group companies (Compliance Management System):

• publication of a code of conduct binding on all employees in which the Executive Board explicitly declares its commitment to observe all laws at all times and in all places,
• issuance of a corporate guideline on “Corporate Compliance” that lays down the responsibilities and organizational duties, as well as providing all Group companies and their employees with detailed descriptions and instructions in the form of guidelines on conduct that complies with the law and the fulfilling of their compliance duties in particularly sensitive areas of the law, for instance, guidelines on the avoidance of corruption, correct behavior in competition and information on insider law,
• granting employees the option of providing confidential information on infringements of the law within the company,
• setting up a Compliance Committee as a platform for the exchange on and the discussion of topical compliance issues and for arriving at a common consensus and decisions, for instance on changes to the compliance structure or the implementation of special compliance measures,
• setting up a compliance management organization unit with a compliance officer,
• carrying out of regular compliance training in order to raise the awareness of managers and employees regarding the observance of standards, to identify potential hazards and to recommend suitable courses of action, and
• regular analysis of the compliance risks within the Group.

In 2017, the Executive Board defined a target of 13 % for the proportion of women in the first management level under the Board and 20 % for women at the second management level under the Board. These quotas are to have been achieved by June 30, 2022.

In 2020, the Supervisory Board decided, in the event of an Executive Board member having to be replaced by June 30, 2025, to strive for a target of 30 % in respect of the proportion of women represented on the Executive Board that currently consists of three male persons.

The statutory minimum requirement in respect of men and women on the Supervisory Board was adhered to during the financial year.

SZAG publishes an annual report once a year and provides a summary of the development of business on a quarterly basis as the year progresses. This ensures that our shareholders are kept informed about the situation of the company in a timely manner. The dates of publication are announced in the financial calendar sufficiently in advance for the coming financial year and posted on the company’s website at: https://www.salzgitter-ag.com/en/investor-relations/service/financial-calendar.html. Furthermore, the Executive Board explains the results of each financial year elapsed at an annual results press conference, reported on by the media, that takes place directly after the meeting of the Supervisory Board when the financial statements are adopted.

In addition to this, we organize regular analysts’ conferences for analysts and institutional investors in Frankfurt am Main and London. These events were principally held in virtual form in 2021 due to the coronavirus. Finally, the Executive Board reports to the general public on significant events by way of press releases and ad-hoc announcements. All reports and statements are available on the company’s website at https://www.salzgitter-ag.com/en/index.html in both German and English.

The Declaration of Corporate Governance is accessible on the Internet at www.salzgitter-ag.com/en/investor-relations/corporate-governance/.

Salzgitter, March 15, 2022