Corporate Governance Statement

2021

Principles of good corporate governance firmly anchored

Responsible and transparent corporate governance oriented to long-term value creation has high priority at Koenig & Bauer. We are convinced that good corporate governance forms an essential basis for sustainable business success and strengthens the trust of our shareholders, business partners, employees and the financial markets in our Company. We regard integrity and compliance as indispensable in business transactions and pursue a zero-tolerance policy.

Corporate governance report

Declaration of compliance in accordance with section 161 of the German Stock Corporation Act

The Management Board and the Supervisory Board of Koenig & Bauer AG issued the following declaration of compliance on 19 March 2021 on the basis of the current version of the German Corporate Governance Code dated 16 December 2019.

Koenig & Bauer AG will comply with all recommendations of the German Corporate Governance Code in the version dated 16 December 2019 in the future. However, the Supervisory Board reserves the right to deviate from recommendation G.9 of the Code once in 2021, as explained in greater detail in section 1. Koenig & Bauer AG has complied with the Code recommendations since the last Declaration of Conformity dated 20 March 2020, subject to the exceptions listed in sections 2 to 5. The Company will no longer be applying the exceptions described in sections 2 to 5.

All exceptions relate to the change of the remuneration system for the members of the Management Board. In 2020, the Supervisory Board dealt in detail with the revision of the remuneration system for the members of the Management Board to incorporate recent legal developments and the new version of the Code. The material recommendations contained in the new Code concerning the remuneration of the Management Board were fully implemented in 2020. The deviations from the Code recommendations relate, on the one hand, to the fact that the remuneration of the Management Board was converted in steps (see section 1) and, on the other hand, to the fact that the internal procedures have not yet been fully adapted to reflect the Code recommendations. In the interests of the greatest possible transparency, the deviations are disclosed and explained solely as a precautionary measure.

1. Recommendation G.9: After the end of every financial year, the Supervisory Board shall establish the amount of individual variable remuneration to be granted, depending on target achievement.

Under the new remuneration system for the members of the Management Board, 50 percent of the annual bonus is tied to the Group’s performance and 50 percent to the achievement of individual targets defined for the individual member of the Management Board in the performance of their responsibilities (including any additional tasks assumed).

Following the conversion of the remuneration programme, individual targets aligned with the preparation and implementation of the “Performance 24x” efficiency programme have been defined for three members of the Management Board. The service contracts of two members of the Management Board were not converted until the beginning of 2021. Although it is the shared understanding of the Management Board and the Supervisory Board that the successes in implementing the “Performance 24x” efficiency programme are equally attributable to all members of the Management Board, the individual targets for the two members have not been formally adjusted. The Supervisory Board reserves the right to compensate for the affects arising from this unequal treatment as there is no justification for any differences in the treatment of the members of the Management Board and it is based solely on the timing of the implementation of the new remuneration system for members of the Management Board. 

2. Recommendation G.2: The Supervisory Board shall set the specific target total remuneration for each Management Board member on the basis of the remuneration system. 

The remuneration system to be submitted to the Annual General Meeting on 11 May 2021 for approval will not be formally adopted by the Supervisory Board until its meeting on 22 March 2021. When it revised the service contracts of the members of the Management Board, the Supervisory Board implemented the new remuneration system in the same way for all members of the Management Board. The agreements on the remuneration of the Management Board, including their  specific target total remuneration, are therefore not formally based on the new Management Board remuneration system, but do incorporate elements of the new system, on which the Supervisory Board will be formally passing a resolution at its meeting on 22 March 2021.

3. Recommendation G.3 (horizontal comparison): In order to assess whether the specific total remuneration of Management Board members is in line with usual levels compared to other enterprises, the Supervisory Board shall determine an appropriate peer group of other third-party entities, and shall disclose the composition of that group.

The Supervisory Board considers the MDAX and SDAX companies to be the peer group. In this connection, the Supervisory Board used published remuneration studies to gain an understanding of the development of the Management Board remuneration at companies listed in the M-DAX and S-DAX indices. However, it has not adopted a formalised procedure for a horizontal comparison. The Supervisory Board believes that the Management Board remuneration systems of listed companies are generally only comparable to a limited extent due to their individual structure and the differences in the development of the potential peer group.      

In the future, the Supervisory Board will continue to define companies listed in the MDAX and SDAX as a peer group for the assessment of horizontal appropriateness, as described in the remuneration system for the members of the Management Board to be submitted to the Annual General Meeting for approval. In doing so, the Supervisory Board will either be guided by remuneration studies published by renowned institutions or a peer group composed of the MDAX or SDAX companies identified by the Supervisory Board, or ask an independent remuneration consultant to assess the remuneration system by reference to a peer group assembled in consultation with the Supervisory Board. In selecting the peer group, the Supervisory Board will consider Koenig & Bauer AG’s market position and key figures such as revenue, employee numbers and market capitalisation as part of a plausibility check. The Supervisory Board is currently considering whether to formalise the horizontal comparison to a greater extent in the future. To this end, it also wants to observe how other MDAX or SDAX companies perform a horizontal comparison.

4. Recommendation G.4 (Vertical comparison): To ascertain whether remuneration is in line with usual levels within the enterprise itself, the Supervisory Board shall take into account the relationship between Management Board remuneration and the remuneration of senior managers and the workforce as a whole, and how remuneration has developed over time.

To achieve a vertical comparison, the Supervisory Board will assess the development of the Management Board remuneration in relation to the remuneration of senior management and the workforce in Germany in the future. Senior management includes all executives who report directly to members of Koenig & Bauer AG’s Management Board. The workforce is made up of employees subject to collective bargaining agreements as well as non-tariff employees of Koenig & Bauer AG. The Supervisory Board reserves the right to apply a Group-wide comparative view instead of one based on Koenig & Bauer AG. In the past, the Supervisory Board followed the same considerations in principle without, however, having specified a formalised procedure for this. In view of the new statutory reporting requirements under section 162 of the German Stock Corporation Act, the Supervisory Board will be providing a comparative presentation of annual changes in remuneration, the Company’s earnings performance and the average remuneration of employees considered over the last five years on a full-time equivalent basis, including an explanation of which group of employees was included.

5. Recommendation G.7: Referring to the forthcoming financial year, the Supervisory Board shall establish performance criteria for each Management Board member covering all variable remuneration components.

The Supervisory Board will be proceeding in the same manner for 2021. The target agreements with the members of the Management Board will be finalised by mid-April 2021. From 2022 onwards, the target agreements will be set before the beginning of the year in accordance with Code recommendation G.7.

This declaration as well as the ones for earlier years are available publicly at the Company’s website at http://www.koenig-bauer.com/investor-relations/corporate-governance/entsprechenserklaerung/ The recommendations of the German Corporate Governance Code are being implemented.

Composition of the Supervisory Board

In accordance with the recommendations of the Code, the Supervisory Board has defined specific objectives for its composition. A limit on the length of service on the Supervisory Board is not in the Company’s interests as a rigid rule would fail to take account of the members’ individual expertise and qualifications. In addition to international management experience and strategic competence, the Supervisory Board considers it necessary for its members to possess expertise in the following areas in order to properly perform its tasks in accordance with the law, the Articles of Association and the rules of procedure: finance/accounting/auditing, purchasing/manufacturing/assembly, markets/products/communication, legal/corporate governance/compliance, IT systems/digitalisation and sustainability. On the basis of the profile of skills devised for it, the Supervisory Board generally possesses the necessary knowledge, capabilities and experience for the due and proper performance of its duties. Diversity has also been duly included as a further criterion. As separate fulfilment by the shareholder and employee representatives has been agreed upon, the gender representation required under the Act on the Equal Participation of Women and Men in Executive Positions in Private and Public Sector has been duly achieved. Moreover, with the inclusion of Carsten Dentler, Prof Dr.-Ing. Raimund Klinkner, Prof Dr.-Ing. Gisela Lanza, Dr Johannes Liechtenstein and Ms Dagmar Rehm on the Supervisory Board, it believes that it has a reasonable number of independent shareholder representatives. Mr Matthias Hatschek has been a member of the Supervisory Board as a shareholder representative for more than 14 years. He is a minority shareholder of MKB Holding GmbH, which owns AlternInvest GmbH, Vienna, Austria. AlternInvest GmbH holds a significant 10.2% share of Koenig & Bauer AG’s share capital. With Ms Rehm and Dr Liechtenstein, the Supervisory Board holds extensive knowledge in the areas of accounting, auditing and internal control systems. Furthermore, the Supervisory Board’s rules of procedure have been published on the Company’s website. These rules of procedures set an age limit for the Supervisory Board. Only persons who have not yet reached the age of 67 at the time they are elected may be nominated for election to the Supervisory Board. The D&O insurance taken out for the members of the Supervisory Board is subject to a deductible of €2,500. There were no conflicts of interest on the part of the members of the Supervisory Board and the Management Board in the year under review. The members of the Management Board and Supervisory Board are under a duty to disclose to the Supervisory Board any conflicts of interest arising from material transactions or contracts with the Company without undue delay.

The Supervisory Board will be including diversity in terms of age, gender, educational or professional background and international profile as a criterion for future Management Board appointments. The Supervisory Board and the Management Board respect the objectives pursued with the introduction of a gender representation quota and attach importance to the equal treatment of and equal opportunities for women and men. In accordance with the Act on the Equal Participation of Women and Men in Executive Positions in Private and Public Sector, the Management Board and the Supervisory Board have defined targets for gender representation quotas. The Supervisory Board’s gender quota for female representation on the Management Board remains at 0%. The 17% proportion of women at the first management level beneath the Management Board and 7% at the second management level beneath the Management Board is to be retained until at least 31 December 2022 in accordance with a resolution of the Management Board. In cases in which female and male candidates have comparable qualifications, the proportion of women is to be increased as far as possible when new appointments are made.

Koenig & Bauer attaches particular importance to the diversity of its workforce in terms of ethnicity, age and religion (world view). People with mobile disabilities also have a place in the regular workforce. As with many other mechanical engineering companies, Koenig & Bauer has a relatively small proportion of women of 13.8% (previous year: 14.1%) in the Group compared with other sectors. Various activities are being initiated to widen the proportion of female employees. Together with a greater number of highly qualified female employees, the proportion of women in management positions is to be increased by means of internal promotions as well as external appointments. As of the beginning of 2021, the proportion of women stood at 25.0% at the first management level and at 12.5% at the second management level below the Management Board at Koenig & Bauer AG. At the end of 2020, female representation stood at 14.3% and 6.7%, respectively. The Management Board’s diversity management policy also includes approaching specialists and managers in international labour markets via our production, service and sales companies outside Germany, whose potential for expansion is regularly reviewed.

Corporate governance practices further optimised

Beyond the legal requirements, Koenig & Bauer is adopting further leadership rules and corporate practices as a better basis for decisions and monitoring them efficiently. The comprehensive planning, management and control system is described in detail in the Company’s combined management report.

Compliance management system meets high standards

The Group-wide compliance management system is subject to a continuous review and development process. Based on a regular update of the risk situation as well as feedback and questions from the departments, the system has been further refined, structured more effectively and placed on a sustainable footing. Regular sharing with employees and managers together with management’s strong commitment to compliance (“tone from the top”) has additionally strengthened the compliance culture in our Group. The corporate compliance manual issued across the entire Group combines our business code of conduct, compliance rules and the main Group policies in a single document. The manual is currently available in nine languages and has been distributed to all employees around the world by managers and the compliance officers. Supplemented with additional Group policies, the compliance rules ensure correct conduct in a wide range of different day-to-day situations. Guidelines, work instructions and processes are prepared as required and facilitate the application of the compliance requirements in day-to-day work.

At the same time, training and internal communications on the Group-wide Intranet promote broad-based awareness of compliance matters and encourage consistent observance of the applicable rules. The introduction of the Koenig & Bauer Campus training management system based on SuccessFactors at the largest group companies followed by successive implementation at all subsidiaries ensures efficient and effective control of internally developed and externally purchased learning content based on employees’ areas of activity.. In addition, the software solution facilitates reporting according to defined compliance performance indicators (KPIs).Koenig & Bauer Campus currently reaches around 3,100 employees. The training courses are made available to local branches that are not connected to the Campus via the Koenig & Bauer intranet. Due to the Covid-19 pandemic, only a small number of face-to-face training sessions were held in 2020. However, relevant and updated compliance information was communicated via the Intranet, the compliance officers at the subsidiaries or individual messages.

The compliance management system reports to the Chief Executive Officer and is managed and implemented throughout the Group by the Group Compliance Officer. All Koenig & Bauer AG subsidiaries have designated contact persons to answer questions that employees may have on compliance or to communicate compliance-related matters. Compliance officers have been appointed at the segment level and compliance operatives named at the individual companies. In addition, managers with special responsibility for relevant topics, such as health and safety and environmental protection are appointed, managing their areas of responsibility independently and competently on the basis of their specific expertise. Beyond their duties in implementing and monitoring standards, processes and reporting at the subsidiaries, the local compliance officers and operatives have a special function as a direct contact and advisor for local employees for compliance-related matters. We have also set up a central export control unit at Koenig & Bauer AG. A Group-wide whistleblower system has been established as a channel for gaining swift and direct information on possible breaches of the law, regulations and internal rules, allowing employees to report any suspicious activities anonymously and in confidence. However, employees can still turn to the trusted internal third parties known to them at their companies, the central compliance organisation or management at any level.

In addition to permanently improving our compliance management system, we are committed to advancing our international compliance culture and, in particular, to combating corruption and other unfair business practices worldwide. With the KBA-NotaSys Integrity Fund, which was launched in 2017, Koenig & Bauer finances international projects to enhance compliance processes and culture. To date, 20 projects initiated by universities, associations and institutes have been funded. The project initiators include Transparency International, the German Institute for Compliance (DICO), the German Institute for Efficiency Testing (DIEP) and various Swiss and German universities. Of particular importance is the support we provide as a member of the Banknote Ethics Initiative (BnEI). Since its foundation in 2013, BnEI has established a strict code to prevent and combat corruption and anti-trust violations in the field of banknote printing and trading. The principles developed are not only recognised among the members of the BnEI but also adopted by a significant proportion of central banks and banknote printers worldwide and form part of their procurement processes. As a member of the BnEI, Koenig & Bauer Banknote Solutions has agreed to be bound by strict rules of conduct and transparency, compliance with which is verified as part of regular recertification based on an audit programme developed by the BnEI. This accreditation was successfully renewed in 2020.

Close cooperation between the Management Board and the Supervisory Board

As a German joint-stock company Koenig & Bauer AG has a two-tier management and control structure, exercised by the members of the Management Board and the Supervisory Board. The Management Board and Supervisory Board work together closely and responsibly in the best interests of the Company. The common goal is to ensure the Company’s continued viability and to achieve growth in its enterprise value.

There were a number of changes in the composition of Koenig & Bauer AG’s Management Board in 2020. Effective 30 April 2020, Dr Mathias Dähn (Chief Financial Officer) left the Company in mutual agreement with the Supervisory Board. Koenig & Bauer AG’s Supervisory Board appointed Dr Stephen M. Kimmich as Chief Financial Officer with effect from 15 April 2020. Also with effect from 15 April, Michael Ulverich was appointed Chief Operation Officer with responsibility for the newly established Management Board segment Production, Purchasing & Logistics. In order to further accelerate the digitalisation initiative already initiated, the Supervisory Board also assigned Ralf Sammeck, the member of the Management Board responsible for Sheetfed, with responsibility for the Group-wide coordination of the digital transformation as Chief Digital Officer in addition to his previous duties. On 25 June 2020, the Supervisory Board of Koenig & Bauer AG appointed Dr Andreas Pleßke, the Management Board member responsible for the Special segment, to the position of Chief Executive Officer with effect from 1 January 2021 until the end of 2025. Dr Andreas Pleßke takes over Claus Bolza-Schünemann, who left the Management Board on 31 December 2020 after 28 years of service – nine of them as Chief Executive Officer – upon reaching the specified age limit.

As of 1 January 2021, Koenig & Bauer AG’s Management Board consists of five members: Dr Andreas Pleßke (Chief Executive Officer and responsible for Special segment), Dr Stephen M. Kimmich (Chief Financial Officer), Christoph Müller (responsible for Digital & Webfed segment), Ralf Sammeck (responsible for the Sheetfed segment and Chief Digital Officer) and Michael Ulverich (Chief Operation Officer – Production, Purchasing & Logistics). The business distribution plan and the allocation of the Management Board responsibilities and segments as well as functional responsibilities is presented in the combined management report on page 59.

As the Company’s governance body, the Management Board manages the Company’s business and determines and implements its strategy in consultation with the Supervisory Board. In its work, it is committed to pursuing the Company’s best interests and the principles of its business policy. The rules of procedure govern the adoption of resolutions. They also define such matters as acquisitions, investments and capital measures for which the Management Board requires the approval of the Supervisory Board. The Management Board informs the Supervisory Board regularly, promptly and comprehensively of all issues relevant to the Company, such as planning, strategy implementation, current business performance and the financial, earnings and risk situation. Any deviations are explained in detail. Reporting by the Management Board also includes matters relating to compliance, i.e. the measures taken to comply with legal requirements, official regulations and internal guidelines.

Koenig & Bauer AG’s Supervisory Board advises and monitors the Management Board. Under the German Stock Corporation Act (AktG), the Supervisory Board is responsible for appointing or dismissing the members of the Management Board, monitoring and advising the Management Board, adopting the annual financial statements, approving the consolidated financial statements and approving or advising on important aspects of corporate planning and decisions. In accordance with the German Co-Determination Act (Mitbestimmungsgesetz), the twelve-member Supervisory Board is composed of six shareholder representatives and six employee representatives. The shareholder representatives are elected by the shareholders at the Annual General Meeting and the employee representatives by the employees at the German sites. In the event of a tied vote on the Supervisory Board, the Chairman has the casting vote. The Supervisory Board may also adopt resolutions in circulatory procedures. The rules of procedure govern the work of the Supervisory Board and its committees. It is available on the Company’s website at https://www.koenig-bauer.com/de/investor-relations/corporate-governance/geschaeftsordnung-aufsichtsrat/ published.

Koenig & Bauer currently has five committees: the Personnel, Audit, Strategy, Nominating and Mediation Committees. The names of the respective committee members and the committee chairpersons are summarised below:

Personnel Committee
Prof. Dr.-Ing. Raimund Klinkner (Chair)
Dagmar Rehm
Gottfried Weippert

Audit Committee
Dagmar Rehm (Chair)
Marc Dotterweich
Dr. Johannes Liechtenstein
Gottfried Weippert

Strategy Committee
Prof. Dr.-Ing. Gisela Lanza (Chair)
Carsten Dentler
Matthias Hatschek
Christopher Kessler
Prof. Dr.-Ing. Raimund Klinkner
Walther Mann
Gottfried Weippert

Nominating Committee
Prof. Dr.-Ing. Raimund Klinkner (Chair)
Matthias Hatschek
Dagmar Rehm

Mediation Committee pursuant to section 27 (3) of the Co-Determination Act
Prof. Dr.-Ing. Raimund Klinkner (Chair)
Matthias Hatschek
Christopher Kessler
Gottfried Weippert

The main purpose of the Committees is to prepare the topics to be discussed by the Supervisory Board in its entirety and the corresponding draft resolutions. The Supervisory Board continuously monitors the Management Board in its management of the Company’s business and advises it on basic questions of business policy, strategic orientation and significant projects. The Supervisory Board performs an annual internal self-assessment, which is prepared and updated with external assistance. The results are discussed on the Supervisory Board and improvements implemented promptly.

In a business environment dominated by the Covid-19 pandemic, the Supervisory Board’s activities in 2020 focused in particular on stabilising and improving the Group’s operating earnings and financial strength and dealing with Management Board matters, strategic issues and, above all, the Management Board’s response to the coronavirus crisis. To ensure that the Supervisory Board was able to keep abreast without any delay of the progress of the measures adopted in response to the coronavirus crisis, a separate Supervisory Board committee was set up, consisting of Ms Dagmar Rehm, Mr Matthias Hatschek, Prof. Dr.-Ing. Raimund Klinkner and Mr Gottfried Weippert.

Another major topic in 2020 concerned the composition of and successor arrangements for the Management Board. Together with the Management Board, the Supervisory Board laid the foundations for long-term succession planning. The personnel development program established at Koenig & Bauer is a modular system for the Group-wide advancement of employees that defines target-oriented methods for the various hierarchical levels. All personnel development initiatives have an international focus and incorporate all Group companies as well as the global sales and service units. Development assessments are used to appraise executives and junior staff externally. This is followed by an internal process in which the immediate line managers draw up competence profiles on the basis of the results gained. In an ensuing step, the managing directors and department heads evaluate the executives and junior staff from their business units in calibration workshops to gain a neutral view. A comprehensive competence matrix is available in a database for the group undergoing assessment. Within this group, high potentials are identified in the subsequent coordination rounds for each business unit attended by members of the Management Board and executive staff on the basis of criteria such as age, language skills, international profile, leadership capabilities, expertise (technical/commercial skills), career background, mobility/willingness to change and skills/potential. Thereupon, individual development plans with further training measures are drawn up. The goal is to fill management positions from the Company’s own ranks in order to strengthen its attractiveness as an employer through systematic career development. Moreover, systematic talent management addresses the expectations of career-oriented high performers and thus also helps the Company to retain qualified employees.

The one-year junior management programme (JuMP) with participants aged between the early 20s and 30s aims to systematically prepare junior staff for management tasks. The participants in the third round, which commenced in 2019 and was conducted entirely in English, came from Group locations in China, the United States, Switzerland, Sweden and Germany. In addition to the technical learning modules, junior managers work on practical projects from everyday business life. This encourages international networking and allows them to develop innovative problem-solving approaches for business challenges.

The age limit for the members of the Management Board and the Supervisory Board is specified in the Company’s Articles of Association as follows: Appointees to the Management Board may be no older than 65 years on the date of appointment, although an exception of up to 67 years is also possible in individual cases. Only persons who have not yet reached the age of 67 at the time they are elected may be nominated for election to the Supervisory Board.

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