Austrian Code of Corporate Governance January 2018 Austrian Code of Corporate Governance January 2018 Disclaimer: The English translation of the Austrian Corporate Governance Code serves information purposes only. The exclu- sively binding version shall be the German text. Publisher: Austrian Working Group for Corporate Governance c/o Johannesgasse 5, 1010 Vienna Vienna, January 2018 Preface On 1 October 2002, the Austrian Code of Corporate Governance was pre- sented to the public for the first time. This Code of Corporate Governance gave listed companies a set of voluntarily rules to help them establish good corporate governance and control systems. For more than a decade now, Austrian laws on stock markets and capital markets have been supple- mented by a self-regulatory standard based on the principle of comply or explain. The Austrian Code of Corporate Governance has initiated a lot of positive changes and has helped strengthen the confidence of international and national investors in our market. It serves as a benchmark in the Au- strian capital market for good governance and controls, and has become an essential component of the Austrian system of corporate governance. One key feature of the Austrian Code of Corporate Governance is that it can be swiftly adapted to new national and international developments. It is standard good practice within the Working Group for Corporate Governance in Austria to ensure transparency by including all involved interest groups in the reviews of the Code. Our special thanks go to the capital market participants and institutions who have actively taken part in the discussion process by sending statements. Likewise, I would also like to thank the members of the Austrian Working Group for Corporate Governance for the great enthusiasm shown in their work on the further development of the Austrian corporate governance system. The main amendments to the revised Code 2015 concern the implemen- tation of the Recommendation of the EU Commission of 9 April 2014 on the quality of corporate governance reporting („comply or explain“) and take into account the new comment letter of AFRAC (Austrian Financial Reporting and Auditing Committee) on the drafting and auditing of cor- porate governance reports pursuant to §243b Austrian Business Code (Unternehmenshandbuch, UGB). Therefore, the Austria Code of Corporate Governance has achieved its ambition to always be one the most modern European standards. The new guidelines relating to the explanations and the statement of reasons for departures from the Code place a greater stress on the principle of comply or explain. This fundamental principle of self-regulation gives companies the flexibility they need to duly consider a company’s specific features whilst ensuring the transparency required for investors. In this context, it must be stressed that companies are in compliance with the Code even if they do not adhere to the rules but instead state clearly, precisely and in detail the reasons for the deviation. The new recommendations on the layout of the Corporate Governance Report and the upgrade of the voluntary external evaluation to a C-Rule have further improved the quality of the information and make it easier to reach informed decisions. The version of January 2018 adapts the provisions of the L-Rules to the amendments to the law. Dr. Wolfgang Nolz Chairman of the Austrian Working Group for Corporate Governance Austrian Working Group for Corporate Governance Table of Contents Preface 5 I. Preamble 9 Notes to the Code 11 II. Shareholders and the General Meeting 13 III. Cooperation between the Supervisory Board and 15 the Management Board IV. Management Board 17 Scope of Competence and Responsibilities of the 17 Management Board Rules Governing Conflicts of Interest and Self-dealing 19 Compensation of Members of the Management Board 21 V. Supervisory Board 25 Scope of Competence and Responsibilities of the 25 Supervisory Board Appointment of the Management Board 26 Committees 27 Rules Governing Conflicts of Interest and Self-dealing 30 Compensation of Members of the Supervisory Board 31 Qualifications of Members, Composition and Independence 32 of Supervisory Board Co-determination 35 VI. Transparency and Auditing 37 Transparency of Corporate Governance 37 Financial Reporting and Disclosure 38 Investor Relations and the Internet 41 Audit of the Financial Statements 43 Austrian Working Group for Corporate Governance Annex 1 47 Annex 2a 49 Annex 2b 55 Annex 3 57 Annex 4 62 Austrian Working Group for Corporate Governance I. Preamble The Austrian Code of Corporate Governance provides Austrian corporations with a framework for the management and control of enterprises. It covers the standards of good corporate management common in international business practice as well as the most important provisions of Austrian corporation law that are of relevance in this context. A general overview of Austrian corporation law is given in the Annex 4. The Code aims to establish a system of management and control of companies and groups that is accountable and is geared to creating sustainable, long-term value. This objective best serves the needs of all parties whose well-being depends on the success of the enterprise. The Code is designed to increase transparency for all stakeholders. This Code is addressed primarily to Austrian exchange-listed companies including exchange-listed European companies (Societas Europaea) registered in Austria. In the case of European companies registered in Austria that have a one-tier system (administrative board), the C- and R-Rules of the Code relating to the management board shall apply accordingly to the managing directors; the C- and R-Rules regarding the supervisory board shall apply accordingly to the administrative board. It is also recommended that companies not listed on stock exchanges follow this Code to the extent that the rules are applicable. The Code is based on the provisions of Austrian corporation law, securities law and capital markets law, the EU recommendations on 9 Austrian Working Group for Corporate Governance the tasks of supervisory board members and on the remuneration of directors as well as on the principles set out in the OECD Principles of Corporate Governance. Companies voluntarily undertake to adhere to the principles set out in the Austrian Code of Corporate Governance. All Austrian listed companies are therefore called upon to make a public declaration of their commitment to the Code. A declaration of commit- ment to the Austrian Code of Corporate Governance is mandatory for Austrian companies that want to be admitted to the Prime Market of the Vienna Stock Exchange. Companies that are subject to the company law of another EU mem- ber state or EEA member state and are listed on the Vienna Stock Exchange are called on to commit themselves to adhere to a corporate governance code recognized in this economic area and to publish this commitment including a reference to the code complied with on their websites (link). Companies that are subject to the company law of a country that is not a member of the EU or EEA and are listed on the Vienna Stock Exchange are called on to commit themselves to comply with the Austrian Code of Corporate Governance. The non-mandatory L rules of the Code are interpreted in this case as C rules. In the interest of the greatest degree of transparency, all foreign com- panies listed on the Vienna Stock Exchange are called on to publish on their websites the provisions of company law that applies to them, at least with respect to the rules mentioned in Annex 3, and to maintain this information up to date. 10 Austrian Working Group for Corporate Governance Generally, the Code will be reviewed once a year taking relevant na- tional and international developments into consideration, and will be adapted if required. Companies have a responsibility toward society. Therefore, it is also recommended that appropriate voluntary measures and initiatives be taken such as to reconcile work and family life. Notes to the Code In addition to the most important statutory requirements under Austrian law, the Code also contains rules which are considered common inter- national practice. Non-compliance with these rules must be explained and the reasons stated. The Code also contains rules that go beyond these requirements and should be applied on a voluntary basis. The Code defines the following categories of rules: 1. Legal requirement (L): This rule refers to mandatory legal requirements1. 2. Comply or explain (C): This rule is to be followed; any deviation must be explained and the reasons stated in order to be in compliance with the Code. 1 Certain legal provisions apply only to companies listed on the stock exchange in Austria. These rules are to be interpreted as a C rule for companies not listed on the stock exchange. The wording of the L-Rules does not necessarily match the exact wording of the respective laws, but has been adapted to match the terminology of the Code. It is not the intention of the authors to change the interpretation of statutory provisions. 11 Austrian Working Group for Corporate Governance Guidelines for the explanations and the statement of reasons for deviations are contained in Annex 2b. 3. Recommendation (R): The nature of this rule is a recommendation; non-compliance with this rule requires neither disclosure nor explanation. For rules that apply not only to the listed company itself, but also to its associated group companies, the term “enterprise” is used instead of “company”. The special rules applicable to banks and insurance companies shall not be affected by the Code. The rules of the Code do not require the disclosure of any company or business secrets. 12 Austrian Working Group for Corporate Governance II. Shareholders and the General Meeting 1. All shareholders are to be treated equally under the same L conditions. The requirement to treat all shareholders equally shall apply, in particular, to institutional investors, on the one hand, and to private investors, on the other hand. 2. Shares are to be construed in accordance with the principle of one C share – one vote. 3. Acceptance or rejection of takeover bids shall be decided L solely by the shareholders. The management board and the supervisory board are required to present a balanced analysis of the opportunities and risks of an offer to the persons addressed by the takeover bid. The price of a mandatory bid or of a voluntary bid with the purpose of attaining a controlling interest pursuant to the Takeover Act shall not be below the highest monetary consideration paid or agreed-upon by the offeror or a party acting in concert with the offeror within the past twelve months prior to the announcement of the bid for the shares of the target company. Furthermore, the price must correspond at least to the average market price weighted by the respective trading volumes for the shares over the past six months prior to the day of the announcement of the intention to make a bid. 4. A general meeting must be convened at the latest on the 28th L day before the ordinary general meeting, otherwise by the latest on the 21st day before the general meeting by an official announcement unless the by-laws prescribe other longer 13 Austrian Working Group for Corporate Governance deadlines. The announcement convening the general meeting and the information stipulated by the Companies Act must be made available on the company‘s website as of the 21st day prior to the general meeting. L 5. The candidates for the supervisory board elections including all declarations according to the Companies Act must be disclosed by the company at the latest on the 5th workday prior to the general meeting on the website of the company; otherwise the persons concerned shall not be included in the elections. L 6. The resolutions passed at the general meeting and the infor- mation required by the Companies Act shall be disclosed on the company’s website at the latest on the 2nd workday after the general meeting. R 7. The company supports its shareholders in participating in general meetings and in exercising their rights as far as possible. This is to be considered when planning the venue and time of the general meeting, when defining the requirements of participation and the exercising of voting rights, and with respect to the right to be heard and receive information. L 8. The general meeting has the right to authorise the management board for a period not exceeding thirty months to buy back the company‘s own shares up to a maximum of 10% of the share capital in those cases permitted by law. The resolution and authorization for the buyback are to be published immediately before execution. The resolution and, immediately before implementation, the execution of this buyback authorization shall be disclosed. 14 Austrian Working Group for Corporate Governance III. Cooperation between the Supervisory Board and the Management Board 9. The management board shall provide the supervisory board L periodically and in a timely manner with comprehensive information on all relevant issues of business developments including an assessment of the risk situation and the risk management in place at the company and at group companies in which it has major shareholdings. If an event of major significance occurs, the management board shall immediately inform the chairperson of the supervisory board; furthermore, the supervisory board shall be immediately informed of any circumstances that may have a material impact on the profitability or liquidity of the company (special report). Ensuring that the supervisory board is supplied with sufficient information is a joint task of the management board and the supervisory board. Members of the boards and the staff members involved are obliged to maintain strict confidentiality. 10. Under the principles of good corporate governance, an enterprise’s C management is conducted through open discussions between the management board and the supervisory board as well as within these bodies themselves. 11. The management board shall agree on the strategic direction L of the enterprise with the supervisory board and shall periodically discuss the progress made on implementing the strategy. 15 Austrian Working Group for Corporate Governance C 12. The materials and documents required for a supervisory board meeting are to be made available generally at least one week before the respective meeting. 16 Austrian Working Group for Corporate Governance IV. Management Board Scope of Competence and Responsibilities of the Management Board 13. The management board shall have sole responsibility for L managing the enterprise and shall endeavour to take into account the interests of the shareholders, of the employees and the public good. 14. Fundamental decisions shall be reached by the entire L management board. Such decisions shall include, in particular, the concrete formulation of goals of the enterprise and the definition of the enterprise’s strategy. In the case of significant deviations from projected figures, the management board shall immediately inform the supervisory board. 15. The management board shall be responsible for the imple- L mentation of the decisions it takes. The management board shall take the appropriate measures to secure compliance with any laws of relevance to the company. 16. The management board shall be made up of several persons, with C one member acting as the chairperson of the management board. Internal rules of procedure of the management board shall define the distribution of responsibilities and the mode of cooperation between management board members. Names, date of birth, date of initial appointment and the end of the current period of tenure of the members of the management board as well as assignments of competence in the management board must be reported in 17 Austrian Working Group for Corporate Governance the Corporate Governance Report. Furthermore, any supervisory board mandates and comparable functions of members of the management board in other Austrian and foreign companies must be disclosed in the Corporate Governance Report unless these are included in the consolidated financial statements. C 17. The management board shall have overall responsibility for commu- nications tasks that significantly impact the image of the enterprise as perceived by stakeholders, and may receive support in carrying out these tasks from the relevant departments of the enterprise. C 18. Depending on the size of the enterprise, a separate staff unit is to be set up for internal auditing, which shall report to the management board, or the task of conducting internal audits may be contracted out to a competent institution. At least once a year, a report on the auditing plan and any material findings are to be presented to the audit committee. C 18a. The management board reports to the supervisory board at least once a year on the measures taken to fight corruption at the company. 18 Austrian Working Group for Corporate Governance Rules Governing Conflicts of Interest and Self-dealing 19. Persons who discharge managerial responsibilities at a com- L pany as well as persons closely associated with them shall no- tify all proprietary transactions2 to the company and to the Fi- nancial Market Authority without delay and no later than three business days after the date of the transaction. 20. The company or any persons acting for its account are under L the obligation to draw up a list of all persons who have access to inside information. 21. Repealed 22. The management board shall take its decisions without being L influenced by its own interests or the interests of controlling shareholders, on the basis of the facts and in compliance with applicable laws. 23. The members of the management board must disclose to L the supervisory board any material personal interests in transactions of the company and group companies as well as any other conflicts of interest. Furthermore, they shall also immediately inform the other members of the management board of this. 2 Proprietary transactions in shares or debt securities of this company or related derivatives or other linked financial instruments. This applies to transactionss executed after a total volume of EUR 5,000 has been reached within a calendar year. The threshold is computed by adding up all of the aforementioned transactions without netting. 19 Austrian Working Group for Corporate Governance L 24. All transactions between the company or a group company and the members of the management board or any persons or companies with whom the management board members have a close relationship must be in line with common business practice. The transactions and their conditions must be approved in advance by the supervisory board with the exception of routine daily business transactions. L 25. Without the approval of the supervisory board, members of the management board shall not be permitted to operate a business or assume a mandate on the supervisory board of another company unless such company belongs to the group or it is associated by a business interest in such company.3 Neither shall members of the management board be permitted to engage in business dealings in the same branch of the company for their own account or for the account of third parties or to own other business enterprises as a personally liable partner without the approval of the supervisory board. C 26. Members of the management board shall not hold more than four supervisory board mandates (chairperson counts double) in stock corporations that do not belong to the group. Companies that are included in consolidated financial statements or in which the company has an investment with a business interest shall not be considered non-group companies. Any sideline business of senior management staff, especially any functions in bodies of other companies shall require the approval of the management board unless such company is part of the 3 § 189a no. 2 Business Code 20 Austrian Working Group for Corporate Governance group or it is associated by a business interest in such company. Statutory non-competition clauses applicable to management board members and senior management staff are not repealed. Compensation of Members of the Management Board 26a. The supervisory board shall ensure that the total remuneration L of the members of the management board (salaries, shares in profits, expense reimbursements, insurance premiums, commissions, incentive-linked remuneration commitments and any other type of payments) are commensurate with the tasks and performance of each individual member of the management board, the situation of the company, the usual level of remuneration, and must also take measures to create incentives to promote behaviour supportive of the long-term development of the company. This shall apply accordingly to pension payments, survivor’s pensions and similar income. 27. When concluding management board contracts, the following C principles shall also be observed: The remuneration contains fixed and variable components. The variable remuneration components shall be linked, above all, to sustainable, long-term and multi-year performance criteria, shall also include non-financial critera and shall not entice persons to take unreasonable risks. For the variable remuneration compon- ents, measurable performance criteria shall be fixed in advance as well as maximum limits for amounts or as percentage of the fixed remuneration components. Precautions shall be taken to ensure that the company can reclaim variable remuneration components 21 Austrian Working Group for Corporate Governance if it becomes clear that these were paid out only on the basis of obviously false data. C 27a. When concluding contracts with management board members, care shall be taken that severance payments in the case of premature termination of a contract with a management board member without a material breach shall not exceed more than two years annual pay and that not more than the remaining term of the employment contract is remunerated. In the case of premature termination of a management contract for material reasons for which a management board member is responsible no severance payment shall be made. Any agreements reached on severance payments on the occasion of the premature termination of management board activities shall take the circumstances under which said management board member left the company as well as the economic situation of the company into consideration. C 28. If a stock option programme or a programme for the preferential transfer of stocks is proposed for management board members, then such programmes shall be linked to measurable, long-term and sustainable criteria. It shall not be possible to change the criteria afterwards. For the duration of such programmes, but at the latest until the end of the management board member’s function on the management board, the management board member shall hold an appropriate volume of shares in the own company. In the case of a stock option programme, a waiting period of at least three years must be fixed. 22 Austrian Working Group for Corporate Governance A waiting and/or holding period of a total of at least three years shall be defined in stock transfer programmes. The general meeting shall pass any resolutions and/or changes to stock option schemes and stock transfer programmes for management board members. 28a. The principles of C-Rules 27 and 28 shall apply accordingly also R? in the case of new remuneration systems for senior management staff. 29. The number and distribution of the options granted, the L exercise prices and the respective estimated values at the 5 time they are issued and upon exercise shall be reported in the annual report. The total remuneration of the management board for a business year must be reported in the notes to the financial statements. The Corporate Governance Report shall contain the total remuneration of each individual member of the management board (§ 239 par. 1 fig. 4 lit. a Business Code) and disclose the principles governing remuneration policy. 30. In addition to the information required by law (L-Rule 29), the C Corporate Governance Report shall contain the following information: • The principles applied by the company for granting the management board variable remuneration, especially for which performance criteria the variable remuneration components 5 This is a brief version of the provisions of the Austrian Business Code, Art. 239 par 1 Figure 5. For precise details on the implementation, please refer to this provision. 23 Austrian Working Group for Corporate Governance are linked pursuant to C-Rule 27; the methods according to which the fulfilment of the performance criteria is determined; the maximumlimits determined for the variable remuneration; the shares held in the own company and periods planned pursuant to C-Rule 28; moreover, any major changes versus the previous year must also be reported. • The ratio of the fixed components to the variable components of the total compensation of the management board. • The principles of the company retirement plan for the manage- ment board and the conditions. • The principles applicable to eligibility and claims of the management board of the company in the event of termi- nation of the function. • The existence of a D&O insurance, if the costs are borne by the company C 31. The fixed and variable performance-linked annual remunerations of each individual management board member are to be disclosed in the Corporate Governance Report for each financial year. This shall also apply if the remuneration is paid through a management company. 24 Austrian Working Group for Corporate Governance V. Supervisory Board Scope of Competence and Responsibilities of the Supervisory Board 32. The supervisory board shall be responsible for overseeing L the management board and shall provide support to the management board in governing the enterprise and, in particular, shall assist in making decisions of fundamental significance. 33. The supervisory board appoints the members of the L management board and has the right to terminate their employment. 34. The supervisory board shall adopt internal rules of procedure for C its work, which shall contain stipulations regarding the disclosure and reporting obligations of the management board, including subsidiaries, unless these obligations are defined in articles of incorporation or the internal rules of procedure of the management board. Furthermore, the internal rules of procedure shall define the establishment of committees and their scope of competence. The sections of the internal rules of procedure concerning these areas are to be disclosed on the website of the company. The number and type of committees set up and their decision-making scope of competence are to be disclosed in the Corporate Governance Report. 35. In accordance with the Austrian Stock Corporation Act, the L supervisory board shall formulate in concrete terms a list 25 Austrian Working Group for Corporate Governance of business transactions that are subject to its approval, and depending on the size of the enterprise, shall define the appropriate limits on amounts; this shall also apply to any major transactions concluded by subsidiaries that are of relevance to the group. C 36. The statutory provisions according to which the supervisory board must meet at least once every three months shall be understood as a minimum requirement. Additional meetings must be held as required. If necessary, the items on the agenda may be discussed and decided by the supervisory board and its committees without the participation of the management board members. The number of meetings of the supervisory board must be reported in the Corporate Governance Report. The supervisory board shall discuss the efficiency of its activities annually, in particular, its organization and work procedures (self- evaluation). C 37. The chairperson of the supervisory board shall prepare the mee- tings of the supervisory board and shall regularly communicate with the chairperson of the management board in particular, and discuss the strategy, the course of business and the risk management of the enterprise. Appointment of the Management Board C 38. The supervisory board shall define a profile for the management board members that takes into account the enterprise’s business focus and its situation, and shall use this profile to appoint the 26 Austrian Working Group for Corporate Governance management board members in line with a predefined appointment procedure. The supervisory board shall take care that no member of the ma- nagement board has been convicted by law for a criminal act that would compromise the professional reliability as a management board member. Furthermore, the supervisory board shall also give due attention to the issue of successor planning. Committees 39. The supervisory board shall set up expert committees from among C its members depending on the specific circumstances of the enterprise and the number of supervisory board members. These committees shall serve to improve the efficiency of the work of the supervisory board and shall deal with complex issues. However, the supervisory board may discuss the issues of the committees with the entire supervisory board at its discretion. Each chairperson of a committee shall report periodically to the supervisory board on the work of the committee. The supervisory board shall ensure that a committee has the authorisation to take decisions in urgent cases. The majority of the committee members shall meet the criteria for independence of the C-Rule 53. The Corporate Governance Report shall state the names of the committee members and the name of the chairperson. The Corporate Governance Report must disclose the number of meetings of the committees and discuss the activities of the committees. 27 Austrian Working Group for Corporate Governance L 40. An Audit Committee must be set up. At least one person with special knowledge meeting the company’s requirements and practical experience in the area of finance and accounting and reporting must belong to the audit committee (financial expert). The chairperson of the audit committee or financial expert may not be a person who in the past three years has served as a member of the management board or has discharged managerial duties or has served as auditor of the company or has signed an auditor’s opinion or who is not independent and free of prejudice for any other reason. The audit committee shall be responsible for monitoring the accounting process and or monitoring the efficacy of the internal control and risk management system, the independence and the activities of the auditor of the financial statements as well as for the approval of non-audit services. C 41. The supervisory board shall set up a nomination committee. In cases of supervisory boards with no more than six members (including employees’ representatives), the function may be exercised by all members jointly. The nomination committee submits proposals to the supervisory board for filling mandates that become free on the management board and deals with issues relating to successor planning. C 42. The nomination committee or the entire supervisory board shall present proposals to the general meeting for appointments to the mandates on the supervisory board that have become vacant. L-Rule 52 must be taken into account in this context. 28 Austrian Working Group for Corporate Governance 43. The supervisory board shall set up a remuneration committee and C the chairperson of this committee shall always be the chairperson of the supervisory board. Where supervisory boards have not more than six members (including employees’ representatives) this function may be assumed jointly by all members. The remuneration committee6 shall deal with the contents of em- ployment contracts with management board members, it shall ensure the implementation of the C-Rules 27, 27a and 28, and shall regularly review the remuneration policy applicable to management board members. At least one member of the remuneration committee shall be required to have knowledge and experience in the area of remu- neration policy. If the remuneration committee uses the services of a consultant, it must be ensured that said consultant does not at the same time provide services to the management board in matters relating to remuneration. In the case of supervisory boards that do not not have more than six members (including employees’ representatives), this function may be assumed jointly by all members. The remuneration committee may be identical with the nomination committee. The chairperson of supervisory board shall inform the general meeting once a year of the principles of the remuneration system. 6 The co-determination rights of employees’ representatives apply to all committees of the supervisory board except for committees that deal with the relations between the company and the members of the management board (see L-Rule 59). 29 Austrian Working Group for Corporate Governance Rules Governing Conflicts of Interest and Self-dealing L 44. Members of the supervisory board cannot at the same time be members of the management board or permanent representatives of management board members of the company or its subsidiaries7. Neither are they permitted to manage the business of the company as employees. No person can be a member of the supervisory board of a company who is the legal representative of another company whose supervisory board includes a member of the management board of the company unless such company is part of the group or it is associated by a shareholding in such company. When reaching decisions, supervisory board members shall not act in their own interest or in the interest of persons or enterprises with whom they have close relationships with if such behavior conflicts with the interests of the company or serves to attract business opportunities to said member that otherwise would have gone to the company. Before the elections, the persons proposed as members of the supervisory board must present to the general meeting their expert qualifications, their professional or similar functions and all circumstances that could give rise to cause for concern of partiality. C 45. Supervisory board members may not assume any functions on the boards of other enterprises which are competitors of the company. 7 § 189a no. 8 Business Code 30 Austrian Working Group for Corporate Governance 46. If a supervisory board member finds himself or herself in a conflict C of interest, he or she shall immediately disclose this to the chair- person of the supervisory board. If the chairperson of the supervisory board finds himself or herself in a conflict of interest, he or she shall immediately disclose this to his or her deputy. 47. The granting of loans by the enterprise to members of the supervi- C sory board shall not be permitted outside the scope of its ordinary business activity. 48. The conclusion of contracts with members of the supervisory L board in which such members are committed to the performance of a service outside of their activities on the supervisory board for the company or a subsidiary for a remuneration not of minor value shall require the consent of the supervisory board. This shall also apply to contracts with companies in which a member of the supervisory board has a considerable economic interest. 49. The company shall disclose in the Corporate Governance Report C the object and remuneration of contracts subject to approval pur- suant to L-Rule 48. A summary of contracts of the same kind shall be permitted. Compensation of Members of the Supervisory Board 50. The compensation of supervisory board members shall L be fixed by the general meeting or shall be set out in the 31 Austrian Working Group for Corporate Governance articles of incorporation, and shall be commensurate with the responsibilities and scope of work of the members as well as with the economic situation of the enterprise. C 51. The remuneration for the financial year to supervisory board mem- bers is to be reported in the Corporate Governance Report for each individual member of the supervisory board. Generally, there are no stock option plans for members of supervisory boards. Should stock option plans be granted in exceptional cases, then these must be decided in every detail by the general meeting. Qualifications of Members, Composition, and Independence of the Supervisory Board L 52. When electing the members of the supervisory board, the general shareholders’ meeting shall take due care to check the expertise and personal qualifications of the supervisory board members and to ensure a balanced composition with respect to the structure and the business of the company. Furthermore, reasonable attention is to be given to the aspect of diversity of the supervisory board with respect to the representation of both genders and the age structure, and in the case of exchange-listed companies, also with a view to the internationality of the members. The supervisory board shall be made up of at least 30 percent women and at least 30 percent men, provided the supervisory board consists of at least six members (shareholder representatives), and the staff representatives must consist of at least 20 percent female and male employees each. 32 Austrian Working Group for Corporate Governance Care must also be taken to ensure that no member is elected to the supervisory board who has been convicted by law for a criminal act that would compromise his or her professional reliability as a supervisory board member. 52a. The number of members on the supervisory board (without em- C ployees’ representatives) shall be ten at most. New members of a supervisory board must inform themselves adequately of the organization and activities of the company as well as of the tasks and responsibilities of the supervisory board members. 53. The majority of the members of the supervisory board elected by the C general meeting or delegated by shareholders in accordance with the articles of incorporation shall be independent of the company and its management board. A member of the supervisory board shall be deemed independent if said member does not have any business or personal relations to the company or its management board that constitute a material conflict of interests and therefore suited to influence the behaviour of the member. The supervisory board shall define on the basis of this general clause the criteria that constitute independence and shall publish them in the Corporate Governance Report. The guidelines in Annex 1 shall serve as further orientation. According to the criteria defined, it shall be the responsibility of every member of the supervisory board to declare its independence vis-à-vis the supervisory board. The Corporate Governance Report shall clearly explain which members are deemed independent according to this assessment. 54. In the case of companies with a free float of more than 20%, the C members of the supervisory board elected by the general mee- 33 Austrian Working Group for Corporate Governance ting or delegated by shareholders in accordance with the articles of incorporation shall include at least one independent member pursuant to C-Rule 53 who is not a shareholder with a stake of more than 10% or who represents such a shareholder’s interests. In the case of companies with a free float of over 50%, at least two members of the supervisory board must meet these criteria. The Corporate Governance Report must indicate which members of the supervisory board meet these criteria. L 55. No person may be a member of the supervisory board of an exchange-listed company who has been a member of the management board of said company in the last two years, unless the appointment is the result of a proposal by shareholders that hold more than 25 percent of voting rights in the company. However, no more than one person is permitted to be a member of the supervisory board for whom the two- year period has not yet expired. A member of the supervisory board of an exchange-listed company who has been a member of the management board of said company in the past two years cannot be appointed as chairperson of the supervisory board. L 56. Members of the supervisory board shall not have more than eight mandates (function of chairperson shall count double) as supervisory board members for listed companies. C 57. Supervisory board members serving on the management board of a listed company may not hold more than four positions on supervisory boards (position of chairperson counts double) of stock corporations not belonging to the group. Companies that 34 Austrian Working Group for Corporate Governance are included in consolidated financial statements or in which the company has an investment with a business interest shall not be considered non-group companies. 58. The Corporate Governance Report shall state the chairperson and C vice chairperson as well as the name, year of birth, the year of the first appointment of every supervisory board member and the end of the current period of office. Furthermore, other supervisory board mandates or similar functions in Austrian or foreign listed companies shall be published in the Corporate Governance Re- port or on the website of the company for every supervisory board member. If a member of a supervisory board fails to personally attend more than half of the meetings of the supervisory board, this fact shall be stated in the Corporate Governance Report. Co-determination 59. The co-determination rights of employees’ representatives L on the supervisory board form part of the statutory Austrian system of corporate governance in addition to the co- determination rights at the operational level in the form of works councils. The employees’ representatives are entitled to appoint to the supervisory board of a stock corporation one member from among their ranks for every two members appointed by the general meeting (but not external members from the trade union). (Statutory one-third parity rule) If the number of shareholder representatives is an odd number, then one more member is appointed as an employee representative. 35 Austrian Working Group for Corporate Governance The one-third parity representation rule also applies to all committees of the supervisory board, except for meetings and votes relating to the relationship between the company and the management board members with the exception of resolutions on the appointment or revocation of an appointment of a member of the management board and on the granting of options on stocks of the company. Employees’ representatives shall exercise their functions on an honorary basis and their appointment may be terminated at any time only by the works council (central works council). The rights and obligations of employees’ representatives shall be the same as those of shareholders’ representatives; this shall apply, in particular, to the right to receive information and to monitoring rights, to the obligation to act with due diligence and to maintain secrecy and to their liability for failure to comply. In the event of personal conflicts of interest, employees’ representatives shall abstain from voting, the same being applicable to shareholders’ representatives. 36 Austrian Working Group for Corporate Governance VI. Transparency and Auditing Transparency of Corporate Governance 60. The company must prepare a Corporate Governance Report L that contains at least the following information : 8 • It must name a Corporate Governance Code generally recognized in Austria or at the respective stock exchange; • Information on where it is available to the public; • Statement on any departures from the comply or explain principle of the Code; explain the points concerned and the reasons for the departure9; • If the company decides not to adhere to any code, then it must state the reason why; • Name the members of the management board and the supervisory board including its committees and explain their working procedures; • The total remuneration of each individual member of the management board and the fundamental principles of the remuneration policy; • The measures taken to promote women to the management board, supervisory board and to top management positions; • The diversity concept. 8 A parent company must prepare a consolidated corporate governance report. Annex 2a contains a recommendation for the basic structure of the Corporate Governance Report. 9 Annex 2b contains guidelines for the explanations and the reasons for departures from the C-Rules of the Code. 37 Austrian Working Group for Corporate Governance The supervisory board must review the Corporate Governance Report within two months of receiving it; the supervisory board must make a statement on the Report to the management board and report on it to the annual general meeting. C 61. The commitment to comply with the Austrian Code of Corporate Governance (Corporate Governance Statement) shall be included in the Corporate Governance Report. The Corporate Governance Report must be published on the company’s website. This website shall be mentioned in the management report. Every shareholder has the right to request information on the Corporate Governance Report at the annual general meeting. The management board is responsible for reporting on implementation and compliance with the principles of corporate governance within the company. Every corporate body addressed by a rule is responsible for compliance with the principles of corporate governance and must explain the reasons for the departures from the rule. C 62. The company shall have compliance with the C-Rules of the Code evaluated periodically, but at least every three years, by an external institution and a report on the findings of the evaluation is to be published in the Corporate Governance Report.10 Financial Reporting and Disclosure L 63. The Company shall disclose at the latest two trading days after it gains knowledge of the information changes in the 10 As help for the voluntary external evaluation, the Austrian Working Group for Corporate Governance developed a questionnaire. Published under www.corporate–governance.at. 38 Austrian Working Group for Corporate Governance shareholder structure, if, as a consequence of the acquisition or disposal of shares in the company, the percentage of shares representing voting rights held by a shareholder reaches, exceeds or falls below the thresholds of 4 percent, 5 percent, 10 percent, 15 percent, 20 percent, 25 percent, 30 percent, 35 percent, 40 percent, 45 percent, 50 percent, 75 percent or 90 percent. 64. The company shall disclose on its website and in the annual report C – if it has knowledge thereof – the current shareholder structure broken down by geographical origin and type of investor, any cross-holdings, the existence of syndicate agreements, restrictions on voting rights, registered shares and their related rights and restrictions. Current changes in voting rights (according to L-Rule 63) shall be disclosed without delay on the website of the company. The articles of incorporation of the company shall be disclosed on the website of the company. 65. The company shall prepare the consolidated financial L statements and the condensed set of financial statements contained in the mid-year financial report pursuant to the International Financial Reporting Standards (IFRS) as adopted by the EU. Annual financial reports shall be published at the latest four months after the end of the reporting period, half-yearly financial reports at the latest three months after the end of the reporting period, and must remain publicly available for at least ten years. 39 Austrian Working Group for Corporate Governance C 66. If the company prepares quarterly reports, these must be prepared in accordance with the International Financial Reporting Standards as adopted by the EU (IAS 34). In the annual and interim reports, the management board discus- ses material changes or departures from the revenue, profit and strategy targets for the current and the subsequent financial year as well as the causes and effects for the current and subsequent financial year and material departures from previously released revenues, earnings and strategy targets. C 67. The enterprise shall establish external communication structu- res beyond legal mandatory requirements to meet information demands timely and adequately, in particular, by use of the company’s website. The company shall disclose any new facts that it communicates to financial analysts and similar users to all of its shareholders at the same time. C 68. The company shall publish annual financial reports, half-yearly financial reports and any other interim reports in English and German, and shall make these available on the company’s websi- te.11 If the annual financial report contains consolidated financial statements, the financial statements in the annual report pursuant to the Business Code must only be published and made available in German.12 11 This shall not affect the language and third country provisions pursuant to Art. 85 Stock Exchange Act. 12 This shall not affect the language and third country provisions pursuant to Art. 85 Stock Exchange Act. 40 Austrian Working Group for Corporate Governance 69. The company shall present an adequate analysis in the L consolidated management report on the development of busi- ness and must discuss any material risks and uncertainties as well as the key features of the risk management system with respect to the accounting process. If the company employs more than 500 persons within the group, a non-financial statement must be included in the consolidated management report.13 70. The company shall describe the main risk management instru- C ments used with respect to non-financial risks in the consolidated management report. Investor Relations and the Internet 71. The company shall immediately disclose to the public any L inside information which directly concerns it and any major changes to this information without delay (ad hoc disclosure). The company shall publish all inside information, which it is required to disclose to the public, on its website for a period of at least five years. A company may delay the disclosure of inside information on its own responsibility if immediate disclosure is likely to prejudice its legitimate interests. The delay is permissible only if this is not likely to mislead the public, and the issuer is able to ensure the confidentiality of that information. The delay of the disclosure of inside 13 As an alternative, the company may prepare a report containing non-financial information. If the company employs more than 500 persons, it must include a non-financial statement in its management report, unless it prepares a consolidated non-financial statement or a non-financial report. 41 Austrian Working Group for Corporate Governance information must be reported to the Financial Market Authority once the reasons for it cease to exist. C 72. The company shall appoint a contact person for investor relations and shall disclose this person’s name and contact numbers and address on the company’s website. C 73. The management board shall immediately post any director’s dealings14 reported on the company’s website and shall keep such information on the website for at least three months. The disclos- ure can also be done by making a reference to the corresponding website of the Financial Market Authority. C 74. A calendar of corporate financial events shall be posted at least two months before the start of the new business year on the web- site of the company and shall contain all dates of relevance for investors and other stakeholders such as the release of the annual and quarterly reports, annual general meetings, ex-dividend day, dividend payout day and investor relations activities. R 75. The company shall regularly hold conference calls or similar infor- mation events for analysts and investors; if demand is high, also on a quarterly basis. As a minimum requirement, the information documents (presentations) used shall be made available to the public on the website of the company. Other events of relevance for the capital market such as annual general meetings shall be made accessible on the company’s website, if the costs are reasonable, in the form of audio and video transmissions. 14 See L-Rule 19 42 Austrian Working Group for Corporate Governance 76. The company shall disclose simultaneously on its website all finan- R cial information on the enterprise that has been published through other media (e.g. printed reports, press releases, ad hoc reports). If additional information is available only on the Internet, this fact must be specifically pointed out. If only excerpts of published documents are made available on the website, this fact must also be stated and the source where the full document can be obtained must be indicated. The documents shall bear the date on which they were posted on the Internet. Audit of the Financial Statements 77. The supervisory board shall include in the contract on the audit C of the (consolidated) financial statements the stipulation that the audit is to be conducted according to international accounting standards15(ISAs). 78. The independence of the (group) auditor is essential for L conducting a thorough and unbiased audit, in particular, no grounds for exclusion or risk of partiality may exist. The principal auditors in the company responsible for the consolidated financial statements are not permitted to assume a function on any governing body of the company or 15 Pursuant to Expert Opinion KFS/PG 1, in the case of audits of financial statements for financial years ending on or after 15 December 2016 that must be prepared in accordance with Austrian accounting standards, the International Standards on Auditing (ISA) of the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC), including the respective notes regarding their application and other explanations must be applied. 43 Austrian Working Group for Corporate Governance a management position for two years after signing the audit opinion. L 79. The (group) auditor shall immediately inform the chairperson of the supervisory board and the chairperson of the audit committee of any reasons potentially constituting grounds for exclusion or risk of partiality that may become evident in the course of the audit. Any protective measures taken to ensure an independent and impartial audit shall be reported to the audit committee. L 80. An auditor or an auditing firm that is to be included in a proposal for appointment must furnish a written report on the matters listed below before the supervisory board makes its proposal for election and before election by the shareholders: • Valid registration in the public registry pursuant to the Auditors‘ Supervision Act as proof of inclusion in the statutory quality assurance system; • No reasons for exclusion; • Presentation of all circumstances that may indicate the risk of partiality and of measures taken to protect against such risk in order to ensure an independent audit; • A list of the total fees broken down by category of services that were received from the company in the preceding financial year. L 81. Immediately after the vote, the supervisory board shall conclude the agreement with the (group) auditor elected on the execution of the audit of the financial statements and on the fees to be paid. The fees must be commensurate with 44 Austrian Working Group for Corporate Governance the tasks of the (group) auditor and the expected scope of the audit. The audit agreement and the amount of the fees agreed on shall not be made contingent on any requirements or conditions and shall not depend on whether the (group) auditor provides additional services to the audited company besides the auditing activities. 81a. The Chairperson of the Audit Committee (group) must invite the au- C ditor in addition to the cases stipulated by law to a further meeting. At this meeting, the mode of communication between the (group) auditor and the audit committee shall be defined. Within the scope of these meetings, it must be possible for the audit committee to exchange views with the (group) auditor without the presence of the members of the management board. If necessary, the chair- person of the audit committee shall invite the (group) auditor to further meetings of the audit committee. 82. The supervisory board and the audit committee will be in- L formed of the results of the (group) audit in the form of the mandatory audit report and the reporting duty of the (group) auditor. 82a. After completion of the group audit, the management board C shall present to the supervisory board a list that shows the entire costs of the audit for all group companies with a breakdown by expenses for the group auditor, for members of the network to which the auditor belongs and for other auditors working within the group. 45 Austrian Working Group for Corporate Governance C 83. In addition, the auditor shall make an assessment of the effectiveness of the company’s risk management based on the information and documents presented and shall report the findings to the management board. This report shall also be brought to the notice of the chairperson of the supervisory board. The chairperson shall be responsible for ensuring that the report is dealt with by the audit committee and reported on to the super- visory board. 46 Austrian Working Group for Corporate Governance Annex 1 Guidelines for Independence A member of the supervisory board shall be deemed as independent if said member does not have any business or personal relations with the company or its management board that constitute a material conflict of in- terests and is therefore suited to influence the behaviour of the member. The supervisory board shall also follow the guidelines below when de- fining the criteria for the assessment of the independence of a member of the supervisory board: • The supervisory board member shall not have served as member of the management board or as a management-level staff of the company or one of its subsidiaries in the past five years. • The supervisory board member shall not maintain or have maintai- ned in the past year any business relations with the company or one of its subsidiaries to an extent of significance for the member of the supervisory board. This shall also apply to relationships with companies in which a member of the supervisory board has a considerable economic interest, but not for exercising functions in the bodies of the group. The approval of individual transactions by the supervisory board pursuant to L-Rule 48 does not automa- tically mean the person is qualified as not independent. • The supervisory board member shall not have acted as auditor of the company or have owned a share in the auditing company or have worked there as an employee in the past three years. • The supervisory board member shall not be a member of the manage- ment board of another company in which a member of the manage- ment board of the company is a supervisory board member. 47 Austrian Working Group for Corporate Governance • A supervisory board member may not remain on the supervisory board for more than 15 years. This shall not apply to supervisory board members who are shareholders with a direct investment in the company or who represent the interests of such a shareholder. • The supervisory board member shall not be a closely related (direct offspring, spouses, life partners, parents, uncles, aunts, sisters, nieces, nephews) of a member of the management board or of persons having one of the aforementioned relations. 48 Austrian Working Group for Corporate Governance Annex 2a Preparation of the Corporate Governance Report The following basic structure is recommended for the Corporate Gover- nance Report (corresponds to the AFRAC (Austrian Financial Reporting und Auditing Committee recommendation)16: 1. Corporate Governance Statement 2. Members of the Governing Bodies and their Remuneration 3. Information on the working procedures of the management board and supervisory board 4. Measures to promote women 5. Description of the diversity concept 6. Report on an external evaluation, if applicable. 7. Events after the balance sheet date The following sections present the specific information required for each item stated here, with the content being derived from legislation (§ 243c Business Code) and also from the C-Rules (comply or explain) of the Austrian Code of Corporate Governance. 1. Corporate Governance Statement This section of the Corporate Governance Report must contain the following information (§ 243c para. 1 Business Code): • Statement of commitment to the Austrian Code of Corporate Gover- nance and information on where it is publicly available. See statement on “Drafting and Audit of the Corporate Governance Report”, 16 www.afrac.at. 49 Austrian Working Group for Corporate Governance • Information on where the company departs from the C-Rules of the Austrian Code of Corporate Governance. Every departure must be explained and the reasons stated in order for the company to be in compliance with the Code (see Annex 2b). 2. Members of the Governing Bodies and their Remuneration The Corporate Governance Report must contain the following infor- mation (cf. § 243c para. 1 Business Code) on the members of the management board: • Name, date of birth and date of first appointment and end of the cur- rent period of office for every member of the management board as well as the name of the chair of the management board, and if ap- plicable, of the vice chair (C-Rule 16); • List of all supervisory board mandates or similar positions in other domestic and foreign companies, which are not part of the con- solidated group of companies, for each member of the management board (C-Rule 16); • The fixed and variable remuneration paid in the financial year to each member of management board; this also applies if the remuneration is paid via a management company (§ 243c para. 2 no. 3 Business Code and C-Rule 31) The following information must be included in the Corporate Governance Report on the members of the supervisory board: • Name, date of birth and date of first appointment and end of the current period of office for each member of the supervisory board (C-Rule 58); • Chair and vice chair (C-Rule 58); 50 Austrian Working Group for Corporate Governance • The remuneration paid in the financial year to each member of the supervisory board (C-Rule 51); • Membership in the committees of the supervisory board and the names of the respective chairpersons of the committees (§ 243c para. 2 no. 1 Business Code); • List of all supervisory board mandates or similar positions in other domestic and foreign listed companies for each member of the su- pervisory board (C-Rule 58); • If applicable, object and remuneration of contracts subject to approval pursuant to § 95 para. 5 no. 12 Stock Corporation Act (C-Rule 49). The following minimum information on the independence of the mem- bers of the supervisory must be included in the Corporate Governance Report: • Presentation of the criteria for independence defined by the super- visory board (C-Rule 53); • Presentation of the members that may be considered independent; a presentation of which members are not to be considered independent is also sufficient (C-Rule 53); • Present which independent members of the supervisory board do not own stakes of more than 10% or who represent the interests of such a shareholder (C-Rule 54). Furthermore, according to § 243c para. 2 no. 3 Business Code, a statement must be made on the principles of remuneration policy; the principle must cover the following as a minimum (C-Rule 30): • Principles according to which the stock option plans of the company are established; • The principles applied by the company for the variable remuneration of the management board, especially the performance-linked criteria 51 Austrian Working Group for Corporate Governance of the variable remuneration components; the methods according to which fulfilment of the performance criteria is determined; the maxi- mum thresholds determined for variable remuneration; the shares held in the own company and periods applicable to stock options and transfer programmes; likewise, any material changes versus the previous year must be reported; • the ratio of fixed to variable components of the total remuneration of the management board; • The principles of the company retirement plan for the management board and the conditions. • The principles applicable to eligibility and claims of the management board in the event of termination of the function; • The existence of any D&O insurance, if the costs are borne by the company. If the company is a European stock corporation which follows the mo- nistic system with an administrative board, the information that would be required for members of a management board and of a supervisory board must be given for the members of the administrative board. 3. Information on the working procedures of the management board and supervisory board Pursuant to § 243c para. 2 no. 1 Business Code, the Corporate Go- vernance Report must inform on the working procedures of the ma- nagement board. Pursuant to C-Rule 16, this information must state as a minimum the assigned areas of competence. Additionally, it may report on transactions and measures which, for example, would exceed the scope defined in § 95 para. 5 Stock Corporation Act and require 52 Austrian Working Group for Corporate Governance the approval of the supervisory board pursuant to the by-laws or the internal business rules. Furthermore, § 243c para. 2 no. 1 Business Code requires information on the working procedure of the supervisory board as well as its com- mittees and must contain at least the following information: • Number and type of committees and their decision-making powers (C-Rule 34); • Number of meetings of the supervisory board in the financial year and report on the supervisory board’s main activities (C-Rule 36); • Number of meetings of the committees in the financial year and report on their activities (C-Rule 39); • A note if a member of the supervisory board fails to personally attend more than half of the meetings of the supervisory board in a financial year (C-Rule 58). 4. Measures to promote women As regards the promotion of women, the Corporate Governance Re- port must contain at least the following information pursuant to § 243c para. 2 no. 2 Business Code: • Information on the share of women on the supervisory board and in management positions (§ 80 Stock Corporation Act); • Description of the measures taken to promote women to the ma- nagement board, supervisory board and to management positions in the company during the reporting year. 5. Description of the diversity concept • The obligation to provide a description of the diversity concept concerns only joint-stock companies that are under the obligation to prepare a corporate governance report and qualify as a large joint- 53 Austrian Working Group for Corporate Governance stock corporation. Public interest entities pursuant to § 189a no. 1 Business Code, are - unless they are also large joint-stock compa- nies - exempt from this obligation. • In the Corporate Governance Report, the concerned companies must report on their current diversity concepts applied when ap- pointing members to the management board and supervisory board with respect to age, gender as well as educational and professional background. Furthermore, the goals and the form of implementation of the diversity concept and the results achieved in the reporting peri- od must be reported. If there is no such diversity concept in a com- pany subject to reporting, this must be explained. 6. Report on an external evaluation, if applicable • If, in the meaning of C-Rule 62, compliance with the C-Rules of the Code have been evaluated by an external institution, a report must be prepared on the findings. 7. Events after the balance sheet date • It is recommended to include information in the Corporate Gover- nance Report on changes to circumstances subject to reporting that took place between the closing date of the reporting period and the time of preparation of the corporate governance report, provided such changes are material. 54 Austrian Working Group for Corporate Governance Annex 2b Guidelines for explanations and reasons for departures from the Code The company shall give information from which C-Rules of the Code it deviates and for each deviation. (a) explain how it deviates; (b) present the reasons for the deviation; (c) describe how the decision on a deviation was reached within the company; (d) if the deviation is limited in time, explain when the company plans to comply with the rule concerned; (e) if applicable, describe the measures taken instead of compliance with the rule and explain how this will contribute to the achieve- ment of the underlying objective of the rule concerned or of the Code in general or clarify how these measures contribute to good corporate governance. The information mentioned above should be sufficiently clear, preci- se and comprehensive to enable shareholders, investors and other stakeholders to assess the consequences of any departure from a specific rule. These explanations should describe the specific characteristics and situation of the company such as size, company structure and ownership or any other relevant features. 55 Austrian Working Group for Corporate Governance The reasons for departures from the rules should be presented in the Corporate Governance Report in in such a way so that they are easy to find for shareholders, investors and other stakeholders. 56 Austrian Working Group for Corporate Governance Annex 3 In the interest of the greatest degree of transparency, all foreign com- panies listed on the Vienna Stock Exchange are called on to publish on their website the provisions of the company law that applies to them, at least with respect to the rules mentioned below, and to publish this information on their websites and keep it up to date. No subscription to own shares The company shall not be permitted to subscribe to own shares. A subsidiary, as a founder or subscriber to shares or when exercising subscription rights, shall not be permitted to acquire shares of the com- pany. The effectiveness of such an acquisition shall not be affected by a breach of this rule. Any person with the function of founder or subscriber or exercising subscription rights having acquired shares for the account of the company or of a subsidiary shall not be able to claim that he or she has not acquired shares for their own account. Such person shall be liable for the full amount paid in irrespective of any agreement with the company or with a subsidiary. Such person shall not be entitled to any rights granted by the share before the acquisition of the shares for his or her own account. 57 Austrian Working Group for Corporate Governance No repayment of paid-in amounts No repayment of amounts paid in by shareholders shall be permitted; for as long as the company exists, shareholders shall only have the right to claim a share in the net profit reported in the financial statements unless distributions are ruled out by law or by the company’s articles of association. The payment of the acquisition price in the case of per- missible acquisitions of own shares shall not be considered repayment of paid-in amounts. Profit distribution to shareholders The share in the profit claimed by shareholders is defined by the per- centages they hold in the share capital of the company. If the paid-in amounts on the share capital have not been paid in on all shares in equal proportions, then the shareholders shall receive an amount in advance of the distributable profit of four percent of the amount paid in; if the profit is not sufficient, the amount to be paid out shall be fixed according to a lower rate. Paid-in amounts that have been effected in the course of a business year are taken into account proportionally according to the time expired since the payment. The articles of association may define another type of profit distribution. 58 Austrian Working Group for Corporate Governance Changes to the articles of association Any change to the articles of association shall require a resolution by the general shareholders’ meeting. The right to make changes, which refer only to the version, may be delegated by the general shareholders’ meeting to the supervisory board. The resolution may only be reached if the intended change to the articles of association has been explicitly notified with respect to its material content and announced in a timely manner. The legal validity of any definitions regarding special privileges, foun- dation expenses, contributions in kind and acquisitions in kind may be changed only after a period of one year has expired. The resolution by the general shareholders’ meeting shall require a majority of at least three-quarters of the share capital represented at the time the resolution is reached. The articles of association may replace this majority by another majority of the share capital represented, but the object of business of the company can only be changed by majority that represents a higher share in the capital. The articles of association may also define other conditions. If the effective distribution proportion applicable to several classes of shares is to be changed to the disadvantage of one class of shares, the resolution of the general shareholders’ meeting shall require the approval of the disadvantaged shareholders by a separate vote of said shareholders for the resolution to become effective; the provisions of sentence 1 and 2 of the preceding paragraph shall apply to these shareholders. The disadvantaged shareholders may only reach such 59 Austrian Working Group for Corporate Governance resolution if the separate vote has been explicitly notified and announ- ced in a timely manner. Exclusion of subscription rights In the case of a capital increase, every shareholder must be allotted upon his or her request a percentage of the new shares that corresponds to the share held in the share capital of the company up to that time. The right to subscribe to new shares may be excluded in full or in part only in the resolution on the increase of the share capital. In such case, the resolution shall, in addition to the requirements of the law or articles of association regarding capital increases, require a majority of the votes that corresponds to at least three-quarters of the share capital represented at the time of passage of the resolution. The articles of association may replace this majority by a larger majority in the share capital and also define other requirements. Acquisition of own shares The issuer shall disclose the applicable national laws regarding the acquisition of own shares. The following information shall be provided: • For which purposes the acquisition of own shares is permitted • The maximum amount of the permissible share in the share capital of the company when acquiring own shares according to national law • Provisions regarding the duration of a stock buyback programme 60 Austrian Working Group for Corporate Governance • The required resolutions including those of the competent bodies pursuant to national law and the percentage majority needed for the required resolutions • The mandatory disclosures relating to the acquisition of own shares The same shall apply accordingly to the selling of own shares. 61 Austrian Working Group for Corporate Governance Annex 4 Brief Overview of the Austrian Corporation Act The following section contains a brief overview of the main provisions of the Austrian Stock Corporation Act that relate to the main issues of corporate governance.17 The section has been written with the intent to make the Code easier to understand. This overview is not suitable for answering questions relating to legal issues. Since October 2004, the Regulation on European Joint Stock Companies has been in force. Ever since, it has been possible – with certain restrictions – to also establish the one-tier system (administrative council) by amending the corresponding articles of incorporation. However, as the Code does not address this specialty, this option is not discussed here further. Basically, in exchange-listed Societas Europaea (SE), the rules ap- plicable to the management board members apply to the managing directors, and the rules applicable to the supervisory board apply to the administrative council. The Austrian Stock Corporation Amendment Act 2009 and the Austrian Company Law Amendment Act 2011 have widened the differences bet- ween exchange-listed and „private” (unlisted) stock corporations. This concerns, above all, the convening of general shareholders’ meetings and participation in such meetings as well as the obligation to hold bearer shares of exchange-listed companies admitted to listing only in custody accounts from now on. Bearer shares that are held in the 17 Status November 2017: Major changes are expected from the Directive on long-term shareholder engagement that must be enacted in national law by June 2019. 62 Austrian Working Group for Corporate Governance form of a document directly by the shareholder must be entered into a securities custody account at the latest by the end of 2013. These regulations implement the requirements of the Financial Action Task Force to prohibit anonymous securities transactions due to the risk of money laundering. Registered shares are still permitted in the case of exchange-listed companies, but the information in the shareholders register must be extended (especially trustee relationships). As of this time, the fact of an exchange listing as well as the website of the company must be entered into companies register. The main regu- lations applicable to exchange-listed companies are explained below The Stock Exchange Act 2018 that entered into force at the beginning of 2018 combines the Official Market and the Second Regulated Market into one regulated market segment. The requirements of the Market Abuse Regulation (EU) No. 596/2014 must be observed also by the companies whose stocks are traded on a multilateral trading system. The Organisation of a Joint-Stock Company under Austrian Law The organisational structure of Austrian stock corporations rests on three governing bodies: the general shareholders’ meeting, the super- visory board and the management board. This organisational structure is designed to ensure the separation of powers. The general sharehol- ders’ meeting elects a supervisory board for a maximum period of five years, but may prematurely terminate this appointment by a qualified majority (the articles of incorporation may reduce this requirement to a simple majority). Upon a petition of a minority of 10%, a court can prematurely remove members elected by the general meeting and 63 Austrian Working Group for Corporate Governance members delegated by shareholders from office for material reasons. The supervisory board elects a chairperson for a maximum period of five years; it is possible for the supervisory board to call for the resi- gnation of the chairperson prematurely for material reasons (violation of duties, vote of no confidence by the general shareholders’ meeting). The management board manages the company at its sole responsibility and shall not be subject to instructions from the general shareholders’ meeting or of the supervisory board. Certain transactions specified by law shall be subject to the prior approval of the supervisory board; monetary limits may be defined in the articles of incorporation or in the internal rules of business. The management board may present of its own accord, or (in the case of transactions subject to approval), the supervisory board may present to the general shareholders’ meeting, motions for approval; this is a step usually taken in cases of funda- mental restructuring of the enterprise (e.g. disposal of major divisions of the company). According to legal doctrine in the case of so-called structural decisions such as the sale or outsourcing of major parts of a company, there is an “unwritten law” assigning responsibility to the general shareholders’ meeting. Shareholders and the General Shareholders’ Meeting Shareholders are to be treated equally unless there are factual reasons justifying a differentiation, as apply, for example, in certain relationships between group companies. The rights of shareholders are exercised at the general shareholders’ meeting. At least once a year, an annual general meeting shall be held (at the latest eight months after the end of the preceding business year). The Stock Exchange Act requires 64 Austrian Working Group for Corporate Governance the disclosure of the annual financial report by the latest four months after the close of the financial year. The ordinary general shareholders’ meetings of most companies take place in the fourth to sixth month after the close of the financial year. An extraordinary general meeting may be convened at any time by the management board, the supervisory board or a minority shareholder owning 5% of the shares. The convening of the annual general shareholders’ meeting must be published at the latest on the 28th day before the date of the ordinary general shareholders’ meeting, and in the case of an extraordinary general meeting, by the latest on the 21st day before the date. The announcement convening the meeting must be published in the Au- strian daily newspaper, Wiener Zeitung, and also disseminated via an appropriate medium (e.g. Reuters, Bloomberg). The FMA may define the appropriate information systems by issuing a Decree. Furthermore, information on the general shareholders’ meeting must be published on the website of the company recorded in the Companies Register. By the latest on the 21st day before the general shareholders’ meeting, the proposals for resolutions of the management board and/or super- visory board must posted at the company for inspection. A minority of 5% has the right to add items to the agenda of a general shareholders’ meeting already convened. The request must be sent to the company at the latest on the 21st day before the date of the meeting in the case of the ordinary general shareholders’ meeting, and on the 19th day before the date of the meeting in the case of any extraordinary general shareholders’ meeting. Moreover, the proposals for resolutions and the essential information and materials for the general shareholders’ mee- 65 Austrian Working Group for Corporate Governance ting must be accessible to shareholders on the website of the company on the 21st day before the date of the general shareholders’ meeting. The right to participate in the general shareholders’ meeting is founded in the case of bearer shares on the bearer being a shareholder at the close of the 10th day prior to the general shareholders’ meeting (cutoff date for furnishing proof) that must be proven by a confirmation of the custodian bank. The registration for participation and the confirmation of the custodian bank must be sent to the company at the latest on the third workday before the general meeting. The confirmation of the custodian bank can be a document in text format. The document that must be issued shall contain the minimum information stipulated in the Austrian Stock Corporation Act, with the confirmation document in English also being acceptable as sufficient proof. SWIFT is used for sending the confirmation of the custodian bank. The by-laws may permit the sending of the scanned document by e-mail. Every shareholder also has the right to be represented by written proxy. If not specified in the by-laws of the company, it shall suffice to send the proxy by telefax or by e-mail. In the case of a proxy assigned to the custodian bank, a confirmation of the bank that it has been assigned the proxy shall suffice. Anonymous participation via a shareholder furnishing proof of identity (“third party owner”) is not permitted. The implementation of the Shareholders’ Rights Directive has signi- ficantly widened the participation options for shareholders. Instead of the ‘classical’ general shareholders’ meetings with physical attendance, the by-laws may permit a general shareholders’ meeting to take place simultaneously at different locations within the country or abroad 66 Austrian Code of Corporate Governance (satellite general meetings) or it may permit shareholders to take part via an acoustic, if applicable, also optical two-way communication line, and to also vote electronically. Apart from electronic voting, the by-laws may also permit voting by mail. If the by-laws do not specify the format of remote participation, but simply leaves this option open, then the management board with the consent of the supervisory board shall decide on the type of participation. The invitation to the general shareholders’ meeting shall contain detailed information on the different forms of participation. A minority of 1% shall have the right to have its proposals for resolutions made accessible on the website of the company. This does not rule out the possibility of putting forth counter-proposals to the scheduled items of the agenda at the general shareholders’ meeting. Only in the case of elections to the supervisory board it is required that the proposed candidates be displayed on the website of the company at the latest on the fifth day before the general meeting. Shareholders have the right to ask questions and submit motions for approval at general shareholders’ meetings regarding all items on the agenda. Motions may only be made if these relate to an item on the agenda. Regarding the agenda item to discharge the management board and supervisory board members from liability, the vote may be re- quested through a special audit. The unjustified refusal to give answers or an inadequate answer may result in a resolution being contestable. Basically, the general meeting shall decide by a simple majority of the votes cast. The law prohibits shares with more than one voting right. The possibility exists of issuing so-called non-voting preferred shares for which the voting rights are suspended as long as preferred dividends 67 Austrian Working Group for Corporate Governance are paid out in full (including any subsequent payments). In cases in which the subscription rights of holders of preferred shares are to be altered, a special vote must be held among the holders of preferred shares. Furthermore, the articles of incorporation may also limit the maximum voting rights that a single shareholder may have regardless of the percentage of shares held in the company. In recent years, a clear tendency has emerged toward the principle of ‘one share – one vote’. At ordinary general shareholders’ meetings, the management board reports on the situation of the enterprise and submits the motion to distribute the profits as approved by the supervisory board. The share- holders are bound by the net profit reported on the balance sheet when deciding the profit distribution, thus the management board and the supervisory board ultimately have the final say in the dividend policy. The by-laws may only define that the general shareholders’ meeting carry forward part of the net profit to new account. Furthermore, the approval of the reports and activities of the management board and of the supervisory board are items on the agenda of annual general meetings, though such approval constituting only an expression of trust and does not release the board members from potential liability. The general meeting elects the members of the supervisory board and the auditor of the financial statements. Only persons may be elected to the supervisory board for which the proposal for election, and the related information and declarations have been made accessible on the website of the company at the latest on the fifth workday before the general meeting. The general meeting passes resolutions on changes to the articles of incorporation (generally by a two-third majority) and company transformation measures (e.g. mergers, split-ups, also generally by a two-third majority). 68 Austrian Working Group for Corporate Governance Supervisory board The number of members on the supervisory board is defined in the articles of incorporation; the supervisory board must consist of at least three members (exclusive of employees’ representatives); the articles of incorporation can define a maximum number as well as a framework. Moreover, employees’ representatives (group employees’ representatives) are entitled to (but not obligated) to delegate one em- ployees’ representative for every two shareholders’ representative to the supervisory board. Apart from this, the law prohibits members of the management board or employees to hold positions on the supervisory board as shareholders’ representatives (except in connection with the co-determination rights of employees’ representatives). Members of the management board may switch to the supervisory board only after a cooling-off period of two years, unless the appointment is supported by 25% of shareholders. Effective from 2018, the Act on Equal Treatment of Women and Men defines that the supervisory board must consist of at least 30% women, unless the supervisory board has fewer than six shareholder representatives or the share of women in the company’s staff is less than 20%. The share of 30% refers to the entire supervisory board (including employee representatives) unless the panel of capital representatives or of employee representatives raises an objection, thus requiring the shares to be defined separately for the two groups. If this rule is breached, the appointment becomes null and void. If the by-laws do not prescribe a proportional vote, a vote shall be carried out for every single member of the supervisory board. If at least three members must be elected, a minority of 1% may request the election of opponents. If an opponent receives at least one-third of all votes at each voting round (except for the last one), then this candidate is 69 Austrian Working Group for Corporate Governance elected in last place. To ensure transparency as regards suitability and independence of the supervisory board members, the following must be presented before the election: expert knowledge of the candidate; professional experience, and any circumstances that might constitute grounds for fearing a conflict of interest. Decisions of the supervisory board are reached by a simple majority and the employees’ representatives do not have a special status. A major role is played by the chairperson of the supervisory board who is responsible for the organisation of the supervisory board, its mee- tings and collaboration with the management board. Furthermore, the chairperson generally leads the general meeting. The supervisory board must meet on a regular basis (at least four times a year). The annual projections and quarterly reports as well as special reports in cases of impending crises must be presented to the supervisory board. The supervisory board may at any time conduct exhaustive audits itself or commission experts to conduct such audits. The supervisory board decides the approval of the annual financial statements and thus indirectly decides the amount of the dividend to be distributed. The supervisory board must audit the consolidated financial statements and approve them. The supervisory board may request experts to take part in its meetings. Approval of the supervisory board must be obtained for contracts of the company or of its subsidiaries with members of the supervisory board for activities on behalf of the company or group outside of the 70 Austrian Working Group for Corporate Governance supervisory board responsibilities and in which they have a considerable economic interest. This shall also apply to contracts with companies in which a member of the supervisory board has a considerable economic interest. Exchange-listed stock companies must set up an audit committee of the supervisory board of which one member must be a financial ex- pert. The committee shall be charged with the tasks of auditing and preparing the resolutions to be passed by the entire supervisory board and of preparing a proposal for the appointment of an auditor for the financial statements. The auditor must send a separate report to the audit committee on its activities and the material findings of its audit. The chairperson of the audit committee and the financial expert must be independent and are not permitted to have served as a member of the management board or as top management staff or auditor of the company or have signed an auditor’s opinion in the past three years. The audit committee must hold at least two meetings per financial year. The auditor must be invited to the meetings that deal with the preparation of the approval of the financial statements and their audit. The audit committee tasks include the monitoring of the accounting procedures, the monitoring of the effectiveness of the internal control system, and if applicable, the internal audit and risk management system as well as the process of the auditing of the annual accounts and consolidated finan- cial statements. The audit committee must monitor the independence of the auditor; auditors must obtain approval from the audit committee for providing non-financial services insofar as these are permissible. The audit committee conducts the procedure to select the auditor of the financial statements. When there is a change to the auditor, the committee must ensure that the general shareholders’ meeting has 71 Austrian Working Group for Corporate Governance a choice between two auditors. The tasks of the committee consist of taking care that the corresponding processes are set up properly at the company and its subsidiaries from the standpoint of the group. Furthermore, the audit of the Corporate Governance Report is one of the tasks of this committee. Management Board The supervisory board takes decisions autonomously on the election and thus the selection of the management board members, and on the establishment of the position of chairperson of the management board. If a chairperson is appointed to the management board, the chairperson shall have the casting vote unless a different procedure has been defined in the articles of incorporation for decisions of the management board in the event of a tie. Unlike German law, Austrian law does not prescribe the appointment of an employees’ representa- tive to the management board. The management board is a collective body, meaning that responsibility for governing the business of the company is borne equally by all members of the management board. A differentiated assignment of responsibility is possible and common practice (usually defined by the supervisory board), which is done by assigning areas of responsibility to the board members in the internal rules of business. If the areas of responsibility are divided among the members of the management board, each board member shall bear primary responsibility for his or her assigned area, although the other members shall still be under the obligation to constantly monitor and address any deficiencies they perceive in the other areas of responsibi- lity. In the case of measures having a material impact as, for example, business transactions that must be presented to the supervisory board 72 Austrian Working Group for Corporate Governance for approval, the collective responsibility of the management board shall be mandatory and indivisible. Capital Increases and Subscription Rights In cases of capital increases and the issuance of rights to new shares (bonds with attached warrants, convertible bonds, profit participating bonds), existing shareholders shall have subscription rights, which the general meeting may only exclude by a three-fourth majority vote if this move is justified by the facts of the case (e.g. in the case of con- tributions in kind). This resolution shall be announced separately and shall require a written statement by the management board explaining the reasons and shall also be presented to the commercial register of companies. The management board may be authorised to increa- se the share capital of the company within a defined scope with the approval of the supervisory board without requiring the prior approval of the general shareholders’ meeting (authorised capital). This also applies to the issuance of convertible bonds. This authorisation shall be limited to a period of five years, but may be prolonged repeatedly by the general shareholders’ meeting. Here as well, special reporting obligations apply if subscription rights are to be excluded. It may be assumed that relevant reasons exist for excluding subscription rights in the case of new issues for stock option schemes for employees, management-level staff or members of the boards of the company. It shall also be possible to authorise the issue of options on new issues exclusively to this group of persons with the prior authorisation of the general meeting. In this case, the management board shall be subject to extensive reporting obligations. 73 Austrian Working Group for Corporate Governance Share Buybacks The acquisition of own shares is subject to substantial restrictions. The law permits the general shareholders’ meeting of a listed company to au- thorise the management board for a period of 30 months to repurchase the company’s own shares up to a maximum of 10%. If this repurchase option is exercised, extensive disclosure requirements apply according to the provisions of the Stock Exchange Act. The Capital Market Austrian capital market law has implemented the EU legislation re- garding the prohibition of insider dealings, the prevention of market manipulation and ad hoc reporting obligations and the reporting of transactions in the stocks of the company by managing employees or persons or institutions closely related to them. The provisions of the Market Abuse Regulation apply directly. This also includes the prepa- ration and publication of the corporate governance report. Furthermore, public offerings of shares and derivatives are subject to the prospectus rules of the EU Prospectus Directive 2017/1129. The approval of the prospectus is the competence of the Financial Market Authority (FMA). The Stock Exchange Act 2018 now specifies a procedure for delisting shares, profit-linked bonds and convertible bonds listed on the regula- ted market of the Vienna Stock Exchange. This procedure requires the support of 75% of shareholders, as well as a takeover bid, which must include, in addition to the minimum price requirements applicable to a mandatory bid, a lower limit derived from the weighted average price of the last five trading days before the intended delisting was announced. The Takeover Commission is responsible for monitoring price determi- 74 Austrian Working Group for Corporate Governance nation. For companies with their registered office in the EU/EEA listed on the Vienna Stock Exchange, a mandatory takeover bid is required as part of the implementation of the Takeover Directive when a change in the control of the company occurs. The requirement of a mandatory bid is assumed to apply in the case of the direct or indirect (active) ac- quisition of a share of 30% (alone or jointly with another legal person). In the case of investments of more than 26% that do not yet trigger a mandatory bid, it is required to report this to the Takeover Commission and the voting shares exceeding the secured blocking minority of 26% are suspended. The mandatory bid that must be made in the case of a change in the controlling interest in a company must be in cash and must correspond as a minimum to the weighted average stock market price of the share during the last six months or to the highest price of the last 12 months paid by the party gaining the controlling interest, if the price is higher than the aforementioned average. In the event of a takeover bid, the management board and the supervisory board are under the strict obligation to act impartially. The takeover procedure is accompanied and monitored by the Takeover Commission, which is an independent public authority. A mandatory bid is also required if a shareholder owning a percentage of between 30% and 50% buys 2% or more of the shares of a company within one year (creeping in). Further information is available on the website of the Takeover Commission, www.takeover.at. Sections of the Takeover Act also apply to voluntary takeover bids even if there is no change in controlling interest. If a bidder reaches 90%, the bidder has the right to exclude the remaining shareholders at the offer price and takes over their shares. 75 Austrian Working Group for Corporate Governance Groups and Company Transformations Although Austrian company law does know the concept of the group company, but unlike German law it does not contain a separate legal framework applicable to groups. The formation of a group does not automatically lead to the liability of the parent company for the entire group. Likewise, when forming a group company, there is no automatic obligation to make a tender offer to outside shareholders unless the provisions of the Takeover Act apply. The mere presence of a majority of, for example, a “core shareholder” holding 25% does not yet trigger the obligation to make a tender offer according to the Takeover Act. In the case of combinations or split-ups of enterprises, special rights are granted to shareholders, in particular, every shareholder has the right to initiate an examination by a court of law of the appropriateness of the conversion ratio or cash settlement. In the case of split-ups that change the proportions of shareholdings, every shareholder that did not consent has the right to exit. Upon request of the exiting shareholder, the tender offer is to be examined in a special court procedure. If the decision is reached to improve the offer, all shareholders benefit. The 2006 Act on the Squeeze-out of Shareholders makes it possible for a shareholder owning 90% of the stock to squeeze out the remaining minority shareholders by offering them an adequate cash tender offer. In this case as well, the cash tender offer is subject to an examination by the courts, with all shareholders having the right to initiate an exami- nation procedure (irrespective of any objection at the general meeting). Other former squeeze-out mechanisms are no longer permitted. Further information and relevant links are available at: www.corporate-governance.at 76 Austrian Working Group for Corporate Governance c/o Johannesgasse 5, A - 1010 Vienna www.corporate-governance.at - printed under the directive of the Austrian Eco-label printing products, printing of the Federal Ministry of Finance, UW-No. 836