Declaration on Corporate Governace and Corporate Governance Report1
Corporate Governance stands for responsible and transparent management and corporate control oriented toward a sustainable increase in value. We are convinced that good corporate governance is an essential foundation for sustainable corporate success and enhances the confidence placed in our company by our shareholders, business partners, employees and the financial markets. The following report includes the Declaration on Corporate Governance and the Corporate Governance Report and is issued by the Executive Board and Supervisory Board in accordance with the German Corporate Governance Code (‘Code’) as amended on February 7, 2017, which was published in the Federal Gazette on April 24, 2017 and May 19, 2017 (corrected version).
DECLARATION BY THE EXECUTIVE BOARD AND SUPERVISORY BOARD OF Adidas AG ON THE GERMAN CORPORATE GOVERNANCE CODE PURSUANT TO § 161 GERMAN STOCK CORPORATION ACT (AKTIENGESETZ – AKTG)
The Executive Board and Supervisory Board of adidas AG issued their last Declaration of Compliance pursuant to § 161 AktG in February 2019. For the period from the publication of the last Declaration of Compliance, the following Declaration refers to the German Corporate Governance Code (‘Code’) as amended on February 7, 2017, which was published in the Federal Gazette on April 24, 2017 and May 19, 2017 (corrected version).
The Executive Board and Supervisory Board of adidas AG declare that the recommendations of the Government Commission German Corporate Governance Code have been and are met with the following deviation:
Maximum number of non-group mandates held by members of the Supervisory Board (section 5.4.5 subsection 1 sentence 2)
One member of the Supervisory Board, Ian Gallienne, holds more than three mandates in supervisory bodies of non-group companies which are listed at a stock exchange or have similar requirements. Ian Gallienne is Chief Executive Officer of Groupe Bruxelles Lambert (GBL). GBL is a holding company and, in its capacity as an institutional investor represented by, inter alia, its Chief Executive Officer, regularly holds mandates in supervisory bodies of portfolio companies. All companies (apart from adidas AG) in which Ian Gallienne holds mandates in supervisory bodies are portfolio companies or subsidiaries of GBL or are under common control with it and thus belong to the same group of companies. They have to be attributed to his main occupation as Chief Executive Officer of GBL. Therefore, we are of the opinion that, as regards its intent and purpose, the recommendation of section 5.4.5 subsection 1 sentence 2 is not applicable to Ian Gallienne. However, as a precaution, we declare a deviation. Moreover, the Supervisory Board has assured itself that Ian Gallienne has sufficient time to perform his Supervisory Board mandate at adidas AG.
Herzogenaurach, December 2019
For the Executive Board
Chief Executive Officer
For the Supervisory Board
Chairman of the Supervisory Board
The aforementioned Declaration of Compliance has been published on and can be downloaded from our website.
SUGGESTIONS OF THE GERMAN CORPORATE GOVERNANCE CODE Largely FULFILLED
In addition to the recommendations, the Code contains a number of suggestions for good and responsible corporate governance, compliance with which is not required to be disclosed separately by law. adidas is compliant with the suggestions of the Code except for the suggestion outlined in section 4.2.3 subsection 2 sentence 9 of the Code according to which early disbursements of multiple-year, variable remuneration components should not be permitted.
DUAL BOARD SYSTEM
As a globally operating public listed company with its registered seat in Herzogenaurach, Germany, adidas AG is subject to, inter alia, the provisions of German stock corporation law. A dual board system, which assigns the management of the company to the Executive Board and advice and supervision of the Executive Board to the Supervisory Board, is one of the fundamental principles of German stock corporation law. These two boards are strictly separated both in terms of members and competencies. In the interest of the company, both Boards cooperate closely.
COMPOSITION AND WORKING METHODS OF THE EXECUTIVE BOARD
The composition of our Executive Board, which consists of six members, reflects the international character of our company. The Executive Board is responsible for independently managing the company, determining the Group’s strategic orientation, agreeing this with the Supervisory Board and ensuring its implementation. Further, it defines business targets, company policy and the organization of the Group. The Executive Board is in charge of preparing the quarterly statements, the company’s half year report as well as the annual financial statements and consolidated financial statements and the combined Management Report of adidas AG and the Group. Moreover, it prepares a combined non-financial statement for the company and the Group. Additionally, the Executive Board ensures appropriate risk management and risk controlling as well as compliance with statutory regulations and internal guidelines. In this regard, the Executive Board is responsible for implementing an adequate compliance management system which meets the requirements of the company’s risk situation. It is bound to the company’s interest and obligated to strive for a sustainable increase in company value.
Notwithstanding the Executive Board’s overall responsibility, its members are individually responsible for managing their respective business areas in accordance with the Business Allocation Plan for the Executive Board. There are no Executive Board committees. The Chief Executive Officer is responsible for lead management and development of the company, including the coordination of the business areas, brands and markets. The members of the Executive Board keep each other informed regularly and comprehensively about all significant developments in their business areas and align on all cross-functional measures. Collaboration within the Executive Board is further governed by the Rules of Procedure of the Executive Board and the Business Allocation Plan. These documents specifically stipulate requirements for meetings and resolutions as well as for cooperation with the Supervisory Board.
The Executive Board and Supervisory Board cooperate closely for the benefit of the company. The Executive Board reports to the Supervisory Board regularly, extensively and in a timely manner on all matters relevant for the company’s strategy, planning, business development, financial position and compliance as well as on essential business risks. Fundamental questions related to the corporate strategy and its implementation are thoroughly discussed and agreed with the Supervisory Board. When filling leadership positions in the company, the Executive Board takes diversity into account and aims for, in particular, adequate consideration of women.
No member of the Executive Board has accepted more than a total of three supervisory board mandates in non-group listed companies or in supervisory bodies of non-group companies with comparable requirements. EXECUTIVE BOARD
COMPOSITION AND WORKING METHODS OF THE SUPERVISORY BOARD
Our Supervisory Board consists of 16 members. It comprises eight shareholder representatives and eight employee representatives in accordance with the German Co-Determination Act (Mitbestimmungsgesetz – MitbestG). The shareholder representatives are elected by the shareholders at the Annual General Meeting, and the employee representatives by the employees. The most recent regular elections took place in the 2019 financial year. The term of office of all current members of the Supervisory Board commenced at the end of the Annual General Meeting on May 9, 2019 and will, in principle, expire at the end of the 2024 Annual General Meeting. The term of office of Igor Landau expires at the end of the 2020 Annual General Meeting and the term of office of Herbert Kauffmann at the end of the 2021 Annual General Meeting. SUPERVISORY BOARD
Objectives for the composition of the Supervisory Board
Due to the Supervisory Board elections in the 2019 financial year, the Supervisory Board confirmed at its meeting in December 2019 the objectives regarding its composition (including the profile of skills and expertise [competency profile] for the full Supervisory Board) which had last been resolved upon in October 2018, taking into account the recommendations of the Code. These objectives are published on our website. According to these objectives, the Supervisory Board should be composed in such a way that qualified supervision of and advice to the Executive Board are ensured. Its members as a whole are expected to have the knowledge, skills and professional experience required to properly perform the tasks of a supervisory board in a capital market-oriented, international company in the sporting goods industry. To this end, it is ensured that the Supervisory Board as a whole possesses the competencies considered essential in view of adidas’ activities. This includes, in particular, in-depth knowledge and experience in the sporting goods and sports- and leisurewear industry, in the business of fast-moving consumer-oriented goods and in the areas of technology, digitalization and information technology (including IT security), production, marketing and sales, in particular in the e-commerce and retail sector. Moreover, the Supervisory Board is expected to possess knowledge and experience in the markets relevant for adidas, in particular the Asian and US markets, and in the management of a large international company. Furthermore, the Supervisory Board as a whole must possess knowledge and experience in the areas of business strategy development and implementation, personnel planning and management, accounting and financial reporting, controlling/risk management, governance/compliance as well as corporate social responsibility. At least one member of the Supervisory Board must have expertise in the areas of accounting or auditing of annual accounts. Additionally, the Supervisory Board members as a whole are expected to be familiar with the sporting goods industry.
More than two thirds of the Supervisory Board members should be independent within the meaning of the Code. Moreover, with regard to diversity, it is the Supervisory Board’s aim to take into account origin, diverse professional and international experience and, in particular, adequate representation of both genders for its composition. Furthermore, an adequate number of the shareholder representatives should have long-standing international experience.
In addition, each Supervisory Board member must ensure that they have sufficient time to properly perform the tasks associated with the mandate. An age limit of, in general, 72 years at the time of election should be taken into account. As a rule, the length of membership in the Supervisory Board should not exceed 15 years or three terms of office.
In the Supervisory Board’s assessment, the Supervisory Board as a whole fulfills the objectives stated and the competency profile. Together, the members of the Supervisory Board have the knowledge, skills and professional expertise required to properly perform their duties. All of them are familiar with the sector in which the company operates. As they furthermore have extensive knowledge of various professional fields and many years of international experience, they bring a broad spectrum of expertise and experience to the performance of the Supervisory Board’s function. Moreover, with Herbert Kauffmann, the Chairman of the Audit Committee, at least one member of the Supervisory Board has proven expertise in the areas of accounting or auditing of annual accounts. The number of female Supervisory Board members currently amounts to five; thus, the statutory minimum quota regarding the composition, namely at least 30% female and at least 30% male members, is fulfilled. Further information on the fulfillment of the quota stipulated in § 96 section 2 sentence 1 AktG is contained in this report. The members of our Supervisory Board do not exercise directorships or similar positions or advisory tasks for key competitors of the company. Further, they do not have business or personal relations with adidas AG, its Executive Board and Supervisory Board or a controlling shareholder which may cause a substantial and not merely temporary conflict of interest. No members of the Supervisory Board are former Executive Board members. In the Supervisory Board’s assessment, all eight shareholder representatives were independent within the meaning of the Code in the year under review. In accordance with the objectives resolved upon regarding its composition, the Supervisory Board deems this to be an appropriate number. The names of the independent shareholder representatives are set out in the overview of all Supervisory Board members in this Annual Report. SECTION ‘COMMITMENT TO THE PROMOTION OF EQUAL PARTICIPATION OF WOMEN AND MEN IN LEADERSHIP POSITIONS’ Assuming that all of the employee representatives also in principle meet the independence criteria as defined by the Code, in the Supervisory Board’s assessment, all of its members were independent in the year under review. Regarding the Supervisory Board’s composition, the age limit of, in general, 72 years at the time of election as well as the regular length of membership in the Supervisory Board of, in general, 15 years or three terms of office, was taken into account. The reappointment of Igor Landau, who exceeds both the age limit and the regular length of membership, for a term of office of only one year allows for transfer of the Supervisory Board chairmanship to a new Chairman. The orderly handover to a successor is highly important in particular in view of the fact that we are in the final implementation phase of the strategic business plan ‘Creating the New’. This is furthermore in the interest of the company because the company can benefit from Igor Landau’s extensive expertise as he will see the strategic business plan through to its completion in the 2020 financial year, thus ensuring a smooth handover to a new Supervisory Board Chairman. Furthermore, Roland Nosko, a union representative on the employee representative side, belonged to the Supervisory Board for more than 15 years upon his reappointment. SUPERVISORY BOARD
The Supervisory Board’s election proposals to the Annual General Meeting are prepared by the Nomination Committee. They take into account the objectives regarding the Supervisory Board’s composition in accordance with section 5.4.1 of the Code resolved upon by the Supervisory Board and are aimed at fulfilling the competency profile developed by the Supervisory Board for the Board as a whole. The Supervisory Board pays attention to a balanced composition to ensure that the required know-how is represented on as broad a scale as possible. Moreover, the Supervisory Board ascertains that each proposed candidate has sufficient time to perform their mandates.
Tasks of the Supervisory Board
The Supervisory Board supervises and advises the Executive Board in questions relating to the management of the company. The Executive Board regularly, expeditiously and comprehensively reports on business development and planning as well as on the company’s risk situation including compliance and coordinates the strategy of the company and its implementation with the Supervisory Board. The Supervisory Board examines and approves the annual financial statements and consolidated financial statements as well as the combined Management Report of adidas AG and the Group, taking into consideration the auditor’s reports, and resolves upon the proposal of the Executive Board on the appropriation of retained earnings. Additionally, it resolves upon the Supervisory Board’s resolution proposals to be presented to the Annual General Meeting. Moreover, the Supervisory Board examines the combined non-financial statement for the company and the Group. Certain business transactions and measures of the Executive Board with fundamental significance are subject to prior approval by the Supervisory Board or by a Supervisory Board committee. The respective details are set out in § 9 of the Rules of Procedure of the Supervisory Board of adidas AG. Furthermore, the requirement of prior Supervisory Board approval is stipulated in some resolutions by the Annual General Meeting.
The Supervisory Board is also responsible for the appointment and dismissal of the Executive Board members as well as for the allocation of their areas of responsibility. The respective proposals are prepared by the General Committee. When appointing new Executive Board members, the Supervisory Board aims to select candidates with a wide range of complementary skills to ensure the best possible Executive Board composition for the company, keeping long-term succession planning in mind. Inter alia, experience, industry knowledge as well as professional and personal qualifications play an important role in this regard. In addition, taking into account the international structure of the company, the Supervisory Board considers diversity. This applies, in particular, also with regard to age, gender, internationality and further important personal qualities. Considering all circumstances of the individual case, the company’s interest is always key when deciding who to appoint to a specific Executive Board position. Furthermore, the Supervisory Board determines the Executive Board compensation system, examines it regularly and decides on the individual overall compensation of each Executive Board member. Further information on Executive Board compensation is compiled in the Compensation Report. COMPENSATION REPORT
Further information on Corporate Governance
More information on topics covered in this report can be found on our website including:
- Articles of Association
- Rules of Procedure of the Executive Board
- Rules of Procedure of the Supervisory Board
- Rules of Procedure of the Audit Committee
- Supervisory Board committees (composition and tasks)
- CVs of Executive Board members and Supervisory Board members
- Objectives of the Supervisory Board regarding its composition (including competency profile for the full Supervisory Board)
In order to increase the efficiency of its work and to deal with complex topics, the Supervisory Board has formed five permanent expert committees from within its members, which, inter alia, prepare its resolutions and, in certain cases, pass resolutions on its behalf. These committees are the Steering Committee, the General Committee, the Audit Committee, the Mediation Committee in accordance with § 27 section 3 MitbestG and the Nomination Committee. The tasks, responsibilities and work processes of the committees are in line with the requirements of the German Stock Corporation Act and the Code. The chairmen of the committees report to the entire Supervisory Board on the results of the committee work on a regular basis. Further information on the committees’ composition and tasks is available on our website.
Apart from the individual skills expected of the members, the Rules of Procedure of the Supervisory Board and of the Audit Committee also set out the tasks and responsibilities as well as the procedure for meetings and passing resolutions. These Rules of Procedure are available on our website. The Supervisory Board Report provides information on the activities of the Supervisory Board and its committees in the year under review. SUPERVISORY BOARD REPORT
The members of the Supervisory Board are individually responsible for undertaking any necessary training and professional development measures required for their tasks and, in doing so, are supported by adidas AG. The company informs the Supervisory Board regularly about current legislative changes as well as opportunities for external training, and provides the Supervisory Board with relevant specialist literature. In this regard, the Supervisory Board also obtained information about the latest corporate governance developments and dealt extensively with the revised version of the Code.
Furthermore, the Supervisory Board and the Audit Committee examine the efficiency of their work on a regular basis. The most recent efficiency examination took place in the 2018 financial year.
COMMITMENT TO THE PROMOTION OF EQUAL PARTICIPATION OF WOMEN AND MEN IN LEADERSHIP POSITIONS
When filling leadership positions in the company, the Executive Board takes diversity into account and especially aims for appropriate consideration of women. The Supervisory Board is also convinced that an increase in the number of women in leadership positions within the company is necessary to ensure that, in the future, a larger number of suitable female candidates are available for Executive Board positions. The Supervisory Board thus supports the company’s initiatives to foster diversity and inclusion and promote women in leadership positions. PEOPLE AND CULTURE
Pursuant to the Law on Equal Participation of Women and Men in Leadership Positions in the Private and Public Sector, the Supervisory Board determined target figures for the percentage of female representation on the Executive Board, including corresponding deadlines for their achievement, and the Executive Board determined such target figures for the first two management levels, including deadlines for their achievement, for adidas AG.
The target figure for the Executive Board is 1/7 or 14.29%. The deadline for achieving this target figure is June 30, 2022.
The deadline for achieving the target figures for the first and second management levels expired on December 31, 2019. On the first management level below the Executive Board, the percentage share of women amounted to 20% at the deadline. The target figure of 24% was thus not achieved. This is attributable to, in particular, unplanned departures from the company in the year under review as well as an increase in the total number of senior executives on this management level. In this respect, it must be noted that adidas AG has only a small number of leadership positions on this management level; therefore, minor changes already result in considerable changes in percentage numbers. On the second management level below the Executive Board, the percentage share of women amounted to 28.8% at the deadline. The target figure of 30% was thus not achieved. This target figure was only just missed, mainly because of the reorganization of departments which led to the elimination of a number of leadership positions partly held by women. As at December 31, 2019, female representation in leadership positions amounted to 34% on a global level. The target figure of 32% for the year 2020 has thus already been exceeded. The company will continue to intensify its efforts to remain an attractive employer in the future, with a particular focus on a long-term approach for equal participation in leadership positions.
The Executive Board has once again determined target figures and implementation deadlines for the percentage of female representation on the first and second management levels below the Executive Board. These target figures are as follows:
The target figure for the first management level below the Executive Board is 24.2% and 30% for the second management level below the Executive Board. The implementation period for both targets expires on December 31, 2021.
In accordance with § 96 section 2 sentence 1 AktG, at least 30% of the members of the Supervisory Board have to be female and at least 30% have to be male. Prior to the Supervisory Board election in 2019 and also for the Supervisory Board election in 2020, the shareholder representatives and the employee representatives each resolved in accordance with § 96 section 2 sentence 3 AktG that this minimum quota shall be fulfilled separately for the shareholder representatives and the employee representatives. As at December 31, 2019, altogether five of the 16 Supervisory Board mandates of the company were held by women, two on the shareholder representative side and three on the employee representative side. The minimum quota required is thus fulfilled on both sides.
AVOIDING CONFLICTS OF INTEREST
The members of the Executive Board and Supervisory Board are obligated to disclose any conflicts of interest to the Supervisory Board without delay. Substantial transactions between the company and members of the Executive Board or related parties of the Executive Board require Supervisory Board approval. Contracts between the company and members of the Supervisory Board also require Supervisory Board approval. The Supervisory Board reports any conflicts of interest, as well as the handling thereof, to the Annual General Meeting. In the year under review, the members of the Executive Board and the members of the Supervisory Board did not face any conflicts of interest. SUPERVISORY BOARD REPORT
SHARE TRANSACTIONS CONDUCTED BY THE EXECUTIVE BOARD AND SUPERVISORY BOARD
An overview of the transactions of the Executive Board and the Supervisory Board pursuant to Article 19 of the Regulation (EU) No 596/2014 (Market Abuse Regulation) notified to adidas AG in 2019 is published on our website.
RELEVANT MANAGEMENT PRACTICES
Our business activities are oriented toward the legal systems in the various countries and markets in which we operate. This implies a high level of social and environmental responsibility. Further information on company-specific practices which are applied in addition to statutory requirements, such as our Code of Conduct (‘Fair Play’), on compliance with working and social standards within our supply chain, environmentally friendly resource management in our manufacturing processes and our social commitment, is available in this Annual Report and on our website. people and culture SUSTAINABILITY
COMPLIANCE AND RISK MANAGEMENT
Compliance with laws, internal and external provisions and responsible risk management are part of corporate governance at adidas. Our compliance management system is linked to the company’s risk and opportunity management system. As part of our global ‘Fair Play Concept’, the compliance management system establishes the organizational framework for company-wide awareness of our internal rules and guidelines and for the legally compliant conduct of our business. It underscores our strong commitment to ethical and fair behavior in our own organization and also sets the parameters for how we deal with others. The principles of our compliance management system are set out in the Risk and Opportunity Report. The risk and opportunity management system ensures risk-aware, opportunity-oriented and informed actions in a dynamic business environment in order to guarantee the competitiveness and sustainable success of adidas. RISK AND OPPORTUNITY REPORT
Further information on the principles of our management
More information on topics covered in this report can be found on our website including:
- Code of Conduct
- Social commitment
- Risk and opportunity management and compliance
- Information and documents on the Annual General Meeting
- Managers’ transactions
- Accounting and annual audit
TRANSPARENCY AND PROTECTION OF SHAREHOLDERS’ INTERESTS
It is our goal to inform all institutional investors, private shareholders, financial analysts, business partners, employees and the interested public about the company’s situation, at the same time and to an equal extent, through regular, transparent and up-to-date communication. We publish all essential information, such as press releases, ad hoc announcements and voting rights notifications as well as all presentations from roadshows and conferences, all financial reports and the financial calendar on our website. With our Investor Relations activities, we maintain close and continuous contact with our current and potential shareholders. OUR SHARE
In addition, we provide all documents and information on our Annual General Meeting on our website. The shareholders of adidas AG exercise their shareholders’ rights at the Annual General Meeting. Each share grants one vote. Our shareholders are involved in all fundamental decisions at the Annual General Meeting through their participation rights. It is our intention to support our shareholders in exercising their voting rights at the Annual General Meeting. At our next Annual General Meeting, taking place in Fuerth (Bavaria) on May 14, 2020, we will again provide our shareholders with the best possible service. Shareholders have the possibility, inter alia, to electronically register for the Annual General Meeting through our shareholder portal or to participate in voting by granting powers of representation and voting instructions online to the proxies appointed by the company.
A long-term incentive plan, which is part of the remuneration for senior executives of adidas, applies. Based on this plan, the plan participants receive virtual shares (Restricted Stock Units). note 28 PEOPLE AND CULTURE
As per their contracts, each member of the Executive Board is entitled to participate in a Long-Term Incentive Plan (LTIP) set up for the Executive Board members. The LTIP 2018/2020 links the long-term compensation of the Executive Board to the company’s performance and thus to the interests of the shareholders. The decisive assessment factors are designed in a transparent manner and are linked to the long-term profitability targets externally communicated. Moreover, the long-term compensation of the Executive Board and the long-term compensation of senior management are aligned. The LTIP 2018/2020 is share-based. The adidas shares purchased are subject to a multi-year lock-up period. COMPENSATION REPORT
Employees of adidas AG and its affiliated companies are able to participate in an employee stock purchase plan, under which they can acquire adidas AG shares with a discount and benefit, on a prorated basis, from free matching shares. note 28
ACCOUNTING AND ANNUAL AUDIT
adidas AG prepares the annual financial statements in accordance with the provisions of the German Commercial Code (Handelsgesetzbuch – HGB) and the Stock Corporation Act. The annual consolidated financial statements are prepared in accordance with the principles of the International Financial Reporting Standards (IFRS), as adopted by the European Union (EU).
KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, was appointed as auditor for the 2019 annual financial statements and consolidated financial statements by the Annual General Meeting. The Supervisory Board had previously assured itself of the auditor’s independence. INDEPENDENT AUDITOR’S REPORT
1 The Declaration on Corporate Governance and the Corporate Governance Report is an unaudited section of the combined Management Report.