Report of the Supervisory Board
Despite the difficult situation in the chemical market worldwide, BASF can look back on a successful year, with sales and earnings levels which, overall, tie into the very good levels of 2011. In view of the development of the global economy and the continuing effects of the debt crisis on the economic situation in Europe, this was by no means a given. A crucial element of both this and future success is the ability to recognize new, fast-growing business areas, and to develop innovative products and solutions for them to offer our customers. With its “We create chemistry” strategy, BASF is turning even more in this direction, without neglecting its proven strengths.
The Board of Executive Directors continued to demonstrate impressive company leadership in 2012. The high-quality, interconnected work of the entire team of the Board of Executive Directors and employees was once again crucial to BASF’s success. Again and again, maintaining continuity while embracing change has proven to be one of BASF’s great strengths.
“Maintaining continuity while embracing change has proven again and again to be one of BASF’s great strengths.”
Monitoring and consultation in an ongoing dialog with the Board of Executive Directors
In 2012, the Supervisory Board of BASF SE exercised its duties as required by law and the Statutes with the utmost care. We regularly monitored the management of the Board of Executive Directors and provided advice on the company’s strategic development and important individual measures, about which the Supervisory Board was thoroughly informed by the Board of Executive Directors. This occurred in the form of written and verbal reports on business policies and the business situation, as well as the company’s performance, profitability, global HR policy and planning with regard to finances, capital expenditures and human resources at BASF SE and its major subsidiaries. Information was also provided as to any deviations of business performance from planning. The Supervisory Board discussed in detail the reports from the Board of Executive Directors, and also discussed prospects for the company and its individual business areas with the Board of Executive Directors. Outside of Supervisory Board meetings, the Chairman of the Supervisory Board also regularly requested information from the Chairman of the Board of Executive Directors regarding current developments and items relevant to the company. The Supervisory Board was always involved at an early stage in decisions of major importance. The Supervisory Board discussed and voted on all of those individual measures taken by the Board of Executive Directors, which by law or the Statutes required the approval of the Supervisory Board. In 2012, this included:
- The transfer of shares in the natural gas trading and storage companies previously jointly operated with Gazprom, along with a share in Wintershall Noordzee B.V. which conducts crude oil and natural gas exploration and production in the southern North Sea, in return for an additional share in the natural gas and condensate fields in Western Siberia from Gazprom;
- The swap with Statoil comprising oil and gas fields in the Norwegian North Sea with a cash consideration from Wintershall to Statoil; and
- The acquisition of the U.S. company Becker Underwood.
Supervisory Board meetings
The Supervisory Board held five meetings in the 2012 reporting year. With the exception of one meeting in which one member did not participate, all twelve Supervisory Board members attended the Supervisory Board meetings in 2012. The members of the Supervisory Board elected by shareholders and those elected by the employees prepared for the meetings in separate preliminary discussions.
In all of its meetings, the Supervisory Board discussed the further development of the BASF Group’s business activities through acquisitions, divestitures and investment projects. One of the focus areas comprised the Oil & Gas segment’s important agreements with Gazprom and Statoil on intensive collaboration in the exploration and production of natural gas and crude oil in Western Siberia and the Norwegian North Sea. The agreement with Gazprom will further expand the already very successful and unique cooperation in the exploration and production of natural gas in Russia. In return, BASF will withdraw from the natural gas trading business by completely transferring its shares in the WINGAS companies. The agreement with Statoil provides the Oil & Gas segment with an additional strong base in the production of oil and gas. Another topic surrounded the Agricultural Solutions segment, with the acquisition of Becker Underwood and its biological seed treatment technologies, as well as the investment in extensive expansions of the production facilities for the fast-growing Fungicide F 500®. The ultimately successful takeover bid for Pronova BioPharma ASA – with which BASF will further expand its business with products for health and nutrition – comprised a further discussion point.
In addition to dealing with strategically significant individual measures, the Supervisory Board also addressed BASF’s strategy and long-term business prospects in individual regions and business areas. In the meeting of July 19, 2012, we intensively discussed the Board of Executive Directors’ strategic objectives for sustainability, technology, innovation, industry orientation and employees, derived from the “We create chemistry” strategy adopted in 2011. Furthermore, we requested information on the strategy and development of the Petrochemicals division. In the meeting of December 20, 2012, we were presented with the 2025 Strategy for the Asia Pacific region, which we thoroughly discussed.
In four Supervisory Board meetings, examples of innovations were used to inform us about research and development topics and the development of future markets, and we discussed these with the Board of Executive Directors. These examples included innovative pigments for liquid crystal displays and biopolymers for use as oilfield chemicals. At the meeting of December 20, 2012, we discussed and approved the Board of Executive Directors’ operative and financial planning for 2013. In addition, we once again empowered the Board of Executive Directors to procure necessary financing in 2013.
The Supervisory Board thoroughly considered the personnel issues concerning the Board of Executive Directors during the meeting of December 20, 2012. Based on preparations conducted by the Personnel Committee, we advised the Board of Executive Directors on its objectives for 2013, agreed on these with them, and determined the Board of Executive Directors’ performance evaluation. Together with the return on assets of the BASF Group, this evaluation is essential in ascertaining the performance-related component of the compensation of the Board of Executive Directors.
BASF SE’s Supervisory Board has a total of three committees: 1) the committee for personnel affairs of the Board of Executive Directors and the granting of loans in accordance with Section 89 (4) of the German Stock Corporation Act (Personnel Committee), 2) the Audit Committee and 3) the Nomination Committee. Following each Committee meeting, the chairmen of the Committees reported in detail about the meetings and the activities of the Committees at the next meeting of the Supervisory Board.
The Personnel Committee comprises Supervisory Board Chairman Dr. h.c. Eggert Voscherau (chairman), Supervisory Board Vice Chairmen Michael Diekmann and Robert Oswald, and Supervisory Board member Michael Vassiliadis. The Personnel Committee met on December 19, 2012. In this meeting, it thoroughly discussed the Board of Executive Directors’ 2012 performance evaluation and the level of their goal achievement, as well as the Supervisory Board’s target agreements with the Board of Executive Directors for 2013, and dealt with the topic of succession planning for the Board of Executive Directors. The Committee made recommendations to the Supervisory Board regarding the first two points mentioned. The Supervisory Board adopted the recommended proposals at its meeting on December 20, 2012.
The Audit Committee consists of Supervisory Board members Max Dietrich Kley, Ralf Gerd Bastian, Franz Fehrenbach and Michael Vassiliadis. The Chairman of the Audit Committee is Max Dietrich Kley, who has also been appointed Audit Committee Financial Expert. The Audit Committee is responsible for all the tasks of an audit committee listed in Section 107 Paragraph (3) Sentence 2 of the German Stock Corporation Act and in subsection 5.3.2 of the German Corporate Governance Code in its most recent version of May 15, 2012. The Audit Committee met five times in the reporting period. All committee members attended all committee meetings. Following each Committee meeting, the Chairman of the Audit Committee reported on the agenda items and audit work of the Committee at the subsequent Supervisory Board meeting. The core duties were to review BASF SE’s Financial Statements and Consolidated Financial Statements, as well as to discuss the quarterly and first-half financial reports with the Board of Executive Directors prior to their publication. Other important activities included advising the Board of Executive Directors on accounting issues and the internal control system. The topics internal auditing system and compliance in the BASF Group were each a focus at one meeting of the Audit Committee. In these meetings, the head of the Corporate Audit department and the Chief Compliance Officer reported to the Audit Committee and answered its questions. In its meeting of July 23, 2012, the Audit Committee charged KPMG – the auditor elected at the Annual Shareholders’ Meeting – with the audit for the 2012 reporting year and agreed on the auditing fees. The focus areas for the annual audit were discussed and defined together with the auditor. The Audit Committee approved certain non-audit services and authorized the Board of Executive Directors to engage KPMG for such services. The authorization of each service applies for one reporting year and is limited in amount. Other services provided by the auditor must be individually approved by the Audit Committee. Furthermore, the Audit Committee recommended to the Supervisory Board that KPMG once again be nominated as the auditor at the Annual Shareholders’ Meeting 2013.
The members of the Nomination Committee are the members of the Supervisory Board elected at the Annual Meeting: Dr. h.c. Eggert Voscherau, Prof. Dr. François Diederich, Michael Diekmann, Franz Fehrenbach, Max Dietrich Kley and Anke Schäferkordt. The Nomination Committee is responsible for preparing candidate proposals for the election of those Supervisory Board members who are elected by the Shareholders’ Meeting. The Nomination Committee is guided by the objectives for the composition of the Supervisory Board that were adopted by the Supervisory Board in 2010, revised in 2012 and adjusted to conform to the new recommendations made by the German Corporate Governance Code. There was no occasion for a meeting of the Nomination Committee in 2012, since no new appointments to the Supervisory Board were pending and the next regular election will not take place until 2014.
Corporate governance and Declaration of Conformity
In 2012, the Supervisory Board again addressed in detail the corporate governance standards applied by BASF and their implementation in the company. The Supervisory Board particularly addressed the changes to the German Corporate Governance Code adopted by the Code Commission in May 2012. The main topics of the consultation included the determination of concrete goals for the number of independent Supervisory Board members and the question as to the point at which a Supervisory Board member is considered independent according to the German Corporate Governance Code, and which conditions exclude independence. After intensive discussion, the Supervisory Board adopted the objective for all Supervisory Board members to be independent in accordance with Section 5.4.2 of the German Corporate Governance Code. This includes the assumption that neither election as employee representative nor membership on the Board of Executive Directors more than two years in the past exclude the classification as independent when taken in isolation. On this basis, the Supervisory Board has determined that all of its current members can be considered independent. The Supervisory Board has affirmed that there are no conflicts of interest for its members.
At its meeting of December 20, 2012, the Supervisory Board approved the joint Declaration of Conformity by the Supervisory Board and the Board of Executive Directors in accordance with Section 161 of the German Stock Corporation Act, and carried out assessments of efficiency and independence. BASF complies with the recommendations of the German Corporate Governance Code in its version of May 15, 2012, without exception. The entire Declaration of Conformity is provided in chapter Declaration of Conformity and is also available to shareholders on BASF’s website. The Corporate Governance Report of the BASF Group provides extensive information on BASF’s corporate governance. It also includes the compensation report, containing full details on the compensation for the Board of Executive Directors and the Supervisory Board.
Annual Financial Statements of BASF SE and Consolidated Financial Statements
KPMG AG Wirtschaftsprüfungsgesellschaft, the auditor elected by the Annual Shareholders’ Meeting for the 2012 reporting year, has audited the Financial Statements of BASF SE and the BASF Group Consolidated Financial Statements, including the Management’s Analysis and the accounting records from which they were prepared, and have approved them free of qualification. Furthermore, the auditor certified that the Board of Executive Directors had taken the measures incumbent on it under Section 91 (2) of the German Stock Corporation Act in an appropriate manner. In particular, it had instituted an appropriate information and monitoring system that met the needs of the company and appeared suitable, both in design and application in practice, to provide early warning of developments that pose a threat to the continued existence of the company.
The documents to be examined and the auditor’s reports were sent in a timely manner to every member of the Supervisory Board. The auditor attended the accounts review meeting of the Audit Committee on February 20, 2013, as well as the accounts meeting of the Supervisory Board on February 21, 2013, and reported on the main findings of the audit. The auditor also provided detailed explanations of the reports on the day before the accounts meeting of the Supervisory Board.
The Audit Committee reviewed the Financial Statements and Management’s Analysis at its meeting on February 20, 2013, and discussed them in detail with the auditor. The Chairman of the Audit Committee gave a detailed account of the preliminary review at the Supervisory Board meeting on February 21, 2013. On the basis of this preliminary review by the Audit Committee, the Supervisory Board has examined the Financial Statements and Management’s Analysis of BASF SE for 2012, the proposal by the Board of Executive Directors for the appropriation of profit as well as the Consolidated Financial Statements and Management’s Analysis for the BASF Group for 2012. We have reviewed, acknowledged and approved the auditor’s reports. The results of the preliminary review by the Audit Committee and the results of our own examination fully concur with those of the audit. The Supervisory Board sees no grounds for objection to the management and submitted reports.
At the Supervisory Board’s accounts meeting on February 21, 2013, we approved the Financial Statements of BASF SE and the Consolidated Financial Statements of the BASF Group prepared by the Board of Executive Directors, making the Financial Statements final. We concur with the proposal of the Board of Executive Directors regarding the appropriation of profit and the payment of a dividend of €2.60 per share.
The Supervisory Board thanks the management and all employees of the BASF Group worldwide for the work they performed in 2012.
Ludwigshafen, February 21, 2013
The Supervisory Board
Dr. h.c. Eggert Voscherau
Chairman of the Supervisory Board