Report of the Supervisory Board
Notwithstanding the continuing sovereign debt crisis and slowdown in the global economy, BASF brought the 2013 business year to a successful close. The previous year’s high sales and earnings levels were once again slightly surpassed. This was thanks to our competitive products, increasingly global business orientation, power of innovation, and most especially, to our highly motivated employees whose commitment makes BASF’s success possible. Maintaining this excellence is an important task of the Board of Executive Directors. To remain successful in the future, however, we must also succeed in recognizing business areas with high growth potential and developing innovative and marketable products and solutions for our customers. This is at the core of BASF’s “We create chemistry” strategy.
Monitoring and consultation in an ongoing dialog with the Board of Executive Directors
In 2013, 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 situation and development of the business, as well as the company’s profitability, global HR policy and planning with regard to finances, capital expenditures and human resources at BASF SE and its major subsidiaries. We were also informed as to any deviations between the course of business and planning. The Supervisory Board discussed in detail the reports from the Board of Executive Directors, and also deliberated on prospects for the company and its individual business areas with the Board of Executive Directors. Outside of Supervisory Board meetings, the Chairman of the Board of Executive Directors also regularly informed the Chairman of the Supervisory Board regarding current developments and items significant for 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 2013, this only applied to approval for various guarantees of a limited nature (in terms of time and scope) pertaining to financing the South Stream gas pipeline project through the Black Sea, in which BASF’s subsidiary Wintershall holds a minority interest.
Supervisory Board meetings
The Supervisory Board held five meetings in the 2013 reporting year. Three of the five meetings in 2013 were attended by all twelve Supervisory Board members; at two of the meetings, eleven members were present. The members of the Super-visory 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. The Oil & Gas segment was once again a focus of our discussions this year. We were particularly occupied with the progress of negotiations with Gazprom on an asset swap that was successfully completed in December. In this transaction, we will exchange shares in the natural gas trading business, grouped into the WINGAS companies, for another share in a gas field in Western Siberia. A further topic centered on the Performance Products segment, for which we discussed restructuring measures in individual businesses – for example, in the Paper Chemicals division. All meetings dealt with the important matter of ongoing major investment projects, such as the construction of an MDI plant in Chongqing, China, and a TDI plant in Ludwigshafen.
In addition to strategically significant individual measures, the Supervisory Board also addressed BASF’s strategy and long-term business prospects in individual regions and business areas. We were informed about and discussed the Construction Chemicals division’s strategy and reorientation as well as the BASF Group’s new information technology strategy at our meeting on July 18, 2013. Moreover, we discussed the implementation status of the “We create chemistry” strategy, introduced in 2011, with the Board of Executive Directors. At our meeting on October 24, 2013, we deliberated on the strategy of the Intermediates division. Development in the field of energy was another central topic. This involves the effects of changing German energy policy – and its potentially negative impact on the conditions surrounding future chemical production in Germany – as well as the changing competitive environment resulting from the availability of shale gas, especially in the United States.
In four Supervisory Board meetings, examples of innovations were once again 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. One example was FWC™, the four-way catalyst for gasoline engines that complies with strict new emissions regulations like Euro 6. Further examples were Cetiol® RLF, the bio-based emollient for the personal care market, and the new high-performance insulation material, SLENTITE™. At the meeting of December 12, 2013, we discussed and approved the Board of Executive Directors’ operative and financial planning for 2014. In addition, we once again empowered the Board of Executive Directors to procure necessary financing in 2014.
The Supervisory Board thoroughly considered the personnel issues of the Board of Executive Directors during the meetings of July 18 and December 12, 2013. Based on the recommendations of the Personnel Committee, the Supervisory Board extended Margret Suckale’s appointment to the Board of Executive Directors to 2017 and that of Michael Heinz to 2019 in the meeting of July 18, 2013. The previous appointments had ended upon conclusion of the 2014 Annual Shareholders’ Meeting. At the same meeting, amendments were made to the compensation of the Board of Executive Directors. Based on preparations conducted by the Personnel Committee, we met with the Board of Executive Directors at the meeting of December 12, 2013, to deliberate and agree on its targets for 2014, and determined the Board of Executive Directors’ performance evaluation for 2013. 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 matters 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 chairpersons of the Committees reported in detail about the meetings and the activities of the Committees at the subsequent meeting of the Supervisory Board.
The Personnel Committee met twice during the reporting period. At its meeting of July 17, 2013, the Personnel Committee addressed the staffing of the Board of Executive Directors and recommended to the Supervisory Board plenum that the appointments of Margret Suckale and Michael Heinz, which would otherwise expire on May 2, 2014, upon conclusion of the Annual Shareholders’ Meeting, be extended by three years to 2017 and by five years to 2019, respectively. The Committee also discussed amendments to the compensation of the Board of Executive Directors at this meeting and made proposals to the Supervisory Board plenum. At the meeting of December 11, 2013, it primarily evaluated the Board of Executive Directors’ performance in 2013 and the level of their target achievement, and, together with the Board of Executive Directors, discussed the target agreement to be entered into between the Supervisory Board and the Board of Executive Directors for 2014. A further topic comprised the regular review of the Board of Executive Directors’ remuneration.
The Audit Committee is responsible for all the tasks listed in Section 107(3)(2) of the German Stock Corporation Act and in Subsection 5.3.2 of the German Corporate Governance Code in its version of May 13, 2013. The Audit Committee met five times during the reporting period. All committee members attended all meetings. 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 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 22, 2013, the Audit Committee charged KPMG – the auditor elected at the Annual Shareholders’ Meeting – with the audit for the 2013 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 for the election of the auditor at the Annual Shareholders’ Meeting in 2014.
The Nomination Committee is responsible for preparing candidate proposals for the election of those Supervisory Board members who are elected by the Annual 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 of the German Corporate Governance Code. With a view to the upcoming regular election of the Supervisory Board members at the Annual Shareholders’ Meeting on May 2, 2014, the Nomination Committee was intensely occupied with the requirements for its composition in 2013, considering the search for, and selection of, persons who would complete the required profile of the Supervisory Board as a whole. They conferred on this at their meeting of July 17, 2013. Candidate selection was particularly influenced by the fact that the Chairman of the Supervisory Board, Dr. h.c. Eggert Voscherau, and of the Audit Committee, Max Dietrich Kley, would not stand for reelection. In light of this, the Nomination Committee put forth candidate proposals at its meeting on February 19, 2014, including a suggestion for the election of the future Chairman of the Supervisory Board, and submitted this to the Supervisory Board for its resolution on candidates to propose at the Annual Shareholders’ Meeting. The Supervisory Board accepted the Nomination Committee’s suggestion in unmodified form for its candidate proposal.
Corporate governance and Declaration of Conformity
The Supervisory Board places great value on ensuring good corporate governance: In 2013, we were therefore once again intensely engaged with the corporate governance standards practiced in the company and with the implementation of the German Corporate Governance Code’s recommendations and suggestions. At our meeting of October 24, 2013, we discussed the amendments made to the German Corporate Governance Code on May 13, 2013, and their implementation at BASF.
At its meeting of December 12, 2013, 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 13, 2013, without exception. However, the new proposals made in Subsection 4.2.5(3) of the Code on the presentation of the compensation for the Board of Executive Directors, which will first apply for compensation made in business years following December 31, 2013, will not be applied prematurely in the BASF Report 2013. The entire Declaration of Conformity is provided in chapter Declaration of Conformity and is also available to shareholders on BASF’s website. An important aspect of good corporate governance is the independence of Supervisory Board members and their freedom from conflicts of interest. According to estimations of the Supervisory Board, all of its members can be considered independent as defined by the German Corporate Governance Code. The criteria used for this evaluation can be found in the Corporate Governance Report. In cases where Supervisory Board members hold advisory or management positions at companies with which BASF has business relations, we see no impairment of their independence, as the scope of these businesses is relatively marginal and furthermore takes place under conditions similar to those of a third party. 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 2013 reporting year, has audited the Financial Statements of BASF SE and the BASF Group Consolidated Financial Statements, including the Management’s Report 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 fulfilled the requirements of the company. This system is suitable, both in design and application, for providing 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 19, 2014, as well as the accounts meeting of the Supervisory Board on February 20, 2014, 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 Report at its meeting on February 19, 2014, 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 20, 2014. On the basis of this preliminary review by the Audit Committee, the Supervisory Board has examined the Financial Statements and Management’s Report of BASF SE for 2013, the proposal by the Board of Executive Directors for the appropriation of profit as well as the Consolidated Financial Statements and Management’s Report for the BASF Group for 2013. 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 20, 2014, 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 BASF SE 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 €2.70 per share.
The Board of Executive Directors continued to demonstrate impressive company leadership in 2013. The high-quality work of the entire team of the Board of Executive Directors and employees was once again crucial to BASF’s success. The Supervisory Board thanks the management and all employees of the BASF Group worldwide for the work they performed in 2013.
Ludwigshafen, February 20, 2014
The Supervisory Board
Dr. h.c. Eggert Voscherau
Chairman of the Supervisory Board