Report of the Supervisory Board
Despite a sluggish business environment and growing uncertainty in the global economy, BASF continued to grow in 2014. Our goal of once again increasing earnings was achieved. This was not automatically a given. The will and the ability to consistently implement the “We create chemistry” strategy and to constantly improve efficiency and resilience determine today’s and tomorrow’s success. The further pursuit of this entrepreneurially ambitious path is the managerial responsibility of the Board of Executive Directors. In this, they have the full support of the Supervisory Board.
Monitoring and consultation in an ongoing dialog with the Board of Executive Directors
In 2014, 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 regularly and thoroughly informed by the Board of Executive Directors. This occurred in the form of written and oral reports on, for example, all of the company’s and the segments’ major financial KPIs for the general economic situation in the main sales and procurement markets, and on deviations in business developments from original plans. Furthermore, the Supervisory Board tackled fundamental questions of corporate planning, including financial, investment, sales volumes and personnel planning, as well as measures for designing the future of research and development.
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 with regard to current developments and individual events significant for the company. The Supervisory Board was always involved at an early stage in decisions of major importance. The Supervisory Board passed resolutions 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 2014, these pertained to approval for the acquisition of further investments in oil and gas fields in Norway from Statoil Petroleum AS.
Composition of the Supervisory Board
The Supervisory Board’s term of office ended with the Annual Shareholders’ Meeting on May 2, 2014. Of the shareholder representatives serving up to that point, Chairman of the Supervisory Board Dr. h. c. Eggert Voscherau and Chairman of the Audit Committee Max Dietrich Kley were no longer eligible for reelection. The Annual Shareholders’ Meeting elected Dame Alison Carnwath DBE and the former Chairman of the Board of Executive Directors of BASF SE, Dr. Jürgen Hambrecht, both of whom were nominated for the first time, to represent the shareholders together with the reelected Supervisory Board members Michael Diekmann, Prof. Dr. François Diederich, Franz Fehrenbach and Anke Schäferkordt. The six employee representatives in the Supervisory Board of BASF SE, Ralf-Gerd Bastian, Wolfgang Daniel, Francesco Grioli, Robert Oswald, Denise Schellemans and Michael Vassiliadis, were appointed by BASF Europa Betriebsrat (Europe Works Council) in accordance with the regulations of the Employee Participation Agreement of November 15, 2007. The term of office of the newly elected Supervisory Board will end upon the conclusion of the 2019 Annual Meeting.
Supervisory Board meetings
The Supervisory Board held six meetings in the 2014 reporting year. With the exception of two meetings at which one member of the Supervisory Board was absent, all twelve Supervisory Board members attended the meetings of the Supervisory Board in 2014. The members of the Supervisory Board elected by shareholders and those elected by the employees prepared for the meetings in separate preliminary discussions.
Directly following the Annual Shareholders’ Meeting on May 2, 2014, the Supervisory Board redefined its own organization in its constituent assembly with the election of Dr. Jürgen Hambrecht as Chairman, Michael Diekmann and Robert Oswald as Vice Chairmen, and the new composition of the Supervisory Board Committees. Dame Alison Carnwath DBE was appointed the new Chair of the Audit Committee.
A significant component of all Supervisory Board meetings was the Board of Executive Directors’ reports on the current business situation with detailed information on sales and earnings growth, as well as on opportunities and risks for business development, the status of important current and planned investment projects, developments on the capital markets and significant managerial measures taken by the Board of Executive Directors.
In its meetings, the Supervisory Board additionally discussed the further development of the BASF Group’s business activities through acquisitions, divestitures and investment projects. The 2014 business year was marked by a number of medium-sized divestitures which enabled BASF to undergo organic development and exit businesses that no longer fit with the core areas pursuant to the “We create chemistry” strategy supported by the Supervisory Board. These include the disposal of BASF’s share in the styrenic plastics supplier Styrolution to INEOS; the disposal of BASF’s share in Ellba Eastern, which produces styrene and propylene oxide in Singapore, to its joint venture partner Shell; the divestiture of the expandable polystyrene (EPS) business in North and South America; and the agreement to sell the global textile chemicals business. The Board of Executive Directors reported on current developments in the projects negotiated with Gazprom at all meetings of the Supervisory Board. These included the planned swap of BASF’s share in the jointly operated natural gas trading and storage business for a further share in gas fields in western Siberia as well as an investment in the South Stream gas pipeline through the Black Sea. Both projects were no longer able to be implemented in the existing political environment and were terminated by both parties.
Major, capital-intensive investment projects were once again a recurring element in the reports of the Board of Executive Directors, such as the construction of a TDI plant in Ludwigshafen, Germany; an MDI plant in Chongqing, China; and an ammonia plant with Yara on the United States Gulf Coast.
In the meeting on July 17, 2014, we received reports on the business prospects in the Performance Products segment and especially the reorganization of the paper chemicals business. Moreover, we discussed the implementation status of the “We create chemistry” strategy, introduced in 2011, with the Board of Executive Directors.
At the meeting on October 23, 2014, we thoroughly deliberated on the prospects and strategy of the Coatings division.
At the meeting on December 12, 2014, we discussed and approved the Board of Executive Directors’ operative and financial planning for 2015, and as usual empowered the Board of Executive Directors to procure necessary financing in 2015. The strategic direction of the Engineering & Maintenance function was furthermore discussed.
The Supervisory Board considered personnel issues of the Board of Executive Directors during the meetings of February 20, October 23 and December 12, 2014. Based on the recommendations of the Personnel Committee, the Supervisory Board at its meeting on February 20, 2014, conducted its regularly scheduled review of the structure and amount of the compensation of the Board of Executive Directors and adjusted the fixed compensation and annual variable compensation for the first time since 2011. The topic of the October 23, 2014, meeting was the composition of the Board of Executive Directors. In view of the departure of Dr. Andreas Kreimeyer from the Board of Executive Directors on conclusion of the 2015 Annual Shareholders’ Meeting, the Supervisory Board appointed the former head of the Intermediates division, Sanjeev Gandhi, as a further member of the Board of Executive Directors, effective December 1, 2014. The term of this first-time appointment runs until the 2018 Annual Shareholders’ Meeting. Furthermore, the Supervisory Board extended the term of Board of Executive Directors member Wayne T. Smith, originally ending in 2015, until the conclusion of the 2020 Annual Shareholders’ Meeting. Based on preparations conducted by the Personnel Committee, the Supervisory Board determined the performance evaluation of the Board of Executive Directors for the 2014 business year. 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 four times during the reporting period. With the exception of one meeting at which one member was absent, all committee members participated in the meetings. At the meeting on February 20, 2014, the committee considered adjustments to the compensation of the Board of Executive Directors and prepared a corresponding proposal for the Supervisory Board. At the meetings on July 17 and October 23, 2014, the Personnel Committee particularly discussed leadership development and the composition of the Board of Executive Directors; topics included diversity and the proper involvement of women in leadership positions. At the meeting of October 23, 2014, the Supervisory Board received the proposals to appoint Sanjeev Gandhi to the Board of Executive Directors and extend the term of Wayne T. Smith. At the meeting of December 12, 2014, the primary topic was the evaluation of the Board of Executive Directors’ performance in 2014.
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 June 24, 2014. 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.
At the meeting on February 24, 2015, the auditor reported in detail on its audits of BASF SE’s consolidated and individual financial statements for the 2014 business year and discussed the audit’s results with the Audit Committee.
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, 2014, the Audit Committee charged KPMG – the auditor elected at the Annual Shareholders’ Meeting – with the audit for the 2014 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 nonaudit services and authorized the Board of Executive Directors to engage KPMG for such services. The authorization 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 committee recommended to the Supervisory Board that KPMG once again be nominated for the election of the auditor at the Annual Shareholders’ Meeting in 2015.
The Audit Committee once again conducted a self-evaluation of its activities in 2014. No new steps were found to be necessary in terms of the duties of the committee or the content, frequency and procedure of meetings.
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 regular election of the Supervisory Board members conducted at the Annual Shareholders’ Meeting on May 2, 2014, the Nomination Committee was intensely occupied with the requirements for its composition in 2013 and at the beginning of 2014, considering the search for, and selection of, persons who would complete the required profile of the Supervisory Board as a whole. The selection of candidates took place at the meeting on February 19, 2014, including a proposal for the election of the future Chairman of the Supervisory Board. The Supervisory Board accepted the Nomination Committee’s suggestion in unmodified form for its candidate proposal. The nominated candidates were all elected by a large majority at the Annual Shareholders’ Meeting.
Corporate governance and Declaration of Conformity
The Supervisory Board places great value on ensuring good corporate governance: In 2014, 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, 2014, we discussed the current recommendations and proposals made for the German Corporate Governance Code and their implementation at BASF.
At its meeting of December 12, 2014, 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 June 24, 2014, without exception.
Declaration of Conformity
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 supervisory or management positions at companies with which BASF has business relations, we see no impairment of their independence. 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 2014 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 and is applicable for the early identification of developments that could pose a risk to the continued existence of the BASF Group.
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 24, 2015, as well as the accounts meeting of the Supervisory Board on February 25, 2015, 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 20, 2015, and discussed them in detail with the auditor. The Chairwoman of the Audit Committee gave a detailed account of the preliminary review at the Supervisory Board meeting on February 25, 2015. 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 2014, 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 2014. 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 25, 2015, 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 €2.80 per share.
The Supervisory Board thanks all employees of the BASF Group worldwide and the management for their personal contribution to the successful 2014 business year.
On conclusion of the Annual Shareholders’ Meeting on May 2, 2014, the long-time Board of Executive Directors and Supervisory Board members Max Dietrich Kley and Dr. h. c. Eggert Voscherau, together with employee representative Ralf Sikorski, left the Supervisory Board. Eggert Voscherau had held the office of Chairman of the Supervisory Board since 2009. Max Dietrich Kley had been Chairman of the Audit Committee since it was first assembled in 2003. In their many years of service, both left a decisive mark on BASF and had a major hand in the company’s success. The Supervisory Board expresses its very sincere thanks to them.
Ludwigshafen, February 25, 2015
The Supervisory Board
Chairman of the Supervisory Board