Corporate Governance

1. Corporate governance is a system of relationships, defined by structures and processes:

For example, the relationship between shareholders and management consists of the former providing capital to the latter to achieve a return on their (shareholder) investment.

Managers in turn are to provide shareholders with financial and operational reports on a regular basis and in a transparent manner.

Shareholders also elect a supervisory body, often referred to as the Board of Directors or Supervisory Board, to represent their interests. This body essentially provides strategic direction to and control over the company's managers.

Managers are accountable to this supervisory body, which in turn is accountable to shareholders through the General Meeting of Shareholders (GMS). The structures and processes that define these relationships typically center on various performance management and reporting mechanisms.

2. These relationships may involve parties with different and sometimes contrasting interests:

Differing interests may exist between the main governing bodies of the company, i.e. the shareholders, Supervisory Board and General Director (or other executive bodies).

Contrasting interests exist most typically between owners and managers, and are commonly referred to as the principal-agent problem.

Conflicts may also exist within each governing body, such as between shareholders (majority vs. minority, controlling vs. non-controlling, individual vs. institutional) and directors (outside vs. inside, independent vs. dependent); and each of these contrasting interests needs to be carefully observed and balanced.

3. All parties are involved in the direction and control of the company

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