Declaration of Corporate Management (§§ 289f, 315d HGB)
The actions of Evotec SE’s management and oversight bodies are determined by the principles of good and responsible Corporate Governance. In this declaration, the Management Board – also acting on behalf of the Supervisory Board – provides its report on corporate management in the Group pursuant to sections 289f, 315d of the German Commercial Code (HGB) and pursuant to subsection 3.10 of the German Corporate Governance Code. Our aim is to present our corporate management principles as clearly and concisely as possible.
Declaration of compliance and reporting on Corporate Governance
Declaration of compliance
With the following exceptions, Evotec complies with all recommendations of the Code and also with the majority of the Code’s suggestions. In December 2019, Evotec’s Management Board and Supervisory Board declared in accordance with Section 161 of the German Stock Corporation Act (AktG):
"Evotec SE has complied in 2019 with the recommendations of the Governmental Commission on the German Corporate Governance Code (the “Code”) as published in the official section of the Federal Gazette and intends to comply in the future with the recommendations of the Code, with the following exceptions:
- Pursuant to Section 4.2.3 of the Code, the monetary remuneration of the Management Board members comprises fixed and variable components. Variable remuneration components consist of a one-year variable remuneration determined by a bonus scheme and a long-term so-called Share Performance Plan scheme approved by the Annual General Meetings 2012, 2015 and 2017. The Share Performance Plans have a multiple-year assessment basis that has essentially forward-looking characteristics, whereas the bonus scheme is based on the achievement of certain strategic targets set by the Supervisory Board for a certain financial year.
- The Share Performance Plans comply with the recommendations set forth in Section 4.2.3 of the Code. In particular, they refer to specific key performance indicators and define a “Maximum Target”. However, as the issuance of awards under the Share Performance Plans 2012 and 2015 after the four-year vesting period is effected in shares, there is a cap for the number of awards upon allocation, but no other cap for the value of the allocated shares. That value will only be determined by the share price at that time. The Share Performance Plan 2017 has introduced a cap with a maximum level of 350% of the contractual issue value and therefore complies in all respects with the Code.
- Stock options issued in existing stock option programmes before their replacement by the Share Performance Plans remain valid. While the exercise of options under these stock option programmes requires an increase of the share price, the exercise is not related to other relevant comparison parameters as recommended in Section 4.2.3 of the Code. This decision is based on the lack of relevant comparison benchmarks in the field of German Biotech at the time when the stock option programmes were created.
- The Company’s D&O insurance and the deductible for members of the Management Board contained therein are in line with Section 3.8 of the Code and with the regulations of the Act on the Appropriateness of Management Board Compensation (VorstAG) that was enacted in 2009. However, for members of the Supervisory Board, the D&O insurance contains a “reasonable” deductible as foreseen by the version of the Code in force before its version published on 05 August 2009. The Company has decided to maintain this reasonable deductible. This decision was made in view of the Company’s interest to attract international expertise for its Supervisory Board and the fact that a deductible for non-executive directors is not very common in international practice. Whilst a lot of the German companies quoted on the TecDAX do not have a respective deductible at all, the Company believes that a reasonable deductible is a good compromise."
The current Declaration of Compliance with the German Corporate Governance Code and the declarations of the past five years can be found on Evotec’s website (www.evotec.com) in the Invest section.
Relevant management practices and compliance
Relevant management practices
Evotec takes its Corporate Governance responsibilities very seriously. As a consequence of its shares’ listing at the Frankfurt Stock Exchange and its international shareholder base, the Company recognises not only German but also international Corporate Governance standards. Evotec’s Management and Supervisory Boards are convinced that complying with rigorous Corporate Governance standards is of great benefit to the Company. It includes integrity in the dealings with employees, business associates, shareholders and the public, expressed in Evotec’s own exemplary conduct. As a service provider, Evotec has to win and retain the trust of its customers and business associates through impeccable behaviour. The Group’s aim is to be credible, solid and reliable and act accordingly. Thus Evotec regularly reviews and enhances its Corporate Governance practices.
Within the frame of strategical determination by the Management Board, specific goals are established and communicated. To accomplish our targets, we rely on the enterprise and initiative of our managers and employees. We achieve consensus on clearly defined objectives, and we regularly monitor how well we are meeting them. These agreements on aims are a fundamental component of our leadership philosophy and a crucial element of our remuneration system.
Code of conduct
Evotec’s corporate culture is committed to the highest standards of openness, integrity and accountability. A key element of integrity is compliance, which means adherence to both, the applicable laws and Company’s internal policies. Evotec’s commitment to a compliance-oriented culture is reflected in the Company’s Code of Conduct, which stipulates fundamental ethical principles, such as integrity and professionalism, that apply to board members and other employees alike.
The Code of Conduct sets standards for:
- Accounting and the permissible use of the Company’s funds and assets;
- Anti-money laundering principles;
- Compliance with insider trading laws and prevention of conflicts of interest;
- Compliance with antitrust legislation;
- Compliance with anti-corruption laws and associated internal guidelines;
- A work environment free of any form of discrimination and harassment;
- Health & safety and environmental aspects;
- Animal welfare;
- Non-disclosure and protection of intellectual property and business secrets;
- Global trade; and
- The duty to report upon the suspicion of an infringement of the Code of Conduct (whistle-blowing).
Evotec does not tolerate any violation of applicable laws or internal policies.
The Code of Conduct has been revised in the course of 2019 and is published on the Evotec website (www.evotec.com) in the Invest section.
The Compliance Programme of Evotec SE is overseen by the Company’s Compliance Officer, functioning as an independent and objective body that reviews and evaluates compliance issues/concerns within the organisation and is regularly trained via a group-wide electronic Compliance Training or face-to-face trainings tailored to the specific compliance issues and associated risks at the Company. The aim is to maintain permanent compliance awareness within all areas of Evotec’s business to ensure that any decision is in line with Evotec’s compliance best practices and to mitigate compliance risks. Said training is mandatory for all board members and other employees. The Company’s Compliance Officer monitors the participation in the training at regular intervals.
The Compliance Office helps to communicate the values underlying the Code of Conduct and anchor them firmly in the Group. It ensures Group-wide implementation of the Compliance Programme.
Another important aspect of accountability and transparency is a mechanism to enable all Evotec employees and business partners to voice concerns in a responsible and effective manner. Suspected compliance violations can be reported to an employee’s responsible line manager, the Company’s Compliance Officer or may also be reported to a worldwide compliance (whistle-blowing) hotline which is available 24 hours a day, 7 days a week. In case that a suspected compliance violation would affect a member of the Management Board, such report would be addressed to the Supervisory Board. In 2019, no reports via the central compliance hotline were registered.
Further information can be found in Non-financial Group Report in accordance with section 289c and section 315c of the German Commercial Code. This report can be found on Evotec’s website in the Invest section under Financial Publications.
Evotec also complies with the financial market rules. The Company maintains an ad hoc Committee, which consists of the Chief Financial Officer, the General Counsel, the Head of Investor Relations and the assistant to the Board. This committee examines the ad hoc relevance of insider information and ensures that Evotec complies with the law.
For Evotec, sustainability plays an essential role in the Company’s business and attitude. Consequently, Evotec sets out its values and economic, ecological and social responsibility. All three criteria are reflected in Evotec’s strategy and firmly established in its business processes. Evotec pursues a business model that aims at sustainable growth, creating value for all stakeholders and protecting the interests of its shareholders. Taking responsibility for the Company’s employees and business partners and maintaining its commitment to society and a healthy environment are two of Evotec’s guiding principles.
Awareness about and reduction of the environment footprint of the Company is a key issue which currently is under further review about how Evotec can even more improve its contribution to secure our all environment and apply preserving consumption of resources (see also Non-financial Group Report/EVOChallenge). In its R&D activities, Evotec adheres to the highest scientific and ethical principles.
Further information can be found in Evotec’s separate Non-financial Group Report (Corporate Social Responsibility Report) in accordance with section 289c and section 315c of the German Commercial Code. This report can be found on Evotec’s website in the Invest section under Financial Publications.
With regard to gender diversity, 55% of Evotec’s global workforce are women. On SE level, Evotec has achieved its gender targets set in 2015 on all levels (Supervisory Board, Management Board and the next two management levels), such as target quota of at least 30% for female Supervisory Board members, 0% for the Management Board (due to current set up of management team) and minimum 30% for the next two management levels. The Company has confirmed these objectives in 2017 going forward.
An important element of sound Corporate Governance is dealing responsibly with risks. Evotec has established a risk and opportunities management system that enables the Management Board to detect and react to relevant risks and market developments in good time. The Management Board reports on these to the Supervisory Board. The Company’s risk and opportunities management system and policies are covered by the annual audit of financial statements. Details can be found in the Management Report on page 60 of the Evotec Annual Report and under www.evotec.com, Invest section. It also contains the report on the accounting-related internal control and risk management system required in accordance with the German Accounting Modernisation Act (BilMoG).
These systems are continually developed, adjusted to match changes in overall conditions and reviewed by the auditors. The Management Board regularly informs the Supervisory Board about existing risks and the development of these risks.
Evotec SE informs its shareholders, financial analysts, the media and the public on a regular basis about its progress. In doing so, the Company complies with all requirements of the Code regarding transparency, timeliness, openness and shareholder equality. Evotec is committed to fair disclosure of information and its communication is governed by a Company Disclosure Policy. It is a prime concern of the Company that all relevant target groups receive the same information at the same time, and this implies communicating in both English and German. The Company’s publications are available on its website www.evotec.com in the Invest section.
This section of Evotec’s website maintains information such as news releases, the financial calendar containing the publication dates of the financial statements, investor relations conferences, annual and quarterly reports, other regulatory news and regularly updated corporate governance information. This section of the website also includes the Articles of Association, the Rules of Procedure of the Supervisory Board, the Audit Committee Charter, the Code of Conduct, the Insider Trading Policy and all declarations of compliance.
Moreover, the Company website at www.evotec.com provides comprehensive information on the Evotec Group and the Evotec share.
Accounting and auditing
On a regular basis, Evotec provides financial and business information to its shareholders and other interested parties by publishing its annual Consolidated Financial Statements, the half-year report and quarterly interim statements. As an incorporated company, whose registered head office is located within the European Union, Evotec SE must prepare and publish Consolidated Financial Statements in accordance with the International Financial Reporting Standards (IFRS) whilst observing Section 315a HGB (German Commercial Code). The Consolidated Financial Statements of the Evotec Group and the financial statements of Evotec SE are audited by the audit firm and the Supervisory Board. The audit firm is appointed by the shareholders at the Annual General Meeting and commissioned by the Supervisory Board. It participates at the Supervisory Board’s deliberations on the financial statements and reports the most significant results of its audit. The Audit Committee uses this information as a guideline for its own evaluation of the statements and reports.
The disclosed financial statements and the management reports for Evotec SE, as well as the Consolidated Financial Statements together with the consolidated management report of the Evotec Group, are audited by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Hamburg. These audits also covered risk management and compliance with reporting requirements concerning corporate governance pursuant to section 161 of the German Stock Corporation Act. Following its consultations, the Supervisory Board also approves the financial statements and the Consolidated Financial Statements.
Working methods of the Management Board and Supervisory Board
Composition and working methods of the Management Board and Supervisory Board
As part of its conversion process from a German Stock Corporation (“AG”) to a European Company (Societas Europaea, “SE”), Evotec has decided to maintain its two-tier system with clear separation of management through the Management Board (“Vorstand”), and control through the Supervisory Board (“Aufsichtsrat”). The Management Board is responsible for managing Evotec and representing the Company in its dealings with third parties, while the Supervisory Board appoints and dismisses the members of the Evotec Management Board and oversees the management of the Company. German law prohibits the Supervisory Board from making operational management decisions. The two boards, however, work closely together to secure long-term and sustainable growth for the Company and to create shareholder value. They agree on the Company’s strategy and on business transactions, which are significant. The Annual General Meeting (“AGM”; “Hauptversammlung”) is the Company’s body representing the interests of the shareholders.
Management Board (“Vorstand”)
The Management Board of Evotec SE is responsible for the day-to-day operations of the Company and is supported by the Management Team. In its business operations and decisions, the Management Board acts on behalf of the Company and works towards its progress with the objective of sustainable creation of value, thus taking into account the interests of the shareholders, the employees and other stakeholders. The Management Board is appointed by the Supervisory Board.
The Company’s rules of internal procedure assign functional duties and responsibilities to the Management Board members. The CEO is functionally responsible for the areas of Corporate Development including M&A, Human Resources, Marketing, Investor Relations and Corporate Communications, the CFO for Finance, Controlling, Risk Management, Information Technology & Business Applications, Legal & Compliance, Procurement & Logistics, Facility Management and Equity, the COO for Evotec’s EVT Execute segment, Alliance management, Business Development, global operations plus Quality and Environment, Health and Safety (EHS), and the CSO for Evotec’s EVT Innovate segment, Evotec BRIDGEs and Intellectual Property.
Under Evotec’s Articles of Association, the Supervisory Board determines the size of the Management Board, which must have at least one member under the German Stock Corporation Act. The Evotec Management Board consists, in addition to the CEO, of three further board members. In accordance with a suggestion of the Code, new members are appointed for up to three years; however, prolongations of existing contracts might be up to five years as currently agreed with the Chief Executive Officer and for its new contract with the Chief Scientific Officer. Management Board members may be reappointed and may be dismissed with good cause prior to the termination of their terms of office. At the ordinary Supervisory Board meetings, the Supervisory Board regularly receives information from the Management Board on possible succession planning and possible candidates. In addition, the Supervisory Board discusses succession planning at the meeting of the Nomination Committee even without the presence of the Management Board.
Members of Evotec’s Management Board have not accepted more than a total of three Supervisory Board mandates in non-Group listed companies or in supervisory bodies of companies with similar requirements. The Articles of Association can be found on Evotec’s website under www.evotec.com in the Invest section.
With regards to diversity within the Management Board, it has to be taken into account that Evotec works in a globalised industry and has a broad and international customer base. Therefore, the Supervisory Board selects Management Board members regardless of gender, nationality or age; instead, the focus lies on their qualifications and work experience only. The Supervisory Board has not yet set an age limit for members of the Management Board. However, the age of all current members of the Executive Board of Evotec SE is well below 60 years. However, for the first time in 2015, the Supervisory Board, in accordance with Section 111, section 5 of the German Stock Corporation Act (AktG), has set a gender quota of 0 percent for the Management Board. This target quota was confirmed in 2017 for a further five-year period due to the current term of the contracts of the currently active Management Board members. Currently, two out of four members of the Management Board are non-German.
The activities of the Management Board are regulated by its internal Rules of Procedure, which set out the matters reserved for the full Management Board, the responsibilities of the areas of responsibility and the majorities necessary for passing resolutions.
Meetings of the Management Board shall be called by the Chairman of the Board. Each member of the Management Board may request that an extraordinary meeting of the Management Board be called outside its regular meetings. The board meetings are chaired by the Chairman of the Management Board, who also coordinates the areas of responsibility. Persons who are not board members can, if so resolved by the Management Board, be admitted to board meetings in a consultative capacity.
Brief minutes have to be made of material discussions and resolutions. Resolutions of the Management Board will be carried regularly at its meetings. Resolutions may also be carried without a meeting, however, in writing, by telex or by telephone. The Management Board shall be quorate if a majority of its Members vote on a resolution. Resolutions of the Management Board shall be passed by a simple majority. Should there be a tie, the CEO shall decide.
The Management Board also provides continuous updates to the Supervisory Board through regular verbal and written reports that includes in depth analysis of the status of operations. The information provided includes written monthly management reports with extensive coverage of the Company’s financial figures for the previous month, accompanied by detailed comments and explanatory text. In addition, the Management Board must submit a budget for the following fiscal year and a plan for the medium term to the Supervisory Board. The Management Board is also required to report to the Supervisory Board in a timely fashion on any transactions that may be significant with respect to the profitability or liquidity of the Company in order to give the Supervisory Board an opportunity to express its opinion on such transactions prior to their implementation.
The Chairman of the Supervisory Board and the Chief Executive Officer as well as other members of the Management Board discussed current and ongoing topics via numerous conference calls, carried out whenever appropriate.
Details on the Management Board are provided on Evotec’s website under www.evotec.com; section ‘About’.
Supervisory Board (“Aufsichtsrat”)
Following the Articles of Association, the Evotec Supervisory Board consists of six members. The current members of the Evotec Supervisory Board have been (re-)elected at the AGM 2019 with their tenure ending at the end of the AGM 2024. Evotec’s Supervisory Board members were, in accordance with the Code’s recommendations regardless of gender, nationality or age, appointed on the basis of their qualifications, work experience, independence and diversity.
The Supervisory Board has specified concrete objectives and a corresponding competence profile regarding its composition, which are ensured when making proposals to the AGM for election or re-election of new Supervisory Board members. These objectives stipulate that the activities of the Company shall be represented by having a majority of independent Supervisory Board members with national and international experience in the respective fields of (i) Research and Development, (ii) Finance, Capital markets, Legal, Corporate Governance, (iii) Marketing and Sales and Operations and (iv) Healthcare Economy/Public Health. Potential conflict-of-interest situation(s) shall be avoided by deploying the highest scrutiny when assessing potential candidates. In addition, the Supervisory Board shall ensure that the individual age of a candidate shall not exceed 72 years at the time of the proposal. Diversity with regard to female representation shall be ensured by having a target quota of at least 30% female members of the Supervisory Board. Finally, the Supervisory Board has agreed on two full terms as the regular limit of length of membership to the Supervisory Board. Currently, the Chairman of the Supervisory Board, Prof. Dr. Plischke, and the Deputy Chairman of the Supervisory Board, Prof. Dr. Löw-Friedrich, are in their second full term of office, which ends with the 2024 Annual General Meeting. Overall, the Supervisory Board shall be composed in such a way that the majority of its members are independent and that its members as a group possess the knowledge, ability and expert experience required to properly complete its tasks.
Currently, the composition of Evotec’s Supervisory Board fulfils all those objectives: Five members are considered independent within the meaning of the Code, as they have no personal or business relationship with the Company or its Management Board that could constitute a material and not merely temporary conflict of interest. Only Dr Mario Polywka, being Evotec COO until 31 December 2018, who has been elected to the Supervisory Board on the recommendations of a group of shareholders who combined hold more than 25% of the total number of voting rights in the Company, is considered as not independent. Prof Dr Wolfgang Plischke (member of the Supervisory Board of Bayer AG) is independent. Dual membership of the Supervisory Boards of two companies with business relations does not constitute a relationship of dependency, since one member of the Supervisory Board primarily performs control and monitoring functions and is not involved in any operating activities. Prof Dr Iris Löw-Friedrich (Chief Medical Officer and Head of Development & Medical Practices of UCB S.A.) is also independent in the opinion of the Company. Her position on the Executive Board of UCB S.A., which has a business relationship with Evotec SE, does not constitute a dependency. Business relationships are only suitable in exceptional cases to constitute a material and not merely temporary conflict of interest. The Supervisory Board has no influence on the volume of orders, the continuation or expansion of the business relationship; this is the responsibility of the Management Board of Evotec SE, which not only represents the Company (Section 78 of the German Stock Corporation Act (AktG)), but also makes decisions on these matters under its own responsibility (Section 76, paragraph (1) of the German Stock Corporation Act (AktG)). There is also no intersecting executive body position. Dr Michael Shalmi is to be considered an independent member of the Supervisory Board despite his former position on the Management Board of Novo Holding A/S. Novo Holding A/S holds just over 10% of the voting shares in Evotec SE and is therefore not a controlling shareholder. A control leading to independence of the shareholder (and thus also of Dr. Shalmi) would be given if a control agreement with the shareholder exists, the shareholder has an absolute majority of the voting rights or at least a sustainable majority at the Annual General Meeting. A voting interest of just over 10% does not constitute a sustainable majority of the voting rights in favor of Novo Holding A/S and therefore does not constitute a conflict of interest, especially since the number of validly cast votes at past general meetings regularly amounted to well over 40% of the share capital. Dr Elaine Sullivan (former CEO of Carrick Therapeutics Ltd) is also independent. Evotec SE holds approximately 4.3% of the shares in Carrick Therapeutics Ltd. At present, Evotec is not a significant partner of Carrick Therapeutics Ltd. Therefore, there is no conflict of interest that could conflict with independence, for two reasons: (1) Evotec SE's participation rights in Carrick Therapeutics Ltd. are exercised by the Executive Board of Evotec SE on its own responsibility pursuant to Section 76 (1) of the German Stock Corporation Act (AktG); in particular, a member of the Supervisory Board has no influence on voting on the resolutions of the shareholders of Carrick Therapeutics Ltd. Nor are any other significant connections to members of the company's Management Board discernible through their involvement in other companies or organisations. Mr Roland Sackers (CFO of Qiagen N.V.) is independent. Qiagen N.V. has no significant business relationship with Evotec SE; no other circumstances leading to dependency are apparent.
Four different nationalities are represented in the Supervisory Board of the Company and two members are female. The current composition of the Supervisory Board fully represents the competence profile as set out above and lastly confirmed by the Supervisory Board in 2019.
The Supervisory Board advises and oversees the Management Board in the management of the Company. Based upon regular consultations with the Management Board, the Supervisory Board is involved in strategic and planning decisions and all decisions of fundamental importance to the Company.
Furthermore and upon request, the Supervisory Board Chair is available to discuss Supervisory Board-related issues with investors.
In accordance with the internal rules of procedure, decisions taken by the Management Board on major transactions such as issues, which by corporate law require the Supervisory Board to decide, the strategic and operational direction of the Company, the annual budget, major acquisitions, investment or licence agreements, establishing and acquiring companies or material changes to the Group structure (either by +/- 5% of ownership or to the effect that control in such entity is assumed or lost), business contracts outside the Company’s ordinary course of business that have significantly different risk profiles as well as establishing new business operations or significantly revising existing business operations, require the approval of the Supervisory Board.
The Chairman of the Supervisory Board coordinates the work in the Supervisory Board, calls and chairs its meetings and externally represents the concerns of the body.
The articles of association provide that while resolutions shall typically be passed in meetings, however, upon the Chairman’s instruction resolutions can be passed without a meeting by written notice, by telephone, facsimile, e-mail or by other conventional means of communication. The articles of association further provide that more than half of the members of the Supervisory Board must participate in voting on a resolution to constitute a quorum. If such a quorum is not met a new meeting shall be called with a notice period of two weeks, in which case three present board members constitute a quorum. Absent members may participate in a resolution by delivering a written vote to the Supervisory Board. Unless otherwise required by law or by the articles of association, resolutions of the Supervisory Board are passed by a simple majority of the votes cast.
The Supervisory Board has its own internal rules of procedure (see www.evotec.com; Invest section) and complies with the Code’s suggestion to hold occasional separate discussions.
The Supervisory Board was not informed about any potential conflict of interest among one of its members in the course of 2019.
The Supervisory Board regularly every two years examines the efficiency and best practice review recommended in the Corporate Governance Code. All Supervisory Board members are questioned by means of a questionnaire, which is evaluated by the Corporate Office. The evaluation and possible recommendations for action are presented to the Supervisory Board for discussion. To date all such audits have led to the conclusion that the Supervisory Board is organised efficiently and that the Management Board and the Supervisory Board interact efficiently and effectively.
An overview of its work can be found in the following table:
C = Chairman | M = Member