Good corporate governance makes a significant contribution towards increased transparency and ensures a higher level of confidence in the German capital market. We therefore expressly support the German Corporate Governance Code. At the same time, we would like to note here that the many similar initiatives on an international scale (the European Commission's plan of action, OECD Principles, etc.) leave behind an impression of overregulation. In our opinion, it would be more advisable to trust the self-regulating powers of the capital market.

Compliance with the Code

Deutsche EuroShop complies with the German Corporate Governance Code, which was published in 2002 and extended in May 2003 with only a few exceptions. The declaration of conformity (see page 28) is published on our Web site (www.deutsche-euroshop.com/corpgov) and updated each time a change is made. At the Supervisory Board meeting in June 2004, the rules of procedure of the Executive Board and Supervisory Board were supplemented in particular in line with the recommendations of the Corporate Governance Code.

Management and control structure: the Supervisory Board


In line with German company law, Deutsche EuroShop has a dual management and control structure comprising two executive bodies, the Executive Board and the Supervisory Board. The Supervisory Board consists of six members.

The rules of procedure prescribe the principle of independence for the members of the Supervisory Board. Some members of the Supervisory Board act as decision-makers in other companies, or did so in the past financial year. Deutsche EuroShop maintains normal direct or indirect business relationships with some of these companies. Arm's length conditions regarding the acquisition or sale of investments and the sourcing of services apply in these cases. In the case of transactions requiring approval involving companies for which members of the Supervisory Board work, the members concerned do not participate in the relevant votes. In our opinion, this policy ensures the independence of the Supervisory Board's decisions.

Supervisory Board members are elected for a term of office lasting five years. Four meetings are scheduled per year, and additional meetings are held as required. Rules of procedure govern the duties and working of the Supervisory Board and its committees – among other things, these cover independence, sufficient experience and expertise and the avoidance of conflicts of interest.

The Supervisory Board supervises and advises the Executive Board on its management of the Company's business activities. The Supervisory Board regularly discusses business developments and planning, as well as business strategy and its implementation. It monitors and reviews the quarterly reports and approves the annual and consolidated financial statements of Deutsche EuroShop AG after consideration of the auditors' reports and the results of the review by the Audit Committee. The Supervisory Board’s duties also include the appointment and the remuneration of the members of the Executive Board and the definition of their responsibilities. Significant decisions by the Executive Board – e.g. acquisitions, divestitures and financing – require the approval of the Supervisory Board.

Supervisory Board Committees


The Supervisory Board has established two committees. Their tasks and responsibilities are set out in the rules of procedure for the Supervisory Board.

The Executive Committee, to which the Chairman of the Supervisory Board, his deputy and another Supervisory Board member belong, has the task of discussing and, where appropriate, passing resolutions on urgent business matters. It is also responsible for concluding, amending and revoking the contracts of employment and pension agreements of the Executive Board. The Executive Committee reviews the Company's corporate governance principles and ensures their further development.

The Audit Committee comprises three Supervisory Board members. This Committee is responsible for issues relating to accounting, auditing and the preparation of the annual and consolidated financial statements of Deutsche EuroShop. Former members of the Company’s Executive Board and the Chairman of the Supervisory Board may not chair the Audit Committee, to avoid personal conflicts. The Audit Committee submits proposals on the adoption of the annual financial statements by the Supervisory Board based on the auditors' report. It addresses the Company's internal control system and risk management, as well as being responsible for the Company's business relations with the auditors. It issues the audit engagement to the auditors selected by the Annual General Meeting and decides on the focus of the audit and the remuneration of the auditors. This committee also monitors the independence, qualifications and efficiency of the auditors.

The Executive Board


The Executive Board of Deutsche EuroShop AG comprises two members. As the Group's management body, the Executive Board is bound to observe the interests of the Company and aims to increase its enterprise value in the long term. The responsibilities of the Executive Board include the definition of the Company's strategy, the planning and adoption of the budget for the Company and the management of its investment portfolio. The Executive Board is responsible for the preparation of the quarterly, annual and consolidated financial statements, as well as for all human resources issues within the Company. It works together closely with the Supervisory Board, and provides the latter with regular, timely and comprehensive information on all questions relevant to the Company as a whole.

Relationships to shareholders


Deutsche EuroShop reports to its shareholders on the Company’s business development, financial position and results of operations four times a year in line with a set financial calendar. The Executive Board regularly informs investors, analysts and media representatives of the quarterly and annual results. Information that may materially influence the Company’s share price is published in the form of ad hoc disclosures.

The annual Ordinary General Meeting generally takes place within the first six months following the end of the financial year. Each share has one vote in line with the principle of "one share, one vote". Shareholders whose names are entered in the share register and who have registered in due time are entitled to attend the Annual General Meeting. Shareholders are entitled to exercise their voting rights through proxies, who are bound to follow the shareholders' instructions. The Annual General Meeting is chaired by the Chairman of the Supervisory Board.

The Annual General Meeting resolves on all matters assigned to it by law. These include in particular the appropriation of the net profit, the formal approval of the actions of the Executive Board and the Supervisory Board and the appointment of the auditor. The resolutions are binding for all shareholders and the Company. Shareholders are entitled to submit countermotions to resolutions proposed by the Executive Board and Supervisory Board. Amendments to the Articles of Association and capital changes are resolved exclusively by the Annual General Meeting and implemented by the Executive Board with the consent of the Supervisory Board.

The Executive Board gives regular presentations to analysts and institutional investors as part of our investor relations activities. In addition to an annual analyst conference, we organise a conference call for analysts on the publication of each set of quarterly results; this is broadcast on the Internet, where it is available to everyone interested in the Company. We also provide financial and other information about the Deutsche EuroShop Group on our web site.

Risk management



Deutsche EuroShop's system for recording and controlling business and financial risks is explained on page 66 et seqq. of this Annual Report. The risk management system is designed to recognise and manage business risks at an early stage and to ensure that the Company’s business goals can be met. However, a risk management system cannot avoid all risks and therefore does not offer absolute protection against losses or fraudulent activities.

Accounting


The Deutsche EuroShop Group have been prepared in accordance with the International Accounting Standards (IASs) for the first time for financial year 2004. This exempts the Company from the requirement to prepare HGB financial statements in accordance with section 292a HGB (Handelsgesetzbuch – German Commercial Code). The financial statements of Deutsche EuroShop AG will continue to be prepared in line with the accounting provisions of the German Commercial Code (HGB). The Executive Board is responsible for the preparation of the financial statements.

Declaration of Conformity with the German Corporate Governance Code

The Executive Board and the Supervisory Board resolved the following declaration of conformity on 30 November 2004 in accordance with section 161 of the Aktiengesetz.

Deutsche EuroShop's departures from the stipulations of the German Corporate Governance Code in financial year 2004 are listed below, along with the relevant section of the Code.

No D&O insurance has been taken out for the members of the Executive Board and the Supervisory Board (section 3.8).
 
Because the Company has not taken out D&O insurance for the Executive Board or the Supervisory Board, the demand for a suitable deductible in the case of such a policy being concluded does not apply.
   
The variable portion of the remuneration of the Executive Board does not include stock options (section 4.2.3).
   
No stock option programmes or similar share-based incentive systems are currently in place at the Company (section 7.1.3).
 
Share price performance is also dependent on exogenous factors, which cannot be influenced by Deutsche EuroShop. This could counteract the long-term incentive effect of stock option programmes. For this reason, Deutsche EuroShop has not launched any stock option programmes to date.
   
The Supervisory Board receives remuneration that is determined by the Annual General Meeting. To date, no performance-based components have been granted (section 5.4.5 (2)).
   
Membership of committees is not taken into account when determining the remuneration of the Supervisory Board (section 5.4.5 (1)).
 
An additional performance-based remuneration of the Supervisory Board means that it is not possible, in our opinion, to ensure that control activities and committee work are independent of financial incentives.
   
The consolidated and interim financial statements are currently prepared in accordance with the German Commercial Code (HGB); the IASs are being applied for the first time for financial year 2004 (section 7.1.1).
 
The IASs have been used for the first time in this Annual Report. Deutsche EuroShop will also comply with the Code in this respect in the future.
   
The consolidated financial statements are published within 120 days after the end of the financial year, while the interim financial statements are published within 60 days after the end of the reporting period (section 7.1.2).
 
The conversion of the Company's accounting standards from HGB to IASs in financial year 2004 caused an increase in the amount of time and effort required for Group and investees' accounting. Following further optimisation of our internal accounting procedures, we expect to be able to publish our interim reports within the periods laid down by the Code from financial year 2005 onwards.

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Additional meetings held as required

 

 

 

 

 

 

 

 

 

 

 

 

 

Proposals by
Audit Committee

 

 

 

 

 

 

 

 

 

 

 

 

Interim reporting

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Early warning system

 

 

 

 

First-time adoption of IASs