None of the members of the Board of Directors has ever belonged to the management of a Sulzer company or to the Executive Committee, nor do any significant business relationships, except as noted below, exist between members of the Board of Directors and Sulzer Ltd or a subsidiary of Sulzer Ltd. Vladimir Kuznetsov and Marco Musetti have a close relationship with Sulzer’s largest shareholder; both are employees of Renova Management AG. Vladimir Kuznetsov is Managing Director, Strategic Development of the Renova Group and Marco Musetti is Chairman of Avelar Energy Ltd. and Member of the Board of Aión Renewables S.p.A. In both companies the Renova Group holds significant shareholdings. Business relationships in the single-digit million range exist with companies that are directly or indirectly controlled by the Renova Group. For further information see financial section, note 32 on page 113*. There are no interlocking directorships.
Elections and terms of office
The Articles of Association stipulate that the Board of Directors of Sulzer Ltd shall comprise five to nine members. Each member is elected individually. The term for members of the Board of Directors is one year. As per the Annual General Meeting on March 27, 2013, Manfred Wennemer was newly elected into the Board of Directors, replacing Jürgen Dormann, and all other members were reelected. The Board of Directors has since been made up of seven members: one Austrian, one German, two Italians, one Russian, one Singaporean, and one Swiss. Professional expertise and international experience played a key role in the selection of the members. The CVs of the members of the Board of Directors can be viewed on pages 52* to 53* and online at www.sulzer.com/board. According to the organization regulations governing the Board of Directors, the term of office of a Board member ends no later than on the date of the Annual General Meeting in the year when the member reaches the age of 70. Exceptions up to but not exceeding the year in which the member reaches the age of 73 can be made by the Board of Directors, which has been the case for Jürgen Dormann. He has resigned as chairman and member of the Board of Directors at the Annual General Meeting on March 27, 2013.
The Board of Directors is self-constituting, designating from among its members the Chairman of the Board as well as the chairmen and members of the Board committees.Manfred Wennemer is Chairman of the Board of Directors since March 27, 2013. There are currently three committees: the Audit Committee (AC), the Nomination and Remuneration Committee (NRC), and the Strategy Committee (SC). The division of responsibilities between the Board of Directors and the CEO and the authorities and responsibilities of the Chairman of the Board of Directors and of the three committees are defined in the organization regulations and the relevant committee regulations, which are published online at sulzer.com/regulations.
Operating principles of the Board of Directors and its committees
All decisions are taken by the full Board of Directors. For each application, written documentation is distributed to the members of the Board of Directors prior to the meeting. The Board of Directors and the committees meet as often as required by circumstances (the Board of Directors meets at least six times annually (in 2012 seven times), the Audit Committee and the Nomination and Remuneration Committee meet at least three times annually, and the Strategy Committee meets at least twice annually). In 2012, one four-day, four one-day, and two shorter board meetings were held, which lasted about one to two hours on average. For further details see the table on page 50*. Board meetings are generally also attended in an advisory role by the CEO, the CFO, and the General Counsel (who is the secretary of the Board of Directors). CFO Jürgen Brandt participated as interim CEO on the Board and committee meetings until February 21, 2012, when Klaus Stahlmann was appointed CEO. Other members of the Executive Committee are invited to attend board meetings as required to discuss the midterm planning, the strategy, and the budget, as well as division- specific items (such as large investments and acquisitions).
The committees do not take any decisions, but rather they review and discuss the matters assigned to them and submit the required proposals to the full Board of Directors for a decision. At the next full board meeting following the committee meeting, the chairmen of the committees report to the full Board of Directors on all matters discussed, including key findings, opinions, and recommendations.
The Audit Committee (Klaus Sturany (Chairman), Thomas Glanzmann, Jill Lee) assesses the midyear and annual accounts and, in particular, the activities—including efficiency and independence—of the internal and external auditors as well as the cooperation between the two bodies, the Internal Control System (ICS), and the risk management. It also assesses compliance with the applicable standards. At least one full meeting per year is dedicated to risk management and compliance. The regulations of the Audit Committee can be viewed at www.sulzer.com/ regulations. Meetings of the Audit Committee are attended by the CEO, the CFO, the General Counsel (at least partially), the Head of Internal Auditing (who is also the secretary of this committee), and the external auditor-in-charge. In 2012, the Audit Committee held five meetings. Apart from the external auditor-in-charge, who attended four of these meetings, no external experts attended meetings of the Audit Committee. Internal experts, such as General Counsel and the Heads of Corporate Auditing, Corporate Controlling, Corporate Treasury, Corporate IT, Corporate QESH, Corporate Risk Management, and Corporate Taxes held presentations to the Audit Committee in 2012. The external audit mandate was assessed in detail and it was decided to change the auditor and to propose to the shareholders to elect KPMG at the Annual General Meeting of March 27, 2013.
In February, the Audit Committee receives and discusses a report addressing the exposures (results of periodic risk assessments) and compliance cases of the prior year. In September, the Audit Committee is briefed on the present state of risk management within the company and on the results of the risk management process - a process to systematically identify and evaluate significant risks and initiate countermeasures. In the same meeting, an update on Sulzer’s compliance approach including the respective ongoing and planned activities is provided. At each meeting, the major current compliance cases (if any) are reported to and discussed by the Audit Committee.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee (Vladimir V. Kuznetsov (Chairman), Luciano Respini, Klaus Sturany) assesses the criteria for the election and reelection of Board members and the nomination of candidates for the top two management levels. It also deals with succession planning, regularly assesses the remuneration systems, and recommends compensation for the members of the Board of Directors and the Executive Committee (including bonus targets for the latter) on behalf of the Board of Directors and in accordance with its specifications. It also carries out broadly based salary comparisons with international third-party companies, supported by studies of the consulting firms such as Mercer and Towers Watson, and it scrutinizes the work of internal and external consultants. The regulations of the Nomination and Remuneration Committee can be viewed at sulzer.com/regulations. Meetings of the Nomination and Remuneration Committee are attended by the CEO and the Head of Corporate Human Resources (who is also the secretary of this committee). In 2012, four regular meetings were held. External experts from Towers Watson provided benchmarking services (see compensation report, pages 62* to 68*) and supported the Nomination and Remuneration Committee in changing the remuneration packages of the members of the Executive Committee and particularly in drafting the new performance share plan (which became effective as of January 1, 2013). The search process for the new CEO was supported by an external consulting firm.
The Strategy Committee (Manfred Wennemer (Chairman), Thomas Glanzmann, Marco Musetti, Luciano Respini) advises the Board of Directors on strategic matters (such as material acquisitions, divestitures, alliances, and joint ventures) as well as strategic planning and defining of development priorities. The regulations of the Strategy Committee can be viewed at sulzer.com/regulations. In 2012, two meetings took place. The CEO, the CFO, and the General Counsel (who is the secretary of this committee), attended one of these meetings; the CEO attended both meetings.
Division of powers between the Board of Directors and the CEO
The Board of Directors has largely delegated executive management powers to the CEO, but it is still responsible for matters that cannot be delegated in accordance with Art. 716a of the Swiss Code of Obligations, such as corporate strategy, approval of midterm planning, and the annual budget, as well as key personnel decisions, including approval of the remuneration system. The same applies to acquisition and divestiture decisions involving an enterprise value exceeding CHF 15 million or CHF 20 million respectively, investments in fixed assets exceeding CHF 15 million, major corporate restructurings, approval of dispute settlements with an impact on operating income of more than CHF 20 million, approval of research and development projects exceeding CHF 10 million, as well as other matters relevant to the company, and decisions that must be made by law by the Board of Directors (including those defined in the Swiss Mergers Act). The competency regulations and the nature of the collaboration between the Board of Directors and the Executive Committee can be viewed in the organizational regulations at sulzer.com/regulations.
Information and control instruments
Each member of the Board of Directors receives a copy of the monthly financial statements (January to May and July to November), plus the midyear and annual financial statements. These include information about the balance sheet, income and cash flow statements, as well as the key figures for the company and its divisions (incorporating comments on the respective business results and a six-month rolling forecast of the key figures). The CEO and CFO report at every Board meeting on business developments and all matters relevant to the company; twice each year, the Board receives the forecasted annual results. The chairmen of the committees also report at these meetings on all matters discussed by their committees and on the key findings and assessments, and they submit proposals accordingly. Each year, the Board of Directors discusses and approves the budget for the following year, and every three years, it establishes a midterm plan, which is also subject to periodic review. The Chairman of the Board of Directors regularly consults the CEO and other representatives of the Executive Committee and generally participates - at least partially - in the retreat of the Executive Committee. In addition, the Board receives an investor relations status report twice a year.
Internal Auditing reports to the CFO for administrative purposes, but reports functionally directly to the Chairman of the Audit Committee. Meetings between Internal and External Auditing take place on a regular basis to prepare for the meetings of the Audit Committee, to review the interim and final reports of the External Auditing, to plan and coordinate internal and external audits, and to prepare audit instructions for the attention of external auditors of the individual companies. Group companies are audited by Internal Auditing based on an audit plan that is approved by the Audit Committee; depending on the risk category such audits are carried out on a rotational basis either annually or every second, third, or fourth year. Internal Auditing carried out 44 audits in the year under review. One of the focal points was the internal control system. The results of each audit are discussed in detail with the companies and divisions concerned and key measures agreed upon. The Chairman of the Board of Directors, the members of the Audit Committee, the CEO, the CFO, the General Counsel, as well as the respective Division President and other line managers of the audited unit receive a copy of the audit report. The key measures agreed upon are also presented to and discussed with the CEO, the CFO, the General Counsel, the Division Presidents, and the Division Controllers during monthly information meetings; during these meetings, Internal Auditing additionally reports on the follow-up of measures agreed earlier. In 2012, newfollow-up processes for all corporate audits (internal, legal and compliance, IT, and QESH) were introduced. They ensure that the implementation of the improvement measures that have been agreed upon can be more efficiently and effectively monitored. Each year, the Head of Internal Auditing compiles a report summarizing activities and results. This report is distributed to members of the Board of Directors and the members of the Executive Committee and presented to the Executive Committee and the Audit Committee. It is discussed in bothcommittees and thereafter reported to the Board of Directors.
Risk management and corporate compliance
Sulzer has established and implemented a comprehensive and value-based compliance program that focuses on prevention. It consists of the following main elements:
Strong values and ‘tone at the top and the middle’
Sulzer puts a high priority on carrying out its business with integrity, in compliance with all applicable laws and internal rules (‘a clean deal or no deal’), and on accepting only reasonable contractual risks. The Board of Directors and the Executive Committee are convinced that compliant and ethical behavior in all aspects is a precondition for a successful and sustainable future. It also fosters a speak-up culture and encourages employees to address potentially non-compliant behaviors.
As part of Sulzer’s integrated risk management process, compliance risks are assessed on a regular basis, and the results are discussed both with the management within the Corporate Risk Council as well as the Audit Committee, which dedicates at least one full meeting per year to risk management and compliance. An overview of the main risks and corresponding mitigation measures is provided
on pages 60* to 61*.
Internal rules and tools
In 2010, Sulzer joined the UN Global Compact initiative and introduced a new Code of Business Conduct, which can be viewed online at www.sulzer.com/regulations in 18 languages. Every current employee of the company and every new employee (including those of newly acquired businesses) is required to confirm in writing that he or she has read and understood this code and will comply with it. Every member of the Sulzer Management Group (approximately 95 people) as well as the heads of all operating companies and all divisional and local compliance officers must, among others, reconfirm this compliance commitment in writing together with certain explicit certification on an annual basis.
Although Sulzer follows a behavior- and principle-based approach it still requires internal rules discussing ‘boundaries’, defining processes, and providing guidance and decision support. In this respect Sulzer focuses on the major compliance risks, e.g.:
- Bribery and corruption risks: Anti-bribery and anti-corruption guidelines were introduced in 2010. In 2011, a process addressing the due diligence of intermediaries was introduced. In 2012, this process was improved, the scope was extended, and the tool was made web-based. In the same year, a corporate- wide initiative setting maximum levels for offering and receiving gifts and hospitalities was carried out; the respective directive entered into force on January 1, 2013.
- Antitrust and anti-competition risks: An antitrust guideline was introduced in 2010 and a directive addressing behaviors in trade association followed in 2012.
- Export control risks: Export control policies were established and rolled out in 2012 in most entities.
- Further risks (e.g. stock exchange laws, human resource-related, intellectual property and know-how, privacy and data protection laws, product liability, environmental, quality and health, etc): These and many other potential risks are addressed by focused rules and processes. In 2012, new processes securing compliance with insider law risks and stock exchange reporting and notification risks were introduced.
As a consequence of the strongly fostered speak-up culture Sulzer provides a hotline that provides employees with one of many options for reporting (potential) violations of the laws or internal rules (reports can be made anonymously or openly via a free hotline or a dedicated website). The company also introduced a directive that further improves internal reporting of compliance cases and sets minimum standards for internal investigation in 2012. Further tools are available to all employees on the Sulzer Legal and Compliance Intranet site (e.g. presentations addressing the major exposure; draft agreements; sales and procurement handbooks with compliance-specific explanations and standard clauses). In 2012, legal and compliance-related know-how management was one of the focus topics and a new, software-based tool for in-house lawyers, contract managers, compliance officers, and trade control officers was created.
The company, each division, and all operating companies have appointed compliance officers. The group compliance officer reports to the General Counsel and steers and administers the corporate-wide compliance program. The Corporate Risk Council, comprising the CFO (Chairman), the General Counsel, the Head of Internal Auditing, the Corporate Compliance Officer, the Heads of Risk Management of the corporation and the divisions, and representatives of other group staff functions, held four meetings in 2012. The Corporate Risk Council’s tasks mainly include formulating and maintaining adequate risk management policies, systems and guidelines, initiating and coordinating risk management activities, and advising the CEO and the Executive Committee on matters relating to risk management. Each member of the Executive Committee receives a copy of the minutes of the Corporate Risk Council. In addition, if considered necessary, a verbal report is given at the Executive Committee meetings that follow the meetings of the Corporate Risk Council.
The General Counsel informs the Board of Directors and the Executive Committee regularly on legal matters and key changes in legislation that may affect Sulzer, as well as on important litigation. Twice a year, a report is also made to the Audit Committee about any pending or threatened litigation with worst-case exposure exceeding CHF 0.5 million. Further information relating to reports to the Audit Committee is provided under ‘Audit Committee’ on page 51*.
Awareness building and training
Sulzer puts substantial effort into the training of its employees. Training is carried out via e-learning programs (between two and three new programs are rolled out every year), on a face-to-face basis or through web conferences. In 2012, over 1 000 employees (particularly sales, project management, procurement, and middle management) participated in contract risk-related face-to-face training; each of these training courses also contained a compliance section during which the major risks are addressed. In 2012, most of the 102 compliance officers participated in 1.5-day compliance training sessions. They allowed sharing experiences and challenges, presenting best practice standards, and improving skills. Over 27 000 e-learning courses were conducted in 2012 and many web conferences on specific legal or compliance matters were carried out.
Controls and sanctions
In addition to the audits carried out by Internal Auditing the Corporate Legal Department carried out ten legal audits in 2012. These audits focused on contractual as well as compliance risks. The results of the audits were discussed with the responsible managers. Measures were agreed upon, and the corresponding reports were sent to the same group of recipients that also receives the internal audit reports. Implementation of these measures is monitored on the basis of a new follow-up process (see above under ‘Internal Auditing’, page 54*). The departments Corporate Quality, Environment, Health and Safety, and Sustainable Development carried out 34 audits and organized 8 external insurance audits and 19 external health and safety compliance audits in 2012. The focal points were primarily environmental protection and workplace safety. The results of each of these audits were discussed directly with the responsible managers, and agreement was reached on any improvements required. The latest status of the company’s risks relating to quality, environment, safety, and health is reported to the Audit Committee once a year. Sulzer published an externally verified Sustainability Report in 2012 (see www.sulzer.com/ sustainability). The company received the highest rating of A+ from the Global Reporting Initiative (GRI). The external auditing institute SGS (Société Générale de Surveillance) also confirmed the highest GRI rating. In a report issued in September 2012, SAM assessed Sulzer’s approach regarding antitrust to be in the 98th percentile and that relating to code of conduct/corruption/bribery in the 93rd percentile. With the focus on IT security, 227 sites conducted IT self-assessments in 2012. Apart from these formal audits, many internal investigations (triggered by reports via the hotline, e-mails, telephone calls or otherwise) were carried out in the course of 2012 and at least eight employees had to leave Sulzer due to non-compliant behavior. Others received warnings or were internally transferred. However, the vast majority of the reports received concerned non-material issues.
It is Sulzer’s goal to constantly improve its compliance and risk management approach. Learnings from findings of audits and internal investigations are assessed and internal processes and rules adjusted, and/or corporate training modules improved and/or otherwise shared (e.g. through the regular legal and compliance newsletter).
*) All page references can be found in the printed version of the Sulzer Annual Report 2012. Order your copy under Order Printed Information Material.