The Sulzer Board of Directors consists of seven members who are elected individually for one-year terms. None of them has ever held an executive position at Sulzer. Jill Lee and Marco Musetti were newly elected into the Board of Directors in 2011.
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 April 14, 2011, Hans Hubert Lienhard and Tim Summers decided not to stand for reelection. Jill Lee and Marco Musetti were newly elected into the Board of Directors, and Luciano Respini and Klaus Sturany were reelected. The terms of the members of the Board of Directors elected earlier than 2010 expire in 2012 (see the table below). 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 here: 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. After ten years of service, Daniel Sauter has decided not to stand for reelection at the Annual General Meeting on April 5, 2012.
Internal organization
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. Jürgen Dormann has been Chairman of the Board of Directors since August 18, 2009. There are currently three committees: the Audit Committee (AC), the Nomination and Remuneration Committee (NRC), and the Strategy Committee (SC); for its constitutions, see below.
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 www.sulzer.com/regulations.
Operating principles of the Board of Directorsand 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, 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 2011, five one-day andsix shorter board meetings, which lasted about one to two hours on average, were held. The table above shows the number of meetings of the Board and the committees and further information. 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 was appointed ad interim CEO as of November 1, 2011, and has been in charge of the responsibilities of the CEO assignment on an ad interim basis. 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 Head of Planning and Acquisition provides regular status reports on ongoing merger and acquisition projects.
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.
Audit Committee
The Audit Committee (list of members in the graph above) 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. 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 receives and discusses a report that summarizes the compliance activities and further improvements of Sulzer’s compliance approach and program. At each meeting major pending compliance cases (if any) are reported. 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 2011, the Audit Committee held four meetings. Apart from the external auditor-in-charge, who attended each meeting, no external experts attended meetings of the Audit Committee. Internal experts, like the General Counsel and the Heads of Corporate Controlling, Corporate IT, Corporate QESH, Corporate Risk Management, Corporate Taxes, as well as the Division Presidents of Sulzer Pumps, Sulzer Metco, and Sulzer Chemtech held presentations to the Audit Committee in 2011.
Nomination and Remuneration Committee
The Nomination and Remuneration Committee (list of members in the graph above) 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 www.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 2011, three regular and four shorter meetings were held. External experts from Towers Watson provided benchmarking services (see compensation report). The search process for the new CEO was supported by an external consulting firm.
Strategy Committee
The Strategy Committee (list of members in the graph above) 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 www.sulzer.com/regulations. In 2011—as an exception—only one meeting took place. The CEO, the CFO, the General Counsel (who is the secretary of this committee), the Head of Corporate Planning and Acquisitions as well as the President of Sulzer Pumps attended this meeting. Due to the importance, size, and particularly the required speed of the acquisition process of Cardo Flow Solutions, it was decided to hold the respective discussions at meetings of the full Board of Directors. No external experts participated.
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 by law be made 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 www.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 three-months 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 and in the meeting of the Sulzer Management Group (around 85 people) held every 12 to 18 months. In addition, the Board receives twice a year an investor relations status report.
Internal Auditing
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, as well as 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 42 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 the monthly information meetings; during these meetings, Internal Auditing also reports on the follow-up of measures agreed earlier. In 2011, a new follow-up process for all corporate audits (internal, legal and compliance, IT, and QESH) was introduced. It ensures 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 both committees and thereafter reported to the Board of Directors.
Risk management and corporate compliance
Sulzer puts a high priority on carrying out its businesses with integrity, in compliance with all applicable laws and internal rules, and on accepting only reasonable contractual risks. 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 and within the Corporate Risk Council. The Audit Committee dedicates at least one full meeting per year to risk management and compliance. An overview ofthe main risks and corresponding mitigation measuresis provided on pages 58–59 in the Sulzer Annual Report 2011.
In 2010, Sulzer joined the UN Global Compact initiative and introduced a new Code of Business Conduct (Code), 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 the newly acquired businesses) is required to confirm in writing that he or she has read and understood this Code and will comply with it. At Cardo Flow Solutions in Germany, this requirement is still in the process of being implemented. As of 2006, every member of the Sulzer Management Group (approximately 85 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 on an annual basis. The company, each division, and all operating companies have their own compliance officers. The group compliance officer reports to the General Counsel and steers and administers the corporate-wide compliance program (consisting of, e.g., periodic risk assessments, values ("speak-up culture" and "tone at the top and the middle"), internal rules and tools, awareness building and training, controls, and sanctions). Employees and the 109 compliance officers receive regular training so that best practice standards for compliance issues can be established and applied; in 2011, a particular focus was taken on the Asian businesses (including face-to-face compliance and risk management trainings for over hundred compliance officers and managers). Twice a year, the Audit Committee is informed about compliance-related matters (e.g., exposures encountered and cases from the prior year, activities carried out in the current year and those planned for the following year). At each meeting of the Audit Committee, new major compliance cases (if any) are reported and discussed. During 2011, new contract risk management training programs were rolled out. Each training also contains a compliance part, which again focuses on compliance with export controls, competition law, and corruption avoidance. In 2011, several thousand employees participated in e-learning programs, training sessions, and workshops. In 2011, a new process addressing the selection and assessment of third-party intermediaries (agents, consultants, representatives, and distributors) was introduced. Significant emphasis was put on further improving the speak-up culture (including promoting the use of the compliance hotline) in 2011. This hotline provides employees with one of many options for reporting (potential) violations of the law or internal directives. Reports can be made via a free hotline or a dedicated website. Users may remain anonymous if they choose to do so. The process of investigating reported issues was further improved in the course of 2011. In the same year, new antitrust law guidelines were introduced.
The Corporate Risk Council, comprising the CFO (Chairman), the General Counsel, the Head of Internal Auditing, the Corporate Compliance Officer, the Head of Risk Management, and representatives of other group staff functions, held four meetings in 2011. 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. Training in 2011 focused once again on the areas of contractual risks (including insurance) and compliance aspects. Several hundred employees from all divisions took part in the new contract risk management trainings. Internal management of contractual risk was also improved further in the year under review, including through a particular focus on Sulzer’s Asian activities, as well as a further tightening of the legal and compliance network throughout the company.
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. At the February meeting, a compliance report outlining the respective exposures of the businesses as well as the compliance cases of the prior year was discussed. At its September meeting, the Audit Committee was 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 was also provided. At each meeting, the major current compliance cases (if any) are reported to and discussed by the Audit Committee. The Corporate Legal Department carried out nine legal audits in 2011. These audits focused on contractual as well as compliance risks. The results of the audits are discussed with the responsible managers. Measures are agreed upon, and the corresponding reports are 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 chapter "Internal Auditing"). The Corporate Quality, Environment, Safety, and Health Department carried out 24 audits and organized 9 external insurance audits and 49 external health and safety compliance audits in 2011. The focal points were primarily environmental protection and workplace safety. The results of each of these audits are discussed directly with the responsible managers, and an agreement is 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 2010 (see www.sulzer.com/sustainability The company received the highest rating of A+ from the Global Reporting Initiative (GRI) and has been included in the Dow Jones World Sustainability Index (DJSI) since 2008. The external auditing institute SGS (Société Générale de Surveillance) also confirmed the highest GRI rating. In a report issued in September 2011, SAM assessed Sulzer’s approach regarding "Code of Conduct / Corruption / Bribery" with 95 out of 100 points. With the focus on IT security, 209 sites conducted IT self-assessments in 2011.