Declaration on Corporate Governance

Declaration on Corporate Governance

The Declaration on Corporate Governance (Section 289a German Commercial Code) comprises the declaration of compliance, information on corporate governance practices and a description of the Management Board and Supervisory Board procedures. Our aim is to present PAION ’s corporate governance principles as clearly and concisely as possible. You will find the complete declaration on our webpage under www.paion.com/media-and-investors/corporate-governance/declaration-on-corporate-governance.

 

Corporate Governance Report

The Supervisory Board and the Management Board of PAION AG are both committed to the principles of responsible management and governance aimed at sustainable value creation and set great store by these principles in their actions. In ensuring good and transparent corporate governance, the Supervisory Board and the Management Board of PAION AG are guided by the statutory provisions as well as the suggestions and recommendations of the Government Commission of the German Corporate Governance Code. The suggestions and recommendations laid down in the German Corporate Governance Code are based on internationally and nationally recognized standards of good and responsible business management.

In December 2015, the Supervisory Board and the Management Board released its annual Declaration of Compliance following the recommendations of the Government Commission of the German Corporate Governance Code in accordance with section 161 of the German Stock Corporation Act. The declaration is provided permanently on the company website (http://www.paion.com/media-and-investors/corporate-governance/declaration-of-conformity) alongside now outdated Declarations of Compliance from previous years. PAION, unless explicitly stated and justified, complies with essentially all recommendations of the latest version dated 05 June 2015 of the German Corporate Governance Code.

 

Code of Conduct

Since its foundation, PAION AG was developed into a company focused on the clinical development of drugs for which there is a high unmet medical need. As a listed clinical drug development and research company, PAION carries a major responsibility towards many stakeholders. Doctors and patients alike must be able to rely on our ability to develop safe and effective products. Business partners, shareholders and investors must also be able to place trust on us that all our activities and relationships both with business partners and governmental authorities remain within the framework and principles of integrity in business relationships as recorded in our corporate “Code of Conduct”. Please visit www.paion.com/media-and-investors/corporate-governance/code-of-conduct for more information about the Code of Conduct at PAION.

 

Information on Company management and supervision

In accordance with the provisions of the German Stock Corporation Act, PAION AG maintains a dual management and supervision structure formed by two bodies, the Management Board and the Supervisory Board. Since the appointment of Dr. Jürgen Raths (01 September 2015) and the departure of Dr. Mariola Soehngen (31 October 2015), the Management Board consists of three members, who collectively bear all responsibility and are accountable for the company’s good management. The Supervisory Board, comprising three members, appoints, supervises and advises the Management Board and is directly involved in decisions that are of fundamental importance to the company. In overseeing and directing the composition of the Management Board, the Supervisory Board pays attention to the principle of diversity, specifically the representation of women. The strategic objectives of the company are developed by the Management Board but coordinated with the Supervisory Board.

The Management Board and the Supervisory Board work closely together for the sole benefit of the company including its stakeholders. The Supervisory Board determined objectives regarding its composition outlining that at a size of three members, at least two members shall be independent. The age limit for Supervisory Board members is 75 years and the length of membership is limited to an aggregate total of fifteen years. Furthermore, the Supervisory Board resolved that at least one of its members must be female. Within the reporting period all members were independent and younger than 75 years. With the appointment of Dr. Karin Louise Dorrepaal, one of its three members is a woman.

The Chairman of the Supervisory Board coordinates its work and chairs its meetings. The Chairman of the Supervisory Board maintains regular contact with all members of the Management Board, in particular its Chairman. In its rules of procedure developed for the Management Board, the Supervisory Board laid down the duties of the Management Board. This includes the provision of information and reports, the allocation of duties, and further defines the necessary levels of co-operation within the Management Board including the processes and business transactions requiring approval by the Supervisory Board. In 2009, the Supervisory Board established an audit committee headed by John Dawson, an independent member of the Supervisory Board with specific knowledge and experience in the application of accounting principles and the auditing of financial statements. Duties and tasks of the Supervisory Board are also regulated by specific rules of procedure. Further details concerning the work of the Supervisory Board can be found in the Report of the Supervisory Board in the annual report. PAION AG has taken out a D&O insurance policy for the members of the Management Board and of the Supervisory Board. This insurance policy provides partial coverage for the Management Board and the Supervisory Board with regard to legal and the Corporate Governance Codex requirements. Insurance coverage is not provided if the damages are incurred in insured events that are attributable to fraudulent actions, omissions or deliberate breaches of duty.

Conflicts of interest of the Management or Supervisory Board members are to be disclosed immediately to the Supervisory Board.

No conflicts of interest involving the members of the Supervisory Board, as set out in subsection 5.5 of the German Corporate Governance Code, were reported for financial year 2015.

Two members of the Management Board were appointed as managing directors of PAION Deutschland GmbH and two members were appointed as non-executive directors of PAION, Inc. One board member was appointed managing director of PAION Holdings UK Ltd including its subsidiaries. No other mandates on management and/or supervisory boards of other companies were being held by Management Board Members during the reporting period. Mandates held by members of the Supervisory Board are listed in the notes to the Consolidated Financial Statements.

 

Equal participation of Men and Women in executive positions

The Supervisory Board actively supports the company in achieving an adequate representation of women in executive positions.

Currently, the Management Board of PAION AG consists of three members – Dr. Wolfgang Söhngen (CEO), Abdelghani Omari (CFO), and Dr. Jürgen Raths (COO). Women are currently not represented in the Management Board. Against this background and given existing contractual obligations, no female representation is planned for the Management Board of PAION AG until 30 June 2017.

As of 31 December 2015, the representation of women within the first and second management level below the Management Board of the entire PAION Group was calculated at 13.3 %. In August 2015, the Management Board defined a goal of at least 20 % for the representation of women within the first and second management levels.
These targets relate to the period ending 30 June 2017. The company will periodically report on progress as required.

 

Compliance as a key obligation for the Management Board

Compliance, in the sense of measures designed to ensure adherence to statutory provisions and internal company policies including observance of these measures, represents a key obligation. Pursuant to Section 91 (2) of the German Stock Corporation Act, the Management Board is obliged to implement effective measures – namely a monitoring system – to enable the early identification of any developments that may threaten the survival of the company. The German Corporate Governance Code stipulates the Management Board’s responsibility for the implementation of a suitable risk management and control system.

The Management Board of a joint stock corporation is jointly and severally liable for the fulfillment of its organizational duties, especially risk management and risk control. The Management Board must define an organizational structure for the company ensuring that its operations comply with legal requirements to the best extent possible. Any infringement of rights and legally protected interests of third parties must reasonably be excluded. A management board is only eligible for exemption from liability if it provides evidence of compliance with its organizational obligations.

One of the organizational obligations for the Management Board is represented by the formal assignment of business responsibilities defining the individual areas of responsibility for its members. This plan forms an integral part of the rules of engagement for the Management Board and must be approved by the Supervisory Board. In addition, regular meetings and consultations ensure that the members of the Management Board are well informed of any important developments. In case of any deficits and/or irregularities, the Management Board must collectively implement suitable counter-measures.

The Management Board must not delegate management tasks to lower levels of the organization. This excludes the vast majority of common operational tasks. The Management Board further delegated specific tasks to subordinate executives and expert members of staff in the Legal, Investor & Public Relations as well as Finance departments forming part of its efforts to comply with capital market statutes. These tasks and responsibilities are defined in the individual job descriptions. The members of staff that perform tasks related to compliance within capital market statutes are subject to ongoing monitoring and training.

All staff across the entire PAION Group of companies receive regular communications raising awareness of certain compliance issues with regard to financial market regulations. This includes, for example, the handling of sensitive confidential information, specifically insider information. Any infringement may result in extremely serious consequences not only for the PAION Group of companies but also for the individual(s) involved.

 

Transparency and communication

Good corporate governance is distinguished by open, transparent and up-to-date communications. PAION AG ensures this by posting ad-hoc reports on the company’s webpage and by forwarding without delay all relevant information for publication to the relevant service providers (Business Register, Deutsche Börse, Federal Gazette, Europe-wide publication).

All ad-hoc announcements (§ 15(1) WpHG, Directors‘ Dealing notices(§ 15a WpHG), press releases, voting right notifications(§ 26 WpHG), financial reports, information on the Annual General Meeting as well as information on the company’s corporate governance principles can be accessed by the public on the company’s website (www.paion.com). The website also features a financial calendar that provides information on the publication dates of the financial reports as well as an event calendar detailing upcoming presentations by the company. For all events and discussions, PAION AG ensures that no investor receives material information in a favorable manner and that the equal treatment of all shareholders is ensured. Information such as ad-hoc announcements, press releases, quarterly releases, half year reports and annual reports are also made available in English.

PAION AG reports regularly and promptly on the development of its business as well as the net assets, financial position and operational results for the entire group. The consolidated financial statements are published within 90 days from the end of the respective financial year.

Further information about transparency and communications can be found in the Investor Relations section of the annual report.

 

Shareholders and Annual General Meeting

The shareholders of PAION AG are entitled to exercise their rights at the Annual General Meeting. Each share entitles the holder to one vote. The shareholders have the possibility to exercise their voting rights themselves or of appointing a proxy in writing. PAION AG implemented facilitating measures for the shareholders to exercise their voting rights by appointing a representative assisting in the exercise of shareholder’s voting rights in accordance with their instructions. All reports and documents required to be made available for inspection in connection with the Annual General Meeting are also posted on the PAION webpage in accordance with legal requirements (http://www.paion.com/media-and-investors/annual-general-meeting/).

 

Auditing of the financial Statements

The consolidated financial statements of PAION AG are drawn up by the Management Board in accordance with the International Financial Reporting Standards. Following vote at the Annual General Meeting, Ernst & Young GmbH Wirtschaftsprüfungs­gesellschaft, branch office (Zweigniederlassung) Cologne (“Ernst & Young”) was commissioned by the Supervisory Board to audit the annual and consolidated financial statements of PAION AG. It was agreed upon between the Supervisory Board and Ernst & Young that the auditor would report to the Chairman of the Supervisory Board or to the Chairman of the Audit Committee (following his appointment), without delay all findings and events essential for the fulfilment of the duties of the Supervisory Board that were discovered during the audit. Furthermore, the auditor is required to inform the Supervisory Board and the Audit Committee, or to include a note in the auditor’s report, if he discovers any facts during the audit that are not consistent with the Declaration of Compliance issued by the Management Board and the Supervisory Board in accordance with section 161 of the German Stock Corporation Act. We refer to the report by the Supervisory Board of the annual report for the audit summary and consolidated financial statements.

 

Risk Management

Good corporate governance involves the responsible handling of risks by the company. Details of the risk management system implemented by the PAION group of companies are outlined in the group management report. Please refer to the section “Report on risks and opportunities”.

 

Remuneration of the Management Board

The remuneration of the members of the Management Board Members is determined by the Supervisory Board. Regular reviews are conducted. The remuneration is comprised of a fixed component, a variable bonus, long-term performance-related remuneration components in the form of stock options and stock appreciation rights (remuneration instruments based on the share price and settled in cash), as well as contributions in terms of company car remuneration, insurance premiums and pension schemes.

In accordance with the statutory provisions, the remuneration of each individual member of the Management Board is disclosed in the Group Management Report under the section “Remuneration Report – Management Board“. Reference is made to the detailed statements in the group management report, which at the same time form an integral part of this Corporate Governance Report.

 

Remuneration of the Supervisory Board

The remuneration of the Supervisory Board is laid down in the articles of association of PAION AG. Members of the Supervisory Board receive a basic remuneration and attendance fees in addition to the reimbursement of their expenses. Performance-related remuneration for the members of the Supervisory Board is currently not envisaged. The basic annual remuneration amounts to EUR 20,000 and the attendance fee to EUR 1,500. Meetings that are held in the form of conference calls are not taken into consideration in the calculation of the attendance fee remuneration. The Chairman of the Supervisory Board receives double and the vice-Chairman one and a half times the basic remuneration and the attendance fee. Members of the Supervisory Board resident in a country outside Europe receive twice the basic attendance fee. The attendance fee is paid for a maximum of six meetings per year. The remuneration paid to each individual member of the Supervisory Board is presented in the Group Management Report in the section “Remuneration Report – Supervisory Board”. Reference is made to the detailed statements in the Group Management Report, which at the same time form an integral part of this Corporate Governance Report. The members of the Supervisory Board did not receive any remuneration or compensation for services rendered individually, in particular consultancy and agency services, in the financial year 2015.

 

Share transactions by and shareholdings of the members of the Management Board and the Supervisory Board

In accordance with Section 15a of the German Securities Trading Act, members of the Management Board, the Supervisory Board and persons associated with them are required to disclose selling or buying PAION AG shares if the value of the combined transactions reaches or exceeds EUR 5,000 in the calendar year. These transactions are published by PAION AG immediately on the company’s website and notified to the Federal Financial Supervisory Authority. In the fiscal year 2015, no notifiable transactions were reported.

As of 31 December 2015, Dr. Wolfgang Soehngen held 1.21 % (612,091 voting rights) of the shares in PAION AG. This equity interest includes 0.01 % (6,425 voting rights) of the shares in PAION AG held by Dres. Söhngen Beteiligungs GmbH, in which Dr. Wolfgang Söhngen holds 50 %. The other members of the Management and Supervisory Board did not own any shares in PAION AG as of 31 December 2015.

 

Share-based incentive Systems

PAION AG introduced a Stock Option Plan 2005, an Employee Participation Plan 2006, a Stock Option Plan 2008, Stock Option Plan 2010 and a Stock Option Plan 2014 as remuneration components with long-term incentives and risk characteristics. The Stock Option Plans and the Employee Participation Plan allow for (virtual) stock options to be granted to members of the Management Board and employees. The precise structure of these plans as well as the options and rights issued to date within the framework of these plans are presented in the notes to the Consolidated Financial Statements in section “Other Disclosures” under “Stock Option Plans” and “Employee Participation Plan 2006”. Furthermore, the explanations in the Group Management Report in the section “Remuneration Report – Management Board” contain statements on the value of the options and rights granted to the members of the Management Board. Reference is made to the statements in the notes to the Consolidated Financial Statements and the Group Management Report, which at the same time form an integral part of this Corporate Governance Report.

 

Aachen, March 2016

 

The Management Board of PAION AG

 Dr. Wolfgang Söhngen        Dr. Jürgen Raths

Abdelghani Omari                              

 

The Supervisory Board of PAION AG

 

Dr. Jörg Spiekerkötter           John Dawson

Dr. Karin Dorrepaal