Declaration on Corporate Governance

Declaration on Corporate Governance

The Declaration on Corporate Governance (Section 289f 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 2017, the Supervisory Board and the Management Board released their 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company website (http://www.paion.com/media-and-investors/corporate-governance/declaration-of-conformity) alongside now outdated Declarations of Compliance from previous years.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 complies with all recommendations of the latest version of the German Corporate Governance Code dated 07 February 2017.

 

Code of Conduct

PAION AG has developed into a renowned and respected company focused on the clinical development of drugs in anesthesia 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. 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 five 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. Moreover, the Supervisory Board has determined that these goals are supposed to be considered for recommendations for the election of Supervisory Board members to the Annual General Meeting. 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 together closely for the sole benefit of the company and its stakeholders. The Supervisory Board determined objectives regarding its composition outlining that at a size of five members, at least two members shall be independent. The age limit for Supervisory Board members is 75 years and the tenure is limited to an aggregate total of fifteen years. Furthermore, the Supervisory Board resolved that at least one of its members must be female. During financial year 2017 all members were independent and younger than 75 years. The Chairman of the Supervisory Board coordinates its work and chairs its meetings. The Chairman of the Supervisory Board maintains regular contact with the Management Board. In the By-Laws 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. The Supervisory Board established an Audit Committee currently chaired 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. The Supervisory Board established an HR & Nomination Committee chaired by Dr. Karin Dorrepaal, an independent member of the Supervisory Board, and the Supervisory Board established an R&D Committee currently chaired by Dr. Dr. Irina Antonijevic, an independent member of the Supervisory Board. Duties and tasks of the Supervisory Board and its committees 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. PAION AG has taken out a D&O insurance policy for the members of the Management Board and the Supervisory Board. This insurance policy provides partial coverage for the Management Board and the Supervisory Board in accordance with legal requirements, and specifically the German Corporate Governance Code. Insurance coverage is not provided in the event of fraudulent actions, omissions or deliberate breaches of duty.

Conflicts of interest of the Management or Supervisory Board members must 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 in the 2017 financial year.

Three members of the Management Board were appointed as managing directors of PAION Deutschland GmbH. Two Management Board members were appointed managing directors of PAION Holdings UK Ltd including its subsidiaries. Further mandates held by members of the Management Board and Supervisory Board are listed in the notes to the Consolidated Financial Statements.

 

Equal participation of Men and Women in executive positions

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

The Supervisory Board had determined a target of 30% to be achieved for the representation of women by 30 June 2017 in accordance with Section 111(5) Stock Corporation Act (AktG). This was based on the internal requirement that at least one member of the Supervisory Board shall be female. In the meantime the Supervisory Board was extended from three to five members by resolution of the Annual General Meeting held on 17 May 2017. On 30 June 2017 two of the five Supervisory Board members were female. The target was achieved. By resolution dated June 2017 the Supervisory Board determined to maintain the target of at least one female appointee to the Supervisory Board. Consequently a target of 20% was defined for the reporting period commencing on 01 July 2017. The agreed deadline for reporting is 30 June 2022.

At the end of the first reporting period on 30 June 2017 the Management Board of PAION AG was comprised of two members – Dr. Wolfgang Söhngen (CEO) and Abdelghani Omari (CFO). There were no women represented on the Management Board. Given existing contractual obligations, the Supervisory Board had determined, in accordance with Section 111(5) Stock Corporation Act (AktG), that no female representation was mandated for the Management Board of PAION AG until expiration of the reporting period on 30 June 2017. The target stood as achieved. Effective 01 January 2018 Dr. Jürgen Beck (CDO) was appointed to the Management Board increasing the number of appointees from two to three. By resolution dated June 2017 the Supervisory Board determined that owed to the specific circumstances of the company no representation of women on the Management Board of PAION AG was mandated until the end of the new reporting period on 30 June 2019.

At the close of the first reporting period on 30 June 2017 the representation of women within the first and second management levels below the Management Board of the PAION Group was calculated at 17.65%. In August 2015, the Management Board had defined a target of 20% for the representation of women within the first and second management levels in accordance with Section 76(4) Stock Corporation Act (AktG). Despite the fact that the level of female representation on 30 June 2017 was determined above the level of 13.3% on 31 December 2015 the target of 20% was not achieved. The reasons are primarily to be found in the change of staffing levels within the second management level due to the specific strategic alignment of the company and further in the promotion of key staff from the second to the first level. Notwithstanding, the Management Board is of the opinion that the company is on the right track in increasing the representation of women in the first and second management levels below the Management Board. Consequently it was decided to maintain the current target of 20% for the new reporting period which started on 01 July 2017 and will end on 31 December 2019.

Compliance as a key management duty of 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 in the PAION group. 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. 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 and members of the Management and Supervisory Board across the entire PAION Group of companies receive regular communications raising awareness of compliance with relevant financial market regulations. This includes, for example, the handling of sensitive confidential information, specifically insider information.

 

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 website 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 inside information according to Section 17 MAR, Directors' dealings notifications according to Section 19 MAR, press releases, voting right notifications (Section 40 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 (http://www.paion.com). The website also features a financial calendar that provides information on the publication dates of the financial publications 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 inside information 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 Annual Financial Report is 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 shareholders’ 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 (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, 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. In regard to the audit of the consolidated financial statements and the audit and adoption of the financial statements by the Supervisory Board we refer to the report of the Supervisory Board.

 

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, 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“. Moreover, this section includes explanations of the kind and structure of the remuneration of the Management Board as well as details on commitments in case of the termination of the contract of Management Board members. Reference is made to the detailed statements in the Group Management Report, which forms 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 1,000. Meetings that are held in the form of conference calls are not taken into consideration in the calculation of the attendance fee. The Chairman of the Supervisory Board receives double and the vice-Chairman one and a half times the basic remuneration and attendance fee. The attendance fee is paid for a maximum of five 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 2017.

 

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

In accordance with Section 19 of the Market Abuse Regulation, members of the Management Board, the Supervisory Board and persons associated with them are required to disclose the selling or buying of PAION AG shares if the value of the combined transactions reaches or exceeds EUR 5,000 in any 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 2017, notifiable transactions were reported by Dr. Wolfgang Söhngen on 17 February 2017 and on 07 March 2017.

As of 31 December 2017, Dr. Wolfgang Söhngen held 1.06 % (648,546 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 2017.

 

Share-based incentive systems

PAION AG introduced the Stock Option Plans 2008, 2010, 2014 and 2016 as remuneration components with long-term incentives and risk characteristics. The Stock Option Plans allow for stock options to be granted to members of the Management Board as well as employees. The precise structure of these plans as well as the options 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”. Furthermore, the explanations in the Group Management Report in the section “Remuneration Report – Management Board” contain statements on the value of the options 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 2018

 

The Management Board of PAION AG

Dr. Wolfgang Söhngen        Abdelghani Omari    

                       

 

The Supervisory Board of PAION AG

 

Dr. Jörg Spiekerkötter           John Dawson

Dr. Karin Dorrepaal               Dr. Dr. Irina Antonijevic

Dr. Chris Tanner