Corporate Governance Report

The clear separation of corporate management and corporate supervision is a key element of corporate governance for German stock corporations. Duties and areas of responsibility are clearly divided between the Management Board and the Supervisory Board.

The Management Board of METRO AG consists of 4 members and is responsible for managing the company. The essential management duties of the Management Board of METRO AG include the definition of corporate objectives, determination of the strategic direction for the group, management and supervision of the group, as well as corporate planning. In addition, the Management Board of METRO AG ensures the availability of investment funds, decides on their allocation within the group and is responsible for attracting and promoting highly qualified managers.

In accordance with the stipulations of the German Co-determination Act (MitbestG), the German Stock Corporation Act (AktG) and the company’s Articles of Association, the Supervisory Board of METRO AG consists of 10 shareholder representatives and 10 employee representatives. In addition, women and men each hold at least 30% of the seats on the Supervisory Board. The Supervisory Board appoints the members of the Management Board, provides advice to the Management Board and continuously monitors its corporate management, including with regard to the attainment of long-term corporate objectives. The Management Board involves the Supervisory Board in the planned development of METRO and in decisions concerning important measures. In addition to its statutory approval obligations, the Supervisory Board has determined its own approval requirements for certain actions and business dealings of the Management Board.

The fundamental qualification criteria for candidates considered for appointment to the Management Board are their professional qualifications for the respective area of responsibility, leadership quality, previous performance as well as knowledge about the company and its business model. The Supervisory Board understands diversity as a qualification criteria that manifests itself in different, mutually complementary profiles, (educational and professional) backgrounds, nationalities, a mixed age structure and representation of both genders on the Management Board.

The objective of this diversity concept is to achieve a composition of the Management Board that ensures that its members have the necessary knowledge, expertise and professional experience that allow the entire Management Board to manage and steer the company in the best possible way.

The Supervisory Board has postulated the following objectives:

• Each member of the Management Board must have solid general qualifications and be capable of helping the company address its current situation and future challenges.
• The members of the Management Board should come from different educational and/or national backgrounds.
• The members of the Management Board should complement each other with regard to their expertise and knowledge. All members of the Management Board should have expertise and experience in retail, food, supply chain, sustainability and digitalisation.
• The composition of the Management Board should adequately represent the internationality of METRO AG.
• All members of the Management Board should have long-standing management experience.
• The Management Board should have a mixed age structure.
• The ordinary office term of a member of the Management Board should not extend past the member reaching the age of 65 (standard retirement age).
• The Company intends to appoint at least one female member to the Management Board by 30 June 2022.

The Supervisory Board determines the size of the Management Board, the appointment of members to the Management Board, as well as the identification of suitable candidates in the best interest of the Company and in consideration of all circumstances in the respective individual case. In doing so, the Supervisory Board and its Presidential Committee adhere to the diversity concept for the composition of the Management Board and the objectives. The diversity concept for the Management Board also serves as the foundation for long-term succession planning.

The current composition of the Management Board satisfies the diversity concept and achieves the objectives. In addition to being individually qualified for performing their respective responsibilities, the members of the Management Board also come from different educational and/or professional backgrounds. The necessary expertise and experience in the areas of relevance for METRO is assured. There are in particular no gaps in the members’ skills, but rather overlapping skills, which sustainably promotes the performance of the Management Board as a team. All members of the Management Board have long-standing management experience. The fact that 2 of the 4 members of the Management Board previously held high-ranking management positions in other countries over substantial periods also adequately represents the internationality of METRO. The age of the members of the Management Board in financial year 2017/18 spans from 41 to 60 years; no office extends past the age of 65. The Company intends to appoint at least one female member to the Management Board by 30 June 2022; there is currently no female member appointed to the Management Board.

To ensure the Supervisory Board of METRO AG can duly perform its responsibilities, the Supervisory Board has adopted concrete objectives for its composition and a profile of competencies for the entire corporate body in the meaning of Section 5.4.1 of the German Corporate Governance Code.

This requires the composition of the Supervisory Board to assure the qualified supervisory and advisory functions required under the German Stock Corporation Act and the German Corporate Governance Code. The Supervisory Board understands diversity as a qualification criteria for the members of the Supervisory Board in such a way that the members should complement each other with regard to their age, (educational and professional) background, experience and skills in such a way that the overall corporate body will benefit of the largest possible pool of experience and the broadest possible spectrum of expertise.

This diversity concept aims at achieving a composition of the Supervisory Board that is in the best interests of the company, takes all circumstances of the individual case into account and enables the Supervisory Board as the supervisory corporate body to supervise and advise the Management Board in the best possible way.

For the purpose of determining its composition, the Supervisory Board afforded reasonable consideration to the company-specific situation in terms of the company’s international activities, potential conflicts of interest, the number of independent members of the Supervisory Board, a prescribed retirement age for members of the Supervisory Board and a prescribed maximum office term for members of the Supervisory Board and the issue of diversity, and determined the following individual objectives:

• The members of the Supervisory Board should complement each other with regard to their age, (educational and professional) background, experience and skills in such a way that the overall corporate body will benefit of the largest possible pool of experience and the broadest possible spectrum of expertise.
• An adequate number of the members of the Supervisory Board should have international experience or expertise.
• The statutory gender quota of 30% is proposed to be met by both shareholder representatives as well as employee representatives. It follows that at least 3 of the members of the Supervisory Board on each side should be female.
• In accordance with Section 5.4.2 of the German Corporate Governance Code, at least 12 of the Supervisory Board’s 20 members must be independent office holders, with at least 6 of them being shareholder representatives.
• At least one member of the Supervisory Board must meet the requirements for being appointed chairperson of the Audit Committee. Pursuant to the Code of Procedure of the Audit Committee, the committee chairperson must be independent and possess professional expertise in the areas of accounting and auditing of annual financial statements, as well as internal control measures (financial expert). The other committee members should possess adequate professional expertise and experience in these areas. Ideally, one member of the Audit Committee should have special expertise in the field of compliance.
• To prevent potential conflicts of interest, members of the Supervisory Board of the company must not assume board functions, consulting tasks or memberships on the supervisory boards of German or international, direct and material competitors.
• The ordinary maximum office term for members of the Supervisory Board is 10 years. The ordinary office term for shareholder representatives appointed to the Supervisory Board is 3 years. The Supervisory Board determines exceptions from the ordinary criteria at its own dutiful discretion on a case-by-case basis.
• As a general rule, only candidates who are not older than 65 years at the time of their initial election should be proposed for their first election to the Supervisory Board. As a general rule, only candidates who are not older than 71 years at the time of their election should be proposed for being elected a member of the Supervisory Board. The Supervisory Board determines exceptions from the ordinary criteria at its own dutiful discretion on a case-by-case basis.

The current Supervisory Board members represent a balanced composition: All members of the Supervisory Board contribute their manifold specific expertise to the work in the committees. They complement each other with regard to their age, (educational and professional) backgrounds, experience and skills. Several members of the Supervisory Board have international expertise and/or experience. The Supervisory Board currently includes 5 female office holders on the part of the employee representatives and 4 female officeholders on the part of the shareholder representatives (as of: November 2018). The current composition of the Supervisory Board also satisfies the objective in terms of the number of independent members of the Supervisory Board and shareholder representatives. The objectives in terms of the chairperson and the members of the Audit Committee have also been satisfied. This committee’s independent Chairman is Prof. Dr Edgar Ernst. None of the members of the Supervisory Board of METRO AG holds an office in a corporate body of or an advisory function for a substantial direct competitor, neither is any of them a member of such a company’s supervisory board. The ordinary maximum term, the ordinary term of office for shareholder representatives and the ordinary retirement age are stipulated in the Code of Procedure of the Supervisory Board. Currently, due to the transition of the remaining office terms at the former METRO AG (now: CECONOMY AG), 3 shareholder representatives have been appointed for more than 3 years. To improve the staggered arrangement of the terms of office, 3 members representing the shareholders were appointed for a limited term of only 2 years. No member of the Supervisory Board has reached the ordinary maximum office term. 1 current member of the Supervisory Board, who was a member of the Supervisory Board of the former METRO AG, was older than 65 years of age, namely 71 years of age, at the time of his (initial) election to the Supervisory Board of the new METRO AG; he had not reached the ordinary retirement age at the time of his initial election to the Supervisory Board of the former METRO AG.

The Supervisory Board resolved for the overall corporate body to possess the following expertise in the sense of a profile of expertise:

• Commercial expertise
• Expertise/experience in accounting, auditing of annual financial statements, internal control processes
• Expertise in the area of compliance
• Expertise in the area of mergers and acquisitions
• Expertise in the area of digitalisation/technology
• International experience/expertise, particularly in Eastern Europe and Asia
• Expertise in the area of sustainability
• Expertise in logistics, in particular in the field of supply chain logistics
• Marketing expertise
• Human resources expertise
• Experience in managing a company The current composition of the Supervisory Board delivers the desired profile of expertise.

As stipulated in Section 5.4.1 of the German Corporate Governance Code, the corporate governance report should also set out the Supervisory Board’s opinion concerning a reasonable number of independent members on the part of the shareholders and disclose the names of these members. The Supervisory Board holds its objective of requiring at least 6 members of the Supervisory Board to be independent shareholder representatives to be a reasonable arrangement. As of the date of this report, all shareholder representatives are independent in the meaning of Section 5.4.2 of the German Corporate Governance Code. The members are: Jürgen B. Steinemann, Herbert Bolliger, Gwyn Burr, Prof. Dr Edgar Ernst, Dr Florian Funck, Peter Küpfer, Dr Fredy Raas, Eva-Lotta Sjöstedt, Dr Liliana Solomon and Alexandra Soto.

The individual attendance of members of the Supervisory Board at meetings of the Supervisory Board and its committees is disclosed in the following:

METRO uses a group-wide compliance management system to ensure compliance with laws in the countries it conducts business in and a self-imposed Code of Conduct in the areas of antitrust law, prevention of corruption and money laundering, conflicts of interest, fraud/embezzlement as well as the regulation of downstream kickback benefits in purchasing.

METRO’s risk management forms another integral component of our value-based management. This takes the form of a systematic, group-wide process that assists the management team – in accordance with the principles of good corporate governance – in responsibly identifying, assessing and managing risks and opportunities. As such, risk and opportunity management form a unity.

Transparency is an essential element of good corporate governance. The website www.metroag.de is an important source of information for the shareholders of METRO AG, the capital market and the general public. In addition to a variety of information on METRO, the site offers our shareholders, all actors on the capital markets and interested members of the public the opportunity to download the financial reports of METRO AG, investor news, ad hoc statements and other legal notices. METRO AG publishes the dates for the most important recurring publications and events (announcements of sales results, reports as well as quarterly statements and half-year reports, annual results press conferences and annual general meetings) in a financial calendar on its website. The timing of the publication allows for a reasonable lead time. The website also offers information published at the occasion of current events, such as the annual press conference, roadshows, investor conferences and information events.

Pursuant to Article 19 of the Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation), members of the Management and Supervisory Boards, in their capacity as persons discharging managerial responsibilities, must inform METRO AG of any transactions involving their own METRO shares, METRO bonds or related financial instruments. This notification requirement also applies to persons closely associated with members of these corporate bodies.

The shareholders of METRO AG exercise their rights and potential voting rights at the Annual General Meeting. To help shareholders exercise their individual rights at the Annual General Meeting, METRO AG makes the meeting agenda as well as other documents and information for each Annual General Meeting available for download at www.metroag.de/en.

Shareholders may elect to exercise their voting rights at the Annual General Meeting in person or alternatively appoint a proxy of their choosing or a proxy of the Company who is bound by instructions (proxy voting).

In the interest of shareholders, the chairperson of the Annual General Meeting, in most cases the chairperson of the Supervisory Board, ensures that the Annual General Meeting is conducted efficiently and effectively. The objective is to conclude an ordinary METRO AG Annual General Meeting after no more than 4 to 6 hours.

On 16 February 2018, the Annual General Meeting of METRO AG elected KPMG AG Wirtschaftsprüfungsgesellschaft (KPMG) as auditors for the financial statements and consolidated financial statements for financial year 2017/18.

The Supervisory Board’s instructions to perform an audit of the annual financial statements considered the recommendations contained in Section 7.2 of the German Corporate Governance Code.

Gereon Lurweg is the auditor for the financial statements and consolidated financial statements and the combined management report of METRO AG in 2017/18.