Chairman of the Supervisory Board
Ladies and Gentlemen,
The BMW Group finished the financial year 2011 with sales volume, results and profitability at record levels and consolidated its position as market leader in the premium car segment. Despite volatile business conditions, the BMW Group experienced the best year of its corporate history in 2011. Throughout the year, the Supervisory Board monitored business performance with great interest, supervised the activities of the Board of Management continuously and diligently, and assisted it in an advisory capacity in the planning of all major undertakings. Discussions with the Board of Management were always conducted constructively and in an atmosphere of trust.
Main emphases of the Supervisory Board’s monitoring and advisory activities
In a total of five meetings, we deliberated in particular on the BMW Group’s current performance and financial position, corporate strategy and business plans, risk provision and risk management, the Board of Management’s compensation system, and corporate governance issues. The Board of Management informed us regularly and promptly of sales performance, workforce developments and other significant matters, both at scheduled meetings and at other times as the need arose. Furthermore, the Chairman of the Board of Management informed me personally and regularly of important business transactions and projects. As well as at scheduled meetings, Mr Kley, the Chairman of the Audit Committee, was also in regular contact with Mr Eichiner, the Board of Management member responsible for finance and accounting.
The Board of Management reported to us regularly on sales volume developments in the Automotive and Motorcycles segments, new business volumes in the Financial Services segment, changes in vehicle residual values on key markets as well as earnings and profitability during the year. We also took the opportunity at meetings with the Board of Management to discuss current challenges such as the impact of the catastrophe in Japan on the BMW Group’s production network. The Board of Management reported in depth on the efforts of the BMW Task Force to guarantee the supply of parts and components to production lines. Together with the Board of Management we also discussed the planning of production capacities as well as the increasing difficulties experienced in importing vehicles to certain markets. The Board of Management reported on significant transactions for the BMW Group, such as the commencement of the BMW Peugeot Citroën Electrification joint venture, the purchase of the Fleet Management Division from the Dutch bank ING, the acquisition of a strategic investment in SGL Carbon SE, the intention to cooperate with Toyota Motor Corporation in basic research for battery cell technology and the signing of a contract with Toyota Motor Europe SA for the supply of diesel engines from 2014 onwards. The Board of Management also reported on the activities of the BMW Group in China, particularly on sales developments, the progress made in expanding production capacities in Shenyang and the support provided to the joint venture with Brilliance in its efforts to develop a new brand for a New Energy Vehicle.
The performance, management and organisation of the Financial Services segment was also a key item on the agenda in 2011. In this connection the Board of Management reported to us, among other topics, on the status and the further steps being taken in various EU countries to expand BMW Bank GmbH into EU-Bank.
In summer a meeting of the Supervisory Board was held for the first time at the BMW production plant in Spartanburg, South Carolina, USA. Our tour of the plant included a visit to the new production building and paint shop for the X3 production line. We took the opportunity to gain a broader idea of customer expectations on the US market and, in this context, reviewed the results of various customer satisfaction studies in the USA. The Head of the Sales Region North America reported to us on the prevailing market situation and the challenges of selling in the USA. To round off the trip, we also visited the site of a longstanding local supplier where we were able to gain an insight into the BMW purchasing strategy and the importance of quality management systems in this area.
As in the previous year, the Supervisory Board conducted a review of Board of Management compensation in 2011. This also included obtaining advice from external compensation consultants that were independent of the Company and Board of Management members. A comparison with compensation levels at other DAX companies and competitors showed that, even after the introduction of the share-based compensation programme, there was still a need for adjustment, particularly in the area of basic remuneration. We therefore decided to raise the basic remuneration of Board of Management members – which had last been adjusted at the beginning of 2009 – in two steps on 1 July 2011 and 1 January 2012 respectively and to increase the cash remuneration paid when a member invests in BMW AG common stock from 50 % to 100 % of the investment amount plus taxes and social insurance. However, taking all aspects into consideration, we came to the conclusion that the current entitlements of the Board of Management members to receive transitional payments were no longer in keeping with the times. With their agreement, the transitional payment arrangements contained in the service contracts of members of the Board of Management were cancelled with immediate effect.
Further information on the compensation of Board of Management members is provided in the detailed Compensation Report (page 165 et seq.).
In autumn we convened again for a two-day meeting at the BMW proving ground near Munich. One part of the meeting was dedicated to the Board of Management’s annual review of Strategy Number ONE. In its report, the Board of Management paid particular attention to the challenges that arise in the phase in which traditional drive train technologies overlap with investments in new solutions. The Board of Management presented its plans to develop the vehicle portfolio and outlined future volume and earnings opportunities on specific markets. Various risk scenarios were also examined in the process. The two boards also jointly discussed current trends in technologies of the future. Through a combination of focused in-house development and cooperation arrangements with third parties, the Board of Management is endeavouring to secure access to relevant key technologies and generate competitive advantages. We consider that the Board of Management remains on track with a viable strategy for the future.
Prior to granting our approval, we carefully examined the long-term business plan presented by the Board of Management for the years from 2012 to 2017. The Board of Management explained the changes incorporated into the new forecasts. We also deliberated on appropriate lines of action that can be taken in the event of potential crisis scenarios. We encouraged the Board of Management to aim for balanced and profitable growth and to maintain its prudent planning of fixed costs.
In a second part of our meeting in autumn we held intensive discussions with the Board of Management regarding specific technical innovations, questions of product strategy and new concepts for both vehicles and services. In this context, the members of the Supervisory Board had the opportunity to test-drive some of new BMW and MINI brand models as well as the latest hybrid and electric vehicles. We were also given an update on the current status of the BMW i3 and BMW i8 projects with the aid of concept models and provided with background knowledge on the new subject of BMW i Mobility Services. We also discussed potential future applications of Connected Drive, i. e. the networking of driver, vehicle and environment to enhance convenience, infotainment and safety.
As a special topic, the Board of Management provided us with an overview of the current status of the BMW Group’s pension obligations, including pension asset management and related risk management issues. We were also informed about the status of the externalisation of pension obligations.
Towards the end of the year we carefully considered the annual budget for the financial year 2012 put forward by the Board of Management and deliberated on a number of scenarios, taking into account the current difficulties in predicting future macroeconomic developments.
At the joint meeting in December the two boards deliberated on corporate governance at the BMW Group and adopted a new Declaration of Compliance, the wording of which is included in the Corporate Governance Report. The recommendations made by the Government Commission on the German Corporate Governance Code (code version of 26 May 2010) published on 2 July 2010 continue to be complied with without exception. This includes the recommendations of the Code regarding long-term succession planning for the Board of Management taking diversity factors into account. No new decisions with regard to the composition of the Board of Management were required to be taken in 2011. In preparation for future personnel decisions, the Personnel Committee and the Supervisory Board obtained information from the Board of Management with regard to the proportion of, and changes in, management positions held by women, in particular at senior management level and at executive level below the Board of Management. The Supervisory Board concurred with the Board of Management that, alongside gender diversity, cultural diversity also serves the best interest of the Group and should be additionally fostered.
With regard to its own composition, based on a detailed composition profile, the Supervisory Board decided upon specific appointment goals in 2010, which are contained in the Corporate Governance Report (page 164). These goals were not changed in 2011.
Examining and improving the efficiency of the Supervisory Board’s work is seen as an ongoing task and was the subject of a separate discussion held by the full Supervisory Board. Preparations for the discussion were based on the results of a questionnaire devised by the Supervisory Board and distributed in advance of the meeting. In our opinion, open and constructive dialogue – both within the Supervisory Board and in its communications with the Board of Management – is an important basis for efficiency.
There were no indications of conflicts of interest on the part of members of either of the boards during the year under report. The nature and scale of significant transactions with related parties as defined by IAS 24 is examined with the aid of a questionnaire which members of both boards are required to complete on a quarterly basis. The questionnaire also covers transactions with close family members and intermediary entities.
Each of the five Supervisory Board meetings in 2011 was attended by an average of 90 % of its members, a fact that can be tied in to the analysis of attendance fees for individual members disclosed in the Compensation Report (see page 172). No member of the Supervisory Board missed more than two meetings. Presiding Board and committee meetings were fully attended in the vast majority of cases (see the Statement of Corporate Governance).
Description of Presiding Board activities and committee work
In a total of four meetings and one telephone conference, the Presiding Board focussed mainly on the preparation of specific topics for the meetings of the full Supervisory Board unless such preparation fell under the remit of one of the committees. The Presiding Board selected additional topics for Supervisory Board meetings and made suggestions to the Board of Management regarding items to be included in its reports to the full Supervisory Board.
The Audit Committee held three meetings and four telephone conferences during 2011. In accordance with the recommendation of the German Corporate Governance Code, three of the telephone conferences in 2011 served to discuss interim financial reports with the Board of Management prior to their publication. Representatives of the external auditors were present for part of the time at the telephone conference held to present the Interim Financial Report for the six-month period to 30 June 2011. The report had been subjected to review by the external auditors.
One meeting of the Audit Committee was primarily dedicated to preparing the Supervisory Board’s meeting in spring 2011 at which the financial statements were examined. In order to prepare its recommendation to the full Supervisory Board regarding the proposed election of external auditors at the Annual General Meeting 2011, the Audit Committee obtained a Declaration of Independence from the proposed external auditor. The Audit Committee also examined the extent of non-audit-related services rendered for the BMW Group by KPMG entities. There were no indications of lack of independence or grounds for exclusion. The fee proposals for the audit of the year-end Company and Group Financial Statements 2011 and the review of the six-month Interim Financial Report were deemed appropriate by the Audit Committee. Subsequent to the Annual General Meeting 2011 the Audit Committee appointed the external auditor for the relevant engagements and, with due consideration to the suggestions made by the full Supervisory Board, determined areas of audit emphasis, namely the completeness of provisions for sales support, the measurement of credit risks as well as the calculation and measurement of tax expense and tax provisions.
The Head of Group Controlling reported to the Audit Committee on risk management within the BMW Group, explaining the processes in place with regard to specific reporting periods and vehicle projects and providing an overview of the current risk profile, including the impact of the catastrophe in Japan and the measures undertaken as a result. The current status of the internal control system, particularly with respect to financial reporting processes, was also presented.
The Chairman of the BMW Group Compliance Committee reported to the Audit Committee on the current compliance situation, which, as in the previous year, was deemed satisfactory. In addition, the Committee inquired into the outcome of sample testing carried out by the BMW Group Compliance Committee Office. The tests, which focused on the prevention of corruption, were performed as part of a group-wide risk assessment using a compliance-specific risk matrix approach. The Audit Committee was also informed of the establishment of a group-wide “whistle-blower” system and of plans to improve the BMW Group Compliance Organisation further.
The Head of Group Audit reported to the Audit Committee on the principal results of internal audit tests, the points of emphasis for the remainder of the financial year 2011 and the successful outcome of an external quality assessment of the Group Audit function carried out during the year under report.
In conjunction with the power vested in it by the Supervisory Board, the Audit Committee concurred with the decision of the Board of Management to raise the share capital of the Company in accordance with Article 4 (5) of the Articles of Incorporation (Authorised Capital 2009) by € 407,960 and to issue a corresponding number of new non-voting shares of preferred stock, each with a par value of € 1, at favourable conditions to employees.
The Personnel Committee convened three times during the financial year 2011, with the emphasis of activities on the preparation of decisions relating to Board of Management compensation. In a small number of cases, the Personnel Committee also approved the assumption of external mandates by members of the Board of Management in non-Group supervisory or equivalent boards and approved contracts entered into by BMW Bank GmbH, for which its approval was required in accordance with the German Banking Act.
The Nomination Committee, which is charged with the task of finding suitable candidates for election to the Supervisory Board and for inclusion on the Supervisory Board’s proposals for election at the Annual General Meeting, did not convene during the past financial year.
The statutory Mediation Committee pursuant to § 27 (3) of the German Co-Determination Law was not required to convene during the financial year 2011.
The relevant chairmen reported regularly and in depth at full Supervisory Board meetings on the status of Presiding Board and committee work. A detailed description of the work procedures of Supervisory Board committees is provided in the Corporate Governance Report.
Composition and organisation of the Board of Management
The Board of Management, with its team of seven persons, remained unchanged in 2011 in terms of composition and portfolio responsibilities. No decisions needed to be made in 2011 with respect to the re-appointment or new appointment of Board of Management members.
Composition of the Supervisory Board, the Presiding Board and Supervisory Board Committees
Following Mr Werner Neugebauer’s resignation on 31 December 2010 from his position as employee representative on the Supervisory Board, on 10 February 2011 the Munich District Court appointed Mr Jürgen Wechsler, District Manager of the IG Metall Trade Union (Bavaria Region) to the position of employee representative on the Supervisory Board for the remaining term of office. The composition of the Presiding Board and the committees of the Supervisory Board remained unchanged during the financial year 2011. An overview of the composition of the Supervisory Board and its committees is provided in the Corporate Governance Report.
Examination of financial statements and the profit distribution proposal
KPMG AG Wirtschaftsprüfungsgesellschaft conducted a review of the abridged Interim Group Financial Statements and Interim Group Management Report for the six-month period ended 30 June 2011. The results of the review were reported orally to the Audit Committee. No issues were identified that might indicate that the abridged Interim Group Financial Statements and Interim Group Management Report had not been prepared, in all material respects, in accordance with the applicable provisions.
The Company and Group Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the year ended 31 December 2011 and the Combined Company and Group Management Report – as authorised for issue by the Board of Management on 16 February 2012 – were audited by KPMG AG Wirt schafts prüfungs gesell schaft and given an unqualified audit opinion.
Documents relating to the Company and Group Financial Statements, the Combined Company and Group Management Report, the long-form audit reports of the external auditors and the Board of Management’s profit distribution proposal were made available to all members of the Supervisory Board in a timely manner. At the meeting held on 22 February 2012 these documents were examined and discussed initially by the Audit Committee. The Supervisory Board subsequently examined the relevant drafts of the Board of Management at its meeting on 8 March 2012, after hearing the committee chairman’s report on the meeting of the Audit Committee. In both meetings, the Board of Management gave a detailed explanation of the financial reports it had prepared. Representatives of the external auditors attended both meetings, reported on significant findings and answered any additional questions raised by the members of the Supervisory Board. The representatives of the external auditors confirmed that the risk management system established by the Board of Management is capable of identifying events or developments impairing the going-concern status of the Company and that no material weaknesses in the internal control system and risk management system were found with regard to the financial reporting process. In the course of their audit work, the external auditors did not identify any facts inconsistent with the contents of the Declaration of Compliance issued jointly by the two boards.
Based on our own examination, we concurred with the results of the external audit and – at the Super visory Board meeting held on 8 March 2012 – approved the Company and Group Financial Statements of Bayerische Motoren Werke Aktiengesellschaft for the financial year 2011 prepared by the Board of Management. The Company Financial Statements are therefore adopted. Both in the Audit Committee and in the full Supervisory Board we examined the proposal of the Board of Management to use the unappropriated profit to pay a dividend of € 2.30 per share of common stock and € 2.32 per share of non-voting preferred stock. We consider the proposal appropriate and therefore concur with it. In accordance with the conclusion reached on the examination by the Audit Committee and Supervisory Board, no objections were raised.
Expression of thanks by the Supervisory Board
In the name of the Supervisory Board I wish to offer a sincere vote of thanks to the members of the Board of Management and the entire workforce for their work during the financial year 2011 and to congratulate them on the outstanding result achieved.
We consider that the BMW Group is well prepared for the upcoming challenges that can be expected in a highly volatile market environment.
Munich, 8 March 2012
On behalf of the Supervisory Board
Chairman of the Supervisory Board
Updated March 13, 2012