Report of the Supervisory Board

  • Dr. Manfred Bischoff , Chairman of the Supervisory Board.

Dr. Manfred Bischoff , Chairman of the Supervisory Board.

Dear Shareholders, the Supervisory Board dealt in detail with the operational and strategic development of the Daimler Group in seven meetings during the 2012 financial year.

In the year 2012, the Supervisory Board performed its tasks as laid down by applicable law, the Articles of Incorporation and its rules of procedure, and continually advised and supervised the Board of Management on the management of the company. Following careful reviews and consultations, the Supervisory Board passed resolutions on numerous business matters for which its consent was required, such as investment and personnel planning, capital changes at companies of the Group, investments and divestments and the conclusion of contracts of particular importance for the Group. In addition, the Supervisory Board examined for example whether the risk report, the financial reporting and the annual financial statements were in conformance with requirements. The Board of Management also informed the Supervisory Board about a large number of transactions not requiring the Supervisory Board’s consent and the two boards discussed those matters together, for example the further development of strategic programs in the various divisions and the status of various cooperation projects. The Supervisory Board discussed the information and evaluations that were material for its decisions and suggestions together with the Board of Management. The Supervisory Board meetings were regularly prepared in separate discussions of the members representing the employees and the members representing the shareholders with the members of the Board of Management. The Board of Management generally participates in the meetings of the Supervisory Board. The Supervisory Board has also established an executive session in each of its meetings in order to discuss topics in the absence of the Board of Management.

No member of the Supervisory Board attended less than half of the meetings in the past financial year. The Chairman of the Supervisory Board was regularly informed by the Chairman of the Board of Management about all significant operating developments as well as personnel changes and appointments.

Daimler’s business activities continued to develop successfully during the year 2012. The Group’s unit sales and revenue increased significantly. Earnings from ongoing operations were at the good level of €8.1 billion. During the year under review, in line with the strategic planning, the Group considerably expanded its international presence with the opening of new plants in Hungary and India, with the start of operations by our truck joint venture in China, and with investment in the expansion of our car joint venture in Beijing and in our plant in Tuscaloosa, USA. Further steps were thus taken to give the Group a regional balance. Disproportionately high increases in unit sales and revenues in Asia and the NAFTA region are evidence of a consistent regional strategy and reduce Daimler’s dependence on developments in Western Europe. The Supervisory Board expressly supports this strategy, which will enhance Daimler’s future competitiveness and competitive position. The additional expenditure to expand the product portfolio and increase the number of production locations had a corresponding effect on the key financial metrics for the year 2012.

An issue relevant to the work of the Supervisory Board throughout the year 2012 was the feasibility of planning further developments and their stability. On the whole, the economic environment was, and still is, marked by great uncertainty. The general economic outlook, and in particular the situation in the financial markets, was dominated by significant risk factors and uncertainty. The Board of Management and the Supervisory Board carefully monitored the economic situation in China, one of the Group’s key markets.

Supporting actions at the European level prevented the disintegration of the euro zone. For the crisis to be overcome, however, further measures will have to be taken at the European level; above all the required structural reforms will have to be carried out in the countries affected by the sovereign-debt crisis so that they can regain their international competitiveness.

The Supervisory Board also dealt in detail with the causes of the development of Daimler’s share price, and held detailed discussions with the Board of Management about proposals and the expected impact of strategic projects on the share price.

In addition to the usual key financial metrics, the Board of Management regularly informed the Supervisory Board about important topics such as:

  • the Group’s profitability, especially in terms of return on equity, and its liquidity situation,
  • the internal control and risk management system including compliance,
  • specific developments in sales and procurement markets, and
  • the general economic situation in the main sales markets as well as developments in the area of financial services.

The Supervisory Board also dealt with safeguarding the Group’s long-term profitability, fundamental questions of corporate planning including financial, investment, sales and human resources planning, developments in the companies of the Group, revenue developments and the situation of the Group, as well as the ongoing implementation of measures to secure pioneering and sustainable mobility for the future. The latter was dealt with also considering current and future requirements under the heading of “Digital Life,” with special reference to the Group’s products and services. The Supervisory Board was occupied with these topics going beyond the operating business in close communication with the Board of Management and especially intensively in a two-day strategy workshop held at the end of September 2012.

Cooperation between the Supervisory Board and the Board of Management. All the members of the Board of Management attended all the meetings of the Supervisory Board. The meetings featured intensive and open exchanges of opinions and information concerning the position of the Group, business and financial developments, fundamental issues of corporate policy and strategy, and development opportunities in important growth markets. Any deviations from the planning were explained in detail to the Supervisory Board by the Board of Management. The members of the Supervisory Board regularly prepared for upcoming resolutions on transactions requiring Supervisory Board consent on the basis of documentation that had been provided in advance by the Board of Management. They were supported by the relevant committees, and discussed the actions and transactions upon which decisions were to be taken with the Board of Management. Furthermore, the Board of Management informed the Supervisory Board with the use of monthly reports and quarterly risk reports about the most important performance figures and risks, and submitted the interim financial reports to the Supervisory Board. The Supervisory Board was kept fully informed of specific matters also between its meetings. As required in individual cases, following consultation with the Chairman of the Supervisory Board, the members were requested to pass resolutions in writing. In addition, the Chairman of the Board of Management informed the Chairman of the Supervisory Board in regular discussions about important developments and consulted with him on upcoming decisions.

Topics discussed at the Supervisory Board meetings in the year 2012. In a meeting in February 2012, in the presence of the external auditors, the preliminary key figures of the annual company and consolidated financial statements for 2011 and the dividend proposal to be made at the 2012 Annual Shareholders’ Meeting were discussed. The preliminary key figures for the year 2011 were announced at the Annual Press Conference on February 9, 2012.

In another meeting held in February 2012, the Supervisory Board dealt with the annual company financial statements, the annual consolidated financial statements and the combined management report for Daimler AG and the Daimler Group, each of which had been issued with an unqualified audit opinion by the external auditors, as well as the reports of the Audit Committee and the Supervisory Board, the corporate governance report and the remuneration report, and the proposal on the distribution of distributable profit. In preparation, the members of the Supervisory Board were provided with comprehensive documentation, some of it in draft form, including the Annual Report with the consolidated financial statements according to IFRS, the combined management report for Daimler AG and the Daimler Group, the corporate governance report and the remuneration report, the annual company financial statements of Daimler AG, the proposal of the Board of Management on the distribution of distributable profit, and the audit reports of KPMG for the annual company financial statements and the consolidated financial statements of Daimler AG, each including the combined management report, as well as drafts of the reports of the Supervisory Board and of the Audit Committee.

The Audit Committee and the Supervisory Board dealt with those documents in detail and discussed them intensively in the presence of the responsible external auditors, who reported on the results of their audit and were available to answer supplementary questions and to provide additional information. Following the final results of the review by the Audit Committee and its own review, the Supervisory Board declared its agreement with the results of the audit by the external auditors, determined that no objections were to be raised, and approved the financial statements and the combined management report as presented by the Board of Management. The company financial statements of Daimler AG for the year 2011 were thereby adopted. The Supervisory Board also consented to the proposal made by the Board of Management on the distribution of distributable profit and approved the report of the Supervisory Board, the corporate governance report and the remuneration report in their current drafts. Furthermore, the Supervisory Board approved its proposed decisions on the items of the agenda for the 2012 Annual Shareholders’ Meeting. In addition, the Supervisory Board received information on the status of the introduction of a new pension plan adapted to the capital-market trend and granted its consent for capital contributions to the German pension plan.

Finally, the Supervisory Board dealt with topics of Board of Management remuneration and approved the external board positions and sideline business activities of the members of the Board of Management as presented in the meeting.

In March, the Supervisory Board dealt with an agreement to extend the period of the deferred prosecution agreement with the Department of Justice of the United States of America. The extension until December 31, 2012 was approved in order to allow the period to be adjusted to match the duration of the monitorship and to ensure the implementation of further improvements to the compliance system.

Two Supervisory Board meetings were held in April. In the first of those two meetings, which was held straight after the Annual Shareholders’ Meeting, in which Dr. Clemens Börsig was reelected as a member of the Supervisory Board, the Supervisory Board reelected Dr. Börsig to the Audit Committee of the Supervisory Board.

In the second meeting held in April 2012, Dr. Wolfgang Bernhard was reappointed as a member of the Board of Management with responsibility for Manufacturing and Procurement Mercedes-Benz Cars & Mercedes-Benz Vans for a further five years as of March 1, 2013. The Supervisory Board also dealt with the course of business and results of the first quarter, as well as with status reports on Daimler Trucks and Daimler Buses, and received information on the Group’s special activities for the promotion of integrity. In addition, the Supervisory Board granted its consent to the reclassification of retained earnings of Brazilian subsidiaries into equity and approved the execution of capital changes at Mercedes-Benz Auto Finance Ltd. in China and Mercedes-Benz Leasing China.

In addition to discussing the business development and results of the second quarter, in its meeting in July, the Supervisory Board received information on the subject of generation management and the impact of demographic developments on the age structure of the workforce. Furthermore, the Supervisory Board dealt with the status of the cooperation between Daimler and BYD Auto Co. Ltd. in the joint venture BYD Daimler New Technology Co., Ltd. The Supervisory Board was also informed about the current development of the joint venture Beijing Foton Daimler Automotive and the status of the strategic cooperation with BAIC, and approved an increase in Daimler’s equity interest in Mercedes-Benz (China) Ltd. The Supervisory Board additionally dealt with a progress report on EADS and the planned sale of 7.5 % of the shares in EADS to the KfW banking group, and confirmed the continuation of Daimler’s involvement in Formula 1. In the same meeting, the Supervisory Board also dealt with the topics for the upcoming strategy workshop.

During the two-day strategy workshop in September, as every year, the Supervisory Board first of all received information on the stage of implementation of the strategic goals set in previous years by the Board of Management for Daimler AG and the divisions. Against the backdrop of the current economic situation, the Supervisory Board discussed the stage of implementation of projects initiated by the individual divisions, the positioning of the Group and its divisions with regard to the competition, and the brand and product strategies.

Other key areas of the strategy workshop were:

  • opportunities for further growth in the various markets,
  • analyses of competitors,
  • marketing strategy, product strategy and price strategy,
  • the latest trends in customer behavior, also with regard to the future development of urban mobility and the use of modern media and social networks,
  • the overall technology and market strategy for safeguarding sustainable mobility,
  • the technological development of internal-combustion engines, in particular further improvements in CO2 emissions,
  • electric, hybrid and hydrogen drive systems,
  • the design of Mercedes-Benz cars, connectivity in vehicles, autonomous driving and digital life at the Group,
  • the implementation of flexible production and procurement networks as well as plant expansion and new sites,
  • employment developments, personnel planning and recruitment worldwide,
  • current developments with regard to integrity and the current situation and future challenges of compliance, and
  • other strategic topics.

In October, the Supervisory Board once again dealt with the planned sale of 7.5 % of the shares of EADS and approved that sale. In November, the Supervisory Board consented to an increase in the 2012 refinancing limits for medium-term and long-term borrowing. Also in November, the Supervisory Board granted its consent to changes to the shareholder structure and management structure of EADS.

In the meeting in December 2012, the Supervisory Board decided to expand the Board of Management and appointed Hubertus Troska as a member of the Board of Management of Daimler AG as of December 13, 2012 for a period of three years in accordance with the regulations on initial appointments, i.e. until December 31, 2015, with responsibility for the newly created position of “Greater China”. Along with this appointment, Troska took over the functions of CEO and Chairman of Daimler Northeast Asia as well as responsibility for all of Daimler’s strategic and operational activities in China. With the decision to establish a Board of Management position for the world’s biggest vehicle market, the Supervisory Board has underscored the strategic importance of China in recognition of its potential for sustained growth and the continuous expansion of business activities there.

Also in December, Andreas Renschler was reappointed as a member of the Board of Management with unchanged responsibility as of October 1, 2013 for a period of five years, i.e. until September 30, 2018. Furthermore, the members of the Supervisory Board representing the shareholders decided to propose to the Annual Shareholders’ Meeting that Andrea Jung be elected to the Supervisory Board as of the end of the Annual Shareholders’ Meeting on April 10, 2013 until the end of the Annual Shareholders’ Meeting that decides on ratification of the Board of Management’s actions for 2017. In addition, the Supervisory Board dealt in detail on the basis of comprehensive documentation with the operational planning for the years 2013 and 2014. This included discussion of existing opportunities and risks and of the Group’s risk management.

Subsequently, the Supervisory Board approved the acquisition of equity interests and was informed about measures taken under the heading of cyber security to defend the Group against attacks by hackers and to protect customer data. In this context, it dealt with questions of data security in particular against the backdrop of the increasing networking of vehicles.

Other matters discussed in the December meeting were corporate governance, as described in detail below, and Board of Management remuneration.

Corporate governance. During the year 2012, the Supervisory Board was continually occupied with standards of good corporate governance. This took place also in consideration of the fact that the Government Commission German Corporate Governance Code had decided on some changes for stock-exchange listed companies in May 2012, after there had been no changes to the Code in 2011.

An important precondition for effective cooperation in the Supervisory Board in the sense of good corporate governance, in addition to the members’ prioritized specialist expertise, is their diversity to adequately reflect the Group’s size and internationality in terms of nationality, gender, ethnic origin and experience. Proposals by the Supervisory Board on candidates for election representing the shareholders give due consideration to the goals stated by the Supervisory Board in accordance with the German Corporate Governance Code, including appropriate internationality and the appropriate consideration of women. With regard to the appropriate consideration of women, the Supervisory Board focuses on Daimler’s goal of gradually increasing the proportion of women among senior executives to 20 % by the year 2020. The Supervisory Board already achieved a proportion of 20 % female members representing the shareholders by 2011, which will increase to 30 % if the election proposal for Andrea Jung made by the Supervisory Board to the Annual Shareholders’ Meeting 2013 is accepted. As of December 31, 2012, there are no female members of the Supervisory Board representing the employees. The members of the Supervisory Board representing the employees are elected every five years. The next elections to the Supervisory Board, in which several women are also nominated, are planned for March 2013.

The members of the Supervisory Board of Daimler AG are obliged to disclose conflicts of interest, especially those that might arise due to an advisory or board function for a customer, supplier or creditor of Daimler or for other third parties, to the entire Supervisory Board. There were no indications of any conflicts of interest in 2012.

In its meeting in December, due to the new version of the German Corporate Governance Code as amended on May 15, 2012, the Supervisory Board discussed in detail and confirmed the targets on the number of independent representatives of the shareholders that had already been set in its rules of procedure before that new version of the Code took effect. In addition, the Supervisory Board adjusted its targets for the consideration of potential conflicts of interests in its composition, in accordance with the new version of the German Corporate Governance Code. As it has no influence on the election of members representing the employees, the Supervisory Board limited itself to setting targets for the shareholder side. Furthermore, as mentioned above, the resolution was passed in this meeting to propose to the Annual Shareholders’ Meeting 2013 that Andrea Jung be elected to the Supervisory Board. Also in the meeting in December, the Supervisory Board updated and amended the wording of the rules of procedure of the Supervisory Board and its committees, and approved the 2012 declaration of compliance with the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG). With the exceptions explained in the declaration, all the recommendations of the Code have been complied with and continue to be complied with.

The Supervisory Board arranged for an externally moderated efficiency review to be carried out during the year 2012, thus fulfilling the requirement to carry out a regular review of its efficiency in accordance with its own rules of procedure and the German Corporate Governance Code. The results of the efficiency review, which the Supervisory Board dealt with intensively in its meeting at the end of February 2013, indicate very good cooperation within the Supervisory Board and with the Board of Management. There was no indication of any need for fundamental action or changes. However, some suggestions were made, which will be put into practice.

Corporate governance at Daimler is described in detail in the Corporate Governance Report and in the Remuneration Report of this Annual Report.

Report on the work of the committees

The Presidential Committee convened four times last year. It dealt primarily with corporate governance topics and questions of remuneration, as well as personnel matters of the Board of Management. As in previous years, compliance targets constituted part of the individual target agreements of the members of the Board of Management. For the first time, further non-financial targets were included as criteria in the target agreements. For the past financial year, those criteria were the firm establishment in the Group of the principles of the UN Global Compact.

The Audit Committee met six times in 2012. Details of those meetings are provided in a separate report of this committee.

The Nomination Committee convened twice in 2012. Among other matters, it prepared recommendations for the Supervisory Board’s proposals to the Annual Shareholders’ Meeting 2013 on candidates for election. The election proposal gives due consideration not only to the defined qualifications for the specific position, but also to the recommendations of the German Corporate Governance Code.

As in previous years, the Mediation Committee, a body required by the provisions of the German Codetermination Act (MitbestG), had no occasion to take any action in 2012.

The chairmen of the committees informed the members of the Supervisory Board about the activities of the committees and their decisions, in each case in the Supervisory Board meeting following such decisions.

Personnel changes in the Supervisory Board. With effect as of the end of the Annual Shareholders’ Meeting on April 4, 2012, Dr. Clemens Börsig was reelected as a member of the Supervisory Board representing the shareholders. Furthermore, in December, the Supervisory Board decided to propose to the 2013 Annual Shareholders’ Meeting that Andrea Jung be elected as a member of the Supervisory Board representing the shareholders with effect as of the end of the Annual Shareholders’ Meeting on April 10, 2013 until the end of the Annual Shareholders’ Meeting that decides on ratification of the Board of Management’s actions for the year 2017. At the end of February 2013, the Supervisory Board decided to propose to the 2013 Annual Shareholders’ Meeting that Sari Baldauf and Dr. Jürgen Hambrecht be relected as members of the Supervisory Board representing the shareholders with effect as of the end of the Annual Shareholders’ Meeting on April 10, 2013 until the end of the Annual Shareholders’ Meeting that decides on ratification of the Board of Management’s actions for the year 2017. The election proposals of the Supervisory Board to the Annual Shareholders’ Meeting were based on recommendations made by the Nomination Committee.

Personnel changes in the Board of Management. In the Supervisory Board meeting in April 2012, as mentioned above, Dr. Wolfgang Bernhard was reappointed as a member of the Board of Management with responsibility for Manufacturing and Procurement Mercedes-Benz Cars & Mercedes-Benz Vans for a further five years as of March 1, 2013. In the meeting in December 2012, the Supervisory Board decided to expand the Board of Management and appointed Hubertus Troska as a member of the Board of Management with responsibility for "Greater China" as of December 13, 2012 for a period of three years, i.e. until December 31, 2015. With the appointment of Hubertus Troska, the Board of Management has been expanded to eight members. In addition, Andreas Renschler was reappointed as a member of the Board of Management with unchanged responsibility as of October 1, 2013 for a period of five years, i.e. until September 30, 2018.

In the Supervisory Board meeting on February 21, 2013, Dr. Dieter Zetsche was appointed for a further three years as of January 1, 2014 as Chairman of the Board of Management of Daimler AG and Head of Mercedes-Benz Cars. Also in this meeting, Prof. Dr. Thomas Weber was appointed for a further three years as of January 1, 2014 as Member of the Board of Management of Daimler AG responsible for Group Research & Mercedes-Benz Cars Development. As of April 1, 2013, Andreas Renschler will assume Board of Management responsibility for Manufacturing and Procurement Mercedes-Benz Cars & Mercedes-Benz Vans. At the same time, Dr. Wolfgang Bernhard will assume Board of Management responsibility for Daimler Trucks.

Audit of the 2012 company and consolidated financial statements. The financial statements of Daimler AG and the combined management report for the Company and the Group for 2012 were duly audited by KPMG AG, Wirtschaftsprüfungsgesellschaft, Berlin, and were given an unqualified audit opinion. The same applies to the consolidated financial statements for 2012 prepared according to IFRS.

In the presence of the auditors in a meeting in early February 2013, the Supervisory Board discussed the preliminary key figures of the annual company and consolidated financial statements for 2012 and the dividend proposal to be made at the 2013 Annual Shareholders’ Meeting. The preliminary key figures for the year 2012 were announced at the Annual Press Conference on February 7, 2013.

In the aforementioned meeting, the Supervisory Board dealt with the annual company financial statements, the annual consolidated financial statements and the combined management report for Daimler AG and the Daimler Group, each of which had been issued with an unqualified audit opinion by the external auditors, as well as the reports of the Audit Committee and the Supervisory Board, the corporate governance report and the remuneration report, and the proposal on the distribution of distributable profit. In preparation, the members of the Supervisory Board were provided with comprehensive documentation, some of it in draft form, including the Annual Report with the consolidated financial statements according to IFRS, the combined management report for Daimler AG and the Daimler Group, the corporate governance report and the remuneration report, the annual company financial statements of Daimler AG, the proposal of the Board of Management on the distribution of distributable profit, the audit reports of KPMG for the annual company financial statements and the consolidated financial statements of Daimler AG, each including the combined management report, as well as drafts of the reports of the Supervisory Board and of the Audit Committee.

The Audit Committee and the Supervisory Board dealt with those documents in detail and discussed them intensively in the presence of the responsible external auditors, who reported on the results of their audit and were available to answer supplementary questions and to provide additional information. Following the final results of the review by the Audit Committee and its own review, the Supervisory Board declared its agreement with the results of the audit by the external auditors, determined that no objections were to be raised, and approved the financial statements and the combined management report as presented by the Board of Management. The company financial statements of Daimler AG for the year 2012 were thereby adopted. The Supervisory Board also consented to the proposal made by the Board of Management on the distribution of distributable profit and approved the report of the Supervisory Board, the corporate governance report and the remuneration report in their current drafts. Furthermore, the Supervisory Board approved its proposed decisions on the items of the agenda for the 2013 Annual Shareholders’ Meeting.

Appreciation. The Supervisory Board thanks all of the employees and the management of the Daimler Group for their personal contributions to the successful year 2012. Special thanks are due to a longstanding member of the Supervisory Board, Stefan Schwaab, who stepped down in June after many years of close involvement and exceptional personal commitment to the Group.

Stuttgart, February 2013

The Supervisory Board

 

Dr. Manfred Bischoff
Chairman