Introduction
During the Reporting Period, the Company was required to comply with the 2008 Dutch Corporate Governance Code (the “DCGC”).
Pursuant to the DCGC, deviations from the DCGC require explanation in accordance with the DCGC’s ‘comply or explain’ principle.
On 7 September 2017, the legislative proposal containing the relevant implementation resolutions for the enactment of the final version of the revised DCGC (the “Revised DCGC”), as presented by the Dutch Corporate Governance Code Monitoring Committee on 8 December 2016, was adopted by the Dutch government. The Revised DCGC applies for financial years commencing on or after 1 January 2017. As a consequence, the Revised DCGC only applies to the Company with effect from 1 October 2017 and the
Company will report on its compliance with the Revised DCGC in its Annual Report for the 2018 Reporting Period.
Compliance with the DCGC
During the Reporting Period, the Company was compliant with the relevant principles and best practice provisions of the DCGC, with the exception of the following:
II.1.5. This best practice provision provides that as regards financial reporting risks the Management Board states in the annual report that the internal risk management and control systems provide a reasonable assurance that the financial reporting does not contain any errors of material importance and that the risk management and control systems worked properly in the year under review. The Management Board shall provide clear substantiation of this.
In deviation of this best practice provision, the Management Board are of the view that they are not in a position to state that the internal risk management and control systems provided reasonable assurance that the financial reporting did not contain any errors of material importance and that the control systems worked properly during the Reporting Period. This is evidenced by the accounting irregularities that occurred.
The Management Board is however of the opinion that the process that has been followed, subsequent to the announcement of 5 December 2017, has provided
reasonable assurance that the 2017 Consolidated Financial Statements, do not contain any errors of material importance.
The Management Board has designed the Remediation Plan, which includes measures aimed at ensuring that the risk management and control systems are effective going forward. The Remediation Plan is being implemented at present.
II.2.9. This best practice provision provides that a company may not grant its Management Board members any personal loans, guarantees or the like unless in the normal course of business and on terms applicable to the personnel as a whole, and after approval of the Supervisory Board. No remission of loans may be granted.
In deviation of this best practice provision, on 6 December 2016 Hachmer Beheer B.V., a subsidiary of Habufa until 29 December 2016 (at which date the Group held a 50% interest in Habufa), concluded a loan agreement for a loan of up to GBP50 million to Mayfair Holdings Proprietary Limited, whose ultimate shareholder was a family trust of the former CEO, Markus Jooste, (the “Hachmer-Mayfair Loan”). On the date of this Annual Report, it is unclear whether any funds under the loan agreement were transferred. This is the subject of further investigation.
For a more detailed description of the Hachmer-Mayfair Loan, reference is made to note 29.3 to the 2017 Consolidated Financial Statements.
II.3.1d), II.3.2 and II.3.4
II.3.1d) This best practice provision provides that a Management Board member shall not take advantage of business opportunities to which the relevant company is entitled for himself or for his wife, registered partner or other life companion, foster child or relative by blood or marriage up to the second degree as defined under Dutch law.
In deviation of this best practice provision, during the Reporting Period, several former Managing Directors and several other former Senior Managers acquired a property in Portugal from Conforama, a Subsidiary of the Company, in order to enable these Managing Directors and Senior Managers to obtain so-called golden visas for themselves and their families (the “Portuguese Real Estate Transaction”). Conforama received sale proceeds in the amount of €7 million.
This value approximates the net book value of the property on the date of the sale. The price was determined by consulting with external valuation experts and is deemed to be market related. Following completion of the transaction, Conforama entered into a rental agreement with the new owners. The rental is considered to be below market for the benefit of Conforama.
For a more detailed description of the Portuguese Real Estate Transaction, reference is made to note 29.3.
II.3.2 This best practice provision provides that a Management Board member shall immediately report any conflict of interest or potential conflict of interest that is of material significance to the relevant company and/or to him, to the chairman of the Supervisory Board and to the other members of the Management Board and shall provide all relevant information, including information concerning his wife, registered partner or other life companion, foster child and relatives by blood or marriage up to the second degree as defined under Dutch law. The Supervisory Board shall decide, without the Management Board member concerned being present, whether there is a conflict of interest. A conflict of interest exists, in any event, if the company intends to enter into a transaction with a legal entity:
i) in which a Management Board member personally has a material financial interest;
ii) which has a Management Board member who is related under family law to a Management Board member of the company, or
iii) in which a Management Board member of the company has a management or supervisory position.
During the Reporting Period, the Hachmer-Mayfair Loan, Upington Loan (see below) and the Portuguese Real Estate Transaction were concluded.
It does not appear from the minutes of the meetings of the Supervisory Board that any of the Managing Directors involved in the above transactions reported their respective (potential) conflicts of interest in accordance with best practice provision II.3.2. The Management Board, nor the Supervisory Board express an opinion concerning this matter. It will be the subject of further investigation.
II.3.4 This best practice provision provides that decisions to enter into transactions in which there are conflicts of interest with Management Board members that are of material significance to the relevant company and/or to the relevant board members require the approval of the Supervisory Board. Such transactions shall be published in the annual report, together with a statement of the conflict of interest and a declaration that best practice provisions II.3.2 to II.3.4 inclusive have been complied with.
During the Reporting Period, the Hachmer-Mayfair Loan and the Portuguese Real Estate Transaction were concluded.
It does not appear from the minutes of the meetings of the Supervisory Board that these transactions were approved by the Supervisory Board. The Management Board, nor the Supervisory Board express and opinion concerning this matter. It will be the subject of further investigation.
For a more detailed description of the Hachmer-Mayfair Loan and the Portuguese Real Estate Transaction, reference is made to note 29.3.
III.1.7 Best practice provision III.1.7 provides that the Supervisory Board shall discuss at least once a year on its own, i.e. without the Management Board being present, its own functioning, the functioning of its committees and its individual members, and the conclusions that must be drawn on the basis thereof. The desired profile, composition and competence of the Supervisory Board shall also be discussed.
Moreover, the Supervisory Board shall discuss at least once a year without the Management Board being present both the functioning of the Management Board as an organ of the company and the performance of its individual members, and the conclusions that must be drawn on the basis thereof. The report of the Supervisory Board shall state how the evaluation of the functioning of the Supervisory Board, the separate committees and the individual Supervisory Directors has been carried out.
It appears from the minutes of the Supervisory Board that it discussed the effectiveness of the Human Resources and Remuneration Committee and Audit Committee. It does not, however, appear from the minutes of the Supervisory Board that, in respect of this particular reporting period, the Supervisory Board discussed its own functioning, the functioning of the Nomination Committee or the individual Supervisory Directors or the functioning of the Management Board or the performance of the CEO or the COO. The functioning of the CFO was assessed by the Audit and Risk Committee.
III.2.1 Best practice provision III.2.1 provides that all Supervisory Board members, with the exception of not more than one person, shall be independent within the meaning of the DCGC.
During the Reporting Period, nine of the twelve Supervisory Directors qualified as independent within the meaning of the DCGC. However, the remaining non-independent Supervisory Directors (Christo Wiese, Jacob Wiese and Thierry Guibert), through their wider association with the Group and its operations over the years, brought experience and an informed dimension and continuity to Supervisory Board deliberations. This was of particular importance given the diversity and geographical spread of the Group’s operations. The majority of the Supervisory Directors, however, satisfied the independence criteria of the DCGC.
To strengthen the independence of the Supervisory Board, which was chaired by Christo Wiese, who classified as a non-independent Supervisory Director within the meaning of the DCGC, Len Konar, independent Supervisory Director and Deputy Chairman, was appointed as lead independent director. His role as Deputy Chairman and lead independent director was to serve as a sounding board for the chairman, to act, if necessary, as an intermediary between the chairman and other Supervisory Directors, to deal with any shareholders’ concerns where contact through normal channels had failed to resolve concerns, or where such contact
may be inappropriate, to chair discussions and decision-making by the Supervisory Board on matters where the chairman had a conflict of interest and to lead the performance appraisal of the chairman.
As a consequence of this deviation, the Report of the Supervisory Board does not state that best practice provision III.2.1 has been fulfilled as provided by best practice provision III.2.3. On 14 December 2017, both Christo Wiese and Jacob Wiese resigned from the Supervisory Board and on 2 February 2018, Thierry Guibert resigned from the Supervisory Board.
All the current Supervisory Directors qualify as independent within the meaning of the Revised DCGC.
III.5.14 This best practice provision includes the main duties of the nomination committee. During the Reporting Period, however, the Nomination Committee did not hold any separate meetings. The nomination of Jayendra Naidoo to the Supervisory Board was approved by the Supervisory Board on 27 February 2017. The Remuneration and Human Resources Committee reviewed the succession plan.
In deviation of best practice provision III.5.14c), which provides that it is the duty of the nomination committee to assess periodically the functioning of individual Supervisory Board members and Management Board members, and report on this to the Supervisory Board, the Audit and Risk Committee evaluated the role and the functioning of the Chief Financial Officer. No other individual assessments were undertaken.
Best practice provision III.5.14e) provides that the nomination committee shall focus on supervising the policy of the Management Board on the selection criteria and appointment procedures for senior management.
Under the regulations of the Human Resources and Remuneration Committee, this responsibility was allocated to the Human Resources and Remuneration Committee, which was regarded as better positioned and resourced than the Nomination Committee to ensure this focus.
In the financial year 2018, the regulations of the Nomination Committee and the regulations of the Human Resources and Remuneration Committee were amended to comply with best practice provision 2.2.5(vi) of the Revised DCGC, which provides that it is duty of the Nomination Committee to supervise the policy of the Management Board regarding the selection criteria and appointment procedures for senior management.
III.6.2, III.6.2, III.6.3 and III.6.4 III.6.1
Best practice provision III.6.1 provides that a Supervisory Board member shall immediately report any conflict of interest or potential conflict of interest that is of material significance to the relevant company and/or to him, to the chairman of the Supervisory Board and shall provide all relevant information, including information concerning his wife, registered partner or other life companion, foster child and relatives by blood or marriage up to the second degree as defined under Dutch law.
If the chairman of the Supervisory Board has a conflict of interest or potential conflict of interest that is of material significance to the company and/or to him, he shall report this immediately to the vice-chairman of the Supervisory Board and shall provide all relevant information, including information concerning his wife, registered partner or other life companion, foster child and relatives by blood or marriage up to the second degree as defined under Dutch law.
The Supervisory Board member concerned may not take part in the assessment by the Supervisory Board of whether a conflict of interest exists. A conflict of interest exists in any event if the company intends to enter into a transaction with a legal entity:
i) in which a Supervisory Board member personally has a material financial interest;
ii) which has a Management Board member who is related under family law to a member of the Supervisory Board of the company; or
iii) in which a member of the Supervisory Board of the company has a
management or supervisory position.
During the Reporting Period, Delta Properties (a Subsidiary) was sold to Steinhoff
Familienholding GmbH, the family office of former Supervisory Director Bruno Steinhoff and current Supervisory Board Director Angela Krüger-Steinhoff, for €2.7 million. The former CEO, Markus Jooste, and another Senior Manager, Dirk Schreiber, had approached Bruno Steinhoff with the request to purchase Delta Properties. It does not appear from the minutes of the meetings of the Supervisory Board that Bruno Steinhoff or Angela Krüger-Steinhoff reported their respective (potential) conflicts of interest in accordance with best practice provision III.6.1. The Management Board, nor the Supervisory Board express an opinion concerning this matter. It will be the subject of further investigation.
During the Reporting Period, Upington Investments Holding B.V., an entity controlled by former chairman Christo Wiese, granted a loan of €47.4 million to the Group, carrying an interest of 0.5% per annum (the “Upington Loan”). It does not appear from the minutes of the meetings of the Supervisory Board that the former chairman of the Supervisory Board, Christo Wiese reported his (potential) conflict of interest in accordance with best practice provision III.6.1. Neither the Management Board, nor the Supervisory Board express an opinion concerning this matter. It will be the subject of further investigation.
In respect of the Delta Transaction and the Upington Loan, reference is made to note 29.3 to the 2017 Consolidated Financial Statements.
III.6.3
Best practice provision III.6.3 provides that all transactions in which there are conflicts of interest with Supervisory Board members shall be agreed on terms that are customary in the sector concerned and that decisions to enter into transactions in which there are conflicts of interest with Supervisory Board members that are of material significance to the company and/or to the relevant Supervisory Board members require the approval of the Supervisory Board.
During the Reporting Period, the Delta Transaction and the Upington Loan were concluded.
It does not appear from the minutes of the Supervisory Board that these transactions were approved by the Supervisory Board.
The Management Board, nor the Supervisory Board express an opinion concerning these matters. They will be the subject of further investigation.
III.6.4
Best practice provision III.6.4 provides that all transactions between the relevant company and legal or natural persons who hold at least 10% of the shares in the company shall be agreed on terms that are customary in the sector concerned and that decisions to enter into transactions in which there are conflicts of interest with such persons that are of material significance to the company and/or to such persons require the approval of the Supervisory Board. Such transactions shall be published in the annual report, together with a declaration that best practice provision III.6.4 has been observed.
Former chairman of the Supervisory Board, Christo Wiese, through entities controlled by him, held more than 10% of the Ordinary Shares at that time. In deviation of best practice provision III.6.4, it does not appear from the minutes of the meetings of the Supervisory Board that the Upington Loan was approved by the Supervisory Board.
Consequently, this Annual Report does not include a declaration that the best practice provision III.6.4 has been observed.
This matter will be the subject of further investigation.
V.1.3 This best practice provision provides that the Management Board is responsible for establishing and maintaining internal procedures which ensure that all major financial information is known to the Management Board, so that the timeliness, completeness and correctness of the external financial reporting are assured.
For this purpose, the Management Board ensures that the financial information from business divisions and/or subsidiaries is reported directly to it and that the integrity of the information is not compromised.
The Supervisory Board shall ensure that the internal procedures are established and maintained.
During the Reporting Period, certain identified former Managing Directors withheld key financial information.
In close consultation with the Audit and Risk Committee and the Governance, Social and Ethics Committee, the current Management Board has reviewed the internal procedures and has put in place dual reporting line structures with management of its local businesses aimed at ensuring that the Management Board receives material financial information timeously.
Best practice provision V.1.3 ties in with the safeguards in art. 8.1 of the Code of Conduct, which provides that business transactions should be properly and accurately recorded.
To the extent the aforementioned procedures were not in place, the deviation from the best practice was also a deviation from the Code of Conduct.
On a general note, best practice provisions II.2.9, II.3.2, II.3.4, and III.6.1 tie in with the provisions in art. 7.1 and 7.2 of the Code of Conduct, which provide that conflicts of interest should be avoided, and art. 7.3 of the Code of Conduct, which provides that business dealings on behalf of the Group must never be influenced by personal considerations or relationships and must be at arm’s length. To the extent that the conduct mentioned in the sections relating to the aforementioned best practices also occurred, such conduct may have been in deviations from the Code of Conduct.