Annual Report 2016

Composition and mode of operation of the Board of Management and the Supervisory Board (see graphic D.01)

D.01 Governance Structure

Daimler AG is obliged by the German Stock Corporation Act (AktG) to apply a dual management system featuring strict personal and functional separation between the Board of Management and the Supervisory Board (two-tier board). Accordingly, the Board of Management manages the company while the Supervisory Board monitors and advises the Board of Management.

Board of Management

In accordance with the Articles of Incorporation of Daimler AG, the Board of Management has at least two members. The precise number of Board of Management members is determined by the Supervisory Board. The Board of Management had eight members on December 31, 2016. In accordance with the German law requiring women and men to be equally represented in executive positions, the Supervisory Board has defined a target for the proportion of women on the Board of Management as well as a deadline when this target must be met. The details are described in a separate section.

Information on the areas of responsibility and curricula vitae of the Board of Management members are posted on our website at daimler.com/dai/bom. The members of the Board of Management and their areas of responsibility are also listed in this Annual Report. No member of the Board of Management is a member of more than three supervisory boards of listed companies outside the Daimler Group or of similar boards or committees at companies outside the Daimler Group that have comparable requirements.

The Board of Management manages Daimler AG and the Daimler Group. With the consent of the Supervisory Board, the Board of Management determines the Group’s strategic focus, defines the corporate goals, and makes decisions concerning operational planning issues. The members of the Board of Management must represent the interests of the Company and share responsibility for managing the Group’s entire business.

Irrespective of this overall responsibility, the individual members of the Board of Management manage their allocated areas on their own responsibility and within the framework of the instructions approved by the entire Board of Management. Affairs of fundamental or essential importance as well as issues that affect the areas of responsibility of several Board of Management members are dealt with by the Board as a whole, which must approve all related decisions. The Chairman of the Board of Management coordinates the work of the Board of Management.

The Board of Management prepares the consolidated interim reports, the annual company financial statements of Daimler AG, the annual consolidated financial statements, and the combined management report of the Company and the Group. It ensures that the provisions of applicable law, official regulations and the Group’s internal guidelines are adhered to, and works to make sure that the companies of the Group comply with those rules and regulations. The tasks of the Board of Management also include establishing and monitoring an appropriate and efficient risk management system.

For certain types of transaction of fundamental importance defined by the Supervisory Board, the Board of Management requires the prior consent of the Supervisory Board. At regular intervals, the Board of Management reports to the Supervisory Board on corporate strategy, corporate planning, profitability, business development and the situation of the Group, as well as on the internal control system, the risk management system and the compliance management system. The Supervisory Board has specified the information and reporting duties of the Board of Management.

The Board of Management has also given itself a set of rules of procedure, which can be seen on our website at daimler.com/dai/rop. Those rules describe, for example, the procedure to be observed when passing resolutions and ways to avoid conflicts of interest.

The Board of Management has not formed any committees.

The Board of Management has committed to diversity management as a strategic success factor.

The targeted advancement of women had been a key area of action of Daimler’s diversity management even before Germany’s law on the equal participation of women and men in executive positions came into force. Among other things, the Company continues to promote this goal with flexible working-time arrangements, company-owned daycare centers and special mentoring programs. To meet the new legal requirements, the Board of Management has defined targets and deadlines for the proportion of women at the two management levels below the Board of Management. The details are described in a separate section. Independently of the legal requirements, Daimler continues to affirm the goal it already set itself in 2006 of increasing the proportion of women in executive positions at the Group to 20 % by 2020. At the end of 2016, this proportion amounted to 16.7 % (2015: 15.4 %).

When making appointments to executive positions at the Group, the Board of Management also gives due consideration to the issue of diversity with regard to age and internationality. The management of teams with a varied makeup requires a conscious approach to the teams’ inherent diversity. A key element of our approach here is therefore to make managers more aware of the importance of diversity. For this purpose, we also use mentoring programs, communication activities, conferences, workshops and e-learning tools. By continually addressing diversity management issues, we help to further develop our corporate culture.

Supervisory Board

In accordance with the German Codetermination Act (MitbestG), the Supervisory Board of Daimler AG comprises 20 members. Half of them are elected by the shareholders at the Annual Shareholders’ Meeting. The other half comprises members who are elected by the Company’s employees who work in Germany. The members representing the shareholders and the members representing the employees are equally obliged by law to act in the Company’s best interests.

Information on the individual members of the Supervisory Board is available on the Internet at daimler.com/supervisoryboard and in this Annual Report.

The Supervisory Board is to be composed so that its members together are knowledgeable about the business sector in which the Company operates and also dispose of the knowledge, skills and specialist experience that are required for the proper execution of their tasks. Proposals by the Supervisory Board of candidates for election by the Shareholders’ Meeting as members representing the shareholders of Daimler AG, for which the Nomination Committee makes recommendations, take diversity into account. They also take into consideration not only the requirements of applicable law, the Articles of Incorporation and the German Corporate Governance Code, but also a list of criteria of qualifications and experience. They include, for example, market knowledge in the regions important to Daimler, expertise in the management of technologies and experience in certain management functions. Other important conditions for productive work in the Supervisory Board and for being able to properly supervise and advise the Board of Management are, in the view of the Supervisory Board, the members’ personality and integrity as well as individual diversity with regard to age, internationality, gender and other personal characteristics.

In addition to Germany’s legal requirements for equal participation by women and men in executive positions, the Supervisory Board has also taken the recommendations of the German Corporate Governance Code into account with regard to the Board’s composition and has therefore set itself the following goals:

– In order to ensure sufficient internationality, for example by means of many years of international experience, the Supervisory Board has set a target of a proportion of at least 30 % of international members representing the shareholders, and the resulting proportion of the entire Supervisory Board of at least 15 %. Irrespective of the many years of international experience of a large majority of members of the Supervisory Board, this target is currently significantly overachieved due to the international origins of Dr. Paul Achleitner, Sari Baldauf, Petraea Heynike and Andrea Jung on the shareholders’ side (40 %) and Valter Sanches on the employees’ side, with 25 % for the entire Supervisory Board.

– At least half of the members of the Supervisory Board representing the shareholders should have

· neither an advisory nor a board function for a customer, supplier, creditor, or other third party nor

· a business or personal relationship to the company or its boards

whose specific details could cause a conflict of interests.

In the period between March 11, 2016 and July 4, 2016, Dr. Bernd Bohr served as Chairman of the Supervisory Board of Knorr Bremse AG. During this time, the Supervisory Board of Daimler AG addressed no issues that could be construed as constituting a conflict of interest in this situation.

As described in the report of the Supervisory Board, there was one isolated individual case in a particular situation during the reporting period where there might have been the appearance of a potential conflict of interest during a specific vote. A second case involved three Supervisory Board members in relation to the presentation of a Board of Management report. As a highly precautionary measure, the Supervisory Board members in question in these cases refrained from taking part in the discussions and voting process – or being present during the presentation of the report – regarding the issue that might have led to a conflict of interest.

In the case of at least half of the shareholder representatives on the Supervisory Board, there were no instances of a potential conflict of interest during the reporting period. No actual instances of conflicts of interest were reported during the reporting period.

– In order to ensure the independent advice and supervision of the Board of Management by the Supervisory Board, the rules of procedure of the Supervisory Board stipulate that more than half of the members of the Supervisory Board representing the shareholders are to be independent as defined by the German Corporate Governance Code and that no person may be a member of the Supervisory Board who is a member of a board of, or advises, a significant competitor of the Daimler Group. In the view of the Supervisory Board, there are at present no indications for any of the members of the Supervisory Board representing the shareholders that relevant relationships or circumstances exist, in particular with the Company, members of the Board of Management or other Supervisory Board members, that could be construed as a true and permanent conflict of interest that would compromise their independence. No member of the Supervisory Board is a member of a board of, or advises, a significant competitor.

– The rules of procedure of the Supervisory Board further stipulate that candidates for election as members of the Supervisory Board who are to hold the position for a full period of office should generally not be over the age of 72 at the time of their election. In specifying this age limit, the Supervisory Board has intentionally refrained from stipulating a strict upper age limit and instead decided in favor of a flexible general limit that ensures each individual case is appropriately assessed, the range of potential Supervisory Board candidates is sufficiently broad and members can be reelected. After careful consideration and proper assessment, the Supervisory Board made the decision in October 2015 to propose to the Annual Shareholders’ Meeting in 2016 that Dr. Manfred Bischoff be reelected as a shareholder representative on the Supervisory Board. All other members of the Supervisory Board and the candidates to be proposed for election at the 2017 Annual Shareholders’ Meeting, Dr. Clemens Börsig and Bader Mohammad Al Saad, had not or will have not reached the age limit at the time of their election. 

– The rules of procedure of the Supervisory Board also define a general time limit for Supervisory Board membership. As a result, only candidates who have not yet been members of the Supervisory Board for three full terms of office at the time of their election should generally be nominated for membership of the Supervisory Board for a full term of office. This general length of service on the Supervisory Board had not been exceeded by Dr. Manfred Bischoff and Petraea Heynike, who were nominated for reelection at the Annual Shareholders’ Meeting in 2016. The same applies to Dr. Clemens Börsig, whose nomination for reelection to the Supervisory Board will be submitted to the Annual Shareholders’ Meeting in 2017.

In accordance with another recommendation of the Code, the Supervisory Board made sure when it submitted its nominations to the Annual Shareholders’ Meeting in 2016 and 2017 that the candidates in question would be able to continue to devote the time required for their Supervisory Board activities.

The Chairman of the Supervisory Board, Dr. Manfred Bischoff, is a former member of the Board of Management. One member of the Supervisory Board is a member of the board of management of a listed company. Including his membership of that Supervisory Board of Daimler AG, he is a member of no more than three supervisory boards of listed companies or similar company boards or committees at other companies with comparable requirements that are not part of the Group. The members of the Supervisory Board attend on their own responsibility courses of training and further training that might be necessary for the performance of their tasks and are supported by the Company in doing so. Such courses may address corporate governance, changes brought about by new legislation, or the launch of new products and pioneering technologies, for example. New members of the Supervisory Board participate in an “Onboarding” program that offers them the opportunity to exchange views with members of the Board of Management and other executives on current issues related to the various areas of responsibility of the Board of Management, and thus obtain an overview of important topics at the Company.

The Supervisory Board monitors and advises the Board of Management with regard to its management of the Company. At regular intervals, the Board of Management reports to the Supervisory Board on corporate strategy, corporate planning, revenue development, profitability, business development and the situation of the Group, as well as on the internal control system, the risk management system, and the compliance management system. The Supervisory Board has retained the right of approval for transactions of fundamental importance. Furthermore, the Supervisory Board has specified the information and reporting duties of the Board of Management to the Supervisory Board, to the Audit Committee and — between the meetings of the Supervisory Board — to the Chairman of the Supervisory Board.

The Supervisory Board’s duties include appointing and recalling the members of the Board of Management. Initial appointments are usually made for a period of three years. In connection with the composition of the Board of Management, the Supervisory Board pays attention not only to the members’ appropriate specialist qualifications, with due consideration of the Group’s international operations, but also to diversity. This applies in particular to age, nationality and other personal characteristics.

In accordance with the German law requiring women and men to be equally represented in executive positions, the Supervisory Board has defined a target for the proportion of women on the Board of Management as well as a deadline when this target must be met. The details are described in a separate section.

The Supervisory Board decides on the system of remuneration for the Board of Management, reviews it regularly, and determines the individual remuneration of each member of the Board of Management with consideration of the ratio of Board of Management remuneration to the remuneration of the senior executives and the workforce as a whole, as well as with regard to development over time. For this comparison, the Supervisory Board has defined the senior executives by applying Daimler’s internal terminology for the hierarchical levels and has defined the workforce of Daimler AG in Germany as the relevant workforce. The Supervisory Board has set upper limits for the individual Board of Management remuneration in total and with regard to its variable components. Further information on Board of Management remuneration can be found in the Remuneration Report of this Annual Report.

The Supervisory Board reviews the annual financial statements, the annual consolidated financial statements and the combined management report of the Company and the Group, as well as the proposal for the appropriation of distributable profits. Following discussions with the external auditors and taking into consideration the audit reports of the external auditors and the results of the review by the Audit Committee, the Supervisory Board states whether, after the final results of its own review, any objections are to be raised. If that is not the case, the Supervisory Board approves the financial statements and the combined management report. Upon being approved, the annual financial statements are adopted. The Supervisory Board reports to the Annual Shareholders’ Meeting on the results of its own review and on the manner and scope of its supervision of the Board of Management during the previous financial year. The Report of the Supervisory Board for the year 2016 is available in this Annual Report and on the Internet at daimler.com/supervisoryboard.

The Supervisory Board has given itself a set of rules of procedure, which regulate not only its duties and responsibilities and the personal requirements placed upon its members, but above all the convening and preparation of its meetings and the procedure of passing resolutions. The rules of procedure of the Supervisory Board can be viewed on our website at w daimler.com/dai/rop.

Meetings of the Supervisory Board are regularly prepared in separate discussions of the members representing the employees and of the members representing the shareholders with the members of the Board of Management. Each Supervisory Board meeting includes an executive session for discussions of the Supervisory Board in the absence of the members of the Board of Management. The Supervisory Board members can also take part in the meetings by means of conference calls or video conferences. However, this is generally not the case.

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