integrated into compensation system
- Efficient structures for efficient decisions
- House of Governance establishes transparency
- Internal controls raised to a higher level
Effective corporate governance in accordance with high international standards is very important to Deutsche Bank. In 2014, the bank reaffirmed its strong commitment to responsible management and efficient control structures with its House of Governance initiative and Three Lines of Defense program.
Corporate governance: responsible management
Deutsche Bank’s corporate governance has five key elements: effective decision-making based on appropriate information and efficient structures, effective cooperation between Management Board and Supervisory Board, good relations with shareholders and other stakeholders, a performance-based compensation system with a sustainable and long-term focus, as well as transparent and timely reporting. For an overview of Deutsche Bank’s shareholders and management bodies see section .
CRD 4 rules
The legal framework for the corporate governance of Deutsche Bank is primarily formed by the German Stock Corporation Act, the German Banking Act and the German Corporate Governance Code. As Deutsche Bank shares are also listed on the New York Stock Exchange (NYSE), the bank is subject to the relevant U. S. securities laws and the rules of the Securities and Exchange Commission and New York Stock Exchange.
Compensation. During the year under review, the bank adjusted its Management Board compensation system. 2014 saw changes in European legislation through the Capital Requirements Directive IV (CRD 4), which restricted the ratio of fixed to variable compensation for certain bank employees to 1:1. In May 2014, the Annual General Meeting consented to the legal possibility of adopting a 1:2 ratio for Management Board members and the bank implemented this rule without increasing total compensation. Since 2013, Deutsche Bank’s compensation system has focused not only on “what” staff achieve but also on “how” they achieve objectives. Variable compensation continues to be granted mainly on a deferred basis and is subject to certain forfeiture conditions. At least 50 % of the total variable compensation of the members of the Management Board is equity-based and thus linked to the long-term performance of Deutsche Bank.
The compensation system for Supervisory Board members is in line with the requirements of the German Corporate Governance Code. In addition to their base compensation, members receive additional fixed annual compensation depending on their committee membership and tasks.
Reporting. Shareholders and the public are regularly kept up-to-date through the 20-F Report and the Financial Report, including the Consolidated Financial Statements, as well as the Interim Reports. The reporting of Deutsche Bank Group is in accordance with International Financial Reporting Standards (IFRS). This provides for a high degree of transparency in financial reporting and facilitates comparability with international peers.
On October 29, 2014, the Management Board and Supervisory Board published the annual Declaration of Conformity pursuant to section 161 of the German Stock Corporation Act. This states that Deutsche Bank AG acts in conformity with the recommendations of the German Corporate Governance Code in the versions dated May 13, 2013, and June 24, 2014, with two exceptions. One exception relates to No. 5.3.3 of the Code concerning the composition of the Nomination Committee of the Supervisory Board. The other relates to No. 4.2.3 (2) sentence 6 on the caps for specific variable compensation components. Retroactively with effect from January 1, 2014, the bank holds the opinion that it has complied with the requirement set out in No. 4.2.3 (3). Accordingly, the Supervisory Board is to establish the targeted pension level for pension schemes and take into account the resulting annual and long-term expense. The Corporate Governance Statement for 2014 and other documents on corporate governance at Deutsche Bank AG are available on the internet.
Deutsche Bank continually reviews its system of corporate governance in light of new events, statutory requirements and domestic and international standards, and makes the appropriate adjustments.
Clear allocation of responsibilities
To reinforce the corporate governance rules and mechanisms for senior management in line with new statutory requirements, the bank’s values and beliefs, as well as recognized best practices, the Management Board established the House of Governance in the third quarter of 2013. This initiative enhances and harmonizes the bank’s governance structures. It increases the transparency of internal organization and responsibilities. The House of Governance initiative is headed by the bank’s Chief Governance Officer and focuses on the Management Board and the next two hierarchical levels, i. e. the bank’s senior management.
The initiative has three objectives: The first is to identify Management Board duties and their proper delegation in line with legal requirements. The second objective is to harmonize and streamline Deutsche Bank’s committee structures. Thirdly, the initiative is aimed at documenting Deutsche Bank’s management and decision-making structures to increase transparency and improve the system of controls for the long term.
Regulatory and legal obligations of the Management Board in Germany, the UK, the USA, Hong Kong and Singapore were documented and categorized. Clear criteria were defined for potential delegation to the next two hierarchy levels and reporting line responsibilities were determined and documented.
The harmonization of all committee structures is now based on a uniform governance standard. Structures were reviewed and adjusted according to criteria such as authorization basis, composition, membership, tasks and responsibilities as well as decision-making and escalation processes. The duties, reporting line responsibilities and committee memberships are set out in position descriptions for senior management. Thanks to the House of Governance initiative, the bank is well prepared for the new regulatory requirements, as stipulated, for example, in the UK.
across Three Lines of Defense
Strengthening controls through “Three Lines of Defense”
The Three Lines of Defense program is an integral part of Deutsche Bank’s strategic agenda. It was initiated in the fourth quarter of 2013 by the Management Board in the context of heightened regulatory standards. The program builds on lessons learned from past control failures and aims to reinforce Deutsche Bank’s non-financial risk management capabilities and compliance culture across all corporate divisions and infrastructure functions. Furthermore, it ensures consistency across the ongoing control enhancement initiatives throughout the bank.
Deutsche Bank defines the three Lines of Defense as follows: The First Line of Defense includes all corporate divisions and selected infrastructure functions. First Line of Defense units are ultimately accountable for all risks and controls in their business processes. The Second Line of Defense encompasses all control functions such as Risk, Compliance, Legal, Human Resources, Finance and Tax. These are responsible for the design of Deutsche Bank’s policy framework and independent risk assessment. Second Line of Defense units are independent from the First Line of Defense. The Third Line of Defense is Group Audit, which is responsible for providing independent and objective assurance on the effectiveness of risk management, internal controls and governance processes.
In 2014, a systematic review was performed of Deutsche Bank’s non-financial risk and control organizations and supporting management processes. This led to the following changes:
- The bank established dedicated control units in each First Line of Defense to reinforce the division’s accountability for the management of their control environment.
- The risk and control responsibilities across the Second Line of Defense control functions were realigned within a common risk and control framework. For selected risks, new initiatives were launched to further strengthen Deutsche Bank’s control framework.
- The risk and control assessment approach was enhanced towards an integrated framework shared by all three Lines of Defense to ensure the use of common standards.
Key themes for 2015 are the further build-out of the control organization, the rollout of the enhanced risk and control assessment framework as well as continuing the work across all three Lines of Defense on specific control enhancements. This also includes the rollout of the enhanced Three Lines of Defense model in the regions.