Risk Management Structures and Tools

This groupwide system draws on existing organizational and reporting structures, supplemented by additional elements:

• The risk management manual: contains the system’s principles and processes. It explains reportable levels of risks and how risks are to be covered and mapped.
• The risk management regulation: stipulates groupwide reporting requirements and when a specific committee must be informed.
• The risk management coordinator: oversees the risk management system and is supported by local risk coordinators.
• The risk list: contains specific risks that our business divisions and other corporate sectors face. Reporting is mandatory for individual risks where the effect on earnings would exceed €5 million.

Risk Management System

Risk Identification

WACKER identifies risk on two levels: divisional and Group. We employ various instruments to detect and recognize risk. These include order-intake trends, market and competition analyses, customer talks, and ongoing observation and analysis of the economic environment.

Assessment, Quantification and Management of Risks

We analyze each identified risk’s probability of occurrence and potential effect on earnings. Corporate Controlling compiles a monthly report to inform the Executive Board of current and expected business developments and their associated risks. We evaluate risks and opportunities at regular meetings with our divisions and weigh them up against each other.

Corporate Controlling’s task is to ensure that our risk management standards are implemented and our risk management process is enhanced. It is responsible for recording all significant risks groupwide and evaluating them systematically. Significant risks and those endangering the company’s continued existence are communicated immediately via ad-hoc reports. As WACKER’s business divisions are responsible for their own results, this process is closely interwoven with operational controlling. Individual divisional risks are identified and evaluated on a monthly basis.

Financial risks are managed by Corporate Finance and Insurance. Corporate Accounting & Tax monitors receivables management with respect to customers.

Basis of Our Internal Control System (ICS)

Compliance Management

WACKER’s ethical principles of corporate management exceed the statutory requirements. The Compliance Management department is responsible for ensuring that these principles and all related legislation are observed throughout the company. Training courses on compliance raise employees’ awareness of the relevant risks and convey binding rules of behavior for daily work routines. These aspects are covered by WACKER’s compliance regulation. Employees are instructed to inform their supervisors, the compliance officers, the employee council or their designated HR contacts of any violations that come to their attention. They also have the option of reporting suspected violations anonymously via a protected channel.

The Group’s compliance officers are responsible for implementing these rules and regulations, and are on hand to advise employees on all matters relating to compliance. Prevention is a key aspect of the compliance officers’ work. They train, inform and advise employees and management on, for example, strategies and measures to prevent corruption and other breaches of the law. In 2019, no major infringements of compliance were identified that were subject to the above-mentioned reporting threshold of an effect on earnings of more than €5 million.

Corporate Auditing

The third line of defense is provided by WACKER’s Corporate Auditing department, which acts as an independent monitoring body for the Executive Board. This department shares responsibility for effective internal control systems throughout the various operational processes and systems. When setting up an internal control system, the operational units must apply certain principles, such as a policy of dual control. These principles are defined in an internationally applicable regulation, where they are explained in more detail for critical functions.

On behalf of the Executive Board, Corporate Auditing performs regular, mainly process-specific, reviews of all relevant functions and corporate units, focusing on internal control systems. Audit topics are selected using a riskdriven approach. This takes account of risk management reporting, as well as the reports and information provided by the corporate departments, business divisions and major joint ventures / associates. The auditing schedule is supplemented and approved by the Executive Board, and discussed with the Audit Committee. If necessary, the schedule can be adjusted flexibly during the year to accommodate any changes in underlying conditions.

Any process-optimization measures derived from the audits are implemented and systematically monitored by the Corporate Auditing department. The latter provides the Executive Board and Audit Committee with regular reports on the results and implementation status of the various measures.

Nothing came to our attention in the year under review that would endanger the proper functioning of the internal control systems or have an effect on earnings subject to the above-mentioned reporting threshold of more than €5 million.

Audits

When auditing our annual financial statements, the external auditors examine our early-warning system for detecting risks. The auditors then report to the Executive and Supervisory Boards.