Risk and Compliance Management

Risk and compliance management are an integral part of corporate management at WACKER. As a global company, we are exposed to numerous risks directly attributable to our operational activities. Starting from an acceptable level of overall risk, the Executive Board decides which risks we should take to utilize opportunities available to the company.

Managing Corporate Risks

The goal of risk management at WACKER is to identify risks as early as possible, evaluate them appropriately, and take suitable steps to reduce them. We define risks as internal and external events that may have a negative effect on the attainment of our targets and forecasts. Compared with the previous year, we made no fundamental changes to our existing risk management system in 2020.

As a chemical company, we have a particular responsibility to ensure plant safety and protect human health and the environment. At all our production sites, there are employees who are responsible for plant and workplace safety and for health and environmental protection. Our risk management complies with legal requirements and is a component in all our decisions and business processes. The Executive and Supervisory Boards are regularly informed about the current risk status in the Group and at each business division.

WACKER follows the Three Lines of Defense model to effectively manage corporate risks and ensure compliance with legal provisions and the ethical principles of corporate management.

Three Lines of Defense Model

• The first line of defense lies with the managers of operating activities. They are responsible for handling risks there, including risk responses and risk control. This involves setting up functioning internal control systems in their operational units.
• The second line of defense is formed by risk management and compliance management. Risk management involves systematically tracking the main risks facing operational units and reporting on the risks to the Executive Board. Compliance management ensures that the ethical principles of corporate management are observed. The Compliance Management team identifies the relevant legal requirements and amendments, forwards them to all affected corporate units and holds courses on compliance for employees. The tax compliance management system ensures that Wacker Chemie AG and its subsidiaries comply fully and punctually with their obligations under tax law. Early involvement of the tax department and checks on preliminary tax-related processes help minimize the corresponding risks.
• A third line of defense is provided by the Corporate Auditing department, which acts as an independent monitoring body for the Executive Board. This department conducts audits at regular intervals to review the risk management activities in place at the various corporate units and to check whether the internal control systems run by the operational units are effective. Corporate Auditing also liaises with the Compliance Management team, for example if anti-corruption investigations are undertaken or related measures implemented.

Compliance Management

WACKER’s ethical principles of corporate management exceed legal requirements. These aspects are covered by our compliance regulation. The Compliance Management department is responsible for ensuring that these principles and corresponding legislation are observed throughout the company. Our twin goals are high attendance at our compliance training courses, which we primarily offer online, and a low number of corruption cases.

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.

The Chief Compliance Officer reports directly to the President and CEO on compliance issues. This individual informs the Executive Board each quarter of relevant compliance cases within the Group, passing on immediate information to the Board if a situation is urgent.

Training courses on compliance raise employees’ awareness of risks and convey binding rules of behavior for daily work routines. Compliance is a compulsory training subject for all WACKER Group employees.

Employees are instructed to inform their supervisors, the compliance officers, the employee council or their designated HR contacts of any violations they notice. For their protection, employees have the option of remaining anonymous when reporting legal violations within the company.

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. No major infringements of compliance were identified during the period under review that would affect earnings by more than €5 million.

The WACKER Group has 21 compliance officers around the world: in Germany, the USA, China, Japan, India, South Korea, Brazil, Mexico, Singapore, Russia, Norway and the United Arab Emirates. Compliance issues arising in countries not listed here are handled in Germany by the Chief Compliance Officer with assistance from the Legal department.

WACKER has set up whistleblower hotlines in Brazil, China, Italy and the US that enable employees and business partners to report any breaches anonymously. Furthermore, every year, employees in those regions must sign a declaration regarding proper conduct.

Corporate Auditing

WACKER’s corporate culture is characterized by mutual respect and trust. However, inappropriate behavior on the part of individual employees can never be eliminated. In these cases, we rely on our internal risk assessments.

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 a binding, 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 risk-driven 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 period under review that would endanger the proper functioning of the internal control systems or that would affect earnings by more than €5 million.

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

Preventing Corruption and Bribery

Corruption and bribery have no place in our business model. Our principles on this are contained in our Code of Conduct. All WACKER employees are required to follow this code. We maintain organizational policies such as requiring dual control and keeping the duties of units placing orders segregated from those of Purchasing. Doing so prevents individual employees from being able to carry out certain business processes on their own, such as processes triggering payments.

Employees involved in import and export processes must complete online training on export control every two years. Individuals working in particularly sensitive jobs, such as managing directors of regional subsidiaries and export control representatives, must complete a refresher course every year. Export control is based on national and international laws and aims to prevent the spread of weapons of mass destruction, combat international terrorism and uphold human rights. In this regard, it is important to inspect not only the item to be exported, but also the country of destination, the customer and the end use of the products.

According to Transparency International’s Corruption Perceptions Index (CPI), more than half of the countries in which WACKER operates have a low to very low risk of corruption.

Sales Shares as a Function of Corruption Risk as per Transparency International¹