Management Report & Annexes | Corporate Governance Report

18.3 Compliance

Bayer manages its businesses responsibly and in compliance with the statutory and regulatory requirements of the countries in which it operates.

We define compliance as legally and ethically impeccable conduct by all employees in their daily work – because the way they carry out their duties affects the company’s reputation. Bayer does not tolerate any violation of applicable laws, relevant codes of conduct or internal regulations.

The Board of Management is unreservedly committed to corporate compliance and Bayer will forgo any business transaction that would violate our compliance principles. These principles are enshrined in our Corporate Compliance Policy, which is available in 42 languages. This document details our commitment to fair competition, integrity in business dealings including zero tolerance of corruption, the principles of sustainability and product stewardship, the upholding of foreign trade laws and insider trading laws, the separation of business and private interests, proper record-keeping and transparent financial reporting, fair and respectful working conditions, and avoidance of all forms of discrimination. Every employee is required to immediately report any infringement of the Corporate Compliance Policy (except in France where this requirement does not apply due to national law). Managerial employees have a vital part to play in implementing the Corporate Compliance Policy. As role models, they must help to ensure that this important code of conduct is adhered to in practice. Managers may lose their entitlement to variable compensation components and be subject to disciplinary measures if systematic violations of applicable law entailing loss or damage to Bayer have occurred in their sphere of responsibility and could have been prevented if they had taken appropriate action. Compliant and lawful conduct forms part of the performance evaluations of all managerial employees.

Bayer’s Corporate Audit department regularly verifies adherence to the Corporate Compliance Policy. In 2014, 219 audits, including 62 compliance audits, were performed on the basis of a risk-oriented audit plan that takes potential corruption and other risks into account. Such audits were either preventive or incident-related. Observance of the Corporate Compliance Policy is also a focus of all regular audits. The head of Corporate Audit regularly attends the meetings of the Audit Committee of the Supervisory Board and provides it with a list of conducted audits and their outcomes at least once a year.

The head of the Bayer Group’s compliance organization is the Group Compliance Officer, who regularly reports directly to the Chairman of the Board of Management and to the Audit Committee of the Supervisory Board. A central compliance department supports the Group Compliance Officer in steering and implementing the Group-wide compliance activities. Each subgroup and service company has its own compliance officer, who is responsible for ensuring its adherence to Group-wide standards and to any applicable subgroup- or industry-specific standards. There is a central Compliance Officer for each country and country group, supported where necessary by further compliance functions, to advise employees on lawful and ethically correct behavior in business-related situations.

The compliance organization operates in accordance with international standards such as the oecd Recommendations of the Council for Further Combating Bribery of Foreign Public Officials in International Business Transactions.

Compliance is crucial to the success of our business. Bayer adopted a Group-wide Compliance Charter in 2013 to integrate compliance even more closely into all operating units and their work processes.

As part of the Charter’s implementation we have launched the Group-wide Integrated Compliance Management (icm) project to turn the compliance organization’s role into that of a proactive and preventive business partner. icm fosters close, systematic collaboration between the compliance experts and the managers responsible for business operations in order to identify business-relevant risk areas and minimize existing risks. We plan to carry out comprehensive, preemptive risk assessments in all three subgroups by the end of 2015. The project also includes regular self-monitoring by the operational business units based on appropriate auditing and inspection procedures. icm is focused on the areas of antitrust law, anticorruption measures, export controls, conflicts of interest, insider trading, antidiscrimination policies and data privacy.

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Online annex 3-18.3-1

A systematic process is in place involving round table meetings to discuss identified compliance risks and coordinate steps to avert them. The participants in these round tables are the respective compliance functions and the managers responsible for the business concerned. The results of the round tables are entered and tracked in a Group-wide compliance risk management database. 65 round tables were held following their introduction in May 2014.

Group-wide training programs tailored to requirements and target groups, along with extensive communications activities, help to raise the employees’ awareness for compliance issues and the risks these involve.

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Online annex 3-18.3-2

Our training and communications activities are designed to support our employees by explaining to them the significance of compliance and how important it is to the company that the respective rules be observed. The goal is also to ensure that employees do not overstep boundaries out of ignorance or uncertainty. Our subject-specific communication and training activities reflect the icm focus areas.

The compliance training courses are available in various formats to meet the needs of different employee groups. Some take the form of web-based training (wbt) programs, while others are face-to-face training sessions or workshops.

In 2014, 36,288 Bayer managers, or 94% of the global total, took at least one compliance training course. Starting in 2015, all managers worldwide are to receive compliance training at least annually, depending on their risk category, in line with our Group target.

In 2014 we also implemented a new global web-based training program in 75 countries on the subject of antitrust violations. This program, available in 10 languages, has already been completed by 27,435 employees.

In addition, we have developed a standardized web-based training program for new hires incorporating basic information on the subjects of compliance, anticorruption measures and antitrust law. This program was completed by 3,145 newly hired employees in 2014.

In view of the particularly strict compliance rules in the area of health care, special training courses have been developed for our HealthCare subgroup. These courses are based on a global directive, the Bayer HealthCare Anti-Corruption Compliance Manual, which applies to all divisions of HealthCare. The training courses outline the minimum requirements to be observed throughout the world when working with HealthCare’s principal stakeholders, such as physicians, hospitals or patient organizations. These minimum standards are based on laws, industry codes and in-house regulations. The courses not only explain general compliance principles but also give specific instructions in relation to non-reciprocal benefits and the exchange of services with health care professionals.

We again ran an extensive communication campaign about compliance in 2014, aimed at providing all employees with more detailed information, explaining who is now available to advise them under the new partnering concept, and raising awareness for compliance-critical situations. A quarterly newsletter for employees is published on the compliance intranet site.

The communications activities in 2014 mainly focused on avoiding corruption or antitrust violations. Apart from specific training programs there was an interactive quiz on both topics along with in-house publications such as flyers and articles, and videos accessible via Bayer News Channel or the compliance website.

Compliance violations can be reported – anonymously if desired – via compliance hotlines that have been set up worldwide. In 2014 the compliance organization registered 70 reports via the central compliance hotline and email address. Of these, 14 were from Germany and 56 from other countries. 60 reports were received by email (17 of them anonymously) and 10 by telephone (eight of these anonymously). Suspected compliance violations may also be reported to the Compliance Officers, to Bayer’s Corporate Audit department or via local hotlines set up by the country organizations.

All suspected compliance violations in the Group are recorded according to uniform criteria and dealt with according to the rules set forth in the Directive on the Management of Compliance Incidents.

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Online annex 3-18.3-3

Where an investigation confirms that a compliance violation has occurred, the company has a graduated set of measures at its disposal. These include a verbal or written warning, transfer to a different unit, cancellation of a planned promotion, a reduction in the short-term incentive payment, downgrading to a lower collectively agreed pay rate or managerial contract level, or ordinary or extraordinary termination. This does not preclude the company from asserting further claims against the employee for cost reimbursement or damages or initiating a criminal prosecution. The action taken in a particular case depends on the gravity of the compliance violation and on applicable law.

Last updated: February 26, 2015  Copyright © Bayer AG