Corporate Governance Report

The Executive Board and the Supervisory Board of Salzgitter AG regard good, responsible management and control of the company in all its aspects as one of the key factors for the success of the company. Both executive bodies have reviewed the concrete management structures of the Group and the controlling instruments of its committees on several occasions in recent years and adjusted them in mutual agreement to the changed requirements and to the growth of the Group.

The general provisions prevailing under German law on the management and supervision of listed stock corporations form the framework under which the management of the company is conducted. In addition, the company complies with the many supplementary recommendations of the German Corporate Governance Code – with only one exception – in the financial year 2009. Specifically, these were the following:

• the rights of the shareholders and the general meetings of shareholders,
  
• the cooperation between the Executive Board and the Supervisory Board,
  
• the tasks and remuneration of the Executive Board,
  
• the tasks and remuneration of the Supervisory Board,
  
• conflicts of interest of Executive and Supervisory board members,
  
• the transparency of the company and
  
• the accounting and auditing of the financial statements.

You can read more about the recommendations online at www.corporate-governance-code.com

On December 10, 2009, the Executive Board and Supervisory Board of Salzgitter AG submitted the following declaration on the recommendations of the German Corporate Governance Code pursuant to Section 161 of the German Stock Corporation Act (AktG):

”All recommendations of the ’Government Commission German Corporate Governance Code’ (GCGC) published by the German Federal Ministry of Justice in the official part of the electronic German Federal Gazette (Bundesanzeiger) have been complied with by Salzgitter AG with the exception of Code Item 3.8 (2) GCGC changed in 2009; the regulation recommended under this paragraph of raising the deductible for Executive and Supervisory board members in respect of the D&O insurance will be included in the insurance policy with effect from January 1, 2010.”

Beyond the recommendations laid down in the Code, employees of the company developed a set of corporate guidelines back in 2001 determining ethical standards for the entire Group which were subsequently approved by the Executive Board. This mission states the standards for the company and its employees, formulated under the five bywords ”Partners, Products, Processes, Personnel, Profit” (5P). You can read our Corporate Mission on our company website at www.salzgitter-ag.de/en/Konzern/ Leitbild_5P

In the financial year 2009, the shareholders and the Executive and Supervisory boards were involved in the management and control of Salzgitter AG in following key areas:

The shareholders principally exercise their rights at general meetings of shareholders. Each shareholder of Salzgitter AG is entitled to participate in the General Meeting of Shareholders, which customarily takes place once a year, to address the Meeting about items on the agenda, to ask pertinent questions, to submit relevant motions and to exercise his/her voting right. Fundamental decisions affecting the company, such as changes to the Articles of Incorporation, the appropriation of the annual profit, the election of shareholder representatives to the Supervisory Board, the raising or lowering of capital or the selection of the annual independent auditor can only be carried out subject to approval by the General Meeting of Shareholders. Salzgitter AG facilitates the process of exercising their personal rights: by appointing a proxy of the company, shareholders can choose not to attend the General Meeting of Shareholders personally and will not waive their voting rights.

The annual financial statements as at December 31, 2008, the consolidated financial statements, the joint management report on the company and the Group as well as the report of the Supervisory Board were presented to the regular General Meeting of Shareholders of Salzgitter AG held on May 27, 2009. Prior to the General Meeting, the documents were posted on our website for viewing by the shareholders.

The General Meeting then discussed the applications for resolution pertaining to the following items on the agenda:

• Appropriation of unappropriated retained earnings (€ 1.40 per share)
  
• Discharge of the Executive and Supervisory boards
  
• Selection of PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover, as the independent auditor for the financial year 2009
  
• Authorization for the purchase, sale and retraction of the company’s own shares
  
• Authorization to raise the share capital
  
• Authorization to issue bonds with warrants, convertible bonds, profit participation rights and/or profit sharing stock

All applications for resolution submitted by the Executive and Supervisory boards were approved by a large majority.

In accordance with legal requirements, the Executive Board manages the company under its own responsibility. In this process, it manages the subsidiaries and holdings in accordance with company law, by means of manifold organizational instruments and by applying regular controlling measures. Its principal tasks include the strategic alignment and development of the company in consultation with the Supervisory Board. In carrying out these activities, the Executive Board is bound by the interests of the company and obligated to increase the value of the company on a sustainable basis. It strives to achieve the highest possible return on capital employed within the scope of the corporate purpose.

The Executive Board of the Salzgitter AG was made up of six members in the financial year 2009, some of which had functional, others divisional competences. They are liable towards the company for any dereliction of duty. The assignment of duties among the members of the Executive Board is set out in a schedule for the allocation of tasks. The Supervisory Board has established articles of incorporation for the purpose of regulating the cooperation in the Executive Board and for involving the Supervisory Board in business management transactions.

The Supervisory Board plenum decides upon the remuneration system applicable to the Executive Board, including key contractual components, and determines the overall remuneration of each individual member of the Executive Board. Detailed information on the remuneration system is disclosed in the Group Management Report.

The Supervisory Board is tasked with supervising and advising the Executive Board in its management of the company. It appoints the Executive Board members and plans their successors on a long-term basis. It is also involved in material decisions affecting the company which require its approval. The Supervisory Board determines the information and reporting duties of the Executive Board.

The Supervisory Board is made up of 21 members, namely 10 shareholder and 10 employee representatives plus one other member; this composition has been laid down under the provisions of the Co-Determination Amendment Act of 1956 applicable to the company, in conjunction with Article 7 of the company’s Articles of Incorporation. The shareholder representatives and the additional member are elected by the General Meeting of Shareholders.

The Supervisory Board provides detailed information on its activities and decisions in the financial year 2009 in its separate report made to the General Meeting of Shareholders. It did not receive any reports of conflicts of interest, neither from the members of the Executive Board nor from members of the Supervisory Board.

The remuneration system of the Supervisory Board is disclosed in the Group Management Report (see page 40).

In stock corporations established under German law, the Executive Board and the Supervisory Board work as separate bodies, each carrying out different tasks. A member of the Executive Board cannot be a member of the Supervisory Board at the same time.

The Executive Board and the Supervisory Board of Salzgitter AG use a set of practical instruments for successfully performing their management and control duties

The essential instruments of the Supervisory Board include in particular:

• the obligation of the Executive Board to submit regular, timely and comprehensive reports to the Supervisory Board,
  
• regular discussion of the planning, business development and the strategy with the Executive Board,
  
• the determination of business activities and measures of the Executive Board which may only be carried out with Supervisory Board approval,
• the obligation of the Executive Board to submit long-term corporate plans on an annual basis and to report on the execution of such plans,
  
• when determining the remuneration of the Executive Board members, agreement on the variable components, geared towards the commercial success of the company and the overall performance of each individual Executive Board member.

The Supervisory Board has set up the following committees during its current term of office for the preparation of its consultations and resolutions:

Presiding Committee:
Rainer Thieme, Chairman
Dr. Lothar Hagebölling
Jürgen Peters
Christian Schwandt

Audit Committee:
Prof. Dr. Hannes Rehm, Chairman
Hannelore Elze
Rainer Thieme
Helmut Weber

Strategy Committee:
Rainer Thieme, Chairman
Manfred Bogen since March 26, 2009
Dr. Lothar Hagebölling
Jürgen Peters
Prof. Dr. Hannes Rehm
Christian Schwandt
Friedrich-Wilhelm Tölkes until January 15, 2009

Nomination Committee:
Dr. Lothar Hagebölling
Rainer Thieme


The Presiding Committee undertakes the preparatory work in connection with the appointing of Executive Board members and, in place of the Supervisory Board plenum, makes decisions on business measures requiring urgent approval. The Presiding Committee deliberates whenever necessary, also in the form of meetings or telephone conferences.

The Audit Committee deals with the following in particular:

• the annual financial statements,
  
• the quarterly financial statements,
  
• the internal control system,
  
• the risk management system,
  
• issues relating to compliance with the provisions applicable to the company (corporate compliance),
  
• the independence of the external auditor,
  
• the assignment of the audit mandate and
  
• the determination of key audit areas.

The Audit Committee generally meets four times a year, has the Executive Board report in writing and orally on individual issues to be discussed, as well as having representatives of the independent auditor explain the report on their audit of the financial statements at company and at Group level.

The Strategy Committee is tasked with discussing the strategy of the company with the Executive Board. The Committee meets sporadically.

The Nomination Committee, which is exclusively comprised of representatives of the shareholders, proposes suitable candidates to the Supervisory Board, which in turn presents its proposals to the General Meeting of Shareholders for the election of Supervisory Board members. It becomes especially active before the Supervisory Board is reelected.

The Executive Board uses – inter alia – the following management and control instruments:

• definition of reporting duties and authorization requirements of individual areas in corporate guidelines and the Articles of Incorporation of the respective Group companies,
  
• definition of principles governing the management of the Group in the ”Management and Organization” corporate guidelines,
  
• preparation of strategic plans for all divisions and business segments, as well as the regular updating and monitoring of their success,
  
• obligation of all Group companies to prepare annual sales, investment, financial and personnel plans, as well as regularly monitoring their progress,
  
• regular internal audits and special audits by an internal audit department,
• operating of a groupwide monitoring system for early risk detection (risk management),
  
• agreement on the targets and on the performance-related remuneration component for the managing directors and senior executives of the Group companies.

The Executive Board did not set up any committees in the financial year 2009. It further developed the strategic orientation of the Salzgitter Group and its divisions and initiated a large number of measures for the implementation of strategic goals. The development of the Group companies and holdings was monitored by the Executive Board in a timely manner on the basis of regular target/performance comparisons of their key economic data, then deliberated in controlling discussions with the management of the Group companies on a rotational basis and corrected where necessary.

Corporate Compliance means the adherence to the legal provisions and internal guidelines relevant in conducting the company’s business. We view this as an important part of corporate governance. Accordingly, the obligation of managers at all levels includes ensuring that the relevant regulations are observed in their respective areas of tasks and responsibilities. For this purpose each superior must give his/her staff clear instructions as to their tasks and areas of responsibilities and must document this accordingly. This responsibility includes ensuring that staff have the competences necessary to fulfill their compliance duties. Moreover, part of a superior’s duty is to monitor the fulfillment of compliance duties. The regular requesting of appropriate reports is part of guaranteeing that compliance tasks are monitored. We have defined this process in detail in a set of corporate guidelines. The Executive Board reported to the Supervisory Board on corporate compliance; the Audit Committee of the Supervisory Board addressed its attention to issues of corporate compliance.

We regard transparency and providing our shareholders with comprehensive information on the performance and the situation of the company as a matter of course. Along with the annual report, Salzgitter AG therefore publishes condensed interim accounts and an interim management report at the end of the first, second and third quarter of the financial year. This ensures that our shareholders are kept informed about our business performance in as timely a manner as possible. The dates of publication are announced in the company’s financial calendar.

Furthermore, the Executive Board explains the results of each financial year ended at an annual statements press conference which takes place directly after the meeting of the Supervisory Board when the financial statements are adopted.

In addition to this, we organize regular analysts’ conferences for analysts and institutional investors in Frankfurt/Main and London. Finally, the Executive Board ensures that information which could have a considerable impact on the share price is published immediately in the form of ad-hoc releases. All reports and statements are available on the company’s website (www.salzgitter-ag.de) in both German and English.

In the financial year 2009, the company did not receive any information on the purchase or sale of the shares of Salzgitter AG by persons who are obligated to disclose such transactions (Directors’ Dealings). No members of the Executive or Supervisory boards own a portion of the shares issued, either directly or indirectly, exceeding 1 %. There are currently no share option programs or similar security-based incentive systems implemented at the Salzgitter Group.

Salzgitter, March 25, 2010