Corporate Governance Report

The Executive Board and the Supervisory Board of Salzgitter AG give high priority to good, responsible management and control geared to creating sustainable value added for the company. The two executive bodies have worked closely together to develop the existing structures and mechanisms of corporate governance throughout the entire Group and to adjust them to new requirements.

The respective provisions prevailing under the German Stock Corporation Act (AktG) and the recommendations of the German Corporate Governance Code form the basis for corporate governance as practiced in Salzgitter AG. Specifically, these were the following:

• the rights of the shareholders and the general meetings of shareholders,
• 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.

More about the recommendations can be read online under www.corporate-governance-code.com.

On December 16, 2010, 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 ‘German Commission of the German Corporate Governance Code’ (GCGC) published by the German Ministry of Justice in the official part of the electronic German Federal Gazette (Bundesanzeiger) have been complied with at Salzgitter AG with the exception of Code Item 5.4.1 GCGC, a recommendation that was newly added in 2010 relating to specifying concrete objectives regarding the composition of the Supervisory Board. When making election proposals to the General Meeting of Shareholders for the election of shareholder representatives for the Supervisory Board, and for the election of the further member, the Supervisory Board complies with all statutory regulations and all of the Code’s recommendations relating to personal requirements for supervisory board members. The focus in this context is on potential male and female candidates’ specialist and personal expertise, taking into account the specifics of the enterprise so that the members of the Supervisory Board as a group possess the knowledge, ability and expert experience to properly complete its tasks if the proposed candidates are elected. When assessing expertise, the Supervisory Board also takes into account the company’s international activities, potential conflicts of interest, the fixed age limit for supervisory board members and diversity. In doing so, it does not currently regard the specifying of concrete objectives as necessary.”

Beyond the recommendations laid down in the Code, employees of the company developed a set of corporate guidelines, our Corporate Mission, back in 2001 determining ethical standards for the entire Group which were subsequently approved by the Executive Board. These corporate guidelines also set standards for the company and its employees, formulated under the five bywords of “Partners, Products, Processes, Personnel, Profit”.

You can view the Corporate Mission on the website of our company under www.salzgitter-ag.de/en/ Konzern/Leitbild_5P.

In the financial year 2010, 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 and submit relevant motions, as well as to vote. Fundamental decisions affecting the company, such as amendments to the Articles of Incorporation, appropriation of the annual unappropriated retained earnings, 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. We have enabled our shareholders to exercise their voting rights without having to personally attend the General Meeting of Shareholders: They can appoint a proxy of the company and give him instructions on how they wish their voting rights to be exercised.

The adopted annual financial statements as at December 31, 2009, the consolidated financial statements, the joint management report on the company and the Group and the report of the Supervisory Board were presented to the regular General Meeting of Shareholders of Salzgitter AG held on June 8, 2010. Prior to the General Meeting, the documents were posted on our website for viewing by the shareholders.

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

• appropriation of unappropriated retained earnings (dividend of € 0.25 per share),
• discharge of the Executive and Supervisory boards,
• selection of PricewaterhouseCoopers Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Hanover, as the independent auditor for the financial year 2010,
• authorization for the purchase, sale and retraction of the companies company’s own shares,
• authorization to issue bonds with warrants, convertible bonds, profit participation rights and/or profit sharing stock,
• amendments to the Articles of Incorporation.

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 Salzgitter AG was made up of six members in the financial year 2010, some of whom had functional, others divisional competences. They are liable to the company for any potential dereliction of duty. The assignment of duties among the members of the Executive Board is set out in a schedule specifying the allocation of tasks. The Supervisory Board has established bylaws for the purpose of regulating cooperation at Executive Board level and involving the Supervisory Board in business management transactions.

In filling management functions within the company, the Executive Board takes account of diversity in addition to basing their choice on requirements dictated by the position and gives appropriate consideration to women in the process.

The entire Supervisory Board decides on 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. As already announced in the Declaration of Conformity dated December 10, 2009, an appropriate deductible was included in the D&O insurance policy with effect from January 1, 2010.

The Supervisory Board is tasked with supervising and advising the Executive Board in its management of the company. It also appoints Executive Board members and plans their successors on a long-term basis.

The Board is involved in material decisions affecting the company which require its approval. Moreover, it 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. When making election proposals to the General Meeting of Shareholders, the Supervisory Board complies with all statutory regulations and all of the Code’s recommendations relating to personal requirements placed on supervisory board members. The focus in this context is on potential candidates’ specialist and personal expertise, taking into account the specifics of the enterprise, so that the persons put forward for election possess the knowledge, ability and expert experience to properly complete their tasks if elected. When assessing expertise, the Supervisory Board also factors in the company’s international activities, potential conflicts of interest, the fixed age limit for supervisory board members and diversity. At present, it does not regard the specifying of concrete objectives to be necessary.

The Supervisory Board provides detailed information on its activities and decisions in the financial year 2010 in a 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 starting on page 41.

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 to aid them in successfully performing their management and control duties.

The essential instruments of the Supervisory Board include in particular:

• 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,
• specifying of business activities and measures of the Executive Board which may only be carried out with Supervisory Board approval,
• obligation of the Executive Board to submit longer-term corporate plans on an annual basis and to report on the execution of such plans and
• 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 the individual Executive Board member.

For its current term of office, the Supervisory Board has set up a Presiding Committee, an Audit Committee, a Strategy Committee and a Nomination Committee for the preparation of its consultations and resolutions.

The Presiding Committee undertakes the preparatory work in connection with the appointing of Executive Board members and, in place of the full Supervisory Board, 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 and the quarterly financial statements,
• the internal control system and 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. It does not meet regularly but only when necessary.

The Nomination Committee, which is exclusively made up of representatives of the shareholders, proposes suitable candidates to the Supervisory Board for the latter to present its proposals to the General Meeting of Shareholders for the election of Supervisory Board members. Its main period of activity falls due in the run-up to a re-election of the Supervisory Board.

The Executive Board uses a range of management and control instruments which also include the following:

• 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 guideline,
• 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 2010. It continued to develop 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 if necessary.

Corporate compliance means adherence to the legal provisions and internal guidelines relevant for 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. To this end, all superiors are called upon to give their staff clear instructions as to their tasks and areas of responsibilities and to 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 in the financial year 2010 as well; 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 financial statements 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 results 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 am 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 2010, 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, that exceeds 1%. There are currently no share option programs or similar security-based incentive systems implemented in the Salzgitter Group.

Salzgitter, March 24, 2011