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Corporate governance
Group organisation
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Since 1972, Peugeot S.A. has had a two-tier management structure, comprising a Managing Board, responsible for strategic and operational management, and a Supervisory Board, responsible for oversight and control. This separation is especially effective in addressing the concern for a balance of power between the executive and oversight functions, as reflected in the principles of good corporate governance.
The Supervisory Board
Role of the Supervisory Board
In accordance with the law, the Supervisory Board is responsible for appointing the membres of the Managing Board and for overseeing their management of the Company. The Company's bylaws also attribute to the Supervisory Board authority to remove members of the Managing Board from office, and to approve corporate actions, bond issues, the signature or termination of agreements with other companies operating in the same industry will have a decisive impact on the Group's future development, and any major transaction that substantially alters the business or financial structure of the Company or the Group. In addition, the Supervisory Board ensures that the strategy implemented by the Managing Board consistent with the Group’s long-term vision, as defined by the Supervisory Board. The Supervisory Board meets at least once every quater; the agenda of each meeting is prepared by the Chairman.
Supervisory Board members
12 members plus three non-voting advisors.
M. Thierry Peugeot, Chairman
M. Jean-Philippe Peugeot, Vice-Chairman
M. Jean-Louis Silvant, Vice-Chairman
M. Marc Friedel
M. Jean-Louis Masurel
M. Jean-Paul Parayre
M. Robert Peugeot
M. Henri Philippe Reichstul
Mrs Marie-Hélène Roncoroni
M. Geoffroy Rous de Bézieux
M. Ernest-Antoine Seillière
M. Joseph F. Toot, Jr.
M. François Michelin, advisor to the Supervisory Board
M. Roland Peugeot, advisor to the Supervisory Board
M. Bertrand Peugeot, advisor to the Supervisory Board
Terms:
Supervisory Board members are elected by stockholders for six-year terms.
Supervisory Board Meetings in 2006:
The Supervisory Board met five times in 2006, with an average attendance rate of 90%.
During four of the meetings, the Board reviewed the Managing Board's periodic reports on the operations and results of the Group's various businesses, examined the financial statements of the Company and the Group and reviewed the annual budgets of the Group and its divisions. The Committees of the Board reported their findings and recommendations to the Supervisory Board at regular intervals.
At the fifth meeting, on November 7, 2006, the Board selected Christian Streiff to replace Jean-Martin Folz as Chairman of the Managing Board.
On February 6, 2007, the Supervisory Board removed from office the Managing Board comprised of Jean-Martin Folz, Frédéric Saint-Geours and Claude Satinet and appointed a new five-member Managing Board comprising Christian Streiff, Chairman, and Gilles Michel, Grégoire Olivier, Frédéric Saint-Geours and Roland Vardanega.
Board procedures:
The Supervisory Board’s internal rules set out its stewardship and control responsibilities. In particular, the Supervisory Board is responsible for reviewing the Managing Board’s quarterly reports, as well as the annual financial statements of the Company and the Group and the Managing Board’s report to the Annual Stockholders’ Meeting.
The internal rules also stipulate that the Supervisory Board is required to authorize, in advance, the following actions by the Managing Board as provided for in Article 9 of the bylaws:
- stockholder-approved share issues (whether paid up in cash or by capitalizing retained earnings) and capital reductions;
- Stockholder-approved issues of ordinary or convertible bonds;
- any proposed merger agreements or agreements for the sale of a business;
- the signature or termination of any manufacturing and sales agreements representing a future commitment for Peugeot S.A., with companies whose corporate purpose is similar or related to that of Peugeot S.A., and generally the execution of any major transaction which substantially alters the business or financial structure of the Company or the Group.
Certain other actions exceeding financial limits set by the Supervisory Board may be carried out only with the unanimous backing of all the members of the Managing Board or, failing that, with the prior authorization of the Supervisory Board. These include:
- the purchase or sale for cash or for shares of any building and business rights used by Peugeot S.A. involving an amount in excess of €50 million,
- the purchase or sale of any equity interest in any other company directly or indirectly representing an immediate or deferred investment, expense, credit guarantee or seller’s warranty involving an amount in excess of €50 million,
- and any borrowings by Peugeot S.A. other than in the form of bonds, involving an amount in excess of €100 million.
The internal rules describe the information to be made available to the Supervisory Board, the process to be followed to determine the issues to be discussed at Supervisory Board meetings, the terms of reference of each Board Committee as well as the obligations of Supervisory Board members, especially those arising from their constant access to insider information.
The first self-assessment of the Board’s procedures was carried out in 2004. In early 2006, the Supervisory Board sent out a new questionnaire to members covering the Board’s procedures, its structure, the organization of its meetings and the issues included on the agenda, the quality of discussions during e ach meeting and the steps taken to improve members’ knowledge of the Group. The questionnaire also invited comments on the terms of reference of the Board Committees and the reporting of the Committees’ findings and recommendations. Respondents suggested a certain number of improvements that were duly noted by the Chairman.
Supervisory Board Committees
The Supervisory Board has created three specialized Committees: the Strategy Committee, the Compensation and Appointments Commitee and the Finance Committee.
The Strategy Committee
Terms of reference:
The Strategy Committee, set up in 1998, is responsible for considering the Group’s long-term growth trajectory and strategic direction. It reviews the Managing Board’s long-term strategic plan and is consulted about proposed major transactions. It also prepares Supervisory Board decisions on strategic projects submitted for the Board’s approval in accordance with article 9 of the bylaws.
Members:
The Committee comprises six members, appointed in their own name and not as representatives of corporate Supervisory Board members:
M. Jean-Philippe Peugeot, Committee Chairman,
M. Jean-Paul Parayre
M. Thierry Peugeot
M. Ernest-Antoine Seillière
M. Jean-Louis Silvant
Activities in 2006:
The Strategy Committee met twice in 2006, once without the Managing Board in attendance to assess Committee procedures and once with the Managing Board in attendance to review the manufacturing and marketing strategy of the Group and its marques in Asia.
In January 2007, the Committee met, without the Managing Board in attendance, to hear Christian Streiff's analysis and initial conclusions concerning the Group's situation and the appropriate strategic response.
The Compensation and Appointments Committee
Terms of reference
Set up in 1998, the Compensation and Appointments Committee is responsible for preparing Supervisory Board decisions regarding compensation for members of the Managing Board, the Supervisory Board and the Board Committees, as well as stock option grants to members of the Managing Board. It also stays informed of the compensation and stock option grants for other Group executives. In 2003, the Committee’s terms of reference were broadened to include preparing Supervisory Board decisions concerning the appointment of new members of the Supervisory Board and Managing Board, by proposing selection criteria, organizing the selection process and recommending candidates for appointment or re-appointment.
Members:
The Committee comprises two members, appointed in their own name and not as representatives of corporate Supervisory Board members:
M. Thierry Peugeot, Committee Chairman,
M. Ernest-Antoine Seillière.
Activities in 2006:
The Committee met in January to prepare Supervisory Board decisions concerning the 2005 bonuses to be paid to Managing Board members, and again in July to recommend to the Board the number of stock options to be granted to Managing Board members.
The Compensation and Appointments Committee also prepared the Supervisory Board's decisions concerning the choice of the new Chairman of the Managing Board and its membership. As part of this process, the Board expanded the Committee to include Jean-Philippe Peugeot, Jean-Paul Parayre and Jean-Louis Silvant. The Committee then met six times to determine the selection method, establish a list of possible candidates, conduct interviews and recommend their choice.It also determined the recommended compensation package for Christian Streiff, should he be appointed by the Supervisory Board.
In january 2007, the Committee met to recommend to the Supervisory Board the candidates for appointment to the new Managing Board and their compensation packages. It prepared Supervisory Board decisions concerning the 2006 bonuses to be paid to Jean-Martin Folz, Frédéric Saint-Geours and Claude Satinet. Lastly, it recommended new candidates for election to the Supervisory Board, and appointed Robert Peugeot to replace Jean-Louis Dumas for the remainder of his term.
The Finance Committee
Terms of reference:
The Finance Committee, set up in 2002, is responsible for informing the Board of its opinion on the interim and annual financial statements of the Company and the Group. It may also be asked to review any corporate actions and other projects requiring prior approval by the Board. To this end, the Committee reviews in detail the interim and annual financial statements, the most significant financial transactions and the management reporting schedules. It also monitors off-balance sheet commitments and data to assess the Group’s risk exposure.
The Finance Committee, which enjoys free access to all the information it needs, can, like the Chairman of the Supervisory Board, meet with the persons responsible for internal control and with the auditors, with or without line management attending.
Members:
The Committee comprises three members, appointed in their own name and not as representatives of corporate Supervisory Board members:
M. Marc Friedel, Committee Chairman
M. Jean-Louis Masurel
Mrs. Marie-Hélène Roncoroni
Activities in 2006:
The Committee met four times in 2006. During the year, it reviewed the 2005 financial statements published in February 2006 and analyzed the Group's internal control process and internal audit program, the Group tax planning policy and the valuation of fixed assets. The meetings held in July 2006 and February 2007 to review the interim and annual financial statements respectively were attended by the external auditors. In addition, the Committee held a meeting in 2006 with the external auditors, without any members of management being present, to discuss internal control and the content of the Group's financial information.
Supervisory Board compensation
Pursuant to the decision of the Annual Stockholders’ Meeting of May 26, 2004, Supervisory Board members and advisors are paid annual attendance fees up to an aggregate amount of €340,000 a year. In 2006, they were paid an aggregate €313,000 in fees. A fixed fee of €17,000 was paid to each member for serving on the Supervisory Board. Members of Board Committees were paid an additional €5,000, except the Chairman, who were paid €10,000. By decision of the Supervisory Board, the Chairman and Vice-Chairman of the Board receive an additional fee of €425,000 and €22,860 respectively. In 2006, an addition fee of €2,500 was paid to Jean-Philippe Peugeot, Jean-Paul parayre and Jean-Louis Silvant for their service on the expanded Compensation and Appointments Committee. The compensation paid to individual Supervisory Board members and advisors is disclosed on page 37.
Situation of Supervisory Board and Managing Board members
Thierry Peugeot, Jean-Philippe Peugeot, Robert Peugeot, Marie-Hélène Roncoroni, Pierre Banzet and Marc Friedel are related. There are no family ties among the other Supervisory Board or Managing Board members.
No loans or guarantees have been granted to or on behalf of any members of the Supervisory Board or Managing Board by the Company or any Group entities.
No assets required for the operation of the business are owned by any members of the Supervisory Board or Managing Board or their families.
To the best of the Company’s knowledge, there are no conflicts of interest between the duties of Supervisory Board and Managing Board members to Peugeot S.A. and their private interests or other duties.
None of the members of the Supervisory Board or Managing Board have service contracts with Peugeot S.A. or any of its subsidiaries, providing for benefits upon termination of employment.
To the best of the Company’s knowledge, in the last five years no member of the Supervisory Board or Managing Board has (i) been convicted of any fraudulent offence, (ii) been a member of the administrative, management or supervisory body of a company that has been declared bankrupt, or placed in liquidation or receivership, (iii) been the subject of any official public incrimination and/or sanctions by statutory or regulatory authorities or (iv) been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer.
Under French company law, only the annual Stockholders' Meeting has the authority to remove a Supervisory Board member from office. Managing Board members may be removed from office by the Supervisory Board, in accordance with Company bylaws, or by the Annual stockholders' Meeting, in accordance with French company law.
The Managing Board
Previously comprised of Jean-Martin Folz, Chairman, Frédéric Saint-Geours and Claude Satinet, the Peugeot S.A. Managing Board has had the following five members since February 6, 2007: Christian Streiff, Chairman, Grégoire Olivier, Frédéric Saint-Geours, Gilles Michel and Roland Vadarnega.
The executive Committee
Executive management of the PSA Peugeot Citroën Group is the responsibility of both the Managing Board and the Executive Committee, which had the following ten members as of February 6, 2007:
Christian Streiff, Chaiman of the Managing Board,
Frédéric Saint-Geours, member of the Managing Board, (Peugeot)
Gilles Michel, member of the Managing Board, (Citroën)
Grégoire Olivier, member of the Managing Board, (Programs)
Roland Vardanega, member of the Managing Boad, (Manufacturing and Components)
Isabel Marey-Semper, (Strategy and Innovation)
Sylvie Rucar, (Finance and Information Systems)
Jean-Luc Vergne, (Human Resources)
Jean-Claude Hanus, (Legal affair, Institutional Relations and Internal Audit)
Liliane Lacourt (Communication)
In addition to the above members, the Expanded Executive Committee also includes Denis Duchesne (China), Vincent Rambaud (Mercosur), Jean-Philippe Collin (Purchasing), Daniel Marteau (Replacement Parts) and Alain Sartoris (Executive Development), who each report directly to the Chairman of the Managing Board.
Managing Board compensation
The compensation paid to each Managing Board member is determined by the Supervisory Board after reviewing the recommendations of the Compensation and Appointments Committee. It includes both a base salary and an incentive bonus.
Compensation paid in respect of 2006 to the Managing Board members who served during that year is disclosed on page 37.
The five members of the Managing Board in place since February 6, 2007 also receive a base salary and an incentive bonus. Base salaries have been set at €1,000,000 for Christian Streiff and at €600,000 for each of the Managing Board members.Barring exceptional circumstances, the Chairman's incentivebonus may vary from 50% to 110% of his base salary, while the incentive bonus paid to other membersof the Managing Board may vary from 0 to 100% of their base salary. The incentive bonus, as determined by the Supervisory Board, will comprise 1) a portion based on the Group's consolidated operating margin, cash flow and return on capital employed, which will be shared among all of the Managing Board members, and 2) a portion based on the achievement of personal objectives assigned to each member, reflecting more specifically the areas under his or her direct responsibility. In all cases, these personal objectives will include quality performance targets.
Commitments given to Managing Board members
In line with Supervisory Board decisions, the employment contracts of Managing Board members, which were suspended upon their appointment as corporate officers, wil be reinstated when they cease to be a member of the Managing Board. At that time, their annual compensation under the employment contract will be equal to their latest base salary decided by the Supervisory Board, plus the average of the last three years' incentive bonuses, and their entire terms as member of the Managing Board will be taken into account for the purpose of calculating their seniority under the employment contract.
When Jean-Martin Folz and Claude Satinet left the Managing Board on February 6, 2007, their employment contract was reinstated, witth compensation equal to their latest base salary decided by the Supervisory Board, plus the average of the last three years' incentive bonuses. Both of them retired effective March 1, 2007, in accordance with the terms of collective bargaining agreement applicable to the metals industry, in light of their seniority.
In addition to being covered by government-sponsored basic and supplementary pension plans, eligible Managing Board members are also entitled to pension benefits funded under an insured plan. Benefits are capped at 50% of the average of their gross compensation, including bonuses, for their best three years out of the last five in the job. To be entitled to this supplementary pension benefit, a member must have served as an officer of the Group for at least five years and be employed by the Group when he or she retires.
No other commitments have been given to past or present Managing Board members concerning lump sum length of service awards to be paid when they cease to be a member.
Stock options
The Managing Board, in full agreement with the Supervisory Board and in compliance with stockholder approved limits, decided that starting in 2002, the benchmark price for options to purchase existing shares granted in a given year to executives or employees of the Company or related companies would be equal to the average of the opening share price during the 20 trading days following the publication of the Group's first-half consolidated earnings, without any discount. On August 23, 2006, the Managing Board used the authorization granded by the Annual stockholders' Meeting of May 24, 2006 to issue 983,500 options to purchase existing shares of Peugeot S.A. stock for €41.14 per share. In july 2007, in accordance with the law, the Supervisory Board will determine the lock-up rules that will apply to shares acquired by corporate officers on exercice of stock options granted inder any future plans.
Details of the options to purchase existing shares of Peugeot S.A. stock granted to Managing Board members in 2006 are presented on page 38.
Details of stock option plans in effect at December 31, 2006, the aggregate number of options granted to the eleven employees other than corporate officers receiving the largest number of stock options under the 2006 plan, and the number of options exercised in 2006 are presented on page 38 and 259.
Faurecia has its own option plans. Option grants may be decided only once a year, at the Board meeting held in February to approve the annual financial statements, and options may not be granted at a discount to the average share price used to determine the exercice price. The list of grantees, the number of options granted to each individual and the option price-corresponding to the average of the opening share price during the 20 trading days preceding the grant date-are decided in April, at the Board meeting held to call the Annual Stockholders' Meeting. On April 13, 2006, Faurecia granted 284,000 options to purchase new shares of company stock for €53.80 per share.
Internal and External controls
Control is assured both internally, by the Supervisory Board and the internal auditors, and also externally by the statutory auditors and, in the case of Banque PSA Finance, by the French Banking Regulator (Commission Bancaire).
Internal Control
Internal control covers all the processes and procedures implemented throughout the organization to provide reasonable assurance that the following three objectives are met: effectiveness and efficiency of operations, reliability of financial reporting, compliance with applicable laws and regulations. Internal control also contributes to achieving performance and profitability targets. However, it does not offer absolute protection from human error. Based on the Group's operating structure, the overall organization of internal control mirrors the chains of command in the divisions and the cross-functional responsibilities of corporate technology, manufacturing and finance departments.
The overal structure of delegations of authority down the chain of command reflects the Group's internal organization. Delegations of authority describe each individual's role and responsibilities, indicating the areas covered by the delegation, the terms of reference and, if necessary, the rules and regulations to be complied with and the practices to be followed.
In 2003, the Group issued a Code of Ethics setting out the standards of conduct and behavior to be met by all employees, who may consult it at any time on the Group Intranet. The Managing Board has appointed an Ethics Delegate to advise employees who have questions concerning the interpretation or practical application of the code.
The Internal Audit department is part of the Legal Affairs, Institutional Relations and Audit department, which is overseen directly by the Chairman of the Managing Board. The Vice-President, Internal Audit has direct authority over the corporate-level internal auditors and has a dotted-line reporting relationship with the internal auditors working in various departments of the Automobile Division and the other Group companies. This organization enables the Vice-President, Internal Audit to ensure that all of the Group's activities are covered in an efficient manner, to monitor the quality of internal audits and to track implementation of the action plans recommended by the internal auditors.
The Internal Audit department is responsible for:
-guaranteeing the implementation of internal controls;
-verifying compliance with mission-critical processes and
methods and assessing their effectiveness;
-recommending improvements to enhance the performance of corporate departments and subsidiaries.
External Auditors
In accordance with French company law, the financial statements of Peugeot S.A. and the consolidated financial statements are audited by two firms of auditors. The two firms jointly audit all of the accounts and examine the processes used to prepare the financial statements, as well as the Group’s internal processes and procedures.
The two statutory auditors, PricewaterhouseCoopers Audit and Mazars & Guérard, were appointed by stockholders at the Annual Meeting on May 25, 2005, following a proposal process managed by the Finance Committee of the Supervisory Board. Their appointment expires at the Annual Stockholders’ Meeting to be called in 2011 to approve the 2010 financial statements.
Through the members of their networks in all the countries where the Group operates, PricewaterhouseCoopers Audit and Mazars & Guérard act as contractual auditors of all the Group’s fully consolidated subsidiaries, with the exception of the companies in the Faurecia sub-group. They therefore have access to the information required to audit the consolidated financial statements of the PSA Peugeot Citroën Group. Effective from 2003, they perform continuous audits of the main Automobile Division companies and finance companies in France, therefore improving the overall quality of their audit. PricewaterhouseCoopers Audit, as Group Statutory auditor, also reviews the processes for the preparation of environmental and social information published on the Group’s sustainable development website.
In the case of Faurecia, the two firms of auditors, PricewaterhouseCoopers Audit and Ernst & Young Audit, were appointed by stockholders at the Annual Meeting on June 1, 2001, for period expiring at the Annual Meeting to be called to approve the 2006 accounts.
The auditors of joint ventures set up with other automakers, which are accounted for by the equity method, are appointed by the joint venture partners.
The total fees paid to the auditors in respect of 2006 amounted to €8.9 million for PricewaterhouseCoopers, €1.9 million for Mazars & Guérard and 1.9 million for Ernst & Young. None of these firms performed any nonaudit work during the year.
New stricter rules have been established concerning non-audit work performed by the auditors, as required under the Financial Security Act.
Find out more about Corporate Governance at PSA Peugeot Citroën.
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