Corporate Governance Report

The Corporate Governance Report was published on the corporate website, together with the Declaration of Compliance with regard to the Corporate Governance Code and the Declaration about Corporate Management, under Corporate Governance.

MorphoSys makes responsible, sustainable and value-oriented corporate management its highest priority. effective corporate governance is a central part of MorphoSys’s corporate management and builds the framework for the management and supervision of the Group, including its organization, commercial principles and regulatory and monitoring measures.

On 7 December 2012, both the Management Board and the Supervisory Board updated their Declaration of Compliance with the German Corporate Governance Code. The Management Board and the Supervisory Board of MorphoSys AG state pursuant to Section 161 of the German Stock Corporation Act (AktG):

  1. From 8 December 2011, the date of its most recent Declaration of Compliance, MorphoSys AG has complied – with the exceptions described below under item no. 4. – with the recommendations of the “Government Commission on the German Corporate Governance Code” in the Code version dated 26 May 2010.

  2. On 15 May 2012, the “Government Commission on the German Corporate Governance Code” submitted a new version of the Code. MorphoSys AG has also complied – with the exceptions described below under item no. 4. – with the recommendations of this new Code version.

  3. As of today, MorphoSys AG complies – with the exceptions described below under item no. 4. – with the recommendations of the “Government Commission on the German Corporate Governance Code” in the Code version dated 15 May 2012.

  4. Exceptions:

    • The stock option program for the Executive Board launched prior to 2011 does not provide a cap for unforeseen developments within the meaning of Code section 4.2.3, since the reasonableness of the amount of stock options for the Executive Board was already considered at the time of the grant. However, the long-term incentive programs for the year 2011 and thereafter incorporate the concept of a cap compliant with the Code.
    • With regard to Code section 5.4.1, in its meeting on 10 March 2011 the Supervisory Board decided to aim for an adequate representation of women on the Supervisory Board, proposing female candidates for election by the shareholders and appropriately considering qualified women in the appointment procedure. A concrete quota for female members of the Supervisory Board has not been defined since the individual qualification and not the gender of candidates for election to the Supervisory Board shall be the decisive criteria for the composition of the Supervisory Board. With regard to the last election to the Supervisory Board that took place in the Annual General Meeting (AGM) 2012, Mrs. Eastham was elected as new Supervisory Board member next to the election of the male Supervisory Board members Dr. Möller, Dr. Camus, Dr. Vernon and Dr. Cluzel. Furthermore, Prof. Drews was Vice Chairman of the Supervisory Board until the end of the AGM 2012 and at his election in the AGM 2011 he exceeded the age limit of 75 years defined by the Supervisory Board in its rules of procedure. Insofar, the possibility as foreseen in the rules of procedure to exceptionally propose an elder candidate for election was used. The proposal to re-elect Prof. Drews to the Supervisory Board for a further year was at that time in the interest of the Supervisory Board to procure the continuity of its performance. Prof. Drews resigned from the Supervisory Board with effect as of the end of the AGM 2012. Currently, no Supervisory Board member exceeds the stipulated age limit of 75 years.
    • The remuneration for the Supervisory Board as resolved in the Annual General Meeting 2012 only provides for fixed remuneration components and no longer for performance-related remuneration within the meaning of the Code Section 5.4.6. dated 26 May 2010. This Company’s decision reflects the opinion of a growing number of experts on the subject of supervisory board compensation. In their view, the success-related remuneration of supervisory board members poses the threat of giving rise to a potential confl ict of interests in a body whose duties include setting and evaluating objectives for the Company’s long-term development.

Declaration about Corporate Management in Accordance with sec. 289a of the German Commercial Code (HGB*) for the 2012 Financial Year

The principles of corporate management, the composition and collaboration of the Management Board, Supervisory Board and committees as well as the Declaration of Compliance pursuant to section 161 of the German Stock Corporation Act (Aktiengesetz – AktG) can be found on the MorphoSys corporate website under Declaration about Corporate Management.

Shareholders and the Annual General Meeting

One of the most important foundations of our Company communication policy is to comprehensively inform institutional investors, private shareholders, financial analysts, employees as well as all other interested parties about the Company’s situation through regular, open and up-to-date communications. All important information has been published on the Internet. The Company strictly adheres to the concept of fair disclosure.

A central part of MorphoSys’s relations with its investors is frequent meetings with analysts and investors at road shows and one-on-one discussions. Conference calls accompany the publication of the quarterly figures to enable immediate queries on the development of the Company for analysts and investors. The Company’s presentations at on-site events are accessible to any interested party on the corporate website. Video and audio recordings of key events can be replayed on the Website at any time. Transcripts of the quarterly conference calls are also provided in a timely manner.

MorphoSys uses its corporate Website as a central platform to provide up-to-date information about the Company and its progress. MorphoSys’s financial calendar lists the dates of all regular financial publications and the next Annual General Meeting well in advance.

ANNUAL GENERAL MEETING

The Annual General Meeting took place in Munich on 31 May 2012. Approximately 40 % of total voting stock was represented at the meeting, an increase compared to the attendance figure in 2011 (approximately 31 %). MorphoSys assisted its shareholders in the use of proxies and arranged the appointment of a representative to exercise shareholders’ voting rights in accordance with instructions. This representative was also available until the end of the general debate of the Annual General Meeting.

MorphoSys’s shareholders approved all management proposals put to the vote at the meeting with one exception:

  • The 2011 net profit was forwarded to a new account.
  • The members of both boards were released.
  • PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft, Munich, was elected the statutory auditor and auditor for the Consolidated Financial Statements for the 2012 financial year, as well as the auditor for the interim report on 30 June 2012.
  • Election/reelection of members of the Supervisory Board:
    • – Dr. Gerald Möller was reelected as a member of the Supervisory Board.
    • – Dr. Geoff rey Vernon was reelected as a member of the Supervisory Board.
    • – Dr. Daniel Camus was reelected as a member of the Supervisory Board.
    • – Dr. Marc Cluzel was newly elected to the Supervisory Board.
    • – Mrs. Karin Eastham was newly elected to the Supervisory Board.
  • The proposal for the creation of a new Authorized Capital 2012-I was rejected.
  • The proposal for the creation of a new Authorized Capital 2012-II was accepted.
  • The remuneration of the Supervisory Board was redefined.

MorphoSys provided an online webcast of the Management Board’s presentation and published all documents in a timely manner on the Company’s Website under Media & Investors > Annual General Meeting.

Cooperation between the Management Board and the Supervisory Board

In order to guarantee good corporate governance, open and comprehensive communication on a regular basis is a guiding principle for the Management Board and the Supervisory Board of MorphoSys AG. The underlying two-tier system required by the German Stock Corporation Act (AktG) explicitly differentiates between management and supervision. The responsibilities of both boards are clearly defined by law as well as by the Articles of Association and the Rules of Procedure of the boards. MorphoSys AG’s boards work together closely and act and decide in the best interest of the Company. Their dedicated goal is to sustainably increase the Company’s value.

The most recent version of the German Corporate Governance Code recommends that the Management Board and the Supervisory Board should observe the principle of diversity and strive to increase the number of women in management positions. Women at MorphoSys occupy positions on the Management Board as well as the Supervisory Board. This diversity is also reflected at other management levels.

MANAGEMENT BOARD

The Management Board of MorphoSys AG consists of one chairman and three additional members. The Schedule of Responsibilities defines the different areas of responsibility and cooperation within the Management Board.

  • Dr. Simon Moroney, Chief Executive officer, is responsible for Strategy and Planning, Corporate Communications and Investor Relations, Internal Audit, Human Resources, the AbD Serotec business segment (up to the date of the divestment), Business Development and Legal, as well as the coordination of the single areas of responsibility of the individual board members and the representation of the Management Board vis-à-vis the Supervisory Board.
    Initial appointment: 1998 (co-founder)
    End of current period of office: 30 June 2014
  • Jens Holstein, Chief Financial Officer, is responsible for Accounting and Controlling, Corporate Finance and Corporate Development, Technical Operations including IT and Central Purchasing and Logistics.
    Initial appointment: 2011
    End of current period of office: 30 June 2014
  • Dr. Arndt Schottelius, Chief Development officer, is responsible for the preclinical and clinical development of MorphoSysʼs proprietary development programs, Project and Portfolio Management, Quality Assurance and Regulatory Affairs as well as Drug Safety and Pharmacovigilance.
    Initial appointment: 2008
    End of current period of office: 30 June 2014
  • Dr. Marlies Sproll, Chief Scientific Officer, is responsible for Discovery Alliances and Technologies, Target  and Antibody  Discovery, Protein  Sciences , Alliance Management and Intellectual Property,.
    Initial appointment: 2005
    End of current period of office: 30 June 2014

SUPERVISORY BOARD

As of 31 December 2012, MorphoSysʼs Supervisory Board consisted of six independent members. The members of the Supervisory Board are appointed by the Annual General Meeting.

Dr. Gerald Möller was confirmed as Chairman of the Supervisory Board after his re-election at the 2012 Annual General Meeting. After Prof. Drews stepped down, Dr. Geoffrey Vernon took over as Deputy Chairman of the Supervisory Board. The composition of the committees can be found in table 14.

Dr. Walter Blättler could not participate in two Supervisory Board sessions; Dr. Metin Colpan and Dr. Geoff rey Vernon were each absent on one occasion. All participants, however, received all information on the respective sessions. All participants were present at the committee meetings at all times.

The Supervisory Board has drawn up its own Rules of Procedure.

The Supervisory Board examines the efficiency of its activities on a regular basis, as recommended in the German Corporate Governance Code. To date, all audits have led to the conclusion that the Supervisory Board is organized efficiently and that the Management Board and the Supervisory Board cooperate very well.

DIRECTORS’ HOLDINGS

The members of the Management Board and the Supervisory Board own more than 1 % of the shares issued by the Company. Regarding the disclosure of Company stocks held or financial instruments relating to them, please refer to section 29 (Related Parties) of the Notes to the Consolidated Financial Statements. This list details all shares, performance shares, stock options and convertible bonds held by each member of the Management Board and the Supervisory Board.

DIRECTORS’ DEALINGS

Under the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG), the members of MorphoSys AGʼs Management Board and Supervisory Board and persons who have a “close relationship” with such members are obligated to disclose any trading in MorphoSys stock.

In the reporting year, MorphoSys received the following notifi - cations pursuant to sec. 15a of the WpHG, which can be found in table 15.

PREVENTING CONFLICTS OF INTEREST

Members of both boards are obliged to avoid any actions that could cause confl icts of interest with their functions at MorphoSys AG. Such transactions or ancillary activities of the Management Board have to be reported immediately to and approved by the Supervisory Board. The Supervisory Board must in turn inform the Annual General Meeting of any confl icts of interest which have occurred along with their solutions. In the 2012 financial year, no confl icts of interest occurred.

TAB. 13 /// COMPOSITION OF THE SUPERVISORY BOARD
THROUGH ANNUAL GENERAL MEETING ON 31 MAY 2012

  Position  pointment  End of Period*  Audit Committee  Remunera- tion and
Nomination Committee 
Science and
Technology Committee 
Dr. Gerald Möller Chairman 1999 2012 [C]
Prof. Dr. Jürgen Drews Deputy
Chairman
1998 2012 [M] [M]
Dr. Walter Blättler Member 2007 2014 [C]
Dr. Daniel Camus [EX] Member 2002 2012 [C]
Dr. Metin Colpan Member 2004 2012 [M]
Dr. Geoffrey Vernon [EX] Member 1999 2012 [M]
* Period ends with termination of Annual General Meeting
  • [EX] independent financial expert
  • [C]chairman
  • [M]member

TAB. 14 /// COMPOSITION OF THE SUPERVISORY BOARD FROM 31 MAY 2012

  Position  Initial Appointment  End of Current Period  Audit Committee  Remuneration and Nomination Committee  Science and
Technology Committee 
Dr. Gerald Möller Chairman 1999 2015 [C]
Dr. Geoffrey Vernon [EX] Deputy Chairman 1999 2015 [M]
Dr. Walter Blättler Member 2007 2014 [C]
Dr. Daniel Camus [EX] Member 2002 2015 [C]
Dr. Marc Cluzel Member 2012 2015 [M] [M]
Karin Eastham [EX] Member 2012 2015 [M]
* Period ends with termination of Annual General Meeting
  • [EX] independent financial expert
  • [C]chairman
  • [M][M]member

TAB. 15 /// DIRECTORS’ DEALINGS IN 2012

Member of the Management Board  Function  Date of Transaction in 2012  Type of
Transaction 
Number of Stocks/
Derivatives 
Average Share Price in €  Transaction Volume in € 
Jens Holstein CFO 13 June Purchase 1,000 17.00 17,000.00
Jens Holstein CFO 13 June Purchase 500 17.10 8,550.00

SHAREHOLDER APPROVAL OF EQUITY COMPENSATION PLANS, STOCK REPURCHASES

By resolution of the Annual General Meeting on 19 May 2011, MorphoSys is authorized to acquire treasury stock totaling up to 10 % of the capital stock in accordance with sec. 71 para. 1 No. 8 of the German Stock Corporation Act. The authorization may be exercised in whole or in part, once or several times, in pursuit of the purposes determined in the authorization resolution by the Company or by third parties for the account of the Company. At the discretion of the Management Board, the buyback may be effected on the stock market or by means of a public offer or a public invitation to tender.

In April 2012, MorphoSys repurchased 91,500 treasury shares based on this authorization. The treasury shares will be used to implement the Companyʼs long-term incentive program for the Management Board and the Senior Management Group.

ACCOUNTING AND STATUTORY AUDIT

MorphoSys AG prepares its Consolidated Financial Statements and quarterly financial statements in accordance with the International Financial Reporting Standards (IFRS). The Consolidated Financial Statements are prepared in accordance with the International Financial Reporting Standards (IFRS), as these must be applied in the European Union.

At the Annual General Meeting, PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft was appointed auditor for the 2012 financial statements and Consolidated Financial Statements. The Supervisory Board had confi rmed the auditorʼs independence in advance.

Information and Communication

In the 2012 reporting year, MorphoSys initiated a project to update and expand the existing ERP (enterprise resource planning) software via which information for operational processes and internal control as well as for reporting purposes is made available. Additionally, a corporate performance management system (CPM) was newly introduced for the support of corporate planning and Group reporting.

Considering the relevance of its information systems, MorphoSys has IT policies in place governing the use of information technology and communication media in order to reduce any risk to confi dential and proprietary information. The update and expansion of these policies in 2012 ensured that further technological development and new legal provisions are considered. Organizational principles on the provision of information security at MorphoSys are defined in a corresponding policy. Additionally, a communications policy regulates the distribution of all written and verbal information aimed at the public. An audit undertaken in the reporting year confi rmed the security of the IT processes and systems with respect to data availability, security and integrity.

Compliance System

INTERNAL CONTROL SYSTEM

In the 2012 reporting year, MorphoSys once again updated its documentation regarding the existing internal control system used for maintaining adequate internal control over financial reporting. In accordance with sec. 289 para. 5 and sec. 315 para. 2 No. 5 of the German Commercial Code ( HGB  ), MorphoSys described the key characteristics of its accountingrelated internal control system. This ensures that all controls are in place to be able to report the financial figures as precisely as possible. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines the corresponding COSO framework (“Internal Control – Integrated Framework”). These internal controls form the most commonly used basis for internal control over financial reporting and are also used by MorphoSys for the structuring and documentation of internal controls.

Due to its inherent limitations, it cannot be ruled out that internal control over financial reporting may not detect or prevent misstatements. The internal controls can only provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with IFRS (International Financial Reporting Standards) as adopted by the European Union.

In order to ensure the correctness of the registered financial key figures as well as the underlying execution of all bookkeeping processes, MorphoSys has implemented a strict ‘four eyes’ principle. Additionally, the effectiveness and efficiency of these processes is regularly checked and monitored by external service providers. The consolidated financial statements pass through a large number of preparation, inspection and monitoring processes in order to report these to the market and shareholders in a timely manner. This takes place according to a plan agreed with the Company’s management for which both the corresponding internal and external resources are made available.

Furthermore, a range of provisions and guidelines guarantee the strict separation of planning, booking and implementation of financial transactions. Adherence to and implementation of these guidelines are audited on a regular basis. This separation of functions is ensured for all implemented IT systems via the corresponding assignment of permissions.

Projections relating to future periods are not part of the internal control system.

INTERNAL AUDIT FUNCTION

The internal audit function was implemented at MorphoSys in 2010. Its aim is to assist the MorphoSys Group in accomplishing its objectives with a systematic and disciplined approach to evaluating and improving the effectiveness of the organizationʼs risk management, as well as control and governance processes in the fulfi llment of the set targets. Auditing and consulting company KPMG was appointed co-sourcing partner in 2012 to support the internal audit function and the performance of the audit.

The internal audit function is founded on a risk-based internal audit plan which is mainly derived from the last risk management results. In addition, audit requirements and suggestions from the Management Board and the Supervisory Boardʼs Audit Committee are considered in the risk-oriented internal audit plan.

The internal audit function regularly reports to the Management Board. The Head of the Internal Audit Function reports together with the CEO to the Supervisory Boardʼs Audit Committee twice a year or immediately if the need arises.

During 2012, four audits were successfully conducted. Several areas for improvement were identified and appropriate corrective measures were implemented; defi ciencies in processes were cured by appropriate countermeasures. The internal audit functionʼs audit plan for 2013 includes a similar number of audits to 2012.

fig. 16 /// THE MORPHOSYS COMPLIANCE SYSTEM

RISK MANAGEMENT

MorphoSys works with a risk management system that ensures the early identifi cation and evaluation of business-specific risks. Using appropriate countermeasures, the identified risks are mitigated or at least reduced to an acceptable level. Special attention is paid to those risks which may put the existence of the Company in jeopardy.

The Management Board ensures responsible risk handling at all times and keeps the Supervisory Board informed about existing risks and their development. Detailed information about the opportunities and risks at MorphoSys can be found in the Risks and Opportunities Report.

STATUTORY AUDIT BY PRICEWATERHOUSECOOPERS AG

MorphoSys prepares its Consolidated Financial Statements and quarterly financial statements in accordance with the International Financial Reporting Standards (IFRS). MorphoSys AGʼs financial statements are prepared in accordance with the German Commercial Code (HGB). The Audit Committee of the Supervisory Board proposes the selection of the Companyʼs external auditor. At the 2012 Annual General Meeting, PricewaterhouseCoopers AG Wirtschaftsprüfungsgesellschaft was appointed auditor for the 2012 financial year. In order to ensure the auditorʼs autonomy, the Audit Committee obtained a declaration of independence from the auditor.