107
`
`corporAte governAnce
`
`108
`128
`131
`
` Statement on corporate governance
` Report of the Supervisory Board
` Objectives of the Supervisory Board with respect to its composition
`
`Page 111
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`

`
`108
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`Merck Annual Report 2010
`
`
`
`
`
`
`
`
`
`stAteMent on corporAte governAnce
`The Statement on Corporate Governance contains the Statement of Compliance,
`relevant information on practices within the company, the compensation
`report as well as a description of the procedures of the corporate bodies.
`
`Joint report of the executive boArd And the supervisory boArd
`According to section 3.10 of the gerMAn corporAte governAnce
`code including stAteMent of coMpliAnce
`
`The German Corporate Governance Code is geared exclusively toward the conditions at a German
`stock corporation (Aktiengesellschaft). Merck KGaA has resolved to apply the Code correspond-
`ingly to a corporation with general partners (Kommanditgesellschaft auf Aktien) to serve the
`interests of shareholders. In order to enable shareholders to compare the situation at other
`companies more easily, we base corporate governance on the conduct recommendations made
`by the Code Commission relating to management and supervision (governance) and forego
`having our own, equally permissible, code. With a few exceptions, the recommendations of the
`Code, the intent and meaning of which are applied, were complied with in the past and will
`continue to be complied with in the future.
`For a clearer understanding, the following gives a general explanation of the Kommanditgesell-
`schaft auf Aktien (KGaA) company form followed by the specific situation at Merck with additional
`references to the General Meeting and shareholder rights.
`
`Corporation with general partners (Kommanditgesellschaft auf Aktien)
`“The corporation with general partners is a company which constitutes a separate legal entity,
`in which at least one partner has unlimited liability with regard to the creditors of the company
`(general partner) and the other shareholders are not personally liable for the obligations of
`the company (limited shareholders) (section 278 (1) of the German Stock Corporation Act –
`hereinafter referred to as ”AktG”). It is therefore a hybrid of an Aktiengesellschaft (German
`stock corporation) and a Kommanditgesellschaft (limited partnership) with a focus on German
`stock corporation law. Distinctive differences to the Aktiengesellschaft include the presence of
`general partners, who essentially also manage the company’s business activities, the absence
`of a management board, and the restriction of rights and obligations of the supervisory board
`(see page 125 for a description of the supervisory board procedures). This legal form also
`involves special features with regard to the General Meeting. For example, many of the resolu-
`tions made require the consent of the general partners (section 285 (2) AktG), including the
`adoption of the annual financial statements (section 286 (1) AktG). A large number of the
`conduct recommendations contained in the Code, which is geared toward Aktiengesellschaften,
`can therefore only be applied to a KGaA as appropriate.
`
`Page 112
`
`

`
`Company
`
`Management Report Corporate Governance
`Consolidated Financial Statements More information
`Statement on corporate governance
`
`109
`
`Merck KGaA
`The general partner E. Merck KG holds around 70% of the total capital of Merck KGaA (equity
`interest); the shareholders hold the remainder, which is divided into shares (share capital).
`E. Merck KG is excluded from the management of business activities. The general partners with
`no equity interest (Executive Board), on the other hand, manage business activities. Neverthe-
`less, due to its substantial capital investment and unlimited personal liability, E. Merck KG has
`a strong interest in the businesses of Merck KGaA operating efficiently and in compliance with
`procedures, and exercises its influence accordingly. Merck KGaA’s participation in the profit/
`loss of E. Merck KG in accordance with Articles 26 et seq. of the Articles of Association further
`harmonizes the interests of the shareholders and of E. Merck KG.
`E. Merck KG appoints and dismisses the Executive Board. In addition, E. Merck KG has created
`bodies – complementing the expertise and activities of the Supervisory Board – to monitor and
`advise the Executive Board. This task applies primarily to the Board of Partners of E. Merck KG.
`Based on the provisions of the German Stock Corporation Act, the Articles of Association of
`Merck KGaA and the rules of procedure of the various committees, Merck KGaA has a set of
`rules for the Executive Board and its supervision that meet the requirements of the Code. The
`investors, who bear the entrepreneurial risk, are protected as provided for by the Code.
`
`This is illustrated by the following chart:
`
`Total capital Merck KGaA
`EUR 565,211,241.95
`
`Equity interest
`EUR 397,196,314.35
`
`General partner
`E. Merck KG (with equity interest)
`
`Share capital
`EUR 168,014,927.60
`
`Limited liability shareholders
`
`General Meeting
`
`Supervisory Board
`16 members (Sections 1, 7 MitbestG *)
`
`Board of Partners E. Merck KG; 9 members
`Personnel Committee, Finance Committee,
`R&D Committee
`
`General partner with no equity interest
`(with power of management and representation)
`= Executive Board Merck KGaA
`
`* German Co-Determination Act
`
`Page 113
`
`

`
`110
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`Merck Annual Report 2010
`
`
`
`
`
`
`
`
`
`The General Meeting of Merck KGaA
`The Annual General Meeting takes place within the first eight months of the fiscal year. The
`fifteenth General Meeting of Merck KGaA was held in Frankfurt am Main, Germany, on April 9,
`2010. With 58.22% of the share capital represented, shareholder participation at the meeting
`was stable. At 59% in 2009, the rate was only marginally higher.
`In accordance with Article 21 para 3 of the company’s Articles of Association, the annual
`financial statements, the management report, the report of the Supervisory Board, and the
`proposal on the appropriation of net retained profit must be presented to the General Meeting
`and explained during the General Meeting. In particular, the Annual General Meeting passes
`resolutions concerning the approval of the annual financial statements, the appropriation
`of net retained profit, the approval of the actions of the Executive Board members and the
`Supervisory Board members, as well as the choice of the auditor. At the same time, the General
`Meeting has the power to pass resolutions concerning changes to the Articles of Association.
`With the exception of the measures listed in section 285 (2) sentence 2 AktG, the resolutions of
`the General Meeting require the approval of the general partners.
`All the documents and information concerning upcoming General Meetings are posted on our
`website. Moreover, the General Meeting is webcast live on the Internet from its commence-
`ment until the end of the speech by the Chairman of the Executive Board. The introductory
`speeches by the Chairman of the Executive Board and the Chairman of the Supervisory Board
`are recorded in order to make them available to interested members of the public at any time
`after the meeting. In this way, we are satisfying our own high transparency requirements.
`
`Shareholder rights
`The shareholders of Merck KGaA exercise their rights at the General Meeting. Each Merck share
`grants the holder one vote at the General Meeting.
`Shareholders may exercise their voting rights personally, through an authorized representative,
`or a proxy appointed by the company. Voting rights are only subject to special restrictions in
`accordance with Article 22 para 5 of the company’s Articles of Association. Accordingly, insofar
`as general partners hold shares, they cannot exercise the voting rights deriving from their
`shares with respect to the election and dismissal of the Supervisory Board, the approval of the
`actions of the Executive Board members and the Supervisory Board members, the choice of the
`auditor, the appointment of special auditors and the resolution on indemnification claims.
`A summary explanation of shareholder rights is available in German on the company’s website.
`
`Page 114
`
`

`
`Company
`
`Management Report Corporate governance
`Consolidated Financial Statements More information
`Statement on corporate governance
`
`111
`
`Deviations from the Corporate Governance Code:
`
`1. Until June 30, 2010, for its Executive Board and Supervisory Board members Merck KGaA
`maintained a Directors & Officers (“D&O”) liability insurance policy that did not include a
`deductible in accordance with section 93 (2) sentence 3 AktG and section 3.8 (2) and (3) of
`the German Corporate Governance Code. The company dispensed with a deductible in the
`past because D&O insurance policies with the required deductible were not actively offered
`by the insurance industry and the individual agreement on a deductible is not offset by a
`substantial reduction in the premium.
`Effective July 1, 2010, Merck KGaA introduced a deductible in accordance with section 93
`(2) sentence 3 AktG and section 3.8 (2) and (3) of the German Corporate Governance Code.
`This takes into account the minimum requirements specified by the German Corporate
`Governance Code, since a deductible of at least 10% of the loss up to at least one and a half
`times the fixed annual compensation of the Executive Board member or Supervisory Board
`member has been agreed.
`2. Contrary to section 5.4.1 sentence 2, an age limit is not taken into account when proposing
`candidates for election to the Supervisory Board. The age of Supervisory Board members is
`not a criterion for their qualifications and competence. Moreover, we do not wish to forgo
`the many years of experience of Supervisory Board members.
`
`coMpensAtion report
`
`(Section 4.2.5 and 5.4.6 of the German Corporate Governance Code)
`The compensation report is part of the audited Notes to the Consolidated Financial Statements.
`
`Compensation of members of the Executive Board of Merck KGaA
`Contrary to members of the Board of Management of German stock corporations, the members
`of the Executive Board of Merck KGaA are not employed officers of the company. Rather, they
`are personally liable general partners of both Merck KGaA and the general partner E. Merck KG,
`and in this capacity they receive profit-based compensation from E. Merck KG. Therefore, the
`obligation to individually publish the compensation of management board members of publicly
`listed German stock corporations does not apply to the Executive Board of Merck KGaA. The
`following presentation of individual compensation is therefore being made on a voluntary
`basis.
`Contrary to publicly listed German stock corporations, at Merck KGaA it is not the Supervisory
`Board, but the Board of Partners of E. Merck KG that decides on the amount and composition
`of compensation. E. Merck KG has transferred the execution of this right to its Personnel
`Committee. Among other things, the Personnel Committee is responsible for the following
`decisions: contents of contracts with Executive Board members, granting of loans and advance
`salary payments, approval for taking on honorary offices, board positions and other sideline
`activities, as well as the division of responsibilities within the Executive Board of Merck KGaA.
`The compensation system defined by the Personnel Committee for Executive Board members
`takes into account various compensation-relevant aspects, including the responsibility of the
`individual Executive Board members, their individual performance, the performance of the
`company, as well as the amount of compensation paid to executive board and management
`
`Page 115
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`

`
`112
`
`Merck Annual Report 2010
`
`
`
`
`
`
`
`
`
`board members of comparable companies. The Personnel Committee regularly commissions an
`independent compensation consultant to review the appropriateness of compensation.
`
`Features of the compensation system
`The compensation paid to the Executive Board members of Merck KGaA comprises fixed com-
`ponents, variable compensation and additions to pension provisions. Benefits in kind and other
`benefits are additionally granted.
`
`Fixed compensation
`Fixed compensation is paid in the form of 12 equivalent monthly installments. The following table
`provides an overview of the amount of the fixed compensation paid in 2009 and 2010.
`
`Compensation of the Executive Board members of Merck KGaA
`Fixed compensation
`2009
`2010
`EUR thousand
`1,000
`1,000
`Dr. Karl-Ludwig Kley
`800
`800
`Dr. Michael Becker
`750
`750
`Dr. Bernd Reckmann
`900
`900
`Elmar Schnee *
`3,450
`3,450
`Total
`* Elmar Schnee received fixed compensation from Merck Serono S.A. in Geneva for his duties as president of the company.
`
`Variable compensation
`Variable compensation is based on the three-year rolling average of profit after tax of the
`E. Merck Group. Exceptional factors that amount to more than 10% of the Group profit and
`for which the Executive Board member is not responsible, are eliminated. The members of the
`Executive Board receive an individually fixed per mille rate of the Group profit calculated in
`this manner. Additionally, the Personnel Committee can decide on a one-time payment based
`on the achievement of qualitative objectives.
`
`Page 116
`
`

`
`Company
`
`Management Report Corporate Governance
`Consolidated Financial Statements More information
`Statement on corporate governance
`
`113
`
`The following table provides an overview of the amount of the variable compensation paid in
`2009 and 2010:
`
`Variable compensation
`2010 *
`EUR thousand
`2009 **
`1,282
`2,144
`Dr. Karl-Ludwig Kley
`769
`1,286
`Dr. Michael Becker
`641
`1,072
`Dr. Bernd Reckmann
`1,025
`1,715
`Elmar Schnee
`3,717
`6,217
`Total
` * The variable compensation for 2010 is based on an extrapolation since the consolidated result of the E. Merck
`Group was not yet available when this information was prepared.
`** The variable compensation stated for 2009 deviates from the data provided in 2009 since the consolidated result of
`the E. Merck Group was not yet available when this information was prepared and was therefore extrapolated.
`
`Total compensation
`Consequently, this results in the following total compensation for the Executive Board members
`of Merck KGaA:
`
`EUR thousand
`Dr. Karl-Ludwig Kley
`Dr. Michael Becker
`Dr. Bernd Reckmann
`Elmar Schnee
`Total
`
`Fixed compensation
`2010
`2009
`1,000
`1,000
`800
`800
`750
`750
`900
`900
`3,450
`3,450
`
`Variable compensation
`2010
`2009
`2,144
`1,282
`1,286
`769
`1,072
`641
`1,715
`1,025
`6,217
`3,717
`
`Total
`2010
`3,144
`2,086
`1,822
`2,615
`9,667
`
`2009
`2,282
`1,569
`1,391
`1,925
`7,167
`
`Pension provisions
`The individual contractual pension obligations grant the members of the Executive Board
`entitlement to a lifelong old-age pension or surviving dependents’ pension in the event of
`reaching the individual contractually agreed age limit, permanent disability, and death.
`The amount of the old-age pension is determined by a percentage share of pensionable com-
`pensation defined by the Personnel Committee.
`
`Page 117
`
`

`
`114
`
`Merck Annual Report 2010
`
`
`
`
`
`
`
`
`
`The individual values are presented in the following table:
`
`Pensionable compensation
`Percentage entitlement
`in EUR thousand
`70
`790
`Dr. Karl-Ludwig Kley
`75
`560
`Dr. Michael Becker
`54
`470
`Dr. Bernd Reckmann
`46
`570
`Elmar Schnee
`The percentage entitlement increases up until retirement annually by 1% up to 65% for Dr. Reckmann and annually by
`3% up to 70% for Mr. Schnee.
`
`The following amounts were added to pension provisions in 2010:
`Additions to pension provisions
`2010
`2,162
`1,216
`829
`777
`4,984
`
`EUR thousand
`Dr. Karl-Ludwig Kley
`Dr. Michael Becker
`Dr. Bernd Reckmann
`Elmar Schnee
`Total
`
`2009
`1,890
`1,218
`801
`802
`4,711
`
`Amount of pension 
`provisions as of  
`Dec. 31, 2010
`6,966
`6,055
`3,616
`2,442
`19,079
`
`The surviving dependents’ pension grants the spouse a lifelong surviving dependents’ pension
`amounting to 60% of the pension entitlement, dependent children either a half-orphan’s or an
`orphan’s pension maximally until the age of 25.
`
`Benefits in the event of termination of the duties as an Executive Board member
`Above and beyond existing pension obligations, no further obligations exist in the event of the
`premature termination of the contractual relationships of the Executive Board members.
`
`Page 118
`
`

`
`Company
`
`Management Report Corporate Governance
`Consolidated Financial Statements More information
`Statement on corporate governance
`
`115
`
`Miscellaneous
`The members of the Executive Board additionally receive certain benefits, mainly contributions
`to insurance policies as well as a company car, which they are entitled to use privately. The
`members of the Executive Board must declare these benefits in their tax returns. In total, the
`value of miscellaneous benefits amounted to EUR 86 thousand in 2010 (2009: EUR 86 thousand).
`Of this amount, in 2010 EUR 29 thousand was attributable to Dr. Kley (2009: EUR 29 thousand),
`EUR 24 thousand to Dr. Becker (2009: EUR 24 thousand), EUR 26 thousand to Dr. Reckmann
`(2009: EUR 26 thousand) and EUR 7 thousand to Mr. Schnee (2009: EUR 7 thousand).
`The members of the Executive Board do not receive additional compensation for serving on the
`boards of Group companies.
`Should members of the Executive Board be held liable for financial losses while executing their
`duties, under certain circumstances this liability risk is covered by a D&O insurance policy from
`Merck KGaA. The D&O insurance policy has a deductible in accordance with the legal requirements
`and the recommendations of the German Corporate Governance Code.
`
`Payments to former Executive Board members and their surviving dependents
`Pension payments to former members of the Executive Board or their surviving dependents
`amounted to EUR 9,091 thousand in 2010 (2009: EUR 7,764 thousand). Pension provisions
`totaling EUR 90,082 thousand exist for pension claims of this group of persons (2009:
`EUR 85,545 thousand).
`
`Compensation of the Supervisory Board members of Merck KGaA
`The compensation of the Supervisory Board members is defined by Article 20 of the Articles of
`Association of Merck KGaA. Apart from reimbursement of their expenses, the members of the
`Supervisory Board receive fixed and variable compensation.
`The fixed compensation amounts to EUR 7,000 per year. The Chairman receives double this
`amount and the Vice Chairman receives one and a half times this amount.
`The members of the Supervisory Board also receive EUR 550 for each percent of the dividend
`resolved by the General Meeting in excess of 6% of the share capital, with a corresponding
`portion for fractions of a percent. The Chairman receives double this amount and the Vice
`Chairman receives one and a half times this amount.
`Supervisory Board members who have only been in office for part of the fiscal year receive
`lower compensation in proportion to their term of office. The company reimburses the value-
`added tax levied on the compensation.
`
`Page 119
`
`

`
`116
`
`Merck Annual Report 2010
`
`
`
`
`
`
`
`
`
`The individual values are presented in the following table:
`
`Compensation of Supervisory Board members of Merck KGaA
`Fixed compensation
`Variable compensation
`2010
`2009
`2010
`2009
`
`Total compensation
`2010
`2009
`
`EUR
`Prof. Dr. Dr. h.c. Rolf Krebs 1
`(Chairman since July 1, 2009,
`previously ordinary member)
`Heiner Wilhelm (Vice Chairman)
`Crocifissa Attardo
`(since Oct. 1, 2009)
`Dr. Mechthild Auge
`(since March 25, 2009)
`Johannes Baillou 4
`Frank Binder 4
`Dr. Wolfgang Büchele 2
`(since July 1, 2009)
`Michael Fletterich
`Edeltraud Glänzer
`Michaela Freifrau von Glenck 5
`Frieder Kaufmann
`Dr. Hans-Jürgen Leuchs 2
`(since July 1, 2009)
`Albrecht Merck 3
`Dr. Karl-Heinz Scheider
`(since March 25, 2009)
`Prof. Dr. Theo Siegert 1
`Osman Ulusoy
`Prof. Dr. Wilhelm Simson 6
`(until June 30, 2009, Chairman)
`Dr. Daniele Bruns
`(until March 24, 2009)
`Claudia Flauaus
`(until Sept. 30, 2009)
`Judith Delp
`(until March 24, 2009)
`Dr. Arend Oetker 6
`12,426
`0.0
`8,926
`0.0
`3,500
`0.0
`(until June 30, 2009)
`434,922
`527,520
`312,424
`405,020
`122,498
`122,500
`Total
`1 As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 150,000
`for performing this function in 2010 (2009: EUR 120,000).
`2 As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 140,000
`for performing this function in 2010 (2009: EUR 60,000).
`3 As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 120,000
`for performing this function in 2010 (2009: EUR 120,000 ).
`4 As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 120,000
`for performing this function in 2010 (2009: EUR 100,000).
`5 As members of corporate bodies of E. Merck KG, these Supervisory Board members each received an additional payment of EUR 80,000 for
`performing this function in 2010 (2009: EUR 80,000).
`6 As members of corporate bodies of E. Merck KG, these Supervisory Board members, who retired from the Supervisory Board in 2009, and
`were simultaneously members of bodies of E. Merck KG, each received an additional payment of EUR 60,000 for performing this function
`in 2009.
`
`14,000
`10,500
`
`10,500
`10,500
`
`7,000
`
`7,000
`7,000
`7,000
`
`7,000
`7,000
`7,000
`7,000
`7,000
`
`7,000
`7,000
`
`7,000
`7,000
`7,000
`
`0.0
`
`0.0
`
`0.0
`
`0.0
`
`1,750
`
`5,408
`7,000
`7,000
`
`3,500
`7,000
`7,000
`7,000
`7,000
`
`3,500
`7,000
`
`5,408
`7,000
`7,000
`
`7,000
`
`1,591
`
`5,250
`
`1,591
`
`46,288
`34,716
`
`23,144
`
`23,144
`23,144
`23,144
`
`23,144
`23,144
`23,144
`23,144
`23,144
`
`23,144
`23,144
`
`23,144
`23,144
`23,144
`
`0.0
`
`0.0
`
`0.0
`
`0.0
`
`26,779
`26,779
`
`4,463
`
`13,793
`17,853
`17,853
`
`8,926
`17,853
`17,853
`17,853
`17,853
`
`8,926
`17,853
`
`13,793
`17,853
`17,853
`
`17,853
`
`4,060
`
`13,389
`
`4,060
`
`60,288
`45,216
`
`30,144
`
`30,144
`30,144
`30,144
`
`30,144
`30,144
`30,144
`30,144
`30,144
`
`30,144
`30,144
`
`30,144
`30,144
`30,144
`
`0.0
`
`0.0
`
`0.0
`
`0.0
`
`37,279
`37,279
`
`6,213
`
`19,201
`24,853
`24,853
`
`12,426
`24,853
`24,853
`24,853
`24,853
`
`12,426
`24,853
`
`19,201
`24,853
`24,853
`
`24,853
`
`5,651
`
`18,639
`
`5,651
`
`Page 120
`
`

`
`Company
`
`Management Report
`
`Corporate Governance
`Consolidated Financial Statements More information
`Statement on corporate governance
`
`117
`
`Ownership, purchase or sale of shares in the company by members of the Executive Board
`and of the Supervisory Board
`(Section 6.6 of the German Corporate Governance Code)
`As of December 31, 2010, the members of the Executive Board and of the Supervisory Board
`held 21,298 shares. Their total ownership represents less than 1% of the issued shares of Merck
`KGaA. In fiscal 2010, Merck KGaA reported the following transactions in accordance with section
`15a of the German Securities Trading Act (WpHG):
`Financial 
` instrument  
`and ISIN
`Bearer shares
`Merck KGaA
`DE 0006599905
`
`Date of the 
`transaction Name, Function
`Feb. 23,
`Dr. Hans-Jürgen Leuchs
`2010
`Member of the
` Supervisory Board
`
`Type and 
`place
`Purchase via
`Xetra
`
`Number 
`
`Price in EUR
`
`Total volume  
`in EUR
`
`1,000
`
`60.20
`
`60,200.00
`
`500
`
`61.1173
`
`30,558.65
`
`780
`
`62.52
`
`48,765.60
`
`Purchase via
`Xetra
`
`Sale via Xetra Bearer shares
`Merck KGaA
`DE 0006599905
`Bearer shares
`Merck KGaA
`DE 0006599905
`Bearer shares
`Merck KGaA
`DE 0006599905
`
`Purchase via
`Xetra
`
`May 7,
`2010
`
`Sept. 27,
`2010
`
`Sept. 27,
`2010
`
`Oct. 5,
`2010
`
`Dr. Hans-Jürgen Leuchs
`Member of the
` Supervisory Board
`Dr. Karl-Ludwig Kley
`Chairman of the
` Executive Board
`Dr. Frank
`Stangenberg-Haverkamp
`Vice Chairman of the
`Executive Board and
`General Partner of
`E. Merck KG
`Dr. Frank
`Stangenberg-Haverkamp
`Vice Chairman of the
`Executive Board and
`General Partner of
`E. Merck KG
`
`8,000
`
`62.30568 498,445.44
`
`Purchase via
`Xetra
`
`Bearer shares
`Merck KGaA
`DE 0006599905
`
`2,000
`
`60.8225 121,645.00
`
`All transactions have been published on the company’s website at www.merck.de/investors →
`Corporate Governance → Directors’ Dealings
`
`Page 121
`
`

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`118
`
`Merck Annual Report 2010
`
`
`
`
`
`
`
`
`
`inforMAtion on corporAte governAnce prActices
`
`Reporting
`It is Merck KGaA’s objective to provide the latest information to all shareholders, media, financial
`analysts and interested members of the public, while creating the greatest possible transparency.
`For this reason, Merck uses a wide range of communication platforms to engage in a timely dia-
`log with all interested parties about the situation of the company and business changes. Merck’s
`principles include providing factually correct, comprehensive and fair information.
`Information subject to disclosure requirements, as well as information that is not, can be accessed
`worldwide on the Merck KGaA website (www.merck.de), which is the company’s most important
`publication platform. Apart from a detailed financial calendar, quarterly and half-year financial
`reports covering the past six years are available here in German and English. In addition, in line
`with the legal requirements, ad hoc announcements are published on the website. These contain
`information on circumstances that could impact the Merck share price.
`Regular press conferences, investor meetings on the occasion of investor conferences as well
`as roadshows offer another platform for dialog. The company presentations prepared for this
`purpose are also available on the Merck KGaA website. In addition, the Investor Relations team
`is always available to private and institutional investors who wish to receive further information.
`To ensure the greatest possible transparency, all documents concerning the Annual General
`Meeting are available on the company website. Additionally, some parts of the Annual General
`Meeting are webcast live on the Internet.
`In the coming year, we will continue to attach high importance to fulfilling all the relevant
`standards as regards reporting to the capital market.
`
`Dealing with insider information
`Dealing properly with insider information is very important to us. Our insider committee examines
`the existence of insider information, ensures compliance with legal obligations, and prepares
`any necessary measures. The members of the insider committee are appointed by the Executive
`Board; at least two members work in Corporate Legal & Compliance. The insider committee
`meets at regular intervals, yet also meets when circumstances require.
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`In order to ensure a high level of protection of insider information, in 2011 the Executive Board
`will issue an internal insider guideline applicable throughout the Group worldwide. This
`guideline will inform employees about their responsibilities under insider trading laws and give
`clear instructions for compliant behavior. In addition, the function of the insider committee will
`be described in detail. Moreover, our Code of Conduct, which is binding on all employees, also
`contains an explicit, detailed reference to the ban on using insider information. Within the scope
`of obligatory training courses, all employees are instructed on the subject of insider trading.
`
`Accounting and audits of financial statements
`Merck KGaA prepares its consolidated financial statements and Group management report in
`accordance with International Financial Reporting Standards (IFRS), as applicable in the EU, as
`well as the supplementary rules applicable under section 315a (1) of the German Commercial
`Code (HGB) and as stipulated by our Articles of Association.
`The Group financial statements and the Group management report are prepared by the Executive
`Board and an auditor, taking into account the generally accepted standards for the audit of
`financial statements promulgated by the Institut der Wirtschaftsprüfer (IDW).
`The Supervisory Board commissioned KPMG AG Wirtschaftsprüfungsgesellschaft, Berlin, to
`audit the Group financial statements and the Group management report for 2010. Neither
`party identified any conflicts of interest. Moreover, the Supervisory Board agreed with KPMG
`AG that the auditor shall inform the Supervisory Board without delay of any grounds for
`bias or disqualification occurring during the audit if these cannot be immediately rectified.
`Additionally, the auditor shall immediately report to the Supervisory Board any findings and
`issues which emerge during the audit that have a direct bearing upon the tasks of the Super-
`visory Board. The auditor shall inform the Supervisory Board or note in the audit report if any
`circumstances are determined during the audit that would render inaccurate the Statement of
`Compliance made by the Executive Board and the Supervisory Board. It has also been agreed
`with the auditor that in order to assess whether the Executive Board has fulfilled its obligations
`in accordance with section 91 (2) AktG, the audit will also cover the company’s early warning
`risk identification system. Moreover, the auditor is required to examine and evaluate the
`accounting-relevant internal control system insofar as this is necessary and appropriate for
`assessing the accuracy of financial reporting.
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`Values and compliance
`In accordance with its Mission Statement, “We at Merck do what we say and then measure
`ourselves on this basis,” Merck relies on a common set of values: courage, achievement,
`responsibility, respect, integrity and transparency. Based on a corporate culture that places the
`fundamental company values at the center of our entrepreneurial actions, the Code of Conduct
`helps those involved in the business process to implement the values when dealing with one
`another on a daily basis.
`Merck has created the Code of Conduct as a set of rules and regulations intended to help
`Merck employees to act responsibly and to make the right decisions in their daily work. The
`Code of Conduct explains the principles for dealings with business associates, general partners,
`colleagues and employees, and in the communities in which we operate. Thus, it supports all
`employees in acting ethically – not only in their dealings with one another, but also outside the
`company. The Code of Conduct is thus the main set of rules for our compliance program.
`Merck has striven throughout the centuries to follow ethical principles and values. All employees
`shall be treated fairly and in compliance with local laws and regulations. Merck has defined
`the principles for this in a social charter.
`To Merck, compliance means observing legal and company-internal regulations and the basic
`ethical principles anchored in the company values. With the Code of Conduct and the various
`unit-specific compliance rules, the values are integrated into daily work and business practice.
`The Code of Conduct is binding on all employees, both at headquarters as well as the subsidiaries
`abroad. The Compliance Office monitors observance of the Code of Conduct with support from
`corresponding auditing and training programs throughout the Group. All employees are called
`upon to report compliance violations to their supervisor, Legal, HR or other relevant departments.
`Merck created the position of Group Compliance Officer in 2002. This employee is responsible
`for setting up, maintaining and further developing our global compliance program. By taking
`appropriate measures, he/she helps to lower the risk of serious legal violations, of for instance
`antitrust law and anticorruption rules. The role of the Group Compliance Officer is reflected
`in the subsidiaries by the approximately 80 local compliance officers, who ensure that compliance
`measures are implemented in the countries. This Group-wide network is used to steer the
`global compliance program. Regular regional and global compliance meetings are held to
`promote the exchange of information within the network. Newcomer training seminars were
`introduced in 2010 for newly appointed compliance officers. These seminars serve to build up
`compliance expertise and strengthen teambuilding within the compliance organization.
`A high degree of importance is attached to regular compliance seminars, which are conducted
`as on-site events, as well as via web-based training courses. By presenting various training
`topics on corruption, antitrust and competition law, health care compliance and the Code of
`Conduct, they serve to sensitize employees and management to the consequences of compliance
`violations and to show ways to avoid them.
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`Management Report
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`Corporate Governance
`Consolidated Financial Statements More information
`Statement on corporate governance
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`By setting up a