HERMÈS - 2018 Registration document

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Corporate Governance

Supervisory Board’s report on corporate governance

Provisions of the AFEP-MEDEF Code not applied for other reasons Proportion of independent members on the Supervisory Board (Article 8.3) Independent directors should account for at least one‑third of Supervisory Board members.

Explanations

Mr Robert Peugeot had served for 12 years of office on 24 January 2019. He has therefore have lost his status as independent Board member of the Supervisory Board according to the criteria set out in Article 8.5 of the AFEP-MEDEF Code. He was reappointed at the General Meeting of 5 June 2018 for a period of one year so as to replace him under the best possible conditions with a new independent member of the Supervisory Board at the General Meeting to be held in 2019. In 2018, the Supervisory Board deemed it better to have a slightly lower proportion of independent members on the Board and Audit and Risk committee than required by the AFEP-MEDEF Code for a few months rather than to waive one of the independence criteria with regard to Robert Peugeot. Ms Sharon MacBeath resigned from her post as a member of the Supervisory Board as of 20 March 2019 for personal reasons. With Mr Robert Peugeot losing his independent member status and Ms Sharon MacBeath resigning, the proportion of independent members on the CAG-CSR Committee falls below the levels required by the AFEP-MEDEF Code. On the publication date of this Registration Document, the Board, in conjunction with the CAG-CSR Committee, is continuing its selection process that will enable it to propose, at the General Meeting to be held on 4 June 2019, the appointment of two new independent members to replace Mr Robert Peugeot and Ms Sharon MacBeath, and thereby restore the proportion of independent members on the Board to one-third. The Supervisory Board determined that in 2018 slightly less than two-thirds of the Audit and Risk committee members are independent (60%, i.e. three out of five members). This situation enables the Audit and Risk committee to carry out its duties in an appropriate manner. In the Audit and Risk committee rules of procedure, which were adopted on 24 March 2010, the Supervisory Board stipulates that at least one-half of the seats on the Audit and Risk committee be held by members who qualified as independent at the time of their appointment and throughout their term of office. In its 2014 report, the HCGE considers “that an Audit Committee with, for example, three independent members out of five remains compliant with the spirit of the Code, provided that the Chairman is an independent member”, as is the case for this Company. There are no immediate plans to increase the proportion of independent members of the Audit and Risk committee to two- thirds, however the Board will review the matter at each annual assessment. As set out above, the proportion of independent members on the Audit and Risk committee had been reduced temporarily, since the beginning of 2019, to 25%, owing to the loss of the independent member status of Mr Robert Peugeot and by the resignation of Ms Sharon MacBeath from the Supervisory Board. The ongoing selection of two new independent members should result in the proportion of independent members on the Audit and Risk committee being restored to 60%. As set out above, the proportion of independent members on the CAG-CSR Committee had been reduced temporarily, since the beginning of 2019, to one-third, owing to the loss of the independent member status of Mr Robert Peugeot and by the resignation of Ms Sharon MacBeath from the Supervisory Board. The ongoing selection of two new independent members should result in the proportion of independent members on the CAG-CSR Committee being restored to 50%. The Company has undertaken to make a severance payment to Mr Axel Dumas under the conditions described in the explanatory statement on page 372 et seq. Given the importance of the Active Partner's role in an SCA including the power to appoint and dismiss any Executive Chairman and, in the case of a legal entity, its legal representative, it was decided that any termination of Mr Axel Dumas’ duties as Executive Chairman resulting from the replacement of the Executive Chairman of Émile Hermès SARL should be deemed a forced departure. The Supervisory Board accordingly considered that the deferred compensation undertaking made for the benefit of Mr Axel Dumas complied with the requirements of the AFEP-MEDEF Corporate Governance Code. In its November 2018 report on corporate governance and senior executive officer compensation, the AMF recommends that the Board carry out a regular review of the components of compensation that may be due at the time of or subsequent to the departure of an officer and that it question the possibility and desirability of compliance with new code provisions. At the beginning of 2019, the CAG-CSR Committee reviewed this undertaking. It concluded that alignment with the new provisions of the AFEP-MEDEF Code was not necessary.

Proportion of independent members on the Audit Committee (Article15.1) Independent directors should account for at least two‑thirds of Audit Committee members and the Committee should not include any Executive Corporate Officers.

Proportion of independent members on the Compensation Committee (Article 17.1) It must not include any Executive Corporate Officers and must be formed by a majority of independent directors. Severance payment (Article 24.5.1) The performance requirements set out by the Board for these benefits must be assessed over at least two financial years. They must be demanding and may not allow for the indemnification of a director unless his or her departure is forced, regardless of the form of this departure.

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2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL