Governance

Sustainability in accordance with legal requirements and social requirements.

Compliance with all legal provisions, the Corporate Principles, and Corporate Compliance ensure good cooperation within the company as well as with customers and partners. Balanced management with entrepreneurial freedom, the courage to innovate, and prudent actions based on sustainable decisions characterize the independent management of the company.

Risk management

Risk management identifies, analyzes, and assesses existing risks at an early stage. Elementary risks are described in detail and classified. The objective is to create internal transparency and increase awareness of risks. The Group’s risk manual describes the concept, methods, and implementation. The Group Executive Board and the advisory board receive regular reports on the status of the risks and the measures initiated.

Multi-level risk management

Management decisions are based on the concept of multi-level risk management designed to identify risks at an early stage. It includes business management tools used to support decision-making and prompt reporting. The risk managers in the specialized areas take appropriate measures to minimize operational risks and to reduce the likelihood of their occurrence. This safeguards the value-added chain. Updated forecasts and appropriate planning allow critical deviations to be identified in due time. A continuous controlling process ensures that risks are monitored and action steps are followed.

Balanced relationship between risks and opportunities

Phoenix Contact’s key objective remains that of achieving sustainable and profitable growth with a balanced relationship between risks and opportunities. We are currently seeing a growing demand for products that will help solve the challenges of the energy revolution and climate change. This applies to the same extent to the untapped market potential of existing product lines and to business with customized solutions. In addition, digitalization and the energy transformation to limit global warming offer long-term opportunities, as Phoenix Contact has specific development and product expertise. Phoenix Contact sees potential for sustainable growth in the markets for renewable energies, energy efficiency, sector coupling, smart grids, and e-mobility.

Phoenix Contact’s vision of the future, the All Electric Society, is based on a society in which electrical energy is available in unlimited quantities and in a climate-neutral manner as the primary energy. Electrification, networking, and automation provide the company with new sales potential, enabling Phoenix Contact to play a role in shaping the industry’s transformation.

Standard-compliant product design

For Phoenix Contact, designing products in compliance with standards and norms is mandatory. We monitor changes within the relevant standards centrally and forward them to the business units promptly. The EU and other economic areas are increasing their efforts to reduce the use of lead in products. We conduct time-consuming and resource-intensive tests and material changes to substitute lead in alloys. Given the increase in manufacturing costs, a change to lead-free* products will temporarily impact earnings in the low single-digit million range. At the same time, new alloys have been entering the market, and the price disadvantages can be expected to wane over the medium term.

Phoenix Contact is also preparing for new regulatory requirements that affect the cybersecurity of products.

Corporate compliance

Solid structures are needed to demonstrate and intensify our sustainable actions and sustainable cooperation. In many cases, legal specifications and reporting lines provide the first guidelines.

In addition, the effects of environmental and social actions and the associated risks and opportunities for the company must be identified. At Phoenix Contact, Corporate Compliance Management oversees these complex tasks and is responsible for anchoring the Compliance Management System of the Phoenix Contact Group worldwide.

More about compliance at Phoenix Contact

Tax strategy

Phoenix Contact meets tax requirements by applying a tax strategy that is derived from the Corporate Principles and the Code of Conduct and based on three pillars.

1. Tax compliance

Tax compliance is an absolute necessity. In line with the concept of sustainability and the Corporate Principles, the systematic and proper fulfillment of tax law requirements is the overriding principle of Phoenix Contact’s tax strategy. We do not pursue any aggressive tax structuring activities that might also affect how the general public perceives a family business. We avoid any risks to our reputation. Our tax managers maintain a professional relationship with the tax authorities, always bearing in mind the legitimate interest of the Group and its family owners in keeping the tax burden as low as possible.

2. Tax follows business

Based on this principle, in the event of conflicting goals between non-tax business development objectives and tax objectives, the “Tax follows Business” principle will always take priority in case of doubt without jeopardizing the goal of compliance. The long-term healthy development of business takes precedence over short-term tax considerations.

3. Consideration of tax influences on business strategy measures

When assessing compliance with the principle, it is important to note that taxes in terms of payments and expenses and tax savings as payments on account and reduced costs impact the key performance indicators (KPIs) for business development. This occurs with regard to both the tax payments themselves and the process-related costs incurred by process structures, in some cases only after a delay of several years as a result of tax audits. This limits the principle that “tax follows business”.

Policy database and digitalization

Phoenix Contact’s tax strategy is outlined in the tax policy that applies throughout the Group. In addition to these principles, the Group’s tax policy for all Group companies illustrates how the responsibilities between the remote/local units and the central tax department are regulated, in which cases the remote/local units need to involve the central tax department, and which principles apply when working with external tax advisors. The Group’s tax policy is reviewed annually to determine whether it requires updating.
The tax principles are firmly embedded not only in the Group’s tax policy, but also in other guidelines. One example is the General Transfer Pricing Guideline, which applies to the entire Group. They are accessible in a worldwide policy database and on the intranet. The central tax department offers both mandatory and elective training on such guidelines and other special tax matters worldwide, for example, in the form of training courses on transfer pricing or value-added tax. This is an integral part of the central Tax Compliance Management System at Phoenix Contact. Tax aspects are also embedded in Phoenix Contact’s overall compliance system. Accordingly, as part of Phoenix Contact’s overall risk management system, significant tax risks are reviewed, re-evaluated, and updated every six months. External auditors also assess and report on tax-relevant aspects in their review of the annual financial statements in Germany and abroad, as does our internal audit department. The BKMS® whistleblower system is also available for information on aspects related to tax compliance.
At this time, various corporate projects are planned as part of the Digital Transformation Roadmap (DTR), aimed at further modernizing, digitalizing, and automating numerous business processes. The clear goal in the area of tax compliance is to take advantage of this opportunity. Plans are in place to more closely integrate the Tax Compliance Management System with national and international business processes in line with the progress of the DTR. This will further strengthen process reliability. The main advantages are increasingly harmonized data structures, standardized and automated process flows, and IT-based and automated controls.