Focus Topics – Combating corruption

Compliance and fair business practices  

A framework for ethical conduct and anti-corruption measures

Management approach 

Zehnder Group’s Code of Conduct¹ is an integral part of our culture and serves as a guideline for ethically, socially and legally responsible behaviour. It is a core element in our day-to-day interactions with our colleagues, customers, suppliers and partners. It helps us to act responsibly and guides our vision. Together with Zehnder’s values, it serves as the cornerstone of our compliance activities. The Code of Conduct and the company values are available in ten languages and their contents have been communicated and made accessible to employees throughout Zehnder Group. They represent the foundational values of Zehnder’s corporate culture.

The Code of Conduct covers the following key topics:

• Integrity, ethics and compliance
• Conflicts of interest and insider trading
• Safeguarding corporate assets
• Communication
• Environment, health and safety
• Fairness, respect and anti-discrimination
• Diversity, equity and inclusion
• Confidentiality and data privacy
• Competition and global trade
• Corruption and gifts
• Quality

The Code of Conduct is updated whenever there is agreement that a revision is essential. The most recent revision in 2022 involved extensive collaboration with stakeholders, including the Board of Directors, the Group Executive Committee and various Group functions. The Code of Conduct makes reference to significant soft law documents, including the UN Guiding Principles for Business and Human Rights, Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises and OECD Due Diligence Guidance for Responsible Business Conduct.

The Group further has a Legal and Compliance Directive that defines responsibilities, duties and processes and ensures they are monitored.

The compliance system consists of a variety of elements such as directives, guidelines, regular in-person training, e-learning, onboarding of new employees, newsletters, integration into internal audits, internal reporting on legal and compliance issues as well as a Zehnder Group Integrity Line for employees, external partners and other stakeholders.

Should an incident occur within the Group, there is an obligation to report it. To this end, each Zehnder company has appointed a contact person who is responsible for incidents involving Legal and Compliance. At least once a quarter, the individuals responsible for the areas referred to report or convene to share information across the entire Group.

If employees observe any irregularities or violations and do not wish to report them to their supervisors, their local HR contact, the Group Legal Counsel, the Head of Group Internal Audit & Compliance, the Director Group Human Resources or a Group Executive Committee member, they can report this potential misconduct via our online Integrity Line. The Integrity Line is accessible publicly in every country in which we operate. This channel allows all stakeholders to report incidents anonymously in the local language. All concerns regarding compliance with the Code of Conduct will be investigated with appropriate actions taken if necessary. Zehnder is committed to discretion, ensuring that informants remain anonymous and that information is kept confidential to the greatest extent possible. Any employee who, in good faith, reports any potential misconduct, provides information or assists in any other way with a review or investigation of potential misconduct will be protected from any retaliation in accordance with our Group Whistleblowing Guidelines.

In 2023, eight whistleblowing cases were reported via the Integrity Line, compared to two cases in nine months over 2022². All eight cases were processed, two of them locally and six at Group level. According to our legal team’s assessment, four of them were justified. One case was an external customer complaint, while seven were internal complaints of which five referred to harassment and inequality, one to quality and safety issues and one to confidentiality and data privacy. One case occurred in North America, six in Europe and one in China. In three cases a warning was issued while one case led to a termination of employment. In three cases, the investigation was discontinued as no wrongdoing could be established and one case is still pending. Compliance cases are reported to the Audit Committee. A compliance report detailing the frequency and category of whistleblowing cases is prepared by the Head of Group Internal Audit & Compliance for the Audit Committee on a yearly basis.

Regarding the management approach to combating bribery and corruption and to underscore the significance of this matter, Zehnder introduced an Anti-Bribery and Anti-Corruption Directive in 2023. This directive serves to offer supplementary guidance to the principles outlined in our Code of Conduct and specifies how they should be implemented. It further clarifies and defines the minimum standards with regards to giving and receiving gifts or other benefits as set out in relevant national and international anti-bribery and anti-corruption laws. The Anti-Bribery and Anti-Corruption Directive provides more details about the general principles, the processes, thresholds and sums that apply and in which case authorisation by the recipient’s line manager, the Group Executive Committee or Group Compliance is required. The Chair of the Board of Directors and the Vice Chair of the Board of Directors assumed an active role in the proceedings to update the policy. We adhere to relevant laws, including the Swiss Criminal Code that prohibits the granting of advantages or bribery and similar regulations in other relevant jurisdictions. Additionally, we take into account the recommendations of various stakeholders and conduct benchmarking to align with international standards. The directive was approved by the Group Executive Committee and was disseminated in 2023. In our Code of Conduct as well as the new Anti-Bribery and Anti-Corruption Directive we have outlined the following general principles that apply in all our business dealings:

• Our business is based on the quality of our products and services and not on corrupt practices. We do not tolerate any form of bribery or corruption.
• We refrain from offering or giving anything of value to any private person, governmental official (including employees of state-owned enterprises) or organisation with a view to influencing the decision-making process and/or securing any business advantages. The same applies to receiving anything of value. This also applies to facilitation payments and indirectly, i.e., we do not use third parties (such as agents or sales representatives) for such corrupt practices or encourage them to act on our behalf.
• We recognise that bribes can take many forms and include practices such as providing cash, gifts, entertainment, hospitality, inappropriate discounts, kickbacks and/or hiring a family member or a friend with a view to seek influence and/or making donations.
• We keep appropriate and accurate records of all our business transactions (including books and accounts as well as the documents relating to the preparation of such records).
• We avoid giving unreasonable, excessive or lavish gifts to business partners and refuse unreasonable, excessive or lavish gifts from business partners. Small and appropriate gifts can only be offered as lawful tokens of normal business appreciations or social courtesy and when they are not intended to influence any party in line with our internal directives.

Our third-party partners are held to the same accountability standard as Zehnder employees as is reflected in the Supplier Code of Conduct (see Sustainable purchasing). The aim is that every business contract with an external party contains an ethics clause requiring them to read and accept the Zehnder Group Supplier Code of Conduct or equivalent principles. In addition, an anti-bribery and corruption clause is included in our framework supply agreements, reflecting the local laws and legislation, for example the US Foreign Corrupt Practices Act or the UK Bribery Act 2010.

In 2023, the Head of Group Internal Audit & Compliance was responsible for implementing compliance in close cooperation with Group Legal and other stakeholders, such as Group HR and Group Sustainability. Legal and Compliance cases are reported to the Group Executive Committee and the Audit Committee on a routine basis. Our compliance due diligence standard is structured in the classical three lines of defence. The first line of defence consists of our business, implementing the internal regulations in their daily operations. The second line comprises Legal and Compliance experts, who support, monitor and challenge on compliance related matters. The third line consists of our Head of Group Internal Audit & Compliance and our Audit Committee, who independently and objectively advise on all compliance matters. The Board of Directors and the Group Executive Committee, as the ultimate governing bodies, oversee all three lines of defence and provide accountability towards our stakeholders by providing transparency, integrity and leadership. Our due diligence processes further include regular legal and compliance reporting, upskilling, our internal control system, internal audits, our Group risk management process and our Whistleblowing Integrity Line.

¹ Available at www.zehndergroup.com/en/investor-relations/corporate-governance
² The Integrity Line was introduced in April 2022.

Implementation and outlook

To implement the above management approach and policies, we defined an ambition that is underpinned by several targets and monitored via specific KPIs.

Ambition: Maintain a good compliance framework, upskill and achieve zero corruption or antitrust incidents, with compliance reviews forming an essential part of internal audits

Upskill in compliance through compliance training
Status:
In compliance training, face-to-face physical sessions for selected employees remain crucial, as the tone set by leadership is key and is most effectively communicated in person. During the reporting year, in-person legal and compliance upskilling was conducted by the Head of Group Internal Audit & Compliance together with the Group Legal Counsel, including at the annual top management summer meeting, with local management in Switzerland and the UK or with Group Procurement.
In addition, the Group started a compliance e-learning programme. The dedicated training for employees, including management, generally comprises two e-learning modules per year, one in-depth module for specific groups and one broader one on the Code of Conduct for all employees. These modules are mandatory.
In 2023, we focused on rolling out the updated Code of Conduct and offering relevant training. As referred to above, the roll-out was accompanied by a Group video message of the CEO and the Group Legal Counsel explaining the update and underlining the importance of the Code of Conduct for our corporate culture and business. The internal audits showed that implementation was generally on track but varied depending on the country and site, with local management assuming responsibility. While some sites required their employees to sign an agreement regarding the Code of Conduct, others included it in an employee handbook given to all employees. If a site has not trained all employees in the matter, a follow-up is conducted. As a further roll-out measure, Zehnder developed an e-learning programme covering the entire Code of Conduct. The roll-out of the Code of Conduct e-learning programme will be in 2024.
The first in-depth e-learning module in 2023 revolved around upskilling in the areas of anti-bribery and anti-corruption. Some 900 out of approximately 1,000 selected employees completed the training by the cut-off date for this report. The focus group for the training was mainly employees of the purchasing and sales teams as well as all management levels and Group functions. The rollout has already led to an increased awareness among employees who requested more information from Group Compliance. The roll-out of the Anti-Bribery and Anti-Corruption Directive was supported by a remote training course on the content of the directive with training cases. The target audience comprised around 80 managers and Group function heads. The feedback on the training was overwhelmingly positive with an average rating of 4.5/5.
Outlook:
In 2024, we will continue the compliance training campaign and conduct internal audits to perform spot checks. The e-learning focus topic chosen for selected employees for 2024 is antitrust and the Code of Conduct module will be rolled out for the benefit of all employees.

Establish a more granular risk management framework related to operations with a potentially higher risk score for bribery or corruption
Status:
As outlined above, we trained selected employees regarding bribery and corruption risk during the reporting period. The selection of the employees for the training took into account the roles (with a focus on gatekeeper functions as well as customer- and supplier-facing roles) and locations of the employees.
Outlook:
Establishment of an even more granular risk management framework related to operations with a potentially higher risk score for bribery or corruption. Our focus for 2024 is to develop a more granular framework for the assessment of corruption risk for all our sites. We will develop a catalogue of criteria for identifying overall risk exposure based on e.g. geographic location, revenue, budget responsibility, headcount and previously reported cases at the location in question.

The tracking of this measure will be conducted through the means of our general compliance management approach (including training, internal audit checks and reporting possibilities for potential breaches).

Focus on raising awareness for antitrust
Status:
Antitrust was a key compliance topic at the annual top management summer meeting in 2022. The compliance focus topic of 2023 was anti-bribery and anti-corruption.
Outlook:
Antitrust and competition law will be a focus topic for 2024. Selected employees will be trained on this focus topic to raise their awareness of the issue. This measure will again be monitored by means of our general compliance management approach.

GRI 205: Anti-corruption 2016
Disclosure 205-2 Communication and training about anti-corruption policies and procedures

GRI 205: Anti-corruption 2016
Disclosure 205-3 Confirmed incidents of corruption and actions taken

GRI 206: Anti-competitive Behaviour 2016
Disclosure 206-1 Legal actions for anti-competitive behaviour, anti-trust and monopoly practices

Employees to whom the Code of Conduct was communicated