Corporate Governance114 Corporate Governance Report Joint Report on Corporate Governance by the E.ON AG Board of Management and Supervisory Board E.ON views corporate governance as a central component of its responsible and value-oriented management approach. In 2007, the Board of Management and Supervisory Board paid close attention to E.ON's compliance with the guidelines of the German Corporate Governance Code ("the Code"), particularly in conjunction with the new Code recommendations issued on June 14, 2007. On December 17, 2007, the Board of Manage- ment and the Supervisory Board jointly issued E.ON's Decla- ration of Compliance ("the Declaration") pursuant to Section 161 of the German Stock Corporation Act stating that E.ON complies with all of the Code's recommendations. The full text of the Declaration, and of Declarations from previous years, is available on the Internet at www.eon.com. E.ON voluntarily complies with most of the Code's suggestions, as well. Management and Oversight Structure Supervisory Board The Supervisory Board has 20 members and, in accordance with the German Codetermination Act, is composed of an equal number of shareholder and employee representatives. The shareholder representatives are elected by the share- holders at the Annual Shareholders Meeting. The employee representatives are elected by the employees. In the event of a tie vote on the Supervisory Board, another vote is held; if there is still a tie, the Chairperson casts the tie-breaking vote. As a general rule, Supervisory Board members should not be older than 70. In order to ensure that the Supervisory Board's advice and oversight functions are conducted on an independent basis, no more than two former members of the Board of Manage- ment may be members of the Supervisory Board. Supervisory Board members may not hold a corporate office or perform advisory services for the Company's key competitors. Super- visory Board members are required to disclose to the Super- visory Board any conflicts of interest, particularly if a conflict arises from their advising, or holding a corporate office with, one of E.ON's customers, suppliers, creditors, or other busi- ness partners. The Supervisory Board is required to report any conflicts of interest to the Annual Shareholders Meeting and to describe how the conflicts have been dealt with. Any material conflict of interest of a non-temporary nature should result in the termination of a member's appointment to the Supervisory Board. There were no conflicts of interest involv- ing members of the Supervisory Board in 2007. Any consulting or other service agreements between the Company and a Supervisory Board member require the Supervisory Board's consent. No such agreements existed in 2007. The Supervisory Board oversees the Company's management and advises the Board of Management. It deals with the Company's business development, medium-term plan, and the further development of corporate strategy. It discusses the Company's quarterly Interim Reports and, taking into consideration the Independent Auditor's Report and the Audit Committee's preliminary report, approves the Financial Statements of E.ON AG and the Consolidated Financial State- ments. It also appoints and removes the members of the Board of Management. Together with the Board of Manage- ment, it ensures that the Company has a long-term succession plan in place. Transactions or measures taken by the Board of Management that materially affect the Company's assets, finances, or earnings require the Supervisory Board's prior approval. The policies and procedures of E.ON AG's Supervisory Board include a list of transactions and measures that require prior Supervisory Board approval. The list is not exhaustive. Pursuant to its policies and procedures, the Supervisory Board has formed the following committees: The committee required by Section 27, Paragraph 3 of the Codetermination Act consists of two shareholder representa- tive members and two employee representative members. This committee is responsible for recommending to the Supervisory Board potential candidates for the Board of Management if the first vote does not yield the necessary two-thirds majority of votes of Supervisory Board members. The Executive Committee consists of the four members of the above-named committee. It prepares meetings of the Supervisory Board and advises the Board of Management on matters of general policy relating to the Company's strategic development. In urgent cases (in other words, if waiting for the Supervisory Board's prior approval would materially pre- judice the Company), the Executive Committee acts on the full Supervisory Board's behalf. In particular, the Executive Committee prepares the Supervisory Board's personnel deci- sions and is responsible for the conclusion, alteration, and termination of the employment contracts of Board of Man- agement members. It also deals with corporate governance matters and reports to the Supervisory Board at least once a year on the status and effectiveness of, and possible ways of improving, the Company's corporate governance. The Audit Committee consists of four members who have special knowledge in the field of accounting and/or business administration. Pursuant to the Code's mandates, the Chair- person has extensive knowledge and experience in applying accounting principles and/or in international business control processes. The Audit Committee deals primarily with issues relating to the Company's accounting, compliance, and risk management; the legally mandated independence of the Company's Inde- pendent Auditor; the establishment of auditing priorities; and