Organizational risks

IT risks

A powerful IT infrastructure uniformly implemented throughout the Group ensures smooth business operations with efficient processes. Various measures are implemented to mitigate the risk of system interruptions, data loss and unauthorized access including multi-level security and anti-virus concepts, the issue of user rights, access control systems, data backups and uninterrupted power supply. HUGO BOSS also works with professional service providers to avert risks. The effectiveness of all ongoing and planned actions is regularly reviewed so that the highly dynamic IT threats are constantly given adequate consideration. Consequently, management assumes that the probability of occurrence with respect to IT risks is unlikely and that any financial effect would be low.

Personnel risks

Personnel risks mainly stem from recruitment bottlenecks, a shortage of specialists and employee turnover. These risks are limited using a comprehensive range of training measures, performance-based compensation and timely succession planning. In addition, extensive talent and performance management supports the development and career planning of employees in targeted way. The Group’s good reputation with respect to working conditions and employee satisfaction is regularly confirmed by the Group’s consistent presence in the top positions of various employer rankings. A broad-based employee survey at HUGO BOSS AG in fiscal year 2014 gave important indications for the development of additional initiatives with which HUGO BOSS can be expanded as an employer brand and its attractiveness further enhanced. Workshops were carried out with various employee groups in 2015 in order to discuss the findings of this employee survey and subsequently use these to derive targeted measures which can then be implemented in practice. The Group will thus be able to recruit, inspire and retain highly qualified personnel even in an increasingly competitive environment. Measures launched in the past, such as the promotion of employee health and the support for striking a work-life balance will remain a focal point in future. Due to the successful measures, the Group is well positioned to face the growing international competition for highly qualified specialists and managers.As a result, it estimates the probability of occurrence of the associated risks to be unlikely with a low impact on the planned development of earnings. Employees

Building risks

All buildings and equipment operated by HUGO BOSS are insured against losses from natural hazards. The residual risks borne by the Group are therefore very largely limited to the agreed deductibles in the event of a loss. Rigorously implemented maintenance strategies ensure smooth operations and, at the same time, plannable maintenance expenses. Even low additional financial expenditure is therefore considered unlikely.

Legal risks

Possible legal risks can arise in the course of worldwide business activities. All significant legal transactions entered into by the HUGO BOSS Group are reviewed and approved by the central legal department to avoid litigation to the extent possible. The central legal department works closely with local lawyers and subsidiaries. Insurance policies with coverage worldwide are used to mitigate liability risk. Sufficient provisions were recognized in the past fiscal year for current litigation costs. A burden from additional legal risks is considered possible, although the impact on the net assets, financial position and results of operations of the Group is considered low from the perspective of management.

Risks relating to corporate governance and compliance

HUGO BOSS is characterized by a trust-based corporate culture with flat hierarchies. Conscientious conduct and mindsets are encouraged at every organizational level. Despite sophisticated and multi-level review and control mechanisms, access to confidential information and the high level of entrepreneurial leeway allowed generally entail the risk of misuse. In line with good corporate governance, HUGO BOSS has therefore incorporated corresponding rules in the employment agreements concluded with all employees. Individuals with insider knowledge within the meaning of German stock corporations law undertake to comply with the pertinent requirements and are listed in an insider register. In addition, the existing authorization rules are regularly reviewed and enhanced.

All employees of the HUGO BOSS Group are required to comply with the general code of conduct applicable throughout the Group and the supplementary compliance rules applicable in specific areas. As in the past, an extensive training program was implemented on the topic of compliance again in the past fiscal year. Adherence to the compliance rules is monitored centrally and reported to the Managing Board. Because of the characteristics of the HUGO BOSS business model, which consists mainly of the sale of apparel and accessories to end consumers and wholesale partners, the risk of corruption is relatively small. Nevertheless, all companies are regularly subjected to a relevant risk analysis and, if appropriate, detailed audits are conducted at local subsidiaries. Overall, compliance infringements are therefore classified as unlikely; their financial impact would be low from the perspective of management.

In addition, suppliers are contractually bound to comply with social standards which govern issues such as occupational health and safety, bans on child labor and fair wages. Oversight takes the form of regular inspections. If infringements of standards and legal requirements are detected, depending on the seriousness of the infringement, the review frequency is increased and a binding plan of measures is agreed, with its implementation being monitored. In serious cases, a cooperation may be discontinued. Failure to comply with the Group’s social standards is currently classified as basically possible by the Managing Board as a whole. Unexpected infringements could have a moderate impact on the Group’s net assets, financial position and results of operations. Sustainability Corporate Governance Report

Occupational health and safety

As a premium and luxury segment brand with a global presence, HUGO BOSS also maintains the highest standards in occupational health and safety. Beyond compliance with all national legislation and regulations, the Group strives to improve the safety, health and welfare of all employees, customers and other third parties. Every employee bears a responsibility in this area that has to be fulfilled in the operational environment every day. A low financial impact from the risk of failure to comply with rules cannot be entirely ruled out, even although it is regarded as unlikely. With the aim of continuously enhancing its safety standards and health measures, the HUGO BOSS Group has launched a broad initiative that analyzes established actions and addresses improvement potentials if required.