Corporate Governance Report

The German Corporate Governance Code (Code) was established to increase confidence in the corporate management of publicly traded companies. It aims to provide more transparency for investors regarding existing regulations concerning the management and monitoring of companies. The Management and Supervisory Boards of Fresenius SE support the principles set out in the Code and are committed to responsible management that is focused on achieving a sustainable increase in the value of the Company. Key elements of this approach are long-term corporate strategies, solid financial management and strict adherence to legal and ethical business standards. Transparent corporate communication is a further commitment. Good corporate governance is an integral part of corporate policy at Fresenius. Our value-enhancing strategies, as well as the majority of the guidelines, recommendations and proposals for responsible management contained in the Code, have been basic components of Fresenius’ activities for many years.

SHAREHOLDERS

The shareholders execute their rights at the General Meeting and exercise their voting rights there. Each ordinary share of Fresenius SE confers one vote. Preference shares of Fresenius SE basically confer no voting rights. Holders of these shares have precedence in the distribution of earnings and are entitled to a higher dividend. None of the shares carry multiple or preferential voting rights.

ANNUAL GENERAL MEETING

Our last Annual General Meeting (AGM) was held on May 16, 2007 in Frankfurt am Main. Approximately 91% of the ordinary share capital and approximately 9% of the preference share capital was represented at the meeting. We broadcast the speech of the Chairman of the Management Board on our website www.fresenius.com/Investor Relations/Annual General Meeting for those shareholders unable to attend the AGM. In addition, shareholders were able to have their voting rights exercised by proxy or, in line with the recommendation in the Code, by a voting representative appointed by Fresenius SE. The AGM voted on the appropriation of the distributable profits, the approval of the actions of the Management and Supervisory Boards and the appointment of the auditors.

MANAGEMENT BOARD

The Management Board of Fresenius SE is responsible for managing the Company and conducts Fresenius’ business. Its actions and decisions are focused on the Company’s interests. The Management Board’s seven members are listed here.

SUPERVISORY BOARD

The Supervisory Board of Fresenius SE consists of twelve members who are appointed by the AGM. Of these, six members are appointed on the basis of proposals put forward by the employees; the AGM is bound to these nominations. The term of office of the current Supervisory Board members will end at the close of the Company’s AGM on May 21, 2008.

One Supervisory Board member is a partner in a law firm that provides legal advice to the Group. The Supervisory Board has approved this mandate. There are no other consulting and service contracts between the Company and members of the Supervisory Board. The Supervisory Board is not aware of any conflicts of interest involving members of the Supervisory or Management Boards. Members are required to notify the Supervisory Board promptly should such conflicts arise.

The Supervisory Board appoints the members of the Management Board, and supervises and advises the Management Board in its management of the Company. The Supervisory Board has established rules of procedure in accordance with clause 5.1.3 of the Code. The Chairman of the Supervisory Board is responsible for coordinating the activities of the Supervisory Board, chairing its meetings and representing its interests externally.

Regular dialogue with the Management Board insures that the Supervisory Board is well informed at all times about the Company’s operating performance, corporate development and strategy. It approves the corporate planning and gives its assent to the Group’s annual financial statements taking into account the auditor’s reports. Another important part of the Supervisory Board’s activities is the work conducted within committees formed in accordance with the requirements of the German Stock Corporation Act (Aktiengesetz) and the recommendations of the Code.

SUPERVISORY BOARD COMMITTEES

The Supervisory Board of Fresenius SE has formed three committees: the Audit Committee, consisting of five members, the Personnel Committee and the Nomination Committee, each consisting of three members. The chairman of the Audit Committee is appointed in accordance with clause 5.3.2 of the Code. The members of the committees are listed here. The Audit Committee’s function is, among other things, to prepare the Supervisory Board’s approval of the financial statements and the consolidated financial statements, review the quarterly reports, and – following discussion with the Management Board – appoint the auditor for the financial statements and determine the auditor’s fees. Other matters within its remit are risk management and compliance issues. The Personnel Committee is responsible for determining the conclusion, modification and termination of the contracts of employment of the members of the Management Board and structuring their compensation scheme. The Nomination Committee proposes suitable candidates to the Supervisory Board for the nominations it makes to the AGM for election to the Supervisory Board. It consists solely of representatives of the shareholders.

SUPERVISORY BOARD EFFICIENCY EVALUATION

The Supervisory Board performs regular efficiency evaluations in accordance with clause 5.6 of the Code. So far, the self-evaluations have shown that the Supervisory Board is organized efficiently and that there is good cooperation between the two boards.

COOPERATION BETWEEN THE MANAGEMENT AND SUPERVISORY BOARDS

The Management and Supervisory Boards work closely together in the interests of the Company. Open communication is of great importance. The Management Board discusses the Company’s strategic focus with the Supervisory Board. As the monitoring body, the Supervisory Board also needs to be informed comprehensively on operating performance and corporate planning, as well as on the risk situation, risk management and compliance. Important business transactions require the approval of the Supervisory Board.

COMPENSATION OF THE MANAGEMENT AND SUPERVISORY BOARDS

Details about the Management and Supervisory Board members’ compensation, disclosures relating to the stock option plans, and Directors & Officers (D & O) insurance arrangements may be found in the Notes.

DISCLOSURES OF DIRECTOR’S DEALINGS AND SHAREHOLDINGS IN 2007

Members of the Management and Supervisory Boards, other executive officers and persons closely related to them are required, pursuant to § 15a of the German Securities Trading Act (Wertpapierhandelsgesetz), to disclose purchases and sales of shares of Fresenius SE and financial instruments based on them (Director’s Dealings). In compliance with clause 6.6 of the Code, no member of the Management or Supervisory Board holds, directly and indirectly, more than 1% of the shares issued by Fresenius SE. Furthermore, the combined holdings of all Management and Supervisory Board members of shares issued by Fresenius SE was less than 1% in 2007. We received no notifications either that the shareholdings of members of the Management and Supervisory Boards had reached, exceeded, or fallen below the reporting thresholds stipulated in the German Securities Trading Act (Wertpapierhandelsgesetz).

DIRECTOR’S DEALINGS
2007 Name Position Class of
share		 Quantity Price
in €
 Total
volume
in € 
 Type of transaction
 
Feb 23 Dr.G. Krick SB Ords 5,160 33.37 172,189 Exercise of options
against cash settlement
Feb 23 Dr.G. Krick SB Prefs 5,160 31.98 165,017 Exercise of options
against cash settlement
May 21 Dr.G. Krick SB Ords 5,160 35.17 181,477 Exercise of options
against cash settlement
May 21 Dr.G. Krick SB Prefs 5,160 31.14 160,682 Exercise of options
against cash settlement
June 1 Dr.G. Krick SB Ords 7,740 35.03 271,132 Exercise of options
against cash settlement
June 1 Dr.G. Krick SB Prefs 7,740 33.07 255,962 Exercise of options
against cash settlement
June 5 Dr.G. Krick SB Ords 7,740 34.20 264,708 Exercise of options
against cash settlement
June 5 Dr.G. Krick SB Prefs 7,740 31.39 242,959 Exercise of options
against cash settlement
Oct 31 S. Sturm MB Ords 1,000 51.46 51,460 Purchase
Nov 1 R. Baule MB Ords 12,900 22.05 284,445 Exercise of options
against cash settlement
Nov 1 R. Baule MB Prefs 12,900 19.06 245,874 Exercise of options
against cash settlement
Nov 14 Dr. J. Götz MB Ords  1,500  24.71  37,065 Exercise of options
against cash settlement
Nov 14 Dr. J. Götz MB Prefs  1,500  26.10  39,150 Exercise of options
against cash settlement
 
SB = Supervisory Board; MB = Management Board; Ords = Ordinary share; Prefs = Preference Share

TRANSPARENCY AND COMMUNICATION

Fresenius adheres to all recommendations of clause 6 of the Code. Transparency is guaranteed by continuous communication with the public. In that way we are able to validate and extend the trust given to us. Of particular importance to us is the equal treatment of all recipients. To insure that all market recipients receive the same information at the same time, we post all important publications on our website www.fresenius.de/Investor Relations These publications include financial reports and director’s dealings in accordance with § 15a of the German Securities Trading Act (Wertpapierhandelsgesetz). 

RISK MANAGEMENT

In our view the responsible handling of risks is an element of good corporate governance. Fresenius practices systematic risk management that allows the Management Board to react promptly to relevant changes in our risk profile and to make early identifications of market trends. The risk management system is reviewed as part of the annual audit. Further information can be found in the Management Report.

COMPLIANCE

Compliance with national and international legal and ethical principles is an integral part of Fresenius’ corporate culture. These principles underlie our professionalism and include honesty and integrity in relations with our patients, customers, suppliers, governments, employees, shareholders and the general public.

FINANCIAL ACCOUNTING AND REPORTING

Fresenius prepares its consolidated financial statements in accordance with the United States Generally Accepted Accounting Principles (US GAAP). As from the 2005 fiscal year, Fresenius, as a publicly traded company based in a member country of the European Union, is required to prepare and publish its consolidated financial statements in accordance with International Financial Reporting Standards (IFRS), pursuant to § 315a of the German Commercial Code (HGB). Our largest subsidiary, Fresenius Medical Care, prepares its financial statements in accordance with US GAAP. We therefore publish our consolidated financial statements in accordance with US GAAP as well as our statutory consolidated financial statements in accordance with IFRS. This enables us to disclose Fresenius’ financial results to all our shareholders transparently and in a comparable manner.

CONVERSION OF FRESENIUS AG INTO A EUROPEAN COMPANY (SOCIETAS EUROPAEA, SE)

The conversion of Fresenius AG into a European Company (Societas Europaea) became effective on July 13, 2007, with the entry of Fresenius SE in the Commercial Register at the municipal court of Bad Homburg. The procedure for the involvement of employees had been successfully completed previously. The employee representatives on the Supervisory Board of Fresenius SE were appointed by the relevant district court. The Supervisory Board still consists of twelve members with parity for the six shareholder and six employee representatives. For the first time, the employee representatives consist not only of German national but also include a member from Austria and one from Italy. The six shareholder representatives were elected at the Extraordinary General Meeting on December 4, 2006, where the resolution adopting the statutes of Fresenius SE was also approved. The holders of ordinary shares entitled to vote approved the conversion to an SE by an overwhelming majority of 99.99 percent. The conversion does not have any effect on the Company’s corporate governance organization apart from the changed composition of the Supervisory Board.

IMPLEMENTATION OF THE GERMAN CORPORATE GOVERNANCE GUIDELINES

The Management and Supervisory Boards of Fresenius SE have made a Declaration of Compliance pursuant to § 161 of the German Stock Corporation Act (Aktiengesetz), in accordance with the German Corporate Governance Code as of June 14, 2007, and have made it available to the shareholders. In accordance with clause 3.10 of the Code, this declaration, as well as past declarations, is available in our website at www.fresenius.de/Investor Relations/Corporate Governance. On December 6, 2007, the Management Board and the Supervisory Board of Fresenius SE declared that the recommendations of the “German Commission on the German Corporate Governance Code” published by the Federal Ministry of Justice in the official section of the electronic Federal Gazette have been and are being complied with and were complied with in the past. The Management Board and the Supervisory Board also intend to follow the recommendations of the German Corporate Governance Code in the future. Merely the following recommendations have not been or are not being adhered to: