Acting with integrity

Sonova and the United Nations Sustainable Development Goals (SDGs)
Through this strategic area, Sonova mainly contributes to SDGs 3, 8, 9 and 16. More information is provided in the corresponding section of this CR Report: Sustainable Development Goals.

Product quality, safety and reliability

Regulatory and standards

Sonova’s medical devices are regulated globally by government agencies, healthcare authorities, and other regulatory bodies who verify that we are complying with applicable health and safety regulations throughout our products’ life cycle. We work to maintain transparent, constructive, and professional relationships with all applicable regulatory authorities on matters of policy, product submission, compliance, and product performance. The requirements we meet include design controls, marketing approvals, good manufacturing practices, vigilance systems, clinical studies, and other relevant product regulations, standards, and normative documents specified by these agencies.

Each national healthcare authority has specific requirements for products that are made available in its national territory. Requirements for hearing instruments in Europe are mostly centered around European legislation, including the Medical Device Regulation 2017/45, the Radio Equipment Directive 2014/53/EU, and requirements for conformity to other applicable international standards. In the US, hearing instruments are regulated by the United States Food and Drug Administration (FDA) and classified as class I medical devices (hearing aids) and class II (wireless hearing aids). Both categories are exempt from the requirement to submit premarket notification submissions and can be introduced into commercial distribution without a premarket FDA clearance notification.

Cochlear implants and their respective accessories from Advanced Bionics in Europe are regulated by the Medical Device Regulation 2017/45; prior to market launch, class III medical devices must undergo a formal premarket submission-type process. In the US, they are classified as class III medical devices and must also therefore undergo a separate premarket submission procedure prior to market launch.

Sonova carefully monitors changes in the relevant worldwide regulatory environment to ensure that its products conform at all times.

Product quality and safety management

All our operation centers and major Group companies are certified according to the ISO 13485 standard and fulfill the requirements for quality management systems of the US FDA Quality System Regulation, Title 21 CFR Part 820. Third-party audits are conducted at all ISO 13485 certified operation centers and major Group companies on an annual basis to maintain the quality of manufacturing, management, and products, including materials and components.

Sonova conducts internal audits of its established systems at planned intervals to determine the effectiveness of the quality management system and its conformance to the requirements of ISO standards, FDA Regulations, other country specific and MDSAP requirements. Sonova has established procedures to define responsibilities and requirements for planning and conducting audits, and for reporting results and maintaining records. The audit program is planned based on consideration of past audit results, significance and status of the processes and areas to be audited. The audit process also defines the audit criteria, scope, frequency, and methods. Qualified personnel who are independent of the task being audited may conduct the audits. Management, at its discretion, may employ outside resources to conduct the internal audits. Audit findings are documented and reported to the responsible management, who ensure that actions are taken without undue delay to eliminate detected nonconformities and their causes. Reports of corrective actions, their review and other follow-up activities are also documented and filed. These data are reviewed for trends.

Based on our supplier visits and assessments, the percentage of direct material suppliers with a quality management system that is certified and audited by a third party is above 90% of the purchasing volume.

We evaluate potential product-related risks using a systematic method to estimate, evaluate, control, and monitor risks; this is governed by the ISO 14971 standard, which specifies the application of risk management to medical devices. We ensure up to date knowledge of regulatory and statutory requirements through initial and maintenance training programs. Employees, independent of their employment contract, are qualified to perform their tasks based on their education, training, and experience. General requirements are established based on job responsibilities and are identified in position descriptions. Employees are provided general training on the Quality Management System and on health, environment, and safety as applicable. In-depth training needs for work performed are systematically identified and documented. Training effectiveness is verified.

The topic of product safety is an integrated element of the product design and development process. Design and development inputs are documented and include but are not limited to functionality, performance, and safety requirements according to the intended use, applicable statutory and regulatory requirements, environmental impact, and clinical, user, and patient needs. Changes to the design inputs are approved in the same manner as the original design input. We conduct regular in-house product testing to validate design and external third-party testing to ensure compliance to standards/requirements.

All products brought into commercial distribution by Sonova Group companies are continuously assessed to improve safety and effectiveness. Sonova uses tools such as complaint handling, post-market surveillance, vigilance reporting, reliability and trending analysis, and post-launch engineering to achieve and maintain regulatory compliance. We comply with the requirements for product serialization, track and trace technology including barcoding, as mandated by existing local regulations in various regions and countries across the globe.

Customer complaints are documented and reviewed for product safety and product performance trends through an established system that complies with applicable regulatory and legal requirements. Early warnings of quality problems become an input for the corrective and preventive action processes. Records of customer complaints and resulting investigations are maintained. If investigation determines that activities outside Sonova contributed to the customer complaint, relevant information is exchanged with the contributing organization. If a customer complaint is not followed by corrective or preventive action, the reason is authorized and recorded. Documented procedures are established to assure that regulatory authorities are notified according to national or regional regulations whenever advisory notes or recalls are necessary and/or adverse events occur that meet specified reporting criteria. Decisions are made based on risk analysis and health hazard evaluation as applicable. Sonova has established a process for assessing and reporting to the FDA and Regulatory Agencies of other countries those customer complaints that resulted in an adverse event.

In 2020/21, there were no listings associated with the Sonova Group that appear in the “Medical Devices” category of the U.S. Food and Drug Administration (FDA)’s MedWatch Safety Alerts for Human Medical Products database. There have not been any fatalities related to products as reported in the FDA Manufacturer and User Facility Device Experience. To ensure compliance with current Good Manufacturing Practice, Sonova global facilities have been subject of several regulatory agency inspections during the reporting year. In 2020/21 there have not been any FDA enforcement actions, such as FDA Form 483 notices or FDA Warning Letters (or equivalent notices from other regulatory agencies). There were no Class I or Class II (or equivalent) product recalls at Sonova during the 2020/21 financial year.

At Advanced Bionics, the safety and hearing experience of recipients and the reliability of our products are prime concerns, and we are committed to continuous reliability improvement. For example, we adopt more stringent test standards than what are demanded by regulatory authorities. Details can be found in the annual Global AB 2020 Reliability Report. For reporting purposes, we have adhered to the global ISO 5841-2:2014 standard and the principles outlined in the European Consensus on Cochlear Implant Failures and Explantations. We are also reporting to ANSI/AAMI CI86Standard – Cochlear Implant Systems: Requirements for Safety, Functional Verification, Labeling and Reliability Reporting.

In the previous 2019/20 financial year, Advanced Bionics undertook a voluntary field corrective action and retrieved from the market the unimplanted units of the initial version of its HiRes™ Ultra and Ultra 3D cochlear implants. The vast majority of these devices function correctly, but the company took this step in an abundance of caution, having observed an increase in reports of reduced hearing performance. Most importantly, there have been zero reported safety events relative to this issue and these devices. The initial version of the HiRes™ Ultra 3D implant has been superseded by a new version, which includes several improvements to support consistently good hearing performance.

Product reliability global targets

Continuously improving product reliability and reducing repairs takes priority at Sonova. We have set the target of improving average product reliability rate, for both hearing instruments (HI) and cochlear implants (CI), by more than 20% year-over-year. We define the HI product reliability rate as the ratio between the annualized number of in-warranty product returns over the past three months and the number of hearing instruments in the market and within warranty (installed base). We define the CI product reliability rate as the Naìda pediatric system monthly product returns divided by the number of registered Naìda processors used by pediatric recipients. The target specifies the Naìda pediatric system because external farts constitute the vast majority of all product returns, and return rates for pediatric products are higher than those for adults.

Product reliability rates year-over-year improvements

A dedicated global and cross-functional team sponsored by the Sonova Management Board was set up to work on continuous process improvements and root cause analysis of product returns and repairs, with the aim of significantly improving reliability of existing and future products. In 2020/21, we improved the average HI product reliability rate by 21% and the CI product reliability rate by 32% compared to the previous year and thus achieved the annual targets of >20% for both HI and CI. Key measures implemented in the past year included product design adjustments, manufacturing process refinements, active dialog with suppliers to improve manufacturing processes of product components, launches of new, more reliable products, and hardware and software improvements to existing products. 

Responsible supply chain

International supply chain

Sonova deals with 352 direct material suppliers who deliver components for manufacturing and assembly to its hearing instruments segment, and 124 direct material suppliers to its cochlear implant segment. In spending terms, 69.5% of Sonova’s purchase volume is in the Asia/Pacific region, 10.5% in Switzerland, 17.4% in Europe (excl. Switzerland), 2.5% in North America, and 0.2% in Africa. Our suppliers are mainly high-tech design and component makers, or original equipment manufacturers with a high degree of automation. Sonova engages only a very small number of contractors and licensees.

Sonova’s own manufacturing operations extend from fully automated processes, such as hybrid circuit production, to highly skilled manual work, such as assembly of hearing aids and cochlear implants.

Commitment, policies and guidelines

Our suppliers are an integral part of our international value chain: a risk to them is also a risk to our company and our customers and consumers. Sonova requires that all our suppliers be as committed to sustainable development as we are.

The Sonova Group Supplier Principles (SGSP) are based on a range of international standards, customer requirements, and industry characteristics. These principles are non-negotiable; they are the first basis of contact with possible suppliers. Once a supplier has been approved as a Sonova partner, the SGSPs, the General Conditions of Purchase, as well as the Sonova Code of Conduct are incorporated into all development and supply agreements. All suppliers have to certify in written form that they will now and at all times in the future comply with these standards and principles in all of their Sonova-related dealings, activities, products, and services. Sonova includes this certification in all supply agreements, and periodically requests suppliers to renew their accordance. The SGSPs are available in English and German and are publicly available on the Sonova website. The SGSPs require suppliers to put in place and maintain systems that ensure:

The SGSPs were last revised in 2019 and the updated version was published on the Sonova website. All existing suppliers were contacted to secure their agreement with the updated version of the principles.

Identification of critical suppliers

In the 2020/21 financial year, we had nine critical tier-1 and non-tier-1 suppliers. Critical suppliers for Sonova include suppliers whose items or materials have a direct impact on the performance of our products or come into direct contact with the skin of users (critical components), whose items or materials are not substitutable (e.g. due to criteria related to technology, sustainability, quality, regulations), and who supply high volumes. The classification of critical suppliers is carried out at the beginning of each new supplier relationship and is reviewed regularly.

You can find further information on the management of risks associated with the use of critical materials in the sections Product quality, safety, and reliability and Eco-friendly products.

Supplier risk evaluation and mitigation

The procurement department actively participates in the design and planning of Sonova products, solutions, and services. It makes sure from the earliest development stages that a risk assessment is performed for every component, based on the “Risk and Risk Mitigation Matrix” defined by the procurement department.

Sonova assesses all new suppliers on their management systems, including their compliance and management procedures, as well as on environmental, human rights, and labor practices. Our personnel audit and/or visit potential supplier sites and inspect their management capabilities – through employee interviews, document reviews, on-site inspections, and third-party information searches – to assess potential risks and identify opportunities for improvement. If deficiencies are found, we require the suppliers to take corrective and preventive actions before we begin any active business relationship. A candidate that fails to meet the requirements will not be accepted as a Sonova supplier.

After careful supplier selection, we maintain a continuous supplier management process. We annually assess supplier risks, including environmental, social, and governance (ESG) risks, and identify the risk level for each supplier. We manage our suppliers based on their risk level, regularly risk-auditing supplier sites. If a problem occurs, we require the suppliers to take preventive and corrective measures, and we follow up on their progress until the issue is resolved.

We are committed not to use any conflict materials for any product supply to Sonova. Since 2007, Sonova has been proactively asking suppliers to review their sources of materials and confirm the absence of conflict minerals.

Supplier visits and audits

In the 2020/21 financial year, Sonova was not able to visit or audit its critical suppliers because of the restrictions related to COVID-19. In 2020/21 we have not identified any critical tier-1 or non-tier-1 supplier as having significant actual or potential negative concerns related to environmental issues, labor practices, or human rights matters. No suppliers, therefore, had to take corrective or preventive actions. Examples of key performance indicators, targets and progress related to responsible supply chain management until 2022/23 are the following:

Responsible supply chain management KPIs and targets

Long-term supplier collaboration

Sonova strives for long-term collaborations and long-term contracts with its suppliers. In the 2020/21 financial year, 84% of the total purchase volume came from suppliers with more than 10 years of business relationship with Sonova and 97% of the total purchase volume came from suppliers with more than 5 years of partnership. Sonova also offers its suppliers financial support to buy necessary equipment and technology.

The global health and economic crisis resulting from the COVID-19 pandemic is impacting global supply chains and logistics. Sonova is in a constant and close dialog with key suppliers and partners to monitor and manage the impact of the crisis. Our first priority is protecting the health of our global team, followed immediately by assuring that our operations continue while complying with emergency regulations.

Human rights and labor practices

Commitment and policies

Sonova respects and supports human rights. This commitment extends throughout our worldwide operations and along our entire value chain. It is reflected in our Code of Conduct and Group Supplier Principles (SGSP) and embedded in our company culture. It is fundamental for us to treat everyone with respect and fairness. We value the varied experiences and backgrounds of individuals from different countries, walks of life, and orientations.

Sonova is formally committed to maintaining high standards of business ethics and integrity in accordance with the law, as well as recognizes human rights and labor standards as outlined in international human rights frameworks such as the:

Sonova signed the UN Global Compact in 2016, endorsing its ten principles in the areas of human rights, labor, the environment, and anti-corruption. All employees of the Sonova Group, as well as its business partners, are expected to comply with the Compact’s principles.

In 2020/21, we went through a consultation process involving internal and external experts to develop a new global policy providing a worldwide framework for our human rights support, values and principles across our entire business. The policy will be published in 2021/22.

Human rights due diligence (HRDD)

Sonova is committed to aligning its human rights due diligence (HRDD) process with the United Nations Guiding Principles on Business and Human Rights (UNGP). Our aim is to conduct HRDD throughout our business to proactively assess, identify, prevent, and mitigate actual and potential adverse human rights impacts on potentially affected rightsholders across the value chain. To this end, Sonova set up a cross-functional internal human rights working group in 2020/21, which draws on the help of external business and human rights experts, and started to implement a stepwise HRDD project plan.

The process framework follows five steps as required by the UNGP:

Risk assessments

In 2020/21, Sonova conducted an overall human rights risk assessment based on international standards such as the UNGP and OECD Guidelines. The risk assessment was performed by the cross-functional internal human rights working group, together with external business and human rights experts. The assessment included our global value chain with a focus on prioritization of potential human rights issues and based on the severity of the risk to potentially affected people. Using a range of methods, including value chain mapping, issue mapping, consultations and interviews, desk research, and internal workshops, we identified the salient human rights issues that are described in the section below. This risk assessment exercise will be followed by an in-depth human rights impact assessment in 2021/22 to conduct meaningful engagement with relevant stakeholders.

In the 2020/21 financial year, no specific concerns were raised relating to human rights violations. Sonova’s internal audits and supplier assessments found no operations or supplier businesses with specific incidents related to violations of human rights, such as child labor, forced or compulsory labor, illegal labor, or limitation of freedom of association or collective bargaining. Therefore, no remediation or mitigation actions needed to be taken.

Focus human rights issues areas

Sonova is committed to respecting internationally recognized human rights and does not attribute more importance to one human right than to another. We do, however, assign priority to those rights that are most salient to our business, as determined by the human rights risk assessment described above. The list, which appears below, will be adapted as required based on future human rights risk and impact assessments.

In prioritizing key human rights issues according to their scale, scope and remediability, Sonova recognizes that negative impacts on human rights may be particularly severe for some people due to their vulnerability or marginalization. Sonova recognizes that the evaluation of the severity of potential impacts may change and that other issues may grow in importance over time. We will therefore regularly reevaluate the key issues based on further assessments and regular dialog with internal and external stakeholders, including but not limited to government representatives, customers, and patient groups.

Training

General human rights standards are specified in the Sonova Code of Conduct, on which annual mandatory training is given to all Sonova employees worldwide. The training in 2020/21 had a specific focus on the topics of nondiscrimination and non-harassment, including how to identify and report potential violations (grievance mechanism). Further training on human rights topics is planned for all employees as well as specific roles throughout 2021/22.

Business ethics and legal compliance

Code of Conduct and internal regulations

Sonova’s commitment to compliance promotes ethical conduct between colleagues at all levels of the organization, and also in our dealings with our stakeholders. Compliance means that we follow applicable laws and regulations of each country in which we operate while also abiding by our own Code of Conduct and internal regulations. The ultimate oversight for business ethics and compliance lies with the Board of Directors.

Sonova’s Code of Conduct defines general principles for ethical behavior; it applies to all employees of the Sonova Group, all its subsidiaries, and any contractors or vendors while they are performing work for the Sonova Group. Written acknowledgment of the Code of Conduct is part of every new employment and supplier contract.

The Code of Conduct is reviewed regularly and revised when necessary. It was prepared by the office of the Group General Counsel in consultation with relevant stakeholders and was approved by the Sonova Board of Directors on August 23, 2012, updated in September 2019, and reapproved by the Board of Directors. The Code of Conduct covers all relevant aspects of Sonova’s business operations from compliance with laws and regulations, conflicts of interest, and anti-competition to Sonova’s social and environmental responsibility. It includes such topics as dignity and human rights, diversity and inclusion, non-discrimination, and safety in the workplace. The Code of Conduct is available in 18 languages.

Each employee is required to be trained on the Code of Conduct. All new employees of the Sonova Group, including all its subsidiaries, are trained on its principles as part of their initial orientation. Suppliers are regularly instructed to ensure that they adequately understand and can comply with the Code of Conduct. Annual mandatory Code of Conduct training is given to all Sonova employees worldwide, including part-time employees. The training explains the content of the Code of Conduct and how to identify and report potential violations, such as conflict of interest, harassment, fraud, discrimination, corruption, or breach of secrecy. The Group targets >95% on-time completion for employee annual mandatory Global Compliance training. In 2020/21, this annual target was achieved with a training completion rate of 95.9%. For the 2021/22 financial year the target completion rate has been revised to 98%.

The principles of the Code of Conduct are further refined in various internal guidelines and policies, including – but not limited to – anti-bribery, interaction with healthcare professionals, competition law, trade compliance, and Swiss Stock Exchange reporting obligations. Non-compliance with the company’s Code of Conduct or Sonova’s internal policies and guidelines triggers disciplinary action, including – where appropriate – dismissal and prosecution. The requirements for conflict resolution, including e.g. the use of independent parties, are determined on a case by case basis.

Sonova’s internal audit function audits compliance with the key policies and reports these to the Audit Committee.

Group Compliance program

Compliance is everyone’s responsibility at Sonova. Ultimate oversight lies with the Board of Directors. The Management Board sets the tone at the top for a strong compliance culture. Local Compliance Champions ensure implementation of the Group Compliance program within each Group company. The Group Compliance program covers all employees, including part-time workers, contractors, and all business partners.

We have reinforced Code of Conduct compliance with “Speak-Up!”, an internal communication and training campaign rolled out across the worldwide Sonova Group. It focuses particularly on employees with less access to online reporting channels, such as those in operations or audiological care stores. Its two main goals are to increase awareness of the revised Code of Conduct and to foster a culture where employees feel comfortable about raising compliance questions and reporting compliance issues. Posters are visibly displayed in numerous locations and clearly indicate how to easily report non-compliance.

No fines or non-monetary sanctions for non-compliance were levied against Sonova in the 2020/21 financial year.

Internal grievance procedures

Sonova strongly encourages every employee who knows of or suspects a violation of applicable laws, regulations, the Code of Conduct, or the company’s related policies and procedures – including those relating to accounting, internal controls and auditing matters – to report that information through the Speak-Up system. This 24-hour anonymous grievance reporting system is operated by an independent third-party provider. Employees can use Speak-Up to report concerns they may not otherwise want to report directly to their supervisor or compliance manager. Employees or third parties can report a concern either by phone or via a secure website. All local phone numbers and websites are listed in the Appendix to the Code of Conduct.

Reported violations are promptly investigated and treated confidentially to the extent reasonably possible. The Company does not tolerate any kind of retaliatory actions against any employee who, in good faith, reports suspected wrongdoing, or complains about violations of the Code of Conduct or other internal policies. The Audit Committee of the Board of Directors is informed quarterly about concerns received through the compliance channels, the number and types of cases, and the measures taken.

In the 2020/21 financial year, a total of 94 Speak-Up complaints from 19 countries were reported to the Compliance Department. Of the reported cases, 62% involved allegations of inappropriate behavior. The next most recurring complaints were of fraud (15%) and conflicts of interest (9%). Less-reported issues included data processing (7%) related allegations, sexual harassment (4%), and bribery (3%). All allegations were promptly addressed by the internal investigation team, supported by external experts as needed. Over 61% of the complaints were substantiated and followed up with corrective actions, ranging from written warnings or performance improvement planning up to termination of employment (13 employees were terminated this year).

Corruption and bribery

Sonova is committed to high standards of integrity in dealing with its business partners and to compliance with all applicable anti-bribery laws, including the Swiss Criminal Code, the UK Bribery Act, and the US Foreign Corrupt Practices Act. Sonova’s Anti-Bribery Policy was updated in 2018, refining the rules under the Code of Conduct and prohibiting all forms of corruption. Key elements of Sonovaʼs Anti-Bribery Policy are:

The Anti-Bribery Policy has been communicated to all Sonova employees worldwide and is available in 15 languages. Sonova business partners – such as distributors or suppliers – must commit to complying with the principles underlying the Anti-Bribery Policy. The content of the Anti-Bribery policy is integrated in the annual mandatory Global Compliance training for all employees.

As a global healthcare company, we also recognize that many countries have specific regulations governing interactions with healthcare professionals. These impose further obligations which the company has translated into country-specific guidelines detailing what is permissible and what is not.

The Sonova Group Supplier Principles also cover ethical standards, including compliance with laws and regulations on bribery, corruption, and prohibited business practices. These have been communicated to all our suppliers who are regularly instructed to ensure that they adequately understand and are able to comply with all anti-corruption policies and procedures.

In 2020/21, there were no monetary losses as a result of legal proceedings associated with bribery or corruption.

Anti-competitive behavior

At the core of Sonova’s Code of Conduct there is a clear commitment to fair competition. Fair competition is essential because it guarantees that customers and consumers will benefit from the most innovative products and services at the best prices and conditions. At Sonova, we respect and strictly follow antitrust and competition laws.

Sonova’s Global Competition Law Policy describes the basic principles of fair competition in doing business. All Sonova employees worldwide must comply with the principles it sets out. An updated Global Competition Law Policy became effective as of May 1, 2020. The roll out of the revised policy was supported by bespoke global online training. Both the policy and the training are available in 19 languages.

In the 2020/21 financial year, Sonova was not involved in any legal actions related to anti-competitive behavior or violations of anti-trust and monopoly legislation.

Data privacy and digital ethics

Data privacy and protection

Sonova protects the confidentiality and integrity of the data it holds, including the data of employees, customers, patients, and business partners using technical and organizational means. We adhere to applicable data protection laws and regulations. We closely monitor developments in data protection law and incorporate its principles into our business processes and product design. We continue evolving our data protection program to meet the changing demands of the digital environment.

Sonova issued a Group Data Protection Policy, effective June 1, 2018. The policy covers all personal data collected or processed by Sonova, and applies to all Sonova legal entities and their employees and contractors on a worldwide basis. The policy is complemented by standard operating procedures and guidelines that break down the various data protection and privacy topics and provide more detailed guidance.

Sonova has established a Global Privacy Office, which provides subject matter guidance and training to the management, business functions and employees. The Global Privacy Office is also responsible for the support and monitoring of the Sonova Data Protection Program. The Global Privacy Office is supported by a team of over 100 Privacy Champions representing and supporting the task of embedding Privacy at the Group company level. The implementation of the Program is part of the regularly conducted internal audits, and the Global Privacy Office and the Internal Audit Team are working closely together when conducting the audits and monitoring deriving actions.

In addition, an important part of the Global Privacy Office’s work is to raise awareness and provide training on all levels across the Group. A mandatory online training for all employees is deployed by the Global Privacy Office, complemented by on- and offline trainings for specific departments and teams (e.g. Marketing, HR, R&D), webinars and communication platforms for knowledge exchange. These trainings contain the essential legal principles and requirements, taking into consideration Sonova’s Data Protection Policy and legal frameworks like the EU General Data Protection Regulation (GDPR), the Health Insurance Portability and Accountability Act (HIPAA), the California Consumer Privacy Act (CCPA), the Personal Information Protection and Electronic Documents Act (PIPEDA) or Data Protection and Security laws in China.

We have not identified substantiated complaints concerning breaches of customer privacy in 2020/21.

IT and cyber security

At Sonova, protecting our information assets is a priority. We are committed to securing digital and non-digital files, records, and information to prevent unauthorized access, modification, and loss. Sonova’s IT and cyber security is supported by guidelines issued by the Vice President Corporate IT, who oversees the company’s information and cyber security and acts as Chief Information Officer (CIO), reporting directly to the Group CFO. The guidelines on IT security determine security standards for all functional or business applications controlled by Sonova. The Board of Directors receives regular updates on cyber security from the CIO and the Management Board.

Sonova issued its IT Acceptable Use Directive in 2012/13; it is regularly revised and was last updated in 2018/19, effective as of January 1, 2019. The guideline defines the use of IT assets, the secure use of systems and programs, as well as the appropriate and secure management of data. The Information Security Guideline, effective as of October 31, 2019, specifies processes and responsibilities to ensure IT and cyber security, including the security of digital information processed and stored on our products. This policy framework continues to be amended and supplemented, e.g. with directives on remote working or application security.

In 2020/21, we launched a global program to maintain and inform best cyber security practice among Sonova’s employees worldwide. This year’s program focused on further enhancing security monitoring, incident detection and resolution capabilities. Next year’s will focus on an in-depth review of critical business applications and their security hardening.

Our continuing efforts to ensure IT and cyber security are underpinned by mandatory annual online training for all employees worldwide. During the 2020/21 financial year, training topics included best practice for password protection, information management responsibilities, and appropriate online behavior. Relevant global and local staff received additional specific training in implementing the IT and cyber security guidelines.

Sonova has put in place an efficient and comprehensive system to identify and assess strategic, operational, financial, legal, and compliance risks related to the Group’s business activities – including IT and cyber security risks. Further information on how Sonova monitors and mitigates those risks are provided in the section "Risk Management" in this chapter.

Sonova has business continuity/disaster recovery plans and incident response procedures in place, which are tested regularly. In areas with heightened exposure or security risk, penetration tests are applied annually by qualified external providers. In addition, we conduct third-party vulnerability analysis from time to time, including simulated hacker attacks in selected IT security risk areas. Sonova also holds an information security risk insurance policy.

Sonova has not experienced material information security breaches during the 2020/21 reporting period.

As part of IntACT, our enhanced ESG Strategy, we committed in 2020/21 to establish a digital ethics committee by the end of the financial year 2021/22.

Corporate governance

Structure

At Sonova, corporate governance is based upon, and structured to conform with, relevant standards and practices. The company meets its legal duties under the Swiss Code of Obligations, the SIX Swiss Exchange Directive on Information relating to Corporate Governance, and the standards defined in the Swiss Code of Best Practice for Corporate Governance. The present chapter in the CR Report gives a high-level overview of the principles of corporate governance for the Sonova Group and provides background information with a special focus on environment, social and governance (ESG) issues. More detailed information can be accessed at the corporate covernance chapter of the 2020/21 Annual Report and at the corporate governance section of the Sonova website.

Sonova’s corporate structure includes a two-tier board consisting of the Board of Directors and the Management Board. In accordance with the Sonova Organizational Regulations (OrgR), the Board appoints an Audit Committee and a Nomination and Compensation Committee. In all respects not mentioned in the OrgR, or unless the law or the Articles of Association stipulate otherwise, the policy document ‘Delegation of Authority of Sonova Holding AG’ provides the basis for delegating authorities within the different levels of management in the Group.

Composition of the highest governance body and its committees

The composition of the Board of Directors and its committees is described in detail in the relevant section of the corporate governance chapter of the 2020/21 Annual Report: Board of Directors.

The Articles of Association of Sonova Holding AG state that the Board of Directors must consist of a minimum of three and a maximum of nine members. The Board of Directors is chaired by Robert F. Spoerry and currently consists of nine non-executive members.

The Nomination and Compensation Committee and the Board of Directors evaluate current and prospective members of the Board according to a skills and experience competency matrix to ensure that an appropriate mix of relevant skills and experience is represented in the Board of Directors. In the nomination and evaluation processes, by following the matrix criteria, the Nomination and Compensation Committee as well as the Board of Directors are committed to consider characteristics such as, and including but not limited to, gender, age, nationalities or country of origin, ethnicity, cultural background, ways of believing, and mindsets to establish balance in terms of diversity and inclusion.

As part of our ESG strategy, we strongly believe that a more balanced gender representation on the Board of Directors is in the best interests of the Sonova Group, and we are committed to achieving a 30% proportion of women on the Board well before the time this becomes a legal requirement in 2026.

Nomination and selection for the highest governance body and its committees

The processes for determining the composition of the Board of Directors and its committees, as well as the division of responsibility between the Board of Directors and Management Board, are set out in detail in the company’s OrgR and Committee Charters.

The members of the Board of Directors and of the Nomination and Compensation Committee of Sonova Holding AG are elected by the General Shareholders’ Meeting for a term of office until completion of the next ordinary General Shareholders’ Meeting. If a replacement is elected to the Board of Directors during a member’s term, the newly elected member finishes the predecessor’s term. The Audit Committee is elected by the Board of Directors according to Article 2 of the Committee Charters.

The members of the Management Board are proposed by the CEO and appointed by the Board of Directors upon the recommendation of the Nomination and Compensation Committee. More details on the Management Board are provided in the relevant section of the corporate governance chapter of the 2020/21 Annual Report: Management Board.

Article 4 of the OrgR governs how Sonova deals with potential conflicts of interest. Cross-board memberships of the Board of Directors and significant shareholders (holding more than 3% of shares) are disclosed in the corporate governance chapter of the 2020/21 Annual Report. Related party transactions, if any, are disclosed in the Annual Report notes to the Group consolidated financial statement.

Roles, policy, and strategy

The OrgR and the Committee Charters define the roles and the duties of the highest governance bodies. The Board of Directors of Sonova Holding AG is responsible for the overall direction of the company, except in matters reserved by law to the General Shareholders’ Meeting. It approves policy and strategy. The CEO has the duty and authority to link the company’s strategy with its operational management by preparing the corporate strategy documents, policies, and procedures for submission to the Board of Directors’ review and approval. The Management Board supports the CEO in his responsibility to direct the company’s operations by actively participating in directing, planning, and executing the business strategy.

Competencies and performance evaluation

The Board of Directors conducts an annual self-assessment evaluating its efficiency, effectiveness, and internal cooperation. The purpose is to enhance the Board’s understanding of the business and the company, evaluate and define its role, particularly in relation to management, and make best use of the human capital represented on the Board of Directors. More detailed information is available in the corporate governance report.

Consultation between stakeholders and the highest governance body

Sonova actively engages with a broad range of stakeholders on ESG topics as described in the “Stakeholder engagement” chapter of this CR Report. Internal reporting procedures ensure consultation between stakeholders and the highest governance body on topics deemed highly relevant.

Compensation and incentives

The compensation report is an integral part of the 2020/21 Annual Report and covers the compensation principles, system, and key components, with a focus on the Board of Directors and Management Board as the governing bodies. Sonova complies with the Swiss Ordinance against Excessive Compensation in Stock Exchange Listed Corporations, which among other matters stipulates annual binding votes on the compensation of the Board of Directors and Management Board.

Sonova is committed to the principle of equal pay for equal work, and is taking all necessary steps in its position management and grading processes to ensure a fair compensation system. The company regularly reviews its compensation in terms of relevant local legal and regulatory equal pay requirements as they continue to evolve.

The variable cash compensation (VCC) for the Management Board is based on Group, business unit, and individual performance objectives. In line with our strategy, and to reflect Sonova’s corporate responsibility and sustainable business approach, business relevant ESG targets have been formally reflected in the VCC from the second half of the 2020/21 financial year. As already outlined in the 2019/20 compensation report, 10% of the overall VCC targets for each member of the Management Board were shifted (5% each from the financial and from the individual targets) and linked to specific, tangible ESG related initiatives. The performance objectives that must be met to achieve the target VCC are mutually agreed at the beginning of the financial year.

ESG targets for the second half of the financial year were defined around seven categories, with energy and climate, as well as employee engagement, set as a target for all Management Board members. Additionally, members each had a selection of targets set depending on their role and responsibilities. These included product quality and customer satisfaction, product reliability, environmentally friendly packaging, business ethics and legal compliance, as well as human rights and responsible supply chain.

The Board of Directors and the Management Board decided to take a number of COVID-19 related short-term compensation measures, which are outlined in further detail in the compensation report.

Risk management

Sonova has implemented an efficient system to identify and assess strategic, operational, financial, legal, reputational, and compliance risks related to the Group’s business activities. The risk management function categorizes risks by impact and likelihood and supports the Management Board in determining the measures necessary to address or mitigate them. In accordance with the Audit Committee Charter, the Audit Committee reviews the company’s risk assessment prepared by Risk Management before it is presented to the Board of Directors. The Board of Directors approves the risk assessment and provides guidance from a strategic point of view. To continuously monitor key risks and their mitigation, Risk Management prepares risk status reports which are discussed by the Management Board and presented to the Audit Committee on a quarterly basis. Currently, Sonova’s Group Risk Map consists of 33 risks, of which 13 are designated as key risks.

ESG issues are an integrated part of Sonova’s strategic risk management process. Topics such as climate change, human rights and labor practices, loss of key talent, infringement of data privacy, cyber security and infringement of information security are evaluated in the regular risk assessment process together with all other business risks.

Internal Audit carries out compliance and operational audits and assists the business units in attaining their goals by providing assurance from independent evaluation of the effectiveness of internal controls in processes. Management is responsible for the control of business risks and for compliance with laws and regulations. The Head of Internal Audit & Risk reports to the Chair of the Audit Committee. The Audit Committee approves the annual work plans of Internal Audit and ensures that the relevant Group companies are adequately reviewed according to their risk scoring. The Audit Committee also reviews and discusses the reports on completed audits submitted by Internal Audit. Internal Audit, together with business controlling, monitor the implementation by Group companies of any measures necessary to address findings from previous audits, and provides quarterly reports to the Audit Committee.

The Group has a comprehensive compliance program in place which is administered by the Head of Global Compliance and Data Privacy and overseen by the General Counsel & Compliance Officer. Quarterly compliance reports are provided to the Audit Committee and an annual compliance report is addressed to the Board of Directors.

In response to COVID-19, Sonova established global and national Crisis Response Teams that meet often and maintain close mutual communication. The response to the pandemic has been structured in three phases: 1) Health and Safety 2) Protecting the Core and 3) Preparing for the Rebound. Disaster Recovery and Business Continuity Planning is being updated to reflect the experiences of the Crisis Response Teams and Group companies worldwide.

Ethical marketing and sales practices

Policies and guidelines

Sonova strictly adheres to ethical marketing practices in all our businesses and takes active steps to prevent inappropriate practices or false claims. We ensure that our advertising, packaging, and promotional materials provide accurate, balanced, and non-misleading information. This commitment is laid out in our Group Code of Conduct and further refined in policies, guidelines, and standard operating procedures, e.g. on claims management (see below).

Interactions with healthcare professionals

Sonova is committed to ethical interactions with healthcare professionals (HCPs). We interact with HCPs on a daily basis, in a variety of roles and settings. They include audiologists and acousticians, professors, surgeons, ear nose and throat specialists, or researchers. The following “Four-Leaf Clover Principles” govern our cooperation with healthcare professionals:

More detailed information on how we ensure ethical interactions with healthcare professionals is provided in the Sonova Global Antibribery Policy as well as internal standard operating procedures and country-specific guidelines for interactions with HCPs.

Claims management

Sonova is committed to ensure that statements declaring or implying that a product, service, or any other Sonova solution will provide a benefit to customers or consumers are truthful, non-misleading, and fair. We have established a claims management process that defines how to assess, substantiate, and monitor a claim for solutions from all Sonova brands. Claims go through a standardized review and approval process by a dedicated committee before being disseminated. The purpose is to ensure both compliance with global regulatory requirements and a high quality standard of claims. Relevant employees have to complete annual training on the claims management standard operating procedure. A mandatory training for all employees will be launched in 2021/22. In 2020/21 an external third-party audit of the claims management process and systems was conducted. As of 2021/22, the claims management process and systems will be subject to regular external audits.

In 2020/21, there were no monetary losses as a result of legal proceedings associated with false marketing claims.

Taxes

Sonova is a Swiss-based multinational enterprise, with operations almost entirely headquartered in the canton of Zurich where the Group develops, manufactures, and distributes products marketed under multiple brands. Sonova operates in more than 100 countries and owns local wholesale distribution and audiological care subsidiaries in over 30 countries. With this business structure, Sonova’s tax contribution encompasses various direct and indirect, corporate, and employee taxes, as well as customs duties, that make a significant contribution to societies around the world.

Tax strategy and policies

Sonova is committed to the highest level of tax compliance and directs its international flow of goods in line with all applicable tax regulations. Sonova’s tax approach is fully compliant with the spirit as well as the letter of local tax laws and regulations, reporting and filing obligations in all countries of operation as well as in complete alignment with relevant international standards.

As laid down in Sonova’s Code of Conduct, Sonova strives to attain the highest standards in complying with laws, rules, regulations, reporting, filing, and disclosure requirements. This also applies to tax matters. The publicly available Sonova Tax Principles provide high level information on procedures and internal guidelines for tax compliance within the Sonova Group, that is for all legal entities that are majority-owned or otherwise controlled directly or indirectly by Sonova Holding AG. The Sonova Group Tax Principles were approved by the Board of Directors and released by the CFO in February 2019.

Sonova’s commitment to tax transparency and responsibility is further expressed in policies and processes, mostly for internal use only, that guide compliance with direct and indirect taxes, as well as transfer pricing.

Approach towards taxation

Key elements of Sonova’s approach towards taxation are:

Organization and reporting

The responsibility for tax compliance lies with the Corporate Tax team, located in Switzerland, the US, and Germany. The team reports directly to the Group CFO. This function coordinates, educates, and supports local controllers in all Group companies to ensure that they achieve tax compliance in line with local and international laws, rules, regulations, reporting, filing and disclosure requirements, as well as Sonova’s standards and policies. The Master Transfer Pricing file is prepared by Corporate Tax, along with a Master Local file. Local files are completed by the local organizations according to the OECD guideline Action 13 and Sonova’s Transfer Pricing Processes with Corporate Tax support.

Sonova has prepared a Country-by-Country Report (CbCR) since 2017, and has filed this with the Swiss Federal Tax Administration since 2018. The Swiss Federal Tax Administration shares the file through automatic information exchange with tax authorities worldwide, as foreseen by the BEPS initiative.

Information on earnings before tax, reported taxes, reported tax rate, cash taxes paid, and cash tax rate can be found in the 2020/21 Sonova Financial Report. Sonova’s tax rates might be lower than industry group averages because of group-wide net operating losses and net operating losses from previous periods in subsidiaries of acquired groups. Furthermore, Sonova is a Swiss-based multinational enterprise with large activities, substance, risks and assets in Switzerland, and the Swiss tax rate is lower than the global average tax rate. Cash tax paid is largely influenced by advanced as well as final adjustment payments.

Sonova has also introduced a further reporting tool to monitor, collect, and where applicable report information under Mandatory Disclosure Reporting, as introduced under EU directive DAC-6 (enacted as of 2018). Since the first European country started applying the new directive, Sonova has checked about 140 cases and in eight cases has opted to report to comply beyond any reasonable doubt with the formalistic approach of the Directive.

Public policy

As a general rule, Sonova does not allow donations to political parties. This principle is stipulated in our Global Anti-Bribery Policy.

Sonova actively participates in associations and external initiatives to share its specialist knowledge and to ensure highest quality standards for hearing instruments and cochlear implants.

We are a member of the European Hearing Instrument Manufacturing Association (EHIMA), the Hearing Instrument Manufacturers’ Software Association (HIMSA), the Hearing Industries Association (HIA), the Hearing Instrument Manufacturers’ Patent Partnership (HIMPP), and the Hearing Industry Research Consortium (IRC). Arnd Kaldowski, CEO of the Sonova Group, is member of EHIMA’s Board of Directors. Founded in 1985, EHIMA represents the major European hearing instrument manufacturers. In 2020/21, Sonova contributed around 540,000 CHF in membership fees to trade associations and non-commercial organizations. Amongst the largest contributions are membership fees and contributions to Hear-it AISBL, an international non-profit information resource on hearing loss, SwissHoldings, the federation of Swiss-based multinational enterprises, and EHIMA.

Since 2016, Sonova is a signatory to the UN Global Compact, a United Nations initiative with a focus on corporate citizenship, dialogue with stakeholders, partnerships, and communication. Sonova is part of both the global and local Swiss networks of the UN Global Compact.

Animal welfare

As a manufacturer of medical devices, Sonova is required by regulatory authorities to demonstrate the biological safety of any product with body contact by complying with the international standard ISO 10993-1. According to this standard, animal tests need to be considered in biological safety evaluations; in some cases, they cannot be completely avoided. Sonova also provides components of cochlear implants to cochlear implant research centers and universities, where these are tested on animals for basic research concerning e.g. safety, feasibility or efficacy of new technologies.

Sonova does not carry out any animal testing in-house and only works together with third parties. We are committed to the “Three Rs” principle – replacement, reduction, and refinement – to limit animal testing as far as possible.

Replacement

Reduction

Refinement