Change

General

The Board of Management is entrusted with the management of the company. As of January 1, 2011, the Board of Management has operated in the context of an Executive Committee. The company has broadened its leadership team in order to accelerate sustainable growth. An Executive Committee has been established, which comprises the members of the Board of Management and leaders with functional expertise, allowing both the functions and the Business Areas to be represented at the highest levels in the company. The functions currently represented in the Executive Committee are HR & Organizational Development, Research, Development & Innovation, Legal and Supply Chain/Sourcing (including Health, Safety and Environment).

In performing its duties, the Executive Committee is guided by the interests of the company and its affiliated enterprise, taking into consideration the relevant interests of the company’s stakeholders. Among other responsibilities, the members of the Executive Committee define the strategic direction, establish the policies and manage the company’s day-to-day operations. Including functional leadership in the Executive Committee means that the functions are in a stronger position to support the business units in achieving their growth targets.

The members of the Board of Management remain jointly and individually accountable for all decisions made by the Executive Committee. All Executive Committee decisions require a positive vote of a majority of the members of the Board of Management. The Board of Management can decide to reserve decisions for the Board of Management. The Board of Management is accountable for its performance to a separate and independent Supervisory Board. The Board of Management is also answerable to the shareholders of the company at the Annual General Meeting of shareholders. The Executive Committee members, who are not also a member of the Board of Management, report to the Chief Executive Officer (CEO). Executive Committee meetings are held once a fortnight.

The CEO leads the Executive Committee in its overall management of the company to achieve its performance goals and ambitions. He is the main point of liaison with the Supervisory Board. The Chief Financial Officer (CFO) is specifically responsible for the company’s financial affairs and information management.

The company has organized its business into three Business Areas: Decorative Paints, Performance Coatings and Specialty Chemicals. The other three members of the Board of Management (not being the CEO and the CFO) have specific responsibilities for these Business Areas. To effectively steer the strategy of our businesses and their operations, the Executive Committee has established Business Area Boards for each of the Business Areas. The Business Area Boards consist of the Board of Management member responsible for the Business Area, assisted by staff officers. The Business Area Board meetings are held once a fortnight. The Business Area Boards provide a forum for a more in-depth discussion on all possible subjects relevant to that Business Area. In addition, a Board Committee Pensions oversees the general pension policies (to be) implemented in the various pension plans of the company. The CFO chairs the Board Committee Pensions. The authority of the Business Area Boards and the Board Committee Pensions is laid down in an internal authority schedule.

The company has also established a Sustainability Council, which advises the Executive Committee on strategy developments, monitors the integration of sustainability into management process and oversees the company’s sustainability targets and overall performance.

The Managing Directors of our business units, and the Corporate Functional Directors in charge of the different functions, report to individual Executive Committee members with specific responsibility for their activities and performance. To safeguard consistency and coherence for the total organization, the Executive Committee has established corporate directives.

The company is strengthening its country and regional organizations, as they will be key in developing a more collaborative way of working across the company. They will play an important role in helping the company to achieve its growth ambitions. Country leadership teams have been introduced for, among others, Brazil, India and China, as well as the Middle East, under the directorship of an empowered Country Director. As well as being responsible for driving growth in these countries, the country leaderships teams will be responsible for selecting, prioritizing and aligning functional activities, establishing centers of excellence and, where appropriate, improving efficiency levels. All Country Directors report to an Executive Committee member.

Following the increased importance of the functions and countries to achieving our Value and Values strategic ambitions, the authority schedule for the company was revised in 2011. The functions and country leadership teams have been awarded a more prominent role in submitting and advising on business proposals, following which the Executive Committee is in a stronger position to drive common agendas across the company and have fully informed discussions on proposals – whether submitted by functions, countries or business units.

Representative authority, including the signing of documents, is vested in at least two members of the Board of Management jointly. The Board of Management may appoint corporate agents. The list of authorized signatories is publicly available. The tasks and responsibilities, as well as internal procedural matters for the Executive Committee, are addressed in the Rules of Procedure for the Board of Management and Executive Committee. These Rules of Procedure have been reviewed and approved by the Supervisory Board and are available on our corporate website.

Appointment, conflicts of interest

Board of Management members are appointed to, and removed from, office by the Annual General Meeting of shareholders. The remaining members of the Executive Committee are appointed by the CEO subject to the approval of the Supervisory Board.

As of 2004, members of the Board of Management are appointed for four-year terms (or less), with the possibility of reappointment at the expiry of each term. This is in line with the Code’s provision II.1.1. However, the contract of Mr. Wijers – who was appointed before 2004 – was not renegotiated, as this was not felt to be in the interest of the company.

As Mr. Wijers will retire from his current role as member of the Board of Management and CEO of the company with effect from April 23, 2012, the Supervisory Board shall propose to the Annual General Meeting of shareholders to appoint Mr. Büchner as member of the Board of Management, with the Supervisory Board’s intention being to appoint Mr. Büchner as CEO with effect from April 23, 2012. Mr. Büchner joined the company on December 1, 2011, and was appointed as a member of the Executive Committee as of January 1, 2012.

The Meeting of Holders of Priority Shares has the right to make binding nominations for the appointment of members of the Board of Management and the Supervisory Board. The priority shares are held by the Foundation Akzo Nobel. The Board of the Foundation Akzo Nobel consists of members of the Supervisory Board who are not members of the Audit Committee. In deviation of the Code (provision IV.1.1), the Articles of Association state that the Annual General Meeting of shareholders cannot cancel the binding nature of a nomination by the holders of priority shares for the appointment of members of the Supervisory Board or the Board of Management.

As the company subscribes to the Code’s principles in general, members of the Supervisory Board and the Board of Management are, in normal circumstances, appointed on the basis of a non-binding nomination by the Supervisory Board.

The Board of the Foundation Akzo Nobel has confirmed its intention to use its binding nomination rights only in cases and circumstances it considers exceptional, such as in the event of a (threatened) hostile takeover. (Reference is made to the description of anti-takeover provisions and control). In normal circumstances, resolutions to appoint a member of the Supervisory Board or Board of Management will therefore require a simple majority of the votes cast by shareholders. Shareholders meeting the requirements laid down in the Articles of Association are also entitled to nominate Supervisory Board or Board of Management members. According to the Articles of Association, such appointments will require a two-thirds majority, representing at least 50 percent of the outstanding share capital.

Although a deviation from provision IV.1.1 of the Code, the Supervisory Board and the Board of Management are of the opinion that these provisions will enhance the continuity of the company’s management and policies.

As of January 1, 2011, members of the Executive Committee are not allowed to hold more than one supervisory board membership or non-executive directorship in another listed company. This is more stringent than the Code (provision II.1.8), which allows members of a board of management two such supervisory board memberships or non-executive directorships. The exception to this rule is that in the 18 months prior to their retirement, Executive Committee members are allowed to hold more than one supervisory board membership or non-executive directorship in order to allow them to prepare for retirement. But only if this does not interfere with the performance of their tasks as members of the Executive Committee. Furthermore, an exception can be made for an executive joining the Executive Committee. However, a maximum of two supervisory board memberships or non-executive directorships will apply. Acceptance of external supervisory board memberships or non-executive directorships in other listed companies by members of the Executive Committee is subject to approval of the Supervisory Board, with authority having been delegated to the Chairman of the Supervisory Board. With respect to the members of the Board of Management, Mr. Wijers is a non-executive Board member of Royal Dutch Shell plc, while Mr. Frohn is a member of the Supervisory Board of Nutreco N.V. and Mr. Gunning is a member of the Supervisory Board of TNT Express N.V.

The handling of (potential) conflicts of interest between the company and members of the Board of Management or Executive Committee is governed by the Rules of Procedure for the Board of Management and Executive Committee. Decisions to enter into transactions under which Board of Management members have conflicts of interest that are of material significance to the company, and/or to the relevant Board of Management member, require the approval of the Supervisory Board. Any such decisions will be mentioned in the annual report for the relevant year. In 2011, no transactions were reported under which a member of the Board of Management has had a conflict of interest that is of material significance to the company.

Remuneration

In line with the remuneration policy adopted by the Annual General Meeting of shareholders, the remuneration of the members of the Board of Management is determined by the Supervisory Board on the advice of its Remuneration Committee. The Supervisory Board will also decide on the remuneration of the remaining members of the Executive Committee on the proposal of the CEO. The composition of the remuneration of Board of Management members, and the remuneration policy itself, are described in the Remuneration report and the Financial statements (see Note 23). The main elements of the employment contracts of Board of Management members are available on the company’s corporate website. The maximum remuneration in the event of dismissal is in principle one year’s base salary. In the event of the dismissal of Mr. Wijers, who was appointed before 2004 (and who will retire with effect from April 23, 2012), the Supervisory Board will determine a severance payment upon the advice of the Remuneration Committee. The contracts of the members of the Board of Management do not contain change of control provisions. Mr. Büchner’s employment agreement is compliant with the Dutch Corporate Governance Code, the most important elements of which will be disclosed in accordance therewith.

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