Report of the Supervisory Board

Meetings

The Supervisory Board held seven meetings during 2013. Six meetings were plenary sessions with the full Executive Committee present for all or part of the meetings. One meeting was held without the full Executive Committee present, only the Board of Management attended that meeting. All Supervisory Board meetings were preceded or succeeded by an executive session of the Supervisory Board, with the Chief Executive Officer (CEO) being invited to four of these meetings. An attendance overview of the Supervisory Board and its committees can be seen on this page. The Chairman of the Supervisory Board prepared the meetings with the Corporate Secretary and discussed matters such as the agendas with the CEO.

Supervisory Board attendance record

The Supervisory Board is confident that the following table shows all members made adequate time available to give sufficient attention to the company. If Supervisory Board members are unable to attend a Supervisory Board or committee meeting, they inform the Chairman stating the reason. They also have the opportunity to discuss any agenda items with the Chairman and chairmen of the committees. Attendance is expressed as the number of meetings attended out of the number eligible to attend.

Supervisory Board attendance record

 

 

 

 

 

 

 

SB

 

AC

 

RC

 

NC

The table indicates the meeting attendance for the Supervisory Board (SB), the Audit Committee (AC), the Remuneration Committee (RC) and the Nomination Committee (NC).

Karel Vuursteen

 

7/7

 

 

3/3

 

2/2

Sari Baldauf

 

7/7

 

 

3/3

 

2/2

Dolf van den Brink

 

7/7

 

8/8

 

 

Peggy Bruzelius

 

6/7

 

7/8

 

 

Uwe-Ernst Bufe

 

7/7

 

 

 

Antony Burgmans

 

6/7

 

 

3/3

 

2/2

Sir Peter Ellwood

 

7/7

 

8/8

 

 

Louis Hughes

 

7/7

 

7/8

 

 

Ben Verwaayen

 

7/7

 

 

3/3

 

2/2

Supervisory Board activities

One of the main activities of the Supervisory Board in 2013 was Supervisory Board member succession planning. Sir Peter Ellwood has decided to step down at the 2014 AGM. The Nomination Committee engaged the services of an executive search agency to assist with the succession. In order to identify a potential candidate, the agency employed a rigorous search process after first gaining a thorough understanding of AkzoNobel’s strategic ambitions, the specific leadership roles and competencies needed to meet those ambitions and the culture of our organization. As a result, it is the Supervisory Board’s intention to nominate Mr. Byron Grote for election to the Supervisory Board at the 2014 AGM. The new member will bring additional financial knowledge and as such be an appropriate successor for Sir Peter Elwood. The new Supervisory Board member will participate in a tailored induction program covering AkzoNobel’s governance and businesses and will also join the ongoing training program in which all Supervisory Board members participate.

Mr. Vuursteen will reach the end of his 12-year maximum tenure, of which the last five years were as Chairman of the Supervisory Board. A diligent and careful approach was adopted in order to identify, select and prepare the new Chairman for his role and responsibilities as of the 2014 AGM.

Considerable time was devoted to discussing the company’s strategy and reviewing strategic options with the CEO. Business Area, business unit and functional strategies were presented to the Supervisory Board following the strategic review sessions at company level with the Executive Committee. In 2013, these included the presentation of the Powder Coatings business’ strategy, while both the Legal function and Integrated Supply Chain gave strategy updates. The Board of Management kept the Supervisory Board regularly informed of intended organizational changes, appointments of senior managers and major contracts.

The Supervisory Board reviewed the 2013 sustainability performance data through the sustainability dashboard, providing performance indicators for safety performance, eco-efficiency improvement and employee engagement, including diversity and inclusion and talent management. The Supervisory Board recognized that AkzoNobel has, over the past decade, built a strong foundation for sustainability and is recognized as a leader in its industry, demonstrated by the number one position in the Materials industry group on the 2013 Dow Jones Sustainability Index. The Supervisory Board considers it of key importance that the company maintains and strengthens this leadership position. The Supervisory Board therefore supports and is fully behind the 2020 sustainability strategy and the Planet Possible concept, a next level approach to sustainability which is fully focused on creating more value from fewer resources.

In September 2013, the Supervisory Board, Board of Management and Executive Committee visited some of the company’s businesses in Turkey. This included meetings with local management, customers and other stakeholders, as well as a visit to the Decorative Paints site in Gebze. The visit provided a clear overview of the country from a market segmentation perspective, which helped the Supervisory Board to place the Turkish business in a structured way in the company’s new strategy. It was also an excellent opportunity for the Supervisory Board to liaise and engage with local management and to learn more about the politico-economic view of Turkey.

Another key area of attention during the year was the company’s performance improvement program, which is focused on achieving operational and functional excellence and is fundamental to the delivery of our 2015 targets in a challenging market environment. The program was closely monitored by three Supervisory Board members, who held five meetings with the CEO or Chief Financial Officer (CFO), the program director and the Corporate Director of Control. During these meetings, the progress of the program was reviewed and discussed in detail, while representatives from the various work streams were also invited to attend on several occasions to provide detailed overviews of their areas of responsibility. In addition to providing reports on the progress made, discussions were held about embedding the results achieved and the quality of implementation. The results of these meetings were reported back to, and discussed with, the full Supervisory Board. As a result of the successful acceleration of the program in 2013, monitoring by Supervisory Board members of the program ended as of January 1, 2014.

The outcome of the enterprise risk management session held by the Executive Committee was presented to the Supervisory Board and risk corrective actions were identified to address the top ten risks. Further details are included in the Risk management chapter and the Strategy section.

All Supervisory Board members participated in the annual compliance training session in which the General Counsel and an external law firm provided an overview of AkzoNobel’s compliance framework and gave competition law compliance training. Supervisory Board members are also given the possibility to enroll in AkzoNobel’s online compliance training modules on an ongoing basis.

A thorough operational planning process followed, resulting in a 2014 budget and operational plan, which was reviewed and approved by the Supervisory Board.

The three members with Business Area responsibilities provided regular updates to inform the Supervisory Board on safety, competitive behavior, projects and year-to-date financials. In 2013, the Supervisory Board moved to a digital meeting platform. This will help improve governance by facilitating communications and enabling a timely view of current and historic company information.

Financial statements and profit allocation

The financial statements of Akzo Nobel N.V. for the financial year 2013 were audited by KPMG Accountants N.V. The Board of Management submitted the financial statements, together with the report of the Board of Management, the report and management letter of the external auditor to the Supervisory Board.

The financial statements, the report and management letter of the external auditor were discussed extensively with the auditors by the Audit Committee, in the presence of the CEO and CFO, and by the full Supervisory Board with the full Board of Management. Based on these discussions, the Supervisory Board is of the opinion that the 2013 financial statements of Akzo Nobel N.V. meet all requirements for correctness and transparency, and that they form a good basis to account for the supervision provided (see the Financial statements section). The Audit Committee monitors the follow-up by management of the recommendations reported by the external auditor.

The Supervisory Board recommends that the Annual General Meeting of shareholders (AGM) adopts the financial statements as presented in this Report 2013 and, as proposed by the Board of Management, approve the allocation of €352 million for the payment of dividend. This is consistent with the company’s aim to provide a stable to rising dividend. The proposed total dividend for 2013 on each of the common shares outstanding is €1.45 and it is proposed that this amount, less the interim dividend of €0.33 – which was paid in November 2013 – be made payable on May 28, 2014. The dividend will, at the shareholder’s discretion, be paid either in cash or in shares. In addition, we request that the AGM discharge the members of the Board of Management of their responsibility for the conduct of business in 2013 and the members of the Supervisory Board for their supervision in 2013.

Board evaluation

To assess its effectiveness, the Supervisory Board carried out an internal performance evaluation of itself, its individual members, its Remuneration Committee and Nomination Committee, the Chairman and the chairmen of these committees. The process consisted of Supervisory Board members completing a confidential questionnaire. The Audit Committee also carried out an internal performance evaluation of itself and invited the other meeting participants to complete the confidential questionnaire.

In a separate meeting without the Board of Management, the full Supervisory Board discussed the results of the evaluation questionnaires. The Supervisory Board also discussed the functioning of the Board of Management and the performance of its individual members. The evaluation of the Chairman was discussed by the Supervisory Board in the Chairman’s absence. The Audit Committee invited the Board of Management and other meeting participants to join part of the evaluation discussion. These discussions were recorded and conclusions and actions were discussed and confirmed at the next meeting of the Supervisory Board and the Audit Committee.

Items addressed were overall performance and composition of the Supervisory Board, the Audit Committee and the other committees, strategic issues and key areas for 2014. Other points discussed were the nature and impact of the discussions, strategy oversight, risk management and internal control and succession planning. We are pleased to confirm that our internal evaluation concluded that the Supervisory Board and its committees continued to operate proficiently. The Supervisory Board was positive about the progress made in a number of important areas, such as succession planning and coaching of the new Executive Committee members. Improvement areas are diversity and training.

The Supervisory Board intends to use an external facilitator in the evaluation process every third year. The last external evaluation took place in 2011. We will once again use an external consultancy firm for the 2014 Board evaluation.

Audit Committee

The Audit Committee held eight meetings during 2013. The roles and responsibilities and composition of the Audit Committee are set out in the Corporate governance statement. Issues discussed in Audit Committee meetings were reported back to the full Supervisory Board in subsequent meetings of this Board.

Main 2013 activities

  • Review of the effectiveness of internal controls over financial reporting including internal audit findings
  • Review of the 2013 annual report and financial statements
  • Review of AkzoNobel’s dividend direction
  • Assessment of the economic crisis and the company’s contingency planning
  • External auditor independence
    Appointment of new lead auditor
    External auditor tender process

Results/financial statements

Before each announcement of the quarterly results and annual financial statements, the Audit Committee reviewed the financial results and consulted on the reports and press releases to be published and issues reviewed by the Disclosure Committee. Supervisory Board members in general participated in this part of the Audit Committee meeting.

Risk management and internal control arrangements

The Audit Committee reviewed AkzoNobel’s overall approach to risk management and control, its processes, outcomes and disclosure. It also reflected on the deteriorating market conditions in Europe and the US and discussed contingency planning. During 2013, the Audit Committee discussed:

  • Internal control procedures and report
  • InControl assurance statement
  • Operating working capital management. In several meetings, the Audit Committee discussed OWC to identify improvement actions
  • HSE and sustainability audits and summary of findings
  • Risk management
  • Internal audit reports and planning
  • Post investment reviews
  • Treasury strategy
  • Tax strategy
  • Litigation and claims
  • Compliance with primary and secondary legislation (internal framework, monitoring and processes and compliance reports)
  • Information management strategy

In addition, the Audit Committee reviewed the annual operational plan (including budget), AkzoNobel’s dividend directions and proposals. On fulfilling its oversight responsibilities in relation to risk management and internal control arrangements, the Audit Committee met regularly with senior executives and is fully satisfied with the key decisions taken.

Internal audit function

The Audit Committee reviewed the internal audit plan and strategy and agreed its budget and resource requirements. An evaluation of the performance and quality of the internal audit function was also carried out, with members being satisfied with the effectiveness of the function. The Audit Committee also met independently with the Corporate Director of Internal Audit during the year and discussed the results of the audits performed.

External auditor

KPMG Accountants N.V., AkzoNobel’s external auditor, reported in depth to the Audit Committee on the scope and outcome of the annual audit of the financial statements, including the consolidated financial statements and the company financial statements.

The Audit Committee held independent meetings with the external auditor during the year and reviewed and challenged the external auditor’s approach to auditing the company, engagement letter, fees, risk assessment and audit plan. Other topics discussed included:

  • Hard close (as part of making the year-end process more efficient, and in order to highlight important issues for the annual financial statements, as well as giving timely attention to important issues, AkzoNobel performed a hard close as of October 31, 2013. Aligned with this, the external auditor also performed certain procedures in respect of the financial outcomes as of the same date)
  • The quality of external audit
  • Impact of new IFRS rules

The Audit Committee performed the annual review of the adequacy of the Audit Committee charter, as well as evaluating the services of the external auditor, and continues to closely monitor international discussions on auditor independence. Both processes were concluded and, as a result, the Audit Committee has recommended to the Supervisory Board not to propose a change in the external auditor’s appointment until 2016. In that year, based on Dutch regulations, the company is required to change its audit firm. The tender process and selection of a new firm was concluded in 2013, and the chosen auditors will be proposed by the Supervisory Board to the AGM in April 2014. Based on auditor independence requirements, the lead auditor in charge of the AkzoNobel account is changed every seven years. KPMG’s current lead partner, Mr. Weusten, has held this position since July 2007. He will be succeeded by Mr. Van Leeuwen, who will take over in April 2014. Further details on the external auditor can be found in the Corporate governance statement.

Evaluation

The Supervisory Board evaluated the performance of the Audit Committee and the Audit Committee carried out a self-assessment of its performance. Both concluded that the Audit Committee is performing effectively. Reference is made to the paragraph on the Board evaluation in this chapter.

Remuneration Committee

The Remuneration Committee held three meetings in 2013. The roles and responsibilities and composition of the Remuneration Committee are set out in the Corporate governance statement.

The Remuneration Committee reviewed the performance of the members of the Board of Management and the Executive Committee. Recommendations were made on the remuneration and personal targets for members of the Board of Management and the other members of the Executive Committee. Proposals for the remuneration of Mr. Booisma were reviewed and discussed with the CEO. The committee also reviewed the remuneration of the members of the Supervisory Board and the pension plan of the Executive Committee. Based on the recommendation of the Remuneration Committee, the Supervisory Board intends to propose a change in the annual fixed remuneration at the 2014 AGM.

Further details on the remuneration policy and its implementation for 2013 are outlined in the Remuneration report chapter in the Governance and compliance section. Information on the remuneration of the Board of Management and Supervisory Board can be found in Note 22 of the Consolidated financial statements.

Nomination Committee

The Nomination Committee held two meetings in 2013. The roles and responsibilities and composition of the Nomination Committee are set out in the Corporate governance statement.

The Nomination Committee made several recommendations to the Supervisory Board during 2013. These included the appointment of Messrs. Joosten and Keijzer as members of the Executive Committee as of the 2013 AGM. The Supervisory Board supported and approved these recommendations.

Together with the CEO, the Committee also devoted considerable time to senior executive succession planning. After a thorough selection process, with the assistance of an executive search agency, a recommendation was made by the Nomination Committee – following proposals by the CEO – for the succession of Mrs. Oudeman. Important selection criteria included a proven track record, global business experience and team spirit. The appointment was subsequently approved by the Supervisory Board. Mr. Booisma was appointed as the Executive Committee member responsible for Human Resources as of October 1, 2013.

For CFO succession, a thorough selection process has been initiated, reviewing external and internal candidates.

In addition, the Nomination Committee successfully identified Mr. Byron Grote to succeed Sir Peter Ellwood as a member of the Supervisory Board and devoted considerable time to discussing the Chairman succession and short and long-term Supervisory Board member succession. Based on the advice of the Nomination Committee, the Supervisory Board recommends the appointment of Mr. Grote as a member of the Supervisory Board at the AGM in 2014. As the Chairman will retire as per the 2014 AGM, the Nomination Committee recommended the Supervisory Board to limit the number of Supervisory Board positions from nine to eight members. The Supervisory Board also recommends the reappointment of Messrs. Burgmans and Hughes at the 2014 AGM. It is the intention of the Supervisory Board to appoint Mr. Burgmans as Chairman of the Supervisory Board after the 2014 AGM.

Gratitude

All members of the Supervisory Board would like to express their gratitude to the Board of Management and the other members of the Executive Committee, as well as all employees around the world, for their dedication and hard work for the company in 2013.

Amsterdam, February 19, 2014
The Supervisory Board

Main 2013 activities

  • Succession planning resulting in one new Supervisory Board member candidate, to be proposed for election at the 2014 AGM, in order to broaden the financial knowledge base of the Supervisory Board
  • The annual internal evaluation concluded that the Supervisory Board and its committees ontinue to operate effectively
  • Chairman selection and preparation for succession as of the 2014 AGM
  • The Supervisory Board visited Istanbul and Gebze in Turkey, providing members with a greater understanding of our local business and their customers
  • Senior executive succession in the Executive Committee, resulting in Marten Booisma becoming the new ExCo member responsible for Human Resources, effective October 1, 2013
  • Finalization of monitoring of the performance improvement program following its succesful acceleration in 2013