Change

Operational risks


Internal

Risk: Attraction and retention of talent

Our ambitious growth plans may not be achieved if we fail to attract and retain the right people.

Risk corrective actions

Without our people we would not have a business. Growing our business calls for the need to develop our people. Therefore, AkzoNobel – in the context of the company’s Talent Factory initiative – puts emphasis on attracting, retaining, motivating and educating staff. These efforts are supported by Human Resources instruments such as performance appraisals, the employee survey and leadership identification and review, as well as leadership development.

We provide clarity in the working environment through information and communication programs. Special focus is dedicated to high growth markets. Remuneration packages may include long and short-term incentives. However, the Board of Management (see Remuneration report), ensures that employees are not encouraged to act in their own interest and take risks that are not in keeping with the company’s strategy and risk appetite.

Risk: Management of change

If our management of change is not adequate, this could have a negative affect on productivity and customer focus.

Risk corrective actions

We undertake various restructuring and investment projects that require significant change management and project management expertise. Risk management is an integral part of project management excellence.

Senior management is involved in the management of critical projects that are prioritized and supervised by the Board of Management.

Risk: Production process risks

Risks in production processes can adversely affect our results of operations.

Risk corrective actions

We mitigate production risks by spreading out production and operating an adequate inventory policy. This is combined with business continuity planning and appropriate risk transfer arrangements (for example insurances).

We have implemented enhanced process safety, asset integrity and occupational health standards and also improved the Health, Safety, Environment and Security audit process in 2009.

External

Risk: Differentiation in energy pricing – Top five risk

Differences in energy prices pose a risk to the competitiveness of several of our chemical businesses.

Risk corrective actions

We operate some energy intensive businesses. A non-level playing field for energy and emission trading rights can affect the competitive position of these businesses. We are pro-actively managing energy usage and costs. We operate several cogeneration units which enable us to make efficient use of combined heat and power.

We are implementing our Carbon Policy, working on energy efficiency programs and investing in energy from waste and biomass. We have hedging policies for energy contracts and have long-term purchase contracts in place (see note 24).


Risk: Sourcing of raw materials

Inability to access raw materials, growth in cost and expenses for raw materials, energy and changes in product mix may adversely influence the future results of our company.

Risk corrective actions

We are sensitive to price movements that may lead to erosion of margins and allow product substitution. We may also be impacted by business interruption or product discontinuation at one of our key suppliers. We aim to use our purchasing power and long-term relationships with suppliers to acquire raw materials and safeguard their constant delivery, under the best conditions.

We have inventoried single and sole sourced raw materials and are actively pursuing plans to improve this situation. We have diversified contract length and supplier base. Our strengthened global sourcing strategy enables us to bundle the purchasing power both in product related and non-product related requirements. We continuously monitor the markets in which we operate for developments and opportunities.

Risk: Environmental liabilities

Our businesses will continue to expose us to risks of environmental liabilities.

Risk corrective actions

We use, and have in the past used, hazardous materials, chemicals and biological and toxic compounds in several product development programs and manufacturing processes. We have been, and can be, exposed to risks of accidental contamination or past practices that give rise to current liabilities. We could be exposed to events of non-compliance with environmental laws, regulatory enforcement, property damage and possible personal injury and property damage claims resulting therefrom.

Regulations and standards are becoming increasingly stringent. We are committed to conducting all our activities in the most socially responsible manner and contingency plans and assignment arrangements are in place to seek to mitigate these risks. In addition, our policy is to accrue and charge against earnings environmental clean-up costs when it is probable that a liability has materialized and an amount can be reasonably estimated (see also note 21).

Risk: Product liabilities

Product liability claims could adversely affect our company’s business and results of operations.

Risk corrective actions

Currently, we are involved in a number of product liability cases. However, we believe that any unexpected costs and liabilities will not have a material adverse effect on our consolidated financial position. We have a central policy to optimize insurance coverage.

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