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Board of Management


General

The Board of Management is entrusted with the management of the company. As of January 1, 2011, the Board of Management operates in the context of an Executive Committee. The members of the Executive Committee are the five members of the Board of Management, together with four senior executives who are delegated responsibilities for Human Resources and Organizational Development; Legal; Purchasing and Supply Chain; and Research, Development and Innovation respectively. 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. 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 the consent 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.

All major investments, all acquisitions and all major functional initiatives are discussed and decided, if applicable, subject to Supervisory Board approval. 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. Executive Committee meetings are held once a fortnight.

The Chief Executive Officer (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. Members also have specific responsibilities for the company’s main Business Areas: Decorative Paints, Performance Coatings and Specialty Chemicals.

The Managing Directors of our businesses, and the Staff 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.

To effectively steer the strategy of our businesses and their operations, the Executive Committee has established Business Area Boards for each of our Business Areas: Decorative Paints, Performance Coatings and Specialty Chemicals. In addition, a Board Committee Pensions oversees the general pension policies (to be) implemented in the various pension plans of the company.

Business Area Boards are chaired by the member of the Executive Committee responsible for that Business Area. 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. 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.

Representative authority, including the signing of documents, is vested in at least two members of the Executive Committee jointly. Corporate agents may be appointed, whose powers of attorney will be determined by the Executive Committee.

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 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, 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.

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.

According to the Code’s recommendation (provision IV.1.1), the Annual General Meeting of shareholders should be able to pass a resolution to cancel the binding nature of a nomination for the appointment of the Supervisory Board or the Board of Management. Under the Articles of Association, the binding nature of the nominations by the holders of priority shares cannot be canceled by the Annual General Meeting of shareholders.

The company subscribes to the Code’s principle in general. Therefore (as described in the 2004 Annual Report and discussed at the Annual General Meeting of shareholders in 2005) it has been decided that in normal circumstances, Supervisory Board and Board of Management members will be 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 the case of exceptional circumstances, 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. 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 allowed to hold not 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 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 by members of the Executive Committee in other listed companies is subject to approval by 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.

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. Mention will also be made in the annual report for the relevant year. In 2010, 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 our corporate website. For appointments starting from 2004, the maximum remuneration in the event of dismissal is in principle one year’s base salary. In the event of the dismissal of the Board member appointed before 2004, the Supervisory Board will determine a severance payment upon the advice of the Remuneration Committee. Since it is not believed to be in the interest of the company to renegotiate the existing contracts of the members of the Board of Management, the company decided in 2004 not to follow Code provision II.2.8 for appointments made before 2004. However, the Supervisory Board intends to take the provisions of the Code as guidance for establishing severance payments. The contracts of the members of the Board of Management do not contain change of control provisions.

Risk management and (financial) reporting

Internal risk management and control systems are in place. Our risk management system is explained in more detail in the Risk management chapter.

We have strict procedures for internal and disclosure controls and auditor independence. The Disclosure Committee monitors the procedures established by the company and advises the Executive Committee to ensure adequate and timely disclosure of material financial and non-financial information.

A separate internal control function is operational to secure compliance with the company’s internal control requirements. The further enhancement of the internal controls was one of the 2010 spearheads. The company-wide internal control self-assessment was strengthened and aligned with a number of other internal representation and compliance processes. An extensive training and communication program was part of this endeavor.

Reference is made to the Report of the Board of Management for the statements in respect of the internal risk management and control systems.

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