Financial statements and profit allocation
The financial statements of Akzo Nobel N.V. for the financial year 2012 were audited by KPMG Accountants N.V. The Board of Management has 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 Chairman of the Board of Management (CEO) and the Chief Financial Officer (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 2012 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. The financial statements of this annual report can be found in 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 2012 and, as proposed by the Board of Management, approve the allocation of €347 million for the payment of dividend. This is consistent with our aim to provide a stable to rising dividend which is in line with sustainable earnings. The proposed total dividend for 2012 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 2012 – be made payable on May 29, 2013. 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 2012 and the members of the Supervisory Board for their supervision in 2012.
Supervisory Board activities
One of the main activities of the Supervisory Board in 2012 was handling the CEO’s absence. Ton Büchner succeeded Hans Wijers as CEO after his appointment to the Board of Management by the AGM on April 23, 2012. He suffered from fatigue in early September 2012, which resulted in a temporary leave of absence. The Supervisory Board subsequently appointed CFO Keith Nichols to be the first point of contact and coordinator for the Executive Committee. While the activities and direct reports of the CEO were divided on a temporary basis between several functional Executive Committee members, Mr. Nichols took on the governance processes and further preparatory work on the company’s strategy update, in addition to his CFO responsibilities. The Supervisory Board further decided to appoint Antony Burgmans from among its members to advise and support Mr. Nichols and the other Executive Committee members during this period. Mr. Burgmans made himself available for consultation and coaching of the Executive Committee members several times per month and reported back on a regular basis to the other members of the Supervisory Board. He also held several analyst and investor calls to discuss the situation and, together with Karel Vuursteen, kept in regular contact with Mr. Büchner to monitor the progress of his recovery.
The Supervisory Board devoted considerable time to discussing the company’s strategy and reviewing strategic options with the CEO, which was finalized upon Mr. Büchner’s return. 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 2012, BU strategy presentations on Industrial Coatings, Pulp and Performance Chemicals and Industrial Chemicals were given. The Supervisory Board also discussed corporate social responsibility issues relevant to the company.
HR presented an update on its strategy, including a talent review. Developing a healthy talent pipeline with strong succession planning has been one of the key priorities of the Supervisory Board. The aim is to have talent pipelines with two or three immediate successors to key positions. This will be achieved by managing the careers of our key talents in a more proactive manner and linking succession planning to career planning, with clearly aligned learning and development opportunities, mentoring and coaching facilities, as well as career development possibilities. The Board of Management has kept the Supervisory Board regularly informed of intended organizational changes, appointments of senior managers and major contracts.
In September 2012, the Supervisory Board, Board of Management and Executive Committee visited some of the company’s businesses in the Nordics. This included meetings with local management, customers and other stakeholders, as well as a visit to the Functional Chemicals and Surface Chemistry site in Stenungsund. The trip provided an excellent opportunity for the Supervisory Board to liaise and engage with local management and for a comprehensive review of the businesses in the Nordics.
The company’s performance improvement program focuses on achieving operational and functional excellence at lower costs 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 six meetings with the CEO or CFO, the program director and the Corporate Controller. 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 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.
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 chapter and the section.
Other topics discussed and reviewed by the Supervisory Board included:
The Supervisory Board held 13 meetings during 2012. Six meetings were plenary sessions with the full Board of Management present, six meetings were held without the full Board of Management present, of which two were attended by the CEO. One meeting was held via conference call. An overview of the Supervisory Board and attendance of its committees is set out later in this chapter. The Chairman of the Supervisory Board prepared the meetings with the Corporate Secretary and discussed matters, such as the agendas, with the CEO. Additional (informal) meetings and calls were held with Supervisory Board members to discuss the CEO’s leave of absence and have contact with Mr. Nichols and the other Executive Committee members.
Before each announcement of the company’s quarterly results, the Audit Committee reviewed the figures and consulted on the reports and press releases to be published. Supervisory Board members were invited to participate in this part of the Audit Committee meeting.
The Audit Committee also reflected on the deteriorating market conditions in Europe and the US, the value of our Decorative Paints assets, and advised the Supervisory Board on the impairment. After several discussions, the Supervisory Board approved the company’s announcement of a non-cash impairment charge against the Decorative Paints business’ assets, primarily in Europe.
Issues discussed in Audit Committee meetings were reported back to the full Supervisory Board in subsequent meetings of this Board. The Audit Committee has performed the annual review of the adequacy of the Audit Committee charter. The Audit Committee also evaluated the services of the external auditor and is closely monitoring the international discussions on auditor independence, the substance of which does not give rise to concerns regarding our existing policy of, and guidance on, auditor independence. Both processes have been concluded and the Audit Committee has recommended to the Supervisory Board not to propose a change in the external auditor’s appointment for 2013. In 2011, the Audit Committee already decided to reconsider undertaking an external auditor selection process (full tender) towards the end of 2013, for submission and decision at the AGM in 2014.
The Audit Committee also discussed topics including:
The Audit Committee held eight meetings during 2012.
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 Messrs. Fuhrmann, Keijzer and Joosten were reviewed and discussed with the CEO. The committee also reviewed the remuneration package of the members of the Supervisory Board.
The Remuneration Committee prepared a proposal to the Supervisory Board on an adjustment to the current remuneration policy for the Board of Management and Executive Committee to ensure that both remain fully focused on the company’s overall priorities – functional excellence, increasing return on investment, increasing our operating income and improving our cash position. To ensure continued alignment between incentive metrics and the company’s objectives, greater flexibility is required in order to be able to respond adequately to the economic challenges the company is facing.
The Supervisory Board approved this recommendation and will propose to the 2013 AGM to introduce in the remuneration policy a flexibility (within a set of defined indicators) for the Supervisory Board to decide each year on the financial metrics and their weighing to define short-term incentives. Further details on this are outlined in the chapter in the Governance and compliance section. Information on the remuneration of the Board of Management and Supervisory Board can be found in of the Financial statements section.
The Remuneration Committee held four meetings in 2012.
The Nomination Committee made several recommendations to the Supervisory Board during 2012. These included proposing the appointment of Ton Büchner as a member of the Board of Management at the AGM on April 23, and his subsequent appointment as CEO following AGM approval. The committee also recommended the reappointment of Mr. Nichols for a second term of four years, and the reappointment of Mr. Darner for a term of two years. The Supervisory Board supported and approved these recommendations and the AGM subsequently made these (re)appointments on April 23, 2012.
The Nomination Committee also made a proposal to limit the number of Board of Management positions from five to four following the departure of Mr. Frohn as a Board of Management member at the 2012 AGM.
The Nomination Committee identified Ms. Baldauf to succeed Baroness Bottomley as a member of the Supervisory Board and made a proposal to expand the Supervisory Board to nine members. Mr. Verwaayen was identified to fulfill the additional position. Ms. Baldauf and Mr. Verwaayen were appointed at the 2012 AGM. At the same meeting, Mr. Van den Brink and Sir Peter Ellwood were reappointed for a third and second term of four years respectively. Subject to their appointment as members of the Supervisory Board, the Nomination Committee prepared a proposal for Ms. Baldauf and Mr. Verwaayen to join the Remuneration Committee and the Nomination Committee. Ms. Baldauf brings a different mix of international business experiences gained in Asia. Mr. Verwaayen adds substantial business and functional excellence experience gained in the US, UK, France and the Netherlands. Their expertise is a good addition to these committees. Sir Peter Ellwood was proposed to join the Audit Committee. In addition to his nomination and remuneration expertise, Sir Peter, as former Group Chief Executive of Lloyds TSB Group, has the appropriate financial knowledge for the Audit Committee.
The Nomination Committee held two meetings in 2012. Together with the CEO, the Committee devoted considerable time to senior executive succession planning. From the start of his appointment as CEO, Ton Büchner has discussed and reviewed with the Nomination Committee the Executive Committee member positions responsible for the company’s Business Areas. After a thorough selection process, recommendations were made by the Nomination Committee – following proposals by the CEO – for the succession of Mr. Frohn, Mr. Darner and Mr. Gunning. Important selection criteria included a balanced knowledge of the markets in which the company operates, a proven track record, global business experience and team spirit. The following appointments were subsequently approved by the Supervisory Board. Werner Fuhrmann was appointed as the Executive Committee member responsible for Specialty Chemicals as per October 1, 2012, a role he initially took over on an ad interim basis after the 2012 AGM (in addition to his Integrated Supply Chain responsibilities in the Executive Committee). Conrad Keijzer joined the Executive Committee on January 1, 2013, and will succeed Mr. Darner as the member responsible for Performance Coatings following the 2013 AGM. Ruud Joosten will also join the Executive Committte and, following the 2013 AGM, will take over from Mr. Gunning as the Executive Committee member responsible for Decorative Paints.
The Supervisory Board is confident that the following table shows that all Supervisory Board members made adequate time available to give sufficient attention to the company.
The Supervisory Board carried out a 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 confidential questionnaires. The Audit Committee carried out a performance evaluation of itself and invited the other participants of the meetings to also complete the confidential questionnaire.
Unlike the process in 2011, the evaluation was conducted without the assistance of an external facilitator. It is the Supervisory Board’s intention to use an external facilitator in the evaluation process every third year.
In separate meetings without the Board of Management, the full Supervisory Board and the Audit Committee discussed the results of the evaluation questionnaires. These discussions were recorded and the conclusions and actions were discussed and confirmed at the next meeting of the Supervisory Board and the Audit Committee. The evaluation of the Chairman was discussed by the full Supervisory Board in the Chairman’s absence. Items addressed were overall performance and composition of the Supervisory Board, the Audit Committee and the other committees, strategic issues and key areas for 2013. Other points discussed were the nature and impact of the discussions, strategy oversight, risk management and internal control, succession planning and other such matters. Overall it was concluded that the Supervisory Board and its committees, including the Audit Committee, continued to operate effectively. The Supervisory Board was positive about the progress made in a number of important areas, such as succession planning and training. Improvement areas are diversity and knowledge of high growth markets.
The Supervisory Board in particular wishes to thank Messrs. Darner and Gunning for their contribution to AkzoNobel during their time with the company. All members of the Supervisory Board also extend 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 2012.
Amsterdam, February 19, 2013
Main 2012 activities
Selected Keyword: ‘Strategy’