Supervisory Board activities
During 2016, the Supervisory Board continued to allocate adequate time at each Supervisory Board meeting to discuss strategic activities. This included detailed Business Area analyses and functional and operational strategy updates.
The company’s continued pursuit of operational excellence and efficiencies, the implementation of the Global Business Services (GBS) model and restructuring of functional departments were all areas of focus. In addition, the company’s digital strategy was reviewed and strategy updates were received from Information Management, Human Resources and Sustainability.
The Supervisory Board received comprehensive market updates, considered the company’s five-year outlook and advised, reviewed and approved the transition to the next phase of the company’s long-term strategy. During the 2016 AGM, it was highlighted that this strategy included the pursuit of value generating acquisitions and the Supervisory Board has had a diligent analytical role to play in the company’s assessment of such acquisition opportunities during the year.
In February 2016, after a period of careful consideration and detailed analysis by the Supervisory Board, the company announced its intention to acquire the Industrial Coatings business of BASF for an amount of €425 million (after closing adjustments and working capital requirements). The Supervisory Board supported the proposed acquisition in light of the synergies with AkzoNobel’s Performance Coatings business and the market positions it would help to deliver.
The Supervisory Board wishes to draw specific attention to sustainability as an aspect of its work during the year. Although an integral part of all elements of the company’s business, it is particularly relevant in light of the United Nations Conference of the Parties (COP21) Paris agreement to limit global temperature rises and carbon emissions. This agreement, reached in late 2015, was a substantial achievement and specified Nationally Determined Contributions which have the potential to impact the markets in which the company operates. The Supervisory Board considers it likely that the agreement will lead to increased demand for carbon reducing products, technologies and innovations, and that it will enhance the competitive advantages of resource efficiency and carbon footprint reduction. For this reason, the Supervisory Board has continued its long-standing incorporation of eco-premium solutions, resource efficiency and cradle-to-grave carbon reduction in its target setting, its assessment of corporate strategy and initiatives, and its assessment of investment opportunities proposed by management.
Given its integral importance, AkzoNobel’s sustainability program is both cross-Business Area and cross-functional, impacting all segments of the company’s business. The Supervisory Board’s reviews of sustainability therefore address both functional and Business Area management teams, including Procurement, Supply Chain, and Research, Development and Innovation, in addition to all three Business Areas. The company also maintains a Sustainability Council led by the CEO. The council advises the Executive Committee on sustainability developments. More information on its role can be found in the Governance and compliance section and the Sustainability statements of this Report 2016.
During the year, the Supervisory Board received updates on eco-premium solutions, cradle-to-grave carbon footprint, the Resource Efficiency Index, eco-efficiency, safety performance, diversity and talent management. It also assessed whether all functions have targets that complement and promote sustainability and long-term business viability.
A particular feature of the Supervisory Board’s sustainability agenda during 2016 has been to address, oversee and review management’s actions in light of the company’s position in the Dow Jones Sustainability Index rankings. The company’s lower ranking in 2016 must be considered in light of its 11 consecutive years on the index, and its four consecutive years as the top performer. Nevertheless, the Supervisory Board is keen to see management addressing the decline during the year and accordingly will continue to pursue improved performance in areas such as eco-efficiency.
The company’s sustainability performance drives AkzoNobel to be an industry leader in areas such as innovation, product stewardship, climate strategy and employee engagement. This comprehensive and rounded approach to sustainability and long-term value creation is a feature of AkzoNobel’s business and is engrained in the company’s 2020 sustainability strategy, its Planet Possible agenda and Human Cities initiative. During 2017, the Supervisory Board will also assess the company’s 2025 sustainability targets and strategy in this regard.
Performance and budget planning
The Supervisory Board pursued a detailed approach to assessing corporate and management performance during the year. Individual Board of Management and Executive Committee performance was addressed in Supervisory Board meetings following recommendations from the Remuneration Committee. Further details can be found in the report of the Remuneration Committee in this section.
Discussions on corporate performance are held at each Supervisory Board meeting. These discussions include Business Area reviews and performance updates from corporate functions. Forward-looking targets were also addressed in light of these reviews and both the proposed budget and operational plan for 2017 were provided for the Supervisory Board’s review and approval in the final quarter of the year. The Supervisory Board took a diligent approach to assessing these plans, taking into account the prevailing market conditions and the five-year outlook. Following this assessment, the Supervisory Board has approved the proposed budget and operational plan for 2017.
During 2016, the Supervisory Board was pleased to see the company continuing to benefit from management’s strategic initiatives, including cost reductions through enhanced efficiencies and operational excellence. This led to profitability improvements during the year, despite adverse and uncertain economic market conditions. The nature of this performance provided a basis for the Supervisory Board’s approval of the proposal to increase the dividend for the year 2016. Further details on the 2016 dividend proposal are provided in the Financial statements and profit allocation paragraph below.
The Supervisory Board views risk management as an essential mechanism, not only for safeguarding the business and assets of AkzoNobel, but also for securing versatility and long-term performance and value creation. Risk management updates were received throughout the year as the Supervisory Board sought to assure itself of the robustness of the company’s risk mitigation and internal controls. As an aspect of these assurances, the Supervisory Board considered the company’s business continuity planning and information technology continuity plans. Cyber security has been an increasing focus for the company and, during the year, the Supervisory Board received and scrutinized updates on the implementation of the company’s cyber security roadmap as an aspect of its information management strategy.
The Board of Management and Executive Committee maintain the risk management framework and system of internal controls. The company’s governance risk and compliance functions, including its in-control team and enterprise risk management function, undertake comprehensive global risk assessment processes and workshops. The results of these have been used to prepare risk scenarios, which in turn were used to assess the appropriateness of the controls and mitigation measures for the top risks facing the company. Implementation of risk mitigating measures was subsequently monitored by the Supervisory Board during the year by means of risk updates and reviews at proceeding Supervisory Board meetings. Further details are included in the Risk management chapter in the Strategic performance section.
The Supervisory Board is aware of the forthcoming revisions to the Dutch Corporate Governance Code (the Code). The potential impact of any changes in preparation for the implementation of the revised Code has been assessed. The Supervisory Board is satisfied that the company is either already meeting the requirements of the revised Code, or is well placed to implement the revisions on a “comply or explain” basis. Where changes to the corporate governance framework of the company are undertaken by virtue of the requirements of the revised Code or otherwise, they will be reported in the annual report for the relevant financial year and discussed at the subsequent AGM.
In 2016, a visit to Newcastle in the UK took place. The visit was also attended by the Board of Management and Executive Committee. It provided an opportunity for the Supervisory Board to meet and hear from company leaders and receive updates on Business Area operations in the UK. It also included visits to the new Decorative Paints facility in Ashington and the Performance Coatings site and laboratories in Felling. This visit took place in September and was all the more relevant given the recent UK referendum decision to leave the European Union (or so-called Brexit). The Supervisory Board used this occasion to receive detailed analysis on operational and market risks resulting from the UK referendum vote decision. This input has subsequently been incorporated into the Supervisory Board’s ongoing risk awareness. It will continue to form a backdrop to our oversight of management’s preparedness for the ultimate departure of the UK from the European Union.
Supervisory Board activities 2016
- Review Q4 2015 financials and performance
- Financial statements and profit allocation
- Final dividend 2015
- Business Area reviews
- Review acquisition of BASF’s Industrial Coatings business
- Remuneration target setting
- Risk management: Risk session outcomes
- Talent management and succession planning
- Nomination of Supervisory Board candidate Dr. Kirby
- Nomination of CEO Mr. Büchner for reappointment to the Board of Management
- CEO, CFO and Executive Committee evaluation and target setting
- Competitor analyses
- Review Q1 2016 financials and performance
- Business Area reviews
- Annual General Meeting 2016
- Strategy reviews: Human Resources, Information Management (including cyber security)
- Market update and Business Area strategy updates
- Sustainability strategy review
- Review forward planning and five- year outlook
- Risk management: Enterprise risk management update
- External evaluation of Supervisory Board and Committees
- Competitor analyses
- Review Q2 2016 financials and performance
- Business Area reviews
- Strategic scenarios analysis and potential M&A activities
- Functional and business strategy review
- Sustainability update and review of DJSI performance
- Risk management: implementation of risk mitigating measures
- Country visit to UK, including Brexit analysis and site visits
- Competitor analyses
- Review Q3 2016 financials and performance
- Business Area reviews
- Remuneration policy review
- Performance and budget planning
- Interim dividend 2016
- Supervisory Board succession planning
- Appointment Mr. Grote as Deputy Chairman of Supervisory Board
- Appointment Ms. Baldauf as Chairman of Nomination Committee
- Executive succession planning
- Strategy reviews: Digital, Supply Chain
- Talent management
- Compliance training: Human rights
- Budget and operational plan 2017
- Competitor analyses
- Strategic scenario analysis
- Review share buyback program
Talent management and succession planning
Throughout 2016, the Supervisory Board continued its focus on talent management. Analysis of executive succession planning was carried out and, following a recommendation from the Nomination Committee, an extensive review of the executive talent pool was undertaken. The aim of the talent pool is to promote senior level talent development and secure executive level succession over the long term. Further details can be found in the report of the Nomination Committee Report. This talent pool will continue to be monitored by the Nomination Committee and the full Supervisory Board.
During the year, following a recommendation from the Nomination Committee, the Supervisory Board was pleased to nominate the CEO, Mr. Ton Büchner, for reappointment at the AGM in April. Mr. Büchner was appointed for a second four-year term by the AGM.
The Supervisory Board also considered the CEO’s appointment of Mr. Thierry Vanlancker as Executive Committee member responsible for Specialty Chemicals. Following the Supervisory Board’s approval, Mr. Vanlancker joined the company in October 2016 and succeeded Mr. Werner Fuhrmann as the Executive Committee member responsible for Specialty Chemicals in February 2017. Mr. Fuhrmann decided to retire after 37 years with AkzoNobel.
Thierry Vanlancker was named as successor to Werner Fuhrmann as the company’s Executive Committee member responsible for Specialty Chemicals, effective February 1, 2017. A Belgian national, he was most recently President of Fluoroproducts for Chemours and has held a number of senior positions both in Europe and the US.
The Supervisory Board also took the time to discuss its own composition and succession plans in order to ensure appropriate candidates are nominated for appointment and succession at the AGM. In support of these discussions, the Supervisory Board has approved the preparation and publication of a Supervisory Board skills matrix under recommendation from the Nomination Committee. The Supervisory Board skills matrix can be found in Nomination Committee.
The Supervisory Board’s discussions led to the appointment of Mr. Byron Grote as Deputy Chairman of the Supervisory Board and Ms. Sari Baldauf as Chairman of the Nomination Committee, as well as the nomination of Dr. Pamela Kirby as a candidate for appointment as member of the Supervisory Board. Dr. Kirby has a background of scientific and business expertise and leadership spanning a variety of industries, notably chemicals and pharmaceuticals. Her appointment was approved by the AGM in April. She underwent a comprehensive induction to AkzoNobel – including one-on-one meetings with the CEO, CFO and all other Executive Committee members. The Supervisory Board appointed Dr. Kirby to the Remuneration and Nomination Committees upon recommendation from the Nomination Committee.
Supervisory Board evaluation
The Supervisory Board continued to engage in its own ongoing development and an important preparatory aspect of this was the Supervisory Board evaluation. The evaluation provides an assessment of its effectiveness, that of its committees and its individual members. In general, this process is undertaken through an internal evaluation of performance. Once every three years, instead of an internal evaluation, the Supervisory Board undergoes an independent external assessment facilitated by a specialist consultant. (This can take place more frequently if required).
In 2016, the Supervisory Board resolved to undergo its evaluation by means of an external assessment of performance with regard to the year 2015. This was the second year in a row in which the Supervisory Board evaluation was undertaken externally. The external assessment provided a follow up to the findings of the external assessment undertaken during 2015 with regard to the year 2014. The approach to the assessment had two aspects: all members of the Supervisory Board were asked to complete a questionnaire; subsequently, using the results of the questionnaire as a platform for a more in-depth discussion regarding the effectiveness and performance of the Supervisory Board, its committees, the Chairman and the chair of the relevant committees, a personal interview was conducted with each individual by an external consultant. Items addressed during the evaluation included overall performance, the approach to risk identification, governance structure, composition, succession and talent management.
Following the evaluation process, the Supervisory Board discussed the results and the functioning of the Supervisory Board, the Board of Management, the Executive Committee and the performance of their individual members. As with last year, the Supervisory Board also invited the Board of Management to join part of the evaluation discussion, which was led by the independent external consultant. Conclusions and actions were then discussed and approved.
We are pleased to confirm that our external evaluation concluded that the Supervisory Board and its committees operate effectively. In particular, the evaluation found that the Supervisory Board progressed in areas such as improved board dynamics, greater emphasis on the Supervisory Board’s role in the review of strategy and strengthened interaction, communication and confidence between the Supervisory Board and the whole Executive Committee. Continuous improvement is also a matter for the Supervisory Board and the evaluation highlighted the need for continuous focus on board dynamics on an ongoing basis, and the potential for greater focus from the Supervisory Board on the company’s innovative potential. Areas which the evaluation highlighted for improvement will be taken forward in 2017.
Financial statements and profit allocation
The financial statements of Akzo Nobel N.V. for the financial year 2016 were audited by PricewaterhouseCoopers Accountants N.V. The Board of Management submitted the report and financial statements, including the report of the Board of Management and the management letter of the external auditors, to the Supervisory Board.
The financial statements, the report and management letter of the external auditors were discussed by the Audit Committee with the external auditors, in the presence of the CEO and CFO, and by the full Supervisory Board with the Board of Management and the General Counsel. Based on these discussions, the Supervisory Board is of the opinion that the 2016 financial statements of Akzo Nobel N.V. form an adequate basis to account for the supervision provided (see the Financial information section). The Audit Committee monitors the follow-up by management of the recommendations made by the external auditor.
The Supervisory Board recommends that the AGM adopts the financial statements as presented in this Report 2016 and, as proposed by the Board of Management, the proposed total dividend for 2016 of €1.65 per common share outstanding. This represents an increase of 6.5 percent over the previous year and the second year in a row where the Supervisory Board has proposed an increased dividend. This reflects the continued commitment to the company’s aim of providing a stable to rising dividend. It is proposed that this amount, less the interim dividend of €0.37 per common share – which was paid in November 2016 – be made payable on May 24, 2017. The dividend will, at the shareholders’ discretion within the limits and on the conditions set by the Board of Management, be paid either in cash or in shares. In addition, we request that the AGM discharges the members of the Board of Management from their responsibility for the conduct of business in 2016 and the members of the Supervisory Board for their supervision in 2016.
To neutralize the dilutive effect of stock dividends paid in 2016, the Supervisory Board approved proposals by the Board of Management to initiate a program of buying back up to 2.5 million common shares.
The program has been approved in accordance with the authorization of the shareholders at the 2016 AGM, whereby the Board of Management has been authorized, subject to the approval of the Supervisory Board, to acquire common shares in the company’s share capital. The maximum number of shares that the company is authorized to hold in its own share capital at any one time shall not exceed 10 percent of its issued share capital.
This repurchase program started on January 2, 2017, and is anticipated to be concluded by the end of April 2017. Subject to shareholder approval, it is intended the shares will be cancelled during the course of 2017.
Global Business Services, which covers functional support activities such as Human Resources, Finance and Information Management, as well as non-product related Procurement.
Annual General Meeting of shareholders.
The carbon footprint of a product is the total amount of greenhouse gas (GHG) emissions caused during a defined period, of the product lifecycle. It is expressed in terms of the amount of carbon dioxide equivalents CO2(e) emitted.
Eco-efficiency means doing more with less; creating goods and services while using fewer resources and creating less waste and pollution.
Everything we do for and with society is channeled through our Human Cities initiative. This incorporates AkzoNobel’s Community Program, which encourages and gives financial support for employees to get involved, hands-on, in their local communities; and our “Let’s Colour” program, which uses the power of color to improve people’s lives.
Annual General Meeting of shareholders.