Supervisory Board report
- Activities of the Supervisory Board
- Supervisory Board meetings and attendance
- Composition, diversity and ...
We as members of the Supervisory Board are fully committed to our role and responsibility in respect of the proper functioning of the corporate governance of Philips. The Supervisory Board supervises and advises the Board of Management and Executive Committee in performing their management tasks and setting the direction of the business of the Philips group. The Supervisory Board acts, and we as individual members of the Board act in the interests of Koninklijke Philips N.V., its business and all its stakeholders. This report includes a more specific description of the Supervisory Board’s activities during the financial year 2013 and other relevant information on its functioning.
Activities of the Supervisory Board
The full scope and details of the discussions within the Supervisory Board are confidential, (inter alia) given the business sensitive nature of the matters discussed. Nevertheless, the overview below indicates a number of matters that we discussed during meetings throughout 2013:
- Philips’ performance and financial headroom
- Philips’ strategy and the new mid-term targets that were announced during the Capital Markets Day in September 2013. In particular, the Supervisory Board focused on the nature of the Group, the portfolio of approximately 40 businesses across various strategic domains, the company’s geographic footprint and the roadmap to unlock the company’s full potential over the coming years with emphasis on the Philips Business System
- Philips’ annual management commitment for 2013
- The review of the integration of large acquisitions
- The change in (the funding of) the pension obligations in the Netherlands
- Philips’ progression towards becoming a more digital company
- The enterprise risk management (which included the annual risk assessment and discussion of the changing nature of the risks faced by Philips and the possible impact of such risks). For instance, the Supervisory Board discussed the impact of changing macro-economic conditions and the risks posed by information security
- Quality and regulatory matters, and
- The divestment of the Audio, Video, Multimedia and Accessories business (including the termination of the Funai agreement).
The Supervisory Board conducted so-called “deep dives” on a range of topics, such as: the strategy of Consumer Lifestyle; the operations of the Lighting Sector in North America and reviews of the company’s activities in Latin America.
The Supervisory Board also conducted a number of reviews of the company’s operations in markets, including in China, Middle-East and Turkey, and Africa. Moreover, the North American Market (including the activities of the Sectors and key functions in that geography) was discussed by the Supervisory Board and we provided feedback on the new brand identity, which was launched in November 2013. Additionally, we received updates on sustainability and the share buy-back program and the impact of currency headwinds.
On multiple occasions, we were briefed on the various aspects of the Accelerate! program, This included the transformation of the Finance and IT functions and also the progress made in transforming the culture within Philips and simplifying its operating model.
The Supervisory Board also reviewed Philips’ annual and interim ﬁnancial statements, including non-ﬁnancial information, prior to publication thereof.
Supervisory Board meetings and attendance
In 2013, the Supervisory Board convened for seven regular meetings. Moreover, we collectively and individually interacted with members of the Executive Committee and with senior management outside the formal Supervisory Board meetings. The Chairman of the Supervisory Board and the CEO met regularly for bilateral discussions about the progress of the company on a variety of matters.
The Supervisory Board meetings were well attended in 2013. The attendance percentage of the meetings -including the committee meetings- was high (in excess of 95%). The Supervisory Board committees also convened regularly (see the separate reports of the committees below) and all of the committees regularly reported back on their activities to the full Supervisory Board. We as members of the Board devoted sufficient time to engage (proactively if the circumstances so required) in our supervisory responsibilities.
Composition, diversity and self-evaluation by the Supervisory Board
The Supervisory Board is a separate corporate body that is independent of the Board of Management (and the Executive Committee). Its independence is also reﬂected in the requirement that members of the Supervisory Board can neither be a member of the Board of Management, member of the Executive Committee nor an employee of Philips. The Supervisory Board furthermore considers all its members to be independent pursuant to the Dutch Corporate Governance Code. We will continue to pay close attention to applicable independence criteria.
The Supervisory Board currently consists of eight members. The agenda for the upcoming 2014 Annual General Meeting of Shareholders includes the proposal to appoint Ms. Orit Gadiesh as an additional member to the Supervisory Board, bringing the total to nine members.
The profile of the Supervisory Board aims for an appropriate combination of knowledge and experience among its members encompassing marketing, manufacturing, technology, ﬁnancial, economic, social and legal aspects of international business, government and public administration in relation to the global and multi-product character of Philips’ businesses. The Supervisory Board pays great value to diversity in its composition. More particular it aims for having members with an European and a non-European background (nationality, working experience or otherwise) and one or more members with an executive or similar position in business or society no longer than five years ago.
In addition, we support the Philips’ policy to appoint a well-balanced mix of women and men to its Board of Management, Executive Committee and Supervisory Board. New Dutch legislation, effective per January 1, 2013, requires companies to pursue a policy of having at least 30% of the seats on the Board of Management and the Supervisory Board held by women and at least 30% of the seats held by men.
We believe we are making good progress in implementing this policy. The appointment of Orit Gadiesh, as currently proposed to the General Meeting of Shareholders, will bring the Supervisory Board’s gender diversity within the statutory criteria. There were no other vacancies to fulfil in 2013. In addition, we note that there may be various other pragmatic reasons – such as the other relevant selection criteria and the availability of suitable candidates within Philips – that could play a complicating role in fully achieving the gender targets in the short term.
In 2013, the members of the Supervisory Board completed a questionnaire to verify compliance in 2013 with applicable corporate governance rules and its Rules of Procedure. The outcome of this survey was satisfactory.
In addition, we each submitted to the Chairman responses to a questionnaire designed to self-evaluate the functioning of the Supervisory Board. The questionnaire covered topics such as the composition and competence of the Supervisory Board (for example, the Board’s size and the education and training requirements of its members), access to information, the frequency and quality of the meetings, quality and timeliness of the meeting materials, the nature of the topics discussed during meetings and the functioning of the Supervisory Board’s committees.
The responses to the questionnaire were aggregated into a report, which was discussed by the Supervisory Board in a private meeting. Certain areas were identified that could be improved and it was decided that the Chairman would follow-up with individual members to address specific issues. Summarizing, the responses provided by the Supervisory Board members indicated that the Board is a well-functioning team and we believe a diversity of experience and skills is presented on the Board. The functioning of the Supervisory Board committees was considered to be commendable (or better) and specific feedback will be addressed by the chairman of each committee with its members. The evaluation lead to certain practical steps to improve the accessibility of the large quantity of materials provided to Supervisory Board members.
In 2013, the use of an external evaluator to measure the functioning of the Supervisory Board was considered; however, it was decided to continue self-evaluation for the time being. We will reconsider the use of an external evaluator as circumstances require.
Supervisory Board committees
The Supervisory Board has assigned certain of its tasks to three permanent committees: the Corporate Governance and Nomination & Selection Committee, the Remuneration Committee and the Audit Committee. The function of the committees is to prepare the decision-making of the full Supervisory Board, and the committees currently have no independent or assigned powers. The full Board retains overall responsibility for the activities of its committees. The separate reports of the committees are part of this Supervisory Board report and are published below.
Financial Statements 2013
The ﬁnancial statements of the company for 2013, as presented by the Board of Management, have been audited by KPMG Accountants N.V. as independent external auditor appointed by the General Meeting of Shareholders. Its reports have been included in the section Group ﬁnancial statements; Independent auditor's report - Group and the section Company ﬁnancial statement; Independent auditor's report - Company. We have approved these ﬁnancial statements, and all individual members of the Supervisory Board (together with the members of the Board of Management) have signed these documents.
We recommend to shareholders that they adopt the 2013 ﬁnancial statements. We likewise recommend to shareholders that they adopt the proposal of the Board of Management to make a distribution of EUR 0.80 per common share (up to EUR 740 million), in cash or in shares at the option of the shareholder, against the net income for 2013.
Finally, we would like to express our thanks to the members of the Executive Committee and all other employees for their continued contribution during the year. In particular, we would like to express our sincere appreciation to Eric Coutinho, our Chief Legal Officer and General Secretary, who will retire in 2014. We wish him all the best for the future.
February 25, 2014
The Supervisory Board
Jeroen van der Veer
Kees van Lede
Heino von Prondzynski
For a better understanding of the responsibilities of the Supervisory Board and for internal regulations and procedures for its functioning and that of its committees, please refer to Corporate governance and to the following documents published on the company’s website:
- Articles of Association
- Rules of Procedure Supervisory Board, including the Charters of the Board committees
- Rules of Conduct with respect to Inside Information
- (Re)appointment scheme
Changes Supervisory Board and committees 2013
- Christine Poon, James Schiro and Jeroen van der Veer have been reappointed as a member of the Supervisory Board.
Changes and reappointments Supervisory Board 2014
- It is proposed to appoint Orit Gadiesh as a member of the Supervisory Board.*
Changes Management 2014
- Eric Coutinho, Chief Legal Officer and General Secretary will retire on April 30, 2014. He will be succeeded by Marnix van Ginneken (currently Philips’ Head of Group Legal).