Philips 2004 Annual Report Download - page 200

group is divided into quintiles. Based on this relative TSR position
at the end of December, the Supervisory Board establishes a
multiplier which varies from 0.8 to 1.2 and depends on the quintile
in which the Philips TSR result falls. Every individual grant, the size
of which depends on the positions and performance of the
individuals, will be multiplied by the multiplier.
Members of the Board of Management hold shares in the
Company for the purpose of long-term investment and will refrain
from short-term transactions in Philips securities. According to
the Philips’ Rules of Conduct on Inside Information, members of
the Board of Management are only allowed to trade in Philips
securities (including the exercise of stock options) during
‘windows’ of ten business days following the publication of annual
and quarterly results (provided the person involved has no ‘inside
information’ regarding Philips at that time). Furthermore, the Rules
of Procedure of the Board of Management contain provisions
concerning ownership of and transactions in non-Philips securities
by members of the Board of Management and the annual
notification to the Philips Compliance Officer of any changes in a
member’s holding of securities related to Dutch listed companies.
In order to avoid the impression that the Company should or
could take corrective action in respect of a certain transaction in
securities in another company by a member of the Board of
Management and the unnecessary administrative burden, the
Supervisory Board and the Board of Management consider this
annual notification to be in line with best practices and sufficient to
reach an adequate level of transparancy; however, it is not fully
applying the Dutch Corporate Governance Code
recommendation II.2.6 which requires notification on a quarterly
basis. Members of the Board of Management are prohibited from
trading, directly or indirectly, in securities in any of the companies
belonging to the above-mentioned peer group of 24 leading
multinational electronics/electrical companies.
Indemnification of members of the Board of
Management and Supervisory Board
Unless the law provides otherwise, the members of the Board of
Management and of the Supervisory Board shall be reimbursed by
the Company for various costs and expenses, such as the
reasonable costs of defending claims, as formalized in the
Amended Articles of Association. Under certain circumstances,
described in the Amended Articles of Association, such as an act
or failure to act by a member of the Board of Management and
member of the Supervisory Board that can be characterized as
intentional (‘opzettelijk’), intentionally reckless (‘bewust
roekeloos’) or seriously culpable (‘ernstig verwijtbaar’), there will
be no entitlement to this reimbursement. The Company has also
taken out liability insurance (D&O) for the persons concerned.
Supervisory Board
General
The Supervisory Board supervises the policies of the executive
management (the Board of Management) and the general course of
affairs of Philips and advises the executive management thereon.
The Supervisory Board, in the two-tier corporate structure under
Dutch law, is a separate and independent body from the Board of
Management. That independent character is also reflected in the
requirement that members of the Supervisory Board can be
neither a member of the Board of Management nor an employee
of the Company. The Supervisory Board considers all its members
to be independent under the applicable SEC standards and
pursuant to the Dutch Corporate Governance Code.
The Supervisory Board, acting in the interests of the Company and
the Group and taking into account the relevant interest of the
Company’s stakeholders, supervises and advises the Board of
Management in performing its management tasks and setting the
direction of the Group’s business, including (i) achievement of the
Company’s objectives, (ii) corporate strategy and the risks
inherent in the business activities, (iii) the structure and operation
of the internal risk management and control systems, (iv) the
financial reporting process, and (v) compliance with legislation and
regulations. Major management decisions and the Group’s strategy
are discussed with and approved by the Supervisory Board. In its
report, the Supervisory Board describes its activities in the
financial year, the number of committee meetings and the main
items discussed.
Rules of Procedure of the Supervisory Board
The Supervisory Board’s Rules of Procedure set forth its own
governance rules (including meetings, items to be discussed,
resolutions, appointment and re-election, committees, conflicts of
interest, trading in securities, profile of the Supervisory Board). Its
composition follows the profile, which 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 and
government and public administration in relation to the global and
multi-product character of the Group’s businesses. The
Supervisory Board further aims to have available appropriate
experience within Philips by having one former Philips executive as
a member. In line with US and Dutch best practices, the Chairman
of the Supervisory Board should be independent under the
applicable US standards and pursuant to the Dutch Corporate
Governance Code; because this provision does not exclude a
former Philips executive from being Chairman of the Supervisory
Board, but only if he or she meets these standards, it is not fully in
199Philips Annual Report 2004