Philips 2005 Annual Report Download - page 219

Philips Annual Report 2005 219
fulllitsownresponsibilities.MajordecisionsoftheBoardofManagement
require the approval of the Supervisory Board; these include decisions
concerning(a)theoperationalandnancialobjectivesoftheCompany,
(b) the strategy designed to achieve the objectives, and, if necessary,
(c) the parameters to be applied in relation to the strategy.
The Supervisory Board has decided to propose to the 2006 General
Meeting of Shareholders to appoint the current CEOs of the Company’s
operating divisions as members of the Board of Management, effective
April 1, 2006.
Risk management approach
The Board of Management is responsible for ensuring that the Company
complies with all relevant legislation and regulations. It is responsible
forpropernancingoftheCompanyandthemanagementoftherisks
that the Company is facing. It reports on and accounts for internal risk
management and control systems to the Supervisory Board and its
Audit Committee. Risk factors and the risk management approach –
including the internal risk management and control system and the
certicationthereofbytheBoardofManagement,aswellasthe
sensitivity of the Company’s results to external factors and variables –
are described in more detail in the Annual Report. Within Philips,
risk management forms an integral part of business management. The
Company’s risk and control policy is designed to provide reasonable
assurance that strategic objectives are met by creating focus, by
integrating management control over the Company’s operations,
by ensuring compliance with legal requirements and by safeguarding the
reliabilityofthenancialreportinganditsdisclosures.TheCompany’s
risk management approach is embedded in the periodic business planning
andreviewcycle.Withrespecttonancialreportingastructuredself-
assessment and monitoring process is used company-wide to assess,
document, review and monitor compliance with internal control over
nancialreporting.Onthebasisofriskassessments,operatingdivision
and business management determines the risks related to the
achievement of business objectives and appropriate risk responses
in relation to business processes and objectives.
The Board of Management is responsible for internal control in the
Company and has implemented a risk management and control system
thatisdesignedtoensurethatsignicantrisksareidentiedandto
monitortherealizationofoperationalandnancialobjectivesofthe
Company. Furthermore the system is designed to ensure compliance
with relevant laws and regulations. The Company has designed its
internal control system in accordance with the recommendations of the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO), which recommendations are aimed at providing a reasonable
level of assurance.
The Company’s risk management and internal control system is designed
to determine risks in relation to the achievement of operational and
nancialbusinessobjectivesandappropriateriskresponses.Themost
importantrisksidentied,aswellasthestructureoftheaforesaidrisk
management and internal control system, are discussed in the section
Risk management that begins on page 101 of this Annual Report.
SignicantchangesandimprovementsintheCompany’sriskmanagement
and internal control system are disclosed in that section and have been
discussed with the Supervisory Board’s Audit Committee and the
external auditor.
Internal representations received from management, regular management
reviews, reviews of the design and implementation of the Company’s
risk management approach and reviews in business and functional audit
committees are integral parts of the Company’s risk management
approach.Onthebasisthereof,theBoardofManagementconrms
thatinternalcontrolsovernancialreportingprovideareasonablelevel
ofassurancethatthenancialreportingdoesnotcontainanymaterial
inaccuracies,andconrmsthatthesecontrolshaveproperlyfunctioned
in 2005 and that there are no indications that they will not continue
todoso.Thenancialstatementsfairlyrepresentthenancial
condition and result of operations of the Company and provide
the required disclosures.
It should be noted that the above does not imply that these systems
and procedures provide certainty as to the realization of operational
andnancialbusinessobjectives,norcantheypreventallmisstatements,
inaccuracies, errors, fraud and noncompliances with rules and regulations.
In view of all of the above the Board of Management believes that it is
in compliance with the requirements of recommendation II.1.4. of
the Dutch Corporate Governance Code, taking into account the
recommendation of the Corporate Governance Code Monitoring
Committee on the application thereof. This statement cannot be
construed as a statement in accordance with the requirements of
section 404 of the US Sarbanes-Oxley Act.
Philipshasanancialcodeofethicswhichappliestocertainsenior
ofcers,includingtheCEOandCFO,andtoemployeesperformingan
accountingornancialfunction(thenancialcodeofethicshasbeen
published on the Company’s website). The Company, through the
Supervisory Board’s Audit Committee, also has appropriate procedures
in place for the receipt, retention and treatment of complaints received
by the Company regarding accounting, internal accounting controls
orauditingmattersandthecondential,anonymoussubmissionby
employees of concerns regarding questionable accounting or auditing
matters. Internal ‘whistleblowers’ have the opportunity, without
jeopardizing their position, to report on irregularities of a general,
operationalornancialnatureandtoreportcomplaintsaboutmembers
of the Board of Management to the Chairman of the Supervisory Board.
In view of the requirements under the US Securities Exchange Act,
procedures are in place to enable the CEO and the CFO to provide
certicationswithrespecttotheAnnualReportonForm20-F(which
incorporates major parts of the Annual Report).
ADisclosureCommitteeisinplace,whichadvisesthevariousofcers
and departments involved, including the CEO and the CFO, on the
timelyreview,publicationandlingofperiodicandcurrent(nancial)
reports.ApartfromthecerticationbytheCEOandCFOunder
US law, each individual member of the Supervisory Board and the
BoardofManagementmustunderDutchlaw,signthenancialstatements
being disclosed and submitted to the General Meeting of Shareholders
for adoption. If one or more of their signatures is missing, this shall
be stated, and the reasons given for this.
Amount and composition of the remuneration of the Board
of Management
The remuneration of the individual members of the Board of
Management is determined by the Supervisory Board on the proposal
of the Remuneration Committee of the Supervisory Board, and is
consistent with the policies thereon as adopted by the General Meeting
of Shareholders. The remuneration policy applicable to the Board of
Management was adopted by the 2004 General Meeting of Shareholders,
and amended by the 2005 General Meeting of Shareholders and is
published on the Company’s website. A full and detailed description
of the composition of the remuneration of the individual members
of the Board of Management is included in the chapter Report of the
Supervisory Board that begins on page 60 of this Annual Report
and other parts of this Annual Report.
The remuneration structure, including severance pay, is such that it
promotes the interests of the Company in the medium and long term,
does not encourage members of the Board of Management to act in
their own interests and neglect the interests of the Company, and does
not reward failing members of the Board of Management upon
termination of their employment. The level and structure of remuneration
shall be determined in the light of factors such as the results, the share
price performance and other developments relevant to the Company.
The main elements of the contract of employment of a new member
oftheBoardofManagement–includingtheamountofthe(xed)base
salary, the structure and amount of the variable remuneration component,
any severance plan, pension arrangements and the general performance
criteria – shall be made public no later than the time of issuance of
the notice convening the General Meeting of Shareholders in which
a proposal for appointment of that member of the Board of Management
has been placed on the agenda. From August 1, 2003 onwards, for new
members of the Board of Management the term of their contract of
employment is set at a maximum period of four years, and in case of