Philips 2008 Annual Report Download - page 100

Compliance risks
Exposure to non-compliance with general business
principles.
Philips’ attempts to realize its growth targets could
expose it to the risk of non-compliance with Philips
General Business Principles. This risk is heightened in
emerging markets as corporate governance systems,
including information structures and the monitoring
of ethical standards, are less developed in emerging
markets compared to mature markets. Examples
include commission payments to third parties,
remuneration payments to agents, distributors,
commissioners and the like (‘Agents’), or the
acceptance
of gifts, which may be considered in
some markets to be normal local business practice.
Reliability of reporting and disclosures, and safeguarding
of assets.
The reliability of reporting is important in ensuring
that management decisions for steering the businesses
and managing both top-line and bottom-line growth
are based on top-quality data. Flaws in internal control
systems could adversely affect the financial position
and results and hamper expected growth.
The correctness of disclosures provides investors
and other market professionals with significant
information for a better understanding of Philips’
businesses. Imperfections or lack of clarity in the
disclosures could create market uncertainty regarding
the reliability of the data presented and may have
a negative impact on the Philips share price.
Compliance procedures have been adopted by
management to ensure that the use of resources is
consistent with laws, regulations and policies, and that
resources are safeguarded against waste, loss and
misuse. Ineffective compliance procedures relating to
the safeguarding of assets could have an adverse effect
on the financial results.
Non-compliance with data privacy and product
security laws.
Philips’ brand image and reputation will be adversely
impacted by non-compliance with the various (patient)
data privacy and (medical) product security laws.
Privacy and product security issues may arise with
respect to remote access or monitoring of patient
data or loss of data on customers’ systems.
Diversity in information technology (IT) could result
in ineffective or inefficient business management. IT
outsourcing and off-shoring strategies could result in
complexities in service delivery and contract management.
Furthermore, we observe a global increase in IT security
threats and higher levels of professionalism in computer
crime, posing a risk to the confidentiality, availability
and integrity of data and information.
Philips is engaged in a continuous drive to create a more
open, standardized and, consequently, more cost-effective
IT landscape. This is leading to an approach involving
further outsourcing, off-shoring, commoditization
and ongoing reduction in the number of IT systems.
The global increase in security threats and higher
levels of professionalism in computer crime have
raised the Company’s awareness of the importance
of effective IT security measures, including proper
identity management processes to protect against
unauthorized systems access. The integration of new
companies and successful outsourcing of business
processes are highly dependent on secure and well-
controlled IT systems.
Warranty and product liability claims against Philips
could cause Philips to incur significant costs and affect
Philips’ results as well as its reputation and
relationships with key customers.
Philips is from time to time subject to warranty
and product liability claims with regard to product
performance and effects. Philips could incur product
liability losses as a result of repair and replacement
costs in response to customer complaints or in
connection with the resolution of contemplated
or actual legal proceedings relating to such claims.
In addition to potential losses arising from claims and
related legal proceedings, product liability claims could
affect Philips’ reputation and its relationships with key
customers, both customers for end products and
customers that use Philips’ products in their production
process. As a result, product liability claims could
materially impact Philips’ financial position and results.
Any damage to Philips’ reputation could have an
adverse effect on its businesses.
Philips is exposed to developments which could affect
its reputation. Such developments could be of an
environmental or social nature, or related to
individual behavior of employees.
Philips Annual Report 2008100
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Our group performance
18
We care about...
8
Message from
the President
6
Performance highlights
14
Who we are