Philips 2011 Annual Report Download - page 109

11 Corporate governance 11.1 - 11.2
Annual Report 2011 109
In line with regulatory requirements, the Company’s policy forbids
personal loans to and guarantees on behalf of members of the Board
of Management or the Supervisory Board, and no loans and guarantees
have been granted and issued, respectively, to such members in 2011,
nor are any loans or guarantees outstanding as of the date of this Annual
Report on Form 20-F.
The aggregate share ownership of the members of the Board of
Management and the Supervisory Board represents less than 1% of the
outstanding ordinary shares in the Company.
Risk management approach
Within Philips, risk management forms an integral part of business
management. The Company has implemented a risk management and
internal control system that 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 applicable laws and regulations and by
safeguarding the reliability of the financial reporting and its disclosures.
The Executive Committee reports on and accounts for internal risk
management and control systems to the Supervisory Board and its
Audit Committee. The Company has designed its internal control
system in accordance with the recommendations of the Committee of
Sponsoring Organizations of the Treadway Commission (COSO).
The Company’s risk management approach is embedded in the periodic
business planning and review cycle and forms an integral part of business
management. On the basis of risk assessments, management
determines the risks and appropriate risk responses related to the
achievement of business objectives and critical business processes. Risk
factors and the risk management approach, as well as the sensitivity of
the Company’s results to external factors and variables, are described
in more detail in chapter 7, Risk management, of this Annual Report.
Significant changes and improvements in the Company’s risk
management and internal control system have been discussed with the
Supervisory Board’s Audit Committee and the external auditor and are
disclosed in that section as well.
With respect to financial reporting a structured self-assessment and
monitoring process is used company-wide to assess, document, review
and monitor compliance with internal control over financial reporting.
Internal representations received from management, regular
management reviews, reviews of the design and effectiveness of internal
controls and reviews in corporate and divisional audit committees are
integral parts of the Company’s risk management approach. On the
basis thereof, the Board of Management confirms that internal controls
over financial reporting provide a reasonable level of assurance that the
financial reporting does not contain any material inaccuracies, and
confirms that these controls have properly functioned in 2011. The
financial statements fairly represent the financial 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 financial business objectives, nor can they prevent all
misstatements, inaccuracies, errors, fraud and non-compliances with
rules and regulations.
In view 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. The above statement on internal
controls should not be construed as a statement in response to the
requirements of section 404 of the US Sarbanes-Oxley Act. The
statement as to compliance with section 404 is set forth in the section
Management’s report on internal control over financial reporting of this
Annual Report.
Philips has a financial code of ethics which applies to certain senior
officers, including the CEO and CFO, and to employees performing an
accounting or financial function (the financial 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 confidential,
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 financial nature and to report
complaints about members of the Executive Committee 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
certifications with respect to the Annual Report on Form 20-F.
A Disclosure Committee is in place, which advises the various officers
and departments involved, including the CEO and the CFO, on the
timely review, publication and filing of periodic and current (financial)
reports. Apart from the certification 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 Group and Company
financial 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. The
members of the Board of Management issue the responsibility
statement with regard to chapter 12, Group financial statements, of this
Annual Report, pursuant to requirements of Dutch civil and securities
laws.
11.2 Supervisory Board
Introduction
The Supervisory Board supervises the policies of the Board of
Management and Executive Committee 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 body that is independent of the Board of Management.
Its 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
pursuant to the Dutch Corporate Governance Code and under the
applicable US Securities and Exchange Commission standards.
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 and
Executive Committee in performing its management tasks and setting
the direction of the Group’s business, including (a) achievement of the
Company’s objectives, (b) corporate strategy and the risks inherent in
the business activities, (c) the structure and operation of the internal
risk management and control systems, (d) the financial reporting
process, (e) compliance with legislation and regulations, (f) the
operational and financial objectives, (g) the parameters to be applied in
relation to the strategy, (h) corporate social responsibility issues and
(i) the company-shareholder relationship. 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
interests, 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, technological, manufacturing, 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 attaches great importance to diversity in its composition. More
particularly, it aims at having members with a European and a non-
European background (nationality, working experience or otherwise),
one or more female members and one or more members with an
executive or similar position in business or society no longer than 5
years ago. In line with US and Dutch best practices, the Chairman of
the Supervisory Board should be independent pursuant to the Dutch
Corporate Governance Code and under the applicable US standards.
The Rules of Procedure of the Supervisory Board are published on the
Company’s website. They include the charters of its committees, to
which the plenary Supervisory Board, while retaining overall
responsibility, has assigned certain tasks: the Corporate Governance
and Nomination & Selection Committee, the Audit Committee and the
Remuneration Committee. A maximum of one member of each
committee need not be independent as defined by the Dutch
Corporate Governance Code. Each committee reports, and submits its
minutes for information, to the Supervisory Board.