Philips 2011 Annual Report Download - page 82

7 Risk management 7.1 - 7.1
82 Annual Report 2011
As part of the BCF, Philips has implemented a global
standard for internal control over financial reporting
(ICS). The ICS, together with Philips’ established
accounting procedures, is designed to provide reasonable
assurance that assets are safeguarded, that the books and
records properly reflect transactions necessary to permit
preparation of financial statements, that policies and
procedures are carried out by qualified personnel and that
published financial statements are properly prepared and
do not contain any material misstatements. ICS has been
deployed in all main reporting units, where business
process owners perform an extensive number of
controls, document the results each quarter, and take
corrective action where necessary. ICS supports sector
and functional management in a quarterly cycle of
assessment and monitoring of its control environment.
The findings of management’s evaluation are reported to
the Board of Management.
As part of the Annual Report process, management’s
accountability for business controls is enforced through
the formal issuance of a Statement on Business Controls
and a Letter of Representation by sector and functional
management to the Board of Management. Any
deficiencies noted in the design and operating
effectiveness of controls over financial reporting which
were not completely remediated are evaluated at year-
end by the Board of Management. The Board of
Management’s report, including its conclusions regarding
the effectiveness of internal control over financial
reporting, can be found in section 12.1, Management’s
report on internal control, of this Annual Report.
Philips General Business Principles
The Philips General Business Principles (GBP) govern
Philips’ business decisions and actions throughout the
world, applying to corporate actions and the behavior of
individual employees. They incorporate the fundamental
principles within Philips for doing business. The intention
of the GBP is to ensure compliance with laws and
regulations, as well as with Philips’ norms and values.
The GBP are available in most of the local languages and
are an integral part of the labor contracts in virtually all
countries where Philips has business activities.
Responsibility for compliance with the principles rests
primarily with the management of each business. Every
country organization and each main production site has a
compliance officer. Confirmation of compliance with the
GBP is an integral part of the annual Statement on
Business Controls that has to be issued by the
management of each business unit. The GBP incorporate a
whistleblower policy, standardized complaint reporting
and a formal escalation procedure.
The global implementation of the One Philips Ethics
hotline seeks to ensure that alleged violations are
registered and dealt with consistently within a company-
wide system. To drive the practical deployment of the
GBP, a set of directives has been published, which are
applicable to all employees. There are also separate
directives which apply to specific categories of employees
(e.g. the Supply Management Code of Ethics and Financial
Code of Ethics, refer to www.philips.com/gbp).
In November 2011 an updated version of the GBP
Directives and the Philips Whistleblower Policy came into
force, reflecting the effect of recent developments in the
area of business ethics (UK Bribery Act, Dodd-Frank Act,
UN Guiding Principles on Human Rights). To seek to
ensure compliance with the highest standards of
transparency and accountability by all employees
performing important financial functions, the Financial
Code of Ethics contains, amongst other things, standards
to promote honest and ethical conduct, as well as full,
accurate and timely disclosure procedures in order to
avoid conflicts of interest. Philips did not grant any waivers
of the Financial Code of Ethics in 2011.
2011 saw a further tightening of the checks on compliance
with the Supply Management Code of Ethics: Philips
employees performing purchasing functions are now
obliged to sign, on an annual basis, to confirm their
awareness of, and compliance with, this code.
In order to seek to ensure 100% management
commitment to the GBP, a global internal communication
program addressing the 5,000 highest-ranking employees
was developed to support local management in their
communications about the updated GBP Directives,
thereby ensuring a consistent “tone at the top”.
Moreover, GBP dilemma training was provided for Philips
Executives, while the 5,000 highest-ranking managers
were enrolled on a dedicated GBP e-training course.
The GBP self-assessment process is fully embedded in the
Philips ICS tool, a workflow application supporting sector/
function management in monitoring internal controls.
Management of reporting units are required to answer
these questions before year-end and report their findings
via a dedicated control. Embedding GBP self-
assessments in ICS seeks to ensure that GBP compliance
is now part of sector/function management’s quarterly
ICS/SOx (Sarbanes-Oxley) monitoring process, and that
GBP non-compliance issues, if significant, are reported to
the Board of Management/Executive Committee via the
Quarterly Certification Statement process.