Philips 2013 Annual Report Download - page 120

10 Corporate governance 10.1 - 10.2
120 Annual Report 2013
culpable (‘ernstig verwijtbaar’), there will be no entitlement to this
reimbursement unless the law or the principles of reasonableness and
fairness require otherwise. The Company has also taken out liability
insurance (D&O - Directors & Officers) for the persons concerned.
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 2013, nor are
any loans or guarantees outstanding as of December 31, 2013.
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
[Risk management]. 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 eectiveness 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 2013. 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. In
addition to 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 11, Group financial statements, of this Annual Report, as
required by applicable Dutch company law and securities law.
10.2 Supervisory Board
Introduction
The Supervisory Board supervises the policies of the Board of
Management and Executive Committee and the general course of aairs
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) the Philips group’s
performance, (b) the Philips group’s general strategy and the risks
connected to its business activities, (c) the operational and financial
objectives, (d) the parameters to be approved in relation to the strategy,
(e) corporate social responsibility issues (f) the structure and management
of the systems of internal business controls, (g) the financial reporting
process, (h) the compliance with applicable laws and regulations, (i) the
company-shareholders relationship, and (j) the corporate governance
structure of the Company. The Group’s strategy and major management
decisions are discussed with and approved by the Supervisory Board. For
a description of further responsibilities and tasks of the Supervisory Board
please refer to the Supervisory Board’s Rules of Procedure which is
published on the Company’s website.
In its report, the Supervisory Board describes the composition and
functioning of the Supervisory Board and its committees, the activities of
the board and its committees 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) and
one or more members with an executive or similar position in business or
society no longer than 5 years ago.
Pursuant to new Dutch legislation on board diversity, eective January 1,
2013, the Company shall pursue a policy of having at least 30% of the seats
on the Supervisory Board held by men and at least 30% of the seats held
by women. The rule will cease to have eect on January 1, 2016. For more