Philips 2015 Annual Report Download - page 70

Risk management 7.4
70 Annual Report 2015
Due to the fact that Philips is dependent on its
personnel for leadership and specialized skills, the loss
of its ability to attract and retain such personnel would
have an adverse eect on its business.
The attraction and retention of talented employees in sales
and marketing, research and development, finance and
general management, as well as of highly specialized
technical personnel, especially in transferring technologies
to low-cost countries, is critical to Philips’ success. This is
particularly valid in times of economic recovery. The loss of
specialized skills could also result in business interruptions.
There can be no assurance that Philips will continue to be
successful in attracting and retaining all the highly qualified
employees and key personnel needed in the future.
Warranty and product liability claims against Philips
could cause Philips to incur signicant costs and aect
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 condition and operating results.
Any damage to Philips’ reputation could have an
adverse eect on its businesses.
Philips is exposed to developments which could affect its
reputation. Such developments could be of an
environmental or social nature, or connected to the behavior
of individual employees or suppliers and could relate to
adherence to regulations related to labor, health and safety,
environmental and chemical management. Reputational
damage could materially impact Philips’ financial condition
and operating results.
7.5 Compliance risks
Legal proceedings covering a range of matters are
pending in various jurisdictions against Philips and its
current and former group companies. Due to the
uncertainty inherent in legal proceedings, it is dicult
to predict the nal outcome.
Philips, including a certain number of its current and
former group companies, is involved in legal
proceedings relating to such matters as competition
issues, commercial transactions, product liability,
participations and environmental pollution. Since the
ultimate outcome of asserted claims and proceedings,
or the impact of any claims that may be asserted in the
future, cannot be predicted with certainty, Philips’
nancial position and results of operations could be
aected materially by adverse outcomes.
Please refer to note 26, Contingent assets and
liabilities, for additional disclosure relating to specic
legal proceedings.
Philips is exposed to governmental investigations and
legal proceedings with regard to possible anti-
competitive market practices.
Philips is facing increased scrutiny by national and
European authorities of possible anti-competitive
market practices. Philips’ nancial position and results
could be materially aected by an adverse nal
outcome of governmental investigations and litigation,
as well as any potential related claims.
Philips’ global presence exposes the company to
regional and local regulatory rules, changes to which
may aect the realization of business opportunities and
investments in the countries in which Philips operates.
Philips has established subsidiaries in over 80
countries. These subsidiaries are exposed to changes in
governmental regulations and unfavorable political
developments, which may aect the realization of
business opportunities or impair Philips’ local
investments. Philips’ increased focus on the healthcare
sector increases its exposure to highly regulated
markets, where obtaining clearances or approvals for
new products is of great importance, and where there
is a dependency on the available funding for healthcare
systems. In addition, changes in reimbursement
policies may aect spending on healthcare.
Philips is exposed to non-compliance with General
Business Principles.
Philips’ attempts to realize its growth ambitions could
expose it to the risk of non-compliance with the Philips
General Business Principles, such as anti-bribery
provisions. This risk is heightened in growth
geographies as the legal and regulatory environment is
less developed in growth geographies compared to
mature geographies. Examples include commission
payments to third parties, remuneration payments to
agents, distributors, consultants and the like, and the
acceptance of gifts, which may be considered in some
markets to be normal local business practice (See also
note 26, Contingent assets and liabilities).
Defective internal controls would adversely aect our
nancial reporting and management process.
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 aect the nancial position
and results and hamper expected growth.