Philips 2015 Annual Report Download - page 92

Corporate governance 11.1
92 Annual Report 2015
of stock options) during ‘windows’ of twenty business days
following the publication of annual and quarterly results
(provided the person involved has no ‘inside information’
regarding Philips at that time unless an exemption is
available). Furthermore, the Rules of Procedure of the Board
of Management and Executive Committee contain
provisions concerning ownership of and transactions in non-
Philips securities by members of the Board of Management.
Members of the Board of Management are prohibited from
trading, directly or indirectly, in securities of any of the
companies belonging to the peer group, during one week
preceding the disclosure of Philips’ annual or quarterly
results. The rules referred to above in this paragraph apply
to members of the Executive Committee correspondingly.
Transactions in shares in the Company carried out by
members of the Board of Management or members of the
Supervisory Board and other Insiders (if applicable) are
notified to the Netherlands Authority for the Financial
Markets (AFM) in accordance with Dutch law and, if
necessary, to other relevant authorities.
Indemnication of members of the Board of
Management and Supervisory Board
Unless the law provides otherwise, the members of the
Board of Management and of the Supervisory Board
shall be reimbursed by the Company for various costs
and expenses, such as the reasonable costs of
defending claims, as formalized in the Articles of
Association. Under certain circumstances, described in
the Articles of Association, such as an act or failure to
act by a member of the Board of Management or a
member of the Supervisory Board that can be
characterized as intentional (opzettelijk), intentionally
reckless (bewust roekeloos) or seriously 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 2015, nor are any loans or guarantees
outstanding as of December 31, 2015.
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 based on the “Internal Control-
Integrated Framework (2013)” established by 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 eectiveness of internal controls and
reviews in group and Business Group, Market and
Function Audit & Risk 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 2015. 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