Internal risks

A failure to properly and fully implement our strategic agenda could adversely affect our company and its businesses. Our ability to grasp future opportunities might be hampered by the speed of the implementation of organizational changes and performance improvement programs.

The appropriateness of our strategic agenda, our performance against this agenda and our governance structure is continuously monitored by the Executive Committee and the Supervisory Board. Specific attention is paid to areas such as macro-economic developments, general and financial market developments, competitive situation, performance improvement potential, sustainability, geographical spread, emerging markets, political risks and acquisition and divestment opportunities. Risks are minimized as we operate in attractive industries, have global leading positions and have strong executive leadership in place. As of January 2011, we strengthened our decision-making process and implementation monitoring by establishing an Executive Committee structure, which allows us to better manage the strategic agenda. Remuneration systems are tied to performance against key strategic agenda items. For example, our long-term executive remuneration is partly linked to the relevant Sustainable Asset Management (SAM) ranking (see Remuneration report in this section).

Our success depends on the sustainable growth of our business through research, development and innovation. If we are not able to identify major transforming technologies in a timely manner, this may lead to the loss of our leadership positions and adversely affect our business and results.

Risk of missing relevant technology developments is mitigated in four ways.

Our ambitious growth plans may not be achieved if we fail to attract and retain the right people. We depend on the continued contribution of our employees.

Growing our business calls for the need to grow our people. Therefore, AkzoNobel puts emphasis, not only on attracting and retaining employees, but also on their motivation, development and building capability. To strengthen these efforts, we have a dedicated Executive Committee member for the Human Resources function and have implemented an employee engagement program. The Human Resources function is also part of the comprehensive three-year performance improvement plan, launched in October 2011. HR instruments such as performance appraisals, the employee survey and leadership identification and review, as well as leadership development, are used to optimize support to our business. We provide clarity in the working environment through information and communication programs. Special focus is dedicated to high growth markets. Remuneration packages may include long and short-term incentives. However, the Executive Committee ensures that employees are not encouraged to act in their own interest and take risks that are not in keeping with the company’s strategy and risk appetite.

We undertake various restructuring, investment and performance improvement projects that require significant change management and project management expertise. Failure to manage these change projects appropriately, or to implement such projects, may lead to inability to achieve our strategic ambitions.

Risk management is an integral part of project management excellence. Senior management is involved in all critical projects that are prioritized and supervised by the Executive Committee to ensure an aligned and integrated vision and thrust from the top for the company’s change agenda. Major initiatives, such as the performance improvement projects, are under the direct supervision of dedicated Executive Committee members. Furthermore, we are prioritizing inclusion of the project management and change management curricula in our AkzoNobel Academy.

Risks in production processes can adversely affect our results. These risks concern areas such as personal health and safety, process safety, product safety and operational eco-efficiency. Unlikely scenarios can involve major incidents with a high impact for our organization, causing businesses continuing risks and reputational damage.

We mitigate production risks by spreading out production and operating an adequate inventory policy. This is combined with business continuity planning and appropriate risk transfer arrangements (for example insurance). To achieve our operational eco-efficiency (OEE) ambitions, we have initiated improvement activities based on our 2010 review of waste management, water consumption, volatile organic compounds (VOCs) and energy. The next stage is to stimulate continuous improvement on OEE and initiate process and technology changes which will deliver step change improvements. To help realize our safety ambitions, we have defined clear KPIs and increased management attention on people safety, as well as implementing enhanced process safety – such as asset integrity and occupational health standards – and improving the HSE audit process.