Report of the Supervisory Board

The table on the right provides an overview of the attendance record of the individual members of the Supervisory Board. The Supervisory Board attaches great value to the attendance of its meetings by each Supervisory Board member. However, if Supervisory Board members are unable to attend a Supervisory Board or committee meeting, they inform the relevant Chairman, stating the reason. They also have the opportunity to discuss any agenda items with the relevant Chairman. Attendance is expressed as the number of meetings attended out of the number eligible to attend.

Performance and budget planning

A primary aspect of the Supervisory Board’s ongoing work is assessing management’s performance in the pursuit of the company’s targets and objectives. During the year, the Supervisory Board’s work in performance assessment included the review and discussion of the company’s performance at each Supervisory Board meeting. These meetings also undertook in-depth Business Area by Business Area performance reviews and received updates on forward-looking targets.

In 2015, the Supervisory Board took particular note of the company’s improved performance and successes to date, including its focus on cost reductions through operational excellence and continuous improvement. Accordingly, the Supervisory Board resolved to propose an increased dividend for the year 2015. Further details on the 2015 dividend proposal are provided in the “Financial statements and profit allocation” paragraph.

The Supervisory Board’s ongoing assessment of the company’s performance during the year provided a basis for its discussions on the forward-looking budget and operational plan. Both the proposed budget and operational plan for 2016 were provided by the Board of Management for Supervisory Board’s review and analysis during the final quarter of the year. The budget and plans were assessed in the light of the company’s performance to date and in the context of the five-year outlook, which was discussed as part of the Supervisory Board’s strategic reviews. Following in-depth discussions, the Supervisory Board has approved the proposed budget and operational plan for 2016.

Strategy reviews

Throughout the year, the Supervisory Board reviewed the company’s strategy and risks, as well as its implementation and embedding of operational and functional excellence. In doing so, the Supervisory Board undertook a high level review of operational and commercial strategy, including the company’s five-year outlook. It supplemented these high level discussions with detailed functional reviews and Business Area action plan updates and analyses. Throughout the year, the Supervisory Board’s strategy reviews included a full Strategy Day, analysis of potential project options under management consideration, and functional discussions on Research, Development and Innovation, Integrated Supply Chain, Legal, Human Resources, Global Business Services and Sustainability. Furthermore, the three Executive Committee members with Business Area responsibilities provided regular updates to inform the Supervisory Board on health, safety and environmental matters, in-depth competitor analyses, ongoing projects and year-to-date financials.

The Supervisory Board would like to draw particular attention to the company’s Global Business Services (GBS) implementation. Since 2013, the Supervisory Board has been monitoring the company’s implementation of process and tool standardization, and alignment of the organization towards shared service centers, centers of expertise and business partners. The Supervisory Board has recognized the success of this initiative in reducing general and administrative costs.

In 2015, these programs culminated in the company’s announcement that it will transfer shared service activities to Global Business Services as of January 2016. This transfer will combine the shared activities for Human Resources, Information Management, Finance and non-product related (NPR) Procurement under one organization. GBS will span Europe, North America, Latin America, North East Asia, India and South East Asia. The Supervisory Board is confident that the Executive Committee’s approach in this regard will move AkzoNobel closer to the vision of operational and functional excellence and a platform for continuous improvement.

Sustainability strategy

The Supervisory Board lends particular importance to sustainability in its discussions on strategy and performance. Sustainability continues to represent a core principle of the business, a guideline for how the company conducts itself and an indicator of what AkzoNobel stands for. The company has a Sustainability Council which is led by the CEO and advises the Executive Committee on sustainability developments. More information can be found in the Governance and compliance and Sustainability statements sections of this Report 2015. The Supervisory Board reviews sustainability performance and seeks to ensure that both the Business Areas the functional management – teams such as Procurement, Supply Chain, and Research, Development and Innovation – have objectives that complement, support and engrain the sustainability principles. AkzoNobel’s sustainability strategy is therefore a cross-Business Area, cross-functional program, taking into account the most important sustainability trends in the company’s four key end-user segments and touching on all aspects of its business. During 2015, the Supervisory Board reviewed the company’s performance indicators for safety performance, eco-efficiency and employee engagement, including diversity, inclusion and talent management. We focus on these performance indicators because the company’s current sustainability strategy is based on identifying opportunities for value creation through resource efficiency, innovation, employee engagement and the continued integration of sustainability at all stages of the value chain.

This approach has been paramount in AkzoNobel’s achievement of its status as an industry leader in sustainability and the Supervisory Board wishes to acknowledge the company’s success in maintaining its number one position for the fourth consecutive year in the Materials industry group on the Dow Jones Sustainability Index. This is the tenth year in which AkzoNobel has been ranked in the top three and represents a decade of achievement in implementation of its sustainability initiatives. The Supervisory Board supports the continuation of these achievements through the 2020 sustainability strategy and the Planet Possible agenda, which is fully focused on creating more value from fewer resources and ultimately, the achievement of long-term sustainable business.

Risk management

In addition to reviewing and discussing the strategic direction of the company, the Supervisory Board takes steps to assure itself of the appropriate awareness of risks facing the company and to assess the adequacy of the controls in place to mitigate those risks. The company maintains a risk management framework and a system of internal controls under the auspices of the Board of Management and Executive Committee. In 2015, the company’s enterprise risk management function undertook enterprise risk management workshops, the results of which were prioritized and presented to the Supervisory Board as scenarios. The Supervisory Board uses these scenarios to assess the company’s risk environment and to contribute to the definition of appropriate control and mitigating measures for the top risks facing the company. Subsequently, feedback on the progress of risk mitigating actions that result from these discussions is also provided to the Supervisory Board at subsequent Supervisory Board meetings. Further details are included in the Risk management chapter in the Strategic performance section.

Country visit

The Supervisory Board continues to supplement its analyses and discussions with in-depth operational and Business Area reviews. In September, the Supervisory Board, accompanied by the Executive Committee, undertook its annual visit to one of AkzoNobel’s international locations. This year the decision was taken to visit AkzoNobel’s operations in France. The agenda for the visit included visits to key customers in the region, relevant Decorative Paints stores, and the Decorative Paints site in Montataire. The visit was an opportunity to address and discuss some of the issues faced by the business directly with the local and regional management and employees. In addition, updates from the Performance Coatings and the Specialty Chemicals Business Areas in the region were presented. Broader topics such as industry developments, forecasts and the macro-economic outlook for the region were addressed as well.

Talent management and succession planning

Talent management has been a strong focus for the Supervisory Board in 2015. Throughout the year, the Supervisory Board discussed and undertook detailed analysis of executive succession planning. A talent pool was defined for the purposes of senior level talent development and executive level succession. This talent pool will be monitored and taken forward in the future work of the Nomination Committee, and of the full Supervisory Board.

During 2015, the reappointment of the CEO, Mr. Büchner, was discussed. Mr. Büchner’s current four-year term of office will expire in 2016. The Supervisory Board reviewed and discussed Mr. Büchner’s continued performance in leading the Board of Management and Executive Committee, the company’s management and performance in the pursuit of its defined strategic objectives. The Supervisory Board is satisfied with Mr. Büchner’s performance as CEO and feels that the company’s current strategy of pursuing operational and functional excellence should be maintained. As a result, the Supervisory Board, following the recommendation of the Nomination Committee, has proposed that Mr. Büchner be nominated for reappointment as CEO at the forthcoming 2016 AGM.

In 2015, the Supervisory Board discussed its composition and succession to ensure appropriate candidates were nominated for appointment and succession at the AGM. These discussions were oriented around recommendations made by the Nomination Committee.

The work of the Nomination Committee led to the identification and recommendation of Mr. Grote for appointment as Audit Committee chairman during the year and the nomination of Mr. Sluimers as a candidate for Supervisory Board membership. Mr. Sluimers’ profile is one of senior management and leadership in (among other industries) public and private sector finance and his appointment was approved by the AGM in April. His experience in financial reporting led the Supervisory Board to appoint Mr. Sluimers as an Audit Committee member. Mr. Sluimers has participated in a tailored induction program covering AkzoNobel’s governance, compliance and businesses. This included one-on-one meetings with the CEO, CFO and all other Executive Committee members and governance-related corporate functional directors. The Supervisory Board continued to engage in its own ongoing training during the year.

Supervisory Board evaluation

Each year, the Supervisory Board undertakes an assessment of its effectiveness. This is normally done through an internal evaluation of its performance, those of its individual members, its Audit Committee, its Remuneration Committee and its Nomination Committee. Once every three years, instead of an internal evaluation, the Supervisory Board undergoes an independent external assessment facilitated by a specialist.

In 2015, the Supervisory Board underwent this external assessment of performance with regard to the year 2014. The approach to the assessment was two-fold: all members of the Supervisory Board were asked to complete a questionnaire; subsequently, a personal interview was conducted with each individual by an external consultant, using the results of the questionnaire as a platform for a more in-depth discussion regarding the effectiveness and performance of the Board, its committees, the Chairman and the chairmen of the relevant committees.

Items addressed during the evaluation were overall performance and composition of the Supervisory Board, the Audit Committee, the Nomination and Remuneration Committees, strategic issues and key areas for 2015. Other points discussed were the nature and impact of discussions, meeting processes and procedures, strategy review and oversight, risk management and internal control, talent management and succession planning.

Following the evaluation process, the Supervisory Board discussed the results of the evaluation and the functioning of the Supervisory Board, the Board of Management, the Executive Committee and the performance of their individual members. The Supervisory Board invited the Board of Management to join part of the evaluation discussion. These discussions were led by the independent external consultant and recorded. Conclusions and actions were discussed and approved.

We are pleased to confirm that our external evaluation concluded that the Supervisory Board and its committees operate effectively. In particular, the evaluation found that the Supervisory Board composition, and that of its committees, consists of a good mix of competencies and experienced professionals who deal with key areas of supervision in an appropriate manner. The evaluation was positive about the competence and capabilities of the Supervisory Board Chairman and those of the committees’ chairmen. Certain areas for improvement were identified. These improvement areas will be taken forward in 2016.

Financial statements and profit allocation

The financial statements of Akzo Nobel N.V. for the financial year 2015 were audited by KPMG Accountants N.V. The Board of Management submitted the report and financial statements, including the report of the Board of Management, and the management letter of the external auditor to the Supervisory Board for review and approval.

The financial statements, the report and management letter of the external auditor were discussed by the Audit Committee extensively with the external auditors, in the presence of the CEO and CFO, and by the full Supervisory Board with the Board of Management and the General Counsel. Based on these discussions, the Supervisory Board is of the opinion that the 2015 financial statements of Akzo Nobel N.V. form a good basis to account for the supervision provided (see the Financial information section). The Audit Committee monitors the follow-up by management of the recommendations reported by the external auditor.

The Supervisory Board recommends that the AGM adopts the financial statements as presented in this Report 2015 and, as proposed by the Board of Management, approve the proposed total dividend for 2015 of €1.55 per common share outstanding. This represents an increase of 7 percent over the previous year and demonstrates our commitment to the company’s aim of providing a stable to rising dividend. It is proposed that this amount, less the interim dividend of €0.35 per common share – which was paid in November 2015 – be made payable on May 19, 2016. The dividend will, at the shareholders’ discretion, be paid either in cash or in shares. In addition, we request that the AGM discharges the members of the Board of Management from their responsibility for the conduct of business in 2015 and the members of the Supervisory Board for their supervision in 2015.

Mr. Hughes operated as Audit Committee chairman ad-interim until the appointment of Mr. Grote as permanent Audit Committee chairman during 2015. The other members of the Audit Committee during the year were Mrs. Bruzelius and, following his appointment to the Supervisory Board at the AGM in April, Mr. Sluimers. All members of the Audit Committee have extensive accounting and financial management expertise. The Audit Committee held six meetings during 2015. The attendance record of the members can be seen in the previous attendance chart. Issues discussed in Audit Committee meetings were reported back to the full Supervisory Board in subsequent meetings. Occasionally, the Chairman of the Supervisory Board and other Supervisory Board members upon their request, attended Audit Committee meetings as well.

Review of Audit Committee charter

As part of its annual review of the Audit Committee charter, the Audit Committee proposed an amendment to expressly formalize the Audit Committee’s involvement in supervising the activities of the Board of Management with respect to information and communication technologies in use by the company. The amendments were proposed and approved by the full Supervisory Board.

Results and financial statements

Before each publication of the quarterly results and the annual financial statements, the Audit Committee reviewed the financial results. In addition, the Audit Committee was consulted on the reports and press releases to be published, along with those issues reviewed by the company’s Disclosure Committee. Based on these discussions, advice was provided by the Audit Committee to the Supervisory Board in regard to the publications and disclosures. Approval of the full Supervisory Board is required ahead of any quarterly or annual release of financial results.

In order to ensure its effectiveness and expertise, the Audit Committee is provided regular updates on IFRS developments and the anticipated impact of these developments on the financial statements. In addition, the Audit Committee was briefed on management assertions made in regard to relevant accounting treatments.

Governance, risk management and internal control systems

The Audit Committee reviewed AkzoNobel’s overall approach to governance, risk management and internal control systems, its processes, outcomes and disclosures. It reflected on the uncertain market conditions in Europe, the slowdown in emerging markets, the impact of restructuring and discussed contingency planning.

In addition, the Audit Committee reviewed the annual operational plan (including budget) and AkzoNobel’s dividend proposals. On fulfilling its oversight responsibilities in relation to governance, risk management and internal control systems, the Audit Committee met regularly with senior executives. The General Counsel reported regularly to the Audit Committee on the company’s compliance framework and compliance matters and activities, and on major litigation and liability exposure. The Internal Auditor reported to the Audit Committee on their assessment of the status of the system of governance, risk management and internal controls throughout 2015.

Internal audit plan

The Internal Auditor reports to the CEO, but also directly to the Audit Committee and presents all main audit findings. The Audit Committee reviewed the internal audit plan, risk assessment and strategy and agreed upon its budget and resource requirements. The evaluation of the performance and quality of the Internal Audit function by the external auditor was discussed, with members being satisfied with the effectiveness of the function. The Audit Committee met independently with the Internal Auditor during the year and discussed the results of the audits performed.

External audit report

KPMG Accountants N.V., AkzoNobel’s external auditor, reported in-depth to the Audit Committee on the scope and outcome of the annual audit of the financial statements, including the consolidated financial statements and the company financial statements.

The Audit Committee held independent meetings with the external auditor during the year and reviewed and challenged the external auditor’s approach to auditing the company, engagement letter, fees, risk assessment and audit plan. Other topics discussed included:

• The hard close which was discussed with the intention of improving efficiency of the year-end process and to highlight important issues for the annual financial statements. AkzoNobel performed a hard close as of October 31, 2015. Aligned with this, the external auditor performed certain procedures in respect of the financial outcomes as of the same date
• The quality of external audit
• Impact of new accounting rules

The Audit Committee performed the annual review of the services of the external auditor, and continues to closely monitor international discussions on auditor independence. Despite the 2015 revision by the European Union allowing for a longer period prior to the mandatory first rotation year, the April 2014 AGM’s decision to appoint PWC as external auditor as of the review of the 2016 financial statements will be maintained. Further details on the external auditor can be found in the Governance and compliance section.

Audit Committee evaluation

Every year the Audit Committee undergoes an annual evaluation of its effectiveness and performance. In general, this process involves the Audit Committee undertaking a self-evaluation of its performance in conjunction with the Supervisory Board. Once every three years, the Audit Committee instead undergoes an independent external assessment of its effectiveness and performance facilitated by a specialist.

In 2015, the Audit Committee underwent this external evaluation of its effectiveness and performance with regard to the year 2014. As with the process adopted for the Supervisory Board as a whole, the evaluation consisted of a questionnaire completed by Audit Committee members with a subsequent personal interview between each member and an external consultant. Results of the evaluation were subsequently reviewed by the Audit Committee and the Supervisory Board.

The Audit Committee is pleased to confirm that the results of the evaluation were such that the Audit Committee was found to be operating effectively. The evaluation determined that Audit Committee discussions are appropriately focused and that the Audit Committee’s composition provides a good framework for new impetus and discussion. The reporting of matters by the Audit Committee to the Supervisory Board was similarly found to be clear and adequate.

The Remuneration Committee consists of three members and is chaired by Ms. Baldauf. The other members of the Remuneration Committee are Mr. Verwaayen and the Chairman of the Supervisory Board, Mr. Burgmans. The Remuneration Committee held four meetings in 2015. The attendance record of the members can be seen in the previous attendance chart.

Review management performance 2014

One of the key tasks of the Remuneration Committee in the first quarter of the year is the performance review of the Board of Management members and other members of the Executive Committee. The Remuneration Committee performed a thorough performance review of the CEO and, together with the CEO, of the CFO and the other Executive Committee members for the year 2014.

Review management base salaries 2015

The Remuneration Committee reviewed the base salaries and the establishment of relevant forward-looking target ranges for variable remuneration for Board of Management members and other members of the Executive Committee. Proposals for the remuneration of Executive Committee members were reviewed and discussed with the CEO. Information on the remuneration of the Board of Management and the Supervisory Board can be found in the Remuneration report and in Note 21 of the Consolidated financial statements.

Remuneration Policy review

In 2015, the Remuneration Committee reviewed the Remuneration Policy to assess whether it was still aligned with the external market and the objectives of the company. Following these discussions, the Remuneration Committee’s recommendations have been provided to the Supervisory Board.

For further details, reference is made to the Remuneration Report.

Remuneration Committee evaluation

The Remuneration Committee’s evaluation of performance and effectiveness undertaken during 2015 forms part of the overall Supervisory Board evaluation. Once every three years, this takes the form of an independent external assessment of the Remuneration Committee’s effectiveness and performance facilitated by a specialist.

In 2015, the Remuneration Committee underwent this external evaluation of its effectiveness and performance with regard to the year 2014. As with the process that was adopted for the Supervisory Board as a whole, the evaluation consisted of a questionnaire, followed by a personal interview with an external consultant. Results of the evaluation were subsequently reviewed by the Remuneration Committee and the Supervisory Board.

The 2015 evaluation of the performance and effectiveness of the Remuneration Committee found that the Remuneration Committee is operating effectively and highlighted certain areas for improvement which will be taken forward in 2016.

The Nomination Committee consists of three members and is chaired by Mr. Burgmans. The other two members are Ms. Baldauf and Mr. Verwaayen. The Nomination Committee held three meetings in 2015. The attendance record of the members of the Nomination Committee can be seen in the previous attendance chart.

Talent management and executive succession

During the year, the Nomination Committee took time to address the structure and composition of the Board of Management. 2016 will see the end of the current term of office for the company’s CEO, Mr. Büchner, and accordingly the Nomination Committee has reviewed, assessed and discussed the performance of Mr. Büchner and the adequacy of his nomination for reappointment for a further four-year term as CEO at the AGM 2016.

To facilitate its discussions on the topic of executive succession planning generally, the Nomination Committee was presented with talent management updates from Human Resources. In 2015, the Supervisory Board and the Nomination Committee worked to define and identify a talent pool which can be called upon for the purposes of executive succession planning in the future and this will continue in 2016.

Supervisory Board succession

An additional aspect of the Nomination Committee’s work is reviewing the appointment schedule for the Supervisory Board itself and making relevant recommendations accordingly.

Early in 2015, the Nomination Committee discussed the size, structure and composition of the Supervisory Board in order to determine appropriate criteria for the selection of candidates for Supervisory Board membership. An external search agency was engaged for the fielding of candidates for succession and nomination to the Supervisory Board. The agency employed a rigorous search process after first gaining a thorough understanding of the culture of AkzoNobel, its strategic ambitions, the specific leadership roles and competencies needed to meet those ambitions. Based on the results of these Nomination Committee discussions and the work of the external search agency, the Nomination Committee was able to recommend to the Supervisory Board the nomination of Mrs. Bruzelius for reappointment at the AGM 2015 and the nomination of Mr. Sluimers as a new Supervisory Board member at the same meeting.

During 2015, the Nomination Committee addressed the forthcoming end of the terms of office for both Ms. Baldauf and Mr. Verwaayen. For both Ms. Baldauf and Mr. Verwaayen this will be the end of their first term. In accordance with the Supervisory Board’s Rules of Procedure, both Ms. Baldauf and Mr. Verwaayen are eligible to be reappointed. It is felt that Ms. Baldauf and Mr. Verwaayen continue to contribute their expertise constructively to the work of the Supervisory Board. Accordingly, the Nomination Committee has addressed relevant recommendations to the Supervisory Board.

Nomination Committee evaluation

As with the Remuneration Committee, the Nomination Committee undergoes an annual evaluation of its effectiveness and performance as part of the Supervisory Board evaluation. Once every three years, this takes the form of an independent external assessment of the Nomination Committee’s effectiveness and performance facilitated by a specialist.

In 2015, the Nomination Committee underwent this external evaluation of its effectiveness and performance with regard to the year 2014. As with the process that was adopted for the Supervisory Board as a whole, the evaluation consisted of a questionnaire, followed by a personal interview with an external consultant. Results of the evaluation were subsequently reviewed by the Nomination Committee and the Supervisory Board.

This evaluation found that the Nomination Committee continues to operate effectively and highlighted certain areas for improvement which will be taken forward in 2016.