Supervisory Board activities

Strategy reviews

During 2016, the Supervisory Board continued to allocate adequate time at each Supervisory Board meeting to discuss strategic activities. This included detailed Business Area analyses and functional and operational strategy updates.

The company’s continued pursuit of operational excellence and efficiencies, the implementation of the Global Business Services (GBS) model and restructuring of functional departments were all areas of focus. In addition, the company’s digital strategy was reviewed and strategy updates were received from Information Management, Human Resources and Sustainability.

The Supervisory Board received comprehensive market updates, considered the company’s five-year outlook and advised, reviewed and approved the transition to the next phase of the company’s long-term strategy. During the 2016 AGM, it was highlighted that this strategy included the pursuit of value generating acquisitions and the Supervisory Board has had a diligent analytical role to play in the company’s assessment of such acquisition opportunities during the year.

In February 2016, after a period of careful consideration and detailed analysis by the Supervisory Board, the company announced its intention to acquire the Industrial Coatings business of BASF for an amount of €425 million (after closing adjustments and working capital requirements). The Supervisory Board supported the proposed acquisition in light of the synergies with AkzoNobel’s Performance Coatings business and the market positions it would help to deliver.

Sustainability

The Supervisory Board wishes to draw specific attention to sustainability as an aspect of its work during the year. Although an integral part of all elements of the company’s business, it is particularly relevant in light of the United Nations Conference of the Parties (COP21) Paris agreement to limit global temperature rises and carbon emissions. This agreement, reached in late 2015, was a substantial achievement and specified Nationally Determined Contributions which have the potential to impact the markets in which the company operates. The Supervisory Board considers it likely that the agreement will lead to increased demand for carbon reducing products, technologies and innovations, and that it will enhance the competitive advantages of resource efficiency and carbon footprint reduction. For this reason, the Supervisory Board has continued its long-standing incorporation of eco-premium solutions, resource efficiency and cradle-to-grave carbon reduction in its target setting, its assessment of corporate strategy and initiatives, and its assessment of investment opportunities proposed by management.

Given its integral importance, AkzoNobel’s sustainability program is both cross-Business Area and cross-functional, impacting all segments of the company’s business. The Supervisory Board’s reviews of sustainability therefore address both functional and Business Area management teams, including Procurement, Supply Chain, and Research, Development and Innovation, in addition to all three Business Areas. The company also maintains a Sustainability Council led by the CEO. The council advises the Executive Committee on sustainability developments. More information on its role can be found in the Governance and compliance section and the Sustainability statements of this Report 2016.

During the year, the Supervisory Board received updates on eco-premium solutions, cradle-to-grave carbon footprint, the Resource Efficiency Index, eco-efficiency, safety performance, diversity and talent management. It also assessed whether all functions have targets that complement and promote sustainability and long-term business viability.

A particular feature of the Supervisory Board’s sustainability agenda during 2016 has been to address, oversee and review management’s actions in light of the company’s position in the Dow Jones Sustainability Index rankings. The company’s lower ranking in 2016 must be considered in light of its 11 consecutive years on the index, and its four consecutive years as the top performer. Nevertheless, the Supervisory Board is keen to see management addressing the decline during the year and accordingly will continue to pursue improved performance in areas such as eco-efficiency.

The company’s sustainability performance drives AkzoNobel to be an industry leader in areas such as innovation, product stewardship, climate strategy and employee engagement. This comprehensive and rounded approach to sustainability and long-term value creation is a feature of AkzoNobel’s business and is engrained in the company’s 2020 sustainability strategy, its Planet Possible agenda and Human Cities initiative. During 2017, the Supervisory Board will also assess the company’s 2025 sustainability targets and strategy in this regard.

Performance and budget planning

The Supervisory Board pursued a detailed approach to assessing corporate and management performance during the year. Individual Board of Management and Executive Committee performance was addressed in Supervisory Board meetings following recommendations from the Remuneration Committee. Further details can be found in the report of the Remuneration Committee in this section.

Discussions on corporate performance are held at each Supervisory Board meeting. These discussions include Business Area reviews and performance updates from corporate functions. Forward-looking targets were also addressed in light of these reviews and both the proposed budget and operational plan for 2017 were provided for the Supervisory Board’s review and approval in the final quarter of the year. The Supervisory Board took a diligent approach to assessing these plans, taking into account the prevailing market conditions and the five-year outlook. Following this assessment, the Supervisory Board has approved the proposed budget and operational plan for 2017.

During 2016, the Supervisory Board was pleased to see the company continuing to benefit from management’s strategic initiatives, including cost reductions through enhanced efficiencies and operational excellence. This led to profitability improvements during the year, despite adverse and uncertain economic market conditions. The nature of this performance provided a basis for the Supervisory Board’s approval of the proposal to increase the dividend for the year 2016. Further details on the 2016 dividend proposal are provided in the Financial statements and profit allocation paragraph below.

Risk management

The Supervisory Board views risk management as an essential mechanism, not only for safeguarding the business and assets of AkzoNobel, but also for securing versatility and long-term performance and value creation. Risk management updates were received throughout the year as the Supervisory Board sought to assure itself of the robustness of the company’s risk mitigation and internal controls. As an aspect of these assurances, the Supervisory Board considered the company’s business continuity planning and information technology continuity plans. Cyber security has been an increasing focus for the company and, during the year, the Supervisory Board received and scrutinized updates on the implementation of the company’s cyber security roadmap as an aspect of its information management strategy.

The Board of Management and Executive Committee maintain the risk management framework and system of internal controls. The company’s governance risk and compliance functions, including its in-control team and enterprise risk management function, undertake comprehensive global risk assessment processes and workshops. The results of these have been used to prepare risk scenarios, which in turn were used to assess the appropriateness of the controls and mitigation measures for the top risks facing the company. Implementation of risk mitigating measures was subsequently monitored by the Supervisory Board during the year by means of risk updates and reviews at proceeding Supervisory Board meetings. Further details are included in the Risk management chapter in the Strategic performance section.

Corporate governance

The Supervisory Board is aware of the forthcoming revisions to the Dutch Corporate Governance Code (the Code). The potential impact of any changes in preparation for the implementation of the revised Code has been assessed. The Supervisory Board is satisfied that the company is either already meeting the requirements of the revised Code, or is well placed to implement the revisions on a “comply or explain” basis. Where changes to the corporate governance framework of the company are undertaken by virtue of the requirements of the revised Code or otherwise, they will be reported in the annual report for the relevant financial year and discussed at the subsequent AGM.

Country visit

In 2016, a visit to Newcastle in the UK took place. The visit was also attended by the Board of Management and Executive Committee. It provided an opportunity for the Supervisory Board to meet and hear from company leaders and receive updates on Business Area operations in the UK. It also included visits to the new Decorative Paints facility in Ashington and the Performance Coatings site and laboratories in Felling. This visit took place in September and was all the more relevant given the recent UK referendum decision to leave the European Union (or so-called Brexit). The Supervisory Board used this occasion to receive detailed analysis on operational and market risks resulting from the UK referendum vote decision. This input has subsequently been incorporated into the Supervisory Board’s ongoing risk awareness. It will continue to form a backdrop to our oversight of management’s preparedness for the ultimate departure of the UK from the European Union.

Talent management and succession planning

Throughout 2016, the Supervisory Board continued its focus on talent management. Analysis of executive succession planning was carried out and, following a recommendation from the Nomination Committee, an extensive review of the executive talent pool was undertaken. The aim of the talent pool is to promote senior level talent development and secure executive level succession over the long term. Further details can be found in the report of the Nomination Committee Report. This talent pool will continue to be monitored by the Nomination Committee and the full Supervisory Board.

During the year, following a recommendation from the Nomination Committee, the Supervisory Board was pleased to nominate the CEO, Mr. Ton Büchner, for reappointment at the AGM in April. Mr. Büchner was appointed for a second four-year term by the AGM.

The Supervisory Board also considered the CEO’s appointment of Mr. Thierry Vanlancker as Executive Committee member responsible for Specialty Chemicals. Following the Supervisory Board’s approval, Mr. Vanlancker joined the company in October 2016 and succeeded Mr. Werner Fuhrmann as the Executive Committee member responsible for Specialty Chemicals in February 2017. Mr. Fuhrmann decided to retire after 37 years with AkzoNobel.