Supervisory Board Chairman’s statement

As a Supervisory Board, we are committed to the company’s long-term value creation and focus on accelerating its growth and achievements in areas such as innovation, product stewardship, climate strategy and employee engagement. Accordingly, sustainability remains fundamental to AkzoNobel’s business strategy. Following the COP 21 Paris Agreement to limit global temperature rises and corresponding carbon emissions, we consider the company to be well placed to contribute to the achievement of low carbon and climate resilient development. AkzoNobel prioritizes carbon footprint management throughout the value chain and leverages social and environmental value creation to drive economic performance. The Supervisory Board views this as a competitive advantage, particularly as demand for eco-premium solutions increases within the company’s end-user segments, and as competitors begin to internalize the costs associated with the environmental impact of their operations.

AkzoNobel’s sustainability agenda is a key element of the next phase of the company’s strategy, which was explained in detail at the 2016 Annual General Meeting of shareholders (AGM). As the company pursues its growth strategy and progress continues to be made towards the vision of leading market positions delivering leading performance, the Supervisory Board has a constructive, advisory and analytical role in overseeing management’s formulation and implementation of this strategic goal. This includes monitoring the company’s contribution to the UN Sustainable Development Goals (see Sustainable Development Goals) and the progress being made with both the Planet Possible sustainability agenda and the global Human Cities initiative.

Establishing strong market positions will become increasingly important in light of the uncertainties of the global economic environment. In 2016, we witnessed a number of global events which contributed to the complexity of this environment and the markets in which the company operates. Such events reinforce the need for comprehensive risk awareness on the part of the Supervisory Board.

Throughout the year, we paid particular attention to AkzoNobel’s preparedness to meet future developments and uncertainties as and when they arise. A thorough review of management’s five-year outlook for the company took place, along with a complete budget review process for 2017. In addition, we continued to review and scrutinize the most significant risks facing the businesses, with the Supervisory Board’s Audit Committee continuing to oversee and monitor the company’s systems of internal control and risk management. The Supervisory Board also considered ongoing compliance matters and reviewed and approved the company’s business partner compliance framework. Another area of particular focus during 2016 was cyber security. Both the Audit Committee and the Supervisory Board have received regular updates from the company’s Information Management function on its digital strategy and cyber security roadmaps.

When assessing performance, the Supervisory Board has taken a 360 degree approach, both generally and in terms of management’s progress against specified targets. We continued to receive Business Area performance updates at each Supervisory Board meeting, and these were discussed and analyzed, along with regular updates on the performance of the various functions. In addition, the Supervisory Board has assessed progress against the company’s peers through regular in-depth competitor analyses and assessment of the key performance indicators. We received the condensed financial statements of the company on a quarterly basis and, following review and comment from the Audit Committee, the Supervisory Board approved quarterly financial result publications.

The resulting confidence which the Supervisory Board holds in the company’s current performance, and its readiness for the future, is reflected in the recommendation of an increased dividend for shareholders for the financial year 2016. This will be the second year in succession we have proposed increasing dividend distributions. It also reflects our commitment to the stated dividend policy of delivering stable to rising dividends. The share buyback announced at the end of 2016 will neutralize the dilutive effect of stock dividends paid in 2016. The Supervisory Board believes this dividend policy remains appropriate in light of the company’s financial position and the corporate strategy. We continue to take a diligent approach in assessing the dividend policy and balancing its attainment with the need for growth-oriented investments.

With regard to its own performance and effectiveness, in 2016 the Supervisory Board underwent training on compliance and human rights. The Supervisory Board also elected to undergo a second consecutive external evaluation with regard to its performance. This external evaluation further developed the feedback which the Supervisory Board and its committees received in their 2015 evaluation, as well as providing a follow-up on the actions derived from that evaluation. This year’s evaluation highlighted the importance of Supervisory Board involvement in matters of cyber security and specific areas of the corporate strategy. Its findings were taken forward and incorporated into the work and agenda of the Supervisory Board throughout the year.

During 2016, the Nomination and Remuneration Committee also assessed the performance of individual members of the Board of Management and Executive Committee and issued recommendations to the Supervisory Board accordingly. Our positive appraisal of the current management profile was demonstrated by our nomination of Mr. Ton Büchner for reappointment at the 2016 AGM for a second term as CEO of AkzoNobel. In addition, the continued commitment and contributions of Ms. Baldauf and Mr. Verwaayen were secured for a further four years by their individual reappointments as members of the Supervisory Board at the AGM.

At the same meeting, following a comprehensive candidate search and subsequent recommendations from the Nomination Committee, the Supervisory Board proposed Dr. Pamela Kirby for appointment as a new Supervisory Board member. Dr. Kirby has a strong background in the chemicals and pharmaceutical industries, among others. Following her appointment and induction, the Supervisory Board chose to assign her as a member of the Supervisory Board’s Remuneration and Nomination Committees. The Supervisory Board also welcomed the CEO’s appointment of Mr. Thierry Vanlancker to the Executive Committee as successor to Mr. Werner Fuhrmann. Mr. Fuhrmann will retire from the company in 2017 and, following approval from the Supervisory Board, Mr. Vanlacker assumed responsibility for the Specialty Chemicals Business Area in February 2017.

To underpin a consistent and structured approach to succession planning, the Supervisory Board and Nomination Committee continue to oversee the company’s talent management initiatives and their development. Both the Nomination Committee and the Supervisory Board have received updates from Human Resources on talent management during the year and, in particular, have promoted the development of a talent pool for internal management succession.

With regard to Supervisory Board succession planning, the Nomination Committee proposed the introduction of a Supervisory Board skills matrix to assist gap analyses of the Supervisory Board profile. Recommendations for succession and reappointment were made after careful consideration of both the profile and the skills matrix (see Nomination Committee Report). During 2016, these succession processes resulted in the appointment of Ms. Baldauf as Chair of the Nomination Committee and Mr. Byron Grote as Deputy Chairman. In case of my absence or inability to act, Mr. Grote will perform the tasks and exercise the powers associated with my role, in accordance with the company’s corporate governance framework. You can find full details of the company’s corporate governance framework – including information on the remuneration policy, compliance codes and systems, integrity management and shareholder relations – in the Governance and compliance section of this Report 2016.

The Supervisory Board has taken first steps to assess the scope of the changes required by the new Dutch Corporate Governance Code, including the impact they may have on AkzoNobel’s current corporate governance framework. I am confident that the company is either already meeting the new requirements, or is adequately prepared to make relevant changes in order to meet them. Where changes are made, these will be reported in the annual report for the relevant year and discussed at the subsequent AGM.

I would like to conclude by expressing my gratitude for the diligence, cooperation and teamwork demonstrated by my fellow Supervisory Board members during 2016. Together, we would also like to thank the company’s CEO, Ton Büchner, the CFO, Maëlys Castella, the other members of the Executive Committee and all employees for their commitment and hard work throughout 2016.

Antony Burgmans
Chairman of the Supervisory Board