Supervisory Board activities

Supervisory Board activities 2018

Q1 activities 2018

• Separation of Specialty Chemicals business (including dual track, risks and carve-out)
• Review of Q4 2017 financials and performance
• 2017 financial statements and profit allocation
• Final 2017 dividend
• Business reviews
• Risk management: risk session outcomes
• Review ISC integrated business plan
• HR strategy update
• Review Winning together: 15 by 20 strategy
• Nomination Supervisory Board Chairman Mr. Nils Andersen
• Investor Relations update

Q2 activities 2018

• Review Q1 2018 financials and performance
• Business reviews
• Annual General Meeting 2018
• Review of possible ways to distribute proceeds from the sale of the Specialty Chemicals business
• Review of banking strategy
• Committee appointments
• Sustainability strategy update
• Functional and ISC updates
• Review Winning together: 15 by 20 strategy

Q3 activities 2018

• Review Q2 2018 financials and performance
• Business reviews
• Succession planning and talent management
• Review of possible ways to distribute proceeds from the sale of the Specialty Chemicals business
• Review materials for November 2018 EGM
• Risk management: Enterprise risk management update
• Functional and business strategy review
• Investor Relations update

Q4 activities 2018

• Closing of sale of the Specialty Chemicals business
• Distribution of proceeds from sale of the Specialty Chemicals business
• November 2018 EGM
• Review Q3 2018 financials and performance
• Business reviews
• IM strategy update
• Interim dividend 2018
• Supervisory Board self-evaluation
• Supervisory Board composition
• Review 2019 budget and outlook
• Internal Audit plan 2019
• Update Winning together: 15 by 20 strategy
• Startup challenge: Paint the Future

Meetings

During 2018, the Supervisory Board held eight regular scheduled meetings, seven additional meetings and a further additional meeting of a delegation of the Supervisory Board consisting of the Chairman and the Vice-Chairman. The additional meetings were required to ensure the Supervisory Board was sufficiently informed and could make considered decisions regarding the divestment of the Specialty Chemicals business and the distribution of the proceeds. The Board of Management attended all regular meetings and all additional meetings. The Executive Committee attended the majority of the scheduled meetings, while the additional meetings were mostly held without the Executive Committee present, but with the General Counsel in attendance. Almost all plenary sessions of the Supervisory Board were preceded or succeeded by an executive session of the Supervisory Board, with the CEO in attendance. The Supervisory Board also regularly held executive sessions without the CEO present.

Supervisory Board attendance record

The table below 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 of its nine members. However, if Supervisory Board members are unable to attend a Supervisory Board or committee meeting, they inform the relevant Chairman, stating the reason and granting the Chairman a proxy to act on their behalf. 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. Mr. Burgmans was excused from decision-making on the nomination of Mr. Andersen as member (and Chairman) of the Supervisory Board. Mr. Grote acted as Vice-Chairman during this meeting

Separation of Specialty Chemicals

In April 2017, the plan to separate Specialty Chemicals within 12 months was announced, which was approved by shareholders at the Extraordinary General Meeting (EGM) held in November 2017. In March 2018, the sale of the Specialty Chemicals business to The Carlyle Group and GIC was announced and completed on October 1, 2018. The Supervisory Board approved the proposal of the Board of Management to distribute a total of €6.5 billion to shareholders, delivering on a commitment to return the vast majority of €7.5 billion net proceeds from the sale of the Specialty Chemicals business. A special cash dividend of €1 billion was paid in December 2017 as advance proceeds. The additional €5.5 billion proceeds will be distributed using a capital repayment and share consolidation of €2 billion (completed in January 2019), a special cash dividend of €1 billion (payable on February 25) and a share buyback thereafter of €2.5 billion (due to be completed by the end of 2019). The capital repayment and share consolidation was approved by shareholders at the EGM in November 2018.

Strategy reviews

During 2018, the Supervisory Board continued to allocate adequate time to discuss strategic activities. This included detailed business analyses and portfolio reviews. By implementing the Winning together: 15 by 20 strategy and a transformation program to create a focused paints and coatings company, the company renewed its efforts to achieve operational and functional excellence and efficiencies. The implementation of Integrated Business Planning (IBP) was considered a key enabler for future performance improvement. In addition, functional and operational strategy updates were reviewed and discussed, including Finance, Information Management, Integrated Supply Chain, Human Resources and Sustainability.

At corporate level, the Supervisory Board received comprehensive market updates and advised, reviewed and approved the transition to the next phase of the company’s transformation. During the 2018 AGM and the Extraordinary General Meeting held in November 2018, it was reconfirmed that this strategy is expected to unlock further value and accelerate growth for AkzoNobel as a focused paints and coatings company.

Sustainability

Sustainability is integral to the company’s business strategy. For AkzoNobel, this means delivering both short-term and long-term value for shareholders and all other stakeholders, because today’s profits are essential to fund tomorrow’s growth.

Our focus on value selling and resource productivity through sustainable product portfolios is an investment in the future success of AkzoNobel. Having sustainability as a core principle motivates employees, is a source of pride and helps to define what the company is and what it stands for. The Supervisory Board views sustainability as an intrinsic value driver in the work of all businesses and all functions. Likewise, the Sustainability Council – which advises the Executive Committee on sustainability developments – contains representatives of every business and function and is led by the CEO.

Over the last 15 years, AkzoNobel has successfully differentiated itself from its competitors by taking a pragmatic approach to business sustainability, seeking to generate more value from fewer resources and turn societal concerns and environmental challenges into product innovations that meet a market need. The company has also benchmarked its sustainability processes and earned respect by achieving a clear leadership status in independent rankings.

During 2018, the Supervisory Board also assessed the company’s sustainability strategy and targets. The Supervisory Board is confident that by making sustainability an explicit differentiator – part of the company’s brand – AkzoNobel enhanced its value proposition for stakeholders, including employees and business partners. Looking forward, the company will continue to develop business opportunities in alignment with relevant UN Sustainable Development Goals (SDGs), creating more shared value from fewer resources. The Supervisory Board pursued a detailed approach to assessing corporate and management performance during the year.

Performance and budget planning

Individual Board of Management and Executive Committee performance was addressed in Supervisory Board meetings following recommendations from the Remuneration Committee. For more details, see the Report of the Remuneration Committee.

Discussions on corporate performance were held at each regular Supervisory Board meeting. These discussions included business reviews and performance updates from corporate functions. Forward-looking targets were also addressed in light of these reviews, and both the proposed budget and operating plan for 2019 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 prevailing market conditions. Following this assessment, the Supervisory Board has approved the proposed budget and operating plan for 2019.

During 2018, the Supervisory Board was pleased to see the company continuing to benefit from management’s strategic initiatives, including cost savings through enhanced efficiencies and operational excellence. This led to profitability improvements during the second half of the year through portfolio simplification, despite higher raw material costs. The nature of this performance provided a basis for the Supervisory Board’s approval of the proposal to increase the dividend for the year 2018. Further details on the 2018 dividend proposal are provided in the Consolidated financial statements and profit allocation paragraph. In addition, the Supervisory Board approved the proposal of the Board of Management to distribute a total of €6.5 billion to shareholders, delivering on a commitment to return the vast majority of €7.5 billion net proceeds from the sale of the Specialty Chemicals business. A special cash dividend of €1 billion was already paid in December 2017.

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 long-term performance and value creation. Risk management updates were received during the year as the Supervisory Board sought to assure itself of the robustness of the company’s risk mitigation and internal controls. These updates covered a variety of subjects, ranging from the transformation of the company into a focused paints and coatings company, the adoption of a new organization model and the relationship with our shareholders, (cyber) security and the cost of raw materials.

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 support our comprehensive global risk management processes and facilitate risk workshops. During the workshops, risk scenarios are prepared and assessed, including the appropriateness of the controls and mitigation measures. Implementation of risk mitigating measures for the key risks, as identified by the Board of Management and the Executive Committee, is monitored by the Supervisory Board and the Audit Committee during the year by means of risk updates and reviews. Further details are included in the Risk management chapter in the Governance and compliance section.

Corporate governance

The Supervisory Board continuously reviews the company’s corporate governance and its compliance with the Dutch Corporate Governance Code.

Talent management and succession planning

Throughout the year, the Supervisory Board discussed and undertook detailed executive succession planning. This included taking the time to discuss its own composition and succession plans in order to ensure continued effectiveness. Discussions in this regard were also held with shareholders. These discussions led to the nomination of Mr. Nils Smedegaard Andersen as a member of the Supervisory Board and the re-appointment of Mr. Byron Grote as a member of the Supervisory Board. The appointment and re-appointment were approved at the AGM held on April 26, 2018. Mr. Andersen has undergone a comprehensive induction to AkzoNobel – including one-on-one meetings with the CEO, CFO and all other Executive Committee members – as well as site visits.

During 2018, the Supervisory Board also discussed changes to the composition of the Executive Committee. The Supervisory Board discussed and supported the appointment of Mrs. Maëlys Castella as Chief Corporate Development Officer and the appointment of Mrs. Isabelle Deschamps as General Counsel.

As the third term of Mrs. Peggy Bruzelius ends in 2019, the Supervisory Board initiated a search for a new member of the Supervisory Board. The requirements of the Dutch Corporate Governance Code and the skills matrix were considered throughout the process.

The Supervisory Board has updated its skills matrix under recommendation from the Nomination Committee. The updated matrix can be found later in this section.

Supervisory Board evaluation

To assess its effectiveness, the Supervisory Board carried out an internal performance evaluation of itself, its individual members, its Audit Committee, Remuneration Committee and Nomination Committee, the Chairman and the chairmen of these committees. The process consisted of Supervisory Board members completing a confidential questionnaire.

The Audit Committee also carried out an internal performance evaluation of itself and invited the members of the Supervisory Board to complete the confidential questionnaire.

In a separate meeting without the Board of Management, the full Supervisory Board discussed the results of the evaluation questionnaires. The Supervisory Board also discussed the functioning of the Board of Management and the performance of its individual members. The Chairman had one-on-one calls with all members of the Supervisory Board to discuss the evaluation. The Audit Committee also had a discussion around the evaluation. These discussions were recorded and conclusions and actions were discussed and confirmed at the meeting of the Supervisory Board and the Audit Committee.

Items addressed were overall performance and composition of the Supervisory Board, the Audit Committee and the other committees, strategic issues and key areas for 2019. Other points discussed were the nature and impact of the discussions, strategy oversight, risk management and internal control and succession planning.

We are pleased to confirm our internal evaluation concluded that the Supervisory Board and its committees continued to operate proficiently. The Supervisory Board was positive about the relatively new and current composition of the Supervisory Board and the Board of Management. There is a dynamic and open atmosphere offering support and constructive challenge. Improvement areas are succession planning and talent management of the Executive Committee.

The Supervisory Board intends to use an external facilitator in the evaluation process every third year. The last external evaluation took place in 2016.

Financial statements and profit allocation

The financial statements of AkzoNobel N.V. for the financial year 2018 were audited by PricewaterhouseCoopers Accountants N.V.. The Board of Management submitted the report and financial statements, including the report of the Board of Management, to the Supervisory Board for review and approval.

The financial statements, the report and management letter of the external auditors were extensively discussed by the Audit Committee with the external auditors, in the presence of the 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 2018 financial statements of AkzoNobel N.V. form an adequate basis to account for the supervision provided (see the Consolidated financial statements). The Audit Committee monitors the follow-up by management of the recommendations made by the external auditors.

The Supervisory Board recommends that the AGM adopts the financial statements as presented in this Report 2018 and, as proposed by the Board of Management, the proposed total dividend for 2018 of €1.80 (2017: €2.50, including €0.85 related to the Specialty Chemicals business), including a final dividend of €1.43 per share (post consolidation). An interim dividend of €0.37 (2017: €0.56) per share was paid in November 2018. This reflects the continued commitment to the company’s aim of providing a stable to rising dividend. The dividend will be paid in cash.

In addition, it is requested that the AGM discharges the members of the Board of Management from their responsibility for the conduct of business in 2018 and the members of the Supervisory Board for their supervision in 2018.