Introduction
The Supervisory Board is in charge of supervising and advising the Managing Board in setting and achieving the company’s objectives, strategy, policies and succession planning. In 2014 an important part of its activities was focused on operational performance and strategy; refining the business portfolio assumptions as well as preparing the new corporate strategy update to be discussed and approved in 2015.
Furthermore, the Supervisory Board was closely involved in reviewing the corporate risk assessment carried out in the year, discussing the Top 5 risks identified from a strategic, business and operational point of view as reported in the Integrated Annual Report.
In DSM's two-tier corporate structure under Dutch law, the Supervisory Board is a separate body operating fully independently of the Managing Board. Members of the Supervisory Board and the Managing Board are (re-)appointed by the General Meeting of Shareholders.
Composition of the Supervisory Board
The composition of the DSM Supervisory Board is diverse in gender (four male, three female), nationality (four Dutch, one Swiss and two American), background, knowledge and experience. The Board's current members are Rob Routs (chair), Ewald Kist (deputy chair), Pierre Hochuli, Tom de Swaan, Pauline van der Meer Mohr, Victoria Haynes and Eileen Kennedy. For detailed information on their background, see the DSM website under Corporate Governance and page 112 of this report. The targeted profile of the Supervisory Board is reflected in its regulations, which are published on the DSM website under Corporate Governance. The Supervisory Board has four committees to cover four key areas in greater detail: auditing, nominations (of the Supervisory Board and Managing Board), remuneration (of the Supervisory Board and Managing Board) and corporate social responsibility.
More information on these four committees is given below. The charters of the committees are published on the DSM website under Corporate Governance.
Composition of the Managing Board
The Managing Board is diverse in nationality (two Dutch, two Austrian and one member being a Swiss, British and French citizen), background, knowledge and experience, and provides a good foundation to support all clusters and business groups in achieving their targets and so contributing to the company strategy aimed at driving focused growth. In 2014 the Managing
Board became more diverse in terms of gender with the appointment of Geraldine Matchett as Board Member and CFO. For detailed background information on all Managing Board members see the DSM website under Corporate Governance and page 113 of this report.
Meetings and business topics
In 2014 the Supervisory Board had six meetings and one conference call with the Managing Board. On two occasions, a member was excused due to other commitments. In addition to the standard agenda items for the meetings, such as the development of the financials and the running business performance, the Boards had in-depth discussions on operational performance and the progress of the execution of DSM’s strategy, as well as the preparation for an update of DSM’s overall strategy to be discussed and approved in 2015. Apart from its meetings with the Managing Board, the
Supervisory Board and its Committees also regularly had meetings without the presence of the Managing Board or CEO. For the Nutrition cluster discussions were focused on organic growth and improving performance, among other things against the backdrop of a slowdown in some human nutrition end- markets and pricing pressure in several product segments (notably in Vitamin E).
Discussions on the Materials Sciences clusters remained focused on efficiencies, ongoing cost control, improving performance by upgrading the Performance Materials cluster’s portfolio and reducing exposure to the volatility of the Polymer Intermediates markets. Regarding Innovation, discussions were particularly focused on the innovation pipeline and on the Emerging Business Areas (EBAs) with topics including the opening of the cellulosic bio-ethanol plant (a joint venture between DSM and POET) in the US and the inauguration of the solar technology demonstration center in India.
Sustainability discussions were focused on People and Planet targets; safety, health and environment; and inclusion and diversity received particular attention. It was established that progress made was in line with aspirations.
As High Growth Economies are also an important business growth driver for DSM, one of the Supervisory Board meetings was held in Sao Paolo (Brazil) and included extensive site visits. During these visits the Supervisory Board was informed about the progress made in Brazil in the area of both Life Sciences and Materials Sciences. The visits included locations in Campinas and Mairinque, where the Supervisory Board was updated on the business of acquired companies Fortitech (global leader in food ingredient blends, acquired in 2012) and Tortuga (Brazilian
Report by the Supervisory Board
market leader in organic trace minerals for animal nutrition and health, acquired in 2013) and on progress made in integrating these businesses in the Nutrition cluster. In addition a visit was made to Aurora Alimentos, a local customer of DSM.
Financials and auditing
The Audit Committee met three times in 2014 and in addition had four conference calls to discuss financial developments and interim results. On two occasions a member was excused. Tom de Swaan (chair), Pierre Hochuli and Victoria Haynes are the members of the Audit Committee. All Supervisory Board members have a standing invitation to attend Audit Committee meetings, which they do on a regular basis. In addition to the Supervisory Board member, the external auditor and the CFO and CEO participated in these meetings and, whenever relevant, managers responsible for corporate control, internal audit, risk management and compliance were invited to explain
developments in their areas to the Audit Committee. The highlights and the minutes of all meetings were shared with the full Supervisory Board. This feedback included advice and recommendations regarding topics to be approved by the full Supervisory Board.
The committee had in-depth discussions on the financials, the financing and guarantee plan, the capital expenditure plan, the dividend proposals, financial statements, accounting policy changes, internal risk management and control systems, potential risks (including safety, health and environment and security risks), compliance with recommendations and
observations made by internal and external auditors, and the role and functioning of the operational audit department, including the endorsement of its proposed audit plan. As part of the corporate risk assessment, the main risks of low organic growth, price deterioration, insufficient progress in capturing innovation value, economic and financial volatility, and the mitigation of those risks, were extensively discussed.
The committee also discussed and evaluated cases submitted under DSM’s whistleblower policy (DSM Alert), and mitigating actions to prevent recurrence.
The Audit Committee discussed as well the transition plan for the handover from EY to KPMG, who will take over the external audit work as of January 2015, and monitored progress.
In addition to the audit work, the external auditor of the company (EY) carried out non-audit work, to the extent allowed under applicable legislation (including new legislation in the
Netherlands) and regulations and the internal procedures of the company. Important areas where non-audit services were provided by EY related to tax compliance work for certain foreign subsidiaries and expatriate tax services. All audit and non-audit
work carried out by the external auditor for the company was performed in line with the conditions and instructions approved by the Supervisory Board on the recommendation of the Audit Committee and after consultation with the Managing Board. For work that is not within the scope of the audit of the consolidated financial statements individual assignments require pre-approval from the Audit Committee prior to execution. Fees and conditions of the external auditor for audit and non-audit work were approved by the Audit Committee.
Discussions were held with EY about the financial statements for 2014. As part of the planning process, key audit matters dealing with, among others, the valuation of goodwill, the possible impairment of the caprolactam business, the partnering of the DSM Pharmaceutical Products business, and the
implementation of new accounting standards affecting the accounting treatment of several affiliated companies, were explained and shared with the Audit Committee.
The Report by the Managing Board and the financial statements for 2014 were submitted by the Managing Board to the Supervisory Board, in accordance with the provisions of Article 30 of the Articles of Association, and subsequently approved by the Supervisory Board in its meeting on 2 March 2015. The financial statements were audited by EY, who issued an unqualified opinion (see the Independent Auditor's Report on the Financial Statements of this report). The Supervisory Board established that the external auditor was independent of DSM. In accordance with new legislation in the Netherlands as well as European legislation with regard to the independence of auditors (mandatory audit firm rotation), KPMG was appointed at the Annual General Meeting of 2014 as the new external auditor for DSM as of 2015, for an initial period of three years.
Financial statements 2014
The Supervisory Board will submit the 2014 financial statements to the 2015 Annual General Meeting of Shareholders, and will propose that the shareholders adopt them and release the Managing Board from all liability in respect of its managerial activities and release the Supervisory Board from all liability in respect of its supervision of the Managing Board. The profit appropriation as proposed by the Managing Board and approved by the Supervisory Board is presented in the Profit appropriation section of the 2014 Integrated Annual Report. The Supervisory Board wishes to express its sincere appreciation for the results achieved and would like to thank the employees and the Managing Board for their efforts.
Board nominations
In 2014 nomination discussions were focused on succession planning. The Nomination Committee discussed the proposed
appointment of Geraldine Matchett as successor to Rolf-Dieter Schwalb; her appointment as a member of the Managing Board and CFO was approved by the General Meeting of Shareholders in 2014. The Committee furthermore extensively discussed the succession planning of the entire Managing and Supervisory Board. As part of the planning process, the nomination for re- appointment of Stephan Tanda and Stefan Doboczky, whose terms as Managing Board member expire in 2015, was discussed. In addition, the nomination for re-appointment of Pauline van der Meer Mohr was addressed as her term as Supervisory Board member also expires in 2015. As Pauline van der Meer Mohr is a member of the Nomination Committee, this discussion was held in her absence. Other members of the Nomination Committee are Rob Routs (chair) and Ewald Kist. Feike Sijbesma and Peter Vrijsen, Executive Vice President of the Corporate Human Resources department, were also involved in these discussions.
Taking into account the Supervisory Board profile, as laid down in the Supervisory Board regulations, the Nomination Committee continued discussions on the overall composition of the Supervisory Board. The Committee met four times in 2014; all members attended all meetings. Recommendations and minutes of all Nomination Committee meetings were shared with the entire Supervisory Board.
Board remuneration
The Remuneration Committee had three meetings and one conference call in 2014. One member was excused from the conference call. Ewald Kist (chair), Rob Routs and Tom de Swaan are members of this committee. Discussions were focused on the performance and the related remuneration of the members of the Managing Board and executives of DSM. Feike Sijbesma and Peter Vrijsen were also involved in these
discussions. Recommendations and minutes of the
Remuneration Committee meetings were shared with the full Supervisory Board and used to determine the final remuneration of the members of the Managing Board.
Within the context of the Committee discussions, the subject of Supervisory Board members holding shares in DSM was also discussed. Although not common practice in the
Netherlands and based on the understanding that a decision to hold shares in DSM is fully left to the individual Supervisory Board members, DSM would support the idea of Supervisory Board members having a shareholding in the company (e.g. equivalent to their annual fee) to emphasize their confidence in the strategy of DSM.
Corporate Social Responsibility
The Corporate Social Responsibility (CSR) Committee met twice in 2014; all members participated in these meetings. Members
of this committee are Pauline van der Meer Mohr (chair), Pierre Hochuli and Eileen Kennedy. The Chair of the Supervisory Board, who has a standing invitation, participated in all meetings. In the first meeting there was extensive discussion on the Sustainability Information to be included in the Integrated Annual Report including the auditors’ findings, partly in the presence of the external auditor.
The second meeting focused on the follow-up of the
implementation of the corporate strategy and the progress made with the implementation of sustainability aspirations set by the company as part of its strategy. Details of the progress can be found on page 25 of this Integrated Annual Report. In addition, DSM's safety performance, an important focus area for the company, was discussed in the CSR Committee meeting. The recommendations and minutes of both meetings were shared and discussed with the entire Supervisory Board during its meetings with the Managing Board. The committee's view that DSM is doing well when it comes to sustainability is supported by the fact that the company has been named among the leaders in the Dow Jones Sustainability World Index for several years in a row. The CSR Committee as well as the other members of the Supervisory Board also participated in one of the meetings of DSM’s external Sustainability Advisory Board, which acts as an external sounding board and meets with DSM's top
management twice a year.
In view of the Board's supervision of sustainability issues relevant to the company, the sections 'DSM in motion: driving focused growth', 'Growth driver: Sustainability', 'Stakeholder
Engagement', 'People in 2014' and 'Planet in 2014' (the Sustainability Information) in the Integrated Annual Report 2014 were reviewed and subsequently discussed by the entire Supervisory Board in its meeting of 10 February 2015, based on the advice of its CSR Committee. With the Independent Assurance Report on the Sustainability Information by EY on page 204 of this Integrated Annual Report taken into
consideration, the full Supervisory Board approved the reporting in these sections. The Sustainability Information is in compliance with the G4 sustainability reporting guidelines of the Global Reporting Initiative and the internal reporting criteria of DSM, which are included in this Integrated Annual Report. Supervisory Board meetings and performance evaluation As in previous years, an extensive Board evaluation was carried out in 2014 on the basis of written questionnaires and interviews with each of the Supervisory Board members.
The review assessed the collective performance of the Board and its Committees and the performance of the Chairman. The overall feedback from the self-evaluation was that the Board is operating well and discussions are very open and constructive.
Key areas of strategy, business performance and risk
management are well covered; in the coming year more attention will be given to talent management, the implementation of the Code of Business Conduct and the impact of sustainability targets. This outcome was presented and discussed in the December meeting of the Supervisory Board. The Board established that all of its members are committed to allocating sufficient time and attention to the Board's duties of supervising and advising the DSM Managing Board.