Corporate governance
The main events and developments at DSM in this field in 2007 can be summarized on the basis of this year's Annual General Meeting of Shareholders (28 March 2007). The agenda was to a large extent similar to that of previous years. The proposal to introduce a loyalty dividend was withdrawn before the meeting, as a consequence of the decision by the Enterprise Chamber of the Amsterdam Court of Appeal that such a proposal was in conflict with Dutch legislation. In the meantime this decision has been overruled by the Dutch Supreme Court in its decision of 14 December 2007. The intention of the proposal was to introduce a tool enabling us to get to know our shareholders and facilitate long-term relationships with them. DSM will keep looking for ways to reach this goal.
The meeting was informed about the way DSM is applying the Dutch corporate governance code.
A special item on the agenda was the amendment of the Articles of Association, which concerned the introduction of a Dividend Re-Investment Plan (DRIP) and the incorporation into the Articles of Association of the option for using electronic communication media in the decision-making process. The latter concerns among other things the electronic convening of general meetings of shareholders, electronic participation in the meetings and electronic voting prior to the meeting.
For the first time an electronic voting system was used during the General Meeting of Shareholders. All resolutions that were tabled were passed, including the appointment of Mr Stephan Tanda as member of the Managing Board.
Apart from the above-mentioned issues relating to the Annual General Meeting of Shareholders, no other major developments are to be reported with regard to DSM's corporate governance practices.
For the latest information on the various aspects of DSM’s corporate governance, see
www.dsm.com (Governance section).
The Managing Board is responsible for risk management in the company and has designed and implemented a risk management system. The aim of the system is to ensure that the extent to which the company’s strategic and operational objectives are being achieved is understood, that the company’s reporting is reliable and that the company complies with relevant laws and regulations.
The important risks identified, as well as the structure of the aforesaid risk management system and aspects of its further development and implementation, are discussed below and in a more general way in the
Risk-management system section.
Risk assessments, internal letters of representation received from management (all directors of business groups, corporate staff departments and regions), regular management reviews, reviews of the design and implementation of the company’s risk management system and reviews in audit committees are integral parts of the company’s risk management approach. On the basis of these, the Managing Board confirms that internal controls over financial reporting provide a reasonable level of assurance that the financial reporting does not contain any material inaccuracies, and confirms that these controls functioned properly in the year under review and that there are no indications that they will not continue to do so. The financial statements fairly represent the company’s financial condition and the results of the company’s operations and provide the required disclosures.
It should be noted that the above does not imply that these systems and procedures provide absolute assurance as to the realization of operational and strategic business objectives, or that they can prevent all misstatements, inaccuracies, errors, fraud and non-compliances with legislation, rules and regulations.
In view of all of the above, the Managing Board is of the opinion that it is in compliance with best practice II.1.4. of the Dutch corporate governance code, taking into account the recommendation of the Corporate Governance Code Monitoring Committee on the application thereof.
As part of the mid-term evaluation of the Vision 2010 – Building on Strengths strategy, the Managing Board updated the Corporate Risk Assessment. On the basis of a list of potential risks as identified in risk reports from within the company as well as from outside, a first assessment was made and top risks were identified. Two risks identified at the launch of Vision 2010 were reconfirmed: the ability to attract and retain the right people to fulfill the company’s ambitions and the capability to turn the innovation efforts into profitable business. The programs that were initiated in order to contain these risks will be continued with vigor. The threat of deteriorating market conditions for the existing product portfolio, amongst others through the influence of low-cost countries, was also reconfirmed as a top risk. Ongoing efficiency programs and initiatives to increase sourcing from low cost countries are DSM’s response to these risks. The acceleration of the implementation of Vision 2010 means that acquisitions and disposals have become an even more important part of the strategy. Connected with this, the related risks have of course also grown in importance. DSM’s well-tested abilities in these fields will be used to the full and, if needed, will be further reinforced to mitigate these risks as much as possible. Finally, the speed of decision-making is seen as a risk. To manage this risk the company’s steering model will be made more transparent and the entrepreneurial spirit of its workforce enhanced.
In addition to these strategic risks, the currency and commodity raw material/energy price risks remain of importance. Sensitivity analyses are made in both areas and hedging actions are defined if appropriate.
On 1 January 2007, the Corporate Risk Management department was established. It has the responsibility of maintaining the risk management system and supporting the Managing Board and the operational units in its effective implementation.
Throughout 2007, the focus continued to be on the implementation of the Corporate Requirements. The aim of achieving compliance with these requirements for all business groups by the end of the year was largely met. The main exceptions concern those units that still have to convert to the standard business processes supported by SAP software. These units were allowed to postpone the implementation of certain requirements until after the conversion. Exceptions were only allowed after Managing Board approval and on condition that sufficient mitigating controls were implemented.
During the year under review, DSM’s risk management practices were compared with those of a number of peers. The design and implementation of the risk management system was also discussed with all DSM staff departments and business groups. These reviews will be the basis for a multi-year risk management plan setting out the priorities for the rest of the Vision 2010 period. In the plan, high priority will be given to the implementation of the standard business processes in the remaining units; this will ensure sound and efficient internal control of the goods and money flows.