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Governance framework - Annual Report 2015 - DSM

Governance framework

Business groups are the main building blocks of DSM’s organization; they have integral long-term and short-term business responsibility and have at their disposal all functions that are crucial to their business success. The business groups within a specific cluster report to one and the same member of the Managing Board. This Board member manages the coherence of operations and the leveraging of resources within the cluster and is accountable for the overall performance of the cluster within limits defined by the collective responsibility of the total Managing Board for the management of the company. The clusters are the main entities for external strategic and financial reporting. In order to ensure sufficient independence with regard to financial management, the Chief Financial Officer (CFO) has no business groups reporting to her.

The following figure depicts DSM's overall governance framework and the most important governance elements and regulations at each level.

For the sake of clarity, a short summary of the main aspects of the framework at Managing Board/corporate level and operational level is given here:

  • The Managing Board and Executive Committee adhere to the Regulations of the Managing Board.
  • The Managing Board and Executive Committee work according to the Management Framework for the corporate level. This implies among other things that they adhere to the DSM Code of Business Conduct and applicable corporate policies and requirements.
  • The Management Framework for the corporate level further provides a description of the most important (decision making) processes, responsibilities and 'rules of the game' at the Managing Board and Executive Committee, functional and regional levels and includes the governance relations with the next-higher levels (Supervisory Board and shareholders) and the operational units. In particular, the framework defines the roles of support functions (including corporate staff departments), functional excellence departments and the regions as follows:
    • Support functions have the responsibility for providing those services that can be provided more efficiently (in terms of total cost of ownership for DSM) by leveraging them across the company, capturing scale-benefits and delivering high quality at lower cost, rather than having them arranged in each business group separately. Within support functions, centers of expertise will provide specialist support. Shared service centers will provide standard transactional support. Business partnering is the concept that will act as the interface between the business groups and the support functions. Each support function reports to a Managing Board member. Support functions exist in the areas of Finance, People & Organization, Legal, Indirect Sourcing, Communications and IT. In the new operating model corporate functions (small, high-level groups) supporting the Managing Board, are also seen as support functions. Corporate departments are Corporate Strategy & Acquisitions, Corporate Operational Audit, Corporate Risk Management, Corporate Sustainability, Corporate Investor Relations and Corporate Affairs.
    • Functional excellence departments are mandated by the Managing Board to help the businesses to achieve excellence. Functional excellence departments support businesses in improving their performance and provide guidance in setting aspiration levels and targets for R&D and Innovation, Direct Sourcing, Manufacturing & Operations and Marketing & Sales; the primary business functions.

The company’s strategic direction and objectives are set in a Corporate Strategy Dialogue. The outcome of the most recent Corporate Strategy Dialogue was presented in November 2015 and is described in more detail from Strategy 2018: Driving Profitable Growth.

The operational units conduct their business within the parameters of the Management Framework for operational units. This implies among other things that they:

  • comply with the DSM Code of Business Conduct, Corporate Requirements and Directives;
  • establish the strategy, objectives and operational targets of their business according to the Business Strategy Dialogue, aligned with the Corporate Strategy Dialogue and in which various scenarios and related risk profiles are investigated, and report on the achievement thereof;
  • implement risk management actions according to an Annual Risk Management Plan and in line with corporate policies;
  • execute DSM-wide standards for support functions (systems, processes, vendors, etc.); and
  • execute the annual functional improvement plans, and monitor the effectiveness of the risk management and internal control system and regularly discuss the findings with the Managing Board.

On average once every three years, the operational units are audited by Corporate Operational Audit (COA). The director of COA reports to the CFO and has access to the Chairman of the Managing Board, the external auditor and the Chairman of the Audit Committee of the Supervisory Board. Furthermore, the director of COA acts as the compliance officer with regard to inside information and is the secretary of the Disclosure Committee, as well as being chairman of the DSM Alert Committee, which is responsible for the DSM whistleblower policy, systems and processes. Chaired by the CFO, the Disclosure Committee ensures the timely and accurate disclosure of share price sensitive information related to the Company and is responsible among other things for the implementation of the DSM rules on the holding and execution of transactions in DSM financial instruments.

In the Fraud Committee, relevant corporate functions participate under the chairmanship of the CFO. The objective of the committee is to ensure structural follow-up of fraud cases with the aim of reducing fraud risks.

Sustainability Governance Framework

Managing Board

Being both a core value and a business driver for the company, sustainability falls under the responsibility of the Managing Board. CEO/Chairman of the Managing Board Feike Sijbesma is the primary point of contact, overseeing the topics of sustainability as business growth driver, as well as climate change, while also managing DSM’s engagement with the United Nations and the strategic partnership with the World Economic Forum. Mr. Sijbesma furthermore heads the ONE DSM Culture Agenda. Other members of the Managing Board also chair sustainability topics and initiatives. Managing Board member Stephan Tanda is responsible for Safety, Health and Environment, and is also the primary contact for DSM’s partnership with the World Food Programme and other issues in relation to nutrition. In the new organizational model, Mr. Tanda also chairs the Inclusion & Diversity Council (previously chaired by Mr. Sijbesma). CFO Geraldine Matchett takes care of integrating sustainability into the finance discipline and represents DSM in the Accounting for Sustainability (A4S) CFO Leadership Network.

Supervisory Board

DSM’s Supervisory Board recognizes sustainability as a strategic value driver for the company and has appointed its own Sustainability Committee (previously called the Corporate Social Responsibility Committee) to oversee progress against targets and report on the embedment of sustainability across the organization. For more details see 'Supervisory Board report' on Supervisory Board report.

External Sustainability Advisory Board

DSM’s Sustainability Advisory Board has been set up as a sparring partner for the Managing Board and senior executives in the company. It supports DSM in sharpening its focus on strategic issues, deepening its understanding of external stakeholder needs, conducting advocacy efforts and handling dilemmas. The board comprises a diverse international group of thought leaders on key sustainability topics (see table next page). The company's external Sustainability Advisory Board met once in 2015 together with the Managing Board in the Netherlands. Subjects such as DSM's corporate sustainability strategy update, sustainable animal protein, biofuels, climate change (with focus on COP21) and the circular economy were discussed. During the year, two members have left the board after their contracts expired. They will be replaced in 2016.

Global network

At a corporate level, sustainability is organized across a network of senior executives and employees. They are supported by the Corporate Sustainability department, which is under the responsibility of the Vice President Sustainability, who reports directly to Feike Sijbesma. The aim of the corporate sustainability network is to support the business in achieving its sustainability aspirations.

The Vice President Sustainability chairs the Sustainability Leadership Team which includes the corporate sustainability network, as well as business managers dedicated to sustainability, known as Sustainability Champions. This leadership team supports line management in all business and functional groups and the DSM Innovation Center, and meets quarterly to monitor the progress of sustainability across the company. In addition, DSM has set up internal regional sustainability networks in China, India, Latin America, and North America.

DSM also has a dedicated DSM Operations & Responsible Care department, which, among other areas, is responsible for all corporate issues related to Safety, Health and Environment (SHE). The Vice President of DSM Operations & Responsible Care reports directly to Managing Board member Stephan Tanda. SHE managers provide support on a business group level. The DSM SHE Council, which includes all business group SHE managers, is instrumental in sharing experiences and developing practices and communications on SHE issues.

Table 1: Sustainability Advisory Board

Sustainability Advisory Board
Member
Background
   
Paul Gilding (m)
Independent writer and corporate advisor on sustainability. Fellow at University of Cambridge Institute for Sustainability Leadership (UK). In 2011 he published his book “The Great Disruption”. In the 1990s, he was executive director of Greenpeace International. Nationality: Australian.
Pamela Hartigan (f)
Director of the Skoll Centre for Social Entrepreneurship at Saïd Business School in Oxford (UK), Associate Professor at Columbia Business School (New York, USA) and founding partner of Volans Ventures. Nationality: American.
David King (m)
Special representative for climate change of the UK government since 2013. From 2008 to 2012, he served as the founding director of the Smith School of Enterprise and the Environment at the University of Oxford (UK). Chief Scientific Advisor to the UK government 2000-2007. Nationality: British.
Ye Qi (m)
Cheung Kong professor of Environmental Policy and director of Brooking-Tsinghua Center for Public Policy at Tsinghua University in Beijing (China). Before he joined Tsinghua, he taught at Beijing Normal University, and the University of California at Berkeley (California, USA). Nationality: American.