2019Leadership

Supervisory Board Report

This Report provides further information on the way the Supervisory Board performed its duties in 2019. This concerns supervising the policy pursued by the Managing Board, the Managing Board's performance of its managerial duties, and the general course of affairs within our company and its businesses, as well as assisting the Managing Board with advice, either upon request or proactively. Finally, these duties also include assessing the Managing Board's performance and ensuring that their remuneration is in line with that performance and that it provides the appropriate incentives. Since the inception of an Executive Committee, the Supervisory Board has also been responsible for ensuring that the checks and balances that are part of the two-tier governance system are still taken into account, paying specific attention to the dynamics between the Managing Board and the Executive Committee.

The responsibility of supervising the policy pursued by the Managing Board includes evaluating the way the Managing Board implements DSM's strategy for long-term value creation and promotes a culture aimed at that value. Since the company's mission is to create brighter lives for all, long-term value creation is embedded both in Strategy 2021: Growth & Value - Purpose led, Performance driven and in our company culture. This is described in the chapters 'Strategy 2021', 'People' and 'Corporate governance and risk management'.

Composition of the Supervisory Board

The composition of DSM's Supervisory Board is diverse in gender, nationality, background, knowledge and experience. The Board comprises four men and four women. Two members are Dutch, two American, one Dutch-American, one British, one Singaporean and one Australian. The Board's current members are Rob Routs (Chair), Pauline van der Meer Mohr (Deputy Chair), Victoria Haynes, Eileen Kennedy, Frits van Paasschen, Pradeep Pant, John Ramsay and Erica Mann. For detailed information on their backgrounds, see the company website and 'Supervisory Board and Managing Board Royal DSM' of this Report.

Following best practice 2.1.10 of the Dutch Corporate Governance Code, the Supervisory Board establishes that its members are able to act critically and independently of one another, the Managing Board and any particular interests involved. To safeguard this, the Supervisory Board is composed in such a way that all its members are independent in the meaning of best practice 2.1.8 of the Dutch Corporate Governance Code.

The targeted profile of the Supervisory Board is reflected in its regulations, which are published on the company website under 'Corporate Governance'. The Supervisory Board has four committees to cover key areas in greater detail: auditing, nominations (to the Supervisory Board and Managing Board), remuneration (of the Supervisory Board and Managing Board), and sustainability. Information on these committees is given elsewhere in this chapter. The charters of the committees are published on the company website under 'Corporate Governance'.

Relationship and stakeholder management

In performing its duties, the Supervisory Board acts in accordance with the interests of the company and the business connected with it, taking into consideration the interests of the company's stakeholders. The Chair of the Supervisory Board is in regular close contact with the (Co-)CEO(s)/Chairman of the Managing Board, as is the Chair of the Audit Committee with the CFO.

Furthermore, the Supervisory Board regularly interacts with members of the Executive Committee who attend Supervisory Board meetings and participate in the yearly site visit of the Supervisory Board.

The Supervisory Board interacts with our employees on various occasions and in various contexts. The Supervisory Board regularly receives information on relevant topics from senior leaders and experts in the company during committee meetings, full Supervisory Board meetings, annual site visits, and also as part of their ongoing professional education. In 2019, this was the case with respect to merger and acquisition opportunities; innovation in general and large innovation projects like Project Clean Cow, Veramaris®, Niaga® and fermentative Stevia; and digital and cybersecurity. During its annual site visit, the Supervisory Board actively takes the opportunity to interact with employees at different levels, from the shop floor to senior leadership, thus collecting valuable information and insights from various sources across the company.

Direct, one-on-one contact between Supervisory Board members and Managing Board and Executive Committee members generally follows naturally from topics discussed in the meetings of the Supervisory Board. These discussions draw on the expertise of individual Supervisory Board members, whose advice is sought on a wide range of specialist topics as required. Supervisory Board members also have direct contact with other employees in the course of site visits and specifically arranged meetings. In 2019, John Ramsay visited our Global Service Center in Hyderabad (India) where — given his extensive knowledge and experience in the field of finance and accounting — he reviewed various aspects of the captive center's performance, plans and strategies. Frits van Paasschen attended an afternoon session with our Chief Digital Officer and reviewed — in line with his broad experience

as a global business leader in both consumer markets and the service industry in various parts of the world — our approach to digital transformation, as well as giving advice on building an external ecosystem of digital advisors. Pradeep Pant, who is based in Singapore and has extensive knowledge of and experience with Asian markets, continued to be in regular contact with our senior management in that region.

The Supervisory Board takes an active interest in maintaining a good understanding of our stakeholders and their positions on various topics related to the company's areas of business. This includes the perceptions of our shareholders. The Supervisory Board is informed of the position of other DSM stakeholders by the Managing Board. In addition, the Supervisory Board collects such information through its own network.

Supervision and advice

The Supervisory Board performs its duties of supervising and advising the Managing Board with respect both to recurring standard agenda items for Supervisory Board meetings and to specific topics that become relevant at any given point in time.

The most prominent regular agenda item is an update on business performance, financials and treasury topics. As part of this agenda item, the Supervisory Board tracks the company's financial performance, approves the annual Finance and Capital Expenditure Plan, and deliberates on any additional treasury topics as needed. In 2019, the Supervisory Board discussed and approved the €1 billion share buy-back program, reflecting the company's strong balance sheet and resilient business, as well as the usual share buy-back programs to cover commitments under share-based compensation plans and the stock dividend.

In line with Strategy 2021, the Supervisory Board regularly discussed our M&A strategy and relevant developments within our sectors. The Supervisory Board was actively involved in the process of reviewing several potential M&A targets. This eventually led to the expansion of our share in Andre Pectin, the creation of a 75:25 partnership with Nenter, and the acquisitions of AVA, Royal CSK and SRF.

At the Board's request, the Supervisory Board was updated on the company's insurances, global manufacturing status, quality control and quality management, among other subjects. Digital aiming points and a digital organization are being rolled out throughout the company, contributing to digital transformation. Given the importance of digitalization, the Supervisory Board did a deep dive on digital. In addition, the Supervisory Board was updated and involved in DSM's Innovation projects, such as Project Clean Cow, Veramaris®, Niaga® and fermentative Stevia. A continuous education session was dedicated to updating the Supervisory Board on cybersecurity risks, learning from experiences of other companies. Closing the loop on last year's visit to India and the Supervisory Board's feedback following that visit, an updated strategy for DSM in India was presented.

DSM Supervisory Board (from left to right): John Ramsay, Erica Mann, Frits van Paasschen, Eileen Kennedy, Pauline van der Meer Mohr (Deputy Chair), Victoria Haynes, Rob Routs (Chair) and Pradeep Pant.

Site visits

Every year, the Supervisory Board visits DSM sites in a particular region. This fosters interaction with employees across different areas of the company and provides Supervisory Board members with opportunities for continuing education. This year's visit took the Supervisory Board to Singapore.

The visit provided an overview of the company's presence in Singapore and the broader South-East Asian (SEA) region. Drawing on the insights of the internal and external speakers, the Board was updated on the economic situation in the region and the opportunities it has to offer. The visit deepened the Board's understanding of DSM's presence and business in Singapore and SEA.

The Singapore visit began with a general overview of the region by a specialist in international relations and an introduction to the company's activities in Singapore and SEA. An event was organized for the Supervisory Board members to meet the company's customers and stakeholders. The evening included a dialogue on sustainability and leadership between Feike Sijbesma and Sunny Verghese (CEO of OLAM International and Chair of the World Business Council for Sustainable Development). The Board also visited our Singaporean sites (DSM Dyneema and DSM Nutritional Products, Human Nutrition & Health). To stress the importance of customer-centricity and innovation, the Supervisory Board aims to meet customers and other stakeholders during each site visit. In Singapore, the Board visited Schneider's Innovation Hub, the Unilever Foundry and the headquarters of OLAM International (a leading food and agro business company). The Board also met with officials from the Government of Singapore and the Singapore Economic Development Board, as well as with A*STAR (the Agency for Science and Technology and Research).

The visit included a townhall meeting that was audiocast across our sites in SEA, Japan and Korea.

At the end of the visit, time was taken to reflect on the site visit with the participating Executive Committee members. Supervisory Board members shared their impressions and offered specific advice about doing business in SEA. Both the Supervisory Board and the Executive Committee concurred on the relevance of SEA for the company and the importance of continuing to strengthen our presence there.

Supervisory Board meetings and performance evaluation

In 2019, the Supervisory Board held its five regular meetings and one regular call in the presence of the Managing Board, as well as one additional meeting and six additional calls, partly in the presence of the Managing Board. The additional meetings and calls were needed to discuss possible acquisitions and the CEO succession. Information on attendance of Board and Committee meetings can be found in this 'Supervisory Board Report'.

The Supervisory Board also convenes in the absence of the Managing Board, which usually happens before each meeting.

An evaluation of the Supervisory Board is performed once every three years by an external advisor; this was the case in 2019. In the other two years, the evaluation of the Supervisory Board is performed by means of a self-assessment consisting of a written questionnaire, followed by in-depth, one-on-one interviews between the Chair and individual Supervisory Board members.

While the Managing Board's performance is (indirectly) also assessed as part of the evaluation, this happens throughout the year as part of the discussions on succession planning in the Nomination Committee, and particularly when the performance appraisals of Managing Board members are discussed, as well as their performance versus their individual targets in the Remuneration Committee. The Nomination and Remuneration Committees report back on these discussions to the Supervisory Board.

The overall feedback from the evaluation in 2019 was positive. The Supervisory Board used an external firm that conducts multiple board evaluations and could therefore benchmark the Board's evaluation against that of other Boards. It was pleasing to note that DSM's Supervisory Board was among the highest scoring Boards of the 100 most recently conducted board evaluations. Some points for improvement were noted, although none of a fundamental nature. The evaluation delivered the following highlights and recommendations. All members strongly value the composition of the Supervisory Board in all its dimensions. Size and (gender) diversity are to be maintained, as well as the strong link to Dutch corporate governance. There is a sense of collegiality and mutual trust, disagreement is constructive and respectful, and there is preparedness to challenge, where appropriate, both within the Board and with management. While the strategic discussions (and the quality of their preparation) are highly appreciated, there might be an opportunity to carve out some more time for 'holistic' reflection. Finally, given the global nature of the Board, the timing of meetings and calls will benefit from as much time zone alignment as possible.

Committees

The Supervisory Board has four committees to cover key areas in greater detail: nominations, remuneration, sustainability and auditing. These are described in more detail below.

Board nominations

The Nomination Committee comprises Rob Routs (Chair), Eileen Kennedy and Pauline van der Meer Mohr. Feike Sijbesma and Judith Wiese, Executive Vice President Group People & Organization, were also involved in this Committee's discussions. The Committee met three times in 2019. The recommendations and minutes of all Nomination Committee meetings were shared with the entire Supervisory Board. This feedback included advice and recommendations regarding topics to be approved by the full Supervisory Board. The Supervisory Board also has access to all the meeting materials posted for the Nomination Committee meetings.

In 2019, nomination discussions focused on succession planning for both the Managing Board and the Supervisory Board. With respect to the Managing Board, the discussions focused on the talent pipeline available for the succession of Managing Board members, especially in view of the CEO succession. Given the importance of the decision on CEO succession, these discussions were mainly conducted in the full Supervisory Board. Some preparatory discussions took place in the Nomination Committee, including seeking the advice and input of an international search firm. The Nomination Committee discussions eventually led to the recommendation to the Board that the company had the best succession candidates in-house. As of that moment, discussions about the CEO succession were held in the full Supervisory Board.

As in other years, the Supervisory Board established that the composition of the Managing Board is and will stay diverse in nationality, gender, background, expertise and experience, and that it provides a good foundation to support all clusters and business groups in achieving their targets and thus contributing to the company strategy. For detailed background information on all Managing Board members, see the company website under 'Corporate Governance' and in the 'Managing Board' section of this Report.

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 and discussed succession planning for the Supervisory Board. In order to maintain a strong profile in international business experience and executive leadership, the Supervisory Board decided to nominate Thomas Leysen for appointment at the 2020 Annual General Meeting of Shareholders. Mr. Leysen also brings extensive experience in making businesses more sustainable. To facilitate a smooth transfer and continuity in view of the CEO change, the Supervisory Board also decided to propose the reappointment of Rob Routs for a two-year term. Other proposed reappointments at the 2020 Annual General Meeting of Shareholders include Eileen Kennedy (for a two-year term) and Pradeep Pant (for a four-year term). Victoria Haynes is not available for reappointment. Both Eileen Kennedy and Pradeep Pant help maintain the Board's strong profile in the area of nutrition, from an academic as well as an FMCG perspective. Furthermore, Pradeep Pant brings many years of experience in operating in Asian markets.

Board remuneration

The Remuneration Committee had four meetings in 2019. Pauline van der Meer Mohr (Chair), Victoria Haynes, Rob Routs and John Ramsay are members of this committee. Recommendations and minutes of the Remuneration Committee meetings were shared with the full Supervisory Board and were used to determine the final remuneration of the members of the Managing Board. The Supervisory Board also has access to all the meeting materials provided for the Remuneration Committee meetings. For more information on the remuneration policy, see the company website. For the implementation of that policy in 2019, see the 'Remuneration report 2019'.

Discussions focused on the performance and the related remuneration of the members of the Managing Board, in respect of both company and individual performance. In 2019, time was spent on remuneration topics related to the CEO succession, on the implications of the European Shareholder Directive and on equal pay. For the latter, see 'People — Equal pay / Gender pay gap'. The performance and remuneration of the Executive Committee members were also shared with the Remuneration Committee. Feike Sijbesma and Judith Wiese were also partly involved in these discussions.

Sustainability

The Sustainability Committee prepares the Supervisory Board's discussions on sustainability topics. The Sustainability Committee met three times in 2019. This Committee comprises Eileen Kennedy (Chair), Pradeep Pant, Frits van Paasschen and Erica Mann. The Chair of the Supervisory Board has a standing invitation and participated in all meetings. The recommendations and minutes of these meetings were shared and discussed with the entire Supervisory Board during its meetings with the Managing Board. The Supervisory Board also has access to all the meeting materials provided for the Sustainability Committee meetings. The feedback from the Committee to the full Board included advice and recommendations regarding topics to be approved by the Supervisory Board, in particular the sustainability reporting in this Report. Taking into consideration the Assurance report of the independent auditor on the sustainability information by KPMG of this Report, the full Supervisory Board approved the reporting in these sections on 27 February 2020. The Sustainability Information complies with the Standards of the Global Reporting Initiative and our internal reporting criteria, which are included in this Report, and is also aligned with the international Integrated Reporting Council <IR> Framework where possible.

During the year, recurring topics were the company's performance against its People and Planet aspirations, with a focus on safety, Brighter Living Solutions (including design and testing of new metrics to measure our Sustainability Portfolio), the company's Materiality matrix, and 'Inclusion & Diversity'. Through these discussions, the Sustainability Committee followed up on the progress made with the implementation of the sustainability and safety aspirations set as part of Strategy 2021. Deep dives were made into several topics. One was healthy diets, following among others the publication of the 2019 EAT-Lancet report. The Committee also discussed the update of DSM's Responsible Care plan, more details of which can be found in 'Planet'. In terms of Inclusion & Diversity, the Committee discussed gender diversity and diversity through internationalizing roles and bringing in employees with international experience. It also discussed equal pay, see also 'People'.

Financials and auditing

The activities of the Supervisory Board in the area of financials and auditing are prepared by the Audit Committee. The Audit Committee met six times in 2019, three of these via conference call. John Ramsay (Chair), Victoria Haynes, Pradeep Pant, Frits van Paasschen and Erica Mann are members of the Audit Committee. The Chair of the Supervisory Board participated in all meetings and calls. All Supervisory Board members have a standing invitation to attend Audit Committee meetings; in 2019, most of them used this standing invitation for the two conference calls in which the financial developments and interim results for the first and third quarter were discussed, as these are not followed by a full Board meeting. The highlights and the minutes of all Audit Committee meetings were shared with the full Supervisory Board. This feedback included advice and recommendations regarding topics to be approved by the full Supervisory Board. In 2019, these included the approval of the 2020 COA Audit plan, the proposed reappointment of the external auditor (approved by the 2019 Annual General Meeting of Shareholders), and the proposed investments to further strengthen the cybersecurity of the company's operational technology. All Supervisory Board members also have access to all the meeting materials posted for the Audit Committee meetings.

Our external auditor KPMG and the CFO participated in the Audit Committee's meetings and calls. The CEO participated in the Audit Committee meetings and the call in which the half-year results were discussed. The managers responsible for corporate control, internal audit, risk management and compliance also participated in these two meetings and this call. The manager responsible for corporate control also participated in the two calls in which the financial developments and interim results for the first and third quarter were discussed. At least once a year, the Audit Committee meets with the external auditor without the Managing Board being present. Four such meetings took place in 2019. 

The Committee had in-depth discussions on the company's financials; the Finance plan; the Capital Expenditure plan; dividend proposals; the financial statements and accounting policy changes. The €1 billion share buy-back program was also part of those discussions. The discussions on internal risk management and control systems included the internal control framework, compliance with recommendations and observations made by internal and external auditors, and the role and functioning of COA, including the endorsement of its proposed audit plan for 2020, which was subsequently approved by the full Board, as well as the COA Vision 2021 document. As part of the Corporate Risk Assessment, the company's main risks and their mitigation were discussed. The Committee also discussed and evaluated cases submitted under the company whistleblower policy (DSM Alert), fraud cases, and on-going litigation. All these discussions included mitigating actions to prevent recurrence. Another recurring topic is our cybersecurity resilience, about which the Audit Committee is informed through a dashboard. A specific topic for the company's cybersecurity resilience has been the investments needed to keep the operational technology's cybersecurity fully up to standard.

Discussions were held with KPMG about the audit plan, management letter, audit report and financial statements for 2019, including management's judgments and key accounting estimates. In its management letter KPMG shared the outcome of its evaluation of the company's procedures and system of internal controls to the extent necessary within the scope of the audit of the financial statements. The observations of KPMG were presented along the pillars that support our in-control statement (for the 'Statements of the Managing Board', and for a visualization of our control environment see 'Corporate governance — Introduction'). The management letter contained constructive recommendations for further strengthening of our internal controls. The most important element was KPMG's encouragement to continue the development of the pillar 'Internal Control Framework', including embedding robots, taking it to a higher level of maturity. With respect to robots, the company has already made good progress in Finance. Another observation by KPMG is that there has been progress in the domain of shared services in India, but that harmonizing processes remains an area for attention. In addition, we held discussions with KPMG about the topic of cybersecurity. In line with our own assessment, no material weaknesses were reported by KPMG.

Finally, in 2019, the Audit Committee formally evaluated the external auditor, and discussed the reappointment of KPMG, as well as the succession of the current lead external audit partner whose maximum five-year term will end after the completion of the 2019 audit. The proposal to reappoint KPMG is based on the Audit Committee's own assessment of KPMG, among others through discussions with KPMG in the absence of management, as well as the outcome of an evaluation among DSM executives. The Audit Committee conducts a more in-depth evaluation once every three years; in the two other years, a lighter evaluation is performed. For 2019, the lighter evaluation was performed. The auditor evaluations in prior years were positive and the outcome of the 2019 evaluation was positive as well.

Financial statements 2019

The Report by the Managing Board and the financial statements for 2019 were submitted by the Managing Board to the Supervisory Board, in accordance with the provisions of Article 30 of the Articles of Association, and were subsequently approved by the Supervisory Board on 26 February 2020. The financial statements were audited by KPMG, who issued an unqualified opinion (see the 'Independent auditor's report'). The Supervisory Board established that the external auditor was independent of DSM.

The Supervisory Board will submit the 2019 financial statements to the 2020 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 section of this Report.