Corporate governance

• Corporate governance

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From a corporate governance point of view the bodies that are relevant for Royal FrieslandCampina N.V. are the General Meeting of Shareholders, the Supervisory Board and the Executive Board. All the shares of the company FrieslandCampina are held by the co-operative Zuivelcoöperatie FrieslandCampina U.A. The company FrieslandCampina is an exempted structural statuatory two tier company, but has opted to apply the two-tier management structure voluntarily.

The General Meeting of Shareholders of the company Royal FrieslandCampina N.V.
The dairy co-operative FrieslandCampina is the sole shareholder of the company Royal FrieslandCampina N.V., which means the co-operative has total control of the General Meeting of Shareholders of the company Royal FrieslandCampina N.V. During the General Meeting of Shareholders the Board of the co-operative exercises its voting rights on behalf of the co-operative, in certain instances subject to the prior approval of the co-operative’s Member
Council.
During the Annual General Meeting of Shareholders the company’s financial statements are submitted to the Meeting for adoption and the decision regarding the appropriation of profit is also taken. The General Meeting of Shareholders of the company Royal FrieslandCampina N.V. has the authority to approve certain Executive Board decisions. These decisions, which are stipulated in the Articles of Association, are major decisions relating to the operations, legal structure and financial structure of the company (and the companies in which it holds shares) as well as decisions related to major investments.

The Executive Board of the company FrieslandCampina
The Executive Board is responsible for the policy and business operations within the company. The Executive Board members are appointed for an indefinite period. Their employment conditions, including remuneration, are determined by the Supervisory Board.

The Supervisory Board of the company FrieslandCampina
The Supervisory Board supervises the Executive Board and has the authority to approve certain decisions of the Executive Board as stipulated in the Articles of Association. The powers of the Supervisory Board are as laid down in the provisions of Book 2 of the Dutch Civil Code in respect of companies with a two-tier management structure. These powers include the appointment of the Executive Board members, the determination of the number of members of the Executive Board and the approval of a number of other statutory decisions of the Executive Board.
In the performance of their duties the Supervisory Board must be led by the interests of the company and taking into account the interests of all stakeholders.
Agreement has been reached with the Central Works Council regarding the composition of the Supervisory Board, the required profile of the members of the Supervisory Board, the strengthened rights of the Central Works Council in respect of recommendations for the appointment of Supervisory Board members, and the way in which the Central Works Council exercises these rights. These agreements have been laid down in a Charter. On the basis of the agreement the Supervisory Board is composed properly if twothirds of its members are members of the Board of the co-operative (the internal members) and one-third of its members are recruited from outside (the external members).
The chosen composition reflects the two-thirds to one-third dominance of internal members in a Supervisory Board permitted by the Law for large co-operatives. This dominance by internal members is carried through to the company level.
The external members of the Supervisory Board are selected and appointed on the basis of the following criteria: social experience involving the practical aspects of being a Supervisory Board member, an understanding of international commerce, general social background and specific affinity with social relationships, human resources and organisation, and experience of the multinational business world. One of the Supervisory Board members is a so-called financial expert, which means he or she has acquired relevant expertise and experience in the field of financial administration/ accounting with a large legal entity.
Supervisory Board members are appointed for a term of four years. External Supervisory Board members step down after twelve years. The term of office of a Supervisory Board member who is also a member of the Board of the co-operative always ends upon the termination of the Board of the co-operative membership.
The Supervisory Board has an Appointment and Remuneration Committee and an Audit Committee.
The Appointment and Remuneration Committee comprises the Supervisory Board member with the social profile plus the Chairman and Vice-Chairman of the Supervisory Board. The Appointment and Remuneration Committee provides the input for the Supervisory Board’s decisions regarding the selection and appointment of Executive Board members and Supervisory Board members, the Executive Board remuneration policy, the remuneration of the individual Executive Board members and the remuneration policy for senior management.
The Audit Committee comprises the financial expert plus one other external Supervisory Board member and two Supervisory Board members who are also members of the Board of the co-operative. The duties of the Audit Committee are of a preparatory nature and relate to the accuracy and completeness of the financial reporting, the administrative organisation, the internal audit, risk management, compliance with regulations and the appointment and working method of the external auditor.
Neither the Appointment and Remuneration Committee nor the Audit Committee is authorised to make decisions independently and both Committees report to the full Supervisory Board.

The Dutch Corporate Governance Code
Although the Dutch Corporate Governance Code and the Order in Council are not directly applicable to the company FrieslandCampina, FrieslandCampina will actively apply the principles and best practice provisions of the Code and the Order in Council with the exception of those principles and best practices FrieslandCampina deems inapplicable due to the co-operative nature of its business and its private character. Several other principles and best practices are also deemed inappropriate on the grounds of the policy decisions of the company.
Within FrieslandCampina the co-operative’s Member Council is the body to which an account is submitted each year regarding the main lines of the organisation’s structure and compliance with the Corporate Governance Code, and any substantial changes to either the structure or the compliance.
FrieslandCampina has a Code of Conduct and a Whistleblower’s procedure. It goes without saying that FrieslandCampina will, in the future, continue devoting attention to the principles and provisions of the Corporate Governance Code.

Deviations from the Code resulting from the company’s special structure
Due to the special structure of FrieslandCampina and the resulting dominance of the Supervisory Board by members, compliance with the Code’s best practice provision III.2.1, which stipulates that all Supervisory Board members, with the exception of a maximum of one, must be independent, is impossible. This best practice provision will only be applied to the external Supervisory Board members. The selected control structure means that final control rests, indirectly, with the co-operative’s Member Council.
The business activities are carried out by the company FrieslandCampina. Within this framework the co-operative is involved in defining the company’s strategy and related policy principles. The co-operative’s Member Council should approve the resolution of the Board of the co-operative, in its capacity as General Meeting of Shareholders of the company FrieslandCampina, to adopt the financial statements and profit appropriation.

Deviations from the Code resulting from the company’s private character
The private character of the company means that the remuneration of individual Executive Board members and other major components of their employment contracts are not published (best practice provision II.2). FrieslandCampina does not grant share options to its employees. In this context there have also been no regulations drawn up regarding private investment in other companies by Executive Board and Supervisory Board members (best practice provisions II.3 and III.2 respectively).
FrieslandCampina does have a Prevention of Insider Trading regulation in place in respect of the bonds issued by the company.

Deviations from the Code resulting from the company’s policy decisions
Members of the company’s Executive Board are appointed for an indefinite period. The co-operative’s influence on the functioning of the Executive Board members is intrinsic due to the overlap of membership of the Board of the co-operative, the General Meeting of Shareholders of the company and the internal members of the Supervisory Board. For this reason,and due to the possible upward pressure on remuneration, the company does not comply with the best practice provision of appointing Executive Board members for a period of four years (best practice provision II.1.1). For practical reasons, FrieslandCampina has placed the duties the Corporate Governance Code confers on the Appointment Committee and the Remuneration Committee in the hands of a single committee: the Appointment and Remuneration Committee.
The membership of other Supervisory Boards and the holding of other positions by both Supervisory Board members and Executive Board members is evaluated by the Supervisory Board on a case by case basis, taking into consideration the nature of the membership or position and the demands it would place on the time of the member concerned.
Every member of the Supervisory Board and the Executive Board must ensure he or she devotes sufficient time and attention to the company to guarantee his or her duties are fulfilled properly.

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