The cooperative’s General Meeting of Members
The members of the cooperative are assigned by the Board to one of twelve geographical regions. Each region has a Regional Meeting to which all active members within the region belong. The members of the Regional Meeting elect the Board for the region, known as the Regional Council and consisting of eight natural persons. The cooperative’s General Meeting of Members comprises all the members of the twelve Regional Councils. At least two General Meetings of Members are held each year, at least one of which is held within six months of the end of the financial year.
On the proposal of the Board of the cooperative, the General Meeting of Members sets the number of members of the Board. The Board members are appointed by the General Meeting of Members from among the members of the cooperative upon the binding nomination of the Chairmen of the Regional Councils (known as the Platform). A Board member can be suspended or removed at any time by a resolution of the General Meeting of Members passed by a majority of at least two-thirds of the votes cast at this meeting. The General Meeting of Members sets the remuneration to be granted to the Board members of the cooperative.
The Board of the cooperative requires the approval of the General Meeting of Members for specific important decisions on operations, as well as for major decisions concerning the legal and capital structure of the company, and decisions concerning major investments, all of which are described in the Articles of Association. Approval is required, inter alia, for proposed amendments to the Articles of Association of the cooperative and of the company, as well as for proposed amendments to the Articles of Association of the company’s direct and indirect subsidiaries that conduct the business activities. Approval is also required in certain cases for decisions of the Board to exercise the voting rights attaching to the shares held by the cooperative.
The Board of the cooperative
The Board of the cooperative is responsible for the affairs of the cooperative, in particular protecting the interests of the members in the cooperative and in the business activities carried out by the company and its subsidiaries. The maximum term of office for a Board member is five consecutive financial years. A member of the Board who stands down at the end of his term of office can be immediately reappointed for at most one more term.
The company’s General Meeting of Shareholders
All the company’s Class A and Class B shares are held by the cooperative, which gives the cooperative full control at the General Meeting of Shareholders of the company. The Board of the cooperative exercises the voting rights at the General Meeting of the company on behalf of the cooperative, in certain cases subject to the formal approval of the General Meeting of Members.
The cooperative acts as the administration office for the Class B shares for which depositary receipts have been issued. The cooperative’s powers in relation to the holders of depositary receipts are exercised by the Board of the cooperative. The way in which the Board of the cooperative exercises these powers is supervised by a trust office established for that specific purpose: Stichting toezicht certificaten Friesland Foods. The holders of the depositary receipts do not have the rights conferred by law upon holders of depositary receipts issued with the cooperation of a company. The Board of the cooperative convenes an exploratory meeting for the holders of depositary receipts once a year, following the adoption of the company’s financial statements, at which it renders account for the dividend policy of the company.
The company’s financial statements are submitted for adoption to the company’s annual General Meeting of Shareholders. A decision on the appropriation of profit is also taken at this meeting.
The General Meeting of Shareholders of the company has the authority to approve certain decisions of the Board of Management as described in the Articles of Association. These concern important decisions on operations, as well as major decisions concerning the legal and capital structure of the company (and the companies in which it holds shares) and decisions concerning major investments.
The company’s Board of Management
The Board of Management is responsible for the policy and the operational affairs of the company. The Board members are appointed for an indefinite period. Their employment terms and conditions, including remuneration, are set by the Supervisory Board.
The company’s Supervisory Board
The Supervisory Board supervises the conduct of company affairs by the Board of Management and has the authority to approve certain decisions of the Board of Management described in the Articles of Association. The Supervisory Board has the powers as laid down in the provisions of Book 2 of the Dutch Civil Code regarding two-tier companies, such as the appointment of members of the Board of Management, the number of members of the Board of Management and the approval of a number of other statutory decisions by the Board of Management. In the performance of their duties, the members of the Supervisory Board must be led by the interests of the company and its related businesses.
An agreement has been concluded with the Central Works Council concerning the composition of the Supervisory Board, the required profile for members of the Supervisory Board, the strengthened recommendation rights of the Central Works Council in the appointment of members of the Supervisory Board, and the way in which the Central Works Council shall exercise these rights. Based on this agreement, the Supervisory Board is properly composed if two-thirds of its members are Board members of the cooperative (the internal members) and if one-third of its members are recruited from outside (the external members). The chosen composition reflects the member dominance of two-thirds of the total number of Supervisory Board members permitted by law for large cooperatives. This member dominance is carried through to company level.
The external members of the Supervisory Board are selected and appointed based on the following criteria: social experience involving the practical aspects of being a supervisory director, insight into international business, general social background and specific affinity with social relations, human resources and organisation, and experience in the multinationals arena. One of the members of the Supervisory Board is a so-called financial expert, meaning that he has gained relevant knowledge of, and experience in, finance and accounting with a major legal entity.
The members of the Supervisory Board are appointed for a term of four years. External members of the Supervisory Board stand down after ten years. The term of office of a Supervisory Board member who is also a member of the cooperative’s Board always ends upon termination of this Board membership.
The Supervisory Board has an Executive Committee and an Audit Committee. The Executive Committee consists of the Chairman, the Vice-Chairman and the Secretary of the Supervisory Board.
The Executive Committee coordinates the general contacts with the Board of Management. The Executive Committee also provides the input for decisions of the Supervisory Board on the selection and appointment of members of the Board of Management and the Supervisory Board. Finally, it provides the input for decisions on the remuneration policy, the remuneration of individual members of the Board of Management and the remuneration policy for senior management.
The Audit Committee consists of a member of the Executive Committee other than its Chairman, the financial expert of the Supervisory Board, and two members of the Supervisory Board who are also Board members of the cooperative. The duties of the Audit Committee are preparatory in nature and concern the accuracy and completeness of the financial reporting, the internal accounting and control systems, risk management, compliance with regulations, and the appointment and procedures of the independent external auditor. Neither the Executive Committee nor the Audit Committee has the authority to make decisions independently. Both committees report to the full Supervisory Board.
The Dutch Corporate Governance Code
Although neither the Corporate Governance Code nor the Order in Council directly applies to the cooperative and the company, the company will actively apply the principles and best practice provisions of the Code and the Order in Council. This notwithstanding, the company has evaluated these principles and best practice provisions in relation to the ‘family’ nature of the business and the private character of the company. As a result, it has decided not to apply a number of them. Moreover, some other principles and best practice provisions are rendered inappropriate due to certain policy decisions that the company has made.
For Friesland Foods, the General Meeting of Members of the cooperative is the body to which an account is rendered each year on the structure of the company in broad terms and on its compliance with the Code, as well as to major changes relating to either aspect. Friesland Foods has whistle-blowing procedures in place.
Deviations from the Code ensuing from the special structure of the Company
Due to the special structure of Friesland Foods and the resulting member dominance on the Supervisory Board, the Code’s best practice provision that all Supervisory Board members, with the exception of not more than one person, shall be independent cannot be complied with. This best practice provision will only be applied to the external members of the Supervisory Board.
It follows from the chosen control structure that final control is indirectly in the hands of the General Meeting of Members of the cooperative. This means that the holders of depositary receipts for Class B shares have no voting rights, nor do they have the right to table agenda items or attend the General Meeting of Shareholders of the company. As the cooperative acts as the trust office, it is not independent. Supervision is exercised, however, by Stichting toezicht certificaten Friesland Foods.
The business activities are carried out by the company. Within this framework, the cooperative is involved in defining corporate strategy, including the related policy principles. The General Meeting of Members of the cooperative has no formal powers regarding approval or adoption of the company’s financial statements or regarding the appropriation of profit.
Deviations from the Code ensuing from the private character of the company
The private character of the company means that the remuneration of individual Board of Management members and other important provisions in their employment contracts are not published. Friesland Foods does not grant share options to its employees. Against this background, no rules have been drawn up regarding private investments in other companies by members of the Board of Management and the Supervisory Board. If necessary, a temporary embargo can be placed on the trade in the securities of other companies, based on the insider trading regulation. This regulation also includes a rule for the trade in bonds of the company applying to members of the Supervisory Board and the Board of Management, and a few other categories of employees of the company. The Model Code for the prevention of insider trading includes a rule for the trade in depositary receipts for Class B shares in the company applying to members of the Regional Councils, Board members of the cooperative, members of the Supervisory Board and the Board of Management, and a few other categories of employees of the company.
Deviations from the Code ensuing from policy decisions of the company
The members of the Board of Management of the company are appointed for an indefinite period. The influence of the cooperative on the members of the Board of Management in the exercise of their duties is intrinsic in the overlap of persons who are members of the Board of the cooperative, the General Meeting of Shareholders of the company and the internal members of the Supervisory Board. For this reason – as well as because of the anticipated upward pressure on remuneration –, the best practice provision of appointing members of the Board of Management for a four-year term is not followed.
For practical reasons, Friesland Foods has placed the duties that the Corporate Governance Code confers upon the appointment and remuneration committees in the hands of single committee: the Executive Committee of the Supervisory Board. The number of seats on other supervisory boards and other positions that members of the Supervisory Board and the Board of Management are allowed to hold is decided on a case-by-case basis by the Supervisory Board according to the demands placed on the time of the member concerned. Each member of the Supervisory Board and the Board of Management must ensure that he devotes sufficient time and attention to the company to guarantee proper fulfilment of his duties as a Board member. Although Friesland Foods does not have an internal audit department, it did establish a Corporate Risk & Control Department in 2007, which is concerned with assuring the effectiveness of the internal risk management and control systems.