Unilever 2005 Annual Report Download - page 37

34 Unilever Annual Report and Accounts 2005
Corporate governance
Introduction
The Unilever Group
Unilever N.V. and Unilever PLC are the two parent companies of
the Unilever Group. NV was incorporated under the name
Naamlooze Vennootschap Margarine Unie in the Netherlands in
1927. PLC was incorporated under the name Lever Brothers
Limited in Great Britain in 1894. The two companies have
different shareholder constituencies and shareholders cannot
convert or exchange the shares of one company for shares of the
other. NV is listed in Amsterdam, New York, Frankfurt and Zürich.
PLC is listed in London and New York.
NV and PLC together with their group companies operate
effectively as a single economic entity. This is achieved by a series
of agreements between NV and PLC (the Foundation Agreements,
see below), together with special provisions in the Articles of
Association of NV and PLC. NV and PLC have the same directors
and adopt the same accounting principles. Shareholders of both
companies receive dividends on an equalised basis. NV and PLC
and their group companies constitute a single reporting entity for
the purposes of presenting consolidated accounts. Accordingly,
the accounts of the Unilever Group are presented by both NV and
PLC as their respective consolidated accounts.
NV and PLC have agreed to co-operate in all areas and to ensure
that all group companies act accordingly. NV and PLC are holding
and service companies, and the business activity of Unilever is
carried out by their subsidiaries around the world. Shares in group
companies may ultimately be held wholly by either NV or PLC, or
jointly by the two companies, in varying proportions.
The Equalisation Agreement
The Equalisation Agreement regulates the mutual rights of the
shareholders of NV and PLC. Its objective is to ensure that the
position of these shareholders is, as far as possible, the same as if
they held shares in a single company. Under the Equalisation
Agreement, NV and PLC must adopt the same financial periods
and accounting policies. Further information on the Equalisation
Agreement is given on page 41.
The Deed of Mutual Covenants
The Deed of Mutual Covenants provides that NV and PLC and
their respective subsidiary companies shall co-operate in every
way for the purpose of maintaining a common operating policy.
In addition, they shall exchange all relevant information about
their respective businesses – the intention being to create and
maintain a common operating platform for the Unilever Group
throughout the world. The Deed of Mutual Covenants illustrates
some of the information which makes up this common platform,
such as the mutual exchange and free use of know-how, patents,
trade marks and all other commercially valuable information. The
Deed contains provisions which indicate, without laying down any
rigid constraints, which operation according to geography shall be
held ultimately by either NV or PLC. These arrangements were
designed to create a balance between the two parent companies
and the funds generated by them, for the benefit of their
respective sets of shareholders.
The Agreement for Mutual Guarantees of Borrowing
Under the Agreement for Mutual Guarantees of Borrowing
between NV and PLC, each company will, if asked by the other,
guarantee the borrowings of the other. The two companies can
also agree jointly to guarantee the borrowings of their
subsidiaries. These arrangements are used, as a matter of financial
policy, for certain significant public borrowings. They enable
lenders to rely on our combined financial strength.
Corporate Policies
Unilever policies are characterised by being universally applicable
within the Unilever Group. They are mandatory in effect and have
been developed to ensure consistency in key areas within our
world-wide operations. They cover operational and functional
matters, and govern how we run our business, in order to comply
with applicable laws and regulations.
Unilever corporate policies include: the Code of Business
Principles; policies on positive assurance and risk management;
policies on environmental strategy and reporting, social and
ethical matters, including in respect of human rights; corporate
social responsibility; the Unilever share dealing code; and a
procedures manual for the timely release of price sensitive
information.
The Code of Business Principles sets out the standards of
behaviour we require from all of our employees. We also have a
Code of Ethics that applies to the senior executive, financial and
accounting officers and comprises the standards prescribed by the
US Securities and Exchange Commission (SEC). The Code of Ethics
comprises an extract of the relevant provisions of Unilever’s Code
of Business Principles and the more detailed rules of conduct that
implement it. Copies of the Code of Business Principles and the
Code of Ethics are posted on our website at
www.unilever.com/investorcentre/corpgovernance.
Our internal risk management and control systems are described
on page 31.
Developments in corporate governance
Unilever constantly keeps its corporate governance arrangements
under review. NV and PLC are subject to different corporate
governance requirements and best practice codes, the most
relevant being those in the Netherlands, the United Kingdom and
the United States. It is Unilever’s practice to comply, where
practicable, with the highest level of these codes, and respond to
developments appropriately.
Developments in 2004
Following a review of our governance arrangements in 2004, the
NV and PLC shareholders adopted proposals to create a one-tier
board with a majority of independent Non-Executive Directors.