Unilever 2005 Annual Report Download - page 49

46 Unilever Annual Report and Accounts 2005
Corporate governance
(continued)
Following the review of our corporate structure in 2005,
proposals will be put to the NV and PLC AGMs in May 2006 to
substantially alter these arrangements and bring them fully in line
with the Dutch Code (see page 35).
Risk management and control
Reference is made to page 74 where Unilever’s control
framework is described. This incorporates risk management,
internal control procedures and disclosure controls and
procedures. Our procedures cover financial, operational, social,
and environmental risks and regulatory matters. They are in line
with the recommendations of ‘Internal Control – Guidance for
Directors on the Combined Code’ published by the Internal
Control Working Party of the Institute of Chartered Accountants
in England and Wales in September 1999 (‘The Turnbull
Guidance’). On pages 31 and 32 we have identified certain
specific risks that are areas of focus in 2006. Our internal risk
management and control systems cannot provide certainty as to
the realisation of all business objectives and they can not always
prevent misstatements, inaccuracies, errors, frauds and non
compliances with rules and regulations.
The Board considers that the internal risk management and
control systems are appropriate for our business and in
compliance with bpp II.1.3.
In bpp II.1.4 the Dutch Code invites our Board to make a
statement on our internal risk management and control systems.
In its report, published on 20 December 2005, the Corporate
Governance Code Monitoring Committee has made
recommendations concerning the application of this best practice
provision. In accordance with its recommendation and in light of
the above, the Board believes that, as regards financial reporting
risks:
• the risk management and control systems provide reasonable
assurance that this Annual Report does not contain any
material inaccuracies;
• the risk management and control systems have worked
properly in 2005;
• there are no indications that the risk management and control
systems will not work properly in 2006;
• no material weaknesses in the risk management and control
systems were discovered in the year under review or the current
year until the signing of these accounts;
and, as regards operational, strategic, legislative and regulatory
risks:
• no important failings in the risk management and control
systems were discovered in the year under review.
This statement is not a statement in accordance with the
requirements of Section 404 of the US Sarbanes Oxley Act.
Share options
In line with bpp II.2.2, the awards and grants of shares and
options to our Directors are in the material cases subject to
performance criteria, as referred to on page 55 and 56 of the
Report of the Remuneration Committee. The exception is the
options over 50 NV shares granted each year to our Executive
Directors under the all employee share option plan in the
Netherlands, as described on pages 132 and 133. The Directors’
participation in this plan is seen as a stimulus for all employees to
participate. All other awards to our Directors under share based
incentive schemes are subject to performance criteria.
Retention period of shares
The Dutch Code recommends that shares granted to executive
directors without a financial consideration must be retained for a
period of at least five years (bpp II.2.3). In 2001 we introduced a
new remuneration policy with shareholder approval which
requires our Executive Directors to build and retain a personal
shareholding in Unilever equal to at least 150% of their annual
base pay. We believe that this is in line with the spirit of the
Dutch Code.
Severance pay
It is our policy to set the level of severance payments for Directors
to no more than one year’s salary, unless the Board, at the
proposal of the Remuneration Committee, finds this manifestly
unreasonable given circumstances or unless otherwise dictated by
applicable law (bpp II.2.7).
During 2005, Clive Butler, Keki Dadiseth and André van Heemstra
ceased to be Directors. For their severance arrangements see
page 60.
Regulations for transactions in securities in other
companies
The Dutch Code recommends in bpp II.2.6 and bpp III.7.3 that a
director shall give periodic notice, but in any event at least once a
quarter, of any changes in his holding of securities in other Dutch
listed companies to the compliance officer. Our Share Dealing
Code provides that Directors are required, upon request, to
disclose to the compliance officer their holdings and transactions
in securities in other listed companies. We believe this
requirement constitutes an appropriate arrangement.
Conflicts of interest
In the event of a (potential) conflict of interest, the provisions of
the Dutch Code (P II.3 and III.6) are applied. Conflicts of interest
are not understood to include transactions and other activities
involving other companies in the Unilever Group.
Financing preference shares
NV issued 4%, 6% and 7% cumulative preference shares
between 1930 and 1970. Their voting rights are based on their
nominal value, as prescribed by Dutch law. The Dutch Code
recommends that the voting rights on financing preference shares
should, in any event when they are newly issued, be based on
their economic value rather than on their nominal value (bpp
IV.1.2). NV cannot reduce these voting rights unilaterally.