Unilever 2004 Annual Report Download - page 66

Unilever Annual Report and Accounts 2004 63
Corporate governance
(continued)
Nomination of directors
The Dutch Code recommends that shareholders may resolve by
an absolute majority of votes to cancel the binding nature of a
nomination for the appointment of a director (bpp IV.1.1). In
2004, NV’s shareholders approved an alteration of the Articles of
Association to align the arrangements for NV and PLC. This makes
it possible for the meeting of shareholders to cancel binding
nominations by a majority of two-thirds of the votes cast
representing more than one-half of the issued capital (see
pages 57 and 58).
Risk management and control
Reference is made to page 92, where Unilever’s control
framework is described. This incorporates risk management,
internal control procedures and disclosure controls and
procedures, and complies with the recommendations of the
Dutch Code. The role of our corporate internal audit function is
also described on the same page. We have an established
Operational Controls Assessment process for assessing controls
and correcting deficiencies.
As stated on page 92, our Boards have carried out an annual
review of the effectiveness of the systems of risk management
and internal control during 2004, and have ensured that the
necessary actions are being taken to address weaknesses or
deficiencies arising out of that review. The Audit Committee has
been regularly informed of the progress of the review.
In light of the above, the Board considers that the internal risk
management and control systems are appropriate for our business
and in compliance with bpp II.1.4.
Share options
In line with bpp II.2.2, the awards and grants of shares and
options to our Directors are in all material cases subject to
performance criteria, as referred to on pages 73 and 74 of the
Remuneration Report. The exception is the options over 50 NV
shares granted each year to our Executive Directors under the all
employees share option plan in the Netherlands, as described on
pages 81, 82 and 139. The Directors’ participation in this plan is
seen as a stimulus for all employees to participate.
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
Code.
Bpp II.2.5 states that neither the exercise price nor the other
conditions attaching to options shall be modified during the term
of the options. In addition to the exceptions recognised by that
provision, we shorten the term of the options in case of
termination of employment for any reason.
Severance pay
It is our policy to set the level of severance payments 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 2004, Niall FitzGerald and Charles Strauss ceased to be
directors. For their severance arrangements see pages 78 and 79.
Regulations for transactions in securities in other
companies
The Dutch Code recommends (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 emphasises that Directors are not allowed to deal in any
shares when they have unpublished price-sensitive information in
relation to those shares. Our Share Dealing Code furthermore
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 these requirements for
transactions in securities in other companies constitute a well-
balanced arrangement.
Conflicts of interest
We attach special importance to avoiding conflicts of interest
between its Directors and NV and PLC. 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 in the
1930s and 1940s. Their voting rights are based on their nominal
value, as prescribed by Dutch law. The Dutch Code recommends
that the voting rights on these classes of share 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.
Anti-takeover constructions and control over the company
With reference to bpp IV.3.9, NV has no anti-takeover
constructions, in the sense of constructions that are intended
solely, or primarily, to block future hostile public offers for its
shares. Nor does it have any constructions whose specific purpose
is to prevent a bidder, after acquiring 75% of the capital, from
appointing or dismissing members of the Board and subsequently
altering the Articles of Association. The acquisition through a
public offer of a majority of the shares in a company does not
under Dutch law preclude in all circumstances the continued right
of the board of the company to exercise its powers.