Governance framework

Business groups are the main building blocks of DSM’s organization; they have integral long-term and short-term business responsibility and have at their disposal all functions that are crucial to their business success. In order to facilitate selective leveraging of expertise and implementation capabilities in the approach to markets, products and technologies, business groups with the most important commonalities in these areas are grouped into clusters. The business groups within a specific cluster report to a member of the Managing Board. This Board member manages the coherence of operations and the leveraging of resources within the cluster and is accountable for the overall performance of the cluster within limits defined by the collective responsibility of the total Managing Board for the overall management of the company. The clusters are the main entities for external strategic and financial reporting. In order to ensure sufficient independence with regard to financial management, the Chief Financial Officer has no business groups reporting to him.

The following figure depicts DSM's overall governance framework and the most important governance elements and regulations at each level.

Note: all internal regulations apply in addition to applicable national and international laws and regulations. In cases where internal regulations are incompatible with national or international laws and regulations, the latter prevail.

For the sake of clarity, a short summary of the main aspects of the framework at Managing Board / corporate level and operational level is given here:

• The Managing Board adheres to the Regulations of the Managing Board.
• In addition, the Managing Board works according to the Management Framework for the corporate level. This implies among other things that it adheres to the DSM Code of Business Conduct and applicable corporate policies and requirements.
• The Management Framework for the corporate level further provides a description of the most important (decision-making) processes, responsibilities and 'rules of the game' at the Managing Board, functional and regional levels and includes the governance relations with the next-higher levels (Supervisory Board and Shareholders) and the operational units. In particular, the framework defines the roles of corporate staff, functional excellence and shared service departments as follows:

• • Corporate Staff departments; small, high level groups, supporting the Managing Board and reporting directly to a Managing Board member (in most cases CEO or CFO);
  • Functional Excellence departments, in which expert capabilities in selected functions are concentrated and which are steered by Functional Excellence Advisory Boards, chaired by a Managing Board member; the Director of a Functional Excellence department reports to a Managing Board member;
  • Shared Service departments, in which selected service functions are leveraged and which are steered by Shared Service Boards, chaired by a business group director. The director of a Shared Service department reports to a Managing Board member, who is also a member of the Shared Services Board.
    
  The company’s strategic direction and objectives are set in a Corporate Strategy Dialogue. During the year under review such a Corporate Strategy Dialogue was executed, resulting in the new strategy DSM in motion: driving focused growth. As part of this strategy, the regional functions have been further strengthened, especially in the high growth economies and the US. The framework will be adjusted accordingly.

• The operational units conduct their business within the parameters of the Management Framework for operational units. This implies among other things that the operational units:

• • establish the strategy and objectives of their business according to the Business Strategy Dialogue, in which process various scenarios and related risk profiles are investigated;
  • implement risk management actions according to an Annual Risk Management Plan and in line with corporate policies and multi-year plans in several functional areas;
  • comply with the Corporate Requirements and Directives; and monitor the effectiveness of the risk management and internal control system and regularly discuss the findings with the Managing Board.

On average once every three years, the units are audited by Corporate Operational Audit (COA). The director of COA reports to the chairman of the Managing Board and has access to the external auditor and the chairman of the Audit Committee of the Supervisory Board. Furthermore, the director of COA acts as the compliance officer with regard to inside information and is the chairman of the DSM Alert Committee, which implements the whistle-blower policy.

In January 2010 a Fraud Committee was formed in which relevant corporate functions participate under the chairmanship of the CFO. The objective of the committee is to ensure structural follow-up of fraud cases with the aim of reducing fraud risks.