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BE ER Enterprise Risk Management

BE ER Enterprise Risk Management. Dick Oude Alink Corporate Risk Manager October 18, 2005. 22% Other European countries. 17% USA/ Canada. 9% Asia. 6% Other regions. Akzo Nobel in the World. Geographic breakdown net sales (by origin). 46% Euro region. Chemicals BUs. Coatings BUs.

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BE ER Enterprise Risk Management

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  1. BE ER Enterprise Risk Management Dick Oude Alink Corporate Risk Manager October 18, 2005

  2. 22% Other European countries 17% USA/ Canada 9% Asia 6% Other regions Akzo Nobel in the World Geographic breakdown net sales (by origin) 46% Euro region

  3. Chemicals BUs Coatings BUs Organization Board of Management Corporate Staff Pharma BUs

  4. Business Units Pharma • Intervet, Organon, Nobilon Coatings • Car Refinishes, Decorative Coatings Europe, Decorative Coatings International, Industrial Finishes, Marine & Protective Coatings, Nobilas, Powder Coatings Chemicals • Base Chemicals, Functional Chemicals, Polymer Chemicals, Pulp & Paper Chemicals (Eka Chemicals), Surfactants

  5. Akzo Nobel Our Ambition Be the first choice of customers, shareholders and employees and a respected member of society Our Commitments • Focus on our customers • Competitive returns for our shareholders • Create an attractive working environment • Socially responsible

  6. Akzo Nobel Our Strategy • Obtain leadership positions • Seek market segments with an attractive structural profitability • Develop critical mass Our Values • Entrepreneurial spirit • Personal integrity • Social responsibility This strategy calls for a constant upgrading of the portfolio

  7. Akzo Nobel Our Principles • Recognize our responsibilities • Endorse free enterprise • Insist on business integrity • Encourage community activities • Stimulate communication Health, Safety and the Environment • HSE is an integral part of the business policy • Go beyond compliance • Actively support HSE care programs

  8. Akzo Nobel Policy Health, Safety and the Environment • Prevent harm to and promote the health of employees and other stakeholders • Strive to prevent injuries at work • Prevent or minimize the environmental impact • Expand our concern for HSE (Product Stewardship) In Society • Be a respected member of society • Support educational, sports, arts, cultural and scientific programs • Encourage young talent

  9. Have a Look Go to website

  10. Facts and Figures

  11. Key Figures 2004 EUR mln Net income* 770 Net sales 12,688 Operating income* 1,210 Number of employees (year-end) 61,450 * excluding nonrecurring items

  12. People Pharma Coatings Chemicals Other units Europe North America Latin AmericaAsia Other regions

  13. Breakdown Net Sales 2004 Pharma Coatings Chemicals

  14. Research and Development • 2004 R&D expenditures (EUR 823 million), were down 7,0% from 2003. • R&D expenses as percentage of sales: 6.5% 20% 16% 15% 10% 5% 3% 3% 0%

  15. Be aware that risks can have many faces……

  16. Why Risk Management and why now? • Dynamic and complex business environment

  17. Dynamic & Complex Business Environment • Global Customers • Fluctuating Exchange rates • Increasing raw material/transport prices • Changing regulations • Reduced raw material availability • Complex logistics • etc.

  18. Why Risk Management and why now? • Dynamic and complex business environment • Changing risk arena

  19. Changing Risk Arena The Risk List ‘Greatest Risk Top 5’ from 2000 onwardslate 1990’s 1 Loss of Reputation Fire 2 Failure to Change Business Interruption 3 Business Interruption Employee Risks 4 Product Liability Environmental 5 Computer Crime Computer Crime

  20. Why Risk Management and why now? • Dynamic and complex business environment • Changing risk arena • Shareholder & stakeholder expectations

  21. Shareholder & Stakeholder Expectations • People • Planet • Profit

  22. Why Risk Management and why now? • Dynamic and complex business environment • Changing risk arena • Shareholder & stakeholder expectations • Corporate Governance requirements

  23. Corporate Governance Requirements • Transparency in operations (opportunities and risks) • Risk based thinking (internal and external auditors) • Law on behalf of Shareholders and Stakeholders- Sarbanes Oxley- Tabaksblat- European Corporate Governance Forum

  24. STRATEGIC OPERATIONS REPORTING COMPLIANCE Internal Environment SUBSIDIARY Objective Setting BUSINESS UNIT DIVISION Event Identification ENTITY-LEVEL Risk Assessment Risk Response Control Activities Information & Communication Monitoring Corporate Governance Requirements COSO Internal Control framework COSO ERM framework FINANCIAL REPORTING COMPLIANCE OPERATIONS Control Environment SUBSIDIARY BUSINESS UNIT Risk Assessment DIVISION ENTITY-LEVEL Control Activities Information & Communication Monitoring

  25. Enterprise Risk Management within Akzo Nobel

  26. Risks are inherent to our business operations& by taking measured risks we want to make money

  27. Managing risks is a pre-requisite for generating sustainable value & must therefore be an integral part of our business activities

  28. Enterprise Risk ManagementPrinciples • Have opportunities and risks visible and understandable • Show transparency on balance of risks, internal and external • Avoid surprises • Financial • Reputation • Compliance • Business principles

  29. Enterprise Risk Management Program Risk Managementprocess Internal risk reporting External risk reporting Business planning objectives/strategy risk profiles • Corporate • Governance • Tabaksblat • SOX risk paragraph TOP, SOP, RF LOR Transparency Transparency Risk awareness Integrated RM • Business • planning levels • Akzo Nobel • Group • BU, sub BU, process, site, plant • Corporate departments Framework: COSO Risk Management Framework and Process Risk Management standards and best practices Process owner: ARM

  30. Enterprise Risk ManagementImplementation Approach

  31. Enterprise Risk ManagementWorkshop Process Key Success Factors • Top-Down process • Fully aligned with Business Planning and Reporting • Bottom-Up reporting • Execution at all (management) levels • Maximum use of employees knowledge and experience • Enforced Decision-making process • Use of robust interactive tools

  32. Akzo Nobel Risk Policy Policy Letter of LOR Representation Assurance Process Tools Documentation Website Support Business Plan Q.Reviews Language Reporting Board Business Units Accountabilities Akzo Nobel Enterprise Risk Management Program

  33. Enterprise risk management Policy Akzo Nobel is committed to creating long-term value for its customers, shareholders, employees and society, recognising that sustainable profit is essential for the continuity of its business. Risks are an integral part of our business and can feature both in terms of opportunities and gains, as well as threats and losses. Our policy is to ensure that risks are timely identified, adequately understood, properly assessed and effectively responded to by responsible employees at all levels within the company. Through our enterprise risk management framework, we want to provide reasonable assurance that our business objectives can be achieved and our obligations to employees and society can be met. Approved by the Board of Management, December 2001 A clear policy statement

  34. Akzo Nobel Risk Management Process

  35. The Risk Management Process in 5 basic steps Understand the Business Clarify Objectives 1 2 Respond to Risks 5 4 3 Identify Risks Assess Risks

  36. The design of the enterprise risk management framework will vary according to the characteristics of the business 1. Understand the Business What is the nature of the business? What is the culture and operating style within and around the business? What are the internal constraints which limit freedom of action or choice? What are the external constraints like laws, regulations and mandatory standards?

  37. Clarification of the objectives enables the identification of the related risks 2. Clarify Objectives What expectations have been set? What promises have been made? What must be delivered? Who is responsible for achieving the objectives? Do the objectives cover all elements of sustainable development (economic, social & environmental)?

  38. 3. Identify risks Health, Safety & Environment ITsystems Asset Integrity Customers Financial Natural events Reputation People Laws & Regulations Research & development Partnering Integrity

  39. High Billing and revenueAssurance Business Interruption Interconnected Technology obsolescence PerformanceMeasurement Competitor Capital Availability IT SystemIntegrity Regulatory Financial ReportingEvaluation Credit Human Resources Impact Medium Product Development Customer satisfaction Fraud Pricing Efficiency Reputation Low Low High 4. Assess the Risks The Impact versus Likelihood map Likelihood

  40. High Risks may be Under-controlled Acceptable level of control effort for the risk Risk Level Risks may be over-controlled Low Low Moderate High 4. Assess the Risks The Risk level versus Control effort map CONTROL EFFORT

  41. high What needs to be done? • Increase effort level Risk Level • Maintain current effort level • Reduce effort level low Moderate low high Control Effort Risk Sourcing and Response DevelopmentWhat do we need to do to deal with the identified risk?

  42. 5. Respond to Risks (the four T’s) In relation to a particular risk there are certain basic strategies to choose from: • Terminate the activity • Transfer the risk to another party • Treat the risk by instituting appropriate business controls • Take the risk (where no further cost effective controls are possible)

  43. Take Transfer Intentionally pursue Fully accept Insure Finance the consequences Share (JV, alliance, partnership Build in contingencies Contract out (outsource, assign) Diversify / spread Hedge TeERMinate Cease activity Treat Pull out of market Dealing with risk requires adaptation: Divest • Organization Change objectives • People & Relationships Reduce scale • Direction • Operational • Monitoring 5. Respond to Risks(possible risk response strategies)

  44. Risk sourcingFinding the root cause of the risk • The aim is: • To create a clear picture of where and how business risks originate • To focus attention on the specific areas that have the highest influence on the respective risks • To assist in developing effective risk responses (action plans)

  45. Response DevelopmentWhat must be done to deal with the root cause?

  46. Follow-up and Closing Risk Management reporting format (I)

  47. Enterprise Risk ManagementMonitoring Risks Continuous Management Review • External developments • Changes in the Business Objectives • Internal Developments • Other Risk Profiles in the Organization • Risk Mitigation Actions This year’s Risk profile Last year’s Risk profile

  48. Enterprise Risk Management Standards • Risk profiles throughout the organization (BoM, BUs, sBUs, processes, main sites and corporate) • Actual & up to date risk profiles and actions plans (Annually reviewed) • Risk Profiles for strategic changes(major investments, acquisitions, divestments, etc.)

  49. ERM on track forCorporate Governance • SEC Final rule SOX 404: COSO • Tabaksblat: COSO • PCAOB Audit Standard No. 2: COSO

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