corporate governance statement

OrganisatiON

USG People N.V. is a limited liability company listed on the stock exchange and governed by the Dutch large company regime. The large company regime provides a legal framework which helps to determine the corporate management structure as well as the powers and duties of the Executive Board and Supervisory Board.

USG People is governed by its Articles of Association, which were most recently amended with effect from 1 February 2011. The amendment of the Articles of Association was approved by the Extraordinary General Meeting of Shareholders on 20 December 2010. The amendment of the Articles of Association was prompted by two amendments of the law which came into force on 1 July 2010, namely the Wet implementatie EU-richtlijn Aandeelhoudersrechten (act implementing the EU directive on shareholders’ rights) and the Wet standpuntbepaling en spreekrecht OR (definition of position and right to speak of works councils act). In addition we took advantage of the opportunity to make various amendments to the Articles of Association separately from the aforementioned changes to the law. For example, the new Articles of Association stipulate that directors of the company are jointly authorised – with no fewer than two individuals – to represent the company, rather than each being independently authorised.

The General Meeting of Shareholders

The annual accounts are undersigned by the Supervisory Board and submitted annually to the General Meeting of Shareholders for adoption.

The General Meeting of Shareholders has control of important matters including:

  • adopting the annual accounts;
  • profit appropriation;
  • the reserves and dividend policy;
  • adopting amendments to the Articles of Association;
  • deciding on the remuneration policy of the Executive Board;
  • approving the remuneration of the Supervisory Board;
  • transferring the company or a part thereof to a third party;
  • authorising the purchase, issue or sale of shares in the capital of USG People;
  • appointing the external auditor;
  • the discharge of the Executive Board and Supervisory Board.

The Supervisory Board

Composition

Following the death of Cor Brakel in October 2009 the Supervisory Board consisted of four members, namely Christian Dumolin, Joost van Heyningen Nanninga, Marike van Lier Lels and  Alex Mulder. Marike van Lier Lels held the chairmanship on an interim basis.

At the Extraordinary General Meeting of Shareholders on 2 March 2010 Cees Veerman was appointed to the Supervisory Board and has since held the chairmanship. Pending his appointment, Cees Veerman had become a member of the Supervisory Board with effect from 1 December 2009.

In the course of 2010 the Supervisory Board indicated its wish to strengthen its ranks with a financial specialist. Ahead of his formal appointment Rinse de Jong joined the Supervisory Board with effect from 1 September 2010. Prior to his appointment the Central Works Council spoke at length with Rinse de Jong and issued a positive opinion with regard to his proposed appointment. The formal appointment of Rinse de Jong took place at the Extraordinary General Meeting of Shareholders on 20 December 2010, thus satisfying the board’s wish to boost its ranks with a financial specialist.

The Supervisory Board has two internal committees: the audit committee and the remuneration and appointments committee. The composition of both internal committees as well as a detailed account of their activities can be found in the reports of these committees, in the report of the Supervisory Board.

Duties

It is the duty of the Supervisory Board to supervise the policy of the Executive Board and the way it manages the company. In doing so, the Supervisory Board takes into account the interests of all the company’s stakeholders, including shareholders, employees, customers and suppliers.

The Supervisory Board advises the Executive Board, both on request and at its own initiative, on topics including financial policy, risk management and control systems and the corporate structure. The Supervisory Board also discusses and assesses the corporate strategy on a regular basis.

The Supervisory Board must approve decisions pertaining to the following matters:

  • setting and altering the operational and financial targets of USG People;
  • setting and altering the strategy aimed at realising the corporate objectives;
  • setting and altering the parameters applying to the strategy, for example with respect to the financial ratios;
  • setting and altering the relevant aspects of corporate social responsibility;
  • all transactions between USG People and natural persons or legal entities in possession of at least 10% of the shares in USG People which are of material importance to USG People and/or such persons or entities;
  • all transactions between USG People and natural persons or legal entities in possession of at least 10% of the shares in USG People which are of material importance to USG People;
  • all transactions for which a conflict of interest may exist for the members of the Executive Board and which are of material importance to USG People and/or the members of the Executive Board involved;
  • all transactions for which a conflict of interest may exist for the members of the Supervisory Board and which are of material importance to USG People and/or the members of the Supervisory Board involved;
  • the appointment and dismissal of the secretary of USG People;
  • the appointment of a member of the Executive Board;
  • the allocation of tasks of the Executive Board to individual members of the Executive Board;
  • any other acts that require approval by law or as stipulated in the Articles of Association, the Executive Board regulations, the Supervisory Board regulations, the Dutch Corporate Governance Code or any other applicable regulations.

As well as the regulatory and statutory provisions and requirements, the Supervisory Board is subject to the Supervisory Board regulations. In addition, the two internal committees each have their own regulations, to which the members of the Supervisory Board who sit on these committees are also subject.

Independence

Until 9 May 2006 Alex Mulder was chairman of the Executive Board. In addition as at 31 December 2010 he held 20.02% of the company’s stock. This means that not all members of the Supervisory Board can be considered to be independent.

Joost van Heyningen Nanninga is a senior partner in Egon Zehnder International. In 2010 Egon Zehnder was involved in a search assignment for a new member of the Supervisory Board. However, this search assignment was not carried out by Joost van Heyningen Nanninga himself, but by other partners and colleagues at Egon Zehnder, so that there was no question of personal involvement on this occasion.

The Executive Board

Composition

In 2010 the two-member Executive Board was expanded to five members. The reasons for this expansion lay mainly in the fact that there was a need for greater continuity within the highest corporate body and furthermore to create support for future decisions and decisions already taken.

In addition to his position as CFO, from July 2009 to 3 March 2010 Rob Zandbergen was also acting CEO. The Supervisory Board had appointed Herman van Campenhout as CEO of USG People with effect from 3 March 2010. Owing to a lack of chemistry between Herman van Campenhout and USG People, Herman van Campenhout left the company with effect from 30 June 2010. Rob Zandbergen was appointed CEO effective 1 July 2010. From 1 July to 1 November 2010 he was also acting CFO.

With effect from 1 July 2010 Hans Coffeng, Eric de Jong and Albert Jan Jongsma were appointed as Chief Operational Officer (COO) for the Netherlands and Germany, Chief Operational Officer (COO) for Southwest and Central Europe and Chief Corporate Officer (CCO), respectively. Since 1 November 2010 the position of CFO has been held by Leen Geirnaerdt.

On 20 December 2010 the Extraordinary General Meeting of Shareholders was formally informed of the Supervisory Board’s intention to appoint Hans Coffeng, Leen Geirnaerdt, Eric de Jong and Albert Jan Jongsma to the company’s Executive Board. Having informed the Extraordinary General Meeting of Shareholders the Supervisory Board formally appointed them with effect from 20 December 2010.

Duties

The Executive Board manages the business on a day-to-day basis and is responsible for strategy, for setting and realising targets and for achieving results. The Executive Board is also responsible for the quality and completeness of the financial reports as published by the company, for risk management and control mechanisms, for compliance with legislation and regulations and for the financing of USG People.

As well as the regulatory requirements and the related provisions as stipulated in the Articles of Association, the Executive Board is subject to the Executive Board regulations, which include a clear description of the division of responsibilities between the individual board members.

THE DUTCH Corporate Governance Code

Integrity, transparency and clear communication are the vanguards of sound corporate governance at USG People. Strict compliance with these basic principles is high on our list of priorities. Our internal processes have been devised as carefully and transparently as possible, ensuring that these values are adhered to throughout the organisation. One of the main purposes of good corporate governance is to gain the trust of all stakeholders – trust in the way business is managed and supervised, trust in risk management, trust in the financial reporting. All of which add up to trust in the company as a whole.

USG People applies a corporate governance policy in line with the Dutch Corporate Governance Code (hereinafter referred to as ‘the Code’) (see the Government Gazette no. 18499 of 3 December 2009 for the text of the Code). The Code is based on the ‘comply or explain’ principle. That means that companies listed on the stock exchange are required to explain in their annual report how they complied with the Code and to give a motivated account of the principles pertaining to the Executive Board and Supervisory Board as well as of any best practices which have not been applied.

Deviations from the Code

At the General Meeting of Shareholders held on 9 May 2006 the corporate governance structure of USG People and the (limited) deviations from the Code were discussed at length with the shareholders. All deviations existing at the time were approved by the shareholders, meaning that USG People was in full compliance with the old Code.

The remuneration policy for the Executive Board of USG People expired on 31 December 2010. The old remuneration policy was at variance with best practice provisions II.1.1. (term of office), II.2.5. (period for which shares are held) and II.2.8. (maximum severance pay). In addition, the old remuneration policy included no provisions with respect to the clawback clause (II.2.11) and the ultimum remedium provision (II.2.10).

Explanation of deviations:

  • Best practice provision II.1.1.: An Executive Board member is appointed for a maximum period of four years. In view of the fact that this best practice provision was not entirely in keeping with USG People’s corporate culture and core values, USG People wished to reserve the right to appoint board members for an indefinite period. This was prompted in part by the fact that in the past board members had often risen up through the company’s own ranks, in which case a four-year appointment was perceived as inopportune. USG People wanted to reserve the right to appoint board members for a period longer than four years if there were compelling reasons for doing so.
  • Best practice provision II.2.5. (previously II.2.3): Shares granted to Executive Board members without the stipulation of a certain financial consideration in return must be retained for a period of at least five years or at least until the end of the period of employment if this period is shorter. Under USG People’s Unique Share Plan for 2008, 2009 and 2010 holders were required to retain these shares for a minimum of three years.
  • Best practice provision II.2.8 (previously II.2.7.): Severance pay may not exceed one year’s salary (the ‘fixed’ remuneration component). If the maximum of one year’s salary would be manifestly unreasonable for an Executive Board member who is dismissed during his first term, such board member shall be eligible for severance pay not exceeding twice the annual salary. In addition to the stipulated maximum payment of one year’s salary in the event of involuntary dismissal of an Executive Board member, USG People considers it desirable to reserve the right to make an additional payment equivalent to the six-month notice period. One of the reasons for this is the inclusion of this stipulation in the terms of employment of the former Solvus NV board member.
  • Best practice provisions II.2.10 and II.2.11, the ultimum remedium provision and the clawback clause. Up until 1 January 2011 these provisions were not included in Rob Zandbergen’s terms of employment, which was at variance with the Code.

During the course of 2010 the Supervisory Board deliberated about the remuneration policy which came into force on 1 January 2011. The new remuneration policy for the Executive Board complies with the new Code on all counts, except with regard to the payment upon termination of the contract of employment of a board member as a result of an acquisition of the company, resulting in a change of control.

The existing contract of employment with Rob Zandbergen was amended with effect from 1 January 2011 to bring it into line with the new requirements of the Code. Provisions were incorporated in his contract – as well as in the new board members’ contracts – regarding term of office, the clawback clause and the ultimum remedium provision. For more details about our remuneration policy please refer to the remuneration report.

In line with best practice provision III.6.5. (II.2.6 and III.7.3 in the old Code) USG People drew up rules applicable to Executive Board and Supervisory Board members regarding the possession of and transactions involving securities other than those issued by USG People. On 1 January 2006 USG People introduced a regulation stipulating that members of the Supervisory Board and Executive Board are obliged to provide advance notification of any transaction involving securities of direct competitors (the so-called ‘Peer Group’). The General Meeting of Shareholders approved the new regulation on 9 May 2006, meaning that board members are obliged to seek permission from the Compliance Officer prior to any transaction involving Peer Group stocks. Transactions involving non-Peer Group stocks do not require prior permission, nor is there a regular reporting obligation for these. This regulation is called the Tracking Compliance Program and can be found on the company’s website.

In the risk section of this annual report, the Executive Board of USG People has issued a statement to the effect that with regard to financial reporting risks the internal risk management and control systems provide a reasonable degree of assurance that the financial reporting does not contain any errors of material importance and that the risk management and control systems functioned properly in the year under review. The Executive Board of USG People provides clear evidence in support of this, meaning that USG People is in full compliance with best practice provision I.1.5.

Under best practice provision IV.3.12 of the new Code voting proxies and voting instructions are supplied to an independent third party. Until now it was customary at USG People for the company secretary to represent and cast such instructions and proxies at meetings. However, from 1 January 2011 this will be delegated to an independent third party.

Capital structure and protective measure

At 31 December 2010 the authorised share capital of USG People stood at € 100,000,000, consisting of 200,000,000 shares with a nominal value of € 0.50 each. The shares are divided into 100,000,000 ordinary shares and 100,000,000 preference shares. The issued capital at that date was 77,702,427 ordinary shares.

Stichting Preferente Aandelen USG People

The foundation ‘Stichting Preferente Aandelen USG People’ (hereinafter referred to as: ‘the Foundation’) was established in 2009. In accordance with its Articles of Association, the Foundation shall endeavour to serve the best interests of USG People, its associated businesses and all parties connected to it, warding off as much as possible any influences that could conflict with the continuity, independence and identity of the company. These influences may result from a (considerable) interest in USG People being built up by a third party, the announcement of a public offer or other concentration of control, or any other form of unreasonable pressure exercised on the company to change the (strategic) policies of USG People.

The Articles of Association of USG People provide for the possibility of issuing preference shares as a temporary protective measure. USG People considers it undesirable for preference shares to remain outstanding for any longer than is strictly necessary. Accordingly, article 7.8 of the Articles of Association of USG People stipulates that in the event of the issue of preference shares a General Meeting of Shareholders shall be held no later than 18 months after the initial issuance of these shares. A decision concerning the buyback or cancellation of the preference shares must be put on the agenda for that meeting.

USG People has granted the Foundation a call option to take up preference shares. The call option is divided into two parts: the first call option entitles the Foundation to take 30% (minus one share) of the voting rights. The second call option grants the Foundation the right to take 100% (minus one share) of the total issued capital, i.e. shares other than preference shares, issued at that time. This second call option can only be exercised, in whole or in part, after the announcement of a public offer for all shares in USG People, as referred to in article 5:71 sub 1 part c of the Financial Supervision Act. The call option agreement means that the decision to issue preference shares lies with the Foundation and not with the Executive Board, nor the Supervisory Board of USG People.

In addition to the aforementioned call options, the Foundation also has the right of inquiry. The Foundation can make use of this right in situations where it may not wish to exercise its right to take preference shares but which, in the opinion of the Foundation, justify the need for legal intervention in view of the definition of its objects in the Articles of Association.

The Foundation will operate independently from USG People. In doing so, it is in compliance with the requirements stipulated in the Financial Supervision Act with respect to a foundation of this type. In 2010 the board of the Foundation consisted of Messrs R. Pieterse (chairman), J.F. van Duijne and Professor M.W. den Boogert. The board members have drawn up a retirement schedule aimed at ensuring the continuity, knowledge and expertise of the Foundation.

Issue of shares and preferential rights

The Executive Board is designated as the body authorised to take decisions regarding the issue of shares - subject to the approval of the Supervisory Board and in accordance with the stipulations of the Articles of Association and legal provisions. This authority relates to a maximum of 10% of all shares of the issued capital of USG People as at the time of issue. Each year the General Meeting of Shareholders is requested to extend this period for a period of 18 months from the date of General Meeting of Shareholders.

Every year the General Meeting of Shareholders is customarily requested to extend the period for which the Executive Board is designated as the body authorised to limit or exclude legal preferential rights. The extension applies to the same period for which the Executive Board is authorised to issue shares. The Executive Board will only exercise this authority if it is in the best interests of USG People to do so.

Buyback of own shares

At the General Meeting of Shareholders on 21 April 2010 shareholders authorised the Executive Board - with the approval of the Supervisory Board - to buy back USG People shares for a period of 18 months as from 21 April 2010. Shares may be purchased under any agreement subject to the following conditions:

  • the buyback must not exceed 10% of the outstanding share capital; and
  • the price must be between the nominal value and 110% of the stock market value.

At the General Meeting of Shareholders held on 21 April 2010 shareholders also granted the Executive Board a mandate for a period of 18 months from 21 April 2010 to purchase - with the approval of the Supervisory Board - any preference shares placed with the Foundation. This buyback of preference shares may only take place at a price equal to the nominal value plus the current dividend and any dividend in arrears.

Major holdings

Under the Dutch Act on the Disclosure of Major Holdings in Listed Companies, shareholders are required to report holdings that exceed certain set percentages to the Netherlands Authority for the Financial Markets (AFM).

At 31 December 2010 USG People Alex Mulder held 15,556,025 shares, representing a 20.02% stake in USG People.

At 22 March 2010 BlackRock Inc. disclosed the fact that as at that date it held voting rights on a total of 4,152,898 shares, equal to a voting right of 5.3%.

Dividend policy

The objective of the dividend policy is a dividend payout of approximately one-third of net profit before amortisation, adjusted for tax. It is determined each year whether the dividend will be offered in cash or fully in ordinary shares and whether it will be charged to the share premium reserve or to other reserves.

Risk management and control systems

A description of the internal risk management and control systems can be found in the risk section.

Auditor

PricewaterhouseCoopers Accountants N.V. was appointed at the General Meeting of Shareholders in April 2010 to audit the annual accounts for the 2010 financial year. The auditor’s report is included elsewhere in the annual report.

Securities transactions

Members of the Executive Board and Supervisory Board must comply with the so-called Model Code. This regulation sets out how transactions involving securities of USG People should be conducted and prohibits trading during closed periods. Responsibility for Model Code compliance checks lies with the USG People Compliance Officer.

In addition to the Model Code, members of the Executive Board and Supervisory Board are bound to the Tracking Compliance Program, which sets out the rules for monitoring transactions involving the securities of direct competitors, the so-called Peer Group. Any transactions involving securities in these companies must be reported in advance to the USG People Compliance Officer. Transactions involving securities of companies outside the Peer Group do not require prior permission; nor is there a regular reporting obligation for these.

Conflicts of interest

Any transactions where conflicts of interest for Executive Board or Supervisory Board members can play a role must be published in the annual report. Under the Corporate Governance Code, any such transactions are subject to agreement under the conditions which are customary for the sector. During the 2010 financial year no transactions took place which could be qualified as representing a conflict of interest. Provisions aimed at preventing conflicts of interest with respect to such transactions are included in the Executive Board and Supervisory Board regulations.