Report of the Supervisory Board
As the Supervisory Board, we supervise and advise the Management Board - also proactively - with respect to the formulation and realisation of Alliander's objectives, strategy and policy. We also act as the employer of the Management Board. In addition, we maintain contacts with internal and external stakeholders. In this report we account for the manner in which we fulfilled our tasks and powers in the past year.
Report on the supervisory task of the Supervisory Board
In 2015, Alliander recalibrated its strategy in line with the changing energy landscape. The realigned strategy provides a solid basis for Alliander's future. We kept close track of the implementation of the strategy in 2016, and note that concrete steps were made within all four strategic pillars. Particular attention was given to investments in new business activities, notably the Allego and Alliander Duurzame Gebiedsontwikkeling business units. The governance and control of the innovation portfolio also received due consideration. This has led to changes in the information to the Supervisory Board and our commitment to the new business.
Regarding the mandatory unbundling of energy companies in the Netherlands, we note the following. Under enforcement decisions taken by the Netherlands Authority for Consumers & Markets (ACM) in late 2015, Delta and Eneco are required to complete their unbundling by, respectively, 30 June 2017 and 31 January 2017. The Eneco shareholders approved the company's unbundling plan on 30 November 2016. The events surrounding Delta unfolded in rapid succession. Early in December 2016, it was announced that Delta had reached an agreement with the Swedish investment company EQT Infrastructure for the proposed sale of Delta Retail. After lengthy deliberations, the cabinet and the provincial authorities of Zeeland came to the conclusion that the network group could not be kept in the province's hands. Based on this outcome, the external selling process was started up and Delta requested Alliander as one of the parties to consider taking over the Zeeland-based network group.
The Supervisory Board approved the proposal to take over 100% of the shares in Inquam Deutschland GmbH (Inquam). This company owns a 450 MHz radio frequency and Alliander AG is looking to expand this network in order to facilitate energy data transmission in Germany. In the Netherlands, Alliander (together with Stedin) has already built a wireless communication network for the transmission of data from smart meters and networks. This CDMA network also operates on a 450 MHz radio frequency. The takeover of Inquam is in keeping with Alliander AG's strategy to become a service provider for network operators, cities and municipalities. The 450 MHz CDMA network (a mobile communication network for critical infrastructure) is a key pillar of this strategy.
On 9 December 2016, Minister Kamp of Economic Affairs submitted an energy transition bill (Voortgang Energietransitie/VEt). We regret that this bill fails to provide network companies with the scope they need to develop and implement new initiatives in the field of energy transition. The VEt bill is neither conducive to the energy transition nor to the public interest. On 17 January 2017, the standing committee for Economic Affairs of the Dutch House of Representatives had a roundtable meeting with relevant parties and stakeholders to discuss the VEt bill. Ms I.D. Thijssen represented Alliander at this debate. Alliander's fundamental objections to the VEt are that the bill is counterproductive for the Energy Agenda, the energy transition and the market mechanism. At the time of writing this report, the bill had not yet been adopted by the House of Representatives.
Realisation of corporate objectives
We, together with the Management Board, continuously take stock of the progress made towards the realisation of the corporate objectives. The Supervisory Board also ascertains whether the organisation is sufficiently flexible to adapt in an effective and timely manner. We have concluded that the quarterly reports generate adequate information to monitor the progress of the realisation of the corporate objectives. The main operational developments and problems are another focus of attention. The specific corporate objectives that Alliander sets itself in a year are defined in measurable financial and non-financial objectives, with adjustments being made whenever necessary. As outlined in this annual report, the Year Plan 2016 that we approved and the underlying corporate objectives were largely achieved.
We looked closely at the impact of the development of results, the balance sheet ratios and the financial position on the company's creditworthiness. We note with satisfaction that the credit ratings of Standard & Poor’s (AA-/A-1+ with stable outlook) and Moody’s (Aa2/P-1 with stable outlook) were reaffirmed in 2016. Both ratings reflect Alliander’s strong creditworthiness. This guarantees adequate access to the capital market.
Design and effectiveness of internal risk management and control systems
The findings from the internal audits were discussed, as were the follow-up actions taken on the resulting audit findings. The Supervisory Board monitors the progress of these actions every six months based on ‘in control’ reports from the Internal Audit Department. We noted that the follow-up on the Internal Audit findings continued to receive the company's full attention in 2016 and see this as a positive trend.
In addition, the management letter from Deloitte, containing the 2016 interim audit findings on the internal controls (and the management's reaction to these findings), was discussed with the Audit Committee and the Supervisory Board in December 2016. During the interim audit, the auditor found that the internal control environment is robust. The recommendations this year included actions on IT access security and authorisation change management. Management took appropriate mitigating measures in response to the recommendations set out by Deloitte in its management letter.
The Supervisory Board received no indications of any deficiencies in the effectiveness of Alliander's risk management and control system with respect to the control objectives in the field of financial reporting in the year under review.
In addition, the design and effectiveness of the risk management system, the main risks to which Alliander is exposed and possible additional mitigation and control measures were discussed every quarter. New and more transparent risk reporting was introduced effective from the second quarter. We noted that the risk awareness and quality of risk management within the organisation both improved during the year. A description of the main risks is included in the Risk Information chapter in the report of the Management Board.
Throughout the year, the development of the operational and financial results was discussed on the basis of the quarterly reports. Subjects raised included the development of costs and results, the reduction of the cost of capital (WACC) for the new tariff regulation period, FTE movements and the increased sufferance tax costs.
An extensive discussion was conducted with the previous external auditor PricewaterhouseCoopers Accountants N.V. (PWC) about the 2015 financial statements and annual report and the main audit findings.
We also reviewed Alliander's 2016 half-year report, including the report on the findings of the current external auditor, Deloitte. Furthermore, the operational year plan 2017 (including investment budget) was reviewed and approved and the 2017-2021 financial plan was discussed. The Audit Committee of the Supervisory Board carried out intensive preparatory work on all these matters.
Compliance with legislation and regulations
To promote and supervise compliance with external laws and regulations as well as internal codes, Alliander has structured a compliance function within the Governance, Risk & Compliance Department. In addition, the half-yearly 'Fraud & Incidents' reports of the Internal Audit Department were discussed in the Audit Committee's meetings. Items reported include violations of the Code of Conduct applicable within Alliander and any instances of fraud and theft reported to the internal Fraud Disclosure Office. Internal Audit carried out various compliance audits to ascertain whether Alliander is compliant with relevant legislation and regulations as well as internal regulations, standards and values. The Supervisory Board gave consideration to the mitigating measures taken in response to two cases of fraud that occurred in 2015. Furthermore, after an extensive investigation, the ACM ruled on the enforcement request made by a market party about Allego and the Hoom, Exe and MPARE start-ups. The ACM concluded that these activities of Alliander are compatible with the regulatory frameworks. The complainant has lodged an appeal.
We were also informed about the theft of energy data of some 2 million households from the central data registers of the regional network operators. A breach of integrity on this scale is an extremely serious matter, and we assume that all parties will join forces to take all action necessary to further reduce the risk of abuse of energy data in the future.
The Management Board kept us informed of the progress and developments relating to the most important claims and proceedings as well as new laws and regulations relevant for Alliander, such as the energy transition bill (VEt) and the bill to abolish sufferance tax on, among other things, electricity cables and gas pipes in public land.
Relationship with shareholders
Barring the General Meeting of Shareholders, the Supervisory Board has limited contact with shareholders as a corporate body. The chairman of the Management Board is the primary point of contact for shareholders.
The full Supervisory Board attended the annual General Meeting of Shareholders on 7 April 2016. During this meeting, the financial statements for 2015 were adopted, the strategy was explained and the shareholders appointed Mr Hamers and Ms Jorritsma-Lebbink as new members of the Supervisory Board.
In 2016, we twice sought advice from the Committee of Shareholders  regarding the filling of Supervisory Board vacancies. In addition, the Committee was consulted in the context of the General Meeting of Shareholders about two WNT-related executive pay issues, namely the Management Board remuneration policy and the development of a sector code for executive pay.
Based on the foregoing, we are of the opinion that Alliander takes a constructive and careful approach to its shareholders' interests.
- 1 This is a group of shareholders appointed by and from the General Meeting of Shareholders to exercise certain powers on its behalf. These include the power of recommendation, appointment and dismissal of members of the Supervisory Board and powers in relation to the appointment and dismissal of members of the Management Board. For the composition of the Committee, see the website of Alliander.com.
Relevant CSR aspects
Corporate Social Responsibility (CSR) is an integral part of Alliander's strategy. Progress on CSR objectives is monitored on the basis of quarterly reports.
The Alliander Annual Report 2015 won two awards: the FD Henri Sijthoff Award 2016 (for best financial report) and the Crystal Prize 2016 (for the most transparent CSR annual report). We complimented the Management Board on this unique achievement. Key aims for the 2016 report are to provide more openness on the social impact of our activities and to further expand impact measurement and reporting. More information about this is contained in Our Impact in the report of the Management Board.
Every year, the external auditor reviews the CSR annual report. The resulting opinion is outlined in the assurance report, which forms part of this annual report.
Finally, one highlight that should not remain unmentioned is the election of MS I.D. Thijssen (Management Board member) as Top Female Executive of the year 2016. She sees her title as an opportunity to actively generate attention for two major CSR issues: diversity in executive leadership and the transition from fossils to renewables.
The Management Board regularly informed us about topical safety issues, such as serious accidents, major gas outages or explosions, the outcomes of related investigations and, even more importantly, the measures taken or proposed. We see safety as a top priority for the company and note that further progress has been made in relation to, amongst other things, the implementation of the Safety Ladder at various business units. Raising safety awareness is and remains a major focus area.
One point of concern, particularly in the western part of the Netherlands, is the unexpectedly strong increase in demand for electricity and the simultaneous tightening of the labour market for technicians. We extensively discussed measures to address this issue with the Management Board. The current estimation is that skills shortages will continue to cause inconvenience for customers until 2020.
We are worried about the possible expansion of the scope of the Public and Semi-Public Sector Executives Pay (Standards) Act (WNT) through the proposed WNT Evaluation Act and the proposed extension of the Act to other executive roles (WNT-3). Particular concerns are the unequal playing field for Alliander compared to state enterprises such as TenneT and Gasunie, the levelling down of the entire wage structure and a further erosion of Alliander's competitiveness in the labour market.
Against this backdrop, our former chairman sent a letter to the supervisory boards of other network companies, inviting them to exchange thoughts on remuneration and the formulation of a sector code similar to the code agreed by health insurers. An initial meeting with delegations of supervisory boards of network companies took place in June 2016. This resulted in the agreement to work out some of the suggestions and actions in bilateral contexts with those who are open to this initiative and to resume contact in the event of new developments.
- 1 State enterprises fall outside the scope of the WNT because the state, as shareholder, is fully authorised to set the remuneration policy of these enterprises.
Other important subjects
Alongside the above issues, various other subjects were put to us for decision-making. These included the approval of the decision of the Management Board to raise funding through the issuance of a Green Bond of EUR 300 million under the EMTN programme. We believe that this green bond marks a new milestone towards the realisation of Alliander's sustainability ambitions. We also approved the strategy for Alliander AG. For two Management Board members, Messrs Molengraaf and Van Lieshout, we confirmed the realisation of the objectives for the short-term variable remuneration for 2015 and the long-term variable remuneration for 2013-2015 as well as the final award and payment of the long-term variable remuneration for 2014-2016. Other subjects discussed were:
the monitoring of the changes in the culture and business processes of Liander in order to realise its ambition as excellent network operator;
an update on the large-scale smart meter offering;
an update on the digitisation of the networks;
the outcomes of the annual employee survey;
the outcomes of the annual customer satisfaction survey;
the preparation for the annual shareholders' meeting;
the succession planning for the first management layer below the Management Board;
the revised Dutch Corporate Governance Code;
Senior employees from the organisation regularly attended meetings of the Supervisory Board to clarify subjects within their specific area of expertise. To keep an ear to the ground and stay in touch with the activities of Alliander, one meeting was combined with a company visit to Allego where we were given presentations about the operational activities and talked with senior management.
Reporting of committees of the Supervisory Board
The Supervisory Board has two committees, namely an Audit Committee and a Selection, Appointment and Remuneration Committee. These committees advise on and prepare the decision-making of the Supervisory Board within their respective areas of expertise. The committee meetings serve to discuss the subjects in greater depth. The main considerations and findings of both committees are fed back in the meeting of the Supervisory Board to enable careful decision-making. The decision-making takes place in the full Supervisory Board meeting. The minutes of the committees are made available to all members of the Supervisory Board.
In 2016, the Audit Committee met eight times in the presence of the CFO, the Internal Audit Director, the Governance, Risk & Compliance Manager and the external auditor. When specific subjects were discussed, specialists were invited to attend part of the meeting.
The Audit Committee assessed and discussed all relevant financial matters that were presented to the Supervisory Board, including the 2015 annual report and financial statements, the 2016 quarterly and half-yearly figures, the internal and external audit plan, the reports of the internal and external auditor, the 2017 operational year plan, the 2017 investment budget and the 2017-2021 financial plan.
In 2016, the Audit Committee devoted specific attention to information and IT security issues, notably the new zoning infrastructure and accompanying security services to further improve the level of security. A subject that merits even more attention is the safety awareness of employees.
The Audit Committee also discussed the ‘tone at the top’. In the committee's opinion, the correct 'tone at the top' is vital to achieve a strong risk culture. The funding in the form of Green Bonds and the accompanying Green Bonds Framework were also reviewed by the Audit Committee. In addition, the Audit Committee was informed about the implementation of data leak disclosure procedures to comply with the Dutch Data Breach Notification Act, which took effect on 1 January 2016.
Other subjects discussed included the financial effects of the phasing out of the existing gas networks under the current tariff regulation system, the risk reports, the funding policy, the insurance policy, impact measurements, tax issues, impairment testing, position papers, IFRS developments and the business plans of Allego and Alliander Duurzame Gebiedsontwikkeling.
Selection, Appointment and Remuneration Committee
The committee held two meetings in 2016, partly in the presence of the chairman of the Management Board and the HRM Director.
In 2016, the Committee dealt with diverse matters, including the determination of the variable remuneration for 2015 based on the agreed short-term and long-term financial and non-financial targets. The Committee also prepared the Remuneration Report. Furthermore, it was informed about the outcomes of the Internal Audit Department's audit of the Management Board's expense claims. Attention was also given to the succession planning for the first management layer below the Management Board. This discussion was continued in the full Supervisory Board meeting and provided good insight into the management capabilities within Alliander. Developments surrounding the WNT were another subject of lengthy debate.
To fill two vacancies in the Supervisory Board, the Committee prepared the selection and nomination of two new Supervisory Board members in consultation with the Committee of Shareholders and the Central Works Council.
Finally, the Committee conducted individual appraisal interviews with the members of the Management Board as part of the assessment of the Board's performance in 2016.
Composition of the Management Board
The composition of the Management Board remained unchanged in 2016. The Management Board consists of:
Mr P.C. Molengraaf, chairman/CEO
Mr M.R. van Lieshout, member/CFO
Ms I.D. Thijssen, member/COO
The male/female ratio in the Management Board is 67%/33% and is thus in line with the diversity objective of the Management and Supervision Act (Wet Bestuur en Toezicht). Other positions held by the Management Board members outside the company are reported to the chairman of the Supervisory Board and disclosed in the annual report. The members of the Management Board do not hold any other positions that are in conflict with the interests of Alliander. None of the members of the Management hold more than two supervisory board positions in large legal entities within the meaning of the Management and Supervision Act. Nor do any of the members act as chairman of a Supervisory Board. This is in accordance with the Management and Supervision Act and the Code. In the 2016 financial year, there were no transactions involving a conflict of interests of Management Board members (within the meaning of provisions II.3.2 to II.3.4 of the Code).
Composition of the Supervisory Board.
End of term
Ms A. Jorritsma-Lebbink (chairwoman)
eligible for reappointment
eligible for reappointment
Ms J.G. van der Linde
not eligible for reappointment
eligible for reappointment
Ms A.P.M. van der Veer-Vergeer
not eligible for reappointment
The composition of the Supervisory Board changed in the course of the year under review due to the premature departure of two members: Mr J.C. van Winkelen resigned voluntarily as vice chairman of the Supervisory Board and chairman of the Audit Committee with effect from 7 April 2016 and Mr E.M. d’Hondt resigned - also voluntarily - with effect from 1 July 2016 as chairman of the Supervisory Board and member of the Selection, Appointment and Remuneration Committee. We respect their decisions and thank them for their expert contributions and close involvement with Alliander over many years. The vacancy arising from the resignation of Mr Van Winkelen was filled with the appointment of Mr G.L.M. Hamers. effective from 7 April 2016. From that same date, Ms A.P.M. van der Veer-Vergeer was reappointed by the General Meeting of Shareholders as a member of the Supervisory Board.
During the General Meeting of Shareholders of April 2016, no proposal was made to fill the vacancy arising from the resignation of Mr d’Hondt. It was decided to leave this vacancy open for the time being. After working together in the new composition for a period of time, the Supervisory Board would review whether this vacancy needs to be filled. Both the Central Works Council and the Committee of Shareholders were informed accordingly and expressed their agreement with this decision.
Effective from 1 July 2016, Ms A. Jorritsma-Lebbink was appointed as member of the Supervisory Board and also as chairwoman of the Supervisory Board. She was appointed to fill the vacancy arising from the resignation of Ms J.W.E. Spies effective from 15 December 2014.
From 1 July 2016, the Supervisory Board consists of five members who were appointed according to the schedule of resignation.
Profile, competences and diversity
The Supervisory Board has drawn up a profile for its composition. The profile stipulates that all members must meet certain general job requirements, and also defines various specific areas of expertise that must be present in the Supervisory Board to enable effective oversight of the broad spectrum of a network company. Complementarity, collegiate management, independence and diversity are key requirements to ensure the proper fulfilment of the Supervisory Board's duties. Diversity is also important, not just in terms of expertise and background but also gender and age. We are convinced that diversity enhances the decision-making of the Board as a collegiate body.
Women make up 60% of the Supervisory Board membership. This is in line with a balanced distribution of seats (at least 30% male and at least 30% female) as required under the Management and Supervision Act. Vacancies within the Board are filled with due regard to the importance of a balanced composition. The primary consideration when appointing candidates is the quality and suitability of the candidates for the vacant position.
Composition of committees
At the start of the year under review, the Audit Committee consisted of three members: Mr J.C. Van Winkelen (chairman), Ms J.G. van der Linde and Ms A.P.M. van der Veer-Vergeer. The resignation of Mr Van Winkelen led to a change in the composition. The committee is currently made up of Ms Van der Veer-Vergeer (chairwoman), Ms Van der Linde and Mr G.L.M. Hamers. Ms Van der Veer-Vergeer qualifies as the ‘financial expert’ within the meaning of best practice provision III.3.2 of the Dutch Corporate Governance Code (the Code).
Selection, Appointment and Remuneration Committee
In 2016, the Selection, Appointment and Remuneration Committee initially consisted of Mr B. Roetert (chairman), Mr E.M. d’Hondt and Ms A.P.M. Van der Veer-Vergeer (acting member). The resignation of Mr d’Hondt led to a change in the composition. The committee currently consists of Mr Roetert (chairman) and Ms A. Jorritsma-Lebbink.
Quality assurance and supervision
This year, the Supervisory Board opted for a short self-assessment without external assistance, the reason being that two of the five members, including the chairwoman, had only been members of the Supervisory Board since mid-2016. In 2017, the self-assessment will once again be carried out with independent external assistance. Among other things, we spoke about our mutual cooperation and the collaboration with the Management Board. The discussion focused on the following three aspects:
are the competences that are deemed necessary to form a good Supervisory Board sufficiently present?
are we a good sparring partner for the Management Board?
is the information provided by the Management Board sufficient to fulfil our role?
We found that the composition of the Supervisory Board is diverse. Not only gender-wise, but also in terms of professional background. The two new members offer entrepreneurial expertise as well as political and management experience in the public sector. This constitutes a valuable addition to the knowledge and competences already present within the Supervisory Board. While the main basic competences are present within the Supervisory Board, further training is required to obtain more insight into the differences between operating in a liberalised market and a largely regulated market. The full Supervisory Board attended courses in IT and cybercrime (see below under ‘Education’). We are increasingly a good sparring partner for the Management Board. Issues are dealt with openly and safely in the committees of the Supervisory Board, and the Management Board also discusses strategic themes on which the Supervisory Board does not yet have a fully-formed opinion.
Last year saw a marked improvement in the information provided by the Management Board, but the agenda is overloaded. It was therefore agreed to see whether we could discuss one or two themes in greater depth in each meeting, while relying for the other issues on thorough preparatory work in, for instance, the Audit Committee. Finally, the Supervisory Board is keen to involve the shareholders even more closely in the strategic discussions.
The Supervisory Board has put in place a learning programme that is designed to maintain and broaden the knowledge and expertise of its members. In this context, KPMG gave two IT master classes in 2016. The aim was to provide a deeper understanding of digital trends and developments and the impact of IT on the organisation. Part of the master class consisted of a cyber security game. This gave us first-hand experience of how a cyber attack can impact on an organisation and how you can effectively work together during a cyber attack. Thanks to the excellent mix of theory and practice, these master classes were extremely instructive.
Contacts with the Central Works Council
We attach great value to a good relationship with the Central Works Council. This helps us to stay in touch with the concerns of employees. Supervisory Board The members attended the consultations between the Management Board and the Central Works Council in different compositions. During our customary annual informal meeting, we spoke with the Central Works Council about various issues including the energy transition and long-term employability. We regard the consultation with the Works Council as constructive and valuable.
Adoption of financial statements, dividend proposal and discharge from responsibility
As prescribed by the articles of association, the Supervisory Board puts the financial statements as prepared by the Management Board to the General Meeting of Shareholders for approval. The financial statements were audited by Deloitte Accountants B.V. which issued an unqualified opinion. This statement is included in this annual report under Other information as part of the financial statements. The Supervisory Board members have signed the financial statements in conformity with their statutory obligation under Section 2:101 (2) of the Dutch Civil Code.
We recommend that the General Meeting of Shareholders adopt the financial statements for 2016, including the proposed profit appropriation and the dividend proposal for 2016, at the General Meeting of Shareholders to be held on 5 April 2017. Furthermore, we propose that the General Meeting of Shareholders discharge the members of the Management Board and the Supervisory Board from responsibility for their management and supervision, respectively, in the 2016 financial year.
E.M. d’Hondt 1)
A. Jorritsma-Lebbink 2)
J.C. van Winkelen 3)
G.L.M. Hamers 4)
J.G. van der Linde
A.P.M. van der Veer-Vergeer 5)
Selection, Appointment and Remuneration Committee
Mr d’Hondt resigned effective from 1 July 2016.
Ms Jorritsma-Lebbink was appointed as a member and also as chairwoman of the Supervisory Board effective from 1 July 2016.
Mr Van Winkelen resigned effective from 7 April 2016.
Mr Hamers was appointed as a member of the Supervisory Board effective from 7 April 2016.
Alongside her membership of the Audit Committee, Ms Van der Veer-Vergeer was acting member of the Selection, Appointment and Remuneration Committee until the end of the first quarter 2016 (this in connection with the temporarily reduced staffing of the Selection, Appointment and Remuneration Committee).
Ms M.I.I. Miener, General Counsel, acted as secretary of the Supervisory Board. She left Alliander effective from 1 April 2016; her successor has not yet been appointed. During the rest of the year under review, Ms M.M.A. de Bliek, Manager of the Corporate Secretariat, who is acting secretary, took over her duties. The agendas of the meetings are prepared by the chairwoman of the Supervisory Board in consultation with the chairman of the Management Board.
A final word
We thank the Management Board, the management and the employees of Alliander for their hard work in 2016. Thanks to their commitment, Alliander achieved good results and was able to contribute to a reliable, affordable and accessible energy supply in a large part of the Netherlands.
Arnhem, 6 March 2016
Ms A. Jorritsma-Lebbink (chairwoman)
Ms J.G. van der Linde
Mr B. Roetert
Mr G.L.M. Hamers
Ms A.P.M. van der Veer-Vergeer