Report of the Supervisory Board
In this report the Supervisory Board accounts for its supervision in the past year and discusses the most important subjects in which it was involved. In addition, the Supervisory Board reports on the manner in which its committees fulfilled their tasks.
The strategy initiated in 2015 was given further shape in 2017. In the first quarter of 2017, to achieve economies of scale in the Netherlands, Alliander entered into talks with Provinciale Zeeuwse Energie Maatschappij (PZEM, formerly Delta) about the proposed takeover of the latter's network operation and infrastructure activities (Zeeuwse Netwerkholding). The takeover bid was extensively discussed with the Supervisory Board, taking the interests of all stakeholders into account. The Supervisory Board approved the submission of a bid for all shares in Zeeuwse Netwerkholding. Both Alliander and the network company Stedin submitted bids. At the end of March, PZEM decided to continue the process with Stedin. Despite PZEM's choice, the Supervisory Board is convinced that a good takeover proposal was drawn up based on careful consideration. Stedin's takeover of Zeeuwse Netwerkholding has virtually ended all prospects of achieving substantial economies of scale in the Netherlands.
The energy transition is gathering pace. Last year, numerous activities were initiated last year to drive Alliander's strategy. These included the installation of Europe's first-ever public direct current station in Lelystad and the placement of the first-ever neighbourhood battery in Rijssenhout. In addition, arrangements were made with all municipalities in the service area for a joint approach to the heating transition and the phasing out of natural gas. The Supervisory Board obtained extensive information about the approach to the heating transition and agrees that, based on its role within society, Alliander has a responsibility to facilitate the realisation and integration of the required infrastructure at the lowest possible costs. In addition, the Supervisory Board attended a demonstration of two products for data-driven network management. In the light of the energy transition, the predictability of networks is becoming ever more vital. This makes Alliander's transformation into a data-driven organisation all the more important.
During the year, the new business operations appeared on the agenda several times. We are of the opinion that the governance and reporting adjustments made at our request were instrumental in improving our involvement in the new activities, while also giving the Management Board a clearer and stronger focus on the financial control of the new activities.
Realisation of corporate objectives
Each year, Alliander draws up an operational plan. In this plan, the strategic objectives are translated into concrete and measurable operational targets. The specific annual operational targets are defined in measurable financial and non-financial performance indicators (KPIs), with adjustments being made whenever necessary. The Supervisory Board concluded that the quarterly reports contain adequate information to monitor progress towards the realisation of the operational targets. We are gratified to note that the present annual report shows that the targets for 2017 were largely realised.
The Supervisory Board also 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 2017. In addition, we are delighted with our sustainability rating upgrade from the leading German ratings agency Oekom Research (from B to B+). Sustainability is an increasingly important consideration in the decisions of shareholders and other investors. The Supervisory Board subscribes to the importance of sustainability. Both the credit ratings and the sustainability rating reflect Alliander’s strong creditworthiness. This guarantees good access to the capital markets.
Effectiveness of the risk management and control systems
The Supervisory Board discussed the findings from the internal audits as well as 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 2017.
In addition, the report following the review of the half-year figures 2017 and the management letter from the external auditor Deloitte, containing the 2017 interim audit findings on the internal controls (and the management's reaction to these findings), was discussed in the presence of Deloitte with the Audit Committee and the Supervisory Board in December 2017. During the interim audit, the auditor found that the internal controls had been improved further compared to the previous year. Deloitte's findings concerning the IT environment were largely followed up, and progress was also made on several other processes, including procurement and sales. Deloitte found no significant flaws. In addition, Deloitte made specific financial and non-financial recommendations that have been or are being followed up by Alliander. One aspect for further improvement is the quality of the forecasts. The Supervisory Board received no indications of any deficiencies in the design and effectiveness of Alliander's risk management and control system with respect to the internal control objectives in the field of financial reporting in the year under review.
In addition, the risk management reports were discussed every quarter. These reports provide insight into the status and development of the management of the top risks Alliander is exposed to. Subjects discussed in this connection included how Alliander can best handle the workload and cybercrime. In addition, our Board performed a risk session aimed at updating Alliander's strategic risks in the changing context from a supervisory perspective. In the opinion of the Supervisory Board, the company conducts a well-considered risk policy, and keeps the Supervisory Board adequately informed about risk-related issues. A description of the main risks is included in the Risk information chapter in the report of the Management Board.
Every quarter the Supervisory Board received reports from the Management Board in which the actual results were compared with the 2017 budget, the 2017 outlook and the results for 2016. Subjects raised included the reliability of the forecasts, the level of the costs and the size of the Funds From Operations (FFO)/net debt financial ratio. An extensive discussion was conducted with Deloitte about the 2016 financial statements and annual report and the main audit findings.
Attention was also given to Alliander's 2017 half-year report, including the report on the findings of Deloitte. Furthermore, the Supervisory Board reviewed and approved the operational year plan 2018 (including investment budget and dashboard) and deliberated on the 2018-2022 financial plan. The Audit Committee of the Supervisory Board carried out intensive preparatory work on all these matters. We are of the opinion that the financial reporting is adequate and presents a realistic picture of the company's financial position and financial performance.
One concern, particularly in the western part of the Netherlands and in Flevoland, is the unexpectedly strong increase in customer demand for electricity and the simultaneous tightening of the labour market for technicians. Added to this, the pace of the energy transition is steadily accelerating. One major challenges for Alliander involves the recruitment of sufficient skilled technical staff. On several occasions, we extensively exchanged thoughts with the Management Board about measures to minimise the consequences for customers. Measures taken included more work being contracted out, smarter work processes and a large recruitment campaign. Technical staff shortages are expected to continue putting pressure on the implementation of our activities until 2022.
During a meeting organised for the Supervisory Board, the method used to measure operational impact was explained in detail. In recent years, more attention is being given to the quantification of the impact that organisations have on all stakeholders and society at large. Insight into the social costs and benefits provides valuable input for future investment decisions. Alliander is a leader in the use of impact measurement and the reporting method. Impact measurements were expanded further in 2017. In light of the company's central role in society, the Supervisory Board considers it important for Alliander to provide transparency on the social impacts of its operations.
Safety is high on the Supervisory Board's agenda. The Management Board regularly informs us about safety issues, such as major gas and electricity outages, the outcomes of related investigations and, even more importantly, the measures taken or proposed. Fortunately, no serious incidents occurred in 2017, while the number of accidents leading to absenteeism decreased. In addition, an Alliander-wide safety audit was carried out last year in order to make further structural improvements to the safety culture within the company. Safety is a top priority. We must never allow our focus on this issue to weaken.
Actual and suspected malpractice and irregularities
The Supervisory Board sees the integrity of staff and the companies we work with as a matter of paramount importance. The chair of the Supervisory Board is immediately informed by the Management Board of any signals of actual or suspected material malpractice and irregularities within the company. The Audit Committee discussed the half-yearly 'Fraud and Incidents’ report of the Internal Audit Department. This report contains the issues reported under the Whistleblower Policy and the outcomes of the investigations, as well as any violations of the Code of Conduct applicable within Alliander and any instances of fraud, theft and missing items reported to the internal Fraud Disclosure Office. Last year, several cases of actual or suspected immaterial fraud were reported and adequately acted on by the management. The Supervisory Board is of the opinion that integrity can only be safeguarded if clear rules are backed up by a culture of compliance. Finding the right balance between rules and personal responsibility is essential.
Culture and behaviour
Culture and behaviour are key to the success or failure of an organisation. Apart from procedures and systems to embed the desired culture within the organisation (hard controls), Alliander also has a strong focus on culture, leadership and behaviour (soft controls). Alliander's code of conduct sets out the shared standards and values that apply to the company and its employees, and Alliander also has adopted a Whistleblower Policy. In addition, we received information on the Alliander-wide leadership development and strategy alignment programme. The kick-off for this programme took place during the first leadership day for all Alliander managers on 1 December 2017. The purpose of this gathering was to highlight our common challenges, while also paying specific attention to the leadership characteristics within Alliander. This day was attended by the chair of our Board. We were also updated on the outcomes of the employee satisfaction survey which measures, among other things, the trust, pride and pleasure that our employees feel as members of Alliander. In addition, we received the findings of the internal auditor and external auditor in the field of culture. Leadership and culture were also discussed during our annual meeting with the Works Council. Whilst acknowledging that it is not easy to bring about a culture change in a complex organisation like Alliander, the Supervisory Board notes that the acceleration of the energy transition is placing growing demands on Alliander on all fronts.
The Supervisory Board advocates an open culture within Alliander: a culture in which we treat each other with respect, provide each other with good and timely information, help each other to achieve good results and learn from mistakes. The Management Board and the Supervisory Board play an exemplary role (‘tone at the top’) in this connection. We do this by asking each other critical questions and discussing differences of opinion, thereby promoting our professionalism. In addition, behaviour and culture form part of the annual assessment of the Supervisory Board and the Management Board.
Composition of the Management Board
A change in the composition of the Management Board took place in 2017. At the start of 2017, the chair of the Management Board/CEO Peter Molengraaf went on a sabbatical of almost six months to reconsider his future and his role within Alliander. After more than eight years in this role, he decided in consultation with the Supervisory Board to tender his resignation effective from 1 September. The Supervisory Board appointed COO Ingrid Thijssen as his successor. We are extremely grateful to Peter Molengraaf for his dedicated service to the company and for the commitment he showed in moving Alliander forward in terms of governance, vision and strategic direction. We wish him every success in the further pursuit of his career. The energy transition heralds a new phase that calls for new leadership. In late 2017, the Supervisory Board opted for a Management Board consisting of two members: Ingrid Thijssen (CEO) and Mark van Lieshout (CFO). This change led to the termination of the position of COO.
Relationship with shareholders
The Supervisory Board’s main contact with shareholders is the meeting of shareholders. The full Supervisory Board attended the annual General Meeting of Shareholders on 5 April 2017. During this meeting, the annual report and financial statements for 2016 were discussed, the financial statements for 2016 were adopted, Ms Van der Linde was reappointed as a member of the Supervisory Board and the Management Board and Supervisory Board were discharged from responsibility for, respectively, their management and supervision.
The Supervisory Board takes the view that contacts between the company and shareholders should be extended beyond the formal confines of the shareholder meetings. Alliander has drawn up a policy in outline to promote bilateral contacts between the company and the shareholders. The main purpose of these contacts is to discuss relevant developments, exchange information and respond to shareholder questions and concerns. This policy has been posted on the Alliander website. In 2017, the Management Board consulted five times with the major shareholders. Topics of discussion included the takeover of Zeeuwse Netwerkholding, the new activities and the approach to the heating transition. The Supervisory Board was consistently kept informed of these contacts.
Also in 2017, a delegation of the Supervisory Board consulted three times with the Committee of Shareholders about the implementation of the remuneration policy for the Management Board, the proposed change to the composition of the Management Board and the reduction of the Management Board from two to three members. Based on the foregoing, we are of the opinion that shareholders' interests are served in a constructive and careful manner.
Other subjects discussed during the meetings of the Supervisory Board were:
the outcomes of the annual employee satisfaction survey;
the outcomes of the annual customer satisfaction survey;
the revised Whistleblower Policy;
the preparations for the annual shareholders' meeting;
the revised corporate governance code: in this connection, the revised by-laws of the Management Board, Supervisory Board and committees of the Supervisory Board were approved and/or adopted;
the performance of Allego;
the innovation and participation portfolio;
the challenge of filling strategic management positions and succession planning.
Managers of the first echelon regularly attended meetings of the Supervisory Board to clarify subjects within their specific area of expertise.
Quality assurance and supervision
In the year under review, the Supervisory Board comprised five members and the composition remained unchanged. At the General Meeting of Shareholders of 5 April 2017, Coby van der Linde was reappointed upon the nomination of the Supervisory Board after a recommendation by the Works Council. The composition of the Supervisory Board is as follows:
End of term
Eligible for reappointment
Annemarie Jorritsma (chair)
Coby van der Linde
Ada van der Veer
In 2017, Quirine Tjeenk Willink, General Counsel, and Miranda de Bliek, Manager of the Corporate Secretariat, acted as, respectively, secretary (from 1 September 2017) and acting secretary to the Supervisory Board.
In the year under review, the composition of the Supervisory Board was such that the members were able to act critically and independently of each other, of the Management Board and of any particular interests. All members of the Supervisory Board are independent within the meaning of best practice provisions 2.1.7 to 2.1.9 (inclusive) of the Code.
Due to her supervisory board memberships at Wintershall Nederland B.V. and Wintershall Noordzee B.V., Ms Van der Linde is not independent as prescribed in Section 11 (2b) of the Electricity Act 1998 and Section 3 (2b) of the Gas Act. All other Supervisory Board members are independent within the meaning of these Acts. This means that none of them have a direct or indirect connection with an organisational entity that produces, procures or supplies electricity or gas. In the year under review, no transactions involving conflicts of interests of Supervisory Board or Management Board members were effected.
Other positions held by Supervisory Board members outside the company are reported in advance to the Supervisory Board. No Supervisory Board member holds a position outside the company that is in conflict with his or her Supervisory Board membership at Alliander. The number and nature of other positions of each Supervisory Board member warrant the expectation that he or she can devote sufficient time and attention to the company, and ensure the proper fulfilment of his or her duties. In addition, no Supervisory Board members holds more than five supervisory positions at large legal entities within the meaning of Article 2:142a of the Dutch Civil Code. Once a year the Supervisory Board discusses the complete overview of other positions of the Supervisory Board members. This provides an opportunity to exchange thoughts about the required time expenditure and to assess the continued compliance with the limitation prescribed in Article 2:142a of the Dutch Civil Code.
Profile, competences and diversity
The Supervisory Board has drawn up a profile of its composition, taking account of the nature and activities of the company. The profile covers the required expertise and background, the desired diversity, the size of the Supervisory Board and the independence of its members. Differences in knowledge, experience, age, gender and background give the Management Board and Supervisory Board the benefit of a broad range of viewpoints and perspectives. This makes a positive contribution to the management and control of the company as a whole. The Supervisory Board has drawn up a diversity policy for the composition of the Management Board and the Supervisory Board. This aims to ensure:
a reflection of society in terms of nationality and/or cultural background;
a balanced mix of ages;
a good male / female balance. In conformity with the Act on balanced gender representation on management and supervisory boards (Wet evenwichtige verdeling van zetels van het bestuur en de raad van commissarissen), the Management Board and the Supervisory Board aim for at least 30% female members and at least 30% male members;
a mixed composition regarding educational background and work experience.
The Supervisory Board is positive about the extent to which the current composition meets the diversity objectives. In 2017, there were no vacancies in the Supervisory Board. As a result, no further progress could be made towards the realisation of this policy's aims. Rejuvenation will be an extra selection criterion for future Supervisory Board vacancies, excluding reappointments.
To maintain and broaden the knowledge and expertise of its members, the Supervisory Board organised an information session on 'impact measurement’ in 2017. We found this session extremely instructive. During the annual strategy gathering of the Supervisory Board with the Management Board, specific attention was devoted to the long-term gas strategy as part of the energy transition and the assurance of the public interests in the new energy system.
Unless it receives timely, reliable and complete information, the Supervisory Board is unable to carry out its supervisory duties properly. The Management Board is the Supervisory Board's most important source of information. The provision of information is not confined to the structured information for the Supervisory Board meetings in accordance with the planning & control cycle. Ahead of each meeting the Supervisory Board also receives other documents for information purposes, and the Management Board provides relevant information in the interim in the form of e.g. press releases and updates on topical issues. On request, the Management Board also ensures that the Supervisory Board or an individual Supervisory Board member is provided with information on a specific subject. In addition, the Supervisory Board regularly receives information on relevant subjects during its contacts with the Internal Audit Director, the external auditor, the senior management and the Works Council. Last year, information was also obtained from external advisers. The Supervisory Board is of the opinion that the information provided to and gathered by the Supervisory Board in 2017 was adequate.
The Supervisory Board performed a critical review of its functioning in 2017. During this self-assessment, which was carried out without external assistance, the Supervisory Board discussed its own functioning, the functioning of the individual Supervisory Board committees and the individual Supervisory Board members. The assessment enables the Supervisory Board to optimise its composition and role. The Supervisory Board decided to perform an assessment with external assistance in 2018. The provision of information was expanded in the course of 2017 to such an extent that the Supervisory Board is currently deliberating on how it can focus more on the main outlines in order to better fulfil its role as sounding board. Other topics discussed were the Supervisory Board's role and position on a number of important subjects, including the assessment of the senior management structure. This assessment, which was performed with external assistance on the Supervisory Board’s initiative, led after the change of CEO to an adjustment of the senior management structure, partly on the initiative of the Management Board. In addition, the Supervisory Board discussed the functioning of both the Management Board as a collegiate body and the individual members of the Management Board. This assessment was performed using 360 degrees feedback. The conclusions from the assessments will be discussed with the Management Board.
Reporting of Supervisory Board committees
To ensure its effective functioning the Supervisory Board has set up an Audit Committee and a Selection, Appointment and Remuneration Committee, as described in the Corporate Governance chapter. These committees prepare the decision-making of the Supervisory Board within their respective areas of expertise and support the Supervisory Board with advice. The committee meetings serve to discuss the subjects in greater depth. The most important considerations and findings were shared with the Supervisory Board where the formal decision-making takes place. The composition of the committees, the most important issues discussed during the meetings and the performance of their tasks (as set out in the Corporate Governance chapter) are set out below.
The Audit Committee consisted of three members in 2017: Ada van der Veer (chair), Govert Hamers (member) and Coby van der Linde (member). Ada van der Veer fulfils the role of financial expert, as set out in Article 2 (3, concluding sentence) of the Decree on the appointment of audit committees (Besluit instelling auditcommissie). All meetings were attended by the CFO, the Internal Audit Director, the Governance, Risk & Compliance Manager and the external auditor. In addition, the Audit Committee consulted once with the external auditor outside the presence of the Management Board and reported to the Supervisory Board on the relationship with the external auditor. This relationship is good in the Audit Committee's perception.
The Audit Committee assessed and discussed all relevant financial matters that were put to the Supervisory Board. This concerned:
the 2016 annual report and the financial statements for that year
the auditor's report for 2016
the half-year and quarterly figures for 2017
the external auditor's review report on the 2017 half-year figures
the management letter for 2017
the operational year plan for 2018
the investment budget for 2018
the 2018-2022 financial plan
Furthermore, the Audit Committee discussed the Fraud & Incidents Report for 2016, the Internal Audit work plan for 2017, the external auditor's audit plan for the audit of Alliander's 2017 financial statements and the ‘in control’ reports of Internal Audit and the follow-up of the audit findings. The Audit Committee devoted special attention to IT security in 2017. Due to the increasing digitisation of its operations, Alliander runs a growing risk of cyber attacks. Cybersecurity is a top priority in order to safeguard the reliability of our energy networks. Among other things, we discussed the required security level and the risk of physical terrorism. The Audit Committee also gave close consideration to the binding offer for 100% of the shares in Zeeuwse Netwerkholding.
Other subjects raised during the meetings included the adjustment of the financial column involving a split between Business Control and Corporate Control, the financing policy, the tax situation, the external quality assessment of the Internal Audit Department by the Institute of Internal Auditors Netherlands (IIA), learning points regarding the 2016 financial statements, impairment testing, position papers, IFRS developments, the raising of a loan from the European Investment Bank, the implementation of the new European privacy legislation, the performance of Allego and the innovation and participation portfolio.
Selection, Appointment and Remuneration Committee
In the year under review, the Selection, Appointment and Remuneration Committee consisted of Bert Roetert (chair) and Annemarie Jorritsma (member). The meetings were partly attended by the chair of the Management Board and the HRM Director.
In 2017, the Committee prepared the reappointment of Coby van der Linde and gave a positive recommendation for this to the Supervisory Board. It also performed preparatory work for the Remuneration Report, the annual remuneration consultation between the Selection, Appointment and Remuneration Committee and the Committee of Shareholders, and the diversity policy for the composition of the Management Board and the Supervisory Board. Furthermore, it was informed about the outcomes of the Internal Audit Department's audit of the Management Board's expense claims. By far the most important issue for the Committee was the composition and size of the Management Board and the division of roles between its members. Both the Works Council and the Committee of Shareholders were informed about this and subscribed to the considerations underlying the decision to appoint Ingrid Thijssen as CEO and to continue with a two-person Management Board. The Committee also followed the developments surrounding the WNT. In the past year, Alliander once again found that the requirements of the WNT make it difficult to fill senior management positions and thus safeguard the continuity of the company.
Number of meetings
In 2017, the Supervisory Board held eight scheduled meetings with the Management Board. In addition, three extra meetings were held (by telephone) with the Management Board about the takeover of Zeeuwse Netwerkholding. Supervisory Board-only meetings took place prior to each scheduled meeting, as well as on several other occasions to discuss the composition of the Management Board. The outcomes of the Supervisory Board-only meetings are generally shared in the scheduled meetings. The committees of the Supervisory Board held ten meetings in total in 2017.
During the year, the chair of the Supervisory Board and the chair of the Management Board maintained frequent contacts with each other. The chair of the Audit Committee was in regular contact with the CFO, as was the chair of the Selection, Appointment and Remuneration Committee with the CEO.
Supervisory Board attendance
The attendance percentages of the individual Supervisory Board members were as follows:
Members of the Supervisory Board
Coby van der Linde
Ada van der Veer
Meetings of the Supervisory Board (11)
Meetings of the Audit Committee (7)
Meetings of the Selection, Appointment and Remuneration Committee (3)
Contacts with the Works Council
The Supervisory Board attaches great value to a good relationship with the Works Council in order to stay in touch with the concerns of employees. The members of the Supervisory Board attended the consultations between the Management Board and the Works Council in different compositions. Outside of these consultations, the full Supervisory Board meets with the Works Council once a year during a joint meeting. The topics discussed at this joint meeting were the role of the network operator and the network company and leadership & culture. The Supervisory Board regards the consultation with the Works Council as constructive and valuable.
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 adoption. The financial statements were audited by Deloitte Accountants B.V., which issued an unqualified opinion. This opinion is included in this annual report under Other information as part of the financial statements. The members of the Supervisory Board signed the financial statements as required by Article 2:101 (2) of the Dutch Civil Code.
The 2017 financial statements, including the proposed profit appropriation and the dividend proposal for 2017, will be put to the shareholders for adoption during the General Meeting of Shareholders on 4 April 2018. The Supervisory Board proposes that the General Meeting of Shareholders discharges the members of the Management Board and the Supervisory Board from responsibility for their management and supervision, respectively, in the 2017 financial year and adopts the financial statements.
Word of appreciation
The Supervisory Board expresses its appreciation for the results achieved and thanks the Management Board, the management and the employees for their contributions and commitment in 2017.
Arnhem, the Netherlands, 16 February 2018
Annemarie Jorritsma (chair)
Coby van der Linde
Ada van der Veer
- 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 Alliander.com.