Introduction

General Activities of the Supervisory Board

Composition and evaluation of the ...

General

The supervision of the policies and actions of the executive management (the ‘Board of Management’) of Koninklijke Philips Electronics N.V. (the ‘Company’) is entrusted to the Supervisory Board, which, in the two-tier corporate structure under Dutch law, is a separate body and fully independent of the Board of Management. This independence is also reflected in the requirement that members of the Supervisory Board be neither a member of the Board of Management nor an employee of the Company. The Supervisory Board considers all its members to be independent pursuant to the Dutch Corporate Governance Code of December 2008 (the ‘Dutch Corporate Governance Code’) and under the applicable US standards.

While retaining overall responsibility, the Supervisory Board assigns certain of its tasks to three permanent committees: the Corporate Governance and Nomination & Selection Committee, the Remuneration Committee and the Audit Committee. The separate reports of these committees are part of this report and are published below. The members (of the committees) of the Supervisory Board are listed in Supervisory Board.

For further information on the Company’s corporate governance structure and a more detailed description of the duties and functioning of the Supervisory Board, see Corporate governance.

Activities of the Supervisory Board

Six regular meetings were held in 2009. All members were frequently present at the regular meetings of the Supervisory Board. In 2009 one meeting took place by means of a conference call to discuss a specific matter.
The Audit Committee and the Corporate Governance and Nomination & Selection Committee met four times. The Remuneration Committee met five times at four regular meetings and one meeting with the full Supervisory Board to discuss subjects and developments with respect to remuneration.

During 2009 the Supervisory Board devoted considerable time to discussing the Company’s strategy and discussed the performance and strategy of the three sectors in detail with the respective management teams, especially during a half day business update meeting with each sector. In particular, the Supervisory Board discussed the performance and integration of recent acquisitions, such as Saeco, Genlyte and Respironics, the economic situation and impact thereof on Philips and the cost reduction and efficiency improvement measures taken to confront the recession, as well as the capital and financing structure of the Philips Group extensively throughout the year.

In January the Supervisory Board discussed the financial performance of the Philips Group in 2008. The management agenda 2009 of the Board of Management was discussed, especially the steps taken to deal with the unsatisfactory EBITA margins in the Television business. The agenda for the 2009 General Meeting of Shareholders was discussed, including the proposed dividend to shareholders, the dividend policy and the composition of and proposed candidates for the Supervisory Board. Moreover, the charter and the evaluation of the functioning of the Supervisory Board and its members were discussed.

In February the Supervisory Board discussed the report of the auditors of the Company and approved the Annual Report 2008. The annual incentive targets 2009 were discussed.

In March the results of the Net Promoter Score 2008 were discussed. The Supervisory Board together with the Chief Technology Officer discussed innovation themes and the shift of R&D spend from existing product categories to new product categories. The Remuneration Committee gave an update to the full Supervisory Board on remuneration topics.

In June the strategy of the Company and the sectors, including various risks and opportunities scenarios, were discussed during a one and a half day meeting.

In August the Supervisory Board discussed a financial update including an assessment of the major risks for the company and ways to mitigate these. It received an update with respect to ongoing legal proceedings. Further, the members of the Supervisory Board spent two days at the High Tech Campus in Eindhoven where they discussed amongst other things the impact of the LED revolution, several projects in Incubators and the performance and set-up of the Philips activities in France, Germany and the Netherlands.

In October topics for the management agenda 2010 of the Board of Management were discussed. The Supervisory Board further discussed plans to better organize around customers and markets.

In December the Supervisory Board discussed the financial scenarios and the Annual Operating Plan 2010.

Other discussion topics included:

• financial performance of the Philips Group and the sectors
• status of merger and acquisition projects, like Saeco
• management development and succession planning, especially with respect to the President/CEO
• evaluation of the Board of Management and its members
• geographic performance and growth opportunities in emerging markets, including the shift of resources from mature to emerging markets
• the situation and improvement measures at some businesses that did not perform according to plan
• the results of the Employee Engagement Score
• financial scenarios for 2010 and beyond
• legal proceedings, including the investigations into possible anticompetitive activities in the CRT industry
• the situation at Philips Pension Fund in the Netherlands and the governance and financial position of the other major pension funds
• restructuring programs in all sectors

Composition and evaluation of the Supervisory Board

On June 23, 2009 the Supervisory Board and the Board of Management received the sad news of the passing away of Prof. K.A.L.M. van Miert, member of the Supervisory Board. Mr van Miert joined the Supervisory Board in 2000. He was a highly committed member, whose efforts were greatly appreciated. We owe him a great debt of gratitude for his knowledge and insight and we will cherish his memory with warmth and respect.

The Supervisory Board currently consists of nine members. The Supervisory Board aims for an appropriate combination of knowledge and experience among its members in relation to the global and multi-product character of Philips’ businesses. Consequently, the Supervisory Board aims for an appropriate level of experience in marketing, technological, manufacturing, financial, economic, social and legal aspects of international business and government and public administration. The full profile is described in the chapter Corporate governance. Members are appointed for fixed terms of four years and may be re-appointed for two additional four-year terms.

All members of the Supervisory Board completed a questionnaire to verify compliance in 2009 with applicable corporate governance rules and the Rules of Procedure of the Supervisory Board. The Chairman of the Supervisory Board discussed the functioning of the Supervisory Board and its members in private discussions with all members. He shared common themes and conclusions in a private session of the Supervisory Board; items discussed include the follow-up to the evaluation regarding 2008, the composition and competencies of the Supervisory Board, and the set-up and content of meetings and meeting materials. In the same meeting the relationship with the Board of Management was discussed. The three committees of the Supervisory Board reviewed their charters and their functioning and reported thereon to the full Supervisory Board. Several members of the Supervisory Board attended external training programs, which are often dedicated to specific topics.