Supervisory board activities in 2012
FMO's Supervisory Board and its committees work through regular, pre-scheduled meetings, and on an ad hoc basis throughout the year.
A transparent formal reporting structure is in place, and Supervisory Board members are frequently in contact with the Management Board so that they may remain fully informed and can provide advice at all times. The Supervisory Board Chairman meets the CEO informally once a month. With the exception of evaluations and appraisals, the full Management Board meets the full Supervisory Board at all pre-scheduled meetings.
The Supervisory Board held four regular meetings and four strategic sessions in 2012. The Supervisory Board is careful to ensure the right balance between governance and performance, so that it devotes attention not just to governance matters, but also to strategic and business issues. The attendance at the regular meetings was almost 100%.
The Supervisory Board evaluated the 2009-2012 strategy explicitly. The board concluded that this strategy was very successful in terms of development impact and economic profitability. A point of concern, however, was the focus on low-income countries. A reconsideration of this focus was appropriate for two reasons: Approximately 75% of the poor currently live in middle-income countries, while at the same time the world’s major development challenges are increasingly interwoven with sustainability issues such as climate change and availability of and access to clean water. These aspects were taken into account in developing a new strategy for the upcoming years.
The Supervisory Board spent much time discussing and advising on the new 2013-2016 strategy. Important aspects of the new strategy are the broadening of FMO’s mission, with more emphasis on global imbalances such as climate change and food security, in addition to poverty reduction. The set-up of FMO’s new focus sector, Agribusiness, Food & Water, which began in 2011 and was continued in 2012, fits very well within the new strategy. The board discussed the appropriateness of the new strategy and the implementation challenges. An important point is whether the new strategy can be implemented through profitable investments in the private sectors of developing countries. In this light, the possibility of attracting funds from institutional investors was discussed. The 2013-2016 strategy was approved in August 2012.
Regular supervision also received ample attention in 2012. Discussion topics included financial developments at FMO, funding, business progress and compliance with national and international regulation and legislation. The Supervisory Board regularly discusses the risk profile of FMO, and approved an update of the bank’s risk appetite at its December meeting. In its core business, FMO is not a risk-averse investor: FMO takes considerable investment risk mitigated by a consistent and strict diversification policy. Moreover, a strict system of risk management is in place, including thorough due diligence and active monitoring. Other risks, such as currency risk and interest rate risk, are hedged whenever appropriate.
In 2012, explicit attention was devoted to compliance and compliance dilemmas, such as our selection of business partners and ensuring that our compliance system is fully geared to the risks FMO runs.
The Supervisory Board and its Selection, Appointment & Remuneration Committee were actively involved in the change of the remuneration policy. After thorough discussion, the Supervisory Board decided to remove the variable income component in the remuneration policy for members of the Management Board. The most important reason for this decision was that the new legal requirement to pay out variable pay at least 50% in shares is extremely burdensome for FMO, as well as being at variance with the bank’s corporate mission. In May 2012, the AGM approved abolishing the variable pay component for Managing Board members. The Dutch central bank (DNB) informed FMO that its remuneration policy fully complies with DNB’s Regulation on Sound Remuneration Policies. The Supervisory Board would like to emphasize that the system of annual target setting is maintained and that the results are regularly monitored and discussed in the full Supervisory Board.
Furthermore, it is of great importance to the Supervisory Board that FMO behave as an active investor and ensure that its clients improve their corporate governance whenever necessary, as part of an ESG action plan. Several measures were taken in 2012 to ensure that FMO continues to play a leading role in developing and facilitating the implementation of corporate governance standards.
The Supervisory Board looked closely at risk management and reporting systems, especially to ensure that these systems are fit for FMO’s new 2013-2016 strategy. The new strategy makes especially clear that FMO is an organization with a broad range of financial and non-financial objectives, and it is important that its systems are geared to that. Last but not least, the Supervisory Board paid attention to ensuring a stable system for the clear oversight of IT risks.
When it comes to engaging with stakeholders, Supervisory Board members are actively involved. The Chairman of the Supervisory Board holds annual meetings with the Dutch Ministry of Finance, and on occasion meets with the Dutch Ministry of Foreign Affairs/Development Cooperation.
With regard to internal stakeholders, the Supervisory Board holds formal meetings twice a year with the FMO Works' Council. The members of the Supervisory Board also held a lunch with the complete Works’ Council in 2012.
To create more structured interaction between the Supervisory Board and FMO’s second layer of management, the Supervisory Board last year regularly invited directors from several departments, such as Audit, Compliance & Control, ICT and the director of FMO’s new business arm, Investment Management, to discuss specialist topics. This will continue in 2013.