The Supervisory Board is charged with supervising the policies of the Management Board and the general course of affairs of the Company and the business connected with it, as well as assisting the Management Board by providing advice. In performing its duties the Supervisory Board is charged with acting in accordance with the interests of the Company and its affiliated businesses. It shall take into account the relevant interest of the Company’s stakeholders and, to that end, consider all appropriate interests associated with the Company.
Composition and Profile of the Supervisory Board
X5’s General Meeting of Shareholders determines the number of members of the Supervisory Board. Currently X5’s Supervisory Board consists of seven members. The Supervisory Board reviews, on an annual basis, the profile of its size and composition, taking into account the evolving nature of X5’s business and activities and the desired expertise and background of the members of the Supervisory Board. The Supervisory Board profile is published on X5’s corporate website. In accordance with the retirement and reappointment schedule of the Supervisory Board, the terms of Mr. Ashurkov, Mr. Tynkovan and Mr. DuCharme will expire in 2012. All three board members are eligible for reappointment. An overview of the current composition of the Supervisory Board is presented in the Corporate Governance Report.
Composition of the Committees
While retaining overall responsibility, the Supervisory Board assigns certain tasks to its four permanent committees: the Audit Committee, the Nomination and Remuneration Committee, the Related Party Committee and the Strategy Committee. An overview of the current composition of the committees is presented in the Corporate Governance Report. There were no changes in the composition of the committees in 2011 and until the date of publication of this report.
Induction and permanent education are key elements of good governance. New members of the Board follow an induction program covering the strategic, financial, legal and reporting aff airs of the Company and meetings with senior executives. On an ongoing basis, members of the Supervisory Board visit operating companies and other parts of the business including stores and warehouses, to gain greater familiarity with senior management, and to develop deeper knowledge of local operations, opportunities and challenges.
Meetings of the Supervisory Board
The Supervisory Board met five times during 2011. Each meeting of the Supervisory Board was preceded by meetings of the Audit Committee, the Nomination and Remuneration Committee, the Strategy Committee and, when necessary, the Related Party Committee. The meeting in July was preceded by a one-day meeting fully dedicated to the Company’s strategy. All meetings were attended by the full Supervisory Board. The members of the Management Board attended the meetings, and other members of senior management were regularly invited to present to the Supervisory Board. In 2011 the Supervisory Board held one private session with no members of the Management Board present, to independently discuss matters related to the performance, functioning and development of the Management Board and members of senior management. The external auditor attended the meeting in April at which the 2010 Annual Report and financial statements were recommended for adoption by the Annual General Meeting of Shareholders. In April 2011 the Supervisory Board conducted a self-assessment and appraised its functioning, profile, competence and composition, as well as its relationship with the Management Board. Members of the Supervisory Board were particularly asked to assess the progress made with respect to the recommendations following the Board’s assessment in the preceding year, and reflect on certain specific areas of Supervisory Board activity in 2010 and early 2011. This evaluation was conducted on the basis of a questionnaire distributed in advance and interviews with the Chairman of the Nomination and Remuneration Committee. The members of the Supervisory Board had frequent (telephone) meetings with members of the Management Board and other Company management in between the Supervisory Board meetings.
During 2011 the Supervisory Board reviewed various matters related to the Company’s activities, operational results, strategies and management, but devoted considerable time on the following topics in particular:
Other topics included:
Meetings of the Committees
The role of the Audit Committee is described in its charter which is available on the Company’s website. On 31 December 2011 the Audit Committee consisted of Mr. Gould (Chairman), Mr. Deff orey and Mr. Ashurkov. In 2011 the Audit Committee held five meetings in person. Additional meetings were held by conference call when necessary, for instance to review the publication of the quarterly reports. As a rule, all meetings were attended by the CFO, the external auditor and the head of the corporate audit department (CAD). Other members of the Supervisory Board and senior management where invited when necessary or appropriate. The Audit Committee met once with the auditors without the presence of management.
Throughout 2011 discussions regularly focused on internal and external control procedures, risk management, the Company’s financing structure, financial reporting and tax. Internal audit reports were provided during all Audit Committee meetings. In 2011 the Audit Committee specifically focused on the challenges for the Company pursuant to the implementation of the new law on retail trade in Russia in the latter half of 2010 and the impact on the operations and financial reporting of the Company throughout 2011, as well as on the aged inventory and loss reduction plan, management reporting and review of completed investments.
The Audit Committee further discussed topics including:
Throughout the year the Audit Committee reviewed the Company’s risk management and internal control systems, and the proper functioning of operational and business processes through the work of the CAD, the external auditor and directly with management. The CAD assessed processes in a number of departments in terms of their effectiveness and efficiency, compliance with laws and regulations, their safety and proper refl ection in the Company reporting systems and developed recommendations to the Company management on enhancing controls and decreasing the inherent risks. Significant audit and forensic investigation findings of the CAD were reported to the Audit Committee on a regular basis. Status of follow-up actions by management in addressing CAD findings were regularly reviewed by the Audit Committee.
Nomination and Remuneration Committee
The role of the Nomination and Remuneration Committee is described in its charter which is available on the Company’s website. On 31 December 2011 the Nomination and Remuneration Committee consisted of Mr. DuCharme (Chairman), Mr. Deff orey, Mr. Ashurkov and Mr. Tynkovan. The Nomination and Remuneration Committee held five meetings in 2011. Other members of the Supervisory Board and senior management where invited when necessary or appropriate. Following Mr. Khasis’ resignation as CEO of the Company in March 2011, the Nomination and Remuneration Committee proposed the appointment of Mr. Gusev as his successor. The Committee also proposed the re-appointment of Mr. Lhoest as Company Secretary for another four year term. During the year, in a joint effort with the Strategy Committee, the Nomination and Remuneration Committee constantly evaluated leadership and human resources needs in relation to the Company’s strategic and growth objectives. The Nomination and Remuneration Committee refl ected further on the balance between short- and long-term compensation, and appropriate target setting for variable remuneration of members of the Management and Executive Board.
The Nomination and Remuneration Committee further reviewed and prepared the following items for recommendation or report to the full Supervisory Board, as part of its ongoing responsibilities:
The Remuneration Report on page 41 provides further details on the remuneration for the Management Board and the Supervisory Board, and includes the current Remuneration Policy for the Management Board and the Executive Board, as well as the outlook for 2012 and beyond. The Remuneration Policy is also available on the website of the Company.
Related Party Committee
The role of the Related Party Committee is described in its charter which is available on the Company’s website. On 31 December 2011 the Related Party Committee consisted of Mr. Tynkovan (Chairman) and Mr. DuCharme. The Related Party Committee held two meetings in 2011, including one meeting held by teleconference. Resolutions in writing were taken when necessary during the year. The Related Party Committee considered a number of transactions which gave rise to the appearance of a conflict of interest with the Company. The following main transactions were discussed and/or approved by the Related Party Committee and the Supervisory Board during 2011, with due observance of best practice provisions II.3.2 to II.3.4 and III.6.1 to III.6.4 of the Dutch Corporate Governance Code, and the rules set forth in Chapter VI (Confl ict of Interests) of the Rules Governing the Principles and Practices of the Supervisory Board, which Rules are available on the Company’s website:
The role of the Strategy Committee is described in its charter which is available on the Company’s website. On 31 December 2011 the Strategy Committee consisted of Mr. Couvreux (Chairman), Mr. Deff orey, Mr. Ashurkov and Mr. Tynkovan. The responsibilities of the Strategy Committee include the review of the general strategy of the Company including but not limited to the following main areas: overall growth and development strategy, financing strategy, budget and keyperformance indicators, mergers and acquisitions.
The Strategy Committee held six meetings in 2011 including its annual full day conference in July. All meetings were attended by the Chairman of the Audit Committee and the CEO; other senior managers where invited when necessary or appropriate. As part of its overall strategy review of the Company’s commercial and staff divisions, the Strategy Committee addressed a variety
of topics including the Company’s strategy by format, organization structure, purchasing, logistics and IT strategy. Jointly with the Audit Committee, the Strategy Committee focused on the challenges for the Company pursuant to the implementation of the new law on retail trade in Russia in the latter half of 2010. The annual strategy conference in July was dedicated to the Company’s overall medium term strategy, defining the parameters for the Company’s multi-year business plan approved in fall. Furthermore, the Strategy Committee discussed the Company’s budget for 2012, as well as the performance indicators for the Company in the years to come.
Both the Supervisory Board and the Management Board continued their efforts to ensure that the Company’s practices and procedures comply with the Dutch Corporate Governance Code. In accordance with the Dutch Corporate Governance Code, a broad outline of the corporate governance structure of the Company is presented in the Corporate Governance Report.
This annual report and the 2011 consolidated financial statements, audited by PricewaterhouseCoopers Accountants N.V., were presented to the Supervisory Board in the presence of the Management Board and the external auditor. PricewaterhouseCoopers’ report can be found on page 113.
The Supervisory Board recommends that the Annual General Meeting of Shareholders adopts the 2011 consolidated financial statements of X5 Retail Group N.V. The Annual General Meeting of Shareholders will be asked to release the members of the Management Board and of the Supervisory Board from liability for the exercise of their duties in 2011. The appropriation of results approved by the Supervisory Board can be found on page 112.
The Supervisory Board wishes to thank the Management Board, as well as all employees, for their dedication and hard work for X5 in 2011.
The Supervisory Board
12 April 2012