Report of the Supervisory Board

In this report, the Supervisory Board renders an account of the performance of its supervisory activities in the past year and discusses the most important subjects in which it was involved.

Strategy

Alliander’s strategy and long-term value creation were once again important items on the agenda in 2020. Accordingly, during our meetings the strategy, the implementation of the strategy, the progress of its implementation and the associated main risks were discussed on a regular basis. 2020 was largely dominated by the matter of the energy transition. The Supervisory Board is of the opinion that in 2020 Alliander further strengthened its strategic role in the design of the energy system of the future. Smart solutions and innovative ways to use the current energy grid more efficiently are being developed, such as cable pooling and congestion management. Several pilots are also being carried out with hydrogen to investigate how hydrogen can be used as an alternative to natural gas in the existing gas networks and what the impact of the conversion of electricity to hydrogen would be on the gas and electricity grids. Furthermore, Alliander is closely involved in the fleshing out of Regional Energy Strategies, in which context the importance of system efficiency is becoming increasingly apparent. The heating transition, the way in which we deal with our natural gas networks (gas strategy) and the role of data and digitalisation in the energy transition were also discussed.
The annual strategy day of the Supervisory Board and the Management Board was held in October. We used this occasion to have an in-depth exchange of ideas with the Management Board on aspects such as the development of the energy system, its significance for Alliander’s core tasks and the way in which this is being influenced, and the task of seeing that the work package is carried out. The Supervisory Board wishes to express its appreciation for the method followed – including by discussing dilemmas – and our better understanding of the matters discussed as a result.

Achievement of corporate objectives

Each year, Alliander draws up an integrated business plan in which the strategic objectives are translated into concrete and measurable operational corporate objectives. The specific corporate objectives that Alliander sets itself in a year are, as far as possible, defined in measurable financial and non-financial KPIs. In quarterly reports, the Management Board renders account, in a clear and accessible manner, of the operational management and the financial results. This enables the Supervisory Board to closely monitor the progress on the corporate objectives, and adjustments can be made where necessary. We have seen that the objectives for 2020 have been largely achieved.

Internal risk management and control systems

The Supervisory Board (and the Audit Committee in particular) discussed the findings and recommendations from the internal audits as well as the status of actions taken in response to findings from previous audits. In addition, the report on the 2020 interim audit and the management letter from our external auditor Deloitte were discussed with the Audit Committee and the Supervisory Board in the presence of Deloitte. The Supervisory Board, like the Management Board, is of the opinion that the internal risk management and control systems worked properly in the year under review and provide a reasonable degree of certainty that the financial reporting does not contain any material misstatements.

Financing the energy transition

The increasing investments on account of the energy transition and the current regulatory model will in the long term complicate financeability. Measures are needed to create financing capacity for the necessary investments and thus guarantee an affordable, reliable and sustainable energy supply in the future. Alliander is working on various measures in this area. First and foremost, Alliander is continuously boosting its efficiency in order to reduce expenditure. In addition, Alliander is working on smart solutions and innovations to make better use of the capacity of the current electricity grid. Furthermore, the network operators are consulting with the government on bringing in regulations better suited to the energy transition. And lastly, Alliander is investigating, together with shareholders, the financing options for the energy transition over the longer term.  From October 2020, Alliander is holding talks on this matter with the Meeting of Major Shareholders (consultation with representatives of major shareholders). The direction for finding the solution is expected to become clear in spring 2021, possibly followed by a detailed request for financing sent out to all shareholders. The Supervisory Board agrees that a combination of measures is necessary to increase the financing capacity and to maintain a solid A rating. Strengthening shareholders’ equity would be an important financial impetus, helping to bring about the energy transition.

COVID-19

This annual report reports on the impact of the COVID-19 pandemic in general and its consequences for Alliander’s business operations and financial position in particular. The Supervisory Board is also frequently updated – in the context of its supervisory and advisory roles – on the consequences for employees, business operations and financial results. The Supervisory Board has seen that, immediately after the outbreak of COVID-19, a multidisciplinary crisis team was set up to closely monitor developments, identify risks, and take additional measures where necessary. Alliander follows the guidelines of the Dutch National Institute for Public Health and the Environment (RIVM) and the government. The employees were also updated through live broadcasts about new measures and their impact on Alliander. Despite COVID-19, a lot of work has been done. The Supervisory Board would like to express its deep appreciation for the efforts of the employees and the resilience they have demonstrated in these difficult times.

Safety

Safety is a priority for Alliander, both for its own employees and the employees of the contractors working for Alliander, and we, as the Supervisory Board, emphatically endorse this. Attention to their health and safety is not only a moral responsibility, but also important for the company’s operational results. Based on the quarterly reports, we monitor accidents that lead to sickness absence (lost-time incidents), among other issues.

We have observed a slight increase in the number of lost-time incidents. Ongoing focus on safety is essential. Fortunately, no serious safety incidents occurred in 2020.

Green bond issue

The Supervisory Board approved a green bond issue with a total value of €500 million. The capital raised through this green bond will be used mainly to invest in the electricity networks. In addition to the role the company plays in facilitating the energy transition in general, Alliander also strives to contribute to sustainability through its own operations. And, as can be seen in the Prime B+ sustainability rating ISS ESG has awarded the operator, these efforts have not gone unnoticed. Alliander sees the interest displayed by investors in this green bond as proof that sustainability, alongside a sound financial policy, is a key consideration for investors. The Supervisory Board believes that this issue aligns well with Alliander’s strategy to contribute to making our society more sustainable. This is the third green bond Alliander has issued.

Sustainability

Sustainability is an integral part of Alliander’s strategy and its day-to-day operations. Our stakeholders also increasingly expect Alliander to operate sustainably and in a socially conscious manner. More information on sustainability initiatives can be found in the report of the management board. We support these initiatives which, in our opinion, contribute to long-term value creation, which depends heavily on social, economic and financial sustainability. For this reason, the Sustainable Development Goals are integrated into the strategy and impact measurement is used as a key instrument. Balanced choices need to be made, taking account of the interests of all stakeholders. The Supervisory Board sets great store by Alliander, as a socially relevant enterprise, being transparent on how its operations impact on society, and considers this aspect as well when forming its opinion. Progress on the Sustainable Development Goals as well as social impact and performance are items examined during meetings to discuss the annual report. For more information on this subject, see the ‘Our impact on society’ section.

Change to senior management structure and Management Board composition

Ingrid Thijssen stepped down as CEO of Alliander on 1 June 2020 in connection with accepting the position as Chair of the VNO-NCW employers’ association. Mrs Thijssen had worked at Alliander since 2014, first as COO and, from September 2017, as CEO. Following her departure, the Supervisory Board evaluated the structure of senior management and the composition of the Management Board. Achieving the 2030 climate targets presents a major challenge on the operational side of the organisation, a challenge the Supervisory Board believes requires attention at the highest level. The Supervisory Board has therefore decided to entrust this task to a new Chief Operation Officer (COO) and to expand the Management Board to four members. With the expansion, Alliander is emphasising the importance of its major operational charge of helping to meet the targets, while the changes at the top also make senior management more robust. The Supervisory Board appointed Maarten Otto as Chair of the Management Board and CEO with effect from 20 May 2020 – succeeding Ingrid Thijssen – and Marlies Visser as a member of the Management Board and COO with effect from 1 May 2020. The Supervisory Board is proud that both positions could be filled by talent from within the company’s own ranks.

New organisational model

Over the past year, a lot of hard work was put into designing a new organisational model for Alliander. This was done in good consultation and collaboration with the Works Council. The motivation for the reorganisation was the enormous amount of work and the extensive investments required as a result of the energy transition. These challenges demand an agile, decisive and cost-efficient organisation. As a result of this reorganisation 200 jobs will be lost. The Supervisory Board agrees with the reasons for and accepts the necessity of this reorganisation. At the same time, we fully realise how drastic the impact of this reorganisation is for many employees.

Other important matters

Other notable matters that demanded the attention of the Supervisory Board in 2020 included:

• preparations for the Annual General Meeting of Shareholders;

• important court rulings in cases in which Alliander was involved, and new legislation and regulations that are relevant to Alliander;

• succession planning for the Management Board and its direct reports;

• approval of a private loan with a total value of €100 million;

• approval of the continuation of the sale and investment process for 450connect (currently still a wholly owned subsidiary of Alliander AG);

• positioning strategy for Alliander and Liander;

• improvement plans with regard to project management;

• approval of the 2021–2025 business plan, including the 2021 budget;

• the approval of the Internal Audit year plan for 2020.

Procedure, frequency of meetings and attendance 

In 2020, the Supervisory Board convened seven times: five of these were regular scheduled meetings and two were additional meetings. Nearly all the meetings took place online due to COVID-19 measures. A decision was also made outside a regular meeting. During the first half hour of each regular Supervisory Board meeting, the Supervisory Board meets on its own; for the remainder of these meetings other participants are Management Board members and, on invitation, the external auditor and members of management. Whenever a Supervisory Board member was unable to attend a meeting, the member in question submitted his or her input beforehand. The Chair of the Supervisory Board prepared the agendas for the meetings in consultation with the Chair of the Management Board. Outside the meetings, the Management Board kept the Supervisory Board abreast of relevant subjects in writing.
The Supervisory Board has set up two committees from among its members, an Audit Committee and a combined Selection, Appointment and Remuneration Committee. The Audit Committee met six times in 2020, and the Selection, Appointment and Remuneration Committee held two meetings.

Report of the committees

The Audit Committee and the Selection, Appointment and Remuneration Committee prepare the decision-making of the Supervisory Board in the relevant fields, while also fulfilling an advisory role to the Supervisory Board. During the committee meetings, the members explore the meeting topics in depth. The most important considerations and findings of both committees are then discussed at the Supervisory Board meeting, providing the basis for careful decision-making. Decisions are made by the full Supervisory Board. The draft and approved minutes of the committee meetings are made available to all members of the Supervisory Board.

Audit Committee

Following the departure of Ada van der Veer (Chair) and Govert Hamers (member), the Audit Committee is now formed by Thessa Menssen (Chair) and Frits Eulderink (member). In addition to the members of the Audit Committee, the CFO, the Internal Audit manager, the Business Control manager, the Corporate Control manager and the external auditor (Deloitte) participate as standard in the meetings; the COO was also present at one meeting. Over the year, various specialists were invited to provide the Audit Committee with more in-depth information on various subjects, such as treasury, security and taxes. The Audit Committee held one meeting in private with the external auditor without the presence of the other members of the Supervisory Board. The Audit Committee believes that the relationship with the external auditor is satisfactory.
In addition to the regular agenda items, specific attention was paid to long-term financing, the cost-saving programme, irregular payments to contractors, project management, security/cybersecurity risks, and obtaining public-interest entity status for network operator Liander from 1 January 2020. The Audit Committee issued a positive recommendation to the Supervisory Board with respect to the private loan of €100 million and a green bond of €500 million.

Selection, Appointment and Remuneration Committee

In 2020, the Selection, Appointment and Remuneration Committee was made up of Bert Roetert (Chair) and Annemarie Jorritsma (member). The meetings were attended by the Chair of the Management Board and the HRM Director.
The search for a new CEO and the decision to add a COO to the board made the composition of the Management Board a priority issue in 2020. The committee prepared the selection and appointment of the two new Management Board members. In filling the positions, the committee took into account the job profiles and the diversity policy with the aim of achieving an effective, well balanced composition of the Management Board. This resulted in the appointment of Maarten Otto as CEO and Marlies Visser as COO.
The recruitment of Gerard Penning as a new member of the Supervisory Board was also a key point of consideration in 2020. The committee furthermore carried out preparatory tasks for the Remuneration Report and the annual remuneration meeting with the Committee of Shareholders. In addition, the committee conducted the annual performance appraisal interviews with the Management Board members.

Composition of the Supervisory Board

Govert Hamers (also a member of the Audit Committee) stepped down at the General Meeting of Shareholders on 20 May 2020, after a single four-year term, at his own request. After an extensive, rigorous recruitment and selection procedure, a good successor was found in the person of Gerard Penning, who was nominated as a new member of the Supervisory Board at an Extraordinary General Meeting of Shareholders held at the start of 2021. Supervisory Board member Ada van der Veer (who also chairs the Audit Committee) stepped down on the completion of her third and final term, on 20 May 2020. She was a member of the Supervisory Board of Alliander for eleven years. Ada van der Veer is succeeded by Thessa Menssen, who started the orientation process more than six months earlier in order to ensure continuity and with a view to embedding the current financial knowledge. She was appointed at the Extraordinary Meeting of Shareholders held on 26 September 2019, as a result of which the Supervisory Board temporarily (up to 20 May 2020) comprised six members.
Annemarie Jorritsma was reappointed for a second four-year term as Chair at the General Meeting of Shareholders on 20 May 2020, directly following her first four-year term.

Independence, conflicts of interest and other positions

The composition of the Supervisory Board is such that the members are able to act critically and independently of the other members, the Management Board and any particular interests involved, pursuant to the Dutch Corporate Governance Code (the ‘Code’). All Supervisory Board members operate independently within the meaning of best practice provisions 2.1.7, 2.1.8 and 2.1.9 of the Code.
They also all operate independently within the meaning of the Electricity Act 1998 and the Gas Act, meaning that none of them has a direct or indirect connection with an electricity or gas producer, supplier or trader.
In 2020, there were no material transactions involving potentially conflicting interests of Supervisory Board members.

Any positions held outside the companies must be reported to the Supervisory Board beforehand and specified in the annual report. No Supervisory Board members hold a position outside the company that is in conflict with their Supervisory Board membership at Alliander. In addition, no Supervisory Board members hold more than five supervisory positions at Dutch listed companies or other large Dutch companies or foundations. The number and nature of the other positions of each Supervisory Board member are such that a proper fulfilment of the tasks is assured. The other positions held by the Supervisory Board members were discussed once during the financial year.

Diversity

We view diversity as one of the conditions for ensuring the effective performance of tasks. In addition to expertise and background, diversity also relates to aspects such as gender and age. The Supervisory Board observes a diversity policy for the composition of both the Management Board and the Supervisory Board, which puts the emphasis on the following:

• having a balanced gender ratio on the Management Board and the Supervisory Board with a target ratio of at least 30% female and at least 30% male;

• a complementary composition in terms of experience and professional background;

• a balanced age structure.

With the current composition of the Management Board, there is a good balance in terms of diversity of knowledge, background and experience and age. The Management Board currently comprises three men and one woman. When filling the vacancies of CEO and COO on the Management Board in 2020, we were successful in filling the position of COO with a female candidate, bringing the percentage of women on the Management Board to 25%. The composition of the Supervisory Board is in line with the defined profile, and the Supervisory Board considers the composition to be sufficiently diverse, in terms of expertise and experience as well as with regard to age structure and balanced participation of men (2) and women (2). The starting point is that when future vacancies are filled, the diversity policy will be carried out further where possible. 

Self-evaluation

The Supervisory Board evaluates and discusses its performance at least once a year and performs this evaluation in the presence of an external advisor once every three years. Given that an external advisor was present in 2018, the Supervisory Board carried out a self-evaluation in the year under review, for which both the Supervisory Board and the Management Board provided input. In this evaluation, the first matter discussed was the aspects identified as requiring improvement during the previous evaluation. The Supervisory Board notes that as a result of this, in 2020 extra attention was paid to the quality of the meeting agenda and other documents, as well as how the supporting committees function in relation to the full Supervisory Board, and the further expansion of the advisory role of the Supervisory Board.
The general picture to emerge from the evaluation is a positive one, and one that further encourages the Supervisory Board to continue along the course that has been adopted. The Supervisory Board functions well, is diverse in its composition with members who complement each other, and is well equipped for its duties. The boardroom dynamics are good and there is a pleasant, open and constructive atmosphere. The Supervisory Board is pleased to see that the Management Board works together as a good team and that it conveys this as well. The relationship between the Supervisory Board and the Management Board is characterised by mutual respect and trust, with sufficient space for critical dialogue. Both the Supervisory Board and the Management Board are exacting when carrying out their duties. The Supervisory Board also evaluated the way in which the committees of the Supervisory Board function. One of the observations in this regard was that better use is now being made of the preparatory activities of the committees. This increases the efficiency of the Supervisory Board meetings.
Although the general trend is positive, suggestions for further improvement have emerged. As the Supervisory Board, we find it important to know what is going on among the people in the organisation. To gain more insight into culture and behaviour in the organisation, the Supervisory Board intends to hold a number of informal (lunch) meetings with management in 2021. The Supervisory Board also wants to further refine its advisory role on strategic issues and related dilemmas, with the aim of encouraging and expanding its use as a sounding board and sparring partner.

Contact with the Works Council

The Supervisory Board has a good working relationship with the Works Council; this contact gives us a feeling for what is really going on in the organisation. The Supervisory Board is in regular contact with the Works Council, especially through the member appointed on the recommendation of the Works Council under their ‘enhanced right of recommendation’. Topics discussed at the annual joint meeting of the Supervisory Board and the Works Council included Alliander’s strategy – and the associated challenges for the organisation – and the culture and leadership. Both parties found this meeting useful and it was highly appreciated by both. In addition, the Supervisory Board consulted with the Works Council on the appointment of two new Management Board members, and the Works Council was given the opportunity to make use of its enhanced right of recommendation regarding the vacant position on the Supervisory Board.

Contact with shareholders

The most important contact each year is the General Meeting of Shareholders, during which the Supervisory Board renders an account of the performance of its supervisory duties. This is the ideal time to exchange ideas formally and informally. Further contacts with the shareholders mainly run through the Management Board. The Management Board consults informally with the major shareholders on a regular basis. In 2020, the Management Board held four formal consultations with the major shareholders, where the main topic of discussion was the financing of the energy transition. The impact of COVID-19 and developments in legislation and regulations were also discussed. The Supervisory Board was consistently kept informed of these contacts.

In addition, in 2020 we consulted with the Committee of Shareholders on two occasions in connection with the intended appointment of two Management Board members and the filling of a vacancy on the Supervisory Board. Consultations were also held with the Committee of Shareholders on the implementation of the Management Board remuneration policy and on the adjustment of the senior management structure. The Supervisory Board attaches great value to a good relationship with the shareholders and feels positive about the constructive collaboration with the shareholders over the past year.

Financial statements and discharge from liability

The 2020 financial statements have been audited by Deloitte Accountants B.V. and provided with an unqualified auditor’s report. This report is included in this annual report under Other information. 
Both the financial statements and the findings of the external auditor as a result of the audit of the financial statements were discussed during a meeting of the Supervisory Board and the Management Board in the presence of the external auditor, after taking note of the positive advice of the Audit Committee. The members of the Supervisory Board have approved the financial statements and have signed them in accordance with the obligation set out in Section 2:101(2) of the Dutch Civil Code. We recommend that the shareholders adopt the 2020 financial statements and the dividend proposal for the 2020 financial year at the AGM. We furthermore recommend that at the AGM the shareholders grant discharge from liability respectively to the members of the Management Board for the policy pursued and to the Supervisory Board in respect of their supervision over the 2020 financial year.

Word of gratitude

2020 was an intense, eventful year. This was due to COVID-19, which impacted all employees – both outside the company and within – but certainly also due to the changes at Alliander. The Supervisory Board would like to thank the employees, management, the Works Council and Management Board for their efforts and commitment and would like to express its admiration for the results achieved. Our thanks also go out to the shareholders and other stakeholders for the confidence placed in Alliander.
We would also like to thank Ingrid Thijssen, who stepped down as CEO on 1 June 2020, for her commitment and valuable contribution to the development of Alliander. Finally, we would like to thank former Supervisory Board members Govert Hamers and Ada van der Veer for their expertise and the contributions they made to the work carried out by the Supervisory Board.

Arnhem, the Netherlands, 15 February 2021

Supervisory Board
Annemarie Jorritsma (Chair)
Frits Eulderink
Thessa Menssen
Bert Roetert