Report of the Supervisory Board

The Supervisory Board has both a supervisory and an advisory role. We also serve as the employer of the members of the Management Board and maintain contacts with internal and external stakeholders. This report clarifies the way in which the Supervisory Board performed its supervisory role and the most significant topics addressed this year.

Topics  

Strategy  

Progress on the strategy and the manner in which the Management Board is accomplishing long-term value creation were discussed at each meeting with the Management Board in 2021. The major theme dominating 2021 was the challenges posed by the energy transition. Its consequences are becoming increasingly noticeable in society as bottlenecks appear in the electricity grid in more and more places. We see that the company is working hard on expanding and updating the grid and developing innovations and smart solutions to make better use of the existing grid. Apart from a lack of capacity in the grid, we note that the completion of the work package is under pressure due to a chronic shortage of technical staff, scarcity of materials and the long time it takes to complete planning and permit procedures. Implementing the energy transition is a shared task and requires joint action by all the parties involved. Fortunately, we are observing increasing awareness of the challenges of the energy transition and see that stakeholders are progressively recognising their responsibility and taking a proactive approach.
The annual strategy day was held in October; the Supervisory Board and the Management Board exchanged views on completing the work package and reflected on the vision of how to get more work done. We also extensively discussed the investment and financing challenges brought about by the energy transition. The Supervisory Board would like to express its appreciation of the approach pursued and the enrichment achieved by the strategy day.

Safety

The Supervisory Board endorses the importance of safety for our own employees, those of our subcontractors, our customers and local residents. The Supervisory Board has examined the current status and ambitions regarding safety. Work is permanently being done on improving processes and procedures, but especially on safety awareness. The national Safety Ladder is used to measure and promote safety awareness. In 2021, the organisational units Qirion, Maintenance & Outages, Private Customers and Business Customers, Reconstruction & Energy Networks achieved rung 3 on the Safety Ladder for the first time. This is a great achievement and gives us confidence that the ambition to reach step 4 by 2025 is feasible. We also monitor accidents that lead to absence, using the quarterly reports. In 2021, there were 32 accidents among Alliander employees that led to absence (2020: 21). One of these was a serious industrial accident. Contract employees suffered nine accidents. This indicates that safety requires our constant attention.

Financial reporting

The Supervisory Board discussed the 2020 annual report and the financial statements at length, including the accompanying audit report, in the presence of the external auditor, Deloitte. Throughout 2021, the Supervisory Board extensively discussed the financial results on the basis of the six-monthly and quarterly reports. Topics addressed included the growth of the work package, rising investments, the financing needs and the financial ratios. The Supervisory Board’s Audit Committee carried out extensive preparatory work on all these matters. The Supervisory Board concluded that the six-monthly and quarterly reports contain sufficient information to monitor progress on achieving the financial results and the corporate objectives, and make adjustments where needed. 

Internal risk management and control systems

The Supervisory Board (and the Audit Committee in particular) discussed the Internal Audit department’s 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 2021 interim audit for the six-monthly figures 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 Audit Committee and the Supervisory Board questioned both Deloitte and the Management Board on the observations in the management letter. The Supervisory Board concludes that the consultations between the auditor and the Management Board about the management letter and follow-up actions were constructive and led to appropriate progress being made in improvement initiatives. The Supervisory Board also notes that the auditor found no significant shortcomings in internal controls in the 2021 financial year. The Supervisory Board endorses the conclusions of the Management Board about the internal risk management and control systems as expressed in the ‘In Control Statement’ in the Report by the Management Board.  
In addition, the company’s main risks (including control measures) are discussed every six months.  The Supervisory Board is of the opinion that the company pursues a balanced risk policy and keeps the Supervisory Board adequately informed of risk-related issues. For a description of the principal risks, see the chapter on Risks in the Report by the Management Board. We also discussed the comprehensive IT, Privacy and Security risk report on Alliander’s exposure in these areas and the strategic risks identified for these areas (including control measures).

Long-term financing of the energy transition

Alliander needs considerable capital to be able to fund the energy transition. This topic was discussed at length with the Management Board in 2021. Three parallel approaches are being taken to systematically address future financial challenges as a consequence of the energy transition: (I) Alliander is implementing cost-cutting measures, increasing productivity and introducing innovations for smarter working; (ii) Alliander has started talking to its shareholders about strengthening its capital position; (iii) Alliander and the other regional network companies are in talks with the Dutch central government about whether and how the government can assist the regional network companies in obtaining financing.
The Supervisory Board considers that significant progress has been made on all three tracks in 2021. The organisation-wide cost-cutting programme has saved €160 million a year to date and Alliander will continue to work on cutting more costs through this programme. Following a process started in 2020, Alliander has succeeded in strengthening its financial position by €600 million. Alliander’s request to shareholders to invest money in a future-proof energy network met with a positive response from 70 of the 76 shareholders, who represent 99.5% of the issued share capital. The successful completion of this process will enable Alliander to expand the electricity grid further in the coming years. Intensive talks also took place with the Dutch government in 2021 about regional network companies’ considerable investment requirements up to 2030. Exploratory talks are currently taking place between Alliander, Enexis and Stedin, their shareholders and the Dutch government about whether and how the government can help meet the capital requirements of regional network companies.

Strengthening the capital structure of the network companies and retaining an A rating are crucial in enabling the required major investments to be made. A combination of the above proposed solutions will be necessary to solve the funding issue. That is why the Supervisory Board is delighted with the capital contribution made by the shareholders, and why the Supervisory Board is also pleased with the ongoing process investigating how the government can help to meet the capital requirements of the regional network companies.   

Culture

The Supervisory Board wants Alliander to be a top-class employer that people want to join and where employees continue to work happily. Alliander attaches great importance to integrity and having an open, honest culture within Alliander. Every six months, the Management Board informs the Supervisory Board via the Audit Committee of its findings and observations regarding the effectiveness of and compliance with the Code of Conduct, reports received in connection with the Whistleblower Policy and the outcomes of investigations.

The Supervisory Board went on working visits, including to the substation in Zeewolde, to get a feeling of what is going on in the company and the issues at play and to get more of an idea of the culture and behaviour. The Supervisory Board also held two informal lunch meetings with young professionals in 2021. Talks with the Works Council are a significant opportunity to assess cultural issues. The results of the Central Employee Barometer were also discussed with the Supervisory Board. The Barometer provides the Supervisory Board with valuable insights into how Alliander scores in terms of its ambition to be a top-class employer and where more work is needed to improve employee satisfaction. Furthermore, the findings of Internal Audit and the external auditor give the Supervisory Board information about culture and leadership. After all, behaviour and culture are part of the annual evaluation by the Supervisory Board and the Management Board.

COVID-19

The Dutch government announced or revised measures to combat COVID-19 on various occasions in 2021. Just as in 2020, these measures had a major impact on the organisation. The Supervisory Board is regularly updated on the impact on employees, operations and the financial results. The Supervisory Board is very appreciative of the way in which employees continued to work professionally under these difficult conditions and we note that Alliander has succeeded in finding the right balance between online and in-person collaboration by implementing hybrid working.

Sustainability

Social, economic and financial sustainability, the SDGs and impact measurement are a comprehensive part of Alliander’s strategy and day-to-day operations and lead to long-term value creation for all its stakeholders. The Supervisory Board is regularly updated on sustainability initiatives and developments. Last year the Supervisory Board specifically reflected on impact measurement. The Supervisory Board considers it important that Alliander is transparent about the social impact of its activities and actively includes this in its decisions. The way in which Alliander does this has not gone unnoticed. Just as in 2020, for instance, Alliander won the Management Scope Corporate Impact Award. Furthermore, Alliander’s 2020 annual report ended as one of the top three contenders for the Kristal Prize 2021 for the most transparent report on corporate social responsibility. What is more, Alliander received the highest sustainability rating (ESG rating) in the network sector from Sustainalytics. A high sustainability rating is not only a token of appreciation for the work Alliander does in this area, but is also becoming an increasingly significant aspect for potential investors when deciding to invest in Alliander bonds. The Supervisory Board compliments the organisation on this excellent performance and encourages Alliander to continue the course it is pursuing.

Other important matters

Other notable matters that demanded the attention of the Supervisory Board in 2021 included:

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

• people development and succession planning;

• the cost-cutting programme;

• the renewal of the engagement of Deloitte as auditor for the 2022 and 2023 financial years;

• the New Business strategy;

• the heat strategy;

• approval for updating the prospectus for the financing programme for Euro Commercial Paper (ECP);

• approval of the issue of a reverse convertible hybrid bond loan of €600 million and the designation of the Management Board as the authorised body to decide on the issue of ordinary shares in Alliander’s capital and to limit or exclude preferential subscription rights when issuing ordinary shares in Alliander’s capital in the context of the reverse convertible hybrid bond loan;

• approval of the 2022–2026 business plan;

• approval of the Internal Audit annual plan for 2022.

Composition of the Supervisory Board

• * The appointment period is assumed to be two four-year terms. This may be extended by two additional two-year terms, as long as sufficient reasons are given for this in the report of the Supervisory Board.

The composition of the Supervisory Board changed in 2021. Gerard Penning was appointed as a member of the Supervisory Board at the Extraordinary General Meeting of Shareholders on 20 January 2021. He was nominated for the appointment on the basis of the Works Council’s enhanced right of recommendation. The appointment of Gerard Penning fills a vacancy on the Supervisory Board which had arisen due to the departure of Govert Hamers in May 2020. In the search for a new member of the Supervisory Board, an explicit preference was expressed for someone with specific knowledge and experience of areas such as Human Resources, culture and organisational development.
As a new member of the Supervisory Board, Gerard Penning has completed an introductory programme focusing on the general strategy, the regulatory context, financial reporting and the organisation structure. The programme also included a visit to the Alliander technical college in Duiven.

Procedure, frequency of meetings and attendance 

In 2021, the Supervisory Board convened seven times: five of these were regular scheduled meetings and two were additional meetings. The meetings took place partly online and partly in person, taking account of public health guidelines. The same applied to the committee meetings. During the first part of each regular Supervisory Board meeting, the Supervisory Board meets on its own. The outcomes of the closed-door meeting are then shared with the Management Board in the plenary part of the meeting. 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. Outside the meetings, the Management Board kept the Supervisory Board abreast of relevant subjects in writing. Sander Oosterloo and Miranda de Bliek were the Supervisory Board’s secretary and deputy secretary respectively in 2021. The secretary prepared the Supervisory Board meeting agendas, liaising with the chairpersons of the Management Board and the Supervisory Board.

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 2021, and the Selection, Appointment and Remuneration Committee held three meetings. A list of which individual members of the Supervisory Board were present is shown below.  

Supervisory Board committees

The Audit Committee and the Selection, Appointment and Remuneration Committee prepare the decision-making of the Supervisory Board in their own fields, and also advise the Supervisory Board. During the committee meetings, the members explore the meeting topics in depth. In principle, the committees meet ahead of a scheduled Supervisory Board meeting. In the Supervisory Board meeting, the committee chairs provide verbal feedback on their most significant considerations and findings so that carefully considered decisions can be taken. 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

The Audit Committee comprises Thessa Menssen (chair), Frits Eulderink and Gerard Penning (from 20 January 2021). In addition to the Audit Committee members, the CFO, the Director of Corporate Control, the Internal Audit manager and the external auditor also attend Audit Committee meetings as a matter of course. One meeting was also attended by the COO. Other members of the Finance team were present at some meetings to clarify various topics, such as treasury and tax matters, based on their specific expertise. Alliander’s CISO came to discuss privacy and security issues and throughout the year the chair of the Audit Committee discussed current topics with the CFO in bilateral meetings. The Audit Committee held one meeting in private with the external auditor. It was a constructive and open discussion and the Audit Committee believes that the relationship with the external auditor is satisfactory. The chair of the Audit Committee also held one meeting in private with the Internal Audit manager.
In addition to the regular topics, the Audit Committee paid specific attention to items such as long-term financing, yardstick regulation and the benchmark position, an SAP data incident, the premature termination of two cross-border lease contracts, project management and IT, privacy and security risks. Furthermore, the Audit Committee recommended the Supervisory Board approve the updating the financing programme prospectus for ECP. The renewal of the engagement of the external auditor was also discussed, following an evaluation based on input from the Audit Committee, the Management Board, and directly involved managers and employees. The Audit Committee issued a positive recommendation to the Supervisory Board on the renewal of the audit engagement of Deloitte for the financial years of 2022 and 2023.

Selection, Appointment and Remuneration Committee

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 recruitment and selection of a new member of the Supervisory Board was completed at the beginning of 2021. The committee made a proposal for a profile and drew up the selection criteria. Selection interviews followed, culminating in the appointment of Gerard Penning as of 20 January by the AGM, on the recommendation of the Supervisory Board. The committee furthermore carried out preparatory tasks for the Remuneration Report and the annual remuneration meeting with the Committee of Shareholders. Please refer to the Remuneration Report in this annual report for the remuneration policy. Finally, the committee conducted the annual performance appraisal interviews with Management Board members.

Independence of the Supervisory Board  

The Supervisory Board’s articles of association and the by-laws contain provisions about the independence of Supervisory Board members. The composition of the Supervisory Board is such that the members are able to operate independently and critically vis-à-vis one another, the Management Board and any particular interests involved. 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 Dutch Corporate Governance 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.
Any external positions which members of the Supervisory Board hold 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 the maximum of five supervisory positions at Dutch listed companies or other large Dutch public or private limited 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.
No material transactions involving potentially conflicting interests of Supervisory Board members took place in 2021.

Diversity

The Supervisory Board supports the view that diversity contributes to objective, well-crafted decision making. In addition to expertise, competencies 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:

• a balanced gender ratio on the Management Board and the Supervisory Board with a target proportion of
  at least 30% women and at least 30% men;

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

• a balanced age structure.

The composition of the Management Board represents a good balance in terms of diversity of knowledge, background and experience and age. The Management Board comprises three men and one woman. Women therefore make up 25% of the Management Board, which fails to meet the target for a balanced gender ratio. The composition of the Supervisory Board is in line with the defined profile, and the Supervisory Board considers its composition to be sufficiently diverse in terms of expertise and experience as well as with regard to the age structure and gender ratio (the Supervisory comprised three men and two women in 2021). When future vacancies in the Management Board and the Supervisory Board are filled, the basic principle is that the diversity policy should be implemented further where possible. Diversity in composition will be included in the annual evaluation of the Management Board and the Supervisory Board.

Self-evaluation

As in 2018, the Supervisory Board had its self-evaluation in 2021 supported by external consultants, who spoke to all the members of the Supervisory Board, all the members of the Management Board, the secretary and the deputy secretary. The external evaluator's report was discussed by the entire Supervisory Board on 30 November. The members jointly reflected on the main points for attention and agreed on follow-up actions.

A new senior management structure has been created over the last two years and an entirely new Management Board has been appointed. The composition of the Supervisory Board has also altered significantly in this period and three of the five members of the Supervisory Board are new appointments. These changes on both sides of the management table have had a positive effect on the internal dynamics. All those interviewed spoke of constructive, respectful and open relations within and between the Supervisory Board and the Management Board. This has led to better agenda-setting, a higher calibre of dialogue and more openness in sharing managerial dilemmas. As a result, the Supervisory Board is able to fulfil its various roles of supervisor, employer and sounding board effectively and correctly, and the board can be said to function well.

Alliander is facing major challenges in fulfilling its significant role in the energy transition to the full satisfaction of society. The complex field of stakeholders and the size of the required transformation require vigilant, high-performing governance. A number of points for attention were mentioned during the self-reflection that could make the Supervisory Board even more effective. These points concern making a limited set of performance targets more measurable and transparent, thinking in terms of scenarios with respect to achieving long-term value creation, enriching the Management Board’s evaluation process, having a better overview of talent in the organisation, the composition of the Supervisory Board’s committees and the topicality of the questions posed by the Supervisory Board. The points for attention listed in the evaluation will be addressed in specific follow-up actions which the Supervisory Board and the Management Board will initiate in the coming period.  

In response to the points for improvement listed in the previous evaluation, two informal lunch meetings were held with young professionals in 2021. The Supervisory Board considers such talks to be very valuable and is keen to continue them and expand their target group in 2022.

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. Individual members of the Supervisory Board attended two consultations with the Works Council in 2021. The members of the Supervisory Board who were appointed on the basis of the Works Council’s enhanced right of recommendation have regular contact with the Works Council. The Supervisory Board once again held its annual meeting with all the members of the Works Council. The theme of this year’s meeting was the transformation of Alliander into an agile, effective and cost-efficient organisation. The Supervisory Board is pleased to hear that the course being taken is leading to better collaboration, cost-cutting and smarter and more efficient working. This is crucial in the light of the challenge Alliander is facing. The Supervisory Board considers its consultations with the Works Council to be open, constructive and valuable. Elections for Alliander’s employee participation body took place in late 2021. We would like to take this opportunity to thank the departing Works Council members for their hard work and we look forward to meeting the new Works Council members.

Contact with shareholders

The most important contact each year is the Annual General Meeting (AGM), 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. All the members of the Supervisory Board attended the AGM on 7 April 2021.  Further contacts with the shareholders mainly run through the Management Board. The Management Board consults informally with the major shareholders on a regular basis. The main theme of these consultations in 2021 was strengthening Alliander’s capital structure by issuing a reverse convertible hybrid shareholder loan of €600 million. Other topics included developments in the energy system, the new method decisions for electricity and gas for the 2022-2026 regulatory period, the ‘Engineering More Work’ vision paper and developments in legislation and regulations. The Supervisory Board was consistently kept informed of these contacts. Consultations were also held with the Committee of Shareholders on the implementation of the Management Board remuneration policy.
The shareholders are important stakeholders for Alliander, and the Supervisory Board accordingly values a good relationship. The Supervisory Board feels positive about the constructive collaboration with the shareholders over the past year.

2021 Financial Statements

The 2021 financial statements were drawn up by the Management Board and audited by Deloitte Accountants B.V. and have been 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 opinion of the Audit Committee. The members of the Supervisory Board have signed the financial statements in accordance with the obligation set out in Section 2:101(2) of the Dutch Civil Code.  The Supervisory Board will present the 2021 financial statements and the dividend proposal for the 2021 financial year to the AGM for their adoption. A proposal will furthermore be made to the AGM to discharge the members of the Management Board from liability for the management policy pursued and to discharge the members of the Supervisory Board from liability for their supervision of the policy pursued in the 2021 financial year.

Word of gratitude

The Supervisory Board would like to thank the employees, management, the Works Council and the Management Board for their commitment, professionalism and efforts, and would like to express its appreciation of the results achieved. We would also like to take the opportunity to thank the shareholders and other stakeholders for their support and confidence in Alliander.

Supervisory Board, 21 February 2022

Annemarie Jorritsma (chair)
Frits Eulderink
Gerard Penning
Thessa Menssen
Bert Roetert