Appendix I Methodological Justification
The purpose of the methodological justification is to explain what type of research will be conducted, what the level of aggregation is, what the project definition is, in what way the validity and dependability is guaranteed and what pre-conditions are in place for the project.
Type of research
De Leeuw distinguishes five types of research1. These different types are:
1. Practical Organisational Acting;
2. Problem solving research;
3. Policy supporting research;
4. Policy Relevance Research;
5. Theory Accumulating Research.
De Leeuw links up the last two forms of research to one type, Fundamental Research. The reason is that there is hardly any difference between those two forms, other than the choice and valuation of the research topic.
The research that will be conducted can be classified as a policy supporting research. The outcomes of this research might have a certain influence on the decision-making processes within Wolters Kluwer on the aspect of compliance with the Dutch Corporate Governance Code.
Level of aggregation
In his book, De Leeuw states that the level of aggregation refers to the measure of detail. The fewer the number of details is, the broader the view of the project will be and the higher the level of aggregation is2.
The scope of this research will be the extent to which the companies in the peer group and Wolters Kluwer comply with the best practices as stated in the Dutch Corporate Governance Code. The research will provide a broad view on the various best practices. This means that the level of aggregation is high.
By no means is the level of aggregation fixed throughout the project. If it turns out to be necessary, it is possible to obtain a lower level of aggregation, which can be achieved by reticulation3. Reticulation is unravelling the system to obtain a higher level of detail.
1 De Leeuw, p. 374-377
2 De Leeuw, p. 69
3 De Leeuw, p. 99
Project Definition
The central theme in this paragraph is the question where to draw the line between the system and the organisation. In other words, the scope of this decision is to define what the actual boundaries of the research are4.
This research will be conducted within the Corporate Accounting Department of the Wolters Kluwer corporate office in Amsterdam, the Netherlands and a selected peer group of organisations. The scope of this research will be a broad view on the best practices stated in the Dutch Corporate Governance Code and how the companies in the peer group and Wolters Kluwer comply with those best practices. Furthermore the researcher will provide an outlook towards the compulsory internal control statement of the Annual Report based upon what British organisations are obliged to do.
Dependability and validity5
Dependability and validity are important aspects of research. Both aspects can have a significant influence on the outcomes of the research. Dependability means that the outcomes are as little as possible independent of coincidences.
In this research I tried to develop, in as much as possible, a concrete measuring framework and codebook. Every question in the measuring framework had to be answered by
COMPLIANT, NON-COMPLIANT or NOT SIGNIFICANT. A question could only be answered as NOT SIGNIFICANT if that question was coupled to another question that was answered with COMPLIANT. This has been discussed in chapter seven.
By limiting the answer possibilities, I tried to rule out coincidences. If there were no pre- defined answering possibilities a vast range of answers could be expected to the questions in the measuring framework. With the limited answering possibilities the answers to the
questions are more predictable and therefore they are, ultimately, more dependable.
If a researcher has gathered dependable information that does not automatically mean that the information is valid. Validity means that the researcher measured what the researcher planned to measure. The validity of a research can be established by finding correlation with the subject of the research.
In this research the main document is the Dutch Corporate Governance Code. The measuring framework is completely based on information in that specific code. Therefore the correlation of that what I wish to research and the subject is very high. Thus, I can conclude that this research is valid.
4 De Leeuw, p. 96
5 Baarda & De Goede, p.163-166
Preconditions to the research
During this research the following preconditions will apply:
• The research will have to meet the requirements laid upon it by the State University of Groningen Faculty of Management and Organisation, and Wolters Kluwer NV.
• The research will be conducted primarily within the department of Corporate
Accounting at the Wolters Kluwer corporate office in Amsterdam and a peer group of organisations.
• The corporate language of Wolters Kluwer is English (US).
• Some of the information provided by Wolters Kluwer will be highly confidential. This information will have to be excluded of the final version, which will be made public.
• This research is based on information that was available on a certain point in time. As the time passes companies could have made improvements in their corporate governance policies and may have become more compliant and transparent over time. Therefore this research may not be valid any more after a certain amount of time.
Appendix II A brief overview of the companies
In this appendix a brief overview of each company in the peer group will be supplied. It is meant to provide the reader with an opportunity to familiarize with the companies. Therefore I will write a little introduction to the companies. Furthermore I will provide some key figures on each company on a separate page. These will contain total revenues, net income,
geographical spread of the revenues in percentages, total assets and total FTE’s.
British Airways
British Airways is the UK's largest international scheduled airline, flying to over 550
destinations at convenient times, to the best-located airports. Whether customers are in the air or on the ground, British Airways takes pride in providing a full service experience.
The British Airways group consists of British Airways Plc and a number of subsidiary
companies including in particular British Airways Holidays Limited and British Airways Travel Shops Limited.
(Source: www.britishairways.com)
BP
BP’s main activities are the exploration and production of crude oil and natural gas; refining, marketing, supply and transportation; and the manufacture and marketing of petrochemicals BP has a growing presence in gas and power and in solar power generation. The BP
organizes its group mirrors the diversity of our activities. BP is divided into four main business segments: Exploration and Production; Refining and Marketing; Petrochemicals; and Gas, Power and Renewables. These business segments operate across four regions. BP operates in 100 countries with well-established businesses in Europe, North and South America, Australasia and Africa.
(Source: www.bp.com)
British Telecom
BT is one of Europe’s leading providers of telecommunication services. Its principal activities include local, national and international telecommunications services, higher-value broadband and Internet products and services and IT solutions. Although BT provides international telecommunications services, al its revenues are booked in the UK. Therefore there is no geographical spread of revenues.
BT’s strategy is to create value for shareholders through being the best provider of
communication services and solutions for everybody in the UK, and for corporate customers in Europe, achieving global reach through partnership.
(Source: Annual Report 2003)
Buhrmann
As an international business-to-business services and distribution group, Buhrmann is the world's major supplier of office products and graphic systems for the business market. A combination of modern Internet technology and advanced logistic processes allows Buhrmann to distribute its products in a highly efficient way. Internet sales account for a rapidly growing proportion of total sales.
Buhrmann operator two main businesses: Office products and Graphic systems. The office products division is successful because of the geographical spread of its distribution infrastructure. Therefore Corporate Express is able to offer optimum service to companies operating on a worldwide basis. Most of the business is done through ecommerce. Especially office products are suitable for ecommerce. The range of products and services varies from office supplies for daily use to computer supplies, office furniture and ICT-products and desktop software.
The Graphic Systems Division is active in six European countries: the Netherlands (Tetterode), Belgium and Luxemburg (Plantin), Spain (Hartmann), Italy (Macchingraf), and Greece (BTI Hellas). The operating companies supply graphic machines, materials and related services to the graphic industry. In addition to well-known Heidelberg presses, which also supply high quality printers and copiers, the Division sells pre-press systems, cutting, folding and binding equipment. The Division also supplies consumables, such as ink and spare parts. The emergence of new technologies has led to more streamlined and simplified printing processes. The application of this new technology allows information to be transferred directly from the computer to the plate.
(Source: www.buhrmann.com)
CSM
CSM is an internationally operating company active in the field of development, production, sales and distribution of food ingredients and sweets. CSM has four main product groups:
bakery supplies, sugar confectionery, biochemicals and sugar.
CSM operates on both the business-to-business market and the consumer market. CSM produces bakery supplies, lactic acid and sugar for the first, and sugar confectionery and sugar for the latter.
The bulk of CSM’s operations take place in Europe and the United States. Furthermore CSM runs some businesses in South America and Asia. CSM employs approximately 13,800 employees, of which around 12,000 are based outside the Netherlands, where the corporate office is situated. CSM is listed at Euronext Amsterdam. CSM strives for a profitable growth through both organic growth and acquisitions, with maintaining a solid financial position.
(Source: CSM Annual Report 2003)
Heineken NV
Heineken is one of the world’s largest and most advanced brewers and the Heineken brand is the most valuable international beer brand. Operating in over 170 countries, through its own breweries and through export and licensing partners, Heineken has the widest global presence of all the international brewers. Europe accounts for over half of Heineken’s sales volume.
Heineken has built its strong international and local market positions by developing and regularly updating its cohesive portfolio of strong brands, which offer high added value for its customers and consumers. Heineken seeks to achieve comprehensive coverage in each market, through alliances with independent distributors or via its own beverage wholesalers.
Heineken works constantly to meet the consumer’s changing needs and improve the quality and safety of its processes and products, its cost structure and its environmental
performance.
(Source: Heineken NV Annual Report)
Kingfisher
Kingfisher is Europe’s leading home improvement retailer with leading market positions in the UK, France, Poland, Italy, China and Taiwan. Sales for the continuing Home Improvement business for the year ended 31 January 2004 were just over £7 billion of which £2.9 billion, or 41%, was generated outside the UK.
Kingfisher operates over 560 stores in nine countries in Europe and Asia. The Group also has a strategic alliance with Hornbach, Germany’s leading DIY Warehouse retailer, which
operates more than 110 stores in Germany, Austria, Netherlands, Luxembourg, Switzerland, Sweden and the Czech Republic.
(Source: www.kingfisher.com)
KLM Royal Dutch Airlines
KLM Royal Dutch Airlines (KLM) is an international airline operating worldwide. Its home base is Amsterdam Airport Schiphol, one of the most modern airports in the world. KLM forms the core of KLM Group, other members being KLM cityhopper and Transavia.
KLM Group has four core activities: passenger transport, cargo transport, engineering and maintenance and the operation of charters and low cost/low fare scheduled flights. These activities are performed by the Passenger, Cargo, Engineering & Maintenance businesses and Transavia respectively. KLM Group and its partners serve more than 350 cities, in 73 countries on six continents.
KLM is a key player in a global alliance that commands an important position in the world's three major trading areas: America, Europe and Asia. Its goal is to be the first choice passenger and cargo airline and provider of maintenance services, while consistently
enhancing shareholder value, providing a stimulating and dynamic working environment for staff and participating in mutually beneficial relationships with its partners.
(Source: www.klm.com)
Numico
Numico is a high growth, high margin, specialist baby food and clinical nutrition company.
Acknowledged as the European market leader in infant nutrition and medical nutrition, its products range from infant milk formula to specialised nutrition for babies with specific needs and for breastfeeding mothers. For people with specific nutritional requirements, Numico offers a complete range of enteral clinical nutrition, diet products and disease-specific nutrition.
In order to support the development of infants and toddlers, Numico's baby food division (Nutricia Baby Food) has developed a unique range of nutritional products. They have been family favourites from generation to generation and we continue to build on these brands with new products focused on delivering health and convenience benefits.
Numico's clinical nutrition division (Nutricia Clinical) is a recognised leader in the provision of specialised nutritional products and solutions. Our products have been developed for patients with specific nutritional needs; patients, who cannot eat, cannot eat sufficiently, or have a specific disorder. Known for our excellence in nutrition for life and our strong nutritional research capabilities, Nutricia Clinical continually offers new, highly innovative products and services, ranging from tube feeds and oral nutritional supplements to disease-specific solutions.
Numico has a world-famous research facility supported by over 150 PhDs, dedicated to developing innovative products that allow our Baby Food and Clinical Nutrition divisions to deliver products for a better, healthier life.
(Source: www.numico.com)
Pearson
Pearson is an international media company with market-leading businesses in education, business information and consumer publishing.
Pearson is the world's leading education company. From pre-school to high school, early learning to professional certification, Pearson’s textbooks, multimedia learning tools and testing programmes help to educate more than 100 million people worldwide – more than any other private enterprise.
Furthermore, Pearson is the most international source of business and political news and analysis. Its network of newspapers and online services inform the decisions of more than four million business people and investors in more countries than any other company.
The world-famous Penguin is the label of quality from novels and classics to cookbooks - and much more - around the world. Pearson publishes an unrivalled range of fiction and non-
fiction, bestsellers and classics, children's books and illustrated reference treasure chests in over 100 countries.
Pearson leads its markets in quality, innovation and in profitability. We draw on common assets, capital, processes and culture. With more than 30,000 employees based in more than 62 countries, Pearson is a large family of businesses that are a lot alike and all share the same aims - a company of people and businesses who really want to help our customers get on in their lives, and enjoy doing it.
(Source: www.pearson.com)
Philips
Royal Philips Electronics (Philips) of the Netherlands is one of the world’s biggest electronics companies and Europe’s largest, with sales of EUR 29 billion in 2003. It is a global leader in colour television sets, lighting, electric shavers, medical diagnostic imaging and patient monitoring, and one-chip TV products. Its 165,300 employees in more than 60 countries are active in the areas of lighting, consumer electronics, domestic appliances, semiconductors, and medical systems. Philips is tenth on Fortune's list of global top electronics corporations.
We are active in about 60 businesses, varying from consumer electronics to domestic appliances and from security systems to semiconductors.
Philips is a world leader in digital technologies for television and displays, wireless
communications, speech recognition, video compression, storage and optical products as well as the underlying semiconductor technology that makes these breakthroughs possible.
We have world-class solutions in lighting, medical systems (particularly scanning and other diagnostic systems) and personal and domestic appliances where our investments in design and new materials are critical to success.
(Source: www.philips.com and Annual Report 2003)
Reed Elsevier
Reed Elsevier is one of the world’s leading publishers and information providers. The principal operations are in North America and Europe and include science and medical, legal,
educational and business publishing. Reed Elsevier is well positioned in long term attractive markets and has a clear investment-lead growth strategy, which has delivered significant market out-performance in recent years.
The science and medical business, Elsevier, comprises worldwide scientific, technical and medical publishing and communication businesses. The legal business, LexisNexis, provides legal, tax, regulatory and business information to professional, business and government customers internationally. The education business, Harcourt Education, publishes school textbooks and related instructional and assessment materials, principally in the United States, the United Kingdom, Australia, New Zealand and southern Africa. The business division, Reed Business, provides information and marketing solutions, including trade shows, to
business professionals in the United States, the United Kingdom, continental Europe, Australia and Asia.
(Source: Annual Report 2003)
TPG
Registered in the Netherlands and incorporated under Dutch Law on 29 December 1997, TPG now is a privately owned company. TPG was formed in connection with the
consummation of a de-merger transaction to which the former parent company, Koninklijke PTT Nederland NV (KPN), de-merged its mail, express and logistics divisions.
The group is composed of three segments: mail, express and logistics. TPG NV is a holding company and sets te agenda for the group and these three divisions. TPG provides a wide range of mail, express and logistics services worldwide. These services involve the collection, storage, sorting, transport and distribution of a wide variety of items for its customers within specific time frames, and related data and documentation management services.
(Source: Annual Report 2003 – We take it personally)
VNU
VNU is a global information and media company with leading market positions and recognized brands. Its business is organized into four groups: Marketing Information (ACNielsen), Media Measurement & Information (Nielsen Media Research), Business Information (Billboard, The Hollywood Reporter, Computing, Intermediair) and Directories (Golden Pages).
VNU is active in more than 100 countries, with its headquarters located in Haarlem, the Netherlands and New York, USA. The company has some 38,000 full-time employees. In 2003, total revenues amounted to EUR 3.9 billion. VNU is listed on the Euronext Amsterdam stock exchange, and the company is part of the AEX index of leading Netherlands-based stocks.
(Source: Annual Report 2003)
Vodafone
Vodafone is one of the world’s leading telecommunication services providers. Originally founded in the UK they managed to conquer the world. Growth of the company mostly occurred by takeovers. One of the most famous is the hostile takeover of Mannesmann in Germany.
Vodafone Group Plc provides an extensive range of mobile telecommunications services, including voice and data communications, and is the world's largest mobile
telecommunications company, with a significant presence in Continental Europe, the United Kingdom, the United States and the Far East through the Company's subsidiary undertakings, associated undertakings and investments.
(Source: www.vodafone.com)
Wessanen
Royal Wessanen nv (Wessanen) is a multinational food corporation based in the Netherlands, which operates in European and North American markets. Focusing on high-quality authentic food, its products range from pure natural and healthy foods to Premium Taste food products.
Wessanen aims to continuously increase its shareholder value by capitalizing on its differentiating capabilities in category/channel management, strong brands, value-added distribution services and transatlantic alignment.
Wessanen has several sources of value creation. It tries to build brand equity, it expands and balances its market presence in retail. Furthermore Wessanen optimizes its supply chain scale and it provides adequate control to the chain to guarantee product authenticity.
(Source: www.wessanen.com)
Appendix III Measuring Framework Corporate Governance
I Compliance with and enforcement of the Code
• Does the annual report contain a dedicated chapter on Corporate Governance?
• If not, does the board explain?
II Management Board
• Is there an expert and well functioning Management Board?
o Does it operate effectively?
o Does it provide the Supervisory Board and Shareholders on time?
o Does it provide a clear substantiation to the Supervisory Board and the shareholders about the conducted policies?
• Adequate risk management and internal control.
o Is the internal risk management and control system suitable for the company?
o Are the guidelines for financial reporting properly documented?
o Does the internal risk management and control system contain a monitoring function?
o Does the company have a code of conduct and is it accessible through the Internet?
• Availability of information
o Is there simultaneousness of information?
o What is the quality of information?
o Does transparency of information on risks and financial matters exist?
• Corporate Governance
o Does the management board highlight its Corporate Governance policy?
o Does it provide a dedicated chapter on Corporate Governance in the annual report?
o If the management board does not comply, does it explain?
o Does the management board provide a prognosis on expected trouble with corporate governance in the near future?
III Supervisory Board
• Independence of Supervisory Board
o Best practice provision III.2.2 states that each member, except for one, must be independent of the company. Does the Supervisory Board fulfill this best practice provision?
o If not, does the Supervisory Board provide an explanation?
• Audit Committee
o Did the Supervisory Board appoint an audit committee?
o If not, does it explain?
o If so, does at least one member have financial experience?
• Remuneration Committee
o Did the Supervisory Board appoint a remuneration committee?
o If not, does it explain?
• Selection and appointment committee
o Did the Supervisory Board appoint a selection and appointment committee?
o If not, does it explain?
IV The shareholders and general meeting of shareholders
• Competencies of shareholders
o Which competencies do the shareholders have?
o What influence can the shareholders exert on policies?
o Is it possible to vote from distance (proxy voting)?
• Depositary receipts for shares
o Does the company use depositary receipts for shares?
o If so, is it used as a preventative means?
o If so, does the company use a trust office?
o If so, is the trust office present at the annual general meeting of shareholders?
o If so, is the management of the trust office independent of the company?
o Can shareholders fully exercise their voting rights?
o Will the trust office be rescinded in the near future?
V Financial Reporting
• Responsibilities of the management board
o Does the management board take its responsibility for the quality and completeness of publicly disclosed financial reports?
o Does the Supervisory Board see to it that the management board fulfills this responsibility?
• External Auditor
o Does the company have an external auditor?
o Is the external auditor present at the AGM?
o Does the external auditor report his findings in relation to the audit of the annual accounts to the management board and the supervisory board simultaneously?
• Internal Audit
o Is an effective internal auditing system in place?
o Does a risk analysis system exist and if so, in what way does it work?
o Does the company have a code of conduct and is it accessible through the Internet?
o Are the guidelines for Financial Reporting properly documented?
o Is a system for monitoring and reporting in place?
Appendix VI In retrospect
In this appendix I will look back on my research. Therefore I will provide the reader with a comparison between the outcomes of my research and the outcomes of the latest IRIS research. I have made this comparison because IRIS Research is one of the leading
institutions on share capital analysis. IRIS Research regularly performs researches on several aspects of share capital, including the compliance of companies with the Dutch Corporate Governance Code.
In table App. VI.1 I have listed every Dutch company in the peer group. Besides it I have mentioned the rankings of the company according to the outcomes of my research and the outcomes of the IRIS research. I have used the latest release of the IRIS research in this comparison (Corporate Governance – Taken seriously at last, June 2004). The timeframe of this research coincides best with the time frame of my research.
Company Corporate Governance at IRIS Research Wolters Kluwer
Ranking Score Ranking Score
Burhmann 2 75 4 9,2
CSM 9 49 9 3,2
Heineken 7 57 8 3,8
KLM 8 51 - -
Numico 4 74 1 9,7
Philips 1 88 2 9,5
TPG 2 75 4 9,2
VNU 5 66 7 6,1
Wessanen 10 44 3 9,3
Wolters Kluwer 6 64 6 7,5
Table App. VI.1: Comparison of the two researches
Before I analyze the differences between my outcomes and those of IRIS Research, I would like to make two comments. The first comment is that the IRIS research has been based on more measuring points than my research. Both researches do not incorporate all principles and best practices of the Tabaksblat Code, but IRIS includes more than I have included.
Therefore some differences could occur in the scores.
The second comment that I wish to make is that IRIS Research enables the companies to partly fill out the questionnaires themselves. This could result in a somewhat self-fulfilling prophecy. In my research the companies could not fill out any questionnaire. I have gathered and interpreted all data personally. Therefore some differences can occur in the scores.
This figure incorporates the outcomes of two researches. The figure shows some remarkable differences. The first difference is the high score of Wessanen in the IRIS research compared to my research. When I attended its annual general meeting, Wessanen did not have a finished annual report at that time. Due to some trouble with the financial statements,
Wessanen was obliged to postpone the publication of the annual report. It is very well possible that IRIS Research included that information of the annual report as it might be published by now. For reasons of time I did not include a scrutiny of the Wessanen Annual Report on 2003.
An important question is if this difference in the outcomes has a significant influence on the positioning of Wolters Kluwer among its peers? In my research Wessanen is positioned as the least compliant company in the peer group. In the IRIS research Wessanen belongs to the leading companies. Taking into account that in both researches the scores of Wolters Kluwer and Wessanen vary significantly, I can safely state that this difference will not have a
significant influence on the positioning of Wolters Kluwer in the peer group.
Another difference is that of KLM. During my research KLM was taken over by Air France and has been subsequently withdrawn from the Dutch Exchanges as KLM. As KLM officially is not Dutch anymore, it might have been excluded from the IRIS Research. Again, for reasons of time I had left, I maintained KLM in the outcomes of my research.
Apart from these differences some similarities occur as well. The ranking and scores of the leading companies in both researches are quite similar. The scores that I have put into the figure support this. The four leading companies in my research turn out to be the four leading companies in the IRIS research as well, albeit in a different order and excluding Wessanen.
It turns out that Numico is the best company in the IRIS research. In my research Numico comes in fourth. But before one can judge on the ranking, one has to take into account the scores as well. In my research the scores of the leading companies are very close, that is: the differences are small. This counts for the leading companies in the IRIS research as well. The scores are very similar and do not differ much.
Summarizing I can state that although some differences occur, the outcomes of both researches are quite similar. As IRIS Research is a leading institution on share capital research, I think I can state that the validity and dependability of my research have been guaranteed.
