Introduction

General

The supervision of the policies and actions of the executive management (the 'Board of Management') of Koninklijke Philips Electronics N.V. (the ‘Company’) is entrusted to the Supervisory Board, which, in the two-tier corporate structure under Dutch law, is a separate body and fully independent of the Board of Management. This independence is also reflected in the requirement that members of the Supervisory Board be neither a member of the Board of Management nor an employee of the Company. The Supervisory Board considers all its members to be independent under the applicable US standards and pursuant to the Dutch Corporate Governance Code of December 9, 2003 (the 'Dutch Corporate Governance Code').

While retaining overall responsibility, the Supervisory Board assigns certain of its tasks to three permanent committees: the Corporate Governance and Nomination & Selection Committee, the Remuneration Committee and the Audit Committee. The separate reports of these committees are part of this report and are published below. The members (of the committees) of the Supervisory Board are listed in the chapter Supervisory Board.

For further information on the Company's corporate governance structure and a more detailed description of the duties and functioning of the Supervisory Board see the chapter Corporate governance.

Activities of the Supervisory Board

During 2008 the Supervisory Board devoted considerable time to discussing the Company’s strategy. In particular the performance and integration of recent acquisitions, such as Genlyte and Respironics, and the economic situation and impact thereof on Philips and Vision 2010 were discussed extensively. The Supervisory Board also discussed the capital and financing structure of the Philips Group and approved the sale of some or all of the Company's remaining shares in TSMC and LG Display. In June the strategy of the Company and the sectors, including various risks and opportunities scenarios, were discussed during a one and a half day meeting.

Other discussion topics included:

• financial performance of the Philips Group and the sectors
• status of merger and acquisition projects
• rebranding of products of acquired companies
• management agenda of the Board of Management and especially the steps taken to deal with the unsatisfactory EBITA margins in the TV business
• remuneration policy
• management development and succession planning
• evaluation of the Board of Management and its members
• geographic performance and growth opportunities in Emerging Markets and particularly the shift of resources from mature to emerging markets
• the shift of R&D spend from existing product categories to new product categories
• the situation and improvement measures at some businesses that did not perform according to plan
• the results of the Employee Engagement Score and the implementation and impact of the Net Promoter Score
• financial scenarios for 2009
• the situation at Philips Pension Fund in the Netherlands
• restructuring in various sectors
• the system of internal business controls and risk management
• the investigations into possible anticompetitive activities in the CRT industry.

The Supervisory Board visited Lighting and Healthcare to further familiarize itself with the business and the respective management teams. Also, the yearly Corporate Research Exhibition was visited, at which event the latest technological projects and inventions of the Company are presented. The members spent two days in Boston/Andover where they discussed the Philips businesses in the United States of America and visited, amongst others, the head office of Healthcare and attended presentations of various businesses, including the recently acquired business of Respironics, Colour Kinetics, Genlyte, Emergin and VISICU. Finally, several members of the Supervisory Board also attended external training programs, which are often dedicated to specific topics.

Composition and evaluation of the Supervisory Board

The Supervisory Board currently consists of nine members. The Supervisory Board aims for an appropriate combination of knowledge and experience among its members in relation to the global and multi-product character Philips’ businesses. Consequently the Supervisory Board aims for an appropriate level of experience in marketing, technological, manufacturing, financial, economic, social and legal aspects of international business and government and public administration. The full profile is described in the chapter Corporate governance. Members are appointed for fixed terms of four years and may be re-appointed for two additional four-year terms.

All members of the Supervisory Board completed a questionnaire to verify compliance in 2008 with applicable corporate governance rules and the Rules of Procedure of the Supervisory Board. The Chairman of the Supervisory Board discussed the functioning of the Supervisory Board and its members in private discussions with all members. He shared common themes and conclusions in a private session of the Supervisory Board; items discussed include the follow-up to the evaluation regarding 2007, the composition and competencies of the Board, the set-up and content of meetings and meeting materials. In the same meeting the relationship with the Board of Management was discussed. The three committees of the Supervisory Board reviewed their charters and their functioning and reported thereon to the full Supervisory Board.