Chairman’s letter

Dear Shareholders,

On behalf of the Board of Directors, I am pleased to present the 2017 corporate governance report. In 2017, we continued to strengthen, rejuvenate and diversify the Board in line with the direction of ABB’s strategy. We undertook a comprehensive search process and decided to propose three new individuals to join the Board. We worked closely with the CEO and the Executive Committee (EC) to drive the execution of our strategy, and we took a series of important steps to strengthen controls, processes and oversight at our Group.

The mandate of the Board of Directors

In common with other publicly listed companies in Switzerland, the ABB Board of Directors is responsible for reviewing and approving the company strategy. The Board is also responsible for ensuring that ABB has the best team in place in the EC to execute the strategy, optimize the Group’s performance and maintain our high ethical standards.

Two key factors contribute to the Board’s ability to perform these duties successfully. First, it is crucial that, collectively, the directors possess an extensive and diverse range of complementary skills and experience appropriate to the needs and demands of managing a global company in the 21st century. In today’s fast-changing marketplace, characterized by the rapid and constant advance of technology, this is more important than ever. Second, it is essential to ensure that the directors develop an in-depth understanding of ABB’s operations and markets, so that they are properly equipped to contribute to the development of the strategy and make informed decisions about the company’s future.

With the three new Board members that we are proposing this year, we will have changed 10 out of 11 Board members, including the Chairman, within the past four years. The skills and experience of our Board members are completely aligned with our ABB strategy.

As an independent, non-executive chairman, my role is to provide direction to the Board and ensure that we collaborate effectively with the CEO and the members of the EC, who have full and undiluted responsibility for the execution of the strategy and the operational management of the company.

Shareholder feedback

Ultimately, our responsibility as Board members is to you, the shareholders of our company. The Board represents your interests, and we always seek to maintain an open dialogue regarding your concerns.

We received significant feedback from many shareholders regarding the decisions described in ABB’s 2016 compensation report, particularly the level of CEO/EC compensation.

Shareholders’ disapproval was related to the losses associated with the embezzlement scheme that was exposed in our South Korean subsidiary in February 2017 and the material weakness that we identified in our internal controls. As a result, the discharge of Board of management was challenged.

After the theft was discovered, compensation decisions were made that reduced the level of annual short-term incentive payments to ABB employees as well as the Long-Term Incentive Plan payout for senior executives.

I can confirm that we have identified the relevant control issues and that the material weakness in our internal controls has been remediated through swift and deep actions by the CEO and the entire Group leadership team. Also, the entire leadership team in South Korea has been replaced and appropriate Group level actions have been taken.

Finally, we have been aggressively pursuing criminal charges against the individual responsible for the theft and have developed a detailed plan to seek to recover as much of the approximately $100 million in stolen funds as we can. We have received insurance payments in the amount of $30 million.

ABB has a zero-tolerance approach to unethical behavior and maintains the highest standards regarding integrity and ethical business practices.

We take your input very seriously, and we will continue to respond appropriately to any and all valid concerns presented to the Board. We have worked on further improving our disclosure processes and are revising the 2018 Long-Term Incentive Plan to address the feedback we received from our shareholders.

Priorities in 2017

In 2017, the Board took steps to continue expanding our financial and auditing expertise, as well as our depth of knowledge in digital technologies and business models. The new nominations for the Board were made with these capabilities in mind. In light of the increasing importance of our new digital solutions offering ABB Ability™ to the Group’s growth, we have chosen to emphasize the importance of building a strong digital team in particular. We believe that the nominees will serve to continue the process of rejuvenating our Board, even as we maintain our focus on stability and execution.

The Board’s activities included conducting regular financial and business reviews, setting Group performance targets, and reviewing capital allocation, including investments, M&A and divestments. The Board reviewed major projects and monitored their progress and also approved the annual report and the agenda for the annual general meeting. Working with management, we reviewed and approved the selection of the new AMEA and Europe regional presidents and supervised their transitions as well as the transition to the new CFO.

The Board held regular private meetings, which means without ABB executives or experts present. In the course of these meetings, we conducted a self-evaluation of the Board, a performance assessment of senior management and a review of our Group’s succession planning.

A view to the future

As chairman, I see my role as ensuring that our committees work effectively, providing expert advice and guidance for important decisions and leading by example. I have a strong and open relationship with the CEO, characterized by mutual respect. In my work at ABB, I seek to leverage that relationship by providing my firm support to the Group’s business, as well as by offering a different perspective and serving as a sounding board and source of advice.

I consider it a privilege to serve your interests at this great company and to represent the voices of the many shareholders who obviously care deeply about ABB’s long-term success.

Sincerely yours,

Peter Voser
Chairman of the Board of Directors

February 22, 2018