l 26 l : 2006 Operating Officer Chairman andChief Michel David-Weill, Jacques Vincent, , BOARD OFDIRECTORS Chief Operating Officer Vice Chairmanand Entertainment Infogrames Chairman, or,Eurazeo Board, Chairman ofSupervisory 1 , 51, 48, 61, 74, Fresh Dairy Products Executive Vice-President commissariat auxcomptes HautConseildu member, Christian Laubie Bernard Hours, Sofina SA ChiefExecutive Officer, 58, Richard Gobletd’Alviella , Asia-Pacific Executive Vice-President 50, 1 , 43, 68, 1 , Pétrofrance ChimieSA Chairman, Jacques Nahmias Astra Zeneca Deputy Chairman, Hakan Mogren Jean Laurent Calyon SA Chairman oftheBoard, 1 , 62, 1 , 62, 1 , 59, tEini etme 2006. at EvianinSeptember at themeetingofGroup executives ofAirLiquideSA, Chairman Franck Riboudand Benoît Potier, Yakult Honsha Senior ManagingDirector, Naomasa Tsuritani Air LiquideSA Management Board, Chairman of Benoît Potier was duetoexpire. when Hirokatsu Hirano’s mandate Meeting ofShareholders in2008, board untilthe Annual General Naomasa Tsuritani willsitonthe whoresigned. Hirokatsu Hirano, February 2007 toreplace of 14 Co-opted attheBoard Meeting 2. Independent director. 1. 1 , 49, 2 , 62, tin has comeinforincr nance inbiginterna In r principles ofour DANONE Inkeeping with the a broader view. Danonetakes and riskmanagement. cally identicalwithinternalcontrols governance isoften viewed aspracti- theconcept ofcorporate As aresult, andeffective riskcontrol. regulations, pliance withapplicable law and achieve two fundamentalgoals: com- the rulesandprocedures adoptedto corporate governance refers to ing, Strictly speak- also forsocietyatlarge. concern notonly forshareholders but have madethisafundamental tional, albeitexcep- and unethicalbehavior, mismanagement associated withfraud, y. ecent years thequalityofgover- Highl y publicized businessfailures GOVERNANCE easingly closescru- tional corporations Way CO process in ar to dri for eng opportunities. risksand for afullrange ofchallenges, the capacitytolookaheadand allow ondialog andon willingness tolisten, decision-making processes basedon Butitshouldalsoprovide for sions. ensure proper implementationofdeci- tainly meanseffective controls to goodcorporate governance cer- Thus, consider decision-makingasawhole. oto n eueoeain This control andsecure operation. without mechanisms foreffective Good governance isimpossible EFFECTIVE INTERNAL CONTROL to supplierandclientrelations fr Corporate governance comprisestherulesandprocedures Corporate governance om labor policiestoproduct quality THE DANONE eas undertheirresponsibility ve progress atGroup subsidiaries agement withallstakeholders take decisionsandexerciseitspowers.AtDANONE, R governance isbasedonawillingnesstolisten. governance PORATE adopted byacompanytoreachitstargets, — we — procedures. internal control andriskmanagement ment andongoingimprovement of Board ofDirectors withtheassess- the Group’s general managementand Thedepartment alsoassists ments. and otherinternally definedrequire- policies procedures, ment principles, aswell aswithmanage- regulations, pliance withapplicable laws and companies andorganizations forcom- responsibility istomonitorallGroup The Group Risksdepartment’s primary Group Secretariat General. Mana combines theInternal of theGr imper gement unitsandreportsgement tothe ative definesthecore mission u ik eatet which oup Risksdepartment, MODEL cn.pg 31) page (cont. Audit andRisk >>>

l 27 l : DANONE 2006 l 28 l : DANONE 2006 other thanthoseforauditpurposes. auditor’sfor pre-approvalofthestatutory assignments auditplans,andpolicies andexternal of internal compliance, riskmonitoringandassessment,approval deliveries inEurope,progressonSarbanesOxley thoserelatingtohome-and-office assets, inparticular adopted forthemonitoringandvaluationofnon-current of theExecutiveCommittee. review ofallcompensationandbenefits grantedtomembers The Committeemetoncein2006, conductingadetailed NOMINATION AND COMPENSATION COMMITTEE The AuditCommitteemetsixtimes. INTERN operation continued. ofBoard toenhancetheefficiency In 2006,efforts of theBoard ofDirectors Ac In particular, itischarged withdrawingupproposals for theCommittee, definingitsvariousassignments. regulations 15, theBoardof Directorsadoptedinternal regulations atthemeetingheldDecember15,2006. in 2006.Thisledtotheadoptionofrevisedinter in 2005andanewself-assessmentwasconducted assessment in2004,anumberofchangeswereintroduced at variousstagesofadvancement.Followingafirstself- considered significantacquisitionsanddivestments and theadoptionoffinancialstatements,Board endorsements granted,sharebuybacksandcancellation, reviews, Groupfinances,treasury, guaranteesand In additiontorecurrentmatterssuchasbusiness the yearforanaverageofthreehourspermeeting. ATIONAL AUDITCOMMITTEE t The Boardmetfivetimesduring i At itsmeetingonDecember vities It reviewedprocedures < 1 nal Board of thetotal. and avariablebonusrepresentingbetween4060% Management compensationismadeupofafixedsalar MAN flow and operating margin on ordinary business. flow andoperating marginonordinary business,freecash operating income onordinary based ontheBusiness Line'sbudgettargetsforsales, Committee membersinchargeof aBusinessLineare used inthecalculationofbonuses ofExecutive announced tofinancialmarkets. The businesscriteria incomepershare flow andnetordinary business,freecash operating marginonordinary for bonusesaretheGrouptargets forsales, and ChiefOperatingOfficer, thebusinesscriteria over theyear. Inthe casesoftheChiefExecutive targets andqualitativeassessmentsofstrategypursued are basedonacombinationofquantitativebusiness For allmembersoftheExecutiveCommittee,bonuses of business,staffdevelopmentandindividualtargets. policies thattheBoardmayaskfor any recommendationsongroupcompensation of Directors’fees;and,inageneralway to seniorexecutives;proposingthedistribution for thegrantofstockoptionsorfreeallotments compensation; makingproposalstotheBoard ofexecutive Committee; proposingcriteriaforallforms assessments oftheBoardDirectorsandAudit issues;conducting, attheirrequest, on governance of Directors;preparingdeliberationstheBoard for theBoardofDirectorsregardingappointment AGEMENT COMPENSATION Bonuses are determined onthebasis Bonuses aredetermined 2 > . , drawingup y €2,579,100; Jacques Vincent, Deputy Chairman andChiefExecutiveOfficer,Franck Riboud,Chairman of theBoardDirectors wasasfollowsin2006: of theExecutiveCommitteewhoare alsomembers Compensation ofeachthefour members to thesamemembersin2006,totaled €0.6million. pensionentitlementsallocated supplementary variable compensation.Otherbenefits, including the Committee,anamountincluding €6millionin members inconnectionwiththeir functionson €11.1 millionwasattributedtoExecutiveCommittee financial yearcameto€11.4million.Ofthis, of DirectorsandExecutiveCommitteeforthe2006 to Directorsandthe19membersofBoard Total directandindirectcompensationattributed are reviewedannuallybythesameCommittee. compensation ofotherExecutiveCommitteemembers and CompensationCommittee.Policiesgover of therecommendationsitsNomination Officer issetbytheBoardofDirectorsonbasis of theChiefExecutiveOfficerandOperating share andoperatingexpense.Thecompensation on ordinar relate toGroupbudgettargetsforoperatingmargin Quantitative criteriaforotherCommitteemembers 3 > y business,netordinar y incomeper 2 > ning < 4 Products, €1,364,170. Ber Faber and ChiefOperatingOfficer and actionprograms. and explainthe Committee’s workinsocial investment of theGroup’s activities;and,morebroadly, toprepare of interestbetweensocialinvestment andtherest investment andprograms;toprevent anyconflicts up bytheGrouphavebeenimplemented insocial and ontheGroup;toexaminehow therulesdrawn is toevaluatetheirimpactbothon localcommunities in socialactionprograms,theCommittee’s mission by theGroup.AsregardsGroup’s investment and ensuretheimplementationofethicsrulesdefined systems; the Groupconducts;reviewreporting outassessmentsofthelaborpolicieswhich carry facingtheGroup; related risksandopportunities the followingtasks:examinemainenvironment- Responsibility Committee.Itsmissionwillinclude to createathirdgover At theendof2006BoardDirectorsdecided MAN nard Hours,ExecutiveV , ExecutiveV AGEMENT COMPENSATION Member, HautConseilducommissariatauxcomptes 5/ Board,Eurazeo oftheSupervisory Chairman 4/ Chair 3/ oftheBoard,CalyonSA Chairman 2/ Chairman Honorary 1/ CHRISTIAN LAUBIE MICHEL DAVID-WEILL BRUNO BONNELL JEAN LAURENT DANIEL CARASSO man, InfogramesEnter ice-President Asia-Pacific,€998,084; ning body, theSocial ice-President FreshDairy , €1,592,980;Emmanuel tainment < 5

l 29 l : DANONE 2006 l 30 l : DANONE 2006 6/ Chief ExecutiveOfficer, SofinaSA 9/ PétrofranceChimieSA Chairman, 8/ D 7/ w A gned. NaomasaTsuritani willsitontheboarduntil2008 2007toreplaceHirokatsuHirano,whohadresi- February 14 Tsuritani was o-optedattheBoardMeetingof Naomasa A eputy Chairman, AstraZeneca eputy Chairman, nnual GeneralMeeting,whenHirokatsuHirano’s mandate dviser of the International Businessdivision,Yakultdviser oftheInternational Honsha. as duetoexpire. JACQUES NAHMIAS HAKAN MOGREN HIROKATSU HIRANO RICHARD GOBLETD’ALVIELLA 8 > < 6 * Inde Emmanuel F Bruno Bonnell* J SOCIAL RESPONSIBILITYCOMMITTEE Hakan Mogren* Jean Laurent* Michel David-Weill COMPENSATION COMMITTEE NOMINATION AND Christian Laubie* Ric Benoît P A ean Laurent* UDIT COMMITTEE hard Gobletd’Alviella* pendent dir otier* a ector. , , ber Chairman Chairman Chairman , < 7 < 9 ronmentalregulatory and reach the bestpossible response. issues andpointsofview inorder to designed toconsiderafullrange of requires adecision-makingprocess which of enlightenedgovernance, itisnoguarantee but nance structure, clearly abasiccomponentofany gover- Complianceis business processes. afirmergraspopportunity togain on significant constr ments, to detailed informationoncontr cl all kinds package thatranks andmapsrisksof asoftware deployment of Vestalis, Two thousandandsixalsosaw the more effectively. and anticipatebusiness-related risks awareness andhelpthem to assess Management Chartertoraise employee ofaRisk andpublication managers, Guide (seesidebar) toeach ofour9,000 Danone’s BusinessConductPolicies lation ofanupdatedversion of Recent initiatives have includedcircu- organization. diary todevelop itsown internalcontrol also through supportforeach subsi- terms ofthe the bigg as anNY reliable decision-making. more overview thatfavors quicker, too narrowly focusedapproach and avoiding ofa thedangers the process, ted working methodstoopenup Danone managementhasthus adop- DECISION-MAKING A BROADER BASE FORINFORMED compliance Yet Sarbanes-Oxley fraud mechanisms. system thatstepped upexisting anti- Progress includedanew employee alert improve oursystemofcontrols. we continued to Throughout theyear, AND OPPORTUNITIES CONSTRAINTS further now afoottostreamline structures even Moves are organization atany time. independently andauditany group nal auditteamstointervene The Group Audit Charterallows inter- >>> y traded intheUSmust provide gether withrelatedgether testsandassess- — est singlepr and althoughthisentails SE listedcompan — o nya ru ee,but not only atGroup level, nutil iaca,envi- financial, industrial, , an obligation forDanone c,allcompaniespubli- Act, it,italsooffersan aints, jc.Underthe oject. ,remained y, — for an ols, thus have anopportunityfordirect also attendedby Board members who functions atEvianmeeting of subsidiariesandimportantbusiness ted tothemanagingdirectors incharge the outcomeofthisprocess ispresen- Attheend ofSeptember, of Directors. identified fordiscussionby theBoard helpingtoshapethepriorities tee, va andtheDANONE annual managementconference at includingthe throughout theyear, debate withinGroup management inputfuels as well asagreement.This vie participants toe a bac lopments. particular r de e tion conduci e The Committeemeetsforthree days ries inallpartsoftheworld. managing directors headingsubsidia- Executive Committeeandsome30 the bership thatbringstogether informal grouping withnofixedmem- an our InternationalCommittee, istheideabehind ness planning.This concerns andfactortheseintobusi- crucially importanttobeaware oflocal itis of geography inthefoodindustry, butgiven thefundamentalrole diary, management withatleastonesubsi- have direct experience ofoperational of theDanoneExecutive Committee Mostofthetenmembers managers. ing inspiration from theideasoflocal thisstartsby draw- In concrete terms, better informeddecisions. broadly basedstrategic thinkingand accesstonewgaining inputformore dialog withstakeholders. governance ifthere is no There canbenogood v xc r er each timeatadifferent loca- ery year, pth review strategic of issueswith ,clarifyingpointsofdisagreement w, ag.Participants conductanin- hange. kseat toopendiscussionallowing Formal presentations take elevance tocurrent deve- v e toreflection and xpress theirpointsof Way >>> — a session commit- Business Conduct in 2006,DANONE’s Principlesof First drawnupin1996andupdated Business Conduct of Principles and tradinginDANONEshares. confidentiality, conflictsofinterest with peoplefromoutsidethebusiness, employees asregardsrelationships They alsodefinethedutiesof and tothecountrieswhereweoperate. with responsibilitiesfortheenvironment employees andshareholders,along to consumers,customers,suppliers, and setoutDANONE’ Principles definerulesofgover Organization) conventions,the Labour and ILO(International Declaration ofHumanRights recognized textsastheUniversal Referring tosuchinternationally for individualsandbusinessentities. They statenon-negotiableobligations among staffmembersworldwide. Corporate governance are widelycirculated s commitments nance

l 31 l : DANONE 2006 Corporate governance

>>> discussions with operational teams. community life through regular con- This model for decision-making based tacts with elected officials and on dialog and interchange favors the associations, at the same time reach- DANONE Way ahead continued evolution and ripening of ing out to create new opportunities strategies that managers can readily for fruitful exchange. The aim in each accept as their own. case is to multiply opportunities for discussion. Relationships with nutri- and going even further STAYING IN TOUCH WITH THE tionists are one case in point. WORLD AT LARGE Every year, heads of French subsidia- Cultivating dialog with the broader ries hold a meeting with 12 highly subsidiaries to gain a 360° view of their social environment is a well established reputed nutrition scientists to present business, favoring new awareness of the Sarbanes Oxley tradition at Danone. It became part of their ideas and projects and hear the progress to be made in areas relating to compliance stated policy in the early 1970s and scientists’ comments and suggestions. sustainable development, social responsibility then the focus of systematic procedu- The following year, they come back to and constructive dialog with all stakeholders. The US Sarbanes Oxley Act, res as part of the DANONE Way social report on how these suggestions have Example: DANONE Way findings helped adopted in the wake of responsibility program (see page 30). been put into practice.This procedure Danone take new initiatives to reach financial scandals associated in Over time, dialog has played an increas- has proven its worth in generating prac- out to stakeholders outside the business particular with the Enron case, ingly important role in our governance, tical measures with significant impact. and thus gain a clearer understanding of their is intended to provide business and providing as it does the essential basis For example, dialog between Danone perceptions and its own image. The conclusion the financial community in general for decision-making and management and consumer groups resulted in the was that while it is a recognized leader with a with reasonable assurance of processes open to the realities and elimination of dangerous allergens powerful image, Danone France is also the reliability of financial reporting. ideas of society and the world at large. from the production cycle—just one considered remote from the concerns of its Applicable from 2006 on to all listed Dialog takes place through structures illustration of the many benefits of stakeholders. Action plans set up response to companies in the US and thus to that begin at local level, requiring direc- a management model that makes these findings focused in particular on DANONE, traded on the New York tors of all the Group’s factories—some willingness to listen a fundamental reinforcing ties to consumers and customers Stock Exchange, the Act requires a full 200 in all—to participate actively in principle. as well as raising awareness of the broader description of internal controls, which • environment within the business. Danone must be tested and assessed. Meeting France’s initiatives are among the 800 DANONE these requirements has been the Way action plans adopted by Group business occasion for DANONE to reinforce around the world, with 98% of these already its internal controls and operational leading to improved links to the community. procedures. Against this backdrop, the group also launched Dialert, PHILIPPE-LOIC JACOB, DANONE Corporate Secretary A FRESH STEP FORWARD a system enabling all employees DANONE Way is now ready for fresh progress to report to group management any “Attentive to society” with a new version dubbed DANONE Way breaches of accounting and financial Ahead. This will pursue the twin goals of rules that might affect the reliability What makes with stakeholders. Being not much involved, but defending the Group’s reputation and favoring of accounts, and any failure to abide DANONE attentive attentive to society at large over the past few years social innovation. The first of these goals is by our Principles and procedures to its stakeholders? and more particularly to we have been working to defined in terms of 16 fundamentals that make or comply with anticorruption rules. To begin with, this is an consumers also helps us build stronger links. Before up the essential underpinnings of socially integral part of our dual to detect emerging trends it adopts any new laws or responsible business operation. These will commitment to social with possibly lasting effect regulations, the European DANONE Way is a unique management tool be applied by all Group entities and be progress and business that can be negative—or Commission calls for input based on self-assessments covering quality, subject to independent audits. The second goal, success, which was instead offer new from stakeholders including ethics, management, environmental standards social innovation, involves adopting clearly stated a good opportunities. To take businesses and consumer and other aspects of operations within each a methodical approach across the Group, 6 6 0 subsidiary. Initiated in 2001, it calls on with projects conducted in association with 0 0 35 years ago. This aspect one example, through groups, which offers 98% 0 2 2

is the percentage of the participation of executive committees, NGOs and other representatives of civil E of our approach to DANONE’s social watch DANONE an opportunity E N governance is also borne procedure, we realized to put its points of view DANONE subsidiaries managers and staff at all levels to provide society aimed at benefiting both society N O O N out in ratings and indexes over five years ago that and arguments. This must in which DANONE Way the broadest possible base for findings. at large and the business over the medium N A A D had been deployed by the Subsidiaries’ self-assessments are used to long term. One example of this kind D

: that recognize our obesity was going to be also bring positive effects : l end of 2006. In addition, to identify both strong points and areas of project already under way in Poland l 2 performance in this area. become a major social for consumers. An example 3 3 3 l Why is dialog with society issue and that we would are the new restrictions on over 800 actions had been for improvement, which are then the object is the Share Your Meal program to combat l at large important? have to take action. Which nutritional claims. While undertaken worldwide of targeted action plans. malnutrition; another is the factory built by Listening to other people had important implications this law obviously has an since 2001. DANONE and Grameen Bank is an effective way to for product development. impact on our business, we PERFORMANCE AND RESPONSIBILITY in Bangladesh (see pages 45 and 96). avoid upsets that can be What about relationships were in favor of it because Now, five years on, the benefits are clear put down to poor or non- with EU institutions? we believe that consumers in terms of business performance, staff existent communications For a long time we were should never be misled. commitment, public awareness of the DANONE group and recognition for its appeal. DANONE Way has also enabled individual

DANONE Way is a unique management tool based on self-assessments covering quality, 2 l 34 l : DANONE 2006 > Biscuits andCerealProducts Executive V Corporate Secretary Corporate Secretary O D Research &Development Executive Vice-President 5/ 4/ 3/ 2/ 1/ 2006. Evian, September Executive Committee Snapshots Human Resources E at Evian every yearattheendofSeptember.at Evianevery of 150executivesthattakesplace strategy tothesubsidiariesatmeeting Executive CommitteepassontheDANONE xecutive Vice-President eputy Chair perating Officer SVEN THORMAHLEN GEORGES CASALA PHILIPPE-LOÏC JACOB FRANCK MOUGIN JACQUES VINCENT ice-President man andChief , , , 4 65 61 , 9 , 50 42 Members oftheGroup’s Beverages E I Finance, Strategyand Executive Vice-President D’ESTAING Fresh Dair Executive Vice-President Asia-Pacific Executive Vice-President 9/ 8/ 7 6/ nformation Systems nformation xecutive Vice-President / BERNARD HOURS EMMANUEL FABER T ANTOINE GISCARD HOMAS KUNZ y , Products 46 , 49 , , 50 43 3 > 1 > < 4

l 34 l : DANONE 2006 < 7 5 > 8 > 9 > Corporate governance < 6

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l 36 l : DANONE 2006 Food andnutritionhavebecome criticalpublichealthissues.Astheworld’s fifthlargest food group and a leader in healthy food, Groupe DANONE finds itself at the heart oftheissue. group anda leader inhealthyfood,Groupe DANONEfindsitself attheheart Our response makesstringenthealthstandards aprincipleofcorporate governance. THE THE IMPERATIVE HEALTH

l 37 l : DANONE 2006