Chairman’s letter

Dear shareholder,

On behalf of the Board of Directors, I am pleased to present ABB’s corporate governance report. In 2016, we strengthened the Board with four new members, worked closely with the CEO and Executive Committee on Stage 3 of ABB’s Next Level strategy, and took a close and critical look at ABB’s portfolio to ensure it is optimized to create sustainable value.

2016 was a special year for ABB. The company celebrated 125 years of serving the world with pioneering technology from Switzerland, a heritage we are all tremendously proud of. It brings home the weight of responsibility on the Board and the management to continue steering ABB successfully now and for future generations.

Mandate

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 leadership team in place to execute the strategy, optimize performance and maintain our high ethical standards.

Two factors are key to the Board’s ability to perform these duties successfully. First, it is crucial that, collectively, the directors have a diverse and deep range of complementary skills and experience that match the needs of ABB’s strategy. In today’s rapidly changing world, where technology is advancing at an even faster pace, this is more important than ever. Second, it is essential to ensure that the directors develop an excellent understanding of ABB’s operations and markets, so that they are fully equipped to take informed decisions about the company’s future.

In 2016, we strengthened the board with four new members. Robyn Denholm and David Meline bring expertise in digitalization and software, as well as extensive leadership experience in financial roles at large and successful companies. And Frederico Fleury Curado and Satish Pai have experience leading flagship companies in important emerging markets, bringing vast and valuable knowledge in research and development, technology and manufacturing to ABB. Unfortunately, Robyn will not be standing for re-election, as she has taken on a new executive role.

Our new directors undertook an intensive “onboarding” program in 2016, during which they had the opportunity to see ABB operations in different parts of the world, and to meet with members of the EC and other senior managers.

With our new members, all of whom were elected with overwhelming support at the annual general meeting, the ABB Board is more diverse than ever. It comprises directors of ten nationalities from a wide variety of industries. Furthermore, almost two-thirds of the directors have joined the Board within the past three years, ensuring a balance between new members who bring fresh perspectives and longer-serving ones whose experience ensures continuity and stability.

Priorities in 2016

Part of the Board’s strategic oversight responsibility is active portfolio management to ensure that ABB focuses on the right markets and that its core businesses are properly positioned in its target markets. In 2016, an important focus of our work was the Power Grids division, which we put through a comprehensive strategic portfolio review to determine the maximum value creation potential for ABB shareholders.

The review included an internal analysis as well as independent assessments performed by external advisors and experts. Every aspect of the division’s portfolio was closely examined, including its market attractiveness today and in the future, the offering as well as the business models of its various units and the best ownership structure to fulfil its potential.

Following a careful assessment of all the options together with the EC, the Board concluded that shareholders’ best interests were served by the continued transformation of Power Grids under ABB’s ownership. The unanimous decision was announced in October 2016.

Alongside the strategic portfolio review of Power Grids, the Board in 2016 evaluated the company’s strategic direction and approved changes to further enhance sustainable value creation. Further, the Board conducted regular financial and business reviews, set Group performance targets and the personal objectives of the CEO, and reviewed capital allocation including investments and transactions, as well as the approval and progress of major projects. The Board also approved the annual report and the general meeting agenda.

The Board held 5 private meetings, meetings without ABB executives and experts, during which we conducted a Board self-evaluation, a performance assessment of senior management and a review of succession planning.

Chairman’s role

As an independent, non-executive chairman, my role is to provide direction to the Board and ensure that we have an efficient, collaborative relationship 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.

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, and I seek to provide support and offer a different perspective as a sounding board and a source of advice.

Dialogue with shareholders

Ultimately, my priority as chairman is you, the shareholders of our company. It is your interests that the Board represents and it is imperative that we have a collaborative and open dialogue. I was honored by the warmth with which I was received at the AGM in 2016, and at the level of support for our Board members.

It is a privilege to serve your interests in such a great company as ABB and to represent so many shareholders who obviously care deeply about its long-term success.

Sincerely yours,

Signature of Peter R. Voser, Chairman of the Board (handwriting)

Peter R. Voser
Chairman of the Board

March 10, 2017