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Carolyn DittmeierTrends in EU Corporate Governance: The Search for Stability
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Is the stakeholder community
satisfied withCorporate governance
perfomance
Trends in EU corporate governance
NO
3
The European Commission and Parliament debates
From shareholders responsibilities to board conduct
to internal governance
4
The Issues
Company structuresComply or explain versus EU RegulationProportionality Shareholder responsibilities Short termismExternal Supervisory roleExternal AuditBoard Strategic Risk Management Internal audit
5
Corporate Governance in Financial Institutions
Lessons from the crisis: Audit Policy/Statutory Audit
EU Corporate Governance Framework / Company Law
The current legislative proposals and debates at the European Commission and Parliament
6
Is the Two Tier System better than the Board / Audit Committee structure
Company Structures
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EU Corporate Governance Green Paper
Over 400 responses
Please NO Regulation!
EU Regulation versus Comply or Explain of National codes
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Comply or Explain
Comply AND Explain
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National CG CodesNeed for convergence
90% of Corporate Governance Codes require or recommend Internal Audit, but few provide requisites to ensure its effectiveness
Corporate Governance Codes and Internal audit
United Kingdom
Austria Germany
Belgium
Estonia
Hungary
SwedenDenmark
Czech Republic
CyprusNetherlands
BulgariaIreland
Recommended
Romania
Spain
Luxemburg
Malta
Slovenia
SlovakiaGreece
Finland
Latvia
France
Italy
Required
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Proportionality: No one size fits all!
But how to measure proportionality
Not one size but fit for all
MEP Evelyn Regner, European Commission Director Ugo Bassi,, Deputy Director General
Assonime (EuropeanIssuers) Carmine Di Noia, ECIIA President Carolyn Dittmeier
June 6 at the European Parliament:Finding an EU solution to achieve a truly effective corporate governance regime, while allowing entities the flexibility in
selecting their own CG structures
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Increase Shareholder responsibilities
• Shareholder approval for more transactions
• Mandatory annual elections of board members with criteria
• Control on Related party transactions
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Short Termism – Increase Long term viability
• Corporate statutes to reflect overall goal of long term viability
• Corporate governance reporting on long term objectives
• Abandon Quarterly Reporting?
15
Increase Supervisors/regulators involvement
Enhanced, two-way communication between auditors and supervisors with alert system Board competency test Monitor CG Resports
Oversight of conflict of interests A bigger stick
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Independence, independence and independence• Rules for independence and quality under supervisory body
• Audit Committee responsible • Almost eliminate non-audit services
• Audit firms to publish accounts, methods, fees
Impact assessment
External Audit – Lessons from the Crisis
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External audit role is integral to corporate governance
• Include risk reports of the entity / check on excessive risk
• Social responsibility role
• Right to be heard at general meetings
• Duty to report to Supervisor
External Audit – Lessons from the Crisis
ECIIA’s Clarification to key European Parliament Member
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The issues• Company structures• Comply or explain versus EU Regulation• Proportionality • Shareholder responsibilities • Short termism• External Supervisory role• External Audit
• Board• Strategic Risk Management • Internal audit
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• Fit and proper test by legislation -regular external evaluation
• Separate role of the CEO and Chairman
• Strict remuneration policy based on long-term performance
• Diversity
• Strategic Risk Management
Stronger Board of Directors crucial: Composition, Competencies, Compensation
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Directive 2006/43/EC86-Article 41
“the Directive’s most frequently non-transposed
article”
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• Annual report on risk, risk management systems and the
adequacy of internal control
• Annual Board approval of risk model assessment
• Establish Risk Committee or Risk function
• Adopt /describe framework
Strategic Risk Management
ECIIA GuidanceECIIA & Ferma joint papers: Reinforcing Board And
Senior Management competencies on risk management, internal control and internal audit
Part I Board Focus
2010
Part II Senior Management Focus
December 2011
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The time is right for Assurance
Internal Audit
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“The two facets of auditing – internal and external – to be clearly circumscribed in law” (Financial sector)
“Efficient, regular dialogue”
IA to inform External Auditor who reports to Supervisory authority?
Risk model assessment
CSR and CG hand in hand
Explicit potential Impacts on internal audit?
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IndependenceQuality Assurance
Assurance methodologyAdvisory role
Implicit potential Impacts on internal audit?
ECIIA GuidanceCorporate Governance Insights
Issued May 2012
Reinforcing Audit Committee oversight regarding global assurance
1. A single defined governance framework for global risk management and assurance
2. The Three lines of Defence model for global assurance
3. Ensuring adequacy of Internal audit 4. Ensuring proper distinction between internal
audit assurance and statutory/ external audit
28
European Commission
Business Europe
ECIIA in open discussion with EU associations
on EU regulatory consultations
Three Lines of DefenseThe IIA Advocacy Platform
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The ECIIA working hard for the profession Promoting good corporate governance and appropriate recognition of Internal Audit in the European regulatory enviornment
Carolyn Dittmeier, President
Marie_Hélène Laimay, Vice President
Hans Joachim Büsselberg
Martin Stevens, Treasurer
Thijs Smit
Kristina Bernotaitė Philip Ratcliffe
Juan Ignacio Ruiz ZorrillaPascale Vandenbussche Secretary General
The Corporate Governance Citizen ProgramThrough Citizens comes Progress
Generali Assicurazioni
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Thank youEnjoy the Conference