Carolyn DittmeierTrends in EU Corporate Governance: The Search for Stability

2

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

7

EU Corporate Governance Green Paper

Over 400 responses

Please NO Regulation!

EU Regulation versus Comply or Explain of National codes

8

Comply or Explain

Comply AND Explain

9

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

Bulgaria Ireland

Recommended

Romania

Spain

Luxemburg

Malta

Slovenia

SlovakiaGreece

Finland

Latvia

France

Italy

Required

11

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

13

Increase Shareholder responsibilities

• Shareholder approval for more transactions

• Mandatory annual elections of board members with criteria

• Control on Related party transactions

14

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

16

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

17

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

19

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

20

• 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

21

Directive 2006/43/EC86-Article 41

“the Directive’s most frequently non-transposed

article”

22

• 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

24

The time is right for Assurance

Internal Audit

25

“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?

26

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

30

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

32

Thank youEnjoy the Conference