Top 10 des billets publiés sur Harvard Law School Forum au 14 janvier 2021


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 14 janvier2021.

Cette semaine, j’ai relevé les dix principaux billets.

Bonne lecture !

Top Dix Bouton D & # 39 ; Or Vecteur Clip Art Libres De Droits , Vecteurs Et Illustration. Image 84625131.

  1. The New Paradigm in the C-Suite and the Boardroom
  2. A Letter to the SEC Chairman
  3. Corporate Governance Survey — 2020 Proxy Season Results
  4. Congress Passes the “Holding Foreign Companies Accountable Act”
  5. Where Things Stand at the End of 2020
  6. Report on Practices for Virtual Shareholder Meetings
  7. COVID-19’s Impact on Buyer’s Obligation to Close
  8. BlackRock’s 2021 Proxy Voting Guidelines Prioritize ESG Actions
  9. Allegations of Human Rights Violations and Other Litigation Trends
  10. Compensation Season 2021

La réforme de l’audit professionnel | Problèmes persistants et changements suggérés


Voici un excellent article de Lynn E. Turner, ex-comptable en chef à la Securities and Exchange Commission (SEC) des États-Unis, et actuellement conseillère principale chez Hemming Morse LLP.

Dans cet article, l’auteur constate les problèmes persistants de la mauvaise qualité de l’audit. Il identifie de nombreux cas problématiques affectant la crédibilité et la confiance dans la profession d’audit.

Également, l’article présente des avenues de réformes pour rétablir les responsabilités de la profession envers les investisseurs et améliorer la transparence et l’imputabilité.

Il y a toujours des problèmes avec la qualité des audits effectués par les CPA. En octobre 2008, un comité du Trésor américain sur la profession d’audit (ACAP) a publié un rapport contenant de nombreuses recommandations pour la SEC, le PCAOB et la profession d’audit.

Ce comité de chefs d’entreprise, d’investisseurs, d’anciens régulateurs de la SEC et de CPA a étudié la profession pendant un an avant de publier son rapport. Pourtant, aujourd’hui, dix ans plus tard, peu de recommandations ont été suivies par les cabinets d’audit ou leurs régulateurs. En conséquence, il semble que les quatre grands cabinets d’audit soient devenus « Too big to fail ».

Plusieurs comptables qui réglementent les cabinets d’audit à la SEC ou au PCAOB ont rejoint les régulateurs de ces « Big 4 »,  puis ils sont revenus en cabinet, comme l’a souligné la récente action du ministère de la Justice contre les auditeurs de KPMG.

Je vous invite à lire le texte au complet.

Bonne lecture !

Reforms of the Auditing Profession: Improving Quality Transparency, Governance and Accountability

 

Is audit fit for purpose? | Financial Times

Continuing issues affecting the credibility and trust in the auditing profession includes:

  • Lack of Independence—Auditors view management of companies they audit as their “client” not the public. It is important to audit partners that they maintain the “annuity” received from the annual audit fees. Losing an annuity from a large company can impact a partner’s career. As a result, the need to maintain a lack of bias and professional scepticism runs head on into, and conflicts with, the need to maintain the annuity for the firm.
  • Management provides them business opportunities to grow their revenues/profits.
  • Management writes their check.
  • Too often, in reality, audit committee’s delegate hiring and oversight of the auditor to management. Management and Audit Committees have often retained the same auditor for decades, even centuries, continuing to pay the annuity, and receiving “clean” audit reports.
  • Auditors have testified under oath in court, that they do not have an obligation to detect material financial statement fraud and serve the public interest.
  • Management provides the independent auditor with the accounting records and financial statements (numbers) to be audited. Then upon request from the independent auditor, management also provides the auditor with the evidence to support the numbers. When auditors talk of using “Big Data” in an audit, it too often is testing data in a data base created and maintained by management. As such, the numbers, and evidence and support the auditor examines, comes from the party that is the subject of the audit. It is doubtful that management is going to provide evidence that does not support the numbers they have created. Unfortunately, Generally Accepted Auditing Standards (GAAS) do not specifically address the need for the auditor to consider publicly available information that contradicts the information management has provided. And time and time again, it is this type of information that has resulted in analysts and other outside researchers bringing to light errors in financial statements and disclosures. And it is this information that auditors have failed to address in their audits.
  • The government mandates management and the company MUST buy audits, rather than those who actually own the company. In this respect, auditing of publicly listed companies is like a publicly mandated utility.
  • Lack of Transparency with respect to Audit Firm Performance and Audit Quality. Investors are not provided information necessary to inform them as to the quality of the audit of the financial statements and disclosures of the company they invest in and own. In that regard, investors are being asked to vote and ratify the auditor without information necessary to making an informed decision. Investors are consistently told in the audit report that audits have been done in compliance with GAAS set by the Public Company Accounting Oversight Board (PCAOB), a misleading statement in light of the very high deficiencies in compliance with GAAS reporting by the PCAOB and other audit regulators around the globe.
  • Lack of Independent Governance of Audit Firms. The large audit firms, which audit the vast majority of publicly listed companies in the US as well as around the globe, all lack meaningful independent governance. This lack of governance, which is required for publicly listed companies, has resulted in a lack of quality, accountability, transparency, and governance when it comes to audit quality and performance.
  • Very poor audits quality based on inspection reports from around the globe—so bad that the International Forum of Independent Audit Regulators (IFIAR) called senior leadership from each of the six largest firms in to discuss the poor audit quality. IFIAR’s Global Audit Quality (GAQ) Working Group and the GPPC networks undertook an initiative aimed to reduce the frequency of inspection findings. In accordance with a target established by the GAQ Working Group, the GPPC networks seek to improve audit performance, reflected in a decrease of at least 25%, on an aggregate basis across the GPPC networks over four years, in the percentage of their inspected listed PIE audits that have at least one finding. (See https://www.ifiar.org/)
  • The 2016 Inspection report of IFIAR stated: Inspected audits of listed public interest entities (PIEs) with at least one finding remained unacceptably high at 42%.” (See here.)
  • Audit firms often state the deficiency rates are high because the regulators are picking “High Risk” audits which in some, but not all instances, is true. However, one would expect the audit firms to assign these audits to their very best auditors, and as a result, there would be fewer deficiencies.
  • And finally, audit reports have failed to convey to investors—as well as audit committees—concerns of the auditor, even when they know management and companies are violating laws and regulations. Such reports are required for auditors of governments that receive federal funds, but are not required in instances such as seen in recent years, for audits of companies such as Wells Fargo.

Reforms to establish accountability to investors as owners of the company, enhance transparency and accountability

Below are ideas to address the issues with poor audit quality on audits of publicly listed companies. Some of these ideas or recommendations were put forward ten years ago by the U.S. Treasury ACAP.

  • Remove the current requirement in the Securities Laws that a Company must have an audit by an independent auditor, thereby eliminating the federal government mandate.
  • Replace it with a market based requirement, that every 5 years, a shareholder proposal be included in the annual proxy, asking if the investors want an independent audit of the financial statements by the independent auditors. Accordingly, it would be made clear that independent auditors work for, and serve the public interest of the owners of the company—the investors. I would expect that investors most often would vote for an independent audit, unless they saw little value in having one.
  • If the stockholders do approve the independent audit requirement (and again, I think they almost always would):
    • The audit committee, not management, would select and nominate the auditor. This responsibility could not be delegated to management;
    • The stockholders would then be asked to vote on and approve the auditor;
    • The audit committee, not management, would then be tasked with and responsible for negotiating the fee to be paid to the auditor;
    • The audit committee would submit a bill for the audit fee to the PCAOB as necessary during the course of the audit.
  • The PCAOB would collect a fee from each public company to cover the bill of the auditor for the audit. The PCAOB already has a mechanism in place for collecting fees it is required to get from public companies
  • The PCAOB could require a company to tender their audit for proposal, if the PCAOB found the auditors had engaged in improper professional conduct as defined in SEC Rule 102(e), or had a material weakness in their own internal audit quality controls; or had significant deficiencies on an audit in which the auditor had failed to comply with GAAS as set by the PCAOB.
  • In no event, could the audit firm serve as auditor for a publicly listed company for a period longer than what is permitted today by the EC which is 20 years.
  • The new auditor report adopted by the PCAOB should be required on all audits of public companies. This new audit report will require the auditor to state and discuss in this new form of audit report, “critical audit matters” (commonly referred to as CAMS). The new audit report also requires the auditor to state: “A statement that PCAOB standards require that the auditor plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.”
  • However, the PCAOB exempted a wide swath of public entities and did not require communication of critical audit matters for audits of emerging growth companies (“EGCs”), brokers and dealers reporting under the Securities Exchange Act of 1934 (the “Exchange Act”) Rule 17a-5; investment companies (e.g., mutual funds), other than business development companies; and employee stock purchase, savings, and similar plans (“benefit plans”).
  • If auditors through their audit work, become aware of a company or management breaking a law or regulation, that could have a material impact on the financial statements or operations of a company, they should be required to disclose it in their report, just as an auditor of a governmental agency subject to the GAO Yellow Book auditing standards is required to do so.
  • In August, 2000, The Panel on Audit Effectiveness (O’Malley Panel) chaired by the former Chairman of PW recommended that each audit include a forensic segment of the audit. Consideration should once again be given to this recommendation including establishing within GAAS, the need for auditors to consider publicly available information that contradicts the evidence management has provided them.
  • Require disclosure of audit quality indicators for each audit on which an opinion of the auditor is provided to investors in the company. These indicators should be disclosed in the Company’s proxy as part of the Company’s audit committee report to investors. Audit committees should also be required to disclose either in the proxy, or in the Charter of the Committee, the committees procedure for periodically tendering the audit. Audit firms should already be measuring audit quality on individual audits if in fact they are managing audit quality. But the audit inspection results from around the globe provide some evidence, that has not be occurring.
  • Improving the transparency of the PCAOB. The PCAOB inspects a very small percentage of the audits of publicly listed companies each year, and provide a public inspection report for each firm with their findings. For those audits inspected, the PCAOB inspection reports are perhaps the best indicator of audit quality today. Yet the PCAOB has refused to provide the name of companies being audited, stating the Sarbanes-Oxley Act of 2002 (SOX) prohibits this. But that is false as there is not language in SOX that prohibits the disclosure of the name of the companies whose audits are inspected. What SOX does prohibit is disclosure of investigations and enforcement actions taken by the PCAOB with respect to a poor audit. Senator Sarbanes agreed to an amendment of the then draft of SOX (May 2002), to include a prohibition on public disclosure, until the PCAOB enforcement action is final, at the request of the audit firms and Senator Enzi who was negotiating on their behalf. Harvey Goldschmid, who would shortly thereafter become an SEC Commissioner, and I, pleaded with the Senator not to make this change, as enforcement actions taken by the SEC are not private, but are in fact public. Senator Jack Reed (D-Rhode Island and Grassley (R-Iowa) have introduced subsequently introduced legislation, supported by the PCAOB in the past, to reverse this change and make the actions public. Unfortunately, in the meantime, the audit firms have used this provision of SOX to hide and appeal and delay the actions until many years have gone by. Then the audit firm always makes a public statement that in essence says a final PCAOB action is years old and should be ignored.
  • Currently the law requires that an audit partner be rotated off as the lead audit partner for a company, after no longer than five years. This is to provide a “fresh set” of eyes to the audit according to the congressional record. Yet there can be a number of audit partners on an audit, and it is not uncommon, to find the lead partner rotated off, and one who has been on the audit in the past, rotated into the lead audit partner position. As a result, there are incentives for partners not to bring up new problems from the past. Given the reforms cited above, this requirement, which has significant costs associated with it, could be eliminated.
  • Require each auditor of public companies to issue an annual report, just as the companies they are required to audit must, containing its:
    • Financial statements prepared in accordance with generally accepting accounting principles (GAAP). This is important to assessing the financial health of these firms as they have become “too big to fail” as demonstrated by actions of law enforcement agencies and regulators.
    • A discussion of the firms quality controls regarding all aspects of the audit including independence, human resources such as hiring, training and supervision, performance of audits, selection and retention of companies they audit, and testing and enforcement of the quality controls.
    • A discussion of the firm wide, as opposed to individual audit engagement, audit quality indicators.
    • A discussion of the firm’s governance structure, process and procedures.
  • The European Commission already requires each of the large audit firms to provide a report with some of this information. The US audit firms do publish an annual report on their own, but it discloses very limited financial information, and limited information on governing structures, accountability of executives, and performance measurement and improvement.
  • Audit firms that audit more than 100 public companies should be required to have independent directors or members on the firm’s governing board.
  • Audit firms need to abandon the “Pyramid”scheme they use for staffing today, and adopt a paraprofessional model used in law firms. The pyramid structure has resulted in talented, but young and inexperienced staff assigned to perform audit procedures, with respect to business transactions the staff are ill prepared to examine and challenge.
  • All CPA’s should be required to have a master’s degree in accountancy. I believe the master of professional accountancy program is sorely needed. The actions of the large audit firms in which they encourage students to leave school and begin their careers before the student receives their master is disappointing in that it Highlights the lack of commitment to education by those firms. Actions speak louder than words.
  • The SEC should revise its definition of what is a financial expert on the audit committee and adopt its initial proposal. The SEC should clarify the audit committee MAY NOT delegate this responsibility to the management of the Company, which is often done today.

Principes de gouvernance qui guident les investissements de BlackRock


BlackRock vient de publier sa position concernant les principes de gouvernance qui doivent guider ses investissements dans les sociétés de rang mondial.

BlackRock est une entreprise pionnière dans la divulgation des critères qu’elle prend en compte avant d’investir dans les organisations. C’est pour cette raison que toutes les personnes intéressées par les questions de gouvernance doivent être bien informées sur les grands principes qui soutiennent ses décisions.

Dans cet article publié par Sandra Boss, responsable mondiale de la gestion des investissements, Michelle Edkins, directrice générale du management des investissements et Shinbo Won, directeur du management des investissements chez BlackRock, inc., les auteurs présentent en détail les règles qui gouvernent les investissements de BlackRock.

Celles-ci sont considérées comme le « Gold standard » dans le monde de la gouvernance.

L’article ci-joint présente la philosophie de placement de l’organisation, ainsi que les principes qui recouvrent les sept thèmes suivants :

    • Conseils et administrateurs
    • Auditeurs et problèmes liés à l’audit
    • Structure du capital, fusions, ventes d’actifs et autres transactions spéciales
    • Rémunération et avantages
    • Problèmes environnementaux et sociaux
    • Questions générales de gouvernance d’entreprise et protection des actionnaires
    • Propositions d’actionnaires

Dans ce billet, je fais référence au premier thème, celui portant sur les principes devant guider la gouvernance des entreprises, notamment les questions relatives à la gouvernance et à la composition des conseils d’administration.

Pour en connaître davantage sur les autres principes, je vous invite à lire l’article au complet.

Bonne lecture !

BlackRock Investment Stewardship Global Principles

 

BlackRock assets reach $7.32T as crisis drives record investments | Fox Business

 

The purpose of this post is to provide an overarching explanation of BlackRock’s approach globally to our responsibilities as a shareholder on behalf of our clients, our expectations of companies, and our commitments to clients in terms of our own governance and transparency.

Introduction to BlackRock

BlackRock’s purpose is to help more and more people experience financial well-being. We manage assets on behalf of institutional and individual clients, across a full spectrum of investment strategies, asset classes, and regions. Our client base includes pension plans, endowments, foundations, charities, official institutions, insurers, and other financial institutions, as well as individuals around the world. As part of our fiduciary duty to our clients, we have determined that it is generally in the best long-term interest of our clients to promote sound corporate governance through voting as an informed, engaged shareholder. This is the responsibility of the Investment Stewardship Team.

Philosophy on investment stewardship

Companies are responsible for ensuring they have appropriate governance structures to serve the interests of shareholders and other key stakeholders. We believe that there are certain fundamental rights attached to shareholding. Companies and their boards should be accountable to shareholders and structured with appropriate checks and balances to ensure that they operate in shareholders’ best interests to create sustainable value. Shareholders should have the right to vote to elect, remove, and nominate directors, approve the appointment of the auditor, and amend the corporate charter or by-laws. Shareholders should be able to vote on matters that are material to the protection of their investment, including but not limited to, changes to the purpose of the business, dilution levels and pre-emptive rights, and the distribution of income and capital structure. In order to make informed decisions, we believe that shareholders have the right to sufficient and timely information. In addition, shareholder voting rights should be proportionate to their economic ownership—the principle of “one share, one vote” helps achieve this balance.

Consistent with these shareholder rights, we believe BlackRock has a responsibility to monitor and provide feedback to companies, in our role as stewards of our clients’ investments. BlackRock Investment Stewardship (“BIS”) does this through engagement with management teams and/or board members on material business issues including environmental, social, and governance (“ESG”) matters and, for those clients who have given us authority, through voting proxies in the best long-term economic interests of our clients. We also participate in the public debate to shape global norms and industry standards with the goal of a policy framework consistent with our clients’ interests as long-term shareholders.

BlackRock looks to companies to provide timely, accurate, and comprehensive reporting on all material governance and business matters, including ESG issues. This allows shareholders to appropriately understand and assess how relevant risks and opportunities are being effectively identified and managed. Where company reporting and disclosure is inadequate or the approach taken is inconsistent with our view of what supports sustainable long-term value creation, we will engage with a company and/or use our vote to encourage a change in practice.

BlackRock views engagement as an important activity; engagement provides us with the opportunity to improve our understanding of the business and ESG risks and opportunities that are material to the companies in which our clients invest. As long-term investors on behalf of clients, we seek to have regular and continuing dialogue with executives and board directors to advance sound governance and sustainable business practices, as well as to understand the effectiveness of the company’s management and oversight of material issues. Engagement is an important mechanism for providing feedback on company practices and disclosures, particularly where we believe they could be enhanced. We primarily engage through direct dialogue but may use other tools such as written correspondence to share our perspectives. Engagement also informs our voting decisions.

We vote in support of management and boards where and to the extent they demonstrate an approach consistent with creating sustainable long-term value. If we have concerns about a company’s approach, we may choose to engage to explain our expectations. Where we consider that a company has failed to address one or more material issues within an appropriate timeframe, we may hold directors accountable or take other voting actions to signal our concerns. We apply our voting guidelines to achieve the outcome we believe is most aligned with our clients’ long-term economic interests.

Key themes

We recognize that accepted standards and norms of corporate governance differ between markets; however, there are sufficient common threads globally to identify this overarching set of principles (the “Principles”) which are anchored in transparency and accountability. At a minimum, we expect companies to observe the accepted corporate governance standards in their domestic market or to explain why not doing so supports sustainable long-term value creation.

Our regional and market-specific voting guidelines explain how these Principles inform our voting decisions in relation to specific ballot items for shareholder meetings.

These Principles cover seven key themes:

  • Boards and directors
  • Auditors and audit-related issues
  • Capital structure, mergers, asset sales, and other special transactions
  • Compensation and benefits
  • Environmental and social issues
  • General corporate governance matters and shareholder protections
  • Shareholder proposals

Boards and directors

The performance of the board is critical to the economic success of the company and the protection of shareholders’ interests. As part of their responsibilities, board members owe fiduciary duties to shareholders in overseeing the strategic direction and operation of the company. For this reason, BlackRock focuses on directors in many of our engagements and sees the election of directors as one of our most important responsibilities in the proxy voting context.

We support boards whose approach is consistent with creating sustainable long-term value. This includes the effective management of strategic, operational, and material ESG factors and the consideration of key stakeholder interests. Our primary focus is on the performance of the board of directors. The board should establish and maintain a framework of robust and effective governance mechanisms to support its oversight of the company’s strategic aims. We look to the board to articulate the effectiveness of these mechanisms in overseeing the management of business risks and opportunities and the fulfillment of the company’s purpose. Disclosure of material issues that affect the company’s long-term strategy and value creation, including material ESG factors, is essential for shareholders to be able to appropriately understand and assess how the board is effectively identifying, managing, and mitigating risks.

Where a company has not adequately disclosed and demonstrated these responsibilities, we will consider withholding our support for the re-election of directors whom we hold accountable. We assess director performance on a case-by-case basis and in light of each company’s particular circumstances, taking into consideration our assessment of their governance, sustainable business practices, and performance. In serving the interests of shareholders, the responsibility of the board of directors includes, but is not limited to, the following:

– Establishing an appropriate corporate governance structure

– Supporting and overseeing management in setting long-term strategic goals, applicable measures of value-creation and milestones that will demonstrate progress, and steps taken if any obstacles are anticipated or incurred

– Providing oversight on the identification and management of material, business operational and sustainability-related risks

– Overseeing the financial resilience of the company, the integrity of financial statements, and the robustness of a company’s Enterprise Risk Management [1] frameworks

– Making decisions on matters that require independent evaluation which may include mergers, acquisitions and disposals, activist situations or other similar cases

– Establishing appropriate executive compensation structures

– Addressing business issues, including environmental and social issues, when they have the potential to materially impact the company’s long-term value

There should be clear definitions of the role of the board, the committees of the board and senior management. We set out below ways in which boards and directors can demonstrate a commitment to acting in the best interests of long-term shareholders. We will seek to engage with the appropriate directors where we have concerns about the performance of the company, board, or individual directors. As noted above, we believe that when a company is not effectively addressing a material issue, its directors should be held accountable.

Regular accountability

BlackRock believes that directors should stand for re-election on a regular basis, ideally annually. In our experience, annual re-elections allow shareholders to reaffirm their support for board members or hold them accountable for their decisions in a timely manner. When board members are not re-elected annually, we believe it is good practice for boards to have a rotation policy to ensure that, through a board cycle, all directors have had their appointment re-confirmed, with a proportion of directors being put forward for re-election at each annual general meeting.

Effective board composition

Regular director elections also give boards the opportunity to adjust their composition in an orderly way to reflect the evolution of the company’s strategy and the market environment. BlackRock believes it is beneficial for new directors to be brought onto the board periodically to refresh the group’s thinking and in a manner that supports both continuity and appropriate succession planning. We expect companies to keep under regular review the effectiveness of its board (including its size), and assess directors nominated for election or re-election in the context of the composition of the board as a whole. This assessment should consider a number of factors, including the potential need to address gaps in skills or experience, the diversity of the board, and the balance of independent and non-independent directors. We also consider the average tenure of the overall board, where we are seeking a balance between the knowledge and experience of longer-serving members and the fresh perspectives of newer members.

When nominating new directors to the board, there should be detailed information on the individual candidates in order for shareholders to assess the suitability of an individual nominee and the overall board composition. These disclosures should give a clear sense of how the collective experience and expertise of the board aligns with the company’s long-term strategy and business model. We also expect disclosures to demonstrate how diversity is accounted for within the proposed board composition, including demographic factors such as gender, ethnicity, and age; as well as professional characteristics, such as a director’s industry experience, specialist areas of expertise, and geographic location.

We expect there to be a sufficient number of independent directors, free from conflicts of interest or undue influence from connected parties, to ensure objectivity in the decision-making of the board and its ability to oversee management.

Common impediments to independence may include but are not limited to:

  • Current or recent employment at the company or a subsidiary
  • Being, or representing, a shareholder with a substantial shareholding in the company
  • Interlocking directorships
  • Having any other interest, business, or other relationship which could, or could reasonably be perceived to, materially interfere with a director’s ability to act in the best interests of the company

BlackRock believes that the board is able to fulfill its fiduciary duty when there is a clearly independent, senior non-executive director to chair it or, where the chairman is also the CEO (or is otherwise not independent), a lead independent l director. The role of this director is to enhance the effectiveness of the independent members of the board through shaping the agenda, ensuring adequate information is provided to the board and encouraging independent participation in board deliberations. The lead independent director or another appropriate director should be available to shareholders in those situations where an independent director is best placed to explain and justify a company’s approach.

There are matters for which the board has responsibility that may involve a conflict of interest for executives or for affiliated directors. BlackRock believes that objective oversight of such matters is best achieved when the board forms committees comprised entirely of independent directors. In many markets, these committees of the board specialize in audit, director nominations and compensation matters. An ad hoc committee might also be formed to decide on a special transaction, particularly one involving a related party, or to investigate a significant adverse event.

Sufficient capacity

As the role of a director is demanding, directors must be able to commit an appropriate amount of time to board and committee matters. It is important that every director has the capacity to meet all of his/her responsibilities—including when there are unforeseen events—and therefore, he/she should not take on an excessive number of roles that would impair his/her ability to fulfill his/her duties.

Top 10 des billets publiés sur Harvard Law School Forum au 19 novembre 2020


Voici le compte rendu hebdomadaire du forum de la Harvard Law School sur la gouvernance corporative au 19 novembre 2020.

Cette semaine, j’ai relevé les dix principaux billets.

Bonne lecture !

 

Top ten list Stock Photos, Royalty Free Top ten list Images | Depositphotos®

 

  1. Decision Making in 50:50 Joint Ventures
  2. Delaware Reaffirms Director Independence Principle in Founder-Led Company
  3. Shareholders’ Rights & Shareholder Activism 2020
  4. ESG Management and Board Accountability
  5. Financial Institution Regulation Under President Biden
  6. Corporations in 100 Pages
  7. Racial Equity on the Board Agenda
  8. The Rise of the General Counsel
  9. Revealing ESG in Critical Audit Matters
  10. SEC Division of Enforcement 2020 Annual Report

Défis et priorités du comité d’audit au cours des prochains trimestres


Voici un article qui devrait inciter les comités d’audit à poser les bonnes questions en situation de pandémie.

L’article a été publié sur le Forum de Harvard Law School par Krista Parsons, directrice générale du Center for Board Effectiveness et Eric Knachel, associé au département Audit & Assurance, chez Deloitte LLP.

Je vous soumets la version française de l’introduction de la publication, en utilisant l’outil de traduction de Google, lequel est certainement perfectible.

 

Auditors face expertise and risk management challenges.

 

Les comités d’audit ont un rôle essentiel à jouer pour aider les entreprises à évoluer et à prospérer dans cet environnement. Pour assurer une surveillance efficace et aider les dirigeants de l’entreprise à traverser ces temps difficiles, les comités d’audit doivent poser des questions directes et ciblées à la direction pour comprendre quelles alternatives ont été envisagées et choisies pour résoudre les problèmes clés. 

Les comités d’audit doivent être conscients des problèmes prioritaires, des tendances et des problèmes en cours, ainsi que des points de tension, des défis et des solutions alternatives associés à ces problèmes.

Bonne lecture !

Audit Committee Challenges and Priorities in the Upcoming Quarter and Beyond

 

 

Le rôle du conseil d’administration face à la COVID-19 : Comment les administrateurs de sociétés devraient-ils agir?


Voici un article d’actualité en cette période de COVID-19 publié par la firme Langlois.

J’ai reproduit l’introduction de l’article.

Bonne lecture !

Le rôle du conseil d’administration face à la COVID-19 : comment les administrateurs de sociétés devraient-ils agir?

 

The role of the board of directors in to the context of COVID-19: how should corporate directors act? - Langlois lawyers

 

Depuis le début de la crise de santé publique et économique causée par la COVID-191, la tentation peut être grande pour les administrateurs de s’immiscer dans la gestion quotidienne de la société ou se substituer à la direction, surtout s’ils portent également le chapeau d’actionnaire. Or, c’est le comité de gestion de crise, souvent composé de dirigeants exécutifs, qui a la responsabilité de gérer la crise au quotidien. Néanmoins, les administrateurs ont eux aussi un rôle à jouer : ils ont le devoir de s’assurer de la bonne gouvernance de la société à court, moyen et long terme2.

Cette responsabilité s’accroît face à la crise et commande une réflexion pour les administrateurs de sociétés qui devront, d’une part, examiner attentivement la manière de gérer les risques actuels au sein de l’organisation ainsi que les risques collatéraux qui pourraient en découler et, d’autre part, prendre note des éléments à améliorer pour le futur.

Dans le cadre de cet article sur la gouvernance de sociétés en période de crise, nous nous penchons plus spécifiquement sur les réflexes de gouvernance à adopter dans le contexte actuel, tout en ne perdant pas de vue l’après COVID-19.

Guide des administrateurs 2020 | Deloitte


Le document suivant, publié par Deloitte, est une lecture fortement recommandée pour tous les administrateurs, plus particulièrement pour ceux et celles qui sont des responsabilités liées à l’évaluation de la  performance financière de l’entreprise.

Pour chacun des sujets abordés dans le document, les auteurs présentent un ensemble de questions que les administrateurs pourraient poser :

« Pour que les administrateurs puissent remplir leurs obligations en matière de présentation de l’information financière, ils doivent compter sur l’appui de la direction et poser les bonnes questions.

Dans cette publication, nous proposons des questions que les administrateurs pourraient poser à la direction concernant leurs documents financiers annuels, afin que ceux-ci fassent l’objet d’une remise en question appropriée ».

Je vous invite à prendre connaissance de cette publication en téléchargeant le guide ci-dessous.

Guide des administrateurs 2020

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Composition et rôles des comités du conseil soutenant la gouvernance


Les conseils d’administration doivent se doter de comités qui soutiennent la gouvernance d’une organisation. La plupart des sociétés nomment au moins les trois comités statutaires suivants : (1) le comité de ressources humaines (2) le  comité de gouvernance et d’éthique (3) le  comité d’audit.

Le conseil peut former tout autre comité qu’il juge essentiel à la bonne gouvernance de l’entreprise, par exemple les comités des technologies de l’information, de gestion des risques, de gestion environnementale, etc.

Plusieurs organisations se questionnent sur la composition et les rôles des trois comités clés qui soutiennent la gouvernance.

Ainsi, dans le cadre de ce billet, je présente les descriptions des tâches généralement dévolues à ces trois principaux comités.

Exemple d’une structure de gouvernance

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Exemple d’une structure de gouvernance

Règles générales

 

Les comités sont composés d’au moins trois membres du conseil d’administration. Le président est membre d’office.

Sur invitation, toute autre personne peut assister, en tout ou en partie, à une réunion d’un comité, lorsque ce dernier le juge nécessaire ou souhaitable.

Les comités ont le pouvoir de faire des recommandations au CA sur tout sujet relevant de leur mandat.

Le comité rend compte de ses travaux au conseil en présentant un sommaire des points discutés lors des rencontres.

(1) Comité de gouvernance et d’éthique 

 

Le comité de gouvernance et d’éthique assume généralement le mandat suivant :

Effectuer une vigie en matière des pratiques de saine gouvernance ;

Établir les profils de compétence et d’expérience pour les membres du conseil et les membres des comités et les réviser lorsque nécessaire ;

Bâtir une matrice des compétences recherchées pour tout nouveau membre du conseil eu égard aux fonctions requises pour assurer une bonne gouvernance fiduciaire, dans une optique d’optimisation et de complémentarité ;

Recommander au conseil d’administration les nominations des administrateurs aux différents comités du CA ;

Recommander la désignation d’un conseiller en éthique et déontologie ;

Proposer des règles de gouvernance, d’éthique et de déontologie au sein du conseil d’administration et des comités, et les réviser lorsque nécessaire ;

Définir une politique d’accueil et d’intégration des nouveaux administrateurs, laquelle inclut les formations appropriées en éthique et en gouvernance ;

Mettre en place un processus annuel d’évaluation du fonctionnement du conseil d’administration et de ses comités afin de mesurer l’apport de ses administrateurs et proposer, s’il y a lieu, les critères d’évaluation et les plans d’action appropriés ;

Proposer une politique de rémunération des administrateurs et des membres des comités, le tout sous réserve de la réglementation en vigueur ;

Effectuer toute autre tâche que lui confie le conseil d’administration.

(2) Comité des ressources humaines 

 

Voici certaines activités du comité de ressources humaines :

Mettre à jour le profil de compétences du poste de directeur général, recommander l’embauche et les conditions d’emploi ou, le cas échéant, la fin d’emploi du directeur général ;

Mettre en place un mécanisme d’appréciation du rendement, procéder à l’évaluation annuelle du rendement et proposer, s’il y a lieu, les plans d’action appropriés ;

Passer en revue les lignes directrices concernant la rémunération globale des employés, notamment les échelles salariales, et en recommander l’approbation au conseil d’administration ;

S’assurer de la mise en place de politiques concernant les ressources humaines, notamment en matière d’embauche, de formation et de développement des compétences, afin de s’assurer que l’organisation puisse attirer, motiver et retenir un personnel de qualité ;

Examiner les propositions de modifications organisationnelles qui pourraient avoir des effets importants sur la structure interne de l’organisation ;

Être informé des négociations entourant le renouvellement de la convention collective, s’il y a lieu, ainsi que des conditions de travail du personnel non syndiqué ;

En ce sens, le comité doit informer le conseil d’administration de toute situation défavorable et proposer des solutions afin de pallier les manques ;

Veiller à établir un plan de relève aux différents postes de direction ;

Effectuer toute autre tâche que lui confie le conseil d’administration.

(3) Comité d’audit 

 

Enfin, voici les principales tâches du comité d’audit, un comité obligatoire :

Exercer une surveillance rigoureuse de l’information financière ;

S’assurer de la mise en place des processus d’audit internes ;

Superviser l’engagement de l’auditeur externe et l’évaluer ;

Approuver le plan d’audit conçu par l’auditeur externe ;

Examiner, préalablement à son dépôt au conseil, la proposition du budget annuel ;

Faire le suivi des différents postes budgétaires ainsi que des états financiers sur une base trimestrielle ;

Être informé des résultats de l’audit et, s’il y a lieu, du rapport annuel de gestion ;

Passer en revue les résultats de tout audit de la firme de comptabilité, les problèmes importants qui ont retenu son attention, ainsi que la réaction ou le plan d’action de la direction relativement à toute lettre de recommandation de l’auditeur et à toute recommandation importante qui y est énoncée ;

S’assurer de la mise en place d’un plan de gestion des risques, notamment les risques liés aux technologies de l’information et à la cybersécurité ;

Revoir la politique de placement de l’organisation en relation avec le plan de gestion des risques ;

Effectuer toute autre tâche que lui confie le conseil d’administration.

Vos commentaires sont les bienvenus.

La rémunération en lien avec la performance | Qu’en est-il ?


Aujourd’hui, je vous propose la lecture d’un article publié par Cydney S. Posner, conseiller spécial de la firme Cooley, paru sur le site de Harvard Law School Forum on Corporate Governance.

La nouvelle politique du Council of Institutional Investors (CII) concernant les rémunérations vient de paraître.

La nouvelle politique aborde plusieurs sujets :

    • Des plans de compensation moins complexes ;
    • De plus longues périodes de performance pour fixer les rémunérations liées à des incitatifs de rendement ;
    • Retarder le paiement des actions possédées par la direction après le départ afin de s’assurer de la correspondance avec les exigences du plan de compensation ;
    • Plus de latitude dans les décisions de rappels (clawbacks) ;
    • Utilisation de la référence au salaire moyen des employés afin de fixer les rémunérations de la direction ;
    • Supervision plus étroite des plans de rémunération en fonction des performances ;
    • Une plus grande importance accordée à la portion fixe de la rémunération.

Le CII propose donc des balises beaucoup plus claires et resserrées eu égard aux rémunérations de la direction des entreprises publiques. Il s’agit d’une petite révolution dans le monde des rémunérations de tout acabit.

Je vous invite à lire le résumé ci-dessous pour avoir plus d’informations sur le sujet.

Pay for Performance—A Mirage?

 

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Yes, it can be, according to the Executive Director of the Council of Institutional Investors, in announcing CII’s new policy on executive comp. Among other ideas, the new policy calls for plans with less complexity (who can’t get behind that?), longer performance periods for incentive pay, hold-beyond-departure requirements for shares held by executives, more discretion to invoke clawbacks, rank-and-file pay as a valid reference marker for executive pay, heightened scrutiny of pay-for-performance plans and perhaps greater reliance on—of all things—fixed pay. It’s back to the future for compensation!

Simplified and tailored plans

CII recommends that comp plans and practices be tailored for each company’s circumstances and that they be comprehensible: compensation practices that comp committees “would find difficult to explain to investors in reasonable detail are prime candidates for simplification or elimination.” In addition, performance periods for long-term compensation should be long term—at least five years, not the typical three-year time horizon for restricted stock.

Reference points and peers

To address the widening gap in compensation between workers and executives, CII recommends that the Comp Committee take into consideration employee compensation throughout the company as a reference point for setting executive pay, consistent with the company’s strategic objectives. In addition, CII cautions against overreliance on benchmarking to peer practices, which can lead to escalating executive comp. Understanding what peers are doing is one thing, but copying their pay practices is quite another, especially if performance of those peers is markedly different. CII also warns comp committees to “guard against opportunistic peer group selection. Compensation committees should disclose to investors the basis for the particular peers selected, and should aim for consistency over time with the peer companies they select. If companies use multiple peer groups, the reasons for such an approach should be made clear to investors.”

Elements of comp

With regard to elements of comp, the message again is simplification. While most U.S. companies pay programs consist of three elements—salary, annual bonus and a long-term incentive—it may make sense in some cases to focus only on salary and a single long-term incentive plan, reserving short-term incentives for special circumstances such as turnarounds.

Time-based restricted stock

CII seems to have a soft spot for time-based restricted stock with extended vesting periods (we’re talking here about beginning to vest after five years and fully vesting over 10 (including post-employment). CII believes that this type of award provides

“an appropriate balance of risk and reward, while providing particularly strong alignment between shareholders and executives. Extended vesting periods reduce attention to short-term distractions and outcomes. As full-value awards, restricted stock ensures that executives feel positive and negative long-term performance equally, just as shareholders do. Restricted stock is more comprehensible and easier to value than performance-based equity, providing clarity not only to award recipients, but also to compensation committee members and shareholders trying to evaluate appropriateness and rigor of pay plans.”

Performance-based pay

CII’s sharpest dagger seems to be out for performance-based comp, which has long been the sine qua non of executive compensation to many comp consultants and other comp professionals. According to ISS, “equity-based compensation became increasingly performance-based in the past decade. As a percentage of total equity compensation, performance-based equity almost doubled between 2009 and 2018. Cash performance-based compensation has remained relatively unchanged. Overall, cash and equity performance-based compensation now make up approximately 58 percent of total pay, compared to 34 percent in 2019.” CII cautions that comp committees need to “apply rigorous oversight and care” to this type of compensation. Although cash incentive plans or performance stock units may be appropriate to incentivize “near-term outcomes that generate progress toward the achievement of longer-term performance,” performance-based plans can be problematic for a number of reasons: they can be too complex and confusing, difficult to value, “more vulnerable to obfuscation” and often based on non-GAAP “adjusted” measures that are not reconciled to GAAP. What’s more, CII believes that performance-based plans are

“susceptible to manipulation. Executives may use their influence and information advantage to advocate for the selection of metrics and targets that will deliver substantial rewards even without superior performance (e.g., target awards earned for median performance versus peers). Except in extraordinary situations, the compensation committee should not ‘lower the bar’ by changing performance targets in the middle of performance cycles. If the committee decides that changes in performance targets are warranted in the middle of a performance cycle, it should disclose the reasons for the change and details of the initial targets and adjusted targets.”

In CII’s view, comp committees need to ensure that these plans are not so complex that they cannot be

“well understood by both participants and shareholders, that the underlying performance metrics support the company’s business strategy, and that potential payouts are aligned with the performance levels that will generate them. In addition, the proxy statement should clearly explain such plans, including their purpose in context of the business strategy and how the award and performance targets, and the resulting payouts, are determined. Finally, the committee should consider whether long-vesting restricted shares or share units would better achieve the company’s long-term compensation and performance objectives, versus routinely awarding a majority of executives’ pay in the form of performance shares.”

SideBar

As discussed in this article in the WSJ, executive compensation has been “increasingly linked to performance,” but investors have recently been asking whether the bar for performance targets is set too low to be effective. Has the prevalence of performance metrics had the effect (whether or not intended) of lifting executive compensation? According to the article, based on ISS data, for about two-thirds of CEOs of companies in the S&P 500, overall pay “over the past three years proved higher than initial targets….That is typically because performance triggers raised the number of shares CEOs received, or stock gains lifted the value of the original grant. On average, compensation was 16% higher than the target.” In addition, for 2016, about half of the CEOs of the S&P 500 received cash incentives above the performance target payout levels, averaging 46% higher, while only 150 of these companies were paid bonuses below target.

And sometimes, the WSJ contends, pay may be exceeding performance targets because those targets are set at levels that are, shall we say, not exactly challenging. According to the head of analytics at ISS, in some cases, “’the company is setting goals they think the CEO is going to clear….It’s a tip-off to investors.’” The article reports that, based on a 2016 analysis, ISS concluded that about 186 of the Fortune 500 expected that the equity awards granted to their CEOs would pay out above target, 122 at target and 150 below target. The head of corporate governance for a major institutional investor expressed his concern that, sometimes, the bar is set “too low, allowing CEOs to earn ‘premium payouts in the absence of compelling performance relative to the market.’’’ In selecting metrics and setting targets, comp committees “must juggle a range of factors,” taking into account the preferences of investors and proxy advisers, as well as the recommendations of consultants.’’ However, he said, “‘[i]t has to be the right measure and the right achievement level.”’ (See this PubCo post.)

Fixed pay

And speaking of simplicity, if CII had its way, fixed pay would be making a comeback. CII’s new policy characterizes fixed pay as

“a legitimate element of senior executive compensation. Compensation committees should carefully consider and determine the right risk balance for the particular company and executive. It can be appropriate to emphasize fixed pay (which essentially has no risk for the employee) as a significant pay element, particularly where it makes sense to disincentivize ‘bet the company’ risk taking and promote stability. Fixed pay also has the advantage of being easy to understand and value, for the company, the executive and shareholders. That said, compensation committees should set pay considering risk-adjusted value, and so, to the extent that fixed pay is a relatively large element, compensation committees need to moderate pay levels in comparison with what would be awarded with contingent, variable pay.”

SideBar

The global economic crisis of 2008 led many to question whether large bonuses and stock options were motivations behind the overly risky behavior and short-term strategies that many argue had triggered that crisis. But the answer that most often resulted was to structure the compensation “differently so that the variable component motivates the right behaviors.” However, in a 2016 essay in the Harvard Business Review, two academics made a case for fixed pay, contending that performance-based pay for CEOs makes absolutely no sense: research on incentives and motivation suggests that the nature of a CEO’s work is unsuited to performance-based pay. Moreover, “performance-based pay can actually have dangerous outcomes for companies that implement it.” According to the academics, research has shown that, while performance-based pay works well for routine tasks, the types of work performed by CEOs are typically not routine; performance-related incentives, the authors argue, are actually “detrimental when the [task] is not standard and requires creativity.” Where innovative, non-standard solutions were needed or learning was required, research “results showed that a large percentage of variable pay hurt performance.” Why not, they propose, pay top executives a fixed salary only? (See this PubCo post.)

Similarly, as discussed in this PubCo post, a New Yorker columnist concurs with the contention that performance pay does not really work for CEOs because the types of tasks that a CEO performs, such as deep analysis or creative problem solving, are typically not susceptible to performance incentives: “paying someone ten million dollars isn’t going to make that person more creative or smarter.’” In addition, the argument goes, performance is often tied to goals that CEOs don’t really control, like stock price (see this PubCo post and this news brief).

Stock ownership guidelines

CII also encourages companies to maintain stock ownership guidelines that apply for at least one year post termination; executives “not in compliance should be barred from liquidating stock-based awards (beyond tax obligations) until satisfaction of the guideline.” For some companies it may even be appropriate to apply “a hold-to-departure requirement or hold-beyond-departure requirement for all stock-based awards held by the highest-level executives is an appropriate and workable commitment to long-termism. Other boards may consider such restrictions unnecessary to the extent that awards include extended vesting periods.”

Clawbacks

Finally, CII advocates that boards have more discretion to invoke clawback policies. According to CII, clawbacks should apply, not only in the event of acts or omissions resulting in fraud or financial restatement, but also in the context of “some other cause the board believes warrants recovery, which may include personal misconduct or ethical lapses that cause, or could cause, material reputational harm to the company and its shareholders. Companies should disclose such policies and decisions to invoke their application.”

Répertoire des articles en gouvernance publiés sur LinkedIn | En reprise


L’un des moyens utilisés pour mieux faire connaître les grandes tendances en gouvernance de sociétés est la publication d’articles choisis sur ma page LinkedIn.

Ces articles sont issus des parutions sur mon blogue Gouvernance | Jacques Grisé

Depuis janvier 2016, j’ai publié un total de 43 articles sur ma page LinkedIn.

Aujourd’hui, je vous propose la liste des 10 articles que j’ai publiés à ce jour en 2019 :

 

Liste des 10 articles publiés à ce jour en 2019

 

Image associée

 

 

1, Les grandes firmes d’audit sont plus sélectives dans le choix de leurs mandats

2. Gouvernance fiduciaire et rôles des parties prenantes (stakeholders)

3. Problématiques de gouvernance communes lors d’interventions auprès de diverses organisations – Partie I Relations entre président du CA et DG

4. L’âge des administrateurs de sociétés représente-t-il un facteur déterminant dans leur efficacité comme membres indépendants de CA ?

5. On constate une évolution progressive dans la composition des conseils d’administration

6. Doit-on limiter le nombre d’années qu’un administrateur siège à un conseil afin de préserver son indépendance ?

7. Manuel de saine gouvernance au Canada

8. Étude sur le mix des compétences dans la composition des conseils d’administration

9. Indice de diversité de genre | Equilar

10. Le conseil d’administration est garant de la bonne conduite éthique de l’organisation !

 

Si vous souhaitez voir l’ensemble des parutions, je vous invite à vous rendre sur le Lien vers les 43 articles publiés sur LinkedIn depuis 2016

 

Bonne lecture !

Les grandes firmes d’audit sont plus sélectives dans le choix de leurs mandats | En reprise


Voici un article publié par GAVIN HINKS pour le compte de Board Agenda qui montre que les grandes firmes d’audit sont de plus en plus susceptibles de démissionner lorsque les risques leur apparaissent trop élevés.

Les recherches indiquent que c’est particulièrement le cas au Royaume-Uni où l’on assiste à des poursuites plus fréquentes des Big Four. Ces firmes d’audit sont maintenant plus sélectives dans le choix de leurs clients.

Compte tenu de la situation oligopolistique des grandes firmes d’audit, devons-nous nous surprendre de ces décisions de retrait dans la nouvelle conjoncture de risque financier des entreprises britanniques ?

The answer is not really. Over recent years auditors, especially the Big Four (PwC, Deloitte, KPMG and EY) have faced consistent criticism for their work—complaints that they control too much of the market for big company audit and that audit quality is not what it should be.

Le comité d’audit des entreprises est interpellé publiquement lorsque l’auditeur soumet sa résignation. L’entreprise doit souvent gérer une crise médiatique afin de sauvegarder sa réputation.

Pour certains experts de la gouvernance, ces situations requirent des exigences de divulgation plus sévères. Les parties prenantes veulent connaître la nature des problèmes et des risques qui y sont associés.

Également, les administrateurs souhaitent connaître le plan d’action des dirigeants eu égard au travail et aux recommandations du comité d’audit

L’auteur donne beaucoup d’exemples sur les nouveaux comportements des Big Four.

Bonne lecture !

 

Auditor resignations indicate new attitude to client selection

 

 

auditor
Image: Shutterstock

 

The audit profession in Britain is at a turning point as Westminster—Brexit permitting—considers new regulation.

It seems firms may be responding by clearing the decks: the press has spotted a spate of high-profile auditor resignations with audit firms bidding farewell to a clutch of major clients. This includes firms outside the Big Four, such as Grant Thornton, which recently said sayonara to Sports Direct, the retail chain, embroiled in running arguments over its governance.

But Grant Thornton is not alone. KPMG has parted ways with Eddie Stobart, a haulage firm, and Lycamobile, a telecommunications company. PwC meanwhile has said goodbye to Staffline, a recruitment business.

Should we be surprised?

The answer is not really. Over recent years auditors, especially the Big Four (PwC, Deloitte, KPMG and EY) have faced consistent criticism for their work—complaints that they control too much of the market for big company audit and that audit quality is not what it should be.

This came to a head in December 2017 with the collapse of construction and contracting giant Carillion, audited by KPMG. The event prompted a parliamentary inquiry followed by government-ordered reviews of the audit market and regulation.

An examination of the watchdog for audit and financial reporting, the Financial Reporting Council, has resulted in the creation of a brand new regulatory body; a look at the audit market resulted in recommendations that firms separate their audit businesses from other services they provide. A current look at the quality and scope of audit, the Brydon review, will doubtless come up with its own recommendations when it reports later this year.

 

Client selection

 

While it is hard to obtain statistics, the press reports, as well as industry talk, indicate that auditors are becoming more picky about who they choose to work for.

According to Jonathan Hayward, a governance and audit expert with the consultancy Independent Audit, the first step in any risk management for an audit firm is client selection. He says the current environment in which auditors have become “tired of being beaten up” has caused a new “sensitivity” in which auditors may be choosing to be more assiduous in applying client filtering policies.

Application of these policies may have been soft in the past, as firms raced for market share, but perhaps also as they applied what Hayward calls the auditor’s “God complex”: the idea that their judgement must be definitive.

Psychological dispositions are arguable. What may be observed for certain is that the potential downsides are becoming clearer to audit chiefs. Fines meted out in recent times by a newly energised regulator facing replacement include the £5m (discounted to £3.5m) for KPMG for the firm’s work with the London branch of BNY Mellon. Deloitte faced a £6.5m fine (discounted to £4.2m) for its audit of Serco Geografix, an outsourcing business. Last year PwC faced a record breaking £10m penalty for its work on the audit of collapsed retailer BHS.

What those fines have brought home is the thin line auditors tread between profit and and huge costs if it goes wrong. That undermines the attractiveness of being in the audit market.

One expert to draw attention to the economics is Jim Peterson, a US lawyer who blogs on corporate law and has represented accountancy firms.

Highlighting Sports Direct’s need to find a replacement audit firm, Peterson notes Grant Thornton’s fee was £1.4m with an estimated profit of £200,000-£250,000.

“A projection from that figure would be hostage, however, to the doubtful assumption of no further developments,” Peterson writes.

“That is, the cost to address even a modest extension of necessary extra audit work, or a lawsuit or investigative inquiry—legal fees and diverted management time alone—would swamp any engagement profit within weeks.”

He adds: “And that’s without thinking of the potential fines or judgements. Could the revenue justify that risk? No fee can be set and charged that would protect an auditor in the fraught context of Sports Direct—simply impossible.”

Media attention

 

Auditor resignations are not without their own risks. Maggie McGhee, executive director, governance at ACCA, a professional body for accountants, points out that parting with a client can bring unpleasant public attention.

“If auditors use resignation more regularly in a bid to extract themselves from high-risk audits,” says McGhee, “then it is probable that there will be some media interest if issues are subsequently identified at the company. Questions arise, such as did the auditor do enough?”

But as, McGhee adds, resignation has to remain part of the auditor’s armoury, not least as part of maintaining their independence.

For non-executives on an audit committee, auditor resignation is a significant moment. With an important role in hiring an audit firm as well as oversight of company directors, their role will be to challenge management.

“The audit committee is critical in these circumstances,” says McGhee, “and it should take action to understand the circumstance and whether action is required.”

ACCA has told the Sir Donald Brydon review [examining audit quality] that greater disclosure is needed of “the communication and judgements” that pass between auditors and audit committees. McGhee says it would be particularly relevant in the case of auditor resignations.

There have been suggestions that Sir Donald is interested in resignations. ShareSoc and UKSA, bodies representing small shareholders, have called on Sir Donald to recommend that an a regulatory news service announcement be triggered by an auditor cutting ties.

A blog on ShareSoc’s website says: “It seems clear that there is a need to tighten the disclosure rules surrounding auditor resignations and dismissals.”

It seems likely Sir Donald will comment on resignations, though what his recommendations will be remains uncertain. What is clear is that recent behaviour has shone a light on auditor departures and questions are being asked. The need for answers is sure to remain.

La rémunération en lien avec la performance | Qu’en est-il ?


Aujourd’hui, je vous propose la lecture d’un article publié par Cydney S. Posner, conseiller spécial de la firme Cooley, paru sur le site de Harvard Law School Forum on Corporate Governance.

La nouvelle politique du Council of Institutional Investors (CII) concernant les rémunérations vient de paraître.

La nouvelle politique aborde plusieurs sujets :

    • Des plans de compensation moins complexes ;
    • De plus longues périodes de performance pour fixer les rémunérations liées à des incitatifs de rendement ;
    • Retarder le paiement des actions possédées par la direction après le départ afin de s’assurer de la correspondance avec les exigences du plan de compensation ;
    • Plus de latitude dans les décisions de rappels (clawbacks) ;
    • Utilisation de la référence au salaire moyen des employés afin de fixer les rémunérations de la direction ;
    • Supervision plus étroite des plans de rémunération en fonction des performances ;
    • Une plus grande importance accordée à la portion fixe de la rémunération.

Le CII propose donc des balises beaucoup plus claires et resserrées eu égard aux rémunérations de la direction des entreprises publiques. Il s’agit d’une petite révolution dans le monde des rémunérations de tout acabit.

Je vous invite à lire le résumé ci-dessous pour avoir plus d’informations sur le sujet.

Pay for Performance—A Mirage?

 

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Yes, it can be, according to the Executive Director of the Council of Institutional Investors, in announcing CII’s new policy on executive comp. Among other ideas, the new policy calls for plans with less complexity (who can’t get behind that?), longer performance periods for incentive pay, hold-beyond-departure requirements for shares held by executives, more discretion to invoke clawbacks, rank-and-file pay as a valid reference marker for executive pay, heightened scrutiny of pay-for-performance plans and perhaps greater reliance on—of all things—fixed pay. It’s back to the future for compensation!

Simplified and tailored plans

CII recommends that comp plans and practices be tailored for each company’s circumstances and that they be comprehensible: compensation practices that comp committees “would find difficult to explain to investors in reasonable detail are prime candidates for simplification or elimination.” In addition, performance periods for long-term compensation should be long term—at least five years, not the typical three-year time horizon for restricted stock.

Reference points and peers

To address the widening gap in compensation between workers and executives, CII recommends that the Comp Committee take into consideration employee compensation throughout the company as a reference point for setting executive pay, consistent with the company’s strategic objectives. In addition, CII cautions against overreliance on benchmarking to peer practices, which can lead to escalating executive comp. Understanding what peers are doing is one thing, but copying their pay practices is quite another, especially if performance of those peers is markedly different. CII also warns comp committees to “guard against opportunistic peer group selection. Compensation committees should disclose to investors the basis for the particular peers selected, and should aim for consistency over time with the peer companies they select. If companies use multiple peer groups, the reasons for such an approach should be made clear to investors.”

Elements of comp

With regard to elements of comp, the message again is simplification. While most U.S. companies pay programs consist of three elements—salary, annual bonus and a long-term incentive—it may make sense in some cases to focus only on salary and a single long-term incentive plan, reserving short-term incentives for special circumstances such as turnarounds.

Time-based restricted stock

CII seems to have a soft spot for time-based restricted stock with extended vesting periods (we’re talking here about beginning to vest after five years and fully vesting over 10 (including post-employment). CII believes that this type of award provides

“an appropriate balance of risk and reward, while providing particularly strong alignment between shareholders and executives. Extended vesting periods reduce attention to short-term distractions and outcomes. As full-value awards, restricted stock ensures that executives feel positive and negative long-term performance equally, just as shareholders do. Restricted stock is more comprehensible and easier to value than performance-based equity, providing clarity not only to award recipients, but also to compensation committee members and shareholders trying to evaluate appropriateness and rigor of pay plans.”

Performance-based pay

CII’s sharpest dagger seems to be out for performance-based comp, which has long been the sine qua non of executive compensation to many comp consultants and other comp professionals. According to ISS, “equity-based compensation became increasingly performance-based in the past decade. As a percentage of total equity compensation, performance-based equity almost doubled between 2009 and 2018. Cash performance-based compensation has remained relatively unchanged. Overall, cash and equity performance-based compensation now make up approximately 58 percent of total pay, compared to 34 percent in 2019.” CII cautions that comp committees need to “apply rigorous oversight and care” to this type of compensation. Although cash incentive plans or performance stock units may be appropriate to incentivize “near-term outcomes that generate progress toward the achievement of longer-term performance,” performance-based plans can be problematic for a number of reasons: they can be too complex and confusing, difficult to value, “more vulnerable to obfuscation” and often based on non-GAAP “adjusted” measures that are not reconciled to GAAP. What’s more, CII believes that performance-based plans are

“susceptible to manipulation. Executives may use their influence and information advantage to advocate for the selection of metrics and targets that will deliver substantial rewards even without superior performance (e.g., target awards earned for median performance versus peers). Except in extraordinary situations, the compensation committee should not ‘lower the bar’ by changing performance targets in the middle of performance cycles. If the committee decides that changes in performance targets are warranted in the middle of a performance cycle, it should disclose the reasons for the change and details of the initial targets and adjusted targets.”

In CII’s view, comp committees need to ensure that these plans are not so complex that they cannot be

“well understood by both participants and shareholders, that the underlying performance metrics support the company’s business strategy, and that potential payouts are aligned with the performance levels that will generate them. In addition, the proxy statement should clearly explain such plans, including their purpose in context of the business strategy and how the award and performance targets, and the resulting payouts, are determined. Finally, the committee should consider whether long-vesting restricted shares or share units would better achieve the company’s long-term compensation and performance objectives, versus routinely awarding a majority of executives’ pay in the form of performance shares.”

SideBar

As discussed in this article in the WSJ, executive compensation has been “increasingly linked to performance,” but investors have recently been asking whether the bar for performance targets is set too low to be effective. Has the prevalence of performance metrics had the effect (whether or not intended) of lifting executive compensation? According to the article, based on ISS data, for about two-thirds of CEOs of companies in the S&P 500, overall pay “over the past three years proved higher than initial targets….That is typically because performance triggers raised the number of shares CEOs received, or stock gains lifted the value of the original grant. On average, compensation was 16% higher than the target.” In addition, for 2016, about half of the CEOs of the S&P 500 received cash incentives above the performance target payout levels, averaging 46% higher, while only 150 of these companies were paid bonuses below target.

And sometimes, the WSJ contends, pay may be exceeding performance targets because those targets are set at levels that are, shall we say, not exactly challenging. According to the head of analytics at ISS, in some cases, “’the company is setting goals they think the CEO is going to clear….It’s a tip-off to investors.’” The article reports that, based on a 2016 analysis, ISS concluded that about 186 of the Fortune 500 expected that the equity awards granted to their CEOs would pay out above target, 122 at target and 150 below target. The head of corporate governance for a major institutional investor expressed his concern that, sometimes, the bar is set “too low, allowing CEOs to earn ‘premium payouts in the absence of compelling performance relative to the market.’’’ In selecting metrics and setting targets, comp committees “must juggle a range of factors,” taking into account the preferences of investors and proxy advisers, as well as the recommendations of consultants.’’ However, he said, “‘[i]t has to be the right measure and the right achievement level.”’ (See this PubCo post.)

Fixed pay

And speaking of simplicity, if CII had its way, fixed pay would be making a comeback. CII’s new policy characterizes fixed pay as

“a legitimate element of senior executive compensation. Compensation committees should carefully consider and determine the right risk balance for the particular company and executive. It can be appropriate to emphasize fixed pay (which essentially has no risk for the employee) as a significant pay element, particularly where it makes sense to disincentivize ‘bet the company’ risk taking and promote stability. Fixed pay also has the advantage of being easy to understand and value, for the company, the executive and shareholders. That said, compensation committees should set pay considering risk-adjusted value, and so, to the extent that fixed pay is a relatively large element, compensation committees need to moderate pay levels in comparison with what would be awarded with contingent, variable pay.”

SideBar

The global economic crisis of 2008 led many to question whether large bonuses and stock options were motivations behind the overly risky behavior and short-term strategies that many argue had triggered that crisis. But the answer that most often resulted was to structure the compensation “differently so that the variable component motivates the right behaviors.” However, in a 2016 essay in the Harvard Business Review, two academics made a case for fixed pay, contending that performance-based pay for CEOs makes absolutely no sense: research on incentives and motivation suggests that the nature of a CEO’s work is unsuited to performance-based pay. Moreover, “performance-based pay can actually have dangerous outcomes for companies that implement it.” According to the academics, research has shown that, while performance-based pay works well for routine tasks, the types of work performed by CEOs are typically not routine; performance-related incentives, the authors argue, are actually “detrimental when the [task] is not standard and requires creativity.” Where innovative, non-standard solutions were needed or learning was required, research “results showed that a large percentage of variable pay hurt performance.” Why not, they propose, pay top executives a fixed salary only? (See this PubCo post.)

Similarly, as discussed in this PubCo post, a New Yorker columnist concurs with the contention that performance pay does not really work for CEOs because the types of tasks that a CEO performs, such as deep analysis or creative problem solving, are typically not susceptible to performance incentives: “paying someone ten million dollars isn’t going to make that person more creative or smarter.’” In addition, the argument goes, performance is often tied to goals that CEOs don’t really control, like stock price (see this PubCo post and this news brief).

Stock ownership guidelines

CII also encourages companies to maintain stock ownership guidelines that apply for at least one year post termination; executives “not in compliance should be barred from liquidating stock-based awards (beyond tax obligations) until satisfaction of the guideline.” For some companies it may even be appropriate to apply “a hold-to-departure requirement or hold-beyond-departure requirement for all stock-based awards held by the highest-level executives is an appropriate and workable commitment to long-termism. Other boards may consider such restrictions unnecessary to the extent that awards include extended vesting periods.”

Clawbacks

Finally, CII advocates that boards have more discretion to invoke clawback policies. According to CII, clawbacks should apply, not only in the event of acts or omissions resulting in fraud or financial restatement, but also in the context of “some other cause the board believes warrants recovery, which may include personal misconduct or ethical lapses that cause, or could cause, material reputational harm to the company and its shareholders. Companies should disclose such policies and decisions to invoke their application.”

Répertoire des articles en gouvernance publiés sur LinkedIn


L’un des moyens utilisés pour mieux faire connaître les grandes tendances en gouvernance de sociétés est la publication d’articles choisis sur ma page LinkedIn.

Ces articles sont issus des parutions sur mon blogue Gouvernance | Jacques Grisé

Depuis janvier 2016, j’ai publié un total de 43 articles sur ma page LinkedIn.

Aujourd’hui, je vous propose la liste des 10 articles que j’ai publiés à ce jour en 2019 :

 

Liste des 10 articles publiés à ce jour en 2019

 

Image associée

 

 

1, Les grandes firmes d’audit sont plus sélectives dans le choix de leurs mandats

2. Gouvernance fiduciaire et rôles des parties prenantes (stakeholders)

3. Problématiques de gouvernance communes lors d’interventions auprès de diverses organisations – Partie I Relations entre président du CA et DG

4. L’âge des administrateurs de sociétés représente-t-il un facteur déterminant dans leur efficacité comme membres indépendants de CA ?

5. On constate une évolution progressive dans la composition des conseils d’administration

6. Doit-on limiter le nombre d’années qu’un administrateur siège à un conseil afin de préserver son indépendance ?

7. Manuel de saine gouvernance au Canada

8. Étude sur le mix des compétences dans la composition des conseils d’administration

9. Indice de diversité de genre | Equilar

10. Le conseil d’administration est garant de la bonne conduite éthique de l’organisation !

 

Si vous souhaitez voir l’ensemble des parutions, je vous invite à vous rendre sur le Lien vers les 43 articles publiés sur LinkedIn depuis 2016

 

Bonne lecture !

Les grandes firmes d’audit sont plus sélectives dans le choix de leurs mandats


Voici un article publié par GAVIN HINKS pour le compte de Board Agenda qui montre que les grandes firmes d’audit sont de plus en plus susceptibles de démissionner lorsque les risques leur apparaissent trop élevés.

Les recherches indiquent que c’est particulièrement le cas au Royaume-Uni où l’on assiste à des poursuites plus fréquentes des Big Four. Ces firmes d’audit sont maintenant plus sélectives dans le choix de leurs clients.

Compte tenu de la situation oligopolistique des grandes firmes d’audit, devons-nous nous surprendre de ces décisions de retrait dans la nouvelle conjoncture de risque financier des entreprises britanniques ?

The answer is not really. Over recent years auditors, especially the Big Four (PwC, Deloitte, KPMG and EY) have faced consistent criticism for their work—complaints that they control too much of the market for big company audit and that audit quality is not what it should be.

Le comité d’audit des entreprises est interpellé publiquement lorsque l’auditeur soumet sa résignation. L’entreprise doit souvent gérer une crise médiatique afin de sauvegarder sa réputation.

Pour certains experts de la gouvernance, ces situations requirent des exigences de divulgation plus sévères. Les parties prenantes veulent connaître la nature des problèmes et des risques qui y sont associés.

Également, les administrateurs souhaitent connaître le plan d’action des dirigeants eu égard au travail et aux recommandations du comité d’audit

L’auteur donne beaucoup d’exemples sur les nouveaux comportements des Big Four.

Bonne lecture !

 

Auditor resignations indicate new attitude to client selection

 

 

auditor
Image: Shutterstock

 

The audit profession in Britain is at a turning point as Westminster—Brexit permitting—considers new regulation.

It seems firms may be responding by clearing the decks: the press has spotted a spate of high-profile auditor resignations with audit firms bidding farewell to a clutch of major clients. This includes firms outside the Big Four, such as Grant Thornton, which recently said sayonara to Sports Direct, the retail chain, embroiled in running arguments over its governance.

But Grant Thornton is not alone. KPMG has parted ways with Eddie Stobart, a haulage firm, and Lycamobile, a telecommunications company. PwC meanwhile has said goodbye to Staffline, a recruitment business.

Should we be surprised?

The answer is not really. Over recent years auditors, especially the Big Four (PwC, Deloitte, KPMG and EY) have faced consistent criticism for their work—complaints that they control too much of the market for big company audit and that audit quality is not what it should be.

This came to a head in December 2017 with the collapse of construction and contracting giant Carillion, audited by KPMG. The event prompted a parliamentary inquiry followed by government-ordered reviews of the audit market and regulation.

An examination of the watchdog for audit and financial reporting, the Financial Reporting Council, has resulted in the creation of a brand new regulatory body; a look at the audit market resulted in recommendations that firms separate their audit businesses from other services they provide. A current look at the quality and scope of audit, the Brydon review, will doubtless come up with its own recommendations when it reports later this year.

 

Client selection

 

While it is hard to obtain statistics, the press reports, as well as industry talk, indicate that auditors are becoming more picky about who they choose to work for.

According to Jonathan Hayward, a governance and audit expert with the consultancy Independent Audit, the first step in any risk management for an audit firm is client selection. He says the current environment in which auditors have become “tired of being beaten up” has caused a new “sensitivity” in which auditors may be choosing to be more assiduous in applying client filtering policies.

Application of these policies may have been soft in the past, as firms raced for market share, but perhaps also as they applied what Hayward calls the auditor’s “God complex”: the idea that their judgement must be definitive.

Psychological dispositions are arguable. What may be observed for certain is that the potential downsides are becoming clearer to audit chiefs. Fines meted out in recent times by a newly energised regulator facing replacement include the £5m (discounted to £3.5m) for KPMG for the firm’s work with the London branch of BNY Mellon. Deloitte faced a £6.5m fine (discounted to £4.2m) for its audit of Serco Geografix, an outsourcing business. Last year PwC faced a record breaking £10m penalty for its work on the audit of collapsed retailer BHS.

What those fines have brought home is the thin line auditors tread between profit and and huge costs if it goes wrong. That undermines the attractiveness of being in the audit market.

One expert to draw attention to the economics is Jim Peterson, a US lawyer who blogs on corporate law and has represented accountancy firms.

Highlighting Sports Direct’s need to find a replacement audit firm, Peterson notes Grant Thornton’s fee was £1.4m with an estimated profit of £200,000-£250,000.

“A projection from that figure would be hostage, however, to the doubtful assumption of no further developments,” Peterson writes.

“That is, the cost to address even a modest extension of necessary extra audit work, or a lawsuit or investigative inquiry—legal fees and diverted management time alone—would swamp any engagement profit within weeks.”

He adds: “And that’s without thinking of the potential fines or judgements. Could the revenue justify that risk? No fee can be set and charged that would protect an auditor in the fraught context of Sports Direct—simply impossible.”

Media attention

 

Auditor resignations are not without their own risks. Maggie McGhee, executive director, governance at ACCA, a professional body for accountants, points out that parting with a client can bring unpleasant public attention.

“If auditors use resignation more regularly in a bid to extract themselves from high-risk audits,” says McGhee, “then it is probable that there will be some media interest if issues are subsequently identified at the company. Questions arise, such as did the auditor do enough?”

But as, McGhee adds, resignation has to remain part of the auditor’s armoury, not least as part of maintaining their independence.

For non-executives on an audit committee, auditor resignation is a significant moment. With an important role in hiring an audit firm as well as oversight of company directors, their role will be to challenge management.

“The audit committee is critical in these circumstances,” says McGhee, “and it should take action to understand the circumstance and whether action is required.”

ACCA has told the Sir Donald Brydon review [examining audit quality] that greater disclosure is needed of “the communication and judgements” that pass between auditors and audit committees. McGhee says it would be particularly relevant in the case of auditor resignations.

There have been suggestions that Sir Donald is interested in resignations. ShareSoc and UKSA, bodies representing small shareholders, have called on Sir Donald to recommend that an a regulatory news service announcement be triggered by an auditor cutting ties.

A blog on ShareSoc’s website says: “It seems clear that there is a need to tighten the disclosure rules surrounding auditor resignations and dismissals.”

It seems likely Sir Donald will comment on resignations, though what his recommendations will be remains uncertain. What is clear is that recent behaviour has shone a light on auditor departures and questions are being asked. The need for answers is sure to remain.

Enjeux clés concernant les membres des comités d’audit | En rappel


Le récent rapport de KPMG sur les grandes tendances en audit présente sept défis que les membres des CA, notamment les membres des comités d’audit, doivent considérer afin de bien s’acquitter de leurs responsabilités dans la gouvernance des sociétés.

Le rapport a été rédigé par des professionnels en audit de la firme KPMG ainsi que par le Conference Board du Canada.

Les sept défis abordés dans le rapport sont les suivants :

– talent et capital humain ;

– technologie et cybersécurité ;

– perturbation des modèles d’affaires ;

– paysage réglementaire en évolution ;

– incertitude politique et économique ;

– évolution des attentes en matière de présentation de l’information ;

– environnement et changements climatiques.

Je vous invite à consulter le rapport complet ci-dessous pour de plus amples informations sur chaque enjeu.

Bonne lecture !

 

Tendances en audit

 

 

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Alors que l’innovation technologique et la cybersécurité continuent d’avoir un impact croissant sur le monde des finances et des affaires à l’échelle mondiale, tant les comités d’audit que les chefs des finances reconnaissent le besoin de compter sur des talents de haut calibre pour contribuer à affronter ces défis et à en tirer parti.

Le rôle du comité d’audit est de s’assurer que l’organisation dispose des bonnes personnes possédant l’expérience et les connaissances requises, tant au niveau de la gestion et des opérations qu’au sein même de sa constitution. Il ne s’agit que de l’un des nombreux défis à avoir fait surface dans le cadre de ce troisième numéro du rapport Tendances en audit.

Les comités d’audit d’aujourd’hui ont la responsabilité d’aider les organisations à s’orienter parmi les nombreux enjeux et défis plus complexes que jamais auxquels ils font face, tout en remplissant leur mandat traditionnel de conformité et de présentation de l’information. Alors que les comités d’audit sont pleinement conscients de cette nécessité, notre rapport indique que les comités d’audit et les chefs des finances se demandent dans quelle mesure leur organisation est bien positionnée pour faire face à la gamme complète des tendances actuelles et émergentes.

Pour mettre en lumière cette préoccupation et d’autres enjeux clés, le rapport Tendances en audit se penche sur les sept défis qui suivent :

  1. talent et capital humain;
  2. technologie et cybersécurité;
  3. perturbation des modèles d’affaires;
  4. paysage réglementaire en évolution;
  5. incertitude politique et économique;
  6. évolution des attentes en matière de présentation de l’information;
  7. environnement et changements climatiques.

Au fil de l’évolution des mandats et des responsabilités, ce rapport se révélera être une ressource précieuse pour l’ensemble des parties prenantes en audit.

La souveraineté des conseils d’administration | En rappel


Je partage avec vous une excellente prise de position d’Yvan Allaire et de Michel Nadeau, respectivement président et directeur général de l’Institut de la gouvernance (IGOPP), que j’appuie totalement. Cet article a été publié dans Le Devoir du 6 janvier 2018.

Il est impératif que le conseil d’administration, qui est le fiduciaire des parties intéressées, conserve son rôle de gardien de la bonne gouvernance des organisations. Les règles de gouvernance sont fondées sur le fait que le conseil d’administration est l’instance souveraine.

Comme le disent clairement les auteurs : « La gouvernance des sociétés repose sur une pierre angulaire : le conseil d’administration, qui tire sa légitimité et sa crédibilité de son élection par les membres, les actionnaires ou les sociétaires de l’organisation. Il est l’ultime organe décisionnel, l’instance responsable de l’imputabilité et de la reddition de comptes. Tous les comités du conseil créés à des fins spécifiques sont consultatifs pour le conseil ».

Cet article est court et précis ; il met l’accent sur certaines caractéristiques du projet de loi 141 qui mine la légitimité du conseil d’administration et qui sont potentiellement dommageable pour la cohésion et la responsabilisation des membres du conseil.

Je vous en souhaite bonne lecture ; n’hésitez pas à nous faire connaître votre opinion.

 

Projet de loi 141: les conseils d’administration doivent demeurer responsables

 

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Projet de loi 141
 

Dans son projet de loi visant principalement à améliorer l’encadrement du secteur financier, le ministre des Finances du Québec a mis la barre haute en proposant quelque 2000 modifications législatives touchant l’ensemble des institutions d’assurance, de dépôts et de fiducie relevant de l’État québécois.

Le texte de 488 pages soulèvera de nombreuses questions, notamment chez les intermédiaires financiers lors de la commission parlementaire des 16 et 17 janvier prochains. En tant qu’experts en gouvernance, nous sommes très préoccupés par certains articles du projet de loi qui enlèvent aux conseils d’administration des institutions des pouvoirs qui leur sont reconnus par la loi québécoise et canadienne sur les sociétés par actions. De plus, certaines propositions du projet de loi risquent de semer la confusion quant au devoir de loyauté des membres du conseil envers l’organisation.

La gouvernance des sociétés repose sur une pierre angulaire : le conseil d’administration, qui tire sa légitimité et sa crédibilité de son élection par les membres, les actionnaires ou les sociétaires de l’organisation. Il est l’ultime organe décisionnel, l’instance responsable de l’imputabilité et de la reddition de comptes. Tous les comités du conseil créés à des fins spécifiques sont consultatifs pour le conseil.

Arrangements insoutenables

De façon sans précédent, le projet de loi 141 impose aux conseils d’administration l’obligation de « confier à certains administrateurs qu’il désigne ou à un comité de ceux-ci les responsabilités de veiller au respect des saines pratiques commerciales et des pratiques de gestion saine et prudente et à la détection des situations qui leur sont contraires ».

À quelles informations ce « comité » aurait-il accès, lesquelles ne seraient pas connues d’un comité d’audit normal ? En quoi cette responsabilité dévolue à un nouveau comité est-elle différente de la responsabilité qui devrait incomber au comité d’audit ?

Le projet de loi stipule que dès que le comité prévu prend connaissance d’une situation qui entraîne une détérioration de la situation financière (un fait qui aurait échappé au comité d’audit ?), qui est contraire aux pratiques de gestion saine et prudente ou qui est contraire aux saines pratiques commerciales, il doit en aviser le conseil d’administration par écrit. Le conseil d’administration doit alors voir à remédier promptement à la situation. Si la situation mentionnée à cet avis n’a pas été corrigée selon le jugement de l’administrateur ou du comité, celui-ci doit transmettre à l’Autorité une copie de cet avis.

Le conseil d’administration pourrait, soudainement et sans avoir été prévenu, apprendre que l’AMF frappe à la porte de l’institution parce que certains de leurs membres sont d’avis que le conseil dans son ensemble n’a pas corrigé à leur satisfaction certaines situations jugées inquiétantes.

Ces nouveaux arrangements de gouvernance sont insoutenables. Ils créent une classe d’administrateurs devant agir comme chiens de garde du conseil et comme délateurs des autres membres du conseil. Une telle gouvernance rendrait impossibles la nécessaire collégialité et l’égalité entre les membres d’un même conseil.

Cette forme de gouvernance, inédite et sans précédent, soulève la question fondamentale de la confiance dont doit jouir un conseil quant à sa capacité et à sa volonté de corriger d’éventuelles situations préoccupantes.

Comité d’éthique

Le projet de loi 141 semble présumer qu’un comportement éthique requiert la création d’un comité d’éthique. Ce comité devra veiller à l’adoption de règles de comportement et de déontologie, lesquelles seront transmises à l’AMF. Le comité avise, par écrit et sans délai, le conseil d’administration de tout manquement à celles-ci.

Le projet de loi 141 obligera le comité d’éthique à transmettre annuellement à l’Autorité des marchés un rapport de ses activités, incluant la liste des situations de conflit d’intérêts, les mesures prises pour veiller à l’application des règles et les manquements observés. Le texte de ce projet de loi devrait plutôt se lire ainsi : « Le Comité d’éthique soumet son rapport annuel au conseil d’administration, qui en fait parvenir copie à l’AMF dans les deux mois suivant la clôture de l’exercice. »

Encore une fois, c’est vraiment mal comprendre le travail des comités que d’imputer à ceux-ci des responsabilités « décisionnelles » qui ne devraient relever que du conseil dans son ensemble.

L’ensemble des textes législatifs sur la gouvernance des organisations ne laisse place à aucune ambiguïté : la loyauté d’un membre du conseil est d’abord envers son organisme. Or, le projet de loi instaure un mécanisme de dénonciation auprès de l’AMF. Insatisfait d’une décision de ses collègues ou de leur réaction à une situation donnée, un administrateur devrait ainsi renoncer à son devoir de loyauté et de confidentialité pour choisir la route de la dénonciation en solo.

L’administrateur ne devrait pas se prévaloir de ce régime de dénonciation, mais livrer bataille dans le cadre prévu à cette fin : le conseil. Agir autrement est ouvrir la porte à des manœuvres douteuses qui mineront la cohésion et la solidarité nécessaire au sein de l’équipe du CA. Si la majorité des administrateurs ne partagent pas l’avis de ce valeureux membre, celui-ci pourra démissionner du conseil en informant l’Autorité des motifs de sa démission, comme l’exige le projet de loi 141.

Le projet de loi 141 doit être amendé pour conserver aux conseils d’administration l’entière responsabilité du fonctionnement de la bonne gouvernance des organismes visés par le projet de loi.

Indicateurs de mesure de la performance des fonctions d’audit interne


Denis Lefort, CPA, expert-conseil en gouvernance, audit et contrôle, porte à ma connaissance un rapport de recherche de l’IIA qui concerne « les indicateurs de mesure de la performance des fonctions d’audit interne ».

Encore aujourd’hui, les indicateurs utilisés sont souvent centrés sur la performance en interne de la fonction et non sur son réel impact sur l’organisation.

Par exemple, peu de services d’audit interne évaluent leur performance par la réduction des cas de fraude dans l’entreprise, par une meilleure gestion des risques, etc.

On utilise plutôt les indicateurs habituels comme le taux de recommandations implantées, la réalisation du plan d’audit, etc.

Voici, ci-dessous, l’introduction au document de l’IIA. Pour consulter le rapport détaillé, cliquez sur le titre du document.

Bonne lecture. Vos commentaires sont les bienvenus

 

Measuring Internal Audit Value and Performance

 

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In 2010, The IIA recognized a need to capture a simple, memorable, and straightforward way to help internal auditors convey the value of their efforts to important stakeholders, such as boards of directors, audit committees, management, and clients. To that end, the association introduced the Value Proposition for Internal Auditing, which characterizes internal audit’s value as an amalgam of three elements: assurance, insight, and objectivity.

 

But identifying the conceptual elements of value is only part of what needs to be done. How does that construct look in the workplace? What activities does internal audit undertake that deliver the most value? What should be measured to determine that the organization’s expectations of value are being met? How does internal audit organize and structure the information that populates the metrics? And, most critically, do the answers to all these questions align; that is, does internal audit’s perception of its value, as measured and tracked, correlate with what the organization wants and needs from the internal audit function? (Exhibit 1)

Exhibit 1

The Internal Audit Value Proposition

 

1. ASSURANCE = Governance, Risk, Control

Internal audit provides assurance on the organization’s governance, risk management, and control processes to help the organization achieve its strategic, operational, financial, and compliance objectives.

2. INSIGHT = Catalyst, Analyses, Assessments

Internal audit is a catalyst for improving an organization’s effectiveness and efficiency by providing insight and recommendations based on analyses and assessments of data and business process.

3. OBJECTIVITY = Integrity, Accountability, Independence

With commitment to integrity and accountability, internal audit provides value to governing bodies and senior management as an objective source of independent advice.

These are the kinds of questions the CBOK 2015 global practitioner survey posed to chief audit executives (CAEs) from around the world. The activities these CAEs believe bring value to the organization are consistent with the three elements of The IIA’s value proposition. In fact, the nine activities identified by CAEs as adding the most value can be mapped directly to the three elements, as shown in exibit 2

However, in looking at the performance measures and tools used by the organization and the internal audit function, a gap appears to form between value-adding activities and the ways performance is measured. This report explores that gap in greater detail and clarifies the respondents’ view of value-adding activities, preferred performance measures, and the methodologies and tools most commonly used to support internal audit’s quality and performance processes. Where appropriate, responses tabulated by geographic regions and organization types are examined.

Finally, based on the findings, the final chapter of the report provides a series of practical steps that practitioners at all levels can implement to help their internal audit department deliver on its value proposition of assurance, insight, and objectivity.

Exhibit 2

The Internal Audit Value Proposition (mapped to response options from the CBOK Survey)

 

ASSURANCE ACTIVITIES

  1. Assuring the adequacy and effectiveness of the internal control system
  2. Assuring the organization’s risk management processes
  3. Assuring regulatory compliance
  4. Assuring the organization’s governance processes

INSIGHT ACTIVITIES

  1. Recommending business improvement
  2. Identifying emerging risks

OBJECTIVE ADVICE ACTIVITIES

  1. Informing and advising management
  2. Investigating or deterring fraud
  3. Informing and advising the audit committee

Rôle du CA dans l’établissement d’une forte culture organisationnelle | Une référence essentielle


Vous trouverez, ci-dessous, un document partagé par Joanne Desjardins*, qui porte sur le rôle du CA dans l’établissement d’une solide culture organisationnelle.

C’est certainement l’un des guides les plus utiles sur le sujet. Il s’agit d’une référence essentielle en matière de gouvernance.

Je vous invite à lire le sommaire exécutif. Vos commentaires sont appréciés.

 

Managing Culture | A good practical guide – December 2017

 

Résultats de recherche d'images pour « tone at the top »

Executive summary

 

In Australia, the regulators Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC) have both signalled that there are significant risks around poor corporate culture. ASIC recognises that culture is at the heart of how an organisation and its staff think and behave, while APRA directs boards to define the institution’s risk appetite and establish a risk management strategy, and to ensure management takes the necessary steps to monitor and manage material risks. APRA takes a broad approach to ‘risk culture’ – includingrisk emerging from a poor culture.

Regulators across the globe are grappling with the issue of risk culture and how best to monitor it. While regulators generally do not dictate a cultural framework, they have identified common areas that may influence an organisation’s risk culture: leadership, good governance, translating values and principles into practices, measurement and accountability, effective communication and challenge, recruitment and incentives. Ultimately, the greatest risk lies in organisations that are believed to be hypocritical when it comes to the espoused versus actual culture.

The board is ultimately responsible for the definition and oversight of culture. In the US, Mary Jo White, Chair of the Securities and Exchange Commission (SEC), recognised that a weak risk culture is the root cause of many large governancefailures, and that the board must set the ‘tone at the top’.

Culture also has an important role to play in risk management and risk appetite, and can pose significant risks that may affect an organisation’s long-term viability.

However, culture is much more about people than it is about rules. This guide argues that an ethical framework – which is different from a code of ethics or a code of conduct – should sit at the heart of the governance framework of an organisation. An ethical framework includes a clearly espoused purpose, supported by values and principles.

There is no doubt that increasing attention is being given to the ethical foundations of an organisation as a driving force of culture, and one method of achieving consistency of organisational conduct is to build an ethical framework in which employees can function effectively by achieving clarity about what the organisation deems to be a ‘good’ or a ‘right’ decision.

Culture can be measured by looking at the extent to which the ethical framework of the organisation is perceived to be or is actually embedded within day-to-day practices. Yet measurement and evaluation of culture is in its early stages, and boards and senior management need to understand whether the culture they have is the culture they want.

In organisations with strong ethical cultures, the systems and processes of the organisation will align with the ethical framework. And people will use the ethical framework in the making of day-to-day decisions – both large and small.

Setting and embedding a clear ethical framework is not just the role of the board and senior management – all areas can play a role. This publication provides high-level guidance to these different roles:

The board is responsible for setting the tone at the top. The board should set the ethical foundations of the organisation through the ethical framework. Consistently, the board needs to be assured that the ethical framework is embedded within the organisation’s systems, processes and culture.

Management is responsible for implementing and monitoring the desired culture as defined and set by the board. They are also responsible for demonstrating leadership of the culture.

Human resources (HR) is fundamental in shaping, reinforcing and changing corporate culture within an organisation. HR drives organisational change programs that ensure cultural alignment with the ethical framework of the organisation. HR provides alignment to the ethical framework through recruitment, orientation, training, performance management, remuneration and other incentives.

Internal audit assesses how culture is being managed and monitored, and can provide an independent view of the current corporate culture.

External audit provides an independent review of an entity’s financial affairs according to legislative requirements, and provides the audit committee with valuable, objective insight into aspects of the entity’s governance and internal controls including its risk management.

 

 


*Joanne Desjardins est administratrice de sociétés et consultante en gouvernance. Elle possède plus de 18 années d’expérience comme avocate et comme consultante en gouvernance, en stratégie et en gestion des ressources humaines. Elle est constamment à l’affût des derniers développements en gouvernance et publie des articles sur le sujet.

Processus d’audit | Informations privilégiées et transactions privées


Voici une recherche de Daniel Taylor qui concerne les informations privées sur le processus d’audit qui peuvent faire l’objet de transactions privées.

Les conclusions sont assez claires à cet égard ; elles suggèrent plusieurs moyens pour se prémunir contre les conséquences indésirables.

The results suggest the audit process provides insiders with a temporary information advantage, and that insiders opportunistically time their trades to exploit this advantage.

La recherche est utile aux chercheurs en gouvernance qui se questionnent sur les transactions équitables pour les actionnaires et pour toutes les parties prenantes.

Également, l’auteur souhaite que les conseils d’administration restreignent les transactions de tous les administrateurs et des personnes impliquées dans le processus d’audit, aussi longtemps que les résultats ne soient pas divulgués publiquement.

Enfin, l’auteur formule certaines recommandations aux autorités de réglementation

Cet article est paru sur le site du Harvard Law School on Corporate Governance.

Bonne lecture !

 

 

Résultats de recherche d'images pour « inside trading »

 

 

Our paper examines insider trading in conjunction with the audit process. Audit reports—and the requirement that public companies file audited financial statements—are a cornerstone of modern financial reporting. While it is generally accepted that financial statement audits mitigate agency conflicts, managers and directors (hereafter “corporate insiders”) are typically aware of the contents of the audit report well in advance of the general public. Thus, although a key purpose of financial statement audits is to protect shareholders, an unintended consequence of the audit process is that it endows corporate insiders with a temporary information advantage. In this study, we examine whether corporate insiders exploit this advantage for personal gain and trade based on private information about audit findings.

The audit process represents a negotiation between the external auditor, management, and the board of directors. A typical audit entails planning and interim procedures during the year, year-end fieldwork around the earnings announcement, and culminates with the preparation of the final audit report. Throughout the audit process, the auditor is in frequent contact with management and the board, and provides continuous updates regarding preliminary findings, audit adjustments, and potential modifications to a standard unqualified audit report. The auditor formally briefs the board on the contents of the final report close to the date that the audit is finalized, or “audit report date” (PCAOB AS 1301). Importantly, this date is not known to the public until the audit findings are subsequently disclosed in the firm’s 10-K filing. Thus, by the very nature of the audit process, corporate insiders will be in possession of material non-public information related to audit findings prior to the 10-K filing.

We examine whether corporate insiders trade based on private information about audit findings using a standard short-window event study around the audit report date. The audit report date signifies the end of the audit, and serves as a reasonable proxy for the latest possible date at which corporate insiders are aware of the final audit findings (PCAOB AS 1301, 3110). Our tests focus on a subset of firms where the audit report date occurs after the earnings announcement and more than ten days prior to the 10-K filing. We focus on audit report dates after the earnings announcement in order to cleanly separate insider trading in conjunction with the audit report from insider trading in conjunction with the earnings announcement. We focus on audit report dates more than ten days prior to the 10-K to ensure insiders’ have the opportunity to trade prior to the public disclosure of the audit findings.

By examining insider trading in a tight window around the audit report date, our event study tests mitigate concerns that our results are attributable to either (a) the audit findings themselves being influenced by insider trading, or (b) omitted firm characteristics correlated with the audit findings. Evidence of a change in insider trading activity in a short window around the audit report date—when audit findings are known to insiders but not to the market—suggests insiders are trading based on private information about the contents of the audit report itself.

We find a pronounced spike in insider trading volume around the audit report date, and that audit reports containing a modified opinion trigger intense insider selling. Highlighting the non-public nature of the audit findings on the audit report date, we find no evidence of a capital market reaction on this date. The presence of significant insider trading activity, coupled with the absence of a capital market reaction, confirms that—in our sample—the audit report date represents a significant internal, non-public, information event.

We conduct an extensive battery of sensitivity tests. For example, we repeat our tests focusing exclusively on within firm-quarter variation in insider trading. To the extent that an omitted variable does not vary within a given firm-quarter (e.g., within Firm A’s 2009-Q4), this analysis controls for the omitted variable (e.g., quarterly performance, governance, growth opportunities, audit quality, reporting complexity, etc.). Focusing exclusively on the timing of trades within the firm-quarter, we continue to find that modified audit opinions trigger intense insider selling around the audit report. Although we cannot definitively rule out the possibility of a correlated omitted variable, we view this as highly unlikely—to explain these results, an omitted variable would have to (i) vary with the timing of insider trades within a given firm-quarter, (ii) vary with the timing of the audit report date within the firm-quarter, and (iii) vary with the audit opinion.

Collectively, our results are consistent with corporate insiders trading based on private information about audit findings. The results suggest the audit process provides insiders with a temporary information advantage, and that insiders opportunistically time their trades to exploit this advantage.

Our research question and findings should be of interest to academics, practitioners, and regulators. With respect to academics, our study extends a long line of auditing research. Our results provide novel evidence that corporate insiders exploit features of the audit process for personal gain. In this regard, our findings suggest a more nuanced understanding of the audit process and the extent to which it protects shareholders and mitigates agency conflicts.

With respect to practitioners—specifically boards and legal counsel—our findings underscore the need for meaningful insider trading policies that effectively limit the key personnel to trade prior to the public disclosure of the audit findings. For example, most firms have insider trading policies that restrict trading around the earnings announcement, but nonetheless allow trading in the intervening period between the earnings announcement and the public disclosure of the audit findings (e.g., Jagolinzer, Larcker, and Taylor, 2011). Boards might want to consider restricting the trade of all officers and directors involved with the audit until the audit findings are publicly disclosed.

With respect to regulators, the Securities and Exchange Commission (SEC) and Public Company Audit Oversight Board (PCAOB) are charged with protecting the interests of individual investors. Consequently, empirical evidence on how audits affect insider trading represents an important consideration in ongoing deliberations on auditing standards and auditing procedures. Our evidence highlights a potentially unintended consequence of audit standards aimed at improving the informativeness of audit reports—as the audit report becomes more informative, the incentives for insiders to front-run the report also increase. Our findings are particularly salient in the context of the new auditing standard that takes effect in fiscal 2019 (PCAOB-2017-01) and changes the audit report from a standardized opinion to one that includes detailed engagement-specific disclosures. We encourage auditors, boards, and regulators to scrutinize insider trades placed in conjunction with corporate audits.

The complete paper is available here.

____________________________________________

Daniel Taylor*est professeur associé à la Wharton School of the University of Pennsylvania.

Le futur code de gouvernance du Royaume-Uni


Je vous invite à prendre connaissance du futur code de gouvernance du Royaume-Uni (R.-U.).

À cet effet, voici un billet de Martin Lipton*, paru sur le site de Harvard Law School Forum on Corporate Governance, qui présente un aperçu des points saillants.

Bonne lecture !

 

The Financial Reporting Council today [July 16, 2018] issued a revised corporate governance code and announced that a revised investor stewardship code will be issued before year-end. The code and related materials are available at www.frc.org.uk.

The revised code contains two provisions that will be of great interest. They will undoubtedly be relied upon in efforts to update the various U.S. corporate governance codes. They will also be used to further the efforts to expand the sustainability and stakeholder concerns of U.S. boards.

First, the introduction to the code makes note that shareholder primacy needs to be moderated and that the concept of the “purpose” of the corporation, as long put forth in the U.K. by Colin Mayer and recently popularized in the U.S. by Larry Fink in his 2018 letter to CEO’s, is the guiding principle for the revised code:

Companies do not exist in isolation. Successful and sustainable businesses underpin our economy and society by providing employment and creating prosperity. To succeed in the long-term, directors and the companies they lead need to build and maintain successful relationships with a wide range of stakeholders. These relationships will be successful and enduring if they are based on respect, trust and mutual benefit. Accordingly, a company’s culture should promote integrity and openness, value diversity and be responsive to the views of shareholders and wider stakeholders.

Second, the code provides that the board is responsible for policies and practices which reinforce a healthy culture and that the board should engage:

with the workforce through one, or a combination, of a director appointed from the workforce, a formal workforce advisory panel and a designated non-executive director, or other arrangements which meet the circumstances of the company and the workforce.

It will be interesting to see how this provision will be implemented and whether it gains any traction in the U.S.

 

 

The UK Corporate Governance Code

 

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Martin Lipton* is a founding partner of Wachtell, Lipton, Rosen & Katz, specializing in mergers and acquisitions and matters affecting corporate policy and strategy. This post is based on a Wachtell Lipton memorandum by Mr. Lipton.