Le rôle de l’audit interne dans l’identification des risques émergents *

Denis Lefort, CPA, expert-conseil en Gouvernance, audit et contrôle, porte à ma connaissance un document de la firme Thomson Reuters (White Paper) très intéressant sur le rôle de l’audit interne dans l’identification des risques émergents.

EYE ON THE HORIZON : INTERNAL AUDIT’S ROLE IN IDENTIFYING EMERGING RISKS

Key elements of emerging risks

Reinsurance company Swiss Re defines emerging risks as “newly developing or changing risks which are difficult to quantify and which may have a major impact on the organisation.” This identifies their key elements.

Emerging risks may be entirely new, such as those posed by social media or technological innovation. Or they may come from existing risks that evolve or escalate – for example, the way counterparty credit risk or liquidity risk sky-rocketed during the 2008 financial crisis.

Newly developing risks lack precedent or history, and their precise form may not be immediately clear, which makes them difficult to measure or model. Changing risks are at least familiar in their shape and nature, although the rate of transformation and intensity can make them hard to quantify.

The final key element of emerging risks is their potential impact. New or changing risks can be as menacing as those the organisation deals with on a daily basis, and sometimes even more so. To give just one example, the way in which the music business failed to address the implications of digital downloads allowed a complete outsider, the computer company Apple, to step in and define and dominate the new market.

Emerging risks also threaten through their apparent remoteness or their obscurity. US Secretary of State Donald Rumsfeld distinguished between things we know we do not know (‘known unknowns’), and things we do not know we do not know (‘unknown unknowns’). In the first category are risks whose shape might be familiar, but where we do not necessarily understand all of their elements – causes, potential impact, probability or timing. Unknown unknowns are events that are so out of left field or seemingly farfetchedthat it takes great insight or a leap of the imagination to even articulate them. These include the ‘black swan’ events highlighted by the investor-philosopher Nassim Nicholas Taleb, where the human tendency is to dismiss them as improbable beforehand, then rationalise them after they occur. The 9/11 terrorist attack, or the financial crash of 2008, or the invention of the internet show that not only do black swan events happen, but they do so more frequently than is generally recognised, and they have an historically significant impact (and not always negative).

Many emerging risks are characterised by their global nature, their scale or their longer-term horizon – climate change is an example that displays all of these elements. In other cases, it is less the individual events themselves, some of which may be relatively moderate or manageable on their own, as the conflation of circumstances that creates a ‘perfect storm’.

Vous pouvez aussi consulter l’enquête de Thomson Reuters Accelus Survey on Internal Audit dont nous avons parlé dans notre billet du 7 juin.

New duties on horizon for internal auditors

“The clear message from the survey is that internal audit functions need to stop thinking about themselves as compliance specialists and start taking on a much larger, more strategic role within the organization,” Ernst & Young LLP internal audit leader Brian Schwartz said in a news release. “IA is increasingly being asked by senior management and the board to provide broader business insights and better anticipate traditional and emerging risks, even as they maintain their focus on non-negotiable compliance activities.”

New risks

As strategic opportunities emerge, internal auditors also are adjusting to new compliance duties, according to the survey. Globalization has resulted in increased revenue from emerging markets for many companies, so new regulatory, cultural, tax, and talent risks are emerging.

Thomson Reuters Messenger (Photo credit: Wikipedia)

Internal audit will play a more prominent role in evaluating these risks, according to the survey report. Although slightly more than one-fourth (27%) of respondents are heavily involved in identifying, assessing, and monitoring emerging risks now, 54% expect to be heavily involved in the next two years.

The biggest primary risks that respondents said their organizations are tracking are:

Economic stability (54%).

Cybersecurity (52%).

Major shifts in technology (48%).

Strategic transactions in global locations (44%).

Data privacy regulations (39%).

Survey respondents said the skills most often found to be lacking in internal audit functions are:

Data analytics;

Business strategy;

Deep industry experience;

Risk management; and

Fraud prevention and detection.

“As corporate leaders demand a greater measure of strategy and insight from their internal audit functions, CAEs will need to move quickly to close competency gaps and ensure that they have the right people in the right place, at the right time.” Schwartz said. “If they fail to meet organizational expectations, they risk being left behind or consigned to more transactional compliance activities.”

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* En reprise

Keeping Internal Auditors Up to the Challenge (forbes.com)

Internal Audit Has To STOP Focusing On Internal Controls (business2community.com)

Changement important dans la relation auditeur externe/interne | Financial Reporting Council (FRC) (jacquesgrisegouvernance.com)

Useful Internal Auditing in 4 Easy Steps (isocertificationaustralia.com)

Thomson Reuters Develops Accelus Governance, Risk and Compliance Platform (risk-technology.typepad.com)

Le rôle du C.A. dans la gestion des risques *

La gestion des risques est une activité-clé qui doit être orchestrée par la direction de l’entreprise. Mais quel doit être le rôle du conseil d’administration en matière de surveillance de l’exécution de cette tâche essentielle ?

Quel est effectivement l’étendu du rôle du conseil dans les grandes sociétés publiques américaines. C’est ce que le document du Conference Board, présenté ici, décrit avec moult détails et d’une manière exceptionnellement bien illustrée.

Je vous invite donc à prendre connaissance de ce texte qui traite des aspects suivants :

Responsabilité pour l’établissement des stratégies

Fréquence des révisions des stratégies

Réunion spéciale de planification stratégique

Adoption d’une approche standardisée telle qu’ERM (Enterprise Risk Management)

Responsabilité pour la surveillance des risques

Fréquence des comptes rendus de la direction au C.A. en matière de risque

Le responsable en chef de la gestion des risques (CRO)

Le comité des risques de l’entreprise

Risk in the Boardroom

Any business is exposed to risks that can threaten its ability to execute its strategy. For this reason, strategy and risk oversight are inherently connected. Today, more than ever, the board of directors is expected to thoroughly assess key business risks and ensure that the enterprise is equipped to mitigate them. This Directors Notes discusses the current corporate practices on risk oversight by directors of U.S. public companies. Findings detail where the board assigns these responsibilities, whether it avails itself of dedicated reporting lines from senior management on risk issues, and the degree to which it adopts a standardized framework on enterprise risk management (ERM).

ERM – Enterprise Risk Management (Photo credit: Orange Steeler)

Given the correlation between risk and strategy, data on the frequency and forms of strategic reviews is also presented. The findings are from the most recent edition of the Board Practices Survey, which The Conference Board conducts annually in collaboration with NASDAQ OMX and NYSE Euronext (see “The Board Practices Survey” on p. 5). The Dodd-Frank Act mandates that financial institutions strengthen their risk oversight by establishing a dedicated risk committee of the board of directors.

In addition, U.S. Securities and Exchange Commission (SEC) rules require all public companies to disclose the extent of their board’s role in overseeing the organization’s risk exposure, including how the board administers its risk oversight function and how the leadership structure accommodates such a role.

Finally, in October 2009, the SEC reversed a policy under which shareholder proposals relating to the evaluation of risk could be excluded from a company’s proxy materials as related to the company’s ordinary day-to-day business activities. Collectively, these developments are a nod in the direction of addressing the risk oversight failures that played so prominently in the 2008 financial crisis. Most important, they are expected to increase scrutiny of risk management programs and their endorsement and close supervision by senior leaders of corporations.

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* En reprise

Quel est le cadre juridique du fonctionnement d’un conseil consultatif de PME ? *

Quel est le cadre juridique du fonctionnement d’un conseil consultatif de PME ? Voici quelques éléments d’information en réponse à une question souvent posée dans le cadre de la formation en gouvernance de sociétés.

Cette question a été soumise à la considération de Me Raymonde Crête, professeure de droit à l’Université Laval et de Me Thierry Dorval, associé de Norton Rose.

Je reproduis ici la réponse de ces deux experts juridiques en gouvernance :

« Dans une PME, il est possible de créer un comité consultatif. Il n’existe pas de règles spécifiques concernant la création de ce type de comité. Les membres du comité consultatif ne sont pas, en principe, assujettis aux responsabilités qui incombent normalement aux administrateurs de sociétés, à moins qu’ils agissent, dans les faits, comme des administrateurs. Si les membres du comité consultatif agissent, dans les faits ou de facto, comme des administrateurs de sociétés, ils pourraient engager leur responsabilité, notamment en matière fiscale ou d’environnement. L’article 227.1 de la Loi de l’impôt sur le revenu impose aux administrateurs une responsabilité solidaire en cas de non-paiement de certains impôts. Pour éviter d’engager leur responsabilité, les membres du comité consultatif ne doivent donc pas exercer des fonctions analogues ou des pouvoirs similaires à ceux exercés par les membres d’un conseil d’administration, tels les pouvoirs décisionnels en matière d’émission d’actions, de déclaration de dividendes, etc ».

Concernant les responsabilités du conseil d’administration, vous pouvez consulter le document ci-dessous publié par Norton Rose.

Identification et gestion des risques que comporte le rôle d’administrateur de société

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* En reprise

Énoncés de principes de bonne gouvernance 2012 | Business Roundtable *

Voici un document publié par l’organisation américaire Business Roundtable qui est la plus importante association de PCD (CEO) aux É.U. et qui regroupe les plus grandes sociétés avec un total de $6 trillion en revenus annuels et plus de 12 million d’employés. Ce document présente le point de vue des hauts dirigeants de ces sociétés sur les pratiques de bonne gouvernance. Le rapport est représentatif de ce que les membres pensent que devraient être les pratiques exemplaires en matière de gouvernance. C’est une lecture vraiment très pertinente.

Principles of Corporate Governance – 2012

« Business Roundtable supports the following guiding principles:

First, the paramount duty of the board of directors of a public corporation is to select a chief executive officer and to oversee the CEO and senior management in the competent and ethical operation of the corporation on a day-to-day basis.

Second, it is the responsibility of management, under the oversight of the board, to operate the corporation in an effective and ethical manner to produce long-term value for shareholders. The board of directors, the CEO and senior management should set a “tone at the top” that establishes a culture of legal compliance and integrity. Directors and management should never put personal interests ahead of or in conflict with the interests of the corporation.

Third, it is the responsibility of management, under the oversight of the board, to develop and implement the corporation’s strategic plans, and to identify, evaluate and manage the risks inherent in the corporation’s strategy. The board of directors should understand the corporation’s strategic plans, the associated risks, and the steps that management is taking to monitor and manage those risks. The board and senior management should agree on the appropriate risk profile for the corporation, and they should be comfortable that the strategic plans are consistent with that risk profile.

Fourth, it is the responsibility of management, under the oversight of the audit committee and the board, to produce financial statements that fairly present the financial condition and results of operations of the corporation and to make the timely disclosures investors need to assess the financial and business soundness and risks of the corporation.

Fifth, it is the responsibility of the board, through its audit committee, to engage an independent accounting firm to audit the financial statements prepared by management and issue an opinion that those statements are fairly stated in accordance with Generally Accepted Accounting Principles, as well as to oversee the corporation’s relationship with the outside auditor.

Sixth, it is the responsibility of the board, through its corporate governance committee, to play a leadership role in shaping the corporate governance of the corporation and the composition and leadership of the board. The corporate governance committee should regularly assess the backgrounds, skills and experience of the board and its members and engage in succession planning for the board.

Seventh, it is the responsibility of the board, through its compensation committee, to adopt and oversee the implementation of compensation policies, establish goals for performance-based compensation, and determine the compensation of the CEO and senior management. Compensation policies and goals should be aligned with the corporation’s long-term strategy, and they should create incentives to innovate and produce long-term value for shareholders without excessive risk. These policies and the resulting compensation should be communicated clearly to shareholders.

Eighth, it is the responsibility of the corporation to engage with longterm shareholders in a meaningful way on issues and concerns that are of widespread interest to long-term shareholders, with appropriate involvement from the board of directors and management.

Ninth, it is the responsibility of the corporation to deal with its employees, customers, suppliers and other constituencies in a fair and equitable manner and to exemplify the highest standards of corporate citizenship.

These responsibilities and others are critical to the functioning of the modern public corporation and the integrity of the public markets. No law or regulation can be a substitute for the voluntary adherence to these principles by corporate directors and management in a manner that fits the needs of their individual corporations ».

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* En reprise

Articles reliés au sujet :

Dix leçons tirées d’une multitude d’entrevues avec des PCD de PME **

Quelles leçons peut-on tirer des entrevues avec les PCD (CEO) d’entreprises de petites capitalisations. C’est ce que nous présente Adam J. Epstein*, un spécialiste de « hedge fund » qui investit des centaines de millions de dollars dans les petites entreprises. L’article a été publié dans mc2MicroCap par Ian Cassel.

J’ai trouvé les conseils très pertinents pour les personnes intéressées à connaître la réalité des évaluations d’entreprises par des investisseurs privés. Qu’en pensez-vous ?

10 Lessons Learned from Interviewing Hundreds of MicroCap CEOs

1)    Preparation – there is no reason to waste your time and someone else’s by sitting down with a CEO to discuss their company without preparing – really preparing. To me, “really preparing” doesn’t mean looking at Yahoo Finance for a few minutes in the taxi on the way to the meeting, or flipping through the company’s PowerPoint on your phone. That kind of preparation is akin to walking up a few flights of stairs with some grocery bags to get ready for climbing Mt. Rainier. To be really prepared for a first meeting means reading/skimming the most recent 10K, the most recent 10Q, the most recent proxy filing, the management presentation, any previous management presentations (more on this later), a recent sell-side company or industry report, and an Internet search of the management team’s backgrounds (with particular emphasis on any prior SEC, NASD, or other state/federal legal problems). It’s hard to overemphasize how many would-be micro-cap investing disasters can be headed off at the pass by reading what’s said, and not said, and then having the opportunity to ask the CEO directly about what you’ve found.

2)    Non-Starters – for better or worse, the micro-cap world is home to some “colorful” management teams. After all of the time served in this regard, absolutely nothing surprises me anymore. I have found CEOs who were simultaneously running 3 companies, CEOs who were banned from running a public company by the SEC, management presentations that were largely plagiarized, CEOs who shouted profanities in response to basic questions about their “skin in the game,” and CEOs who not only didn’t understand Reg. FD, but clearly didn’t even know it existed. When in doubt, it’s much better not to invest at all than to make a bad investment; fortunately there are always thousands of other companies to consider.

3)    Company .PPT – these presentations speak volumes about what kind of company you are dealing with if you’re paying attention: a) my colleagues and I came up with a golden rule during my institutional investing tenure, namely that the length of a .ppt presentation is, more often than not, inversely proportional to the quality of the micro-cap company being presented (i.e., any micro-cap company that can’t be adequately presented in less than 20 slides is a problem, and 15 is even better); b) if the slides are too complex to understand on a standalone basis then either the company has a problem or you’re about to invest in something you don’t sufficiently understand – neither is good; c) NEO bios, market information, service/product/IP, strategy, financials, and use of proceeds should all receive equal billing (when buying a house, would you go and visit a house with an online profile that only features pictures of the front yard and the garage?); d) .ppt formatting and spelling/syntax problems are akin to showing up at an important job interview with giant pieces of spinach in your teeth; e) when reviewing use of proceeds (for a prospective financing) or milestones, look up prior investor presentations to see how well they did with prior promises – history often repeats itself; f) treat forward looking projections for what they typically are – fanciful at best, and violations of Reg. FD at worst; and g) micro-cap companies that flaunt celebrities as directors, partners, or investors should be approached cautiously.

4)    NEO Bios – as Ian Cassel often points out quite rightly in my opinion, micro-cap investing is an exercise in wagering on jockeys more than horses. One of the principal ways prospective investors have to assess jockeys is the manner in which professional backgrounds are set forth; i.e., management bios. Like a company .ppt, bios of named executive officers speak volumes about the people being described. Here are some things to look out for: a) bios that don’t contain specific company names (at least for a 10 year historic period) typically don’t for a reason, and it’s unlikely to be positive (e.g., “Mr. Smith has held senior management roles with several large technology companies”); b) it’s a good idea to compare SEC bios with bios you might find for the same people on other websites (remember the “three company CEO” referred to earlier?); c) bios that don’t contain any educational references or only highlight executive programs at Harvard, Wharton, Stanford, etc.; d) company websites that don’t have any management/director bios (surprising how many there are); and e) CEOs and CFOs who have never held those jobs before in a public company (to be clear, lots of micro-cap NEOs are “first-timers,” but it’s something you should at least factor into the risk profile of the investment).

5)    Management Conduct – just as management bios speak volumes, so does their conduct at in person one-on-one meetings. More specifically: a) organized, professional corporate leaders rarely look disheveled or have bad hygiene; b) service providers chosen by companies also represent the company, so the previous observation applies to bankers/lawyers as well; c) CEOs who are overly chatty about non-business issues might not be keen to talk about their companies; d) if a CEO seems glued to their .ppt presentation (i.e., essentially just reading you the slides), tell them to close their laptops and just talk about the company with no visual aids – you will learn an awful lot about them in the ensuing 5 minutes; e) be on the lookout for NEOs or service providers cutting each other off, disagreeing with each other, or talking over one another; f) when asking questions of the CEO or CFO watch their body language – moving around in their seats, running hands through their hair, perspiration, and less eye contact are nonverbal signs of duress (it’s one of the reasons why in-person meetings with management are always preferable to phone calls); g) if there are more than one NEOs in attendance, are they listening to each other (it’s rarely a great sign when other execs are looking at their phones during meetings); h) is the CEO providing careful, thoughtful answers or are they shooting from the hip – loose lips virtually always sink ships; i) did the CEO answer any questions with “I don’t know” – even great CEOs can’t possibly know the answer to every question about their companies; and j) something partially tongue-in-cheek just to think about – we know from everyday life that when someone starts a sentence with “with all due respect” what inevitably follows is, well, something disrespectful, and when a CEO repeatedly says “to be honest” what inevitably follows is….

6)    Service Providers – micro-cap service providers (bankers, lawyers, auditors, IR firms, etc.) can run the gamut from highly professional to so bad that they can actually jeopardize companies with their advice. While it certainly can take a while to learn “the good, the bad, and the ugly” in the micro-cap ecosystem, you can learn a lot about the CEO by asking him/her to take a few minutes to explain why the company’s service providers are the best choices for the shareholders. It perhaps goes without saying that if a CEO can’t speak artfully, and convincingly in this regard, then buyer beware.

7)    Corporate Governance – spans the full continuum in micro-cap companies from top-notch to nothing more than a mirage. One way to quickly ferret out which flavor of governance you’re dealing with is to ask a CEO to succinctly set forth the company’s strategy (i.e., goals, risks, opportunities, customers, etc.), and subsequently ask the CEO to describe how each seated director assists with the fundamental elements of achieving that strategy. Though oversimplified, material disconnects in this regard are very likely to illustrate some governance challenges. Also, ask the CEO how each of the directors came to the company; if all of the directors were brought to the company by the CEO, it’s fair to ask the CEO how confident an investor should be that the board is suitably independent to monitor the CEOs performance (one of the principal roles of all boards).

8)    Public Company IQ – easily one of the biggest problems with investing in the micro-cap arena is the conspicuous lack of (relevant, successful) capital markets and corporate finance experience in boardrooms and C-suites. As alluded to earlier, it’s a fact of life that a large percentage of micro-cap officers and directors lack appreciable tenures in shepherding small public companies (to be clear, this doesn’t mean they aren’t smart, successful, and sophisticated, it just means they haven’t had lots of experience in small public companies). Unlike larger public companies, small public companies can execute relatively well, and still toil in obscurity creating little or no value for shareholders.   It’s a good idea to evaluate the same when meeting with management, because companies with low “public company IQs” are more likely to underperform all else being equal. Be on the lookout for CEOs who: a) can’t articulate a sensible strategy for maintaining or increasing trading volume; b) seem to regularly undertake financings that are more dilutive than similarly situated peer companies; c) frequently authorize the issuance of press releases that don’t appear to contain material information; d) blame some or all of their capital markets challenges on short-seller/market-making conspiracy theories; and e) can’t name the company’s largest 5 shareholders, their approximate holdings, and the last time he/she spoke to each.

9)    Follow-Up – CEOs who promise to follow-up after meetings with clarified answers, customer references, or more information but don’t are tacitly underscoring for you that they are either disorganized, disingenuous, don’t care about investors or all three. The opposite is also not good; for example, if the company’s internal or external IR professionals subsequently convey information that seems inappropriate (from a Reg. FD standpoint) – it probably is.

10) Cautionary Note – Bernard Madoff undoubtedly would have passed these tests and a lot more with flying colors. Sometimes the “bad guys” are really smart and charming and you’re going to either lose most of your money or get defrauded, or both. It’s happened to me, and it’s maddening and humbling at the same time. Hence, the apt phrase: high risk, high return.

It’s easy, in my experience anyway, to get so skeptical about micro-cap companies that it can be paralyzing. But, just when you’re about to throw in the towel, along comes a compelling growth prospect run by management with as much integrity and skill as the day is long, and it serves as a poignant reminder of everything that’s great about investing in small public companies.

Like most “best-of” lists, this isn’t intended to be exhaustive by any stretch of the imagination. In addition to making money and promoting US jobs/innovation, one of the best parts of investing in small public companies in my opinion is continuing to hone the craft, and learn from other investors and their experiences. Accordingly, add/subtract per your own experiences, and happy hunting.

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*Adam J. Epstein advises small-cap boards through his firm, Third Creek Advisors, LLC, is a National Association of Corporate Directors Board Leadership Fellow, and the author of The Perfect Corporate Board: A Handbook for Mastering the Unique Challenges of Small-Cap Companies, (McGraw Hill, 2012). He was co-founder and principal of Enable Capital Management, LLC.

** En reprise

Even micro-cap companies not immune to proxy battles

Document de consultation de l’OCDE sur la révision des principes de gouvernance |2014

Voici le document de consultation de l’OCDE sur la révision des principes de gouvernance |2014, présenté à Paris le 17 mars 2014. Ce document est en version anglaise seulement. Après la révision, l’OCDE produira des versions dans toutes les langues !

Celui-ci explicite les objectifs de politiques publiques en gouvernance, explore le nouveau paysage qui commande des changements en gouvernance et suggère sept (7) domaines susceptibles d’engendrer des changements importants au document Principe de gouvernance de 2004 (OECD Principles of Corporate Governance).

Je vous invite à participer à cette consultation si vous croyez utile de le faire. Ci-dessous, une introduction, suivie des 7 développements qui influeront sur la nouvelle version des principes de gouvernance de l’OCDE.

The OECD Principles of Corporate Governance is a public policy instrument intended to assist governments in their efforts to evaluate and improve the legal, regulatory and institutional framework for corporate governance. As formulated in the mandate that was given to the OECD Corporate Governance Committee in 2010, the objective is to contribute to « economic efficiency, sustainable growth and financial stability ». In practice, this objective is achieved by formulating principles for policies that give market participants sound economic incentives to perform their respective roles within a framework of checks and balances where transparency, supervision and effective enforcement provides confidence in market practices and institutions.

English: The logo of the Organisation for Economic Co-operation and Development (OECD). (Photo credit: Wikipedia)

While the Principles may inspire voluntary initiatives and influence practices in individual companies, the Principles do not aspire to include a shopping list of what individual market participants, such as shareholders, boards, managers and other stakeholders, from their unique perspectives, may consider good business judgment or sound commercial practices. What works in one company or for one investor may not necessarily be generally applicable as public policy or of systemic economic importance to society.

In order to be relevant and effective, the legal and regulatory framework must be shaped with respect to the economic reality in which it will be implemented. This is true also for the recommendations made in the Principles. And since they were last revised in 2004, the world has experienced a number of important events and structural developments in both the financial and corporate sectors. This obviously includes the financial crisis. But equally important for the review of the Principles are the far reaching changes in corporate ownership and investment practices. In some respects, these changes have come to challenge conventional wisdom and the relevance of current corporate governance standards. Several of these developments have been documented and analysed by the Corporate Governance Committee and the Regional Corporate Governance Roundtables and some of the background reports that have been written to support the review are annexed to this note for reference.

Seven main events and developments of importance to the review of the Principles can be identified:

The financial crisis.

The financial crisis revealed severe shortcomings in corporate governance. When most needed, existing standards failed to provide the checks and balances that companies need in order to cultivate sound business practices. Corporate governance weaknesses in remuneration, risk management, board practices and the exercise of shareholder rights played an important role in the development of the financial crisis and such weaknesses extended not only to the financial sector, but to companies more generally. The lessons from the financial crisis are discussed in the Committee’s report « Corporate Governance and the Financial Crisis: Conclusions and Emerging Good Practices to Enhance Implementation of the Principles » (2010).

Developments in institutional ownership, investment strategies and trading techniques.

Since the Principles were revised in 2004, assets under management by institutional investors have increased considerably. We have also seen a surge in new types of institutional investors, investment vehicles and trading techniques. Taken together, these developments have affected the character and quality of ownership engagement. Many of the largest institutional investors, such as pension funds, insurance companies and mutual funds use indexing as the prime investment strategy. A special, and increasingly popular, version of indexing is the use of Exchange Traded Funds (ETFs), which increased by more than 1000 percent between 2004 and 2011. A common characteristic of these investment practices is that they motivate investors to pay little or no attention to the fundamentals of individual companies, since the composition of the index is pre-defined and adjustments in the portfolio is not by active choice but rather a result of the index weighting. The same effect results from the surge in so-called high frequency trading where the investment strategy and ultra-short holding periods do not motivate any corporate specific analysis or ownership engagement. A fourth development that has attracted a lot of interest and debate is co-location of brokers, data vendors and other participants’ computer capacity within the stock exchanges’ data centres. This has raised concerns about confidence in a level playing field among different categories of investors with respect to market information. These developments and their implications for the economic incentives for ownership engagement among institutional investors are further discussed in « Institutional Investors as Owners – Who Are They and What Do They Do? » (2013).

Developments in the investment chain and the use of service providers.

The real world of ownership characterised by institutional (or intermediary) investors is a very different reality than the model textbook world of company law and economics, which assumes a strict and uncompromised alignment of interest between the performance of the company and the income of the ultimate shareholder. Instead of a straight line from « from profit to pocket », which is assumed in theory, we have an extended and sometimes very complex investment chain where different actors may have different incentives. The implications for the quality of ownership engagement are discussed in the background report « Institutional Investors as Owners – Who Are They and What Do They Do? » (2013). Among other aspects, the report highlights the possible implications of cross-investments between different institutional investors and the extensive use of proxy advisers, which is sometimes argued to impose a box ticking culture of « one-size-fits-all ». The last couple of decades have also seen an increase in outsourcing of asset management to external asset managers who may also be charged with carrying out the ownership functions. The complexity of the investment chain is also influenced by changes in stock market structures, trading practices and investment strategies. One example is the increased use of dark pools and off-exchange trading platforms that has increased concerns about the quality of the price discovery process and equal access to market information, which is so essential for efficient allocation of capital.

Developments in shareholder rights and participation.

Since the last review of the Principles, shareholder rights in many countries have been strengthened and there is a general trend to empower the shareholder meeting in the corporate decision-making process, particularly with respect to board nomination and remuneration policies. Technological advancements have also contributed to facilitating shareholder participation in the shareholder meetings. As documented in the report « Who Cares? Corporate Governance in Today’s Equity Markets » (2013), several studies illustrate a relatively high level of participation in shareholder meetings in most OECD countries, including the United Kingdom and the United States that have predominantly dispersed ownership at corporate level. Today, the discussion on shareholder participation is mainly focused on the actual quality of shareholder monitoring and engagement, with the exception of issues related to shareholder co-operation. In some countries, particularly in emerging market economies, it is also argued that ownership engagement is impeded by difficulties with respect to placing items on the agenda of the shareholders’ meeting; the rules for convening shareholders’ meetings; limited access to relevant documentation and restrictions on share ownership by institutional investors.

Developments in corporate characteristics and business models.

Investments in fixed assets, such as machinery and buildings, have for decades been seen as the main source of capital formation. A recent OECD study1, however, shows that business investment in intangible assets has been increasing faster than investments in fixed assets for a number of years in many OECD countries and already accounts for more than half of the total business investment in some countries. The result is an increased dependence on human capital and intangible assets for innovation and value creation at firm level. At the same time, there has been significant number of acquisitions by some large established companies in more intangible-asset-intensive industries, partly through their venture units. Together with the decrease in the number of new listings in advanced stock markets, these developments have raised concerns about the ability of growth companies to develop and expand as independent companies. One preliminary indicator is the decrease in the share of young companies as percentage of the total number of companies in the US by 16% over the last decade. Another important development in terms of corporate characteristics and business models is the creation and surge of alternative corporate structures, mainly in the form of partnerships. This includes publicly traded partnerships (PTPs) and master limited partnerships (MSPs) that trade on securities exchanges.

Developments in corporate ownership.

Traditionally, the international corporate governance debate has focused on situations with dispersed ownership where the conflict is a zero sum game between dispersed owners on the one hand and incumbent management on the other hand. This « agency » approach has its merits but it also has important weaknesses. One important weakness is that most listed companies around the world are not characterized by dispersed ownership. Rather, they have a controlling or dominant owner. This is particularly true in emerging markets. But controlling owners are also common in most advanced economies, including the US and continental Europe. It has been argued that the focus on dispersed ownership is of limited help when addressing corporate governance issues in companies that have a controlling owner. The presence of controlling owners is generally assumed to provide strong incentives for informed ownership engagement and to overcome the fundamental agency problem between shareholders and managers. There are also arguments that the incentives for controlling owners to assume the costs for this ownership engagement are weakened by restrictions on the possibilities of controlling owners to exercise their rights and be properly compensated for their efforts to monitor. Some of these are discussed in the background paper « The Law and Economics of Controlling Owners in Corporate Governance » (2013). At the same time, there are concerns that controlling owners in a weak regulatory framework may take advantage of minority shareholders through abusive related party transactions. This is discussed in the report « Related Party Transactions and Minority Shareholder Rights » (2012).

Developments in the functioning of public stock markets.

Corporate governance policies are focused on companies that are traded on the public stock market. To understand the functioning and structure of public stock markets is therefore essential for getting the corporate governance rules right. And today, stock markets look very different from what they did when the OECD Principles were first established. The developments are well documented in the background reports « Who Cares? Corporate Governance in Today’s Equity Markets » (2013) and « Making Stock markets Work to Support Economic Growth » (2013), which address issues such as market fragmentation, increased use of dark pools, changes in « tick-size », high-frequency trading and co-location. The reports also show that during the last decade, some of the leading stock markets in the world have lost as much as half of their listed companies and that the average size of companies that find their way to the stock market has increased. At the same time, stock exchanges in emerging markets, notably in Asia, have increased the number of listed companies significantly. Between 2008 and 2012 a majority of all new listings in the world were in emerging markets. Since the free float (the portion of outstanding shares regularly available for public trading) is relatively small in these markets, one consequence of this development is an increase in the number of publicly traded companies that have a controlling owner. Another important development is the occurrence of cross-listings and secondary listings, which raises issues related to the standards and procedures for recognizing of corporate governance standards in primary listing venues and the allocation of supervisory obligations between listing stock exchanges. We have also seen a development where stock exchanges have demutualised and become listed companies on themselves; so called self-listing. At the same time, there has been a certain degree of consolidation through mergers of regulated exchanges both at national and international level, which was coupled with the emergence of new venues for trading; such as alternative trading venues and dark pools.

2014 Review of the OECD Principles of Corporate Governance

First released in May 1999 and last revised in 2004, the OECD Corporate Governance Committee has launched a further review of the OECD Principles of Corporate Governance. The review process starts in 2014 with the objective of conclusion within one year.

The OECD Principles are one of the 12 key standards for international financial stability of the Financial Stability Board (FSB) and form the basis for the corporate governance component of the Report on the Observance of Standards and Codes of the World Bank Group.

The rationale for the review is to ensure the continuing high quality, relevance and usefulness of the Principles taking into account recent developments in the corporate sector and capital markets. The outcome should provide policy makers, regulators and other rule-making bodies with a sound benchmark for establishing an effective corporate governance framework.

The basis for the review will be the 2004 version of the Principles, which embrace the shared understanding that a high level of transparency, accountability, board oversight, and respect for the rights of shareholders and role of key stakeholders is part of the foundation of a well-functioning corporate governance system. These core values should be maintained and, as appropriate, be strengthened to reflect experiences since 2004.

As the Principles are a global standard also adopted by the FSB, all FSB member jurisdictions are invited to participate in the review as Associates and have the same decision-making rights as OECD members.

The review will benefit from consultations with stakeholders, including the business sector, investors, professional groups at national and international levels, trade unions, civil society organisations and other international standard setting bodies.

Peer reviews – In response to the corporate governance challenges that came into focus in the wake of the financial crisis, the Corporate Governance Committee launched a thematic review process designed to facilitate the effective implementation of the OECD Principles and to assist market participants and policy makers to respond to emerging corporate governance risks. These peer reviews will provide valuable background support to the review.

OECD Forecasts During and After the Financial Crisis: A Post Mortem

PLANIFICATION D’AUDIT INTERNE BASÉE SUR LES RISQUES

Denis Lefort, CPA, expert-conseil en Gouvernance, audit et contrôle, porte à ma connaissance un document de la firme Thomson Reuters (White paper) qui aborde les écueils que n’ont pas su toujours éviter les responsables d’audit interne lors du déploiement de leur processus de planification annuelle/triennale fondé sur les risques.

Votre planification prend-t-elle vraiment en compte les objectifs stratégiques de votre organisation ainsi que les risques qui pourraient prévenir leur réalisation…
Votre planification prend-t-elle vraiment en compte les travaux réalisés par les autres fonctions d’assurance de votre organisation (Gestion des risques, Conformité, Finance, etc..)…
Votre planification prend-t-elle vraiment en compte les préoccupations des dirigeants….

Voici un aperçu de la table des matières du document. Bonne lecture et bonne réflexion.

PLANIFICATION D’AUDIT INTERNE BASÉE SUR LES RISQUES

A TYPICAL INTERNAL AUDIT SCENARIO

REVIEW STANDARD INTERNAL AUDIT PROCEDURES

LISTEN TO MANAGEMENT: THE REAL OPPORTUNITY

LAY THE FOUNDATIONS: THE IMPORTANCE OF A ROBUST METHODOLOGY

KNOW YOUR COMPANY’S RISK APPETITE

PLAN FOR SUCCESS

UNDERSTAND THE BUSINESS AND ITS CULTURE

As the COSO Internal Control – Integrated Framework (2013) states, « risk assessment involves a dynamic and iterative process for identifying and assessing risks to the achievement of objectives ». Yet many in-house internal audit functions look at the annual internal audit risk assessment process as a check-the-box activity, required mainly to be in compliance with the IIA professional practices framework.

Typically, a three or five-year review cycle for the entire organization is already in place, and the annual internal audit risk assessment barely scratches the surface: It is merely used to justify minor modifications in the risk-based internal audit plan. Yet the internal audit risk assessment presents an often missed opportunity for internal auditors to understand their organization’s evolving objectives and implement a more dynamic risk-based approach to the internal audit process. Let’s take a look at a typical scenario played out every day and see if we, as uninvolved by-standers, can audit the process and see it if falls short in any way.

In advance of this year’s risk assessment, the internal audit department reviewed and revised their risk assessment process and the various preparation materials for management participants. The preparation materials included a list of key management participants with their preferred contact method, a list of internal audit risk assessment questions, an announcement letter explaining the importance of the annual risk assessment process, and a presentation that provided examples of beneficial insight received from the previous year’s risk assessment.

During the risk assessment, the internal audit staff rigorously captures each management remarks in an effort to record each detail, be it quantitative or qualitative. As the « scribe, » the internal audit staff is responsible for note taking, while the internal audit director asks management a series of questions from the annual list of internal audit risk assessment queries. The internal audit director conducts the interview in a way that illustrates both their tremendous understanding of the business and their ability to not get bogged down in the details. The individual representing management, on the other hand, usually provides general responses highlighting a few generic risks inherent in their business, but not enough for one to actually audit. One of those general responses was around an increase in the organization’s credit risk exposure.

Les priorités et les questionnements en TI | Survey 2014 de Provitivi

The Future of Information Technology (Photo credit: MDGovpics)

Vous trouverez, ci-dessous, les résultats d’un sondage très poussé effectué par la firme PROTIVITI qui présente les priorités 2014 dans le domaine des technologies de l’information.

Ce document expose une liste assez exhaustive de thèmes à considérer sur diverses problématiques IT. On y commente les principaux résultats du sondage et on fait état des questions-clés susceptibles d’intéresser les administrateurs et les dirigeants.

À l’instar de Denis Lefort, CPA, expert-conseil en Gouvernance, audit et contrôle, je vous encourage à lire ce document récent et très pertinent pour les organisations aux prises avec diverses problématiques liées au champ IT.

IT Priorities 2014 | Protiviti Survey

La transformation de l’audit interne par l’utilisation de la pensée critique | KPMG

Denis Lefort, CPA, expert-conseil en Gouvernance, audit et contrôle, porte à ma connaissance un document de la firme KPMG qui présente le concept de pensée critique (critical thinking) adapté à l’audit interne. Ce document présente également une pyramide des différents niveaux de maturité de l’audit interne, laquelle culmine avec la pensée critique, puis la création de valeur.

Ce document propose trois ajustements au cycle d’audit interne pour bien refléter une approche intégrant la pensée critique.

À l’instar de Denis Lefort, je vous encourage à lire ce document très intéressant lequel saura peut-être vous inspirer !

Transforming Internal Audit Through Critical Thinking

In an uncertain and challenging economy, organizations are seeking an approach to internal audit that goes beyond reviewing past activities. Instead, they want internal audits that are insightful, forward looking, and go beyond preserving value to creating value on a departmental, divisional, or organization-wide level.

To meet these expectations, internal audit leaders must strive to migrate to more advanced stages of maturity that evolve basic auditing processes and skills towards an approach to create value and insight to an organization. Many internal audit functions establish goals to achieve higher value; however, they fall short in one of two ways:

The skill sets and competencies of the team are not sufficiently cross-functional or developed in each team member to deliver the expected value

The internal audit approach is not redesigned to facilitate a new approach in planning, execution, and reporting of results.

This is where the critical thinking approach comes into play. Critical thinking is defined as an open-minded approach to analyzing a situation or task for the development of supportable conclusions and conveying the assessed results in a logical manner. The application of this concept in internal audit is where value can be unleashed within an organization. Applying critical thought to internal audit is more than just a planning exercise, but one in which every element of your process is challenged. This step-by-step exercise of identifying existing or new interdependencies, inputs, relationships, and opportunities in each phase of the audit can create new information for eager business leaders about how to approach risks and improvement opportunities from a new angle.

Critical thinking can help shift the purpose of internal audit to create value and expand or develop the positive perception of the department across the organization. The full maturity, when successfully implemented, goes a level beyond operational auditing and should result in opening more doors for internal audit to sit on steering committees, task forces, and other strategic initiatives. Critical thinking as a core approach for internal audit establishes a strategic partner within the business, focused on achieving balance between risk management and business performance.

Comment éviter qu’un C.A. composé de membres indépendants soit à la merci du management ?

L’article ci-dessous publié par Ann C. Mulé et Charles M. Elson, respectivement associée et directeur du Center for Corporate Governance à l’Université du Delaware, mérite toute l’attention des comités de gouvernance des sociétés.

En effet, il existe plusieurs cas d’entreprises très vulnérables parce qu’elles sont, en quelque sorte, totalement dépendantes du PCD et de la haute direction. C’est ce que les auteurs appellent « Management knowledge-captured board« . Comment éviter qu’un C.A., composé de membres indépendants, soit totalement à la merci du management ?

Je vous invite à lire l’article. Bonne lecture !

A new kind of captured board

It may seem overly obvious, but we will say it anyway. Boards of directors need people who know what they are doing. They also need people who have the objectivity to then follow through and make the best décisions for shareholders. What boards need are industryexpert independent directors.

RDECOM Board of Directors Site Visit (Photo credit: RDECOM)

We believe, as longtime governance advisors, that this issue is critically important. It is essential that most publicly traded U.S. companies have one or more independent directors with industry expertise represented on the board. Recent academic studies, Delaware litigation, and activist shareholder campaigns — and reason — support this view.

Good-governance advocates have long sought to dismantle the “management-captured board,” in part, by stressing the importance of board independence. Sarbanes-Oxley, Dodd-Frank, and the stock exchange corporate governance listing standards have largely codified an intensified board independence regime for public companies. The underlying belief was that board independence would strengthen a board’s ability to challenge management as appropriate from both a board monitoring and advising perspective. As a result, when seeking to fill a board seat many U. S. boards have searched for director candidates who are current or former CEOs or other C-suite executives who were “independent” without regard as to whether or not that individual was knowledgeable about the company’s business or industry.

Gouverner et gérer sont-ils deux systèmes de pensée différents ?

Peter Tunjic* avance que les actes de gouvernance, de la part d’un conseil d’administration, et les actes de direction, au sens de management, correspondent à deux systèmes de pensée fondamentalement différents.

Dans son article, l’auteur présente une matrice que vous trouverez peut-être utile de considérer. Je vous invite à lire l’article pour plus de détails.

Governing and Directing : Are They Different ?

A recent survey of CEO attitudes to their boards by respected commentator Jeffrey Sonnenfeld and his colleagues, shouldn’t surprise anyone: ‘CEOs complain that boards often lack the intestinal fortitude for the level of risk taking that healthy growth requires.

“Board members are supposed to bring long-term prudence to a company”, as one CEO says, but this often translates to protecting the status quo and suppressing the bold thinking about reinvention that enterprises need when strategic contexts shift.’ Consensus is emerging that public company boards are too focused on compliance and are ignoring their role as creators of enduring value for the firms they direct. But it’s not for lack of will on their part.

The board’s role in strategy is considered the biggest issue for 67 per cent of respondents to the 2012 Spencer Stuart US Board Index want to spend more time on strategy. Despite this, according to Heidrick & Struggles, 84 per cent of directors of the top 2,000 largest publicly traded companies in the US thought ‘they are now spending more time on monitoring and less on strategy. Consequently, only one-third of respondents to a 2013 McKinsey & Company report say they have a complete understanding of current strategy. If directors have their eyes on value creation why is it that their feet are still pointing in a different direction? It’s because the system is not designed to create value. Best practice in corporate governance produces too many ‘governors’ focused on protecting value and not enough directors focused on creating it.

Public companies have become over governed and under directed because corporate governance regulation and education is designed to ensure the ‘correct’ board structure, process and composition rather than ensure ‘imagination, creativity, or ethical behavior in guiding the destinies of corporate enterprises’

This paper argues that in order to create enduring value, public company directors must go beyond governing and governance and must also embrace ‘directing’ and ‘directorship’. I propose that governance and directorship are two distinct systems of thought and action in the boardroom.

The difference between the two lies primarily in their attitude to value. Governance concerns right structure and process. The focus is on protecting and preserving value through maintaining control and managing risk. In contrast, directorship involves bold choices that necessarily create risk.

Directing involves designing the ways in which value is created, making decision of consequence and inspiring CEO’s to lead their organisations into strength, resilience and endurance. The boundaries between the two might blur in the heat of a board meeting, but the differences in attitude, competencies and outcome are clear. Here are four tests to help you decide whether you stand on the question of value.

Governing for shareholder value versus directing for firm value

Measuring value versus creating value

Governing for transparency versus directing with discretion

Managing risk versus creating risk

…. The DLMA Matrix graphically represents the similarities and differences of each perspective as well as the inherent dilemma required to balance them all.

THE DLMA MATRIX ™

_______________________________

*Peter Tunjic is an independent corporate advocate and commercial lawyer based in Melbourne, Australia. He is the author of ondirectorship.com and has co-authored several learning programmes for the Australian Institute of Company Directors. He consults on creating value in the boardroom and improving board/manager relations.

Articles d’intérêt :

Comité des C.A. sur la surveillance des risques

Ci-dessous, vous trouverez un billet, partagé par Denis Lefort, expert-conseil en gouvernance et en audit interne, qui vous incite à prendre connaissance du Bulletin de janvier 2014 du Conference Board intitulé « Risk Oversight: Evolving expectation for Board« .

Risk Oversight : Evolving Expectations for Boards

Présenté par Denis Lefort, CPA, CA, CIA, CRMA

Ce document, très intéressant, fait un retour en arrière sur les différentes analyses et recommandations effectuées par différents groupes dont, le NACD, la SEC, le SSG, Dodd-Frank, ICGN, FSB, FRC (les acronymes sont explicitées dans le document de 10 pages), dans la foulée des scandales financiers de 2008.

English: Contribution and prioritizing threats and risks to Risk Management Effectiveness (Photo credit: Wikipedia)

Le document est très critique quant au rôle très actif que devraient jouer les conseils d’administration au niveau de la surveillance des risques. Il est aussi très critique des approches mises en œuvre par les fonctions Gestion des risques et audit interne. Enfin, des recommandations sont formulées pour ces trois instances.

Bien qu’au départ, le document ait ciblé les institutions financières, ses propos peuvent s’appliquer à un grand éventail d’organisations. C’est pourquoi je vous encourage tous à en prendre connaissance et à le partager avec vos dirigeants, membres de conseils, collègues et contacts professionnels. Voici un extrait. Bonne lecture !

The Risk Oversight Committee is responsible for :

a. determining where and when formal documented risk assessments should be completed, recognizing that additional risk management rigor and formality should be cost/benefit justified

b. ensuring that business units are identifying and reliably reporting the material risks to the key objectives identified in their annual strategic plans and core foundation objectives necessary for sustained success, including compliance with applicable laws and regulations

c. reviewing and assessing whether material risks being accepted across XYZ are consistent with the corporation’s risk appetite and tolerance

d. developing, implementing, and monitoring overall compliance with this policy

e. overseeing development, administration and periodic review of this policy for approval by the board of directors

f. reviewing and approving the annual external disclosures related to risk oversight processes required by securiti esregulators

g. reporting periodically to the CEO and the board on the corporation’s consolidated residual risk position

h. ensuring that an appropriate culture of risk-awareness exists throughout the organization

Business unit leaders are responsible for:

a. managing risks to their unit’s business objectives within the corporation’s risk appetite/tolerance

b. identifying in their business when they believe the benefits of formal risk assessment exceed the costs, or when requested to by the CEO or risk oversight committee

Risk management and assurance support services unit is responsible for :

a. providing risk assessment training, facilitation, and assessment services to senior management and business units upon request

b. annually preparing a consolidated report on XYZ’s most significant residual risks and related residual risk status, and a report on the current effectiveness and maturity of the Corporation’s risk management processes for review by the risk oversight committee, senior management, and the corporation’s board of directors

c. completing risk assessments of specific objectives that have not been formally assessed and reported on by business units when asked to by the risk oversight committee, senior management, or the board of directors; or if the risk management support services team leader believes that a formal risk assessment is warranted to provide a materially reliable risk status report to senior management and the board of directors

d. conducting independent quality assurance reviews on risk assessments completed by business units and providing feedback to enhance the quality and reliability of those assessments

e. participating in the drafting and review of the corporation’s annual disclosures in the Annual Reports and Proxy Statement related to risk management and oversight

Audit and Risk Management

Redefining The Role Of Internal Audit: Part Two (business2community.com)

Redefining The Role Of Internal Audit: Avoiding Redundancy (business2community.com)

Risk Based Internal Audit Planning (learnsigma.co.uk)

The difference between internal audit and external audit, by a firm consulting (iareportg5.wordpress.com)

Getting from Continuous Auditing to Continuous Risk Assessment (mjsnook.co)

The Internal Audit Activity’s Role in Governance, Risk, and Control (IIA Certified Internal Auditor – Part 1) (examcertifytraining.wordpress.com)

The Biggest Problem With Being CEO

Grande conférence en gouvernance de sociétés | CAS

Le Collège des administrateurs de sociétés est fier de présenter sa 8e Grande conférence en gouvernance de sociétés, qui aura lieu le mardi 4 février 2014, au Parquet du Centre CDP Capital, à Montréal, dès 17 h. Un cocktail dînatoire suivra la conférence.

Lors de l’événement, M. Louis Morisset, président-directeur général de l’Autorité des marchés financiers, agira à titre de conférencier.

Le thème de cette conférence portera sur « La force du régulateur intégré et les grands enjeux de gouvernance ».

Grande conférence annuelle du CAS en gouvernance de sociétés | Montréal – 4 février

Inscription et déroulement [+]
Réservation avant le 25 janvier.

Cinq (5) points que les comités d’audit doivent prendre en considération

Denis Lefort, CPA, expert-conseil en Gouvernance, audit et contrôle, porte à ma connaissance une publication de la firme Deloitte qui aborde cinq points que les comités d’audit doivent prendre en considération afin de réussir en période de changement et d’incertitude :

1 . Protéger la marque et la réputation

2. Renforcer la confiance des investisseurs

3. Rendre l’information financière plus pertinente pour les parties prenantes

4. Tirer parti de l’évolution technologique

5. Payer sa « juste part » d’impôts

Voici un extrait du document ci-dessous. Bonne lecture ! Vos commentaires sont les bienvenus.

Réussir en période de changement et d’incertitude : plans d’action à l’intention des comités d’audit

La plupart des entreprises prennent des mesures pour améliorer leur capacité de livrer concurrence à long terme, notamment en mettant en œuvre de nouvelles technologies, en créant des partenariats, en rationalisant leurs activités ou en explorant de nouveaux marchés, mais elles doivent aussi composer avec les changements découlant des percées technologiques, de l’entrée en vigueur de nouveaux textes réglementaires et des modifications des normes d’information financière.

Audit (Photo credit: LendingMemo)

Dans un tel contexte, les comités d’audit ont un rôle de plus en plus important à jouer, qui dépasse celui de la seule surveillance des rapports financiers et autres informations réglementaires que leur organisation doit fournir.

La présente publication aborde cinq points que le comité d’audit doit prendre en considération.

Protéger la marque et la réputation :

Aujourd’hui les entreprises sont de plus en plus jugées sur leur conduite. Respecter les lois ne suffit plus; on s’attend à ce que les entreprises se conforment à des normes plus élevées. Si elles ne peuvent entièrement contrôler la perception qu’on a de leur marque, elles peuvent prendre des mesures pour se protéger contre les atteintes à leur réputation et se doter d’un plan d’action qu’elles pourront mettre en œuvre rapidement advenant une controverse.

Renforcer la confiance des investisseurs :

Les responsabilités des comités d’audit se sont accrues considérablement au cours des dix dernières années. Aujourd’hui, les organismes de réglementation internationaux projettent d’imposer de nouvelles règles pour améliorer la qualité des audits. Un grand nombre d’entre elles auront des répercussions sur la manière dont les comités d’audit s’acquittent de leurs responsabilités et font rapport aux actionnaires.

Rendre l’information financière plus pertinente pour les parties prenantes :

Les normes comptables ont fait l’objet de nombreuses modifications qui ont rendu la comptabilité moins intuitive et plus détaillée. Plusieurs modifications avaient pour but de résoudre des problèmes financiers et, plus récemment, de dissiper de plus vastes préoccupations des parties prenantes, sur les plans social et environnemental, notamment. Les comités d’audit doivent jouer un rôle actif pour faciliter l’identification, la compréhension et l’adoption de nouvelles normes tout en veillant à ce que les informations que l’entreprise communique à ses parties prenantes soient pertinentes et utiles.

Tirer parti de l’évolution technologique :

Pratiquement toutes les activités reposent à présent sur la technologie ou sont assistées par la technologie, ce qui donne aux entreprises des occasions sans précédent de réaliser des économies d’échelle, de réinventer leurs modèles d’affaires ou d’améliorer leurs liens avec les parties prenantes. Les données numériques sont aujourd’hui une richesse extrêmement prisée, ce qui rend nécessaire la mise en place de processus de gouvernance semblables à ceux qui encadrent l’information financière pour garantir l’intégrité des données et des systèmes d’information.

Payer sa « juste part » d’impôts :

De nombreuses organisations ont été accusées, tant par des groupes d’activistes que par les médias, de ne pas payer leur « juste part » d’impôts. Dans un environnement où des mesures de planification fiscale innocentes et légitimes sur le plan commercial sont mal vues, les comités d’audit doivent s’assurer que les stratégies fiscales auxquelles l’organisation a recours sont bel et bien fondées en droit et comprendre comment ces stratégies peuvent être perçues par le public.

L’analyse de ces points vise à aider les comités d’audit à établir des plans d’action adaptés à leur entreprise et à sa situation tout en créant de la valeur pour les parties prenantes.

Chacune des rubriques de la présente publication propose des points à l’intention des comités d’audit afin de les y assister.

Le rôle de l’audit interne dans l’identification des risques émergents

Syllabus d’un cours sur la gouvernance des OBNL et des entreprises d’état

Ce matin, Richard Leblanc nous présente un « draft » de son nouveau syllabus de cours offert à l’Université York sur la gouvernance des OBNL et des entreprises/sociétés d’état.

Ce n’est pas qu’il n’y a pas de cours dans ce domaine – loin de là – mais je puis vous assurer qu’il n’y en pas de si complets … et de si exigeants.

Voyez par vous-même en suivant le lien ci-dessous pour vous rendre sur le groupe de discussion Boards & Advisors de LinkedIn et ouvrir le document présentant le syllabus.

Si vous êtes dans le domaine de la consultation, du coaching et de la formation en gouvernance, notamment des OBNL, les éléments de contenu de ce syllabus ainsi que les nombreuses références qu’il contient vous intéressera sûrement. Bonne lecture. Vos commentaires sont les bienvenus.

Syllabus du cours « Governance of Government Enterprises and Not-for-Profit Organizations »

Voici les thèmes des sessions :

Introduction to Accountability Issues in Governmental and Not-for-Profit Organizations
Legal Framework, Structure, Rationale, Policies, Controls
Governance of State Owned Enterprises
Operation of the Board, Board and Committee Meetings, and Staff Relations
Development and Retirement of Directors
Fundraising and Donor Stewardship
Financial Oversight, Anti-Fraud, External Audit, and Internal Audit
Values, Mandate, Strategy and Prerogative
Risk, Internal Controls, and Assurance
Organizational Performance, CEO Succession, and Executive Compensation
Stakeholder Accountability of Crown Corporations and Other Public Entities: Government as Sole Shareholder, Taxpayors; Members, Donors, Funding Agencies, Beneficiaries, Volunteers, Staff, Partners, Sponsors, Community
Fraud, Corruption, Lack of Oversight, and Misbehavior Case Analysis: The Senate of Canada, The Quebec Corruption Inquiry, Ontario Power Generation, the Mayor of Toronto

Convergence de vue accrue entre administrateurs et investisseurs

Voici un rapport de recherche de PwC qui tend à démontrer que les administrateurs et les investisseurs partagent les mêmes points de vue sur les plusieurs priorités, dont les suivantes :

(1) la planification stratégique,

(2) la gestion du risque et

(3) la planification de la succession.

Une belle lecture du temps des Fêtes!

What’s important to directors and investors? Depends on whose shoes you’re in !

There is considerable alignment between directors’ and investors’ views on the important issues directors should be focusing on in the coming year, according to the report. Both groups include strategic planning, risk management, and succession planning as top priorities. Ninety-five percent of investors say strategic planning is the “most or a very important” area for director focus while nearly eight of 10 directors say they want to spend more time in that area going forward.

In the area of IT, more than three-quarters of investors believe directors should be at least “moderately” focused on new business models enabled by IT, but only 45% of directors say they are very or moderately engaged in doing so.

For director Mike Monahan, deciding on how to provide oversight of new IT-enabled business models versus major IT project implementations is not black and white.

“They are both important, and the relative importance depends a great deal on the core mission and market characteristics of the company,” said Monahan, audit committee chair for CMS Energy.

He points to a development at a large public gas and electric utility where he sits on the board. “We are in the process of installing a so-called smart energy system whereby the company will provide meters with the capability of providing significant value to customers by enabling them to better manage their energy consumption,” he said. “The communication regime with the customer is important, but the IT-based development and installation project is more important. Without an effective application there would be no smart energy system.”

Other key findings from the PwC comparison of the director and investor surveys include:

Compensation

Directors and investors both believe that compensation consultants are “very influential” over board decisions on executive compensation (41% and 37%, respectively). And, each group had similar views on the influence of institutional shareholders, rating them “very influential” at 22% and 18%, respectively. However, by a margin of 38 percentage points investors are more likely than directors to believe that CEO pressure has a “very influential” effect on board decisions about compensation.

At least 70% of directors and investors indicate that some type of action was taken by their company in response to say on pay voting results. But investors believe that directors should reconsider their companies’ executive compensation plan at relatively lower levels of negative voting.

Regulatory and enforcement

Forty-seven percent of investors and 64% of directors say recent legislative, regulatory and enforcement initiatives have increased investor protections “not very much” or “not at all,” with very few (2% and 4%, respectively) indicating that they have helped “very much.” At the same time, one-third of directors and almost one in five investors think the costs to companies of such increased activities have “very much” exceeded the potential benefits. Eighty percent of investors and three-fourths of directors also conclude these initiatives have increased public trust in the corporate sector “not very much” or “not at all.”

Board composition, structure and performance

Twenty-eight percent of directors say the ability of boards to provide effective oversight has increased in the last 12 months, compared to 19% of investors. Similarly, 33% of directors say that board effectiveness in overseeing risk has increased compared to 27% of investors.

Nineteen percent of investors indicate the board should reconsider re-nomination of a director if he/she receives between 11% and 15% negative shareholder voting, compared to only 8% of directors who would use the same benchmark.

The report also compares CEO viewpoints alongside directors and investors regarding company strategy and risk management. It showed that all three parties believe customers and clients have the most significant influence on company strategy. As for the greatest impediment to growth, directors and investors said it is “uncertain or volatile economic growth” (91%) while CEOs said it is government response to “fiscal deficit and debt burden” (93%).

Réflexions capitales pour les Boards en 2014 – The Harvard Law School (jacquesgrisegouvernance.com)

Appointment of independent directors necessary for improved corporate governance – The Economic Times (csuitementor.wordpress.com)

NACD Issues Perspective on Executive Compensation Definitions to Help Corporate Boards Communicate Link Between Pay and Performance (virtual-strategy.com)

Le comité de gouvernance du C.A. | Élément clé d’une solide stratégie (jacquesgrisegouvernance.com)

Liens étroits entre les PCD (CEO) et les administrateurs des comités d’audit

Voici un article choc publié par Dena Aubin et diffusé par l’agence Reuters le 10 décembre 2013. Il est ici question d’une recherche universitaire menée par deux professeurs de l’Université de Tilburg aux Pays-Bas qui montre que 40 % des administrateurs responsables de la supervision des affaires financières entretiennent des liens sociaux très étroits avec la haute direction de l’entreprise, laissant une impression de non-indépendance et de possibilité de conflit d’intérêt entre des personnes qui ont des liens d’amitié et d’affinité.

De là à penser que ces administrateurs seront plus susceptibles d’adopter des positions plus favorables à la direction, il n’y a qu’un pas à franchir. Et les chercheurs n’ont pas hésité à pousser leur investigation dans ce sens.

L’étude montre que ces situations de « proximité » peuvent donner lieu à de plus faibles contrôles financiers, notamment à des manipulations comptables, suivies de tentatives d’étouffer la vérité.

Ce sont des études comme celle-ci qui amène les autorités règlementaires à resserrer les critères d’indépendance des membres des comités d’audit.

Bonne lecture; vos commentaires sont les bienvenus.

Clubby ties between U.S. CEOs and board audit committees: study

NEW YORK (Reuters) – Almost 40 percent of U.S. corporate directors with responsibility for monitoring the profit-and-loss ledger have social ties to the chief executive, a study says, making them look more like lapdogs than watchdogs.

Conducted by two accounting professors at Tilburg University in The Netherlands, the study reinforces long-held perceptions of a clubby culture on U.S. corporate boards, where members seldom challenge the executives they are meant to police.

The study looked at about 2,000 U.S. companies and their board audit committees, which are responsible for overseeing outside auditors and making sure financial reports are accurate. It found that personal friends of senior managers were often appointed to these committees, making the directors more likely to go along with the company’s reporting practices.

Where that was the case, earnings manipulation was more frequent and problems such as weak financial controls were covered up, the study found.

Tilburg University (Photo credit: Wikipedia)

Regulations put in place over a decade ago after accounting scandals at Enron and WorldCom required audit committees to be made up only of independent directors. That meant they were never employed by the company or a firm doing business with it.

Even so, audit committee members often have long-standing social ties to executives, belonging to the same elite clubs or charity boards, the study found.

« Although such firms appear to have independent audit committees, in reality these committees offer little to no monitoring at all, » the study found.

The study, by accounting professors Liesbeth Bruynseels and Eddy Cardinaels, researched social ties with BoardEx, a business intelligence service. It appears in the January 2014 issue of the American Accounting Association’s Accounting Review.

The professors suggested that legislators consider requiring more disclosure about social connections between audit committees and CEOs, given the committees’ importance.

Charles Elson, director of the Weinberg Center for Corporate Governance in Newark, Delaware, said it would be difficult for regulators to define social ties.

« Is it one lunch a week, is it two lunches? Inevitably, social ties will develop when you’re on a board – you have to see that person on a regular basis, » he said.

The United States made a major push to improve audit committees’ effectiveness with the passage of the 2002 Sarbanes-Oxley Act, which tightened membership requirements.

More recently, regulators in Europe and the United Kingdom have been trying to get audit committees to be more rigorous in choosing outside auditors and monitoring them.

Clubby ties between U.S. CEOs and board audit committees-study (xe.com)

Le comité de gouvernance du C.A. | Élément clé d’une solide stratégie (jacquesgrisegouvernance.com)

US audit watchdog reviving controversial plan to require firms to disclose names of people who work on audits – @Reuters (reuters.com)

Business Basics – Corporate Audits (business2community.com)

Auditors told to up their game by Financial Reporting Council (theguardian.com)

Politiques de gouvernance des sociétés canadiennes | Mise à jour 2014 de ISS

À chaque année, la firme Institutional Shareholder Services (ISS) revoit son processus d’établissement des recommandations qui guide les actionnaires dans leurs votes aux assemblées annuelles.

On entend souvent parler des politiques de ISS concernant la gouvernance des sociétés mais on ne saisit pas toujours la méthodologie derrière les recommandations aux actionnaires.

Le document ci-dessous présente les mises à jour des recommandations qui s’adressent aux entreprises canadiennes cotées en bourse. Je crois que c’est un document de référence majeur pour les actionnaires qui doivent se doter d’un conseil d’administration exemplaire et de règles de gouvernance en relation avec les intérêts des actionnaires. Bonne lecture !

Canadian Corporate Governance Policy | 2014 Updates of ISS

Ci-dessous, vous trouverez le sommaire du processus de formulation des politiques de ISS, suivi des éléments constituant la table des matières.

Each year, ISS’ Global Policy Board conducts a robust, inclusive, and transparent global policy formulation process that produces the benchmark proxy voting guidelines that will be used during the upcoming year.

The policy review and update process begins with an internal review of emerging issues and notable trends across global markets. Based on data gathered throughout the year (particularly from client and issuer feedback), ISS forms policy committees by governance topics and markets. As part of this process, the policy team examines academic literature, other empirical research, and relevant commentary. ISS also conducts surveys, convenes roundtable discussions, and posts draft policies for review and comment. Based on this broad input, ISS’ Global Policy Board reviews and approves final drafts and policy updates for the following proxy year. Annual updated policies are announced in November and apply to meetings held on and after February 1 of the following year.

Also, as part of the process, ISS collaborates with clients with customized approaches to proxy voting. ISS helps these clients develop and implement policies based on their organizations’ specific mandates and requirements. In addition to the ISS regional benchmark (standard research) policies, ISS’ research analysts apply more than 400 specific policies, including specialty policies for Socially Responsible Investors, Taft-Hartley funds and managers, and Public Employee Pension Funds, as well as hundreds of fully customized policies that reflect clients’ unique corporate governance philosophies. The vote recommendations issued under these policies often differ from those issued under the ISS benchmark policies. ISS estimates that the majority of shares that are voted by ISS’ clients fall under ISS’ custom or specialty recommendations.

This document presents the changes being made to ISS’ Benchmark Canadian Corporate Governance Policies. The full text of the updates, detailed results from the Policy Survey, and comments received during the open comment period, are all available on ISS’ Web site under the Policy Gateway.

Table des matières du document de mise à jour

BOARD

Voting on Director Nominees in Uncontested Elections

Definition of Independence – TSX and TSXV

2014 ISS Canadian Definition of Independence

Persistent Problematic Audit Related Practices – TSX

Voting on Directors for Egregious Actions – TSX and TSXV

Board Responsiveness – TSX and TSXV

Director Attendance & Overboarding – TSX

SHAREHOLDER RIGHTS & DEFENSES

Advance Notice Requirement for Director Nominations – TSX and TSXV

Enhanced Shareholder Meeting Quorum for Contested Director Election – TSX and TSXV

COMPENSATION

Executive Pay Evaluation: Advisory Votes on Executive Compensation – Management Proposals – TSX

Pay for Performance Evaluation

Board Communications and Responsiveness

Equity Compensation Plans – TSX

Non-Employee Director Participation/Director Limit

Repricing Proposals – TSX and TSXV

ISS Releases Survey for 2014 Policy Updates (blogs.law.harvard.edu)

Institutional Shareholder Services Unveils 2014 Proxy Voting Policies (hispanicbusiness.com)

Conflicts of Interest and Competition in the Proxy Advisory Industry (clsbluesky.law.columbia.edu)

Le point sur la gouvernance au Canada | Rapport de Davies Ward Phillips & Vineberg

Le rapport annuel de Davies est toujours très attendu car il brosse un tableau très complet de l’évolution de la gouvernance au Canada. De plus, c’est un document publié en français.

Je vous invite donc à en prendre connaissance en lisant le court résumé ci-dessous et, si vous voulez en savoir plus sur les thèmes abordés, vous pouvez télécharger le document sur le site de l’entreprise.

Cliquez sur le lien ci-dessous. Bonne lecture !

Le point sur la gouvernance au Canada | Rapport de Davies Ward Phillips & Vineberg

Rapport de Davies sur la gouvernance 2013

Depuis la diversité au sein des conseils jusqu’aux risques liés aux marchés émergents, en passant par l’activisme actionnarial, cette troisième édition du Rapport de Davies sur la gouvernance, notre compte rendu annuel, analyse l’actualité sur de nombreuses questions d’intérêt pour les conseils d’administration et les observateurs du paysage de la gouvernance au Canada.

Dans le premier chapitre, Administrateurs et conseils d’administration, nous faisons le point sur l’évolution de la composition des conseils d’administration au Canada, les appels à la diversité au sein de ces conseils et des équipes de direction ainsi que les idées proposées par les autorités de réglementation et les investisseurs à cet égard. Dans le chapitre intitulé Rémunération des membres de la haute direction et des administrateurs, nous faisons état de la popularité grandissante du vote consultatif sur la rémunération de la haute direction et proposons des mesures que peuvent prendre les conseils d’administration pour éviter d’être pris de court par le résultat d’un tel vote. Dans le chapitre intitulé Questions relatives au vote des actionnaires, nous nous intéressons aux nouveautés concernant la question de l’intégrité du vote des actionnaires au Canada, les initiatives de réglementation des agences de conseil en vote et la pratique du vote à la majorité parmi les émetteurs. Dans le chapitre intitulé Initiatives des actionnaires, nous mettons en lumière les tendances et les questions d’actualité comme l’« achat de votes », la rémunération offerte aux administrateurs par les dissidents et le « vote vide » ainsi que les règlements de préavis. Dans le chapitre intitulé Surveillance des risques : les activités sur les marchés émergents, nous examinons comment les émetteurs gèrent les risques associés à leurs activités sur les marchés émergents ainsi que les nouveautés importantes touchant la législation et la mise en application de la loi en matière de lutte contre la corruption. Enfin, dans le chapitre intitulé Régimes de droits : gouvernance et changement de contrôle, nous analysons les deux cadres de réglementation des régimes de droits en situation de prise de contrôle proposés cette année par les autorités canadiennes en valeurs mobilières.

Pour consulter le sommaire, cliquez ici. Pour lire le document complet, cliquez ici.

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Rapport de Davies sur la gouvernance 2013

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