Developing a Corporate Governance Framework

Transcription

1 Developing a Corporate Governance Framework

2 About ERM

3 About The Speaker Karen Livingstone Practice Director at ERM Risk Management, Governance, Regulatory Compliance CPA, CISA, CIA, CRMA designations 20+ years experience global experience

4 Agenda Top Ten Boardroom Topics Corporate Governance Definitions and Guidelines Framework Components and Characteristics Board versus Management Responsibilities Cybersecurity Risk Update Q&A

5 Top Ten Fiscal and economic uncertainty Mobile and social media Cybersecurity Reputation risk Executive compensation Health care reform Board composition Need and ability to retain key talent Increasing regulation Information overload (Atkin Gump Strauss Hauer and Feld LLP 12/2/12)

6 Definitions and Guidelines What is Corporate Governance? Corporate governance refers to that blend of law, regulation, and appropriate voluntary private-sector practices which enables the corporation to attract financial and human capital, perform efficiently, and thereby perpetuate itself by generating long-term economic value for its shareholders, while respecting the interests of stakeholders and society as a whole. Ira M. Millstein. Senior Partner, Weil, Gotshal & Manges LLP and noted authority on corporate governance

7 Definitions and Guidelines What is Corporate Governance? The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of objectives (The IIA) A framework of rules and procedures by which decisions are made and how accountability is enforced Working collaboratively to review and advise management on strategies, plans, decisions, and activities Accountability avoidance mitigation Questioning and challenging management decisions and actions from a more objective viewpoint than management s one informed more by both shareholder and public interests

8 Definitions and Guidelines The American Law Institute ( ALI ), Principles of Corporate Governance: Analysis and Recommendations, Vol. 1 (1994, with supplements). Business Roundtable, Principles of Corporate Governance (May 2002, most recently revised June 2012). National Association of Corporate Directors ( NACD ), Report of the NACD Blue Ribbon Commission on Director Professionalism (November 1996, reissued 2001, 2005, and 2011). The Conference Board Commission on Public Trust and Private Enterprise, Findings and Recommendations, Part 1: Executive Compensation (September 17, 2002); Findings and Recommendations, Part 2: Corporate Governance and Part 3: Audit and Accounting (January 9, 2003). See also The Conference Board, Corporate Governance Handbook: Legal Standards and Board Practices (2009).

9 Definitions and Guidelines National Association of Corporate Directors ( NACD ), Report of the NACD Blue Ribbon Commission on Director Professionalism (November 1996, reissued 2001, 2005, and 2011). Business Sector Advisory Group on Corporate Governance, chaired by Ira M. Millstein, Corporate Governance: Improving Competitiveness and Access to Capital in Global Markets: A Report to the OECD (the Millstein Report ) (April 1998). California Public Employees Retirement System ( CalPERS ), Corporate Governance Principles and Guidelines United States (April 1998), most recently revised and renamed, Global Principles of Accountable Corporate Governance (November 2011).

10 Definitions and Guidelines Council of Institutional Investors ( CII ), Corporate Governance Policies (March 1998, most recently revised October 2012). Teachers Insurance and Annuity Association College Retirement Equities Fund ( TIAA-CREF ), TIAA-CREF Policy Statement on Corporate Governance (October 1997, most recently revised January 2012). American Federation of Labor and Congress of Industrial Organizations ( AFL-CIO ), AFL-CIO Proxy Voting Guidelines Exercising Authority, Restoring Accountability (1997, most recently r ISS, 2013 U.S. Proxy Voting Guidelines Summary (2012); ISS, Governance Risk Indicators 2.0 Technical Document (most recently revised March 2012). (Revised 2012). Key Agreed Principles to Strengthen Corporate Governance for U.S. Publicly Traded Companies (National Association of Corporate Directors, 2008) (hereinafter Key Agreed Principles ),

11 Framework Components and Characteristics A systematic approach to identify and manage increased oversight responsibilities, regulations, risks, and stakeholder expectations. A Corporate Governance framework is a: Guide for a board to use in defining, developing, and deploying the elements of its corporate governance infrastructure Mechanism for the definition and organization of governance responsibilities between the board and management Key to sustaining resilience (adaptive capacity of an organization in a complex and changing environment) ISO 31000

12 Framework Components and Characteristics Board responsibility for governance Corporate governance transparency Director competency and commitment Board accountability and objectivity Independent board leadership Integrity, ethics, and responsibility Attention to information, agenda, and strategy Protection against board entrenchment Shareholder input in director selection Shareholder communications Key Agreed Principles as presented by the NACD for US Traded Public Companies

13 Framework Components and Characteristics Components: Ethics and Integrity Mission, Vision and Strategy Governance structures and Processes Operational, Financial, Risk Management Performance Executive Leadership Stakeholder Expectations Self Assessment Characteristics: Ownership Coordination Relevant Clear and understandable Concise Easily accessible Laws and regulations Current

14 Framework Components and Characteristics Primary driver is the perception of riskand its impact on culture Risk profile comprised of risk attitude, appetite, and tolerance levels Risk attitude organization s approach to assess and eventually pursue, retain, take or turn away from risk Risk appetite amount and type of risk that an organization is willing to pursue or retain Risk tolerance organization s or stakeholder s readiness to bear the risk after risk treatment in order to achieve its objectives. Influenced by legal and regulatory requirements Key Agreed Principles as presented by the NACD for US Traded Public Companies

15 Framework Components and Characteristics Cultureis defined and influenced by an organization s risk profile. Culture represents the intersection of risk and board and management activities Tone at the top for risk taking is fulfilled through board and management responsibilities Key Agreed Principles as presented by the NACD for US Traded Public Companies

16 Management Responsibilities Planning: Management develops strategic, financial, operational, and other plans to meet goals and objectives defined in the strategy Operations: Management executes plans through operations related to production, sales, marketing, distribution, risk management, human resources, finance, and other functions across the organization Reporting: Management reports operating results through financial reporting and other reports specified by regulatory authorities and securities exchange listing requirements Compliance: Management designs and operates internal controls including methods and tools for conducting operations in compliance with legal and regulatory requirements

17 Framework Components and Characteristics Establish/adopt a corporate philosophy or mission Identify risk profile (risk attitude, appetite, and tolerance levels) Define the ethical climate Design an assurance methodology for ethical behavior and compliance with laws and regulations Design corporate governance structures, policies, and processes Design monitoring processes (Board and committee composition, allocation of accountability and responsibilities) Identify and assign stakeholder management and communication activities Implement a board self assessment process

18 Cybersecurity Risk Update Cybersecurity was noted as one of the top ten risk for Boards in 2013 and is emphasized again in A recent study by the Ponemon Institute found that the number of successful cyber-attacks on companies jumped 42 % the past year and according to the Department of Homeland Security, the number of cyber threats by mid-2013 had already exceeded the total number of incidents in Regulations related to the security, confidentiality and privacy of information continue to evolve. Public companies are now subject to new SEC disclosure requirements regarding cybersecurity and in 2013 President Obama signed an executive order directing the National Institute of Standards and Technology (NIST) to develop a voluntary cybersecurity framework that was release earlier this year.

19 Q & A

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