How can a transparent and effective corporate governance culture support the governance framework?

Transcription

1 How can a transparent and effective corporate governance culture support the governance framework? October 2017 The better the question. The better the answer. The better the world works.

2 Contents 1 2 How can a transparent and effective corporate governance culture support the governance framework? About EY Page 2

3 How can a transparent and effective corporate governance culture support the governance framework? Page 3

4 Increased demands for transparency In recent years, shareholders, stakeholders and external parties have increasingly expressed their desire for enhanced transparency over nonfinancial information. These developments are partly reflected in new EU regulations on nonfinancial information requirements for public interest entities (PIEs) and the Shareholders Rights Directive. From a stakeholder perspective, reliable information on governance structures, functions and processes has become a major focus in this context. This not only builds the basis for adequate management and monitoring of companies, but at the same time are severely challenged by the dynamic and complex environment in a fast-growing corporate reality. Page 4

5 Increased demands for transparency As a result of increased stakeholder demand for greater transparency, boards and other governing bodies should provide reliable information about the maturity level of governance structures, functions and processes. Boards should also explain the effectiveness of these systems and how they attempt to meet the expectations of stakeholders. Governance culture plays an increasingly important role in the integration of good corporate governance into an organization. Typical triggering events to challenge the maturity of governance systems include: Changes in corporate strategy Changes in the regulatory framework Changes in ownership structure Demands from the board, as well as investors and other important stakeholders, to increase transparency regarding corporate governance Page 5

6 Typical corporate governance challenges Typical challenges faced by boards and other governing bodies as they review and address their corporate governance culture can include: 1 Lack of transparency regarding the maturity level of existing governance structures, functions and processes 2 Uncertainty about whether existing governance structures, functions, processes and culture are appropriate given the size and legal form of the organization 3 Uncertainty about whether existing governance structures, functions, processes and culture are operating effectively and efficiently 4 Current governance structures do not meet expectations of the board, investors and other major stakeholders 5 Inconsistent, incomplete or redundant processes, reporting lines and documentation regarding governance Page 6

7 Our integrated governance framework Our framework integrates each level of corporate governance, taking the interdependencies into account. The regulatory environment builds the foundation of our House of Governance, which is supported by transparency both internally and externally at all levels. This refers to the structural level of the corporate organization. It defines how major activities, such as operations, management and supervision, are directed within the legal entity structure and governed by corresponding regulations and documents. Among others, the most important are: statutes, bylaws, job and role descriptions. Monitors the appropriateness and operating effectiveness of the risk management Monitors compliance with internal and external rules, regulations, and policies Supports ongoing effectiveness of the internal controls Monitors the independence and quality of the internal audit Shareholder and stakeholder Board(s) Culture and behavior Structural level Management committees Reporting lines Monitoring level Internal audit Effectiveness monitoring Corporate Governance Framework Process level Functional level Risk management Compliance management Internal controls Administration, corporate office Documentation Delegation of authority Job description Rules of procedure Distribution-of-business plan Reporting requirements Transactions requiring approval Level of transparency Regulatory environment Risk management can help provide an overview of significant risks to protect the organization against events that could interfere with its objectives and viability. Compliance management can monitor whether employees are compliant with internal and external rules, regulations, policies and procedures. Internal controls define and manage risks on a process level by implementing effective internal controls. Internal audit acts as independent source for controlling effectiveness and processes efficiency. Refers to the work and information processes between and within the governance bodies Covers the processes such as delegation of authority, transactions requiring approval and rules of procedure Page 7

8 Typical project approach and services As a first step, we use a questionnaire-based approach, supplemented by document reviews and interviews with key company representatives, to determine the current maturity level of governance structures, functions and processes by: Selecting entities and governance aspects to be included in the assessment and adjust assessment criteria to reflect company needs and local regulatory framework Completing a questionnaire on current maturity level of corporate governance including strategy and management philosophy, culture, tone at the top and alignment with internal controls and internal audit functions and communication (formal and informal) Conducting a review of related documentation EY can then help you define a realistic target profile for the future maturity level of governance structures, functions and processes. Following a gap analysis, we can develop recommendations for required actions to achieve target maturity level and create a detailed action plan with clearly defined scope, timeline, roles and responsibilities. Page 8

9 Typical project approach and services Module I Module II Scope Current state Future state Elevate Continuous communication and project management Objective Align on scope of entities to be examined Define areas of group governance to be covered in assessment (e.g., structures, functions and processes) Adapt assessment criteria to your needs to reflect the regional regulatory framework and other company-specific issues Agree on methods to be used for the assessment, such as questionnaires, document reviews, and (optional) interviews Primarily questionnaire-based assessment of the current governance structures, culture and processes, including instruments and mechanisms, of the governing bodies Determination of the current maturity level of the governance system for the entities in scope, based on EY maturity model Elaboration and alignment on potential target-profile for the future governance structure and processes as reference for gap analysis, based on EY maturity model Note: Current state and future state assessment can be conducted in parallel Comparison of the results from current state assessment and target profile (gap analysis) Design recommended actions for required actions to achieve target maturity level Creation of a detailed action plan with clearly defined scope, timeline, roles and responsibilities Optional: Implementation support Deliverables Entity-specific questionnaires and document request lists Entity-specific interview schedule (optional) (Interim) report on current maturity level of governance system Target profile for future maturity level of governance system Final report with detailed action plan to arrive at target maturity level Page 9

10 How EY can help We can support you in your attempt to reduce liability risks and close expectation gaps by helping you: Improve the effectiveness and efficiency of governance systems Better align corporate culture to governance structures and processes. Using a modular, two-step approach, we can help you assess the current maturity level of your governance structures, functions and processes with respect to internationally accepted standards, company-specific regulatory requirements and EY s experience of leading practices. We can also help you assess whether your corporate culture is aligned to governance structures. In a second step, EY can help you define a realistic target profile for the future state of your corporate governance to meet stakeholder expectations, identify gaps to address and provide recommendations to arrive at the desired maturity level. Certain services and tools may be restricted for EY audit clients and their affiliates to comply with applicable independence standards. Please ask your EY contact for further information. Page 10

11 Potential benefits Improved transparency over current maturity level of governance structures, functions and processes with respect to appropriateness of design as well as operating effectiveness Modular approach regarding entities and governance areas in scope, methods employed and depth of analysis (current state only versus gap analysis) Customized assessment criteria, reflecting international standards (e.g., OECD principles) as well as national and company-specific regulatory requirements Detailed recommendations and action plan to close the gap to the desired maturity level Optional implementation support from EY subject-matter professionals Enabler to enter into a dialogue on governance and culture with investors, customers and other important stakeholders Page 11

12 Why EY Financial Accounting Advisory Services (FAAS) can support your efforts to develop your corporate governance processes. We can help you to: 1 Streamline process 2 Increase efficiency 3 Reduce liability and effectiveness based and control oversight risks on adequate information Our highly integrated multidisciplinary teams: Have extensive experience with the analysis, improvement and implementation of governance structures, functions and processes Can help you identify the current maturity level of your governance system using a fieldtested maturity model, which reflects leading practice Can support you in formulating a realistic target profile for the future state of your governance system Can help identify the gaps and provide recommendations in order to help you elevate your governance system to the desired maturity level Can support you in your implementation Page 12

13 About EY Page 13

14 Financial Accounting Advisory Services EY contacts Americas Jake Tyshow Europe, Middle East, India and Africa Daniela Mattheus Asia-Pacific Kieren Cummings Japan Masami Yamanouchi masami.yamanouchi@jp.ey.com Page 14

15 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com EYGM Limited. All Rights Reserved. EYG No GBL BMC Agency GA ED None In line with EY s commitment to minimize its impact on the environment, this document has been printed on paper with a high recycled content. This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com