Carolyn Dittmeier Trends in EU Corporate Governance: The Search for Stability

Is the stakeholder community satisfied with 2 Trends in EU corporate governance NO

The European Commission and Parliament debates From shareholders responsibilities to board conduct to internal governance 3

The Issues Company structures Comply or explain versus EU Regulation Proportionality Shareholder responsibilities Short termism External Supervisory role External Audit Board Strategic Risk Management Internal audit 4

Corporate Governance in Financial Institutions Lessons from the crisis: Audit Policy/Statutory Audit EU Corporate Governance Framework / Company Law The current legislative proposals and debates at the European Commission and Parliament 5

Is the Two Tier System better than the Board / Audit Committee structure 6 Company Structures

7 EU Corporate Governance Green Paper Over 400 responses Please NO Regulation! EU Regulation versus Comply or Explain of National codes

8 Comply or Explain Comply AND Explain

9 National CG Codes Need for convergence

90% of Corporate Governance Codes require or recommend Internal Audit, but few provide requisites to ensure its effectiveness 10 Corporate Governance Codes and Internal audit United Kingdom Austria Germany Belgium Estonia Hungary Sweden Denmark Czech Republic Cyprus Netherlands Bulgaria Ireland Recommended Romania Spain Luxemburg Malta Slovenia Slovakia Greece Finland Latvia France Italy Required

Proportionality: No one size fits all! 11 But how to measure proportionality

Not one size but fit for all MEP Evelyn Regner, European Commission Director Ugo Bassi,, Deputy Director General Assonime (EuropeanIssuers) Carmine Di Noia, ECIIA President Carolyn Dittmeier June 6 at the European Parliament: Finding an EU solution to achieve a truly effective corporate governance regime, while allowing entities the flexibility in selecting their own CG structures

Increase Shareholder responsibilities 13 Shareholder approval for more transactions Mandatory annual elections of board members with criteria Control on Related party transactions

Short Termism – Increase Long term viability 14 Corporate statutes to reflect overall goal of long term viability Corporate governance reporting on long term objectives Abandon Quarterly Reporting?

Increase Supervisors/regulators involvement 15  Enhanced, two-way communication between auditors and supervisors with alert system  Board competency test  Monitor CG Resports  Oversight of conflict of interests  A bigger stick

Independence, independence and independence Rules for independence and quality under supervisory body Audit Committee responsible Almost eliminate non-audit services Audit firms to publish accounts, methods, fees 16 Impact assessment External Audit – Lessons from the Crisis

External audit role is integral to corporate governance Include risk reports of the entity / check on excessive risk Social responsibility role Right to be heard at general meetings Duty to report to Supervisor 17 External Audit – Lessons from the Crisis

ECIIA’s Clarification to key European Parliament Member

The issues Company structures Comply or explain versus EU Regulation Proportionality Shareholder responsibilities Short termism External Supervisory role External Audit Board Strategic Risk Management Internal audit 19

Fit and proper test by legislation -regular external evaluation Separate role of the CEO and Chairman Strict remuneration policy based on long-term performance Diversity Strategic Risk Management 20 Stronger Board of Directors crucial: Composition, Competencies, Compensation

Directive 2006/43/EC86-Article 41 “the Directive’s most frequently non-transposed article” 21

Annual report on risk, risk management systems and the adequacy of internal control Annual Board approval of risk model assessment Establish Risk Committee or Risk function Adopt /describe framework 22 Strategic Risk Management

ECIIA Guidance ECIIA & Ferma joint papers: Reinforcing Board And Senior Management competencies on risk management, internal control and internal audit Part I Board Focus 2010 Part II Senior Management Focus December 2011

24 The time is right for Assurance Internal Audit

25 “The two facets of auditing – internal and external – to be clearly circumscribed in law” (Financial sector) “Efficient, regular dialogue” IA to inform External Auditor who reports to Supervisory authority? Risk model assessment CSR and CG hand in hand Explicit potential Impacts on internal audit?

26 Independence Quality Assurance Assurance methodology Advisory role Implicit potential Impacts on internal audit?

ECIIA Guidance Corporate Governance Insights Issued May 2012

28 European Commission Business Europe ECIIA in open discussion with EU associations on EU regulatory consultations

Three Lines of Defense The IIA Advocacy Platform

30 The ECIIA working hard for the profession Promoting good corporate governance and appropriate recognition of Internal Audit in the European regulatory enviornment Carolyn Dittmeier, President Marie_Hélène Laimay, Vice President Hans Joachim Büsselberg Martin Stevens, Treasurer Thijs Smit Kristina Bernotaitė Philip Ratcliffe Juan Ignacio Ruiz Zorrilla Pascale V andenbussche Secretary General

The Corporate Governance Citizen Program Through Citizens comes Progress Generali Assicurazioni

Thank you Enjoy the Conference 32