Corporate Governance Practices
Elements of corporate governance practices are:
- Establishing clear strategic objectives and corporate values that are communicated throughout the organization.
- Setting and reenforcing clear lines of responsibility and accountability throughout the organization.
- Ensuring that board members and senior-management are qualified for their positions.
- Adequate risk management and comprehensive internal controls.
- Accurate and timely financial disclosure.
Below these elements will be discussed more in length, especially in relation to the responsibilities of the Board.
Responsibilities of the board
The responsibilities of the Board are as follows:
- Ensure competent management on an ongoing basis.
- Ensure appropriate plans and policies
- Monitor operations to ensure compliance and adequate control.
- Oversee business performance.
Capable management is a critical element in the difference between success and failure. Integrity, technical skills, and experience should be key considerations in the selection process of senior-management.
Long-term strategic planning is done in strong cooperation with the Board and forms the policy framework, containing our investment philosophy and vision to the future.
All major activities must be covered by adequate policies and no such activity should be initiated before appropriate written policies and procedures are in place. Furthermore, policies should be communicated clearly through all levels, in order to promote consistency of interpretation throughout the organization as a whole.
The Board needs to ensure that senior-management has put adequate internal controls in place to ensure that the operations are properly controlled and that they comply with adopted policies, applicable laws and regulations. The Board must receive timely all necessary information to evaluate management’s performance.
Each Director should be informed of both the business environment and the legal and regulatory framework affecting our activities. Directors must devote adequate time and attention necessary to fulfill their duties in a proper manner and should be knowledgeable enough to contribute in a meaningful sense to the activities of the Board. Directors must also ensure that neither they nor others abuse their position to benefit personally. They should structure their business with and personal ties so as to avoid the appearance of a conflict of interest.
Risk management
When evaluating the quality of risk management, we consider primarily if the following conditions are met:
- Board and senior-management oversight;
- Adequate policies and risk monitoring procedures
- Adequate and comprehensive internal controls.
Audit and Risk Management Committee: The committee serves to monitor compliance with Board’s policies, applicable laws and regulations, and to review financial and auditing matters. It ensures that we maintain acceptable risk limits and that appropriate risk-control techniques are used to monitor and minimize losses.
Board and senior-management oversight
The Board should be consulted on the overall business strategy and on significant policy matters, including those related to the managing and taking of risks.
Senior-management is, however, primarily responsible for implementing strategies in a manner that limits risks associated with each strategy and that ensures compliance with laws and regulations on both a long-term and a day-to-day basis.
Adequate policies and risk monitoring procedures
The following guidelines are considered in evaluating the adequacy of policies, procedures, and limits:
- The policies, procedures, and limits provide for adequate identification, measurement, monitoring, and control of the risks posed by its activities.
- The policies, procedures, and limits are consistent with stated objectives and the overall financial strength of the Group.
- Policies clearly state accountability and lines of authority across activities.
- Policies provide for the review of new activities, as to ensure that the infrastructure necessary to identify, monitor, and control risks associated with an activity is in place before the activity is initiated.
Effective risk monitoring requires to identify and measure all material risk exposures. Consequently, risk monitoring activities must be supported by information-systems that provide senior-managers and Board with timely reports on the financial condition, operating performance, and risk exposure of the Group activities, as well as with regular reports for line managers in the day-to-day management of operation activities.
In assessing the adequacy of measurement and monitoring of risk, we consider whether the following conditions exist:
- The risk monitoring practices and reports address all of its material risks.
- Key assumptions, data sources, and procedures used in measuring and monitoring risk are appropriate and adequately documented and tested for reliability on an ongoing basis.
- Reports and other forms of communication are consistent with the Group’s activities, structured to monitor exposures and compliance with established limits, goals, or objectives, and as appropriate, compare actual versus expected performance.
- Reports to the Board and management are accurate and timely and contain sufficient information to identify any adverse trend and to evaluate adequately the level of risk faced at any moment and time.
Comprehensive internal controls
An internal control environment is critical to the safe and sound functioning, and, in particular, to risk management.
Establishing and maintaining an effective system of controls, including appropriate separation of duties, is one of senior-management’s primary responsibilities.
When properly structured, a system of internal controls promotes effective operations and reliable financial and regulatory reporting. Moreover, the system safeguards assets and helps to ensure compliance with relevant laws, regulations, and policies. Internal controls should be tested regularly by an internal auditor. The results of audits or reviews should be adequately documented as should management’s responses to them.
In evaluating the adequacy of internal controls and audit procedures, we consider whether the following conditions are met:
- The system of internal controls is appropriate to the type and level of risks posed by the nature and extent of the undertaken activities.
- The organizational structure establishes clear lines of authority and responsibility for monitoring adherence to policies, procedures, and limits.
- Reporting lines provide sufficient independence of the control areas from the business lines and adequate separation of duties throughout the organization.
- Official organizational structures reflect actual operating practices.
- Financial, operational, and regulatory reports are reliable, accurate, and timely; wherever applicable, exceptions are noted and promptly investigated.
- Adequate procedures exist for ensuring compliance with applicable laws and regulations.
- Internal audit or other review related practice provide for transparency and objectivity.
- Internal controls and information systems are adequately tested and reviewed; the coverage, procedures, findings, and responses to audits and review tests are adequately documented; identified material weaknesses are given appropriate and timely attention.
- The Board, in consultation with senior-management, reviews on at least a yearly basis the effectiveness of internal audits and other review activities.