Newsletter | Volume 1

Bad Corporate Governance often signals concern for the board and management to identify the broken 'governance' components in the organisation. There is a need for the right analysis that is capable of providing the insight, culture and nature of the significant risks. At the 9th annual European GRC Summit in Stockholm, we will review the governance processes to evaluate their corporate vulnerability, and provide guidance on a systematic evaluation to look for symptoms of bad governance behavior that identify the key risk areas.

The German corporate governance code provides some of the components of bad corporate behavior. Weak company culture is often the root cause of many non-compliance issues, flawed corporate governance failures and deficient risk and control processes. The symptoms of a bad governance culture are the challenges that German corporate directors face, in order to diagnose and oversee the company's risk culture and determine the deficiencies for further action.

To find the symptoms of bad governance culture and challenges, there is a need to diagnose the problems created by the German Corporate Governance Code, for governance deficiencies. However to evaluate the governance causes that foster a weak company culture, root-cause of non-compliance issues, global governance failures and deficient risk and control processes, a solid governance platform is needed.

One of the problems is the composition of Germany's supervisory boards. The board members of listed companies are much older, have longer tenure, and are less likely to have specific industry experience, compared to other big European economies. The German supervisory boards are also often bulky, with up to 20 to 30 members, including management.

The second problem, not particularly exposed only in Germany, is the multitude of family-controlled firms. Such corporate constructions can often lead to a problem, if the relationship of trust between the board, management, minority and controlling shareholders does not work. Naturally this leads to the departure from the standard control functions that minority shareholders can exercise over management.

The third Governance issue is the absence of large, independent institutional investors. Shareholder activism is restrained by the limited powers granted to concerned investors. In many other European countries, failings of corporate governance mandates are addressed by stakeholders that press for change or private equity or hedge funds that threaten to take over companies that are performing poorly. German institutional investors, hold a 2.1 percent stake in VW, compared to a 26.3 percent of the shares owned by foreign institutions.

The fourth management problem is that employee representation often takes half the seats of the company's supervisory board. Therefore, a separate management board handles running the day today business and addresses the interest of all stakeholders, and not just a shareholders alone, a problem many global chairmen also face.

The combination of the above Governance restraints is probably the root-cause, which often underlines most corporate scandals that are due to governance failures. In the case of Volkswagen, the focus of the governance comments and analysis based on their annual report, it seems that the role of the board and institutional shareholders, prevents the detection of incentive structures that determine employee actions of fraud. The absence of governance components can contribute to passive stakeholders that are unable to act to discover GRC structures that might influence managers or employees to commit fraud.

Imperfect Industrial champions
Some of the German famed global industrial champions, have not been model corporate citizens. Since 2005, a series of scandals have hit the German companies and has brought embarrassment to their corporate culture. Allegations and admissions of bribery, corruption and misdeeds have surfaced at the highest levels of business at Siemens, BMW, Infineon and Commerzbank. Executives were fired, and some faced criminal investigations or prison.

Recently Deutsche Bank AG was fined 8.4 musd by the Dubai Financial Services Authority for serious breaches relating to failures in internal governance, risk management and compliance (GRC) systems and controls on anti-money laundering processes.

Fundamental change
The continued number of significant scandals, reveal that the EU directives governing accountability and transparency in business toward shareholders, the public, oversight and regulatory agencies as well as all other stakeholders, seems to be under developed in Germany.

The continued number of large corporate scandals provides sufficient evidence that nonadherence to GRC mandates is an issue and could be a part and parcel of the business culture. The board of directors must undertake an annual GRC assessment to ensure that monitoring controls and measures are in place to improve the tone-at-the-top on all GRC issues.

In addition there must be a serious re-examination of particular governance componenets and issues in realtion to the dual board structure, code-of-conduct and the ethical behavior of employees at all levels, so that fraud, violations, bribery, and other serious compliance breaches are timely discovered.

At the 9th annual European GRC Summit we address the above with the following two keynotes;

What Do Ceos & Non-Executive Directors Expect From The Grc Officers?

What's the right level of communication to business stakeholders?
What's the Right Level of GRC Communication to Business Stakeholders, Non-Executive Directors, and CEOs
What's the right level of communication to business stakeholders?

Lady Olga Maitland, Chairman Copenhagen Compliance

How Can The Board Of Directors Fulfill Their Monitoring Responsibilities And Support Senior Management With Governance, Audit, Legal, And Risk Compliance? How can the board of directors help GRC officers to understand, build and manage their GRC, ethics & code-of-conduct programs effectively, for better reporting to the board, stakeholders, and oversight authorities?
Andrea Gisle Joosen, Chairman of the Board/Non-Executive Director of ICA Gruppen AB, Teknikmagasinet AB, Dixons Carphone Plc, James Hardie Industries plc.