Risk skills need improvement to meet demands of EU Company Law Directive

"In some cases there is something lacking," Richard Nelson, now a consultant, told Commercial Risk Europe at the launch, by the European Confederation of Institutes of Internal Auditing (ECIIA) and the Federation of European Risk Management Associations (Ferma), of joint guidance for senior managers to help firms meet EU risk management and internal audit rules. The best practice guidance follows the transposition into national law in 2008 of the 8th EU company law directive—article 41, section 2b which requires internal audit committees, for the first time, to monitor internal control, internal audit and risk management systems. All employees are responsible for managing risk but senior executives have final responsibility, say the ECIIA and Ferma. In September 2010, the pair published more general guidance on article 41, for audit committees. "We are trying to help in the implementation [of article 41]," said Jorge Luzzi, the Ferma President and the Risk Management Director of Pirelli, at the launch of the new guidance. He claimed that better control of risks could help firms to cut costs: "We can learn from failures. We can learn from success."hidePeter den Dekker, the former Ferma president, told CRE that many firms are unsure about how to comply with the latest rules. He claimed that, following the federation's adoption of social media in July this year, the first guidance document has become its most popular download. The 8th directive requires board members to prove, for the first time, that they have control of audit and risk. Michel Dennery, a Ferma Vice-President and deputy Chief Risk Officer of the utility giant GDF Suez, said that board members normally only have a few hours a year to ensure good governance and effective risk control. Carolyn Dittmeier, the ECIIA President and Director of Internal Audit at Poste Italiane, said that there was a gap in knowledge about article 41. "That is one powerful article," she said. Ms Dittmeier said that audit committees are often not aware that they need to ask certain questions: "That's the key to implementing the article," she commented. However, she added: "We do believe that the board should take on full responsibility for the risk profile." "The thing that we hope [the new guidance] will do is to encourage audit committees to ask more questions," said Mr Nelson. Internal audit committees should be ‘a bit more holistic’ and exploit all sources of information, including other managers and external audit committees, while noticing gaps in information, he said. Internal audit requires effective risk management, said Mr Nelson. "But you need someone to own the process," he added. Ms Dittmeier said: "It is crucial for organisations to think clearly about their internal assurance processes to avoid being subject to additional external regulation. The 8th EU company law directive coupled with our papers gives organisations the necessary guidance to enable them to move forward with a governance framework that provides a risk-aware culture to maximise the opportunities of success." The new guidance is based on the experience of Ferma and ECIIA members, with a series of questions and answers showing how executives can support their boards in managing risks and making best use of internal control and assurance from internal audit. Ferma and ECIIA say that the new guidance contains no definitive answers, but suggests approaches that executives can adapt for their companies. Both the ECIIA and Ferma agree that there were problems with corporate governance in Europe and Ms Dittmeier called for more shareholder involvement. They also, however, confirmed their opposition to some proposals in a European Commission green paper on corporate governance. One Ferma concern is whether company boards should approve and take responsibility for ‘risk appetite’ and disclose the latter to shareholders. Mr Luzzi said that the current EU rules were ‘already adequate’. He said that national legislation around the EU already requires risk disclosures and that further risk declarations would undermine confidentiality. Another Ferma concern is whether boards should ensure that risk management arrangements are commensurate with the risk profile. Mr Luzzi rejected the need for more EU intervention. Ferma has told the European Commission that existing national corporate governance rules on communicating risks ‘suggests that positive communication should be encouraged’ and would reinforce the requirement of boards under article 41, section 2b to deepen their knowledge about risks and their development. Both guidance documents are available free from the Ferma and ECIIA websites. See www.ferma.eu/wp-content/uploads/2011/12/eciia-ferma-guidance-on-the-8th-eu-company-law-directive-part-2.pdf.

Risk skills need improvement to meet demands of EU Company Law Directive

Want to read this article?

Read Next

AXA P&C increases premiums by 7% as rates rise at AXA XL

Hong Kong and Shanghai to cooperate on captives and ILS

Swiss broker Kessler names head of special risks

Supply chain cyber risk concentrated in 15 top vendors with ‘below average’ cybersecurity

Four in five non-EU companies to align with CSRD

AXA P&C increases premiums by 7% as rates rise at AXA XL

Hong Kong and Shanghai to cooperate on captives and ILS

Swiss broker Kessler names head of special risks

Supply chain cyber risk concentrated in 15 top vendors with ‘below average’ cybersecurity

Four in five non-EU companies to align with CSRD

Want to read this article?

Read Next

AXA P&C increases premiums by 7% as rates rise at AXA XL

Hong Kong and Shanghai to cooperate on captives and ILS

Swiss broker Kessler names head of special risks

Supply chain cyber risk concentrated in 15 top vendors with ‘below average’ cybersecurity

Four in five non-EU companies to align with CSRD

Related Articles