Company secretarial and

Transcription

1 Company secretarial and legal update seminar Protecting shareholder value through effective governance e Tuesday 1 PricewaterhouseCoopers Legal LLP

2 Welcome & Introduction Jonath han Gibson

3 What are the issues? Businesses are failing to look at compliance and governance at a subsidiary level and from a global perspective No longer enough to focus on governance at parent company level - key trading entities must be included Challenges of securing subsidiary awareness of anti-bribery and corruption responsibilities remain Lack of a group-wide approach to subsidiary governance with subsidiaries being managed inconsistentl ly and ineffectively Immigration becoming strategically important and having a real impact at board level Slide 3

4 Why does it matter? With greater scrutiny from domestic and international regulators, governance and compliance obligations have moved up the board agenda Businesses are exposed to legal, financial, commercial and strategic and operational risks. Investors are demanding greater transparency as to how directors are responding to these risks Directors owe legal responsibilities to their shareholders to be proactive in responding to these demands to create value and reduce risk Slide 4

5 The impact on shareholder value The risks of failing to respond to the demands for sound governance and compliance Reputational damage Loss of assets Ability to attract investment Inability to operate in certain jurisdictions Impact on share price Inability to pay divid dends/return capital Action by shareholders to recover loss with severe fines, prosecution and imprisonment for officers Regulatory fines/censure Slide 5

6 Case Study Sarah Holmes

7 The Case Study GFI plc, a UK listed group has acquired a subsidiary with mining operations located in Malaysia The subsidiary operates on a decentralised basis and has been granted a government licence to explore for resources in Malaysia A specialist team will be sent from the UK to facilitate the business integration and development of the exploration project The CEO of the subsidiary, who is a Malaysian national, will be joining the main board of GFI plc The directors of the subsidiary have requested funding by the UK parent for the exploration project Slide 7

8 Speakers Jonathan Gibson Welcome and Introduction Sarah Holmes Chair and Introduction of Case Study Kate Elsdon The Role of the Company Secretary in Subsidiary Governance Ben Cooper Avoiding Fraud To Protect Shareholder Value James Perrott The Strategic Importance of Immigration Governance Slide 8

9 The Role of the Company Secretary In Subsidiary Governance Kate Elsdon

10 What is the cost of getting it wrong? Slide 10

11 What does the Company Secretary need to consider? The group s approval process for funding What risks are involved and which parts of the business need to be consulted? Seeking advice and approval from across the business (Legal, Finance, Risk, Tax, HR) Provide assurance to the board of business sign-off Integrating the subsidiary into the group s governance framework Embedding compliance in the business Slide 11

12 The role of the Company Secretary Transaction Co-ordinating the approval process Director s duties promote the success of the company What functions need to approve the transaction? Have the relevant sign-offs been obtained? Adopting a Subsidiary Governance Framework ( SGF ) Addresses the risks of decentralisation that is fluid allows the entrepreneurial spirit to be retained but in a controlled environment Slide 12

13 What risks do the Board need to be aware of? Transaction - request for further fundin ng If not carried out correctly the transaction may be void Civil or criminal consequences for Directors for breach of duty Unintended tax consequences Decentralised nature of the subsidiary Reputational issues if the subsidiary s actions are not controlled Fines and public censure Civil or criminal consequences for Directors for breach of duty Duplicate tax payments Structural misalignment and an inefficient group structure Slide 13

14 What assurance does the Board need to approve the transaction? Standardised approval circular setting out the risks of a transaction for: Legal & CoSec Tax Treasury Finance Risk & Compliance HR Regulatory Affairs Holistic sign off and approval system to give the Board assur rance, comfort and the ability to make an informed decision Slide 14

15 What is a SGF? GFI plc should establish a Subsidiary Governance Framework (SGF) that includes Policies and Minimum Stand dards in the following areas: Legal and regulatory compliance Board and Committee governance Financial controls Delegated authorities and approvals Business conduct GFI plc to es stablish and adopt a SGF for its subsidiaries. Slide 15

16 What are the benefits of adopting a SGF? Implementing consistent standards of governance globally In particular, ensuring: a consistent and effective approach to compliance and legal entity management on a global basis sufficient process and controls around decision making and transactions good quality board governance and support a framework of policies, processes and procedures designed to facilitate the above a compliant, but fluid framework, to govern the operation of the subsidiary Slide 16

17 GFI plc Group Control & Oversight Minimum Standards Incorporation of entities Corporate Governance Board and Committee membership Execution of documents Board meetings External directorships Slide 17

18 GFI plc Group Control & Oversight Group Policies Conflicts of interest Insider information Policy Anti-bribery & corruption Code of Business Conduct Escalation and reporting process Share Dealing Code Slide 18

19 Adopting a Subsidiary Board Minimum Standard The Subsidiary Board should comprise: The CEO of the Asia Pacific Region The FD of the Asia Pacific Region The Executive Director, Extraction Adopting the Minimum Standard ensures: A sufficiently experienced and diverse board The Board is capable of making informed decisions and challenging management the mind and management of the subsidiary is exercised appropriately Effective management of risk and control and oversight at group level Slide 19

20 Board Governance and Support In accordance with the GFI Group Board Meeting Minimum Standard The SGF Schedule of Matters reserved for Sh hareholders should apply to the subsidiary Key matters should be reserved for the subsidiary board The subsidiary should use the group standard agenda and board paper templates Frequency and location of subsidiary board meetings Slide 20

21 Delegated Authorities Under GFI Group s SGF the Subsidiary Board should have provision and the authority to give key management: Delegated Authorities Powers of Attorney Enabling the business of the subsidiary to be conducted efficiently, whilst ensuring GFI plc is exercising sufficient oversight and control The Delegated Authority schedule and Powers of Attorney should be reviewed on a biannual basis Slide 21

22 Conclusion Issue Approval process for transactions Decentralised structure Interface with the business Risk Creating unauthorised commitments Exposure for directors Lack of control and oversight puts Subsidiary and the Group at risk of legal, governance and regulatory failures Governance Effective subsidiary governance framework embedded into the business Slide 22

23 Avoiding Fraud to Protect Shareholder Value Ben Co ooper

24 What is the cost of getting it wrong? Slide 24

25 But, it s more than just monetary fines Share price Indian court revokes 122 mobile licences Professional advisors fees Serious Fraud Office targets company dividends Brand Regulatory breaches Slide 25

26 Case study What red flags are there? Query whether sufficient due diligence was carried out on acquisition Do the directors understand the activities of Location of new subsidiary Malaysia is 60 th in the 2011 Corruption Perceptions Index Other countries surrounding the South China Sea? High risk industry Decentralised operating model Interactions with Government the new business? Slide 26

27 What do we mean by being proactive about fraud? Define Agree how to manage your fraud risk and who is responsible for doing so Respond Ensure that there is a procedure for responding to incidents of fraud Automate Consider automated suspicious transaction monitoring systems which can help improve the detection of economic crime Educate Ensure that all necessary personnel are fully aware of the policies and procedures Asse ess Conduct regular fraud risk assessments, particularly around higher risk areas, for example internal fraud perpetrated by middle management Slide 27

28 Other red flags Transactions taking place at an odd time, frequency, unusual amount or to odd recipients International controls that are not enforced, or often compromised by higher authorities Discrepancies in accounting records and unexplained items on reconciliations Missing documents, or only photocopied documents available Inconsistent, vague or implausible responses arising from inquiries Unusual discrepancies between a client s records and confirmation replies Duplications (e.g. duplicate payments) One employee has control of a process from start to finish with no segregation of duties Slide 28

29 What else should the Company Secretary be recommending? Ensure that the new subsidiary adopts and applies the group s anti-fraud and corruption policies and procedures, for example: Consider training the subsidiary s staff in local languages Ensure the tone of the top message is conveyed Address cultural issues which may cause issues Appoint a compliance manager in the subsidiary to monitor compliance Ensure the subsidiary continuously monitors the risk environment including compliance with Malaysian anti-corruption laws Slide 29

30 Conclusion By being proactive about fraud and corruption you can avoid the: Multi m fines Drops in share price Negative publicity Brand damage and create and protect shareholder value Getting it wrong is not an option Slide 30

31 The Strategic Importance of Immigration Governance James Perrott

32 What is the cost of getting it wrong? Slide 32

33 Why is immigration compliance and governance important to GFI Plc? A globally mobile population crea ates risks for individuals and the business: business travellers facing increased immigration scrutiny definition of what constitutes business varies from country to country non-compliance with immigration regulation a death penalty for business difficulty of navigating immigration rules for different countries need to know where your population is for disaster management When businesses enter into a venture in a new country, the main consideration used to be financial, now immigration is also key. Slide 33

34 What does good immigration governance look like? Structure Global function to centrally manage group- -wide immigration compliance Local function to manage immigration compliance at a country and, possibly, regional level Both expatriate and local migrant populations must be covered Policies Regularly audited, consistent policies applied group-wide Centrally held and globally accessible Summary of main immigration considerations Red flags nationality, previous travel, criminal record, previous refusals Proactive immigration planning advantage will give you a competitive Slide 34

35 Potential Penalties GFI as Employer Direct Financial penalty for every illegal worker Imprisonment of senior management Termination of employment of current migrant workers Restriction / prohibition on hiring skilled migrant workers in future Corporal punishment for board members Indirect Reputational damage from Increased cost to business of rectifying breaches Disruption due to inability of travellers to meet the requirements for entry Loss of government contracts negative publicity Loss of mobility of CEOs / board level members Loss of investment on high value individuals Slide 35

36 Potential Penalties GFI Employees Direct Detention at border Imprisonment for immigration offences Removal / deportation for breaching conditions Ban from re-entering the country Fines Corporal punishment Indirect Increased requirement to obtain visas Increased risk of refusal Increase in processing times Delays at border Slide 36

37 Business Visitor Requirements Short-term business trip for which work au uthorisation is not required Activities that the employee is undertaking and length of stay are important considerations Permissible activities Definition of business varies from country to country, examples include: Attending business meetings, discussions or conferences Inspection of factories Auditing company s accounts (applicable to internal auditors only) Signing agreements Survey of investment opportunities or setting-up factories Attending seminars Attend board meetings Slide 37

38 Business Visitor Red flags Own office / dedicated desk, computer and telephone line Business cards with address of company individual is visiting Prolonged / frequent visits Specialist luggage/ large amount of luggage Solution Send first set of employees to Malaysia as business visitors whilst limiting their activities to permissible activities Provide employees with support letters detailing their activities for the trip Gather necessary documentation to apply for employment permission to the Malaysian Consulate in London Slide 38

39 Remember Ignorance is no excuse! If it goes wrong in Malaysia, it could affect the whole Asia Pac business strategy Slide 39

40 Conclusion Issue Lack of immigration governance Lack clear policies governing immigration compliance Risk Impact on regional business strategy Disruption to or prohibition of skilled migrants being able to visit / work in certain countries Financial penalties and reputational damage of being found to be non-compliant with immigration laws Governance Global function to centrally manage group-wide immigration compliance Regularly audited, consistent immigration policies applied group-wide Slide 40

41 Wrap Up Sarah Holmes

42 Thank you Would you like a one-to-one conversation? This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (expresss or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers LLP. All rights reserved. In this document, PwC refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.