Official Launch of FIDE Forum 12 June 2012 Presentation by Youssef A Nasr Corporate Governance ….. Should I take it s

1. Official Launch of FIDE Forum12 June 2012Presentation byYoussef A NasrCorporate Governance ….. Should I take it seriously?

2. Presentation by:Youssef A NasrCorporate Governance ….. Should I take it seriously?

3. The Boy and the Wolf The tale concerns a shepherd boy who repeatedly tricks nearby villagers into thinking a wolf is attacking his flock. When a wolf actually does appear, the villagers do not believe the boy's cries for help, and the flock is destroyed. The moral at the end of the story shows that this is how liars are not rewarded: even if they tell the truth, no one believes them.

4. Recent Occurrences of“Scare Tactics” • IFRS • Basel 2 • Y2K • The internet

5. So, is the focus on Corporate Governance and Risk Management just the latest fads, which will pass away soon?

6. Certainly Not ! • The public and governments are extremely angry. No more tolerance. • Heightened risk of personal liability. • Bad news travels much faster. • Correlations among global markets. • Generally, people at large have become more cynical and skeptical.

7. What about the Banking Business? • Leverage • Volatility of assets • Accounting leeway • Good banking is very good. • Bad banking is very bad.

8. What is being asked of Directors? • Understand the basics of the business. • Engage in robust but constructive debates. • Apply common sense. • Ensure checks and balances exist. • Prioritize which issues you address in depth. • Focus on strategy and reasonableness. • Ensure minutes are sufficiently detailed. • Set the tone from the top

9. How best to do this? • Fide program is a start. • Continuing education is critical. • Networking with other directors. • Devote sufficient time. • Actively manage board agendas and papers. • Engage external advisors when necessary. • Create a healthy dialogue with auditors and regulators.

10. Potential Pitfalls • Do not emaciate your CEO and management teams. • Do not become micro-managers. • Trust but verify. • KPIs and compensation programs. • Reliance on formulaic tools.

11. The ROI Issue • Bluntly, there is no choice. • But there are also financial incentives for investing in improved CG and Risk Management: • Lower deposit insurance premia. • Lower wholesale funding costs. • Premium valuation of equity.

12. 'Those who cannot remember the past are condemned to repeat it.'George Santayana, Philosopher

13. AIG Takeaways • Rapid growth in a business • Investment portfolio valuations • Counterparty risk: now and what it might become • Other assets • Simulation for when things go wrong • Duplication of risks in the same company • Dominant player for MTM • Consolidated liquidity numbers v/s access to cash • Location of offices • Incentive plan of executives

14. JPMorgan v/s AIG Takeaways • Rapid growth in a business • Investment portfolio valuations • Counterparty risk: now and what it might become • Other assets • Simulation for when things go wrong • Duplication of risks in the same company • Dominant player for MTM • Consolidated liquidity numbers v/s access to cash • Location of offices • Incentive plan of executives

15. …and some additional lessons • If you annoy the markets, they will extract their revenge. • Do you have the right directors on your Risk Management Committee? • How are you managing your liquidity? • Do you have a central financial control function ensuring common accounting standards? • Are you still relying on VAR?