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Corporate Governance

Corporate Governance. Abdulaziz Al-Hashimi General Auditor Saudi Aramco. Agenda. Introduction to Corporate Governance Definition Benefits System Cornerstones of Good Governance The Saudi Aramco Experience Audit Committee Internal Audit. Corporate Governance. حاكميه الشركات

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Corporate Governance

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  1. Corporate Governance Abdulaziz Al-HashimiGeneral AuditorSaudi Aramco

  2. Agenda • Introduction to Corporate Governance • Definition • Benefits • System • CornerstonesofGood Governance • The Saudi Aramco Experience • Audit Committee • Internal Audit

  3. Corporate Governance • حاكميه الشركات • الإدارة الرشيدة • الانضباط الإداري • حوكمة الشركات

  4. Corporate Governance Corporate Governance Defined “Corporate governance involves a set of relationships between a company’s management, its board, its shareholders, and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined”. … Institute of Internal Auditors

  5. Why Corporate Governance? Majority Creditors Suppliers Insurance Company Owners Government Employees Community Management Minority

  6. Why Corporate Governance? • How can you guarantee that management is increasing owner’s wealth? • Does management use the business for their personal benefit? • Is the Company controlled by a majority? • How can creditors be given assurance of financial strength? • Are employee rights and benefits protected? • Is the Company fulfilling its community obligations? • Is Company information transparent?

  7. Benefits of Corporate Governance Discipline Transparency Social Responsibility Corporate Governance Fairness Independence Accountability Responsibility

  8. REGULATORS EMPLOYEES SHAREHOLDERS INSURERS OFFICERS SUPPLIERS AUDITORS LENDERS GOVERNMENT POTENTIAL INVESTORS System of Corporate Governance BOARD COMMUNITY

  9. Board of Directors General Board responsibilities should include: • Corporate Philosophy and Mission • Director Nomination • CEO and Senior Executive Selection • Management’s Strategic Plans and Business Objectives • Evaluation of Corporate Performance • Enterprise Risk Management (ERM) • Ethical Compass of the Organization • Board Self-Assessment

  10. The Cornerstones of Corporate Governance • Audit Committee • Executive Management • Internal Audit • External Audit

  11. BAC Responsibility • Financial Reporting • Financial Statements • Accounting Policies • FR Controls • Risk Mgmt & Controls • Effectiveness of Controls • Irregular Activities • Follow-up on Audit Issues BAC Areas Of Focus • Internal Audit • Authority & Resources • Scope of Work • Risk & Control Recommendations • External Audit • Scope, Fees & Services • FS Opinion & Controls • Independence & Performance

  12. Board Audit Committee Independent & Objective Provider of Assurance Risk Focused Value Added Improvements Professionalism and Integrity Effective Operations Establishes the “Tone at the Top” Independent Risk Knowledgeable Actively Engaged Corporate Governance Ensures Resources General Auditor Relationship with the General Auditor Candid Communication Candid Communication

  13. Independence QA Objectivity Internal Auditing Skilled Staff Audit Types Internal Auditing “Internal Auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization’s operation. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control and governance processes.” 13

  14. Internal Auditing Board Audit Committee Sr. Vice President Finance General Auditor Operational Audits Department Functional Audits Department Special Audits Division Admin & General Engg. & Projects Mgt. Int”l Businesses Planning Support & Consulting Division Exploration & Producing Information Systems Refining & Marketing Industrial Relations Operations Services ASC Audits Division

  15. Model Audit Professionals Auditors Education Training Certification Experience • 78 Auditors • From: • Saudi Arabia • USA • Canada • UK • Philippines • South Africa • Australia • India • 4 Year • Degrees: • Accounting • Finance • Engineering • Economics • Info System • 40% are: • MBAs/MS • Engineering • Accounting • E-learning • In-house • Company • In-Kingdom • Out-of- Kingdom • 60% • CIA • CPA • CA • CISA • CISSP • CFA • CFE • CMA • CFM • CGA • PFSO • CCSA • Company • Fieldwork in • Engineering • Other Companies • Internally Developed (via OJT)

  16. Internal Auditing Services Assurance Services Regular Audits Special Audits Control Self-Assessment Risk Assessments Fraud Awareness Internal Controls & Risk Management Internal Controls & Risk Management Consulting Services

  17. Governance is a Social Responsibility ” إن المسؤولية المشتركة بين الجميع تفرض على كل مسؤول تقلد أمرا من شؤون هذا الشعب الكريم مسؤولية القيام بأمانته واضعاً نصب عينيه انه خادم لأهله وشعبه وما أعظمها من خدمة إذا توشحت بالأمانة والإخلاص والتفاني والعطاء والتواضع. وليعلم كل مسؤول انه مساءل أمام الله سبحانه وتعالى ثم أمامي وأمام الشعب السعودي عن أي خطأ مقصود أو تهاون“ العطاء التفاني الإخلاص بالأمانة التواضع مساءل خادم الحرمين الشريفين الملك عبدالله بن عبدالعزيز حفظه الله بالأمانة الاخلاص مساءل التواضع التفاني مساءل بالأمانة الاخلاص التواضع مساءل بالأمانة التواضع مساءل بالأمانة مساءل

  18. Hierarchy of Ethics COMPETENCY HONESTY TRUSTWORTHINESS LOYALTY INTEGRITY

  19. What is Fraud? Opportunity Rationalization Pressure

  20. Examples of Poor Governance “My Personal belief is that ENRON stock is an incredible bargain at current prices.. and that we will look back a couple of years from now and see the great opportunity that we currently have.” “I want to assure you that I have never felt better about the prospects for the Company”. Kenneth Lay, Former ENRON Chairman, August 14, 2001 Kenneth Lay, September 26, 2001

  21. Examples of Poor Governance “We found a systematic and pervasive attempt by Enron’s management to misrepresent the Company financial condition” “The true causes of Enron’s rapid slide into bankruptcy were its own improprieties” William Powers, Chairman, Special Enron Investigations Committee February 1, 2002

  22. Examples of Poor Governance “A Quality Control Agency located in the USA withdrew the Quality Certificate it awarded to a Saudi Company because the percentage of lead in its products exceeded the allowable limit, and therefore, the Saudi Company is not authorized to use the quality certificate.” Al-HAYAT Newspaper, January 20, 2008 23

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  24. Conclusion • Corporate Governance is a Process… • It can Create a Positive Impact Throughout any Organization… • You Need to Believe in it for it to be Successful… • Corporate Governance is for Everyone… 25

  25. THANK YOU

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