Corporate Governance

Abdulaziz Al-HashimiGeneral Auditor

Saudi Aramco

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Introduction to Corporate GovernanceDefinition

Benefits

System

Cornerstones of Good Governance

The Saudi Aramco Experience Audit Committee

Internal Audit

Introduction to Corporate GovernanceDefinition

Benefits

System

Cornerstones of Good Governance

The Saudi Aramco Experience Audit Committee

Internal Audit

AgendaAgenda

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Corporate GovernanceCorporate Governance

الشركات حاكميه الرشيدة اإلدارة اإلداري االنضباط الشركات حوكمة

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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

“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

Corporate GovernanceCorporate Governance

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Why Corporate Governance?Why Corporate Governance?

Company Owners

Management

Majority

Minority

InsuranceSuppliersCreditors

CommunityEmployeesGovernment

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Why Corporate Governance?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?

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Benefits of Corporate GovernanceBenefits of Corporate Governance

Social Responsibility

Fairness

Responsibility Accountability

Independence

Transparency

Discipline

Corporate Governance

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System of Corporate GovernanceSystem of Corporate Governance

COMMUNITY

INSURERS

GOVERNMENTLENDERS

EMPLOYEESBOARD

SHAREHOLDERS

REGULATORS

OFFICERS

AUDITORSPOTENTIALINVESTORS

SUPPLIERS

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Board of DirectorsBoard 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

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

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The Cornerstones of Corporate Governance The Cornerstones of Corporate Governance

Audit Committee Executive

Management Internal Audit External Audit

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Financial Reporting Financial Statements

Accounting Policies

FR Controls

Risk Mgmt & Controls Effectiveness of Controls

Irregular Activities

Follow-up on Audit Issues

Internal Audit Authority & Resources

Scope of Work

Risk & ControlRecommendations

External Audit Scope, Fees & Services

FS Opinion & Controls

Independence & Performance

BAC AreasOf Focus

BAC ResponsibilityBAC Responsibility

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Relationship with the General Auditor Relationship with the General Auditor

Board Audit Committee

General Auditor

Independent & Objective Provider of Assurance

Risk FocusedValue Added Improvements

Professionalism and IntegrityEffective Operations

Establishes the “Tone at the Top”

IndependentRisk KnowledgeableActively Engaged

Corporate GovernanceEnsures Resources

Can

did

Com

mun

icat

ion

Candid C

omm

unication

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Internal AuditingInternal Auditing

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““Internal Auditing is an Internal Auditing is an independent, objective assurance independent, objective assurance and consulting activityand consulting activity designed designed to to add valueadd value and and improveimprove an an organization’s operation. It helps organization’s operation. It helps an organization an organization accomplish its accomplish its objectivesobjectives by bringing a by bringing a systematic, disciplined approach systematic, disciplined approach to evaluate and improve the to evaluate and improve the effectiveness of risk effectiveness of risk management, control and management, control and governance processes.”governance processes.”

Internal Auditing

Skilled Staff

Audit Types

QA

Independence

Objectivity

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Board Audit Committee

Sr. Vice PresidentFinance

General Auditor

Functional Audits Department

Operational Audits Department

Admin & General

Int”l Businesses

Information Systems

Industrial Relations

Special AuditsDivision

Planning Support & Consulting Division

Refining & Marketing

Exploration & Producing

Engg. & Projects Mgt.

Operations Services

ASC Audits Division

Internal AuditingInternal Auditing

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Model Audit ProfessionalsModel Audit Professionals

ExperienceCertificationTraining EducationAuditors

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)

78 Auditors

From:

• Saudi Arabia

• USA

• Canada

• UK

• Philippines

• South Africa

• Australia

• India

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Internal Auditing ServicesInternal Auditing Services

Assurance Services

Consulting Services

Regular AuditsRegular Audits

Special AuditsSpecial Audits

Control Control Self-AssessmentSelf-Assessment

Risk AssessmentsRisk Assessments

Fraud AwarenessFraud Awareness

Internal Controls &

Risk Management

Internal Controls &

Risk Management

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Governance is a Social ResponsibilityGovernance is a Social Responsibility

على ” تفرض الجميع بين المشتركة المسؤولية إنالشعب هذا شؤون من أمرا تقلد مسؤول كلنصب & واضعًا بأمًانته القيًام مسؤولية الكريممن أعظمهًا ومًا وشعبه ألهله خًادم انه عينيهوالتفًاني واإلخالص بًاألمًانة توشحت إذا خدمة

. والتواضع والعطًاءالله أمًام مسًاءل انه مسؤول كل وليعلمالشعب وأمًام أمًامي ثم وتعًالى سبحًانه

تهًاون أو مقصود خطأ أي عن “السعودي

مساءلمساءل

باألمانة

باألمانة التواضعالتواضع

العطاءالعطاءالتفانيالتفانياإلخالصاإلخالص

عبدالعزيز بن عبدالله الملك الشريفين الحرمين خادمالله حفظه

عبدالعزيز بن عبدالله الملك الشريفين الحرمين خادمالله حفظه

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Hierarchy of EthicsHierarchy of Ethics

INTEGRITYINTEGRITYINTEGRITYINTEGRITY

LOYALTYLOYALTYLOYALTYLOYALTY

TRUSTWORTHINESSTRUSTWORTHINESSTRUSTWORTHINESSTRUSTWORTHINESS

HONESTYHONESTYHONESTYHONESTY

COMPETENCYCOMPETENCYCOMPETENCYCOMPETENCY

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What is Fraud?What is Fraud?

RationalizationRationalization PressurePressure

OpportunityOpportunity

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Examples of Poor GovernanceExamples 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.”

Kenneth Lay, September 26, 2001Kenneth Lay, September 26, 2001

Kenneth Lay, Former ENRON Chairman, August 14, 2001Kenneth Lay, Former ENRON Chairman, August 14, 2001

“I want to assure you that I have never felt better about the prospects for the Company”.

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Examples of Poor GovernanceExamples 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

William Powers, Chairman, Special Enron Investigations Committee

February 1, 2002

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“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

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Examples of Poor GovernanceExamples of Poor Governance

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ConclusionConclusion

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…

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THANK YOU THANK YOU