Digitalizing

Corporate Governance

Creating the Governance ability to apply information and technology in raising the firm performance enhancing Boards capacity to direct and control

through a set of rules, practices and processes 1

OBJECTIVES

To evolve into a high performance organizational culture, scaling and integrating the firm corporate governance practice into its

operations through a digital compliance program

To establish the necessary communications channels with stakeholders; employees, customers, suppliers, authorities,

communities and shareholders

To conform the mechanics for the effective overlook, proactive update and supervision by the Corporate Practices Committee

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CURRENT CONTEXT

Recent developments confirm that the US Department of Justice (DOJ) is increasing the pressure on companies to implement robust and tailored compliance programs.

On November 3, 2015, Hui Chen joined the DOJ as the agency’s first Compliance Counsel. Assistant Attorney General Leslie Caldwell

announced that Chen’s mission will be to assist prosecutors in assessing a company’s program, as well as to test the validity of the company’s claims about its program, such as whether the compliance program

truly is thoughtfully designed and sufficiently resourced to address the company’s compliance risks, or essentially window dressing.

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AGENCY RISKY

Regulatory reviews are expected to address;

A. Whether a violation of the law, company policy, rules and regulations, has occurred because the company lacked an effective compliance program or because a rogue employee circumvented an otherwise robust program.

B. Whether a company has designed a program that suits the unique attributes of its operations and strategy.

C. How the company proactively assess and enhance its Corporate Governance and Compliance program.

The above has been previously articulated by the Securities and Exchange Commission in various pronouncements, along the key components of a strong compliance program.

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RECENT CASES

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OBSERVED COSTS

• Volkswagen case metrics illustrates with; an estimated direct cost for the emissions scandal for up to $38 Bn, almost 50% of shareholders lost value and a 16% sales drop in NorthAmerica. Triggering as well industry wide revisions in global scale.

Client Reporting

Residential Mortgage Foreclosure

Loan Securitizations

Rate Setting

Loan Modification

Derivative Procedure

0 12.5 25 37.5 50

Banks Fines and Penalties biggest categories 09-15 ($Bn/Carlytics)

• The financial industry has taken a heavy toll with the 10 largest US and European Banks fined for $ 150 Bn between 09 and 15, wiping out the equivalent of 14% of their equity capital.

• Fines relate to civil and criminal cases brought by regulators and authorities with power to levy penalties.

• Client reporting failures involved misleading customers about investments and not communicating clearly enough with borrowers.

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KEY COMPONENTS

• The board and senior management have a visible and strong commitment to the program that is communicated throughout the organization

• The individual responsible for compliance holds a position of stature and has adequate resources and funding to implement an effective program

• Policies and procedures are accessible, easy to understand and translated into all necessary languages

• Employees receive periodic training on policies and procedures, including information on how and where they can seek guidance and/or report concerns

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KEY COMPONENTS

• The program is dynamic and evolves as risks change, such as when the company acquires other companies or enters new territories

• Incentives for ethical behavior and disciplinary measures are evenly applied across all levels of management, supervisors and all employees

• The company has procedures in place to ensure that its vendors, consultants and other third parties comply with the company’s policies and the law. Companies are expected to terminate business relationships with third parties that demonstrate a lack of adherence to laws and policies.

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RISK GOVERNANCE

• Reputation. An amplifier risk condition which layers on or attaches to other risks specially; environmental, social and governance. With implications on materiality, duration and or expansion

• Leadership and Culture. The creation of a pervasive risk culture and or silos which may foment behaviors by the rest of the management and deeper into the organization

• Cyber Security. Continues to evolve as a multifaceted constantly evolving treat

• Resilience. Business continuity and disaster recovery plan

• Compliance

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3 PHASES

1. Updating the firm Corporate Governance model

2. Developing a digital implementation plan

3. Validating management architecture, supervision functions and measuring performance

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PHASE 1

Validate and complement firm corporate governance model:

A. Corporate Practices Committee agenda, standards and communication channels with stakeholders

C. Regulatory Framework, industry specific acts, rules and regulations, information security

E. Incorporating relevant international legislation (Sarbanes Oxley, Dodd-Frank, OFAC, Foreign Corrupt Practices Act)

G. Delineating the conduct and behavior practice addressing employee digital identity, code of ethics, conditions for a respectful and inclusive workplace

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PHASE 2

Developing no more than 12 comprehensive corporate governance Compliance training courses:

A. One training per month at the most, with less than an hour for completion time and between 5 to 20 questions quiz

C. Digitally deployed with time completion limits and gathering data on each individual performance

E. Firm employees must take all courses on yearly basis for 3 years and thereafter with every update or under an extended sequence

G. Corporate Practices Committee communication channel with employees is reinforced in each training

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Institutionalizing management and supervisors attestation practice on business conduct and behavior:

A. A quarterly/yearly exercise whereby all managers and supervisors attest to be in compliance with the firm corporate governance practice

C. Includes up to 30 specific questions on the individuals conduct, good keeping of accounts and records, company assets, applicable rules and regulations

E. Adherence to jurisdictions, foreign laws and global industry operational standards

G. Executed prior to performance appraisals and compensation reviews, aligning supervisors structure and talent development to key performance indicators

PHASE 3

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