Hermès - Registration Document 2016

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CORPORATE GOVERNANCE

REPORT FROM THE CHAIRMAN OF THE SUPERVISORY BOARD ON THE CORPORATE GOVERNANCE PRINCIPLES

s it ensures the deployment of internal controls suited to Group ventures. The auditors work on the basis of an annual audit plan, validated by the Executive Management and the Audit Committee, which is adapted every six months, if necessary. The audit plan is powered by comprehen- sive risk analysis, including financial, operational and compliance, by the proposals of the Executive Committee and by the audit trails, which should allow a regular review of all Group entities and processes, with a frequency appropriate to the magnitude of the risks and the relative weight of the various Group entities. The A&RMD also carries out sup- port assignments for the internal control roll-out within newly acquired entities. In order to conduct specialised audits, A&RMD may call upon outside firms or use appropriate analysis tools. The A&RMD carries out a continuous improvement initiative as regards the internal control and risk management systems. It notably monitors the practices of other companies in such matters. It works alongside the Group’s various departments in order to promote the upstream handling of the main risks, as well as emerging risks, and runs the risk mapping approach of the main businesses, retail subsi- diaries and support functions. The risk maps can also be deployed on a case-by-case basis, for certain projects. The methodology for risk map- ping is regularly reviewed in the light of best practice. The A&RMD coordinates a network of employees responsible for internal control, in France and abroad, within the business lines, in distribution and in support activities. This coordination includes awareness-raising about best internal control practices. Lastly, it also participates in the Group training sessions in order to promote an awareness of risk mana- gement and internal control best practices amongst the management. An audit charter formalising the duties and responsibilities of the internal auditors and their professional conduct and detailing their audit enga- gements was released and circulated in 2010. In 2013, the system was completed by a risk charter that formalises the principles and rules implemented with regard to risk management, and by an internal control charter that formalises the roles and responsibilities of the people invol- ved in internal control. The Head of audit and risk management attends Audit Committee meetings. He meets with the Audit Committee six times a year, including once without the presence of third parties. He presents a report on the Audit Committee’s activity each year. Internal control managers Internal control managers oversee the implementation of the internal control system within their scope, businesses, distribution subsidiaries or support functions. They report to the CFO of their entity. They work according to an annual plan, shared with their department and A&RMD, taking into account the Group’s internal control priorities and the risks specific to their company. Within their entity, their main tasks are to: s review the key risks and the organisation of internal control; s verify the implementation of Group procedures in accordance with local regulations;

Scope of the risk management and internal control system

3.2.6.3

The Group’s risk management and internal control mechanisms are applicable to the parent company and to the controlled subsidiaries, as they are presented in the notes to the consolidated financial statements.

Parties responsible for risk management and internal control systems

3.2.6.4

Group management The Group management designs risk management and internal control procedures commensurate with the Company’s size, business opera- tions, geographical footprint and organisation. In addition to establishing procedures for delegating authority established at different hierarchical levels, Group management has ultimate responsibility for guaranteeing the effectiveness of the risk management system and its adequacy for meeting the Group’s strategy objectives. To this end, it is provided with activity reports and regularly meets with the audit and risk management department (A&RMD). It therefore oversees the system as a whole to safeguard its integrity and, where applicable, initiate any correctivemea- sures needed to remedy any failures. Audit Committee The Audit Committee was established in 2005 within the Supervisory Board pursuant to Article L. 823-19 of the French Commercial Code (Code de commerce), and without prejudice to the powers of the Supervisory Board, which it does not supersede. The roles and duties of the Audit Committee were formally documented in rules of procedure drawn up by the Supervisory Board in 2010 and regularly updated. The latest version appears on page 135. Each meeting of the Audit Committee gives rise to written minutes that must be approved. At each meeting of the Supervisory Board, the Chairman of the Audit Committee gives the Board a report of the work of the Audit Committee. In 2016, the Audit Committee also conducted a self-assessment as part of the triennial formal self-assessment of the Supervisory Board. Areas of improvement are shown on page 119. In 2016, approval of services other than certification of the financial statements, pursuant to Article L. 822-11-02 of the French Commercial Code (Code de commerce), resulted in the development and validation by the Audit Committee of a procedure. Audit and risk management department (A&RMD) The department reports to the Group’s Executive Vice President of Governance and Organisational Development, which guarantees its independence, and has unlimited authority to review any matter at their discretion. The A&RMD consists of a core team of experienced auditors, and runs a decentralised network of internal controllers. It performs three main roles for the Group: s it performs internal audits and monitors the implementation of the recommendations;

it identifies and analyses risks;

s

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2016 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL