Hermès - Registration Document 2016

CORPORATE GOVERNANCE

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

they are deployed in the entities. They also check that existing control systems comply with Group procedures. The main operational contacts involved take part in these committees, as does A&RMD, whose role is to facilitate the identification of risks and of the associated action plans. A Group Security Committee was formed in 2016. Its role is to arbitrate on cross-functional topics of security and monitor the functioning of the specialised committees. The A&RMD is also able to modify its work programme and carry out ad hoc assignments in order to deal with new risks, particularly in the event of an alert issued by a Group division. Finally, an IT platform for the sharing of incidents not only enables assessment of the changes of certain risks, but also the apprehension, early on, of any possible signs of weakness. It’s a preventive tool that allows for the constant improvement of the control system, to correspond to actual conditions as closely as possible. Organisation The Company’s management is organised into an Executive Committee and several specialised committees, and ensures that strategic direc- tions are followed consistently and that information is disseminated effectively. Detailed organisational charts and memoranda outlining strategic directions give staff members a thorough understanding of their role in the organisation and a way to periodically evaluate their per- formance by comparing it with stated targets. The Group’s organisation is based on an approach designed to foster a high level of accountability among local managers, whose duties and responsibilities are clearly defined. In its human resources processes, Hermès has established hiring, training and skills development programmes designed to enable each individual to perform their duties effectively, now or in the future. Within Hermès International, the finance department has primary responsibi- lity for preparation and control of financial information (see below). Information systems Hermès uses effective IT tools tailored to its requirements in preparing andcontrollinginformation.Integratedapplicationsareusedtocentralise data reported to Hermès International by the subsidiaries, for account consolidation and for cashmanagement. Managers have access to data generated the management systems on a weekly and monthly basis, giving them the information they need to manage business operations effectively, to monitor performance consistently, and to identify any irregularities. The information systems are designed to ensure that the accounting and financial information produced complies with security, reliability, availability and relevance criteria. Specific rules on the organisation and operation of all IT systems havebeendefined, applying to systemaccess, validation of processing and year-end closing procedures, data archiving and record verification. 3.2.6.6 Internal control system

s participate in self-assessment of internal control work; s spread the culture of internal control to all employees; s perform monitoring of the action plans of risk mapping; s follow up on the audit recommendations of the A&RMD. The Group’s operational staff

The Senior Executives, the major functional and operating departments, and members of the Management Committees of the Group’s various entities serve as the main conduits for applying internal control and risk management; they are themain beneficiaries of the systemand also key contributors to its proper operation. Control activities carried out at the level of each entity fall under the joint responsibility of the Executive Vice President and Financial Executive Vice President, as established by the signature of a letter of representa- tion relating to the knowledge of the Hermès internal control objectives and of the quality of the controls implemented within the entity. To this end, they rely on the results of an annual self-assessment questionnaire on the implementation of the internal control system. Risk management system The Group’s risk management process is based upon the preparation of risk maps as well as a range of complementary tools that facilitate the identification of risks and help to define the actions necessary to best deal with them. Set up in 2004, the mapping initiative has been rolled out to the main entities under the supervision of the A&RMD. These maps serve to identify, evaluate and systematically rank the main risks. They represent a lever for performance improvement, as they contribute to the protection of company value and assets. These are effective management tools that provide a comprehensive and shared vision of the risks and define operational action plans and responsibi- lities of stakeholders. The risk maps are updated periodically by each company under the supervision of the A&RMD. The internal control managers within the entities are the local relays for the mapping initiative. They participate in the initial risk analysis, while updating and monitoring the action plans. Group risk mapping is established and updated annually. It takes into account locally identified risks and individual interviews held with Group management. This document, which enables the consolidation of the main action plans, is shared with the Audit Committee. Prioritisation of risks carried out by Group management is also shared with the entities in order to be included in the mapping carried out locally. In 2015, the A&RMD carried out a specific mapping exercise concerning the risk of fraud, with action plans monitored. Hermès International has also deployed specific processes to monitor certain risks through specialised committees or working groups. These committees meet on a regular basis. For example, committees focusing on real estate risks, transportation safety, IT risks and treasury risks ana- lyse the issues, and study the appropriate corrective measures so that 3.2.6.5

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