HERMÈS - 2018 Registration document

Overview of the group

Risk factors

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 updated annually. The subsidiaries’ risk mapping and individual assessments by Executive Committee members feed into it. This risk mapping is shared on a collective basis with them and action plans are circulated. It is also shared with the Audit and Risk Committee. TheGroup riskmapping isalsousedasastartingpoint for A&RMD’saudit plan and the internal auditors’ work programmes. It also feeds in to the internal control priorities of the internal control managers. Prioritisation of risks carried out by Groupmanagement is also sharedwith the entities in order to be included in the mapping carried out locally. In the areas of fraud and corruption: s s The A&RMD carried out a specific mapping exercise concerning the risk of fraud, with action plans monitored. Awareness-raising cam- paigns for functions most at risk are conducted on a regular basis. Awareness-raising, identified as an effective fraud prevention tool, is rolled out and adapted to the types of fraud (risk of systems intrusion, «CEO fraud», etc.). An ad hoc security system has also been intro- duced and is monitored by the Group Security Department. 1.9.6.5

s s A corruption risk mapping has been drawn up with the help of a spe- cialist external firm and with the collaboration of the Director of Legal Compliance and Public Affairs, who is responsible for its manage- ment, as described in section 3.2.3.1.2. 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. A&RMD may also perform cross-functional audits. 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. Furthermore, procedures and controls have been set up to ensure the quality and security of operation, maintenance and upgrading of accoun- ting and management systems and all systems that directly or indirectly send data to these systems. 1.9.6.6 Internal control system in response to risks

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2018 REGISTRATION DOCUMENT HERMÈS INTERNATIONAL

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