Eumedion, the Dutch corporate governance platform for around 70 institutional investors representing more than €1trn of assets, is to focus on two main issues in its engagement dialogues with listed Dutch companies in 2014.
The first priority is strengthening the integrity of financial information and the second is to get more information on how boards function.
Eumedion sent out its annual focus letter to the management and supervisory boards of companies earlier this month.
On its first priority, Eumedion refers to a number of accounting irregularities in 2012 which it says underlines the importance of the role of directors and auditors to ensure the integrity of the financial information.
So the group wants supervisory directors, or their audit committee, to provide meaningful explanations of how they have discharged their responsibilities on auditing. This would entail a description of the significant issues considered in relation to the accounts as well as information on the key areas of “sensitivity or risk” to the integrity of the information and how this has been addressed.
Eumedion (‘Good Guardian’ in Greek) has written a separate letter to the largest audit firms asking them to provide more informative audit reports.
“We believe that a more informative audit report is necessary to restore investors’ confidence in financial reporting,” the letter from Eumedion’s Executive Director Rients Abma states.On the second priority issue, board functioning, The Hague-based Eumedion wants better disclosure of the nomination processes for new managing and supervisory board members – including assessments used and any succession issues addressed.
“A more informative audit report is necessary to restore investors’ confidence in financial reporting”
And it wants disclosure of the most significant findings from board evaluations and what follow-up action has been taken.
Evaluations could cover elements like skills, experience, independence/knowledge and diversity. Eumedion recommends an external evaluation at least every three years.
Eumedion has also come out in support of efforts by the European Securities and Markets Authority, the EU financial supervisor, to develop a more harmonised approach to financial information published by European listed companies.
ESMA is currently consulting on draft guidelines on enforcement of financial information, and Eumedion says it will help to improve the quality and consistency of financial reporting across Europe – adding it is “fundamental” for institutional investors confidence in companies’ “performance and prospects”.