Board of directors
Inter Parfums adopted the form of a société anonyme,
the French equivalent of a joint stock company,
when it was created in 1989. It is governed by a
Board of Directors and a Management Committee.
The Board of Directors’ meeting of December 22,
2008 reviewed the AFEP-MEDEF recommendations
of October 6, 2008 on compensation of executive officers
of listed companies. It considered these recommendations
to be in line with the company’s own corporate
governance policy. This opinion was rendered public
in a press release dated December 24, 2008.
The Board of Directors also confirmed that the amended
AFEP/MEDEF corporate governance code is applied
by the company and referred to prepare the report
provided for by article L.225-37 of the French
Commercial Code starting with the period in progress.
Composition of the Board of Directors
In spring 2004, the company strengthened the Board
of Directors that until then had four members, by
appointing new board members for renewable six-year
terms to benefit from their additional expertise and
experience. On December 31, 2007 the Board of
Directors had 10 members.
The Board of Directors’ meeting of November 22,
2008 duly noted the resignation of Mrs. Marianne
Benacin and Mr. Raoul Madar as directors and
proceeded to appoint, on a temporary basis,
Mrs. Chantal Roos and Mr. Frédéric Garcia Pelayo
to serve as directors, subject to the ratification of
their appointment by the next shareholders’ meeting
to be held on April 24, 2009.
The Board ensures that at least 30% of its members
are independent directors. Directors are considered
independent when they have no relation whatsoever
with the company, group or its management that
could compromise their free exercise of judgment.
In line with recommendations applicable in France
on corporate governance of the AFEP-MEDEF report,
the board ensures the presence of independent directors subject to the following conditions:
the director is not an employee or corporate officer
(mandataire social) of the company nor an employee
or director of its parent company or of one of its
consolidated subsidiaries, and has not been one during
the previous five years;
the director is not a corporate officer of a company
in which the company holds, either directly or indirectly,
a directorship, or in which a directorship is held by
an employee of the company designated as such or by
a current or former (going back five years) corporate
officer of the company;
the director is not a supplier, investment or
commercial banker of the company or any company
included in the scope of consolidation;
the director does not have any close family ties with
a corporate officer of the company;
the director has not been an auditor of the company
over the past five years:
the director has not been a director of the company
for more than 12 years; and
the director does not have any legal ties with a
shareholder owning directly or indirectly more than
10% of the share capital or voting rights.
On the basis of these criteria, the board includes
three independent directors, Mrs. Chantal Roos,
Mr. Maurice Aladhève and Mr. Michel Dyens.
To date, the Board has three members with the status
of employees resulting from an employment contract
predating their appointment as directors.
As a general rule, members of the Board of Directors
have an in-depth or multidisciplinary experience
of the business world in international markets. They
are subject to conduct of business rules that include
notably obligations of secrecy and due diligence in
the performance of their duties ensuring the effective
work of the Board in a collegiate nature. Directors
are provided not only with information before each
meeting but also on a permanent basis concerning
all strategic and financial matters necessary to perform
their duties in the most effective manner.
The Board of Directors’ meeting of March 3, 2009
adopted a board charter reproduced in full below.
BOARD CHARTER
Introduction
The purpose of this Charter is to set forth the rules
of procedure adopted by the Board of Directors
on March 3, 2009.
Applicable to all current and future directors, this
Charter is destined to supplement the provisions of
the law, regulations and the company’s bylaws, in the
interest of the company and its shareholders in order to:
define the composition, organization, duties and
powers of the Board;
contribute to the optimal performance of meetings
and proceedings;
establish the rules on corporate governance within
the framework of rules requiring that the company
adopt the principles of transparency, loyalty and
performance vis-à-vis its shareholders.
This Board Charter under no circumstances replaces
the company’s bylaws but rather translate its provisions
into practice. This Charter is destined for internal
use for the purpose of ensuring the effectiveness of
the work of the Board. As such it cannot be considered
binding on the company in respect to claims by
third parties.
1. COMPOSITION OF THE BOARD
OF DIRECTORS
The Board of Directors includes a maximum of
18 members with at least three selected from independent
persons having no ties of interest with the company so
that they are entirely free in the exercise of their judgment.
Directors are considered independent according to
the criteria of the AFEP/MEDEF code of corporate
governance when they have no relation whatsoever
with the company, its group, or management that
could compromise the free exercise of their judgment
or where there exists no potential conflict of interest
with the company, its management or group.
2. MISSIONS AND POWERS
OF THE BOARD OF DIRECTORS
Strategic body
The mission of the Board of Directors is to determine
the strategy of the company and ensure that this
strategy is implemented. Subject to the powers granted
to shareholders’ meetings and within the limits of the
company’s corporate purpose, the Board may address
any matter pertaining to the proper management of the
company and settle all items of business relating thereto.
In addition to the attributes provided for by law
and regulations, the Board may be called to address
in particular the following matters:
assess the environment of the company and analyze
opportunities for external growth through acquisitions;
review projects involving material investments
or not relating to the company’s ordinary operating
activities;
analyze major strategic projects presented to executive
management and their impact on the economic and
financial situation of the company;
approve the annual budget submitted by executive
management;
implement procedures for control or verification
it considers appropriate.
And in general, the Board ensures the merits of any
measure adopted for the strategic development of the
company and ensuring the solidity of the company’s
balance sheet.
Audit committee function
On March 3, 2009 the Board of Directors decided
that in light of the company’s organization and structure,
an independent audit committee would not be established
and that in consequence, in accordance with the
provisions provided for under article L.823-20
of the French Commercial Code, it would exercise
the functions of audit committee in plenary session. In connection with a performance of the functions
of audit committee, the primary task of the Board
of Directors are to:
ensure the pertinence and consistent application
of accounting methods adopted to prepare consolidated
and statutory financial statements;
ensure that the process for producing financial
information is based on internal procedures for
collecting information that guarantee the quality
and exhaustive nature of this information;
monitoring the performance of internal control and
risk management systems;
monitoring compliance with the principles of
independence and objectivity of the auditors.
To this purpose, it may review in particular:
draft versions of the statutory and consolidated
interim and annual financial statements, and on these
occasions submit questions to the auditors;
the scope of consolidation used to prepares financial
statements;
the performance of internal control systems by
evaluating the organization principles and functioning
of internal audit and by verifying the process for
identifying risks. It also reviews the audit missions
and evaluation of the internal control system carried
out by the Finance Department;
procedures carried out by the auditors in the
performance of their missions;
conditions for renewing the appointments of auditors
by implementing a selection process and issuing
an opinion concerning the amount of fees requested
for the performance of their missions.
3. PROCEDURES FOR EXERCISING
GENERAL MANAGEMENT
The Chairman
of the Board of Directors
The Chairman, appointed by the Board of Directors
from among its members, organizes and manages
the work of the Board on which he reports to the
shareholders’ meeting. He ensures that management
bodies of the company are effectively run and, in
particular, that directors are able to perform their
duties. The Chairman may request any documents
or specific information to assist the Board of Directors
in connection with preparing its meetings.
The Chairman actively contributes to the performance
of the duties of directors by exercising a role of
intermediary between the latter and the main participants
in implementing the company’s strategic objectives.
General management
The Board of Directors determines the manner that
General Management is exercised, under its responsibility,
either by the Chairman of the Board of Directors,
or by a person appointed by the latter with the title
of Chief Executive Officer (Directeur Général).
The Board of Directors’ meeting of December 19, 2002
decided not to separate the functions of Chairman of
the Board of Directors from those of Chief Executive
Officer. In this respect, and subject to the powers
granted by law to general meetings and the limitations
provided for by the provisions of this Board Charter,
the Chairman of the Board of Directors exercises
the functions of Chief Executive Officer and is vested
with the broadest powers to act in all circumstances
in the name of the company with the exception of
the following strategic decisions that are submitted
for approval to the Board of Directors:
any financial commitment (immediate or deferred)
for an amount exceeding €10 million per transaction
and having a material impact on the company’s scope
of consolidation, including mainly the acquisition or
disposal of assets or equity investments in companies;
any decision, regardless of the amount involved,
that could potentially materially affect the strategy
of the company or materially modify the scope of its
normal activity.
On proposals by the Chief Executive Officer, the Board
of Directors may appoint one or more individuals
to assist the Chief Executive Officer with the title
of Executive Vice President (Directeur Général Délégué).
4. FUNCTIONING OF THE BOARD
OF DIRECTORS
Calling and holding of Board meetings
Notice of meetings may be issued by any means
including orally and may be transmitted by the
Secretary of the Board within at least eight days before
each meeting.
The Board meets as often as the interests of the company
requires, and in general, at least five times the year,
with three of these meetings devoted to reviewing
the budget, strategy and the activity of the company.
Decisions by the Board are adopted on the basis
of a simple majority. In the case of split vote, the
Chairman of the meeting has the casting vote.
The Board establishes for the year according to the
proposal of the Chairman a schedule for its meetings,
with the exception of extraordinary meetings.
Participation in meetings
through videoconferencing
or telecommunications media
In accordance with applicable regulations and article
14 of the company’s bylaws, directors who participate
in Board meetings through videoconferencing or
telecommunications technology are considered
present for calculating the quorum and majority.
The Chairman ensures that videoconferencing and
telecommunications technologies used guarantee the
effective participation of all parties in the meetings.
The proceedings must be broadcast without interruption.
Measures necessary to identify each party and verify
the quorum must be assured. Failing this, the Board
meeting may be adjourned.
The attendance register and the minutes must indicate
the names of directors having participated through
videoconferencing or telecommunications means.
Remote participation using the technologies is expressly
prohibited for proceedings concerning the following
decisions:
the approval of the company’s statutory and
consolidated financial statements;
preparing the management report to be included
in the Group’s management report.
Transmission of information
All directors are provided with an agenda for each
meeting documents and information required to make
decisions on the items of business on an informed basis.
It is the responsibility of all directors to ensure that
they possess all information they consider necessary
for the effective conduct of proceedings of the Board
and, when applicable, request this information when
they consider that it has not been made available.
Furthermore, directors are kept regularly informed,
between the meetings of all events or transactions
of a material nature for the strategic priorities
of the company.
5. CODE OF CONDUCT
OF DIRECTORS
Obligations of discretion and secrecy
Concerning non-public information acquired
in connection with their duties, directors shall be
considered subject to a true obligation of professional
secrecy that exceeds the obligation of discretion provided
for by article L.225-37 subsection 5 of the French
Commercial Code.
In general, directors shall refrain from speaking
individually outside the collegial framework of the
Board of Directors about matters considered therein.
Outside the company, directors undertake to respect
the collegial nature on any oral or written
communication that they may issue.
Duties of independence
Directors have a duty to act in all circumstances
in the interest of the company and all shareholders.
To this purpose, they are subject to an obligation
to inform the Board of any situation involving
a conflict of interest, even a potential conflict of interest,
and must refrain from voting in the proceedings
relating thereto.
And in general, directors shall be prohibited from
engaging in transactions in the shares of the company
and/or the group if they possess privileged information.
Each party is personally responsible for assessing the
privileged nature of information in their possession,
and, in consequence, to authorize or prohibit any use
or transmission of such information, and to engage
in any transactions in the company’s shares.
And in any case, directors undertake to comply with
its obligation to refrain from any dealings in the
company’s shares for a period of 15 days prior to:
the publication of the press release on annual results;
the publication of the press release on half-year results.
Obligations of the due diligence
Directors must devote to their duties the necessary
time and attention. To this purpose, they will limit
the appointments that they hold to a reasonable
number to ensure their regular participation in the
meetings of the Board.
Directors have an obligation to obtain and request
within the appropriate delays from the Chairman
information necessary to effectively participate in
the items of business to be addressed by the Board
of Directors’ meetings.
Obligation to report dealings
in the company’s shares
Directors and persons with whom they have close
relations must report to the AMF the purchase, sale,
subscription or exchange of shares of the Company
when the amount exceeds Û5,000 for the calendar
year progress..
To this purpose, they will send their declaration
to the AMF by electronic means within five trading
days following the transactions and send at the same
time a copy of the declaration to the Secretary of the
Board of Directors of the company.
6. COMPENSATION
Directors’ fees
The Board of Directors freely sets the amount of fees
for attendance subject to the limit allocated by the
general meeting. It allocates this amount equally
among each of the members in proportion to the
number of Board meetings each member participated
in during the prior year.
By express waiver of the Directors concerned, directors’
fees are allocated exclusively to directors selected from
outside the company.
Compensation of directors
for special assignments
The Board of Directors may entrust one of its members
with a mission, for which it determines the conditions
and terms that are subject to approval by the Board,
except by the Board member designated for this mission.
The Board will determine notably the duration of the
mission as well as the procedures of payment of the
amount and the reimbursement of expenses incurred
in the performance of this mission. The Chairman
is responsible for ensuring that this mission is properly
carried out according to the conditions approved
by the Board to whom it regularly reports thereon. |
Composition of the board and profiles
As of December 31, 2008 the composition of the Board
of Directors was as follows:
Philippe Benacin, Chairman and Chief Executive
Officer of Inter Parfums (appointment renewed
April 23, 2004, expiring at the close of the 2010
annual shareholders’ meeting).
Philippe Benacin, 50, a graduate of the ESSEC business
school and cofounder of the company with his partner
Jean Madar, has served as Chairman and Chief Executive
Officer of Inter Parfums SA since its creation in 1989.
Other appointments: Chairman of the Board of
Directors of Inter Parfums Holding, President and
Vice Chairman of the Board of Inter Parfums Inc.
(United States).
Jean Madar, Director (appointed April 23, 2004, expiring
at the close of the 2010 annual shareholders’ meeting).
Jean Madar, 48 a graduate of the ESSEC business school,
is the cofounder of the company with his partner
Philippe Benacin.
Other appointments: Chief Executive Officer of
Inter Parfums Holding , Chief Executive Officer and
Chairman of the Board of Inter Parfums Inc.
(United States).
Maurice Alhadève, Independent Director (appointed
by the shareholders’ meeting of April 23, 2004, expiring
at the close of the 2010 annual shareholders’ meeting).
Other appointments: none.
Patrick Choël, Director (appointed by the shareholders’
meeting of December 1, 2004, expiring at the close
of the 2010 annual shareholders’ meeting).
Other appointments: Director of Inter Parfums Inc.
(United States), Director of Parfums Christian Dior,
Director of Guerlain, Director of Modelabs.
Michel Dyens, Independent Director (appointed by
the shareholders meeting of April 23, 2004, expiring
at the close of the 2010 annual shareholders’ meeting).
Other appointments: Director of Direct Panel,
Chairman of Michel Dyens & Co.
Frédéric Garcia-Pelayo, Director and Executive Vice
President (holder of an employment contract preceding
the appointments - Appointed by co-optation by
decision of the Board of Directors’ meeting of
November 22, 2008 subject to ratification by the
next general meeting to be held on April 24, 2009,
replacing Mr. Raoul Madar, resigning, whose
appointment expires at the close of the 2010 annual
shareholders’ meeting).
Frédéric Garcia Pelayo, 51, EPSCI international
exchange program graduate of the ESSEC Business
School, has been Vice President for Export Sales
Directeur Export of Inter Parfums since 1994 and
Executive Vice President since 2004.
Other appointments: none.
Jean Levy, Director (appointed by the shareholders’
meeting of April 23, 2004, expiring at the close
of the 2010 annual shareholders’ meeting).
Other appointments: Director of Inter Parfums Inc.
(United States), Director of Price Minister SA,
Director of Axcess Groupe SA, Director of Mont
Blanc SAS.
Chantal Roos, Independent Director
(Appointed by co-optation by decision of the Board
of Directors’ meeting of November 22, 2008 subject
to ratification by the next general meeting to be held
on April 24, 2009, replacing Mrs. Marianne Benacin,
resigning, whose appointment expires at the close
of the 2010 annual shareholders’ meeting).
Chantal Roos was Vice President for International
Marketing and subsequently Executive Vice President
with Yves Saint Laurent Parfums and President of Beauté
Prestige International, a subsidiary of the Shiseido
group she created in 1990 to launch the Issey Miyake
and Jean-Paul Gaultier fragrances.
She joined the Gucci group in 2000 as President
of the Yves Saint Laurent Beauté division, becoming
subsequently in 2007, Strategic Adviser to the
Chairman and Chief Executive Officer. In 2008, she
launched her own company specialized in the creation
and development of fragrance and cosmetic brands.
Other appointments: none.
Philippe Santi, Director and Executive Vice President
(holder of an employment contract preceding the
appointment by the shareholders’ meeting of April 23,
2004, expiring at the close of the 2010 annual
shareholders’ meeting).
Philippe Santi, 47, graduate of the École Supérieur
de Commerce of Reims and a public accountant has
served as the Chief Financial and Administrative
Officer of Inter Parfums SA since 1995 and Executive
Vice President since 2004.
Other appointments: Director of the parent company
Inter Parfums Inc.
Catherine Bénard-Lotz, Director (holder of an
employment contract preceding the appointment by
the shareholders’ meeting of April 23, 2004, expiring
at the close of the 2010 annual shareholders’ meeting).
Other appointments: none.
Absence of condemnations
To the best of the Company’s knowledge, in the last
five years none of the members of the Board of
Directors have been:
convicted for fraud or penalties for infractions
rendered by statutory or regulatory authorities;
involved in a bankruptcy, receivership or liquidation
proceeding as a director or officer;
disqualified from serving as a director or officer
or participating in the management of the operations
of an issuer.
Absence of potential conflicts of interest
To the best of the Company’s knowledge, there exist
no potential conflicts of interest between the duties
towards the company and the personal interests
and/or other duties of one of the members of the board.
Absence of service contracts with board members
To the best of the Company’s knowledge, none of
the board members is bound by service agreements
with the company or one of its subsidiaries providing
for the grant of benefits under its terms.
Chairman's report on the work of the board and internal control
Pursuant to the provisions of paragraph 6, article
L.225-37, of the French Commercial Code the
Chairman of the Board of Directors hereby reports
on the:
terms and conditions governing the preparation and
organization of the Board’s work;
internal control procedures implemented by the
company;
limitations that the may have been imposed on the
powers of the Chief Executive Officer by the Board
of Directors.
This report has been produced on the basis of work
undertaken by the Finance and Corporate Affairs
Department, with the different operating departments
of the company and exchanges with the statutory
auditors in connection with internal audits conducted
at the company’s initiative.
Concerning the corporate governance code, in compliance
with the law of July 3, 2008 introducing various
measures to be adopted by companies governed by
Community law, this report also contains a presentation
of corporate governance procedures relating to the
AFEP/MEDEF code for listed companies of December
2008, to which the company has decided to voluntarily
refer. Provisions not applicable or that cannot be
implemented by the company are also specified in
this report.
This report was submitted for approval to the Board
of Directors on March 3, 2009.
1. Preparation and organization
of the Board’s work
1.1 Composition and operation
of the Board of Directors
Under the company’s bylaws, the Board of Directors
may have three to eighteen members.
At December 31, 2008, corporate governance of
the company was overseen by a Board that included
10 directors three of which qualified as independent
directors. Detailed information on the composition
of the Board of Directors is disclosed in the registration
document (annual report) in the section on directors
and officers.
Directors are appointed for six-year terms whereas
the AFEP/MEDEF guidelines recommend maximum
terms of four years. However, the Board considers
that this point does not constitute an obstacle to
good corporate governance practices by the company
provided that the Board ensures at the time of the renewal and/or appointment of new directors a
balanced composition of the board contributing to its
effectiveness and preserving the quality of proceedings.
The Board may meet as often as the interests of the
company requires and at least five times a year at the
request of the Chairman and according to a calendar
jointly established in the second half of the preceding
year. This calendar may be modified at the request
of directors or when justified by unforeseen events.
The Chairman represents the Board of Directors.
He organizes the work of the Board and reports on
this work to the general meeting. The work of the Board
is carried out in a collegial framework and in a manner
consistent with the principles of ethical conduct in
compliance with laws, regulations and recommendations.
Accordingly, the Chairman of the Board of Directors
ensures directors are provided with information in
advance and on a regular basis, that constitutes an
essential condition for the performance of their duties.
The Board has not deemed it necessary to date to form
special committees in part because of the nature
of the organization of the company and its business
model, and in part because of the extensive in-depth
experience directors have in respect to the world of
business and the international markets of competitors.
This type of organization contributes to flexible decisionmaking
processes.
In compliance with the new provisions of L.823-20
of the French Commercial Code, the Board of Directors
decided on March 3, 2009 not to create an independent
audit committee but rather to exercise the functions
of audit committee in plenary session on condition
that this includes participation of independent directors.
Today, there exist no formal procedure for evaluating
the Board’s operations and work. However an informal
practice has been adopted based on internal discussions
of the quality of the composition of the Board of
Directors, directors’ compensation, the frequency
of meetings and the transmission of information
to Board members. The discussions have highlighted
a favorable assessment concerning the Board of Directors’
operating procedures and the need to maintain the
frequency of meetings devoted to discussions on strategic
issues. To ensure the optimal performance of the
Board in a manner that complies with the principles
of good corporate governance, the Board is considering,
in respect to the AFEP/MEDEF recommendations
of December 2008, to undertake an initial evaluation
on implementing a method for evaluating the operations
of the Board and the quality of its work.
1.2 Powers and missions of the Board of Directors
In line with the option adopted by the Board of Directors
on December 29, 2002, in light of the company’s
structure and the active participation of the founder
in its development, the Board decided not to separate
the functions of Chairman of the Board of Directors
with that of Chief Executive Officer (Directeur Général).
In consequence Philippe Benacin, who exercises
the functions of Chairman of the Board of Directors,
also serves as the Chief Executive Officer of the company.As such he is vested with all powers in respect to
third parties to act under all circumstances in the
name of the company and within the limitations
expressly provided by law granted to Board of Directors
or shareholders meetings, and in compliance with
the general and strategic orientations defined by the
Board of Directors. Decisions having a material
impact on the scope of consolidation or that could
materially affect the company’s strategy must be
submitted to the Board of Directors for approval.
This limitation is stipulated in the Board Charter.
In compliance with article 15 of the bylaws, the Board
of Directors determines the strategic objectives of the
company and ensures their implementation, within
the scope of the corporate charter and subject to
those powers expressly granted by law to shareholders’
meetings. It performs all controls and verifications
it considers appropriate. Each director receives all
information necessary to the performance of his or
her duties and may request any documents considered
necessary.
In the period ended December 31, 2008, the Board
of Directors met eight times. The average rate of
attendance of directors was 69%. In general, meetings
were held at the company’s headquarters in Paris.
In the period under review, the Board of Directors
addressed the following items of business:
review of the parent company statutory and
consolidated financial statements for the fiscal year
ended December 31, 2007 and the interim financial
statements;
review of the fiscal year 2008 budget and outlook
authorizations concerning agreements in accordance
with L.225-38 et seq. of the French Commercial Code;
analysis of financial information disclosed by the
company to shareholders and the market;
analysis of the major strategic, economic and financial
priorities of the company;
review of external growth projects;
adoption of the AFEP/MEDEF recommendations
of October 2008.
Auditors attend all Board of Directors’ meetings held
to consider the company’s accounts or any other matters
regarding which they may provide Board members
an informed opinion. Their participation in meetings
is requested by letter or any other means provided
for under the bylaws.
1.3 Charter of the Board of Directors
On March 3, 2009, the Board of Directors adopted
a Board Charter defining the operating rules for
the Board and the organization of its work to which
it is subject by virtue of provisions of the law and the
company’s bylaws. The main provisions of this charter
are as follows:
the composition, role, organization and operating
procedures of the Board;
the functions of audit committee exercised by the
Board of Directors;
the rules of conduct applicable to Board of Directors;
compensation of directors;
rules governing transactions involving the company’s
shares in accordance with the provisions of the French
Monetary and Financial code and the AMF General
Regulation.
This Charter is destined to regularly evolve as new
regulations and recommendations are introduced
and in response to proposals by directors to ensure
the optimal effectiveness of the Board’s work.
1.4 Transmission of information to directors
In accordance with the provisions of the bylaws,
directors are provided with all relevant documents
and information to effectively perform their duties.
Before each Board meeting, directors receive:
a meeting agenda established by the Chairman
in coordination with general management and, when
applicable, directors proposing items to be discussed;
an information file concerning issues to be addressed
under the agenda requiring particular analysis for
the purpose of an informed discussion, during which
directors may ask relevant questions to ensure their
adequate understanding of the matters addressed;
and, when useful, press releases that have been
published by the company as well as significant press
articles and reports of financial analysts.
In addition to information provided in connection
with Board meetings, directors are regularly provided
with all significant information concerning the company.
They may request any explanation or the issuance
of additional information, and in general, formulate
any requests for access to information they may
consider useful.
1.5 Directors’ fees
Directors’ fees are allocated exclusively to outside
officers of the Board of Directors. The total amount
granted by the general meeting is freely allocated
by the Board of Directors.
The Board has decided to allocate this total amount
to each director on the basis of their record of attendance
at Board meetings.
1.6 Participation in shareholders meetings
Under the terms of article 19 of the company’s
bylaws all shareholders have a right to participate
in general meetings, personally or through a proxy,
regardless of the number of shares they hold, upon
simple justification of their identity and ownership
of the shares.
1.7 Disclosure of information provided for under
article L.225-100-3 of the French Commercial Code
To the best of the company’s knowledge there exist
no items, and notably those relating to the structure
of the share capital that could have a potential impact
in the event of a public offering. The structure of the
share capital as well as the equity interest that have been
brought to the company’s attention and any other
information relating thereto are described in chapters
3 and 8 of the section on shareholder information of
this registration document. Similarly, rules concerning
the appointment and revocation of members of the Board
of Directors are subject to the rules of common law.
2. Internal control
2.1 Internal control procedures
Definition
The company’s internal control procedures have
in large part been based on the guidelines established
by article 404 of the Sarbanes Oxley Act that applies
to the parent company because it is listed on a New York
Stock Exchange. The principles determined therein
are in part provided for under the AMF guidelines
of January 2007 completed by the guidelines for small
and mid caps of January 9, 2008.
In consequence, in compliance with the both SOX
and AMF guidelines, internal control constitutes a set
of procedures defined and implemented by the company
under its responsibility to ensure:
compliance with laws and regulations;
the application of instructions and priorities set
by general management;
the effective application of internal processes notably
concerning the protection of corporate assets;
the reliability of financial information.
This system covers all practices, procedures and actions
adapted to the specific references of the company which:
contribute to the effective management of its activities
and operations and the efficient use of resources, and;
enable it to properly take into account de material
financial, operational or compliance risk.
In consequence, the company’s system of internal
control complies with the guidelines recommended
both by the Sarbanes Oxley Act and the AMF.
These cover the organization and principle of control,
risk assessment processes, activities of control,
formalization of control procedures, oversight of
the internal control system.
The primary objective of internal control is to manage
and prevent risks resulting from the activity of the
company and risks of material errors or fraud,
particularly in accounting and financial areas.
However, no system of internal control can provide
an absolute guarantee of achieving these objectives.
The probability of achieving such objectives is subject
to limits inherent in any system of internal control,
related notably to uncertainties concerning the external
environment, the exercise of judgment or problems
that may arise in response to human error or simple
error, and the need to perform cost-benefit analysis
before implementing any controls.
Components of the internal control system
The effectiveness of the procedures is based on the
following key factors:
the responsibility of participants in preparing,
implementing and ensuring the optimal management
of internal control procedures;
establishing formalized procedures and compliance
with guidelines within the company;
separation of line management functions from
control functions.
The internal control organization and environment
To ensure the optimal management of the image of
its brands and the maximum degree of transparency
vis-à-vis customers in respect to its organization and
to increase its performance, the company is organized
around two major business divisions, one dedicated
exclusively to the Burberry brand, the Burberry
Fragrance Division, and the other to brands referred
collectively as the Luxe & Fashion Division, whose
operations are supported by the resources and expertise
of the different functional and operating departments
of the company. This organization is based on five
operating and functional departments:
Production & Logistics;
Burberry Fragrances, Marketing & Export Sales;
Luxe & Fashion, Marketing & Export Sales;
French Sale ;
Finance and Corporate Affairs.
Each of these departments contributes at its own
level of responsibility to achieving the objectives set
by general management.
This organization has demonstrated its flexibility,
strength and effectiveness based on achieving real
synergies with the operating and functional departments.
It is also based on an objective to promote the convergence
of the resources of the different divisions involved
and the principle of a decentralized organization
combining the advantages of flexibility and the delegation
of responsibilities necessary for ensuring the optimal
and coherent application of the strategic objectives
set by general management.
The internal control policy defined is adapted to this
organizational model. The general architecture of the
system is based on a clear separation of roles between
persons exercising operational functions and those
that validate and control these functions.
On this basis, the system of internal control is organized
around the following operating and functional activities,
considered to have an impact on assets and/or results:
key operating processes in the management of
production, sales to distributors and the management
of the company image;
processes and managing resources, and notably cash
and currency hedges, human resources, committed fixed
costs and overhead, monitoring capital expenditures
and tax obligations, monitoring the settlement of
trade receivables;
the processing and communication of accounting
and financial information.
Risk management responsibilities are exercised at
every level of the company. For each department
concerned, the company has defined the missions,
organization, contribution to critical decisions, criteria
for measuring their performance and their relations
with other departments. To this purpose, they must
possess the knowledge and information necessary
to establish, operate and oversee the internal control
procedures in relation to the objectives that have been
set for them. An in-depth analysis of the separation
of operational and control functions was undertaken
The efficiency of the organization is furthermore based
on a human resources policy that ensures profiles
effectively match the corresponding responsibilities,
while integrating the key values behind the company’s
success: prudence, pragmatism, responsiveness, high
standards, transparency and loyalty. Contributing
to the expertise and know-how of a team of men and
women sharing a common culture of commitment to
integrity and high standards that distinguish the company
thus constitutes an important part of internal control.
Finally, awareness and understanding of the importance
of internal control are enhanced by the formalizing
a number of internal procedures considered essential
for effective operations of the company in a secure
environment. To this purpose, a guide of internal
procedures has been produced detailing the main
operating and financial processes covering notably sales/
customers, sourcing/suppliers, inventory, IT systems
and personnel/payroll. This manual also provides
detailed information about procedures for expense
requests and bank accounts signature authorizations.
In addition, the company has developed an information
technology charter for all personnel to ensure that
information technology resources are operated in a security
environment for the company’s computer network.
Key participants in internal control procedures
Along with all staff that contribute to the process
of internal control, the following parties in particular
actively contribute to its oversight and implementation:
General Management
This includes the Chairman and Chief Executive
Officer, assisted by two Executive Vice Presidents.
They define the major strategic priorities to achieve
the commercial and financial objectives of the company.
This is done by providing clearly defined internal
procedures and an internal control system for which
they are directly responsible. They define the general
principles and ensure the implementation of the
different components of internal control.
The Board of Directors
In connection with information provided to the Board,
its members review all the main characteristics of the
internal control procedures and system. The Board
may exercise its authority to request verifications
and controls it considers appropriate to ensure the
transparency, effectiveness and security of the internal
control environment.
The Finance Department
The Finance Department exercises responsibility over
cash management, management control, consolidation
and accounting, legal affairs, human resources,
audit and internal control, financial communications
and investor relations, as well as IT activities. The
responsibilities are exercised and/or delegated in such
a manner that each of the areas concerned assure
the consistency of financial and accounting data in
connection with the following tasks:
preparing and monitoring accounting and financial
information;
producing statutory and consolidated interim and
annual financial statements of the Group in compliance
with market standards and applicable regulations;
the budget process and forecasts and the implementation
of monthly management reporting procedures and
analysis of variances between actual results and budget;
producing financial communications information;
implementing and monitoring accounting and
management procedures and guidelines;
overseeing accounting and management information
systems;
management of uncollected trade receivables;
control of disbursements and use of bank
authorizations.
The Finance Department also supports operating
departments and management by establishing operating
procedures, defining and promoting the use of tools,
procedures and good practices essential for application
by the latter of the objectives defined by General
Management.
Identifying, evaluating, managing
and managing monitoring risks
The sustainable development of the company’s business
and the achievement of its objectives depends on an effective
understanding of the risks. For this reason, the company
has launched a process of mapping general risks, establishing
a hierarchy of the main risks to which it considers it is
exposed, according to their seriousness, probability, frequency
and degree of control. These risks are presented in chapter 3
of the management report. This process highlighted
measures to be implemented to limit the likelihood of the
occurrence of such risks as well as their consequences.
Since 2004, the company has applied a risk mapping
approach, followed by the implementation of a selfassessment
of internal procedures to strengthen the
understanding and the adoption of internal control
processes in force. This regular review of risks makes
it possible to measure progress in implementing
programmed actions, changes since the previous
assessment of risks and take into account new risks
that may be identified through this process.
This process of self-evaluation is undertaken annually
with the assistance of a well-known outside independent
audit firm. This involves identifying key assets of the
company, analyzing potential risks, existing or emerging,
by type of task assigned to each department concerned
and meetings with the operating departments concerned.
The audit consists of conducting a general overview
of the organization of internal control to obtain
a description of the internal control system by sending
managers a sample of tasks selected according to the
degree of risk they generate for the company when
they have an impact on the company’s financial
statements. The company produces a self-assessment
questionnaire to measure the application of internal
controls on the basis of voluntary statements. If processes
and the associated controls are not formalized or are
considered insufficient a remediation plan is implemented
by the manager concerned to complete the existing
system of internal controls.
Implementation of this audit plan is carried out under
the responsibility of the Finance Department and covers
the following key processes:
purchasing/management of trade payables: this process
is formalized by procedures based, on the one hand,
on the separation of the functions for placing orders
and for authorizing orders, acceptance, the recording
of the transactions in the accounts and payment of
suppliers, and on the other hand a process of monitoring
and reconciling purchase orders, receiving slips invoices
(quantity, price, terms of payment) supplemented by
a procedure for preventing dual recognition/payment
of supplier invoices. Eventually anomalies are analyzed
and monitored;
sales/trade receivables management/collection: this
process ensures that all deliveries made and/or services
rendered are invoiced within the specified period and
invoices are properly recorded in the trade receivables
accounts. It also determines procedures for issuing
credits which must be justified and controlled before
being booked. This process in addition contributes
to properly identifying doubtful trade receivables
and anticipating risks of default;
payment of royalties to licensors: this process involves
detailed analysis of methods for processing information
for sales representing a component for the calculation
of these royalties in order to prevent errors that could
compromise the reliability of the financial information
of the company;
cash management: this evaluation makes it possible
to ensure that bank accounts are reconciled on a regular
basis with information received from the banks
and reviewed periodically in order to document the
reconciliations and explain eventual variances;
preparing financial and accounting information:
the review of the fair presentation and consistency
of account closing procedures to ensure a reliable
consolidation consistent with data collected and submitted
to the Finance Department;
information systems management: this process ensures
the development and maintenance of computer
applications and the network, the logical and physical
security of the information system, including a backup
plan to guarantee continuity and the resumption of
activity in the event of an incident.
On completion of this self-assessment process, the Finance
Department transmits the results of this work to the
different departments concerned and reports to General
Management to which it provides an executive summary
along with a detailed report indicating control issues
and highlighting eventual dysfunctions or potential
dysfunctions that could result from inadequate controls.
This report is accompanied by a plan of recommended
actions to correct the dysfunctions identified within
a reasonable timeframe.
The test of internal control procedures conducted in
2008 resulted in the performance of 72 controls focusing
on 65 areas of risk covering the following processes:
| |
Number of controls |
| Sales |
12 |
| Purchasing |
9 |
| Inventory |
7 |
| Royalties |
4 |
| Marketing/Advertising |
2 |
| Payroll |
6 |
| Taxes and equivalent |
6 |
| Fixed assets |
5 |
| Cash management |
7 |
| Information systems |
6 |
| Account cut-off processes |
8 |
2.2 Internal control procedures relating
to accounting and financial information
Accounting and financial controls are destined to ensure:
- compliance with accounting regulations and the
correct application of account cut-all processes;
- application of instructions and guidelines set by
General Management relating to this information;
- the quality of information provided to prepare
published financial statements and their reliability
before their publication;
- effective management of risks of error, fraud and
irregularities in financial statements.
Process of managing the accounting
and financial organization
Functional organization
Internal control procedures applicable to accounting
and financial data are prepared in implemented under
the responsibility of the Finance Department and the
oversight of General Management in the following
areas: financial communications, accounting,
consolidation, management control, cash management
and information systems.
Relations with statutory auditors
In connection with the half yearly and annual closings
of the accounts, the statutory auditors organized
their work by undertaking:
- a prior review of procedures and internal control tests;
- a meeting prior to the approval of the accounts
to define the program of reviews and the calendar
and organization of their work;
- an audit of the financial statements prepared
by the Finance Department;
- a meeting presenting a summary of their work
to General Management.
On the basis of this organization and mission, the
statutory auditors certify the fair presentation of the
consolidated and parent company financial statements.
Application of accounting standards
The accounting department has a process for identifying
and processing changes in accounting standards and
the approval of the resulting procedures for accounting
treatment. Similarly, there exist procedures to ensure
the accounting department is informed of changes
in commercial practices and financial transactions of
an exceptional nature that could affect the methodology
or procedures for recording transactions. The scope
of accounting management is constantly updated.
Organization and security of information systems
The company uses an ERP application that integrates
sales management, financial accounting, subsidiary
accounts and cost accounting capabilities.
The organization and operating of the entire
information are subject to measures that limit the
conditions of access to the system, the validation
of processing and closing procedures, conservation
of data, and verification of entries. Accordingly, in
order to ensure continuity in processing of accounting
data systems of, backup systems and a continuity
plan have been implemented in the event of a sudden
dysfunction in order to provide immediate backup.
In addition, all data is backed up daily and a copy
kept in a secure location. In terms of conservation
and protection of data, a procedure for secure access
to accounting and financial data has been developed
involving the designation of individual and personal
rights assigned to specific persons accompanied
by passwords.
Preparing accounting and financial information
Operating process for producing the accounting
information
Processes in the early phase of accounting production
are based on procedures rules for validation, authorization
and recognition. Accordingly, to ensure the quality
and consistency of accounting information, at every
operational level, reconciliations are performed on a
periodic basis between the management data necessary
to produce published accounting and financial
information and the corresponding internal accounting
data as follows:
- Marketing & Creation: comparing the budget with
actual in relation to expenses associated with design
and creation costs and advertising campaigns (France
and Export);
- Production & Logistics: ensuring the effective
management of production costs as approved by
General Management and that quantities of components
ordered are in line with those used in production
and the monitoring of inventories of components
and finished products;
- Export & France: monitoring sales activity, the
contribution to the company for advertising expenses
by distributors and the corresponding margins;
- Finance Department: calculating provisions for
advertising costs, royalties and fees and the control
of subsidiaries in terms of reporting and budgets.
Meetings are organized to coordinate activity with
the different departments concerned in order to
ensure the exhaustive nature of information provided
to prepare the accounts.
Process for account closings and the production
of consolidated financial statements
Account cut-off procedures are subject to precise
instructions in respect to the closing process, indicating
information to be entered, restatements required,
the timetable of activity as well as the planning for
precise tasks for each party participating this process.
The procedure for producing financial data for the
consolidated balance sheet and income statement
falls under the framework of IFRS.
Validation procedures are adopted for verifications
concerning the following tasks:
- the proper application of accounting standards
and principles;
- consistency management and accounting information;
- consistency between information on statutory and
consolidated accounts;
- validation of the debt equity of the group;
- the exhaustive nature of information concerning
deferred taxes including possible tax loss carryforwards;
- the valuation of financial instruments and in
particular foreign-exchange hedges;
- estimates of the fair value of intangible fixed assets
through annual impairment tests.
Financial communications
The Finance Department, in coordination with
the General Management, prepares the financial
communications plan on the basis of all consistent
information necessary to clearly present the company’s
the strategy, performances and outlook.
The financial communications process is subject
to a clearly defined reporting schedule for information
destined for financial markets and market authorities.
This calendar ensures that communications complies
with the requirements of applicable laws and regulations
relating to financial disclosures both concerning
the nature of information to be disclosed, the required
deadlines, compliant with the principle of equal access
to information by all shareholders.
2.3 Forecasted trends for 2009
The company assures permanent oversight of
organizational changes to anticipate, adapt and optimize internal control procedures in real time. Its internal
control procedures are also designed to respond to
both regulatory requirements and future issues facing
the company.
In early 2009, the company reinforced procedures
for monitoring trade receivables and cash positions
of the European distribution subsidiaries. These consist
of monthly analysis of the aged trial balance for trade
receivables by the Credit Manager for the purpose
of identifying actions to be taken by local finance
departments. A daily ledger of bank account activity
for these structures will also be maintained to optimize
management (daily and forecasted) of Group cash.
To ensure the company is able to continue to operate
in the event of an unanticipated event, a business
continuity plan will be implemented in 2009, under
the responsibility of the Information Technology
department. This plan will consist in the virtualization
of servers and maintaining computer applications located
at two distinct servers. This plan will improve the
computer performances, take into account ecological
concerns by reducing energy and implement a fault
tolerance system to restore normal operations in a few
minutes.
In line with this approach of regularly strengthening
its internal control system, the company will continue
to set new priorities with the following objectives:
ensuring continuous improvement in the formalization
of procedures;
reinforcing the degree of controls for operating an
administrative entities in connection with the application
of remediation plans;
extending tests to new internal control processes;
the quality and fair presentation of financial
information, rigorous and effective management of major
risk regulatory requirements.
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