Corporate governance

Risk management and control systems

Vedior’s risk management and control systems are based on the underlying principle that operating companies are accountable for their implementation. This is consistent with Vedior’s decentralised management structure where­-by operating company management retain a large degree of independence in day to day decision making, such as in hiring staff, pricing, training, sales policy and marketing. Vedior’s risk management and control systems are designed to balance the expense of implementation and adherence with the benefits obtained in order to:

	mitigate significant risks;
	ensure that proper accounting records are maintained and that financial information is reliable;
	promote the achievement of operational and financial objectives; and
	safeguard assets and compliance with relevant legislation and regulations.

These risk management and control systems, however, cannot provide absolute assurance against the failure to achieve business objectives, nor can they provide absolute assurance against material misstatements, losses, fraud, human error, poor judgement in decision-making and violations of legislation and regulations. There may also be other significant risks which Vedior has not yet identified or which have been assessed as not having a significant potential impact on Vedior’s business but which could become significant subsequently.

	A defined organisational structure with appropriate delegation of authority to operational management that enables operating companies to respond decisively and proactively in the identification and appraisal of risks;
	Specific risk management and control policies that are approved and distributed by the Board of Management for implementation by operational management;
	General terms of reference that specify required authorisations, and general administrative organisational measures and internal controls to be implemented in operating companies and which require periodic written confirmation of compliance or explanations for non-compliance that need to be approved by the Board of Management. Compliance is also reviewed by the Group’s external auditor in connection with their audit of the financial statements. Vedior has no internal audit department; and
	A comprehensive risk management review framework, based on the COSO framework on internal control, which is expected to be fully implemented during 2006.

In 2004, Vedior commenced a uniform risk management and control systems review which was completed early in 2005. This review included a large number of operating companies covering 72% of sales and 81% of operating income. The review identified risk categories and risk causes, assessed the risks ranked by financial impact and by probability of occurrence and assessed and evaluated current management controls. Based on this review, a comprehensive Vedior Risk & Control register has been compiled, which includes strategic, operational and financial risks for the Group as a whole, as well as specific risks by company and management controls and action plans to address these risks. This Risk & Control Register has been reviewed by the Board of Management and discussed with the Audit Committee and the Supervisory Board. In 2006, the Board of Manage­ment intends to extend the risk management and control systems review to also include operating companies which were not part of this review in 2004/2005. The operating companies’ Risk & Control registers will be reviewed annually by the Board of Management to ensure completeness and appropriate follow up of any action plans and improvements and will be subsequently reviewed with the Audit Committee and the Supervisory Board. In 2006, a Corporate Risk Manager has been hired to further assist the Board of Management in assessing, recommending, communi­cating and implementing corporate policies and risk management requirements throughout the Group.

The most significant risks identified in the risk management and control systems review relate to the following risks:

Stategic risks
These risks relate to Vedior’s ability to further increase its position in the provision of professional/executive recruitment and improve the geo­graphical balance of Vedior’s business. To successfully expand its professional/executive recruitment staffing services and improve the geographical balance of its business, Vedior is dependent on its ability to pursue acquisitions that meet its strategic criteria and to expand in existing markets and develop new sectors in its current markets as well as in new markets.

In 2005, Vedior’s cash outflow relating to acquisitions amounted to €44 million. Risks related to acquisitions include the possibility that the acquired company will be unable to retain key staff and clients, the possibility
that the acquired company may not achieve the levels of revenue and profitability that Vedior anticipates and the possible impact on Vedior’s operating results from impairments of goodwill. Vedior has implemented a number of procedures to limit these risk, such as due diligence reviews, approval procedures and financial criteria for acquisitions. When making acquisitions, Vedior’s policy is to leave a significant minority shareholding in the acquired company with senior management of the company which helps to increase staff retention and aligns management’s interests with Vedior’s objectives.

	Demand and the level of fees for Vedior’s services can be significantly affected by the general level of economic activity and economic conditions in the countries, regions and sectors in which Vedior operates. To reduce the impact of economic cycles, Vedior intends to improve the geographic and industry sector balance of its business, to further develop less cyclical recruitment sectors, such as healthcare and education and to expand in fast-growing sectors in new and existing markets.
	The success of Vedior’s businesses depends in part upon its ability to store, retrieve, process and manage substantial amounts of information. Failures in information systems, interruption or loss of information processing capabilities could have an adverse effect on Vedior’s results. Vedior’s use of technology reflects the geographical requirements and sectoral focus of its diverse operating network. Given the diversity of its operations, Vedior does not make use of a single global technology platform but does provide operating companies with information on best practices and assistance. Each operating company is subject to an annual internal ICT risk review and is required to have an appropriate and tested business process continuity/disaster recovery plan in place. During 2005, a number of actions were taken to improve and test disaster recovery planning. In 2006, the main focus will be to continue to test business process continuity/disaster recovery planning. Vedior formally reviews and assesses any major ICT project undertaken by local operating companies and endeavours to mitigate risk as far as is possible by coordinating resources thereby avoiding any duplication of effort.
	The global staffing industry is subject to complex laws and regulations, which vary from country to country and are subject to change. Vedior is also required to pay a number of payroll and related costs and expenses for its temporary workers, including payroll and social security taxes, workers’ compensation, education costs, general insurance and medical insurance premiums that vary widely across the international, national, regional and local levels at which it operates. The introduction of new laws or regulations and/or Vedior’s failure to comply with existing or new laws or regulations could have a negative impact on Vedior’s results.
	Compliance with existing laws and regulations is effected through various corporate policies and guidelines, staff training and monitoring of procedures and compliance by local management and review by local legal counsel and external advisers.
	The global staffing industry is highly competitive and, to achieve its strategic objectives and remain competitive, Vedior is dependent on its ability to adequately adapt to changes in the industry, competitive environment and clients’ needs. The Board of Management is of the opinion that Vedior’s decentralised and entrepreneurial organisation, in combination with our multi-brand formula, enables Vedior to attract the right candidates, deliver focused quality services to clients and also enables local management to respond quickly to market trends and competitive activity. An inherent risk of Vedior’s recruitment activities includes possible claims by clients against the Company for work errors and omissions, misuse of client proprietary information, misappropriation of funds, employment of illegal aliens or unlicensed personnel, theft of client property, other criminal activity and other similar claims. The Company also faces possible claims by employees or temporary workers for discrimination or harassment, violations of health and safety regulations, payment of workers’ compensation claims, violations of wage and hour requirements, retroactive entitlement to employee benefits and other similar employment claims. Vedior has internal policies and guidelines and insurance in place to limit these risks, and seeks to obtain contractual limitations on liability to protect against claims by clients.

Human capital risks
Vedior is highly dependent on its employees to establish and maintain client relationships, to recruit candidates and to identify internal growth and external acquisition opportunities. To attract and retain staff, to identify and retain key employees and to develop appropriate successors, Vedior provides competitive compensation schemes and provides training, education and promotion opportunities and has prepared succession plans which are being implemented at senior management levels in the Group. In 2005, Vedior conducted an employee survey. The results of this survey were mostly positive but did highlight several areas for improvement which will be followed up by the Board of Management in 2006. (Click here for further information on the employee survey).

Vedior is also dependent on its ability to attract and retain qualified candidates who possess the skills and experience necessary to meet the staffing requirements of its clients. The needs of clients vary geographically and are subject to variable economic conditions and changes in technology, education and training levels. In certain markets and sectors, there are severe shortages of available qualified candidates. Vedior believes that its multibrand approach (see here) is a key advantage in attracting qualified candidates, in particular in the professional/executive recruitment business. At operating company level, specific candidate retention programmes are implemented.