TENT, New developments

1
Corporate governance in airlines.
The CIS Aviation Industry Workshop Challenges
and Opportunities
Moscow, 29-30 April 2004
2
Research in Moscow

• It encompassed the web sites of the leading
  global airlines BA, Continental, Delta, KLM,
  Lufthansa, Qantas, JAL and many others
• The absence of a single corporate governance model

3
Reasons for the lack of convergence

• Corporate governance is not a technology
• Few companies are interested in raising equity
  capital
• Even very inefficient models may survive for very
  long
• The absence of a single model acceptable for all
  any model will depend on the past experience,
  the characteristics and strategies of companies,
  markets and project participants

4
Definition

• Deloitte understands corporate governance as a
  set of checks and balances aimed at successful
  implementation of the owners long-term vision

5
Corporate governance model
6
Risk management and internal controls

• Airlines have traditionally been reticent about
  their risk management practices
• Risk management goes far beyond insurance
• Often organizational structures separate
  measurable and immeasurable risks, with the
  immeasurable risks almost not controlled
• Audit committee functions are often limited to
  the controls of financial reporting
• Internal auditors often functionally report to
  management

7
Case British Airways and Qantas

• A comprehensive approach to risk identification
  and analysis changes of the organizational
  structure
• Risk analysis for likelihood and impact
• We identify and measure all potential risks,
  rather than just financial, and implement risk
  control and mitigation tools
• What is the use of the mathematical approach?

8
Analysis of risks
9
Ethics and codes of corporate conduct

• Significant success in designing policies
• Involvement in the policy the companies and
  their staff
• Conflicts of interest information asymmetry
• Whistleblower practice
• Insider information and airline stock trade
• Corruption

10
Board of directors how to enhance the status?

• Segregation of the chairman and the CEO roles
  who will set the agenda? Groupthink?
• Executive committee?
• Budget?
• Direct vs. monitor
• Whom to elect? The class of directors? Level of
  training? Time and desire?

11
Board of directors (continued)

• Independent directors how to determine
  independence? How to settle the conflict?
• Compensation and periodic performance evaluation
  of the directors and the CEO
• Audit committee responsibility and members
  financial degree needed?
• Protection against hostile takeovers?

12
Visibility

• Web-sites
• Compliance with listing requirements
• Analysts, rating agencies, insurers equal access
  to information?
• Annual and quarterly reporting
• Blackout period
• Language barrier and lack of time

13
Corporate social responsibility

• Repots on social and environmental activities
  many nice words, and what about the basic values?
• Values so fundamental that you will follow them
  regardless of remuneration? NLP?
• Support to various communities reactive
  altruism, or an attempt to consider
  externalities?
• By 2030 passenger carriage will increase almost
  threefold (source BBC) emission trading is it
  a solution? Tourism as a source of revenues?

14
Case Delta

• 3.2 mln allocated to 50 non-for-profit
  organizations and more than 400 colleges and
  universities
• The recipients include the American Red Cross,
  CARE, Child Diabetes Research Fund
• Support to cities hosting the airlines hubs

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Corporate governance model
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Leader in Aviation Transport
A member firm of Deloitte Touche Tohmatsu