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• Latest Technology Center innovations at the France-based
Ladoux facilities;
• Industrial policy at the Spain-based Vitoria industrial site;
• Specialty operations; and
• Group competitive positioning.
In addition, the Supervisory Board held consultations with
Group management to organize and plan its work on risk
monitoring and internal controls.
The Supervisory Board drafted proposals for the Joint
Shareholders’ Meeting of May 14, 2004 concerning
appointment of statutory and substitute Auditors, whose terms
expired at the end of the above-mentioned Meeting.
The Supervisory Board met after the Joint Annual Shareholders’
Meeting of May 14, 2004 which renewed my mandate as
Board member, and renewed my term as Chairman of the
Board.
6. Audit Committee Work
The Audit Committee is made up of four members, three of
whom are independent. It is chaired by Mr. François Grappotte,
the other members being Mr. Edouard de Royère,
Mr. Pierre Michelin and Mr. Eric Bourdais de Charbonnière.
The Audit Committee met on four occasions in 2004.
The attendance rate was 100%.
It focused on:
• Full-year 2003 and interim 2004 financial statements;
• Internal control procedures and accounting methods and the
issues and impact on Company accounts of switch to
International Financial Reporting Standards (“IFRS”);
• Financial and other risks, including off-balance sheet
commitments and legal risk;
• The statutory Auditors’ annual audit agenda; and
• Internal auditing operations.
It heard presentations from the Group’s Chief Financial Officer
and the heads of accounting, management control, internal
audit and legal and tax departments.
The Audit Committee also met the statutory Auditors, and on
one occasion did so in the absence of Group managers.
The Audit Committee’s Chairman reported to the Supervisory
Board on the Committee’s work on February 20, and
July 28, 2004.
7. Compensation Committee Work
The Supervisory Board itself acts as the Compensation
Committee.
In 2004, the Board assessed the variable compensation criteria
for Group managers. These are based on performance. The
Board advised the Managing Partners on stock option policy
and assessed potential changes in share numbers resulting from
stock option plans over time. It also monitored the Managing
Partners’ compensation.
Strategy • Fundamentals • Businesses • Résultats Earnings
Report of the Supervisory Board Chairman
II - Company Internal Control Procedures
The aim of the first report on internal control procedures (based
on COSO’s – Committee of Sponsoring Organizations of the
Treadway Commission – frame of reference) is to list and
classify internal control procedures.
The Group initially focuses on the general background of
control operations and ethical standards as these shape the
overall internal control system. This is governed by Michelin’s
Performance and Responsibility Charter, which sets forth the
Group’s values – respect for customers, Shareholders, people,
the environment and facts in general – and guidelines for
building them into daily operations.
The aspects of internal control which did not change in 2004
(risk assessment, control operations, information and
communication and monitoring) are not reviewed in the
present report. We therefore focus on the means dedicated to
risk management and the measures introduced to drive further
improvement in internal control operations.
1. Risk Assessment and Management
General
Risks fall into two broad categories calling for distinct action:
• Strategic risks: strategic risks are those that potentially
threaten long-term Group performance. They often relate to
external factors such as the economic environment and
competition. They are addressed within Group strategy.
Accordingly, they are reviewed in the presentations made to
the Supervisory Board on such themes as competitive
positioning and industrial policy.
• Operating risks: operating risks are those risks that could
affect short-term performance, disrupt operations, exchanges
and transactions with stakeholders or raise legal issues such
as breach of regulations. These risks are managed through
internal control systems.
Operating Risk Classification
Operating risks are classified according to seriousness as
measured by potential impact on Group operations. The most
serious risks are those that could jeopardize the Group’s
operations entirely.
Risks are further divided into ten groups: Product; Financial; IT;
Supply interruption; Legal; Security; Safety and fraud;
Environmental; Social; and Image.
Risk Management
Operational risk control is twofold: on the one hand
identification and measures to reduce their impact and
probability and on the other hand remedial action to ensure
business continuity in the event of emergency.
Group risk management provides for three-tier monitoring:
• By operational (senior plant and Geographic Zone) managers.
The latter are in charge of risk identification, management
and prevention at their respective levels
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