Corporate Governance Some international developments

1. Corporate Governance Some international developments Jennie Mills Milford International Associates Ltd Jennie Mills Milford International

2. Structure of session • International debate on the role of boards • Why is this now in focus • Examples Enron, MCI, Shell • The Slovak Code amendment • Information flow, the board secretary & board evaluations Jennie Mills Milford International

3. Independent board members-the international debate • OECD Principles 2004 “the CG framework should ensure the strategic guidance of the Co, the effective monitoring of management by the board, & the board’s accountability to the Co & shareholders” • 6 sub principles & 11 sub points • “the board should be able to exercise objective independent judgement on corporate affairs” Jennie Mills Milford International

4. The international debate 2 • HIGGS • The role of the SID • Tyson • Broadening the gene pool • EU Recommendation • The Netherlands Code • Breeden Report “Restoring Trust” Jennie Mills Milford International

5. A board member’s duties – responsibilities • Good faith/ loyalty • Care • Skill • Diligence Jennie Mills Milford International

6. Incapacitated person • Human being • Best interests, care, skill, diligence • Decent citizen thing to do • Company an artificial citizen • Incapacitated • Director, heart, mind and soul. Jennie Mills Milford International

7. Corporate Governance about process • Process to discharge and be seen to be discharging those responsibilities • Outsiders • Information needed to invest, supply etc • Quality of information. Jennie Mills Milford International

8. Enron • Had the trappings of good governance • Quantitatively complied • Non executives • Good board attendance • Committees of board • Yet dysfunctional. Jennie Mills Milford International

9. Enron – Why? • Self interest • Greed • Dishonest – 900 SPE’s • Appears to prop up share price • Codes will not help • Failure to discharge good faith, care, skill and diligence. Jennie Mills Milford International

10. Critical issues in Enron • Lack of quality governance • Failure of performance and conformance • Scandal • Confusion director/manager role. Jennie Mills Milford International

11. “Restoring Trust” the case of MCI • Articles of incorporation used as Governance Constitution for MCI • More shareholder communication • Selection of directors • An active, informed & independent board • Non exec chairman Jennie Mills Milford International

12. “Restoring Trust” the case of MCI • Active board committees • Term Limits & auditor rotation • Compensation limits • Equity compensation programs • Enhanced transparency, internal controls & finance dept • Legal compliance, enhanced legal dept & ethics program • Change in control devices Jennie Mills Milford International

13. Royal Dutch Shell • Re-statement of reserves • Unusual board structure • Board changes • SEC review • Governance review • Shareholder concerns Jennie Mills Milford International

14. Slovakia • The ROSC recommendations: • Definition of board roles, both BOD & SB • Establish a forum for board training • Increasing emphasis on the independent directors/ board members • In two tier boards this means the role of the supervisory boards Jennie Mills Milford International

15. Role of the Board of Directors To manage the Company • Responsible for achieving company aims, strategy & aims • Accountable to SB & GM • Guided by best interests of company • Provide SB in good time with all information necessary for exercise of its duties • Compliance with laws & regulation, managing the risks & financing the Co. • Reporting developments, internal risk management & controls to SB and audit committee Jennie Mills Milford International

16. Role of the supervisory board • To supervise the policies of the board, general affairs of Co & affiliates & assist BOD with advice • SB guided by Co interests & take into account those of stakeholders • SB responsible for quality of its own performance • Each SB member shall: • Be capable assessing overall policy • Have specific expertise required to fulfil assigned duties • Composition enable it to carry out duties effectively & members adequately trained Jennie Mills Milford International

17. The role of the supervisory board • SB & each member has responsibility for obtaining information necessary to undertake its duties properly • If necessary it has a right to obtain outside advice at Co’s expense • SB may require officers and advisers to attend meetings Jennie Mills Milford International

18. The Role of the Chairman • Best practice requires separation of CEO & chairman roles • Determines the agenda & chairs meetings • Monitors proper functioning of board & committees • Arranges for adequate information • Arranges training • Acts as main contact with BOD • Initiates evaluation of SB and BOD • Ensures efficient conduct of GM Jennie Mills Milford International

19. Board committees • Specimen TOR attached to Slovak CG Code • Function to prepare decision making of SB • In the absence of board committees, the SB assumes responsibility • SB has duty to report annually on board committees Jennie Mills Milford International

20. Flow of information • How does one achieve this? • Role of the board secretary • Description • Example of BP. Jennie Mills Milford International

21. Board evaluations. • Rationale • FRC recommendation • Winter recommendation • OECD recommendation • Useful tool • Mechanisms • Self evaluation • Independent evaluation/ facilitation Jennie Mills Milford International