Creating Institute of Independent Directors in Emerging Market

1. Creating Institute of Independent Directors in Emerging Market Third South Eastern Europe Corporate Governance Roundtable21-22 November 2002, Zagreb AlexanderV. Ikonnikov Chairman of the Board Independent Directors Association info@nand.ru

2. Main Obstacles to Good Corporate Governance in Emerging Markets • Lack of transparency in the management of companies • Lack of accountability on the part of company management to shareholders • Unfair treatment of minority shareholders • Weak coordination and advocacy among shareholders and stakeholders • Weak culture of corporate governance among companies

3. Why Boards of Directors Are Critical? • Setting the strategic goals of a company • Approving or disapproving all major transactions • Ensuring the integrity of accounting and financial reporting systems • Providing oversight over executive management and balancing the interests of all shareholders

4. How to Enhance the Efficiency of BoDs? • More careful selection of BoDs members • Improving the quality of directors serving on the boards • Implementing independent directors best practices

5. New Requirements To Business Arise • Code of Corporate Conduct by FCSM of Russia has been approved. The Code requires the least of 3 independent members in BoDs. • Listing requirements of Russian stock-exchanges have been toughened regarding disclosure and following the FCSM Code • International stock-exchanges’ requirement to ADR-s toughened: the criteria of “independent director” definition have become more strict, independent directors must form a majority of BoDs • Investors lay new claims to companies attracting capital • Independent directors have become integral part of the international best business practices

6. What Is Independent Director For? • Raising shareholders’ confidence • Improving relations with stakeholders • Making balanced strategic decisions • Creating efficient mechanisms of internal control • Resolving conflicts • Improving transparency • Increasing business value

7. Independent Director - Where to Find? • Highly qualified • Proved management experience • Good business reputation • Knowledge of industry • Record of success • Life experience • Matching the independence criteria Companies seek professionals . . .

8. Independent Directors Association Mission assisting Russian joint-stock companies in raising their efficiency through implementation of best independent director practices Goal development of independent directors professional community

9. Independent Directors Association • founded in February, 2002 • self-regulated non-commercial professional organization of corporate directors by directors • authoritative institute in improving BoDs practices • over 100 members and clients

10. Why Joining … • raise director creditability as being genuinely independent • improve professional skills and knowledge • exchange practical experience with peers • use consulting and informational resources of the Association • Increase visibility to companies and investors via personal web page on the Association site

11. Membership Terms Expert Status Higher professional education Experience in corporate governance Director Status 25+ years old 3+years senior management experience and/or BoD membership 1+ years senior management experience and/or BoD membership +IDA Professional Training and Certification Course To be approved by IDA Membership Committee Membership Fees Physical person $200/year Lecturer of higher education institution $100/year Board of Directors Up to 8 persons - $1000/year From 9 persons - $2000/year Membership Conditions…

12. Association Structure Executive Board Executive Director • Association Executive office • Research center • Cooperation with members and clients • Information division • Training and Events division • Committees • Membership committee • Committee on ethics

13. Committee On Ethics • Independent Director decides whether his/her activities correspond to ethical principles • The Association Committee on Ethics decides on violation of ethical principles in disputable cases • The Committee on Ethics may publicly reprimand or dismiss a member from the Association violating ethical principles equals loosing reputation

14. Basic Principles Of The Association Members • Adhere to high ethical and professional standards • Respect the truth, act with integrity and candor • Be guided by the spirit of independence in implying relevant experience and knowledge for company benefit • Adhere to equitable treatment of all shareholders • Promote transparency • Avoid and resolve potential conflict of interest • From the Charter of the Independent Directors Association

15. IDA Activities • Setting and maintenance of ethical and professional standards • Monitoring Association principles in action • Professional Training and Continued Professional Development • Research and Surveys • Publications (manuals, bulletins, articles, expert opinions) • Boards Consultancy

16. IDA Funding… • Membership fees • Research • Consultancy • Events (conferences, seminars, etc.) • Grants • Corporate sponsorship • Educational programs

17. IDA Development Strategy Advisory Council - advice and recommendation on development strategy of international senior managers and corporate governance experts: • IFC • Rating agencies • Personnel agencies • Consultancy companies • State Governing bodies • Investment community • Leading business associations • Institutes of corporate governance

18. Independent Directors AssociationIDA Russia www.nand.ru or www.independentdirector.ru E-mail: info@nand.ru Tel: + 7 (095) 938-6651