Functioning of Boards of Directors in Romania

1. Functioning of Boards of Directors in Romania Prepared by Angela Ionita Vice President - EFM / A company of HKK Partners Senior Investment Officer - The Romanian Investment Fund Ltd. November, 2002

2. Functioning of Boards of Directors in Romania • Progress - the macroeconomic environment: • GDP, inflation, unemployment etc. • NATO • EU • Progress - the Romanian capital market: • BET Index increased by more than 100%, in USD, for the first 10 months of the year 2002 (Source: BSE) • Rasdaq/ OTC Index increased by 37%, for the first 9 months of the year 2002 (Source: ANSVM)

3. Functioning of Boards of Directors in Romania • Corporate Governance in Romania: • “Companies Law no. 31/1990” • “Ordinance 28/2002” approved by the “Law 525/2002” - “The Romanian Securities Law” • Cumulative Voting • Rules, procedures, Codes • “Transparency Tier” - Bucharest Stock Exchange • Code of Corporate Governance

4. Functioning of Boards of Directors in Romania • Duties and powers of the Board, based on the new “Romanian Securities Law”: • takeovers • quarterly reporting • reporting in the cases the General Shareholders Meeting delegates some of its attributions to the Board • dividends • buy, sell, exchange of assets etc. • “in- kind” contributions • capital increases/ settlement of price for the capital increase • Etc.

5. Functioning of Boards of Directors in Romania • Composition of Boards, Independence: • size: generally, between 3- 9 members • executives/non-executives: on average, executives are not in the Board with the exception of the Chairman/CEO (exceptions: (i)illegal - MEBO / Management and Employees Buy-Outs, (ii) legal -banks) • Chairman / CEO: in general, the Chairman is the CEO, especially for MEBO and State owned companies; the Chairman is not the CEO when foreign investment funds are majority shareholders • Independent directors: very rare, in joint stock companies • Independent directors: existing in all the five SIFs (Financial Investment Funds)

6. Functioning of Boards of Directors in Romania • Related parties transactions: • “Romanian Securities Law”: above EUR 50,000, related parties transactions shall be disclosed • Directors Committee: not implemented, although it is mentioned in the “Companies Law”; in practice, informal split of attributions takes place, in some Boards • Audit, Nomination and Compensation Committees: these Committees do not exist in any law • Censors / financial auditors: some “gaps” exists when the transfer from censors to financial auditors is being made • Internal audit activities: not enough organized

7. Functioning of Boards of Directors in Romania • Boards qualifications: • For joint stock companies: there are not very specific provisions • For the SIFs: specific provisions were issued by the Romanian National Securities Commission • For the banking sector: the central bank requires some general qualifications and has the right to reject candidates

8. Functioning of Boards of Directors in Romania • Board compensation: • state owned companies: board fee is in general 20% of the salary/ base salary/ gross salary of the general manger; • private joint stock companies: in general, the net board fee is between USD 200-300; • banks: at the Bucharest Stock Exchange, the range of the net board fee is between USD 600 - 800 net; • there are cases when the chairman is better remunerated than the rest of the Board members (ex. banks); • directors are not remunerated based on the performance of the company;

9. Functioning of Boards of Directors in Romania • Board compensation: • IAS implementation requires a disclosure of the salaries of the managers and directors: this disclosure does not take place in practice • SIFs: on average, the net remuneration is between USD 300 - 500 • SIFs: performance bonus is paid to the directors of some SIFs • Board evaluation: • in many cases, a proper evaluation is not taking place