SOE Reform and Corporate Governance

Justin Bancroft14 February 2013

What is CG“Corporate governance includes all types of firms whetheror not they are formed under civil or common law, ownedby the government, institutions or individuals, privately orpublicly traded”.Turnbull

“The Board of Directors is the epicenter of corporate governance,the arena in which all of the mechanisms of governanceare required to respond to market signals andinstitutional pressures in order to secure the commercialviability and accountability of the business”.Clarke

Who we areBICG represents Baltic board professionals and their companies by:

MISSIONBICG delivers value to its stakeholders by promoting global competitiveness of Baltic companies through adoption of leading corporate governance practices

VISIONBICG is an internationally recognized driver of best practise corporate governance in the Baltic region. ValuesTrust, Integrity & Excellence

To avoid confusion in terminology“Board” – Board of Directors or Supervisory Board or Supervisory Council, i.e.a collective body elected by the shareholders to oversee the management of thecompany on their behalf

“Director” – a member of the Board of Directors or Supervisory Boardor Supervisory Council - “executive director” – a director who also has employment relationship with the company

“non-executive director” – a director who has no employment relationshipbut may have other material (commercial, family, etc.) relationshipwith the company

“independent director” – a director who has no other relationshipwith the company but serving on its Board

“Executive team” – Management Board or Executive Board, i.e. managers employedby the company and responsible for running its day-to-day business;reporting to the Board or directly to the shareholders

Nordic Governance Model

Baltics

Norway

Finland

OECD

OECD

• Setting objectives• Reviewing performance• Auditing performance• Reporting on Performance• Ensuring full disclosure and

transparency at the company level

Alternative

Alternative?

BICG members

Guidance

Some Basics

14 February 2013

What is CG

• The Board is one part of the Management• The most important task is to stimulate the

CEO/Managing Director to do the Right things

Without Supervisory Councils- an important part of management is MISSING!

The Board should work with the following questions:

• Where are we?• Where should we go?• How should we get there?A Business Plan with these questions should be produced and followed up

A Board with such a task and rolemust be an active Board

A competent Board

• Takes active responsibility besides what is expected by a pro-forma-board

Why a Board

• The broad judgment, experience and network in a well composed competitive Board has a great value

• This could be one of the most valuable assets in a company as advisor and speaking partner

A Board functions if it is

• well informed• works well• has right composition• has good coordination

Works well

• Every month the Board should have the following reports …

• P&L statement• Balance sheet (liquidity)• Management accounts/Dashboard• In a letter from the CEO covering reports,

changes, important issues and other news

Works well

• Every year the Board should make a working plan

Works well

• 4-5 meetings planned• One important theme per meeting• Documents in due time• Decisions summarized to avoid• misunderstandings• Minutes approved and distributed a.s.a.p.

Signals regarding poor work

• Meetings rare and irregular• Meetings postponed• No contacts between meetings• Only pro forma matters• No plans for the future• No documentation in advance• Poor minutes• Only the chairman and the CEO are acting

Has right composition

• Question makers• Vision makers• Consensus makers• Politicians• Changers• Proposal makers• Pushers

Has good coordination

The chairman is responsible for• The Meeting• The Annual program• Taking initiatives• Follow up decisions

Has good coordination

• The ideal chairman• Knowledgeable about the business• Stimulating the CEO• Strong position• Support from owners• Time to assist the CEO• Good listener• Demanding• Fast decision – but mature

Has good coordination

• Can you contribute• Do you have time• Keep informed• Take full responsibility• Respect confidential matters• Be aware of laws and regulations• Put the company’s interest first• Extra work approved by the Board• Leave in due time and of the right reason