1. The Board of Directors Corporate Governance Chapter 4

2. Table of Contents A. The Board Of Director S’ Authority B. The Election And Dismissal Of Directors C. The Composition Of The Board Of Directors D. The Structure And Committees Of The Board Of Directors E. The Working Procedures Of The Board Of Directors F. The Duties And Liabilities Of Directors G. Evaluation And Education Of The Board Of Directors H. The Remuneration Of Directors I. Summary Checklist To Determine The Board Of Directors’ Effectiveness.

3. A. THE BOARD OF DIRECTORS’ AUTHORITY

4. When to Establish a Board of Directors? A company that wishes to establish a Board of Directors will want to take the following steps: Figure 1

5. An Overview of the Board of Directors’ Authority The Law on Enterprises defines the Board of Directors’ authority. Board of Directors has the authority to make decisions in the following areas; The strategic oversight and control over management, as well as the election and oversight of the General Director and Executive Board The organization of the GMS The charter capital and assets of the company Disclosure and transparency Other areas determined by the Law on Enterprises or the charter

6. The Board of Directors’ Authority in Relation to Strategic Oversight and Control The Board of Directors has the following authorities; a) Setting Medium-Term Development Strategies, Plans and Annual Business Plans of the Company b) Appointment and Removal of Members of the Executive Board c) Approving Conditions in the Contracts with Members of the Executive Board and Determining the Remuneration d) Supervising the Executive Board’s Operations The Board of Directors has the right to: 1. Appoint and remove Executive Board members 2. Approve the conditions of the contracts between the company and the members of the Executive Board.

7. e) Appointing the General Director f) Creating the Board Committees g) Appointing and Dismissing the Corporate Secretary h) Adopting Internal Documents The CG Regulations advises listed companies that their Board of Directors approves the following internal documents: –Internal documents for every Board Committee that is created –Regulations guiding shareholders to vote for Board of Directors members by the method of cumulative voting –Rules on announcing information in accordance with the law i) Establishing and Terminating Subsidiaries, Branches and Representative Offices j) Adopting an Effective Code of Corporate Governance Continue..

8. The Board of Directors’ Authority in Relation to Shareholder Rights a) Organizing the General Meeting of Shareholders b) Resolving Corporate Conflicts –Establish a system of compliance with corporate procedures. –Prevent and resolve conflicts that may arise between shareholders and the company –May also form a Conflict Resolution Committee to this end.

9. The Board of Directors’ Authority in Relation to Assets and the Charter Capital The Board of Directors has the authority to decide on –Whether to issue shares within the limitations of authorized capital. –Class of bonds, total value of bonds and timing of issuance

10. The Board of Directors’ Authority in Relation to Control, Disclosure and Transparency a) Preliminary Approving the Financial Reports b) Preliminary Adoption of the Corporate Governance Report c) Adoption of the Important Events Report d) Implementing Risk Management –Approve risk management procedures and ensure compliance with them –Analyze, evaluate and improve the effectiveness of the internal risk management procedures –Develop adequate incentives –Establish a Risk Management Committee –Ensure that the company complies with legislation and charter provisions.

11. Figure 3: Sources of Assurance

12. B. The Election and Dismissal of Directors

13. The Election and Term of Directors The members of the Board of Directors are elected at either an AGM or extraordinary shareholders’ meeting convened for that purpose. The GMS elects directors for a term of no more than five years that starts from the moment that they are elected. The term of additional directors appointed during the term of office of the Board of Directors will be the remaining term of the relevant Board of Directors. Despite the expiration of a Board of Directors’ term, it continues to serve until a new Board of Directors is elected. There are no limitations as to how many times directors can be reelected.

14. The Nomination of Candidates for the Board of Directors The shareholders or groups of shareholders holding more than 10% of ordinary shares within six consecutive months have the right to nominate candidates for the Board of Directors. The existing Board of Directors, Supervisory Board and other shareholders may nominate candidates for the Board of Directors if the number of candidates nominated by the qualified shareholders is insufficient.

15. Table 1: Number of candidates to be nominated by shareholders to the Board of Directors.

16. Information about Board of Directors Nominees Information about Board of Directors nominees of a listed company must be published before the shareholders’ meeting. Some useful items of information include:  The identity of the candidate and shareholder that nominated the candidate  The age, educational background and professional qualifications and experience of the candidate  The positions held by the candidate during the last five years and at the moment of his/her nomination  The Evaluation Report about the candidate’s up-to-date work  The nature of the relationship the candidate has with the company  Other nominations of the candidate for Board of Directors or official positions  The candidate’s relationship with affiliated persons of the company, business partners of the company  Information related to the financial status of the candidate and other circumstances  The refusal of the candidate to respond to an information request of the company.

17. The Election of Directors  All directors must be elected with cumulative voting.  Cumulative voting is a system that helps minority shareholders pool their votes to elect a representative for the Board of Directors. a) How Cumulative Voting Works Candidates for the Board of Directors are voted on collectively, i.e. as a group Each shareholder has a maximum number of votes equal to the number of directors that must be elected multiplied by the number of voting shares held Shareholders can allocate their votes to one candidate or divide them among several candidates as they please The top X candidates with the most votes are considered elected, whereby X equals the number of Board of Directors members to be elected.

18. MINI-CASE A company has 2,500 minority shareholders holding a total of 3,000 (or 20% of) voting shares, and one majority shareholder holding a total of 12,000 (or 80% of) voting shares. The charter states that the Board of Directors has nine members. The 2,500 minority shareholders hold 27,000 votes (3,000 shares x 9 votes) and the majority shareholder has 108,000 votes (12,000 shares x 9 votes). The nine candidates that receive the most votes are elected to the Board of Directors. A formula can be used to calculate a minimum number of votes to elect one director: nS 9 x 15,000 ———— + 1 = —————— + 1 = 13,501 shares D + 1 9 + 1 Where D — the number of directors to be elected, S — the number of outstanding voting shares and n — the total number of directors the majority shareholder wants to elect (n = 9 directors in this example).

19. Cumulative Voting and Collective Action Cumulative voting increases the chance that minority shareholders elect a representative to the Board of Directors. In order to be effective, minority shareholders must organize themselves to vote. For this, they must: Have the resources and skills to campaign for candidates. Make use of the shareholder list to contact other shareholders. Be able to use cumulative voting strategically.

20. Relationship between the Number of Directors and the Effectiveness of Cumulative Voting There is a direct relationship between the effectiveness of cumulative voting and the number of directors. The higher the number of directors to be elected, the greater the opportunity for minority shareholders to elect a representative to the Board of Directors.

21. The Removal of Directors A director may be removed from his office in the following circumstances: Failure to satisfy the stipulated criteria and conditions of a director. Failure to participate in activities of the Board of Directors for six consecutive months, except in the case of force majeure events. Upon written notices of resignation. Other cases as stipulated in the charter of the company. Suffering a mental disorder with medical expert proof of such loss of capacity for civil acts.