1. Sofia, September 3, 2009 Bulgarian Stock Exchange Financial Supervision Commission Official Launch of the Bulgarian National Corporate Governance Commission 'Monitoring of Corporate Governance- Lessons Learned from Germany' by Christian Strenger* * Deputy Chairman, Private Sector Advisory Group of the World Bank/IFC’s Global Corporate Governance Forum Member of the ‘German Government Commission on Corporate Governance’ Member of the Supervisory Boards DWS Investments GmbH, Evonik Industries AG, Fraport AG

2. 2 Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany' I. Benefits of Good Governance  Good governance has positive effects for enterprises and their shareholders  Ample evidence exists that demanding best practice standards and convincing enforcement lead to higher market valuations  Pursuit of good governance has significant value potential for companies, investors and stakeholders

3. 3 II. Development of Corporate Governance in Germany (1/2) 1. Development of a Corporate Governance Code – the German Background  Due to well publicized failures in erstwhile 'blue chip companies' like Holzmann the German Government realized practical importance of good corporate governance Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  July 2000 German Chancellor convened the first ‘Government Commission on Corporate Governance’ to develop official standards  September 2001 – February 2002 Development of the 'German Corporate Governance Code' by the second Government Commission on Corporate Governance. Public presentation of the Code to the Ministry of Justice in February 2002

4. 4 II. Development of Corporate Governance in Germany (2/2) 2. Basic Structure of the German Code Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  Following the principle 'comply or explain', German companies have to comply with the Code or explain deviations (according to § 161 German Company Law)  The Code comprises three elements: - The legal stipulations relating to key governance points - 'Shall-Recommendations' which reflect key international governance standards - 'Should-Suggestions' that represent additional important elements of good governance

5. 5 III. Key Issues of Corporate Governance Monitoring (1/3) 1. Non-Executive Board Member Issues Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  Sufficient Independence and Expertise  Audit, Risk and Compliance Committees  Adequate Remuneration 2. Executive Board Member Issues  Full disclosure of compensation structures  Pay structures with clear link to: long term profitability, related risks and peer group performance

6. 6 III. Key Issues of Corporate Governance Monitoring (2/3) 3. Shareholder Rights Issues Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  Equal treatment of all shareholders -Implementation of 'one share, one vote' -Equal information distribution 4. Compliance Issues  Stringent application of the 'comply or explain'-principle  Implementation and monitoring of a compliance system  Minority shareholders' interests in significant strategic decisions need to be respected

7. 7 III. Key Issues of Corporate Governance Monitoring (3/3) 5. Reporting Issues Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  Stringent transparency in all important matters (in particular regarding conflict of interests, third party transactions)  Timely disclosure of the annual report (also in English)  Reporting of non-financial risk related information 6. Audit Issues  Adoption of International Auditing Standards (IAS) and International Financial Reporting Standards (IFRS)  To ensure sufficient audit quality: True independence of auditors including an open and transparent tender process as well as prohibition of most non-auditing services

8. 8 IV. The Monitoring Approach of the Various Parties (1/5) 1. Public Bodies  The Federal Ministry of Justice - The German government entrusted the Ministry of Justice with the setting up and the maintenance of the German Government Commission on Corporate Governance Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  Financial Supervisory Authority (BaFin) - The BaFin plays a supervisory role in the application of the Governance Code for financial institutions  Law Courts - The German courts issue judgments on companies that have acted in contrast to their compliance declaration

9. 9 IV. The Monitoring Approach of the Various Parties (2/5) 2. The Governance Commission  The Code is reviewed at least annually by the Government Commission  While the Commission has an official mandate it has no legislative powers  Code adjustments do not require any legislation  The Commission does not intervene in individual company issues or rulings. This is a weakness in the German governance system and should be avoided by the Bulgarian Commission  To monitor the current compliance status research is regularly conducted Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'

10. 10 IV. The Monitoring Approach of the Various Parties (3/5) 3. Analysts (Scorecard) Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  To evaluate the execution of corporate governance analysts and investors use a corporate governance-scorecard (as presented by DVFA - The German Society of Investment Professionals) 4. Institutional Investors  Domestic Investors: In Germany, classical institutional investors (such as investment and pension funds) have played a key role in governance development  International Investors: International investors actively pursue and monitor good governance through guidelines and intensive dialogue. They have been instrumental in setting good governance standards

11. 11 IV. The Monitoring Approach of the Various Parties (4/5) 6. Advisory Firms Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  Advisory Firms such as the British Hermes Equity Ownership Services (HEOS) represent their clients‘ interests on corporate governance matters by engaging with companies Proxy Advisory and Voting Firms  Proxy Advisory and Voting Firms such as RiskMetrics (formerly ISS) IVOX (in Germany through the investment fund association BVI) offer proxy voting services to institutional investors  The German stock exchange Deutsche Börse does not monitor compliance with the German Code  However, Deutsche Börse is generally a strong supporter of good governance 5. The Stock Exchange (Deutsche Börse AG)

12. 12 IV. The Monitoring Approach of the Various Parties (5/5) 7. Private Shareholder Associations Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  German private shareholder associations also analyze and monitor corporate governance of most publicly listed companies for their clients 8. Companies  Companies should monitor their corporate governance compliance through a system of coordinated checks with particular attention to: - The compliance with the individual 'Shall-Recommendations' and 'Should-Suggestions' of the German Code - The stringent fulfillment of corporate governance responsibilities of the board committees (i.e. of the audit, risk and compliance committees) - The implementation and proper functioning of efficient corporate governance monitoring structures within the company

13. 13 V. The Role of the Media Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  National and international media involvement has played an increasing role in the broader monitoring of governance issues and problems  Company board members are strongly influenced by critical media comments  With the publication of the German Code in 2002 the media started to create a better understanding about the governance requirements for companies

14. 14 V. Monitoring Governance – Essential for Achieving Good Governance Quality Christian Strenger 'Monitoring of Corporate Governance- Lessons Learned from Germany'  Good governance quality can only be achieved by a concerted monitoring effort of all public, semi-public and private bodies  Also necessary for good governance quality is a close alignment of monitoring and enforcement  Corporate Governance in Bulgaria is on its way. With the foundation of the Bulgarian National Corporate Governance Commission there is an excellent basis for quick and lasting improvements

15. Sofia, September 3, 2009 Bulgarian Stock Exchange Financial Supervision Commission Official Launch of the Bulgarian National Corporate Governance Commission 'Monitoring of Corporate Governance- Lessons Learned from Germany' by Christian Strenger* * Deputy Chairman, Private Sector Advisory Group of the World Bank/IFC’s Global Corporate Governance Forum Member of the ‘German Government Commission on Corporate Governance’ Member of the Supervisory Boards DWS Investments GmbH, Evonik Industries AG, Fraport AG