1. February 26 2004Sophie L’Hélias Role and Responsibilities of the Board of Directors Fiduciary Duties and Independence of the Board

2. Fiduciary Duties vs. Director Duties

3. Directors’ Fiduciary Duties A legal concept that is pillar in Anglo- American corporate governance A legal concept that does not exist per se in many developed markets Shouldn’t we be addressing director duties?

4. Director Duties Vary Economic environment Legal environment Cultural environment Shareholder base: a result of the above

5. Economic Environment Role of government Sources of capital Role of capital markets in economic development

6. Legal Environment Regulators, codes and laws Courts and enforcement Civil vs. criminal actions

7. Cultural Environment Perception of capital markets by society (population, courts, media, government) Proportion of population “tied” to capital markets (retirement, investment) Free market vs. planed economy

8. Shareholder Base Government agencies Public institutional (pension funds) Private individual Family Domestic institutional –Pension funds, mutual funds, alternative funds Foreign institutional: –Pension funds, mutual funds, alternative funds

9. Comparing Shareholder Base Anglo-American –Domestic institutional: large –Private individual: large –Public institutional: large –Foreign institutional: limited Continental European –Domestic institutional: limited –Private individual: limited –Public institutional: limited –Foreign institutional: large

10. Investor Remedies Anglo-American Offers remedy to investors who have been wronged –Numerous investor law suits –Class action suits action –Large punitive damages –Extensive civil director liability –Limited criminal liability Continental European Balances interests of the company with other interests –Few investor law suits –No class actions –No punitive damages –Limited civil director liability –Extensive criminal liability

11. Convergence of Duties ? Global investors’ expectations & demands Media exposure: domestic & international Competing for funds: domestic investors Corporate governance codes Laws (voting, proxies, etc)

12. Director Independence

13. Why is Independence Important? Conflicts of interest hinder judgment and affect decision-making Judgment and decision-making are what directors are asked to do Directors must feel free to think, express, question and decide in the interest of those they represent

14. Box-Ticking vs. Effective Independence Current definitions are based on –Ownership of shares –Contracts and services rendered –Relationships –Family ties What about effective independence? –“Independent minded” –Commitment (time and knowledge)

15. Importance of Selection Who selects directors? How are they selected (pool, resources, interviews)? Who determines their independence? Who elects directors? Who evaluates directors? Who removes directors?

16. Independence of Directors Disclosing conflicts of interest: –Does the Board have clear guidelines of conflicts that must be disclosed? –Who discloses conflicts? –To whom are conflicts disclosed? –What happens if conflicts are not disclosed? How is independence enforced? –What if conflicts are disclosed later? good faith vs. bad faith –What is disclosed to the Board and/or to shareholders?

17. Board Committees What is their purpose? What is their power? How are members selected, renewed or removed?

18. How Committees Operate Process: –Setting the agenda –Discussion, debate, vote, minutes –Recommendation, decision, report Constraints: –Budgetary and resources –Access to outsiders: management, advisors, suppliers, etc. What happens to committee findings and recommendations?

19. Conclusion: Several Models with Converging Objectives Prevent (and react to) wrong-doing by management, directors, advisors/suppliers, partners and shareholders Ensure protection of shareholder interests and rights Ensure the long term growth of the company