1. Ne Ad Developing and implementing corporate governance codes of best practice in MENA The Importance of the Consultation Process Ken Rushton, Nestor Advisors Ltd 12 December 2006

2. 1 Ne Ad Principles of Good Regulation ProportionalityNo sledgehammers to crack nuts AccountabilityJustify your policy ConsistencyImplement fairly and consistently TransparencyIs policy open and user-friendly? Targeting Focus on the problem and avoid unintended consequences

3. 2 Ne Ad UK Government Consultation Criteria Consult widely; allow at least 12 weeks for written consultation at least once Clarity as to proposals, who may be affected, questions asked and timetable Consultation must be clear, concise and accessible Give feedback on responses and how policy has been influenced Carry out a regulatory impact assessment if appropriate

4. 3 Ne Ad Why Consult? To gain information from stakeholders, eg: –check assumptions –get new ideas –obtain a broader view Consider all options Highlight potential problems Increase stakeholder trust

5. 4 Ne Ad Planning Consultation Set objectives for consultation Identify consultees Carry out preliminary consultation Write the CP Continue informal consultation Analyse responses to CP and impact on policy Provide feedback to consultees Draft final proposal Allow sufficient time! Manage stakeholder expectations!

6. 5 Ne Ad History of UK Codes 1991-92Committee on Financial Aspects of Corporate Governance: Cadbury 1995Greenbury report on remuneration of directors 1998Hampel review  Combined Code 1999Turnbull recommendations on Internal control 2005-06 FRC review of Combined Code 2003 Higgs report on role of Non-Executive Directors Smith report on role of Audit Committee FRC Review of Turnbull recommendations

7. 6 Ne Ad Role of Financial Reporting Council Maintaining an effective Combined Code Promoting Code’s application Ensuring related guidance (eg on internal control) is kept up to date Influencing global corporate governance developments Promoting boardroom professionalism Encouraging dialogue between boards and investors

8. 7 Ne Ad The Code Process Set up project team or committee Research the policy Plan the consultation Identify and manage difficult stakeholders Make good use of feedback Publish and implement code Monitor implementation Review lessons learned Recommendations for improvements

9. 8 Ne Ad Case Study FSA Review of Listing Rules 2001  Research commissioned June 2002  Discussion paper: -Summary of research findings -Themes for review Jan 2003  Feedback statement 2003  Established consultative committee  Theme teams Oct 2003  Policy paper published 2003-04  Roundtables  Stakeholder meetings Oct 2004  Feedback statement  Draft rules for consultation April 2005  Final rules published 1 July 2005  D day!

10. 9 Ne Ad Case Study Higgs Review on Role of Non-Executive Directors 2002  Post Enron Government commissions review by Sir Derek Higgs alone  Higgs commissions research  Higgs talks to companies, institutions, investors, etc Jan 2003  Report published recommending widespread changes to Code  FRC says, it will consult only on “fatal flaws or drafting points”  Market outcry including FSA warning  FRC Chairman establishes team to consult stakeholders  July 2003: Revised proposals approved by FRC council  FRC establishes committee to keep Code under review

11. 10 Ne Ad Case Study FRC Review of Turnbull Guidance on Internal Control 1999  Turnbull recommendations on internal control published 2005  Team gathers evidence and issues two consultation papers  Responses from many companies and investors – consensus reached  Result: A robust defence against S-Ox!  FRC established Flint review: -Flint is CFO of HSBC -Supported by team representing companies, investors, professions

12. 11 Ne Ad Tips (1) Start consultation early – consider a “discussion paper” Make contacts with key stakeholders prior to CP Consider: –stakeholder working groups and steering committee –web forum –surveys –focus groups

13. 12 Ne Ad Tips (2) Ask focused questions Don’t rule out options Treat responses to consultation seriously: –new options –review likely impact of policy –assess opposition Consult on implementation and enforcement issues