Interpreting the Value of Corporate Governance 3rd Asian Roundtable on Corporate Governance Singapore, 4 April 2001 210301LNZXT376TSMW-P1

Investor Opinion Survey respondents’ characteristics 210301LNZXT376TSMW-P1 Three surveys covering Asia, Europe, Latin America and the U.S. Views sought from local and international investors Investors range from money managers to pension funds Aggregate assets under management are approximately US$3.25 trillion 210301LNZXT376TSMW-P1

Quality of governance is a key concern when evaluating investments 210301LNZXT376TSMW-P1 % “In evaluating Asian companies for potential investment, how important is the quality of board practices relative to financial issues?” More Same Less 210301LNZXT376TSMW-P1

Investors’ views on the quality of governance in Asia 210301LNZXT376TSMW-P1 Quality of corporate governance Scale Japan Taiwan Korea Thailand Malaysia Indonesia Very good Very poor U.S. (estimate) Premium investors are willing to pay for a well governed company % U.S. 18% Asia 24% 210301LNZXT376TSMW-P1

Average premium investors would be willing to pay for a well-governed company 210301LNZXT376TSMW-P1 Average % 30 28 Latin America Chile Argentina Mexico Brazil Columbia Venezuela Taiwan Asia Japan Indonesia Korea Thailand Malaysia 26 24 Continental Europe Italy Switzerland Germany France Spain 22 20 Anglo-Saxon US UK 18 16 210301LNZXT376TSMW-P1

Investors’ views on how to improve board performance 210301LNZXT376TSMW-P1 Majority of independent outside directors Negative impact -1 1 2 3 4 5 Negligible impact Moderate impact High impact n/a Formal CEO evaluation by the board Separate CEO from chairman position Formal annual evaluation of board Formal annual evaluation of directors Higher proportion of outside director compensation paid in stock/options Have a ‘lead’ director Greater use of board committees Outside directors’ meeting with large investors Latin America Europe/U.S. Average response 210301LNZXT376TSMW-P1

Asian business leaders are wary of the benefits 210301LNZXT376TSMW-P1 “I do not need to raise capital anytime soon. Why should I worry about corporate governance?” – Chairman, $2b market cap listed company “I would rather have a higher cost of capital than the higher taxes that I would be forced to pay under greater disclosure.” – Chairman, listed multi-business company “More transparency means more opportunity for the government to favour my crony competitors.” – CEO, listed family-owned company “We’ve tried. We’ve placed the best independent directors on our board. But they would not dissent” – Chairman, tightly-held listed company 210301LNZXT376TSMW-P1

The Anglo-Saxon governance system 210301LNZXT376TSMW-P1 Dispersed ownership Highly developed institutional investment Non- executive majority boards Aligned incentives Active market for corporate control Active private equity market (incl. IPOs) Clear lines of accountability High disclosure Shareholder environment Independence and performance Capital market liquidity Corporate context Institutional context Transparency and accountability OECD Principles 210301LNZXT376TSMW-P1

The Asian governance system 210301LNZXT376TSMW-P1 Concentrated ownership Reliance on family and state finance ‘Insider boards’ Incentives aligned with core shareholders Limited market for corporate control Under-developed and illiquid investment market Inadequate minority protection Limited disclosure Shareholder environment Independence and performance Capital market liquidity Corporate context Institutional context Transparency and accountability OECD Principles 210301LNZXT376TSMW-P1

Managing the transitional challenge 210301LNZXT376TSMW-P1 Anglo-Saxon governance system Asian governance system 210301LNZXT376TSMW-P1