The board’s role in overseeing transparency and disclosure Vladimir Puškarić Head of Internal Audit, Allianz Zagreb VI OECD Roundtable on Corporate Governance in SE Europe Ohrid, Macedonia, June 10-11, 2004

Internal audit & Compliance in Croatia Internal audit monitors implementation of company (or Group) policies & procedures Compliance should deal with securities market related issues New functions, not widely implemented Not mandatory Exception  Banking sector Management board tool Reporting directly to management board (CEO) Compliance primarily deals with securities market issues: sensitive information, disclosure, insider & personal dealing issues, conflicts of interest, money laundering As with audit committee’s, the only compliance function at PLIVA But, banks are not public companies, so internal audit and compliance have less visibility One reason for the underdevelopment of both Internal Audit and Compliance is the “imatureness” of the Capital market As Mr. Frederick’s document explains, the traditional role of Internal audit is dual: towards Management and Audit committee. But, in Croatia where there are only a few public companies and no Corporate Governance tradition. As a result, there is only one operating Audit committee, in pharmaceutical company PLIVA (which is listed in London, as well). Therefore, internal audit is only a tool for management control At Allianz Internal audit reports directly to CEO. Group-wide internal audit guidelines exist and are binding for all subsidiaries. OECD Corporate Governance Roundtable, June 10-11, 2004, Ohrid, Macedonia

Mandatory disclosures Disclosure of all information related to material facts or circumstances Responsibility of Management Problem - no detailed regulation!? Disclosure of material facts CROSEC has not issued a regulation on contents and methodology of mandatory disclosures Provision not enforced Mandatory disclosures are regulated by the Securities Act Disclosures should be made by all public companies, even those forced to list because they meet the nominal value of paid-in capital (30 million HRK) and number of shareholders criteria introduced with the Securities Act. The responsibility of the Management Board is implicit, as there is no mention in the Act as to who is responsible. The Act has no explicit role for the Supervisory Board OECD Corporate Governance Roundtable, June 10-11, 2004, Ohrid, Macedonia

Amendments to Company Act Enacted January 1, 2004 Introduces Supervisory Board committees SB orders the audit of annual financial statements Widens SB responsibility for financial statements: Requires auditor’s participation in SB meetings Reporting to shareholders (AMG) on: financial statements Number of committees and their activities Auditors opinion (report) The amendments introduce the possibility for exchange listed companies to establish committees, but the responsibility remains with the board itself. The practical use is questionable, as the biggest number of supervisory boards has not enough members to support the operations of committees. Literally all Croatian companies classify as small or medium, based on criteria from Richard’s paper. The Supervisory board has a mandate to, on behalf of the shareholders, communicate directly with the company’s auditor. The auditor is required to participate in the Supervisory Board meeting on which the annual financial statements, the Management Board’s annual report and the draft decision on the use of profit are discussed. The auditor is also required to elaborate on his report and give additional explanations to Supervisory Board members, if necessary. Further, if the company is listed on a stock exchange, the Supervisory board is required to state whether it has any objections to the financial statements OECD Corporate Governance Roundtable, June 10-11, 2004, Ohrid, Macedonia

Amendments to Company Act (cont.) Introduction of Croatian Corporate Governance Code Corporate Governance Committee established Mandates statement of compliance with CG code for listed companies: Signed annually by Management & Supervisory Board Confirms compliance with code Includes list of provisions which are not applied Does not require explanation The Croatian Corporate Governance Code is mentioned only in one article. It is not defined who has the authority to adopt this code, nor is there any deadline for the adoption. However, the pure mentioning of the Code is in my view a positive development. This area certainly needs to be amended in the future. As Andrej mentioned, CROSEC has appointed the members of the Croatian Corporate Governance Council. Unfortunately, the representation of the industry (i.e. practicioners) is very limited. Therefore, it is to be seen what the quality of the Code will be, as well as what the acceptance from the Companies will be. The statement of compliance has to be made available to the public (shareholders?) OECD Corporate Governance Roundtable, June 10-11, 2004, Ohrid, Macedonia

 vladimir.puskaric@allianz.hr Contact: Vladimir Puškarić Head of Internal Audit Allianz Zagreb d.d.  +385 1 3670 250  +385 1 3670 415  vladimir.puskaric@allianz.hr OECD Corporate Governance Roundtable, June 10-11, 2004, Ohrid, Macedonia