29 May 2008 CORPORATE GOVERNANCE IN THE UK

Introduction and Overview  Introduction  Overview  Legal framework in the UK  Composition and Remuneration of the Board of Directors  Management Rules and Authority  Duties and Liabilities of Directors  Transactions with Directors and Conflicts  Disclosure of Information  Company Meetings

Introduction and Overview (continued)  Minority Shareholder Rights  Internal Controls, Accounts and Audit  Corporate Social Responsibility  Role of General Counsel  Role of Institutional Investors  Whistleblowing  Practical examples BAE / M&S  Summary / Conclusion

What is Corporate Governance?  What is corporate governance?  Laws / Regulations  Conflicts of Interest  Effective measures

History of Corporate Governance  Late 1980’s / early 1990’s scandals  The need for reform  Cadbury Report / Greenbury Report / Combined Code / Turnbull Guidance / Higgs Report / Smith Report  Key principles of Combined Code  Board composition  Remuneration  Accountability  Audit  Relation with shareholders  Approach – “Comply or Explain”

Corporate Entities in the UK  Private  Public  Listed LSE AIM

Legal Framework  What is the regulatory framework for corporate governance?  Case law  Statute – Companies Act  Company Constitution  Listing / Prospectus / Disclosure Rules

Legal Framework (continued)  Codes and Guidance Notes  Combined Code on Corporate Governance Listed companies Not Mandatory “Comply or Explain” Overseas corporations

Legal Framework (continued)  Turnbull / Smith / Higgs  Role of Quoted Companies Alliance  City Code on Take-Overs and Mergers

Legal Framework (continued)  FSMA Disclosure and use of confidential / price sensitive information False market Disclosure and Transparency Rules

Corporate Governance and Board Composition  What is the management / board structure?  Is there a one / two-tiered structure?  Who manages a company and what name is given to these managers?  Who sits on the board(s)?  Do employees have a right to board representation?  Is there a minimum / maximum number of directors?

Corporate Governance and Board Composition (continued)  Are there age / nationality restrictions?  Are non-executive or independent directors recognised?  Does a part of the Board have to consist of them? If so, what proportion?  Do non-executive directors have to be independent of the company?  If so, what is the test for independence or what makes a director not independent?

Corporate Governance and Board Composition (continued)  What is the scope of their duties and potential liability to the company, shareholders and third parties?  Are the roles of individual board members restricted i.e. can one person be chairman/CEO?  How are directors appointed? Is shareholder approval required?  Methods of removal of directors  Are there any restrictions on a director’s term of employment?

Corporate Governance and Board Composition (continued)  Do directors have to be employees of the company?  Can shareholders view directors’ service agreements?  Are directors allowed or required to own shares in the company?  How is directors’ remuneration determined?  Does the remuneration need to be disclosed?  Is shareholder approval required?

Corporate Governance in respect of Management Rules and Authority  How is a company’s internal management regulated?  Can directors exercise all the powers of the company or are some powers reserved?  Can the powers of directors be restricted?  Can the board delegate responsibility for specific issues to individual directors or a committee of directors?

Corporate Governance in respect of Duties and Liabilities of Directors What is the scope of a director’s duties and personal liability to the company, shareholders and third parties? General Duties  Act in good faith  Improper purpose  Personal profit  Failure to disclose own interest  Failure to keep confidential information

Corporate Governance in respect of Duties and Liabilities of Directors (continued) Directors’ duties have been codified in CA 2006 General duties are:  Act within powers  Promote success of the company  Exercise independent judgment

Corporate Governance in respect of Duties and Liabilities of Directors (continued)  Exercise reasonable care, skill and judgment  Avoid conflicts of interest  Not to accept benefits from third parties; and  Declare an interest in a proposed transaction

Corporate Governance in respect of Duties and Liabilities of Directors (continued) You should note the following: Theft and fraud Securities law Insolvency law Health and safety Corporate Manslaughter Environment

Corporate Governance in respect of Duties and Liabilities of Directors (continued)  Can a director’s liability be restricted or limited?  Is it possible for the company to indemnify a director against liabilities?  Can a director obtain insurance against personal liability?  If so, can the company pay the insurance premium?

Corporate Governance in respect of Transactions with Directors and Conflicts  Are there general rules relating to conflicts of interest between a director and the company?  Are there restrictions on particular transactions between a company and its directors?  Are there restrictions on the purchase or sale by a director of the shares in the company of which he is a director?

Corporate Governance and Disclosure of Information  Do directors have to disclose information about the company to shareholders, the public or regulatory bodies?

Corporate Governance and Company Meetings  Does a company have to hold an AGM?  What issues must be discussed and approved?  Can shareholders call a meeting?

Corporate Governance and Minority Shareholder Action  What action can a minority shareholder take if it believes the company is being mismanaged?  What level of shareholding is required to do this?

Corporate Governance and Internal Controls, Accounts and Audit  Are there any formal requirements or guidelines relating to the internal control of business risks?  What are the responsibilities and potential liabilities of directors in relation to the company’s accounts?  Do the company’s accounts have to be audited?  How are the company’s auditors appointed?

Corporate Governance and Internal Controls, Accounts and Audit (continued)  Is there a limit on the length of their appointment?  Are there restrictions on who can be the company’s auditors?  Are there restrictions on non-audit work that the auditors can do for the company that they audit accounts for?  What is the potential liability of auditors to the company, shareholders and third parties if the audited accounts are inaccurate?

Corporate Governance and Corporate Social Responsibility  Is it common for companies to report on social, environmental and ethical issues?

Corporate Governance and Role of General Counsel  Is it common for the general counsel to be on the board or to have a formal role in corporate governance?

Corporate Governance and Role of Institutional Investors  How influential are institutional investors and other shareholder groups in monitoring and enforcing corporate governance?  List groups with significant influence in this area?

Corporate Governance and Whistleblowing  Is there statutory protection for whistleblowers?

Corporate Governance and Current Examples  BAE  M&S

Summary  Single board  Clear division of responsibilities  Balance of executive / non-executive directors  Formal / transparent procedures relating to appointment  Formal / transparent procedures for setting executive remuneration

Summary (continued)  Balanced assessments of the company’s position and maintenance of internal controls  Formal / transparent procedures for responsibilities including an audit committee  Maintenance of contact with shareholders  Separate resolutions on all substantial issues at general meeting

Conclusion  UK system – 25 years  Russian system less experienced / early stages  Impact of public markets / commercial objectives

Why Steptoe & Johnson?  International law firm – offices in London, New York, Washington, Chicago, Los Angeles, Phoenix and Brussels  Focus on inward and outward investment in respect of Russian and CIS countries  Russian speaking lawyers in London office  Proactive / partner led service

Why Steptoe & Johnson?  Ability to provide UK / US input on securities issues  Experience on private and public related transactions  Strong network of contacts in financial and professional community

Michael Thompson TEL: +44 (0) FAX: +44 (0) Gresham Street London EC2V 7NG United Kingdom AREAS OF PRACTICE Corporate Transactions Telecommunications Media Law Technology Mergers, Acquisitions, and Joint Ventures EDUCATION London School of Economics LL.M., 1988 University of Southampton LL.B., 1984 Michael is a partner in the London office of Steptoe & Johnson and is head of the Corporate Group. Michael focuses on Russian and CIS businesses. Michael specialises in all aspects of corporate finance work including advising both in relation to AIM and Stock Exchange listings, acquisitions and disposals of public and private companies, venture capital (including management and leveraged buyouts), joint venture and shareholder agreements.

Adam Greaves TEL: +44 (0) FAX: +44 (0) Gresham Street London EC2V 7NG United Kingdom AREAS OF PRACTICE Alternative Dispute Resolution Commercial Litigation, Insolvency & Creditors’ Rights Litigation Worldwide Arbitration & Dispute Resolution EDUCATION Essex University, L.L.B., 1983 Guildford Law College, Law Society Finals, 1984 Adam is a partner in the London office and specialises in commercial litigation and arbitration, particularly fraud and corruption and insurance and reinsurance disputes, principally in the English Commercial Court. Adam is recommended by the UK Legal 500 and has considerable experience in project managing large multi-jurisdictional disputes and obtaining or defending worldwide freezing injunctions. Jurisdictions with which he has worked include the UK, USA, Russia, India, Saudi Arabia, Iran, Lebanon, Brazil, Switzerland and various off-shore tax havens. In addition to the insurance/reinsurance industry, he has handled cases involving telecoms, aluminium, diamonds, construction, Islamic banking, media, information technology, shipbuilding, chemicals, pharmaceuticals, recruitment, investment, property development and accountancy.

Egishe Dzhazoyan TEL: +44 (0) FAX: +44 (0) Gresham Street London EC2V 7NG United Kingdom AREAS OF PRACTICE Litigation Worldwide Arbitration & Dispute Resolution EDUCATION St. Edmund’s College, Cambridge University, LL.M, 2007 Moscow State University, Ph.D, 2006 Moscow State University, J.D. with Distinction, 2002 Egishe is a Senior Associate in the London office, where he is a member of the International Dispute Resolution group. Prior to joining Steptoe & Johnson, Egishe practised for five years as a Russian qualified lawyer with a leading Moscow based law firm where he dealt with a number of high profile arbitration and litigation proceedings in various jurisdictions including Russia, USA, England, Sweden, Switzerland, Cyprus, BVI and France. He maintains a specific interest in Russian work and also has particular experience in representing clients in the telecom, metals and nuclear industries.

Yuri Presniakov TEL: +44 (0) FAX: +44 (0) Gresham Street London EC2V 7NG United Kingdom AREAS OF PRACTICE Corporate Transactions International Dispute Resolution EDUCATION London School of Economics LL.M., 2006 University of Reading LL.B., 2005 Yuri is a solicitor based in the London office and has particular interest in Russia and Eastern European markets. Yuri is bilingual and has gained experience at law firms both in Russia and the UK and has gained experience in large scale corporate, litigation and arbitration involving Russian parties at Steptoe & Johnson. He has a Masters degree in Law from the London School of Economics and a Bachelors degree in Law from the University of Reading.

Michael Thompson Partner Steptoe & Johnson 99 Gresham Street London EC2V 7NG Tel: Fax: