Importance of Corporate Governance May 9, 2012 In partnership with Delivered by Juan Carlos Fernandez Zara IFC Advisory Services

2 What can CG do for your company? I NCREASES CHANCES OF ACCESSING NEW SOURCES OF FUNDS E NABLES THE COMPANY TO INCREASE ITS IMAGE AND INCREASES CHANCES OF ATTRACTING AND RETAINING TALENT E NHANCES THE DECISION PROCESS AND IMPACTS POSITIVELY ON THE PERFORMANCE OF THE COMPANY A LIGNS INTERESTS BETWEEN SHAREHOLDERS AND B OARD OF D IRECTORS / MANAGEMENT P ROMOTES ACCOUNTABILITY THROUGHOUT THE COMPANY E NHANCES TRANSPARENCY WITHIN THE COMPANY AND TO THE OUTSIDE E NSURES RESPONSIVENESS TO STAKEHOLDER CONCERNS, CONSISTENT WITH LONG - TERM SHAREHOLDER VALUE CREATION G OOD CG

Why should companies care? Is it listed on a market ? Investors provide capital Their lack of confidence impacts the market value It has clients Clients look at the quality of a product and its price Depending on the business (e.g. banking) clients look at the reliability It may play in a competitive market Need to understand the environment and the trends Needs to adopt the right strategy and implement it All are interconnected 3 Local company

CG in Asia : pitfalls 4 C ULTURAL Not loosing Face Family / Insider oriented O RGANIZATIONAL Paternalistic Concentration of power S TRUCTURAL Importance of size Spread out / not focused F INANCIAL Lack of transparency Priority on the owner Lack of positive challengeLack of profitability Lack of innovationLack of reliability Lack of competitiveness Staff Loyalty Lack of empowerment

Is CG relevant for all ? 5

More on Financial Times : FT Non-Public the full list By far, not exhaustive list of non-public companies While they do not publicly disclose investor’s useful information, they do provide extensive communication to their stakeholders They still use CG for monitoring and supervision purposes as well as to communicate with THEIR shareholders 6

General legal structure of a JSC Provide Capital Report Transparently Elect and Dismiss Represent and Report to Report and Answer toGuide and Oversee 7 Shareholders Board of Directors Management

8 Family businesses. Tools T HE FOUNDER Driven by Ownership Stages Stage 1 Dominant Issues Leadership Transition Succession Estate Planning T HE S IBLING P ARTNERSHIP Stage 2 Dominant Issues Maintain teamwork and harmony Sustain family ownership Succession T HE C OUSIN C ONFEDERATION Stage 3 Dominant Issues Maintain teamwork and harmony Sustain family ownership Succession Shareholders Board of Directors Management Founder centered. Concentratio n of Power Shareholders Board of Directors Management Family control Shareholders Board of Directors Management Family control

9 Family businesses. Specificities F AMILY CONSTITUTION Allows family to lay down the relationship of the family with the company F AMILY A SSEMBLY Forum where the family discusses matters related to the company. F AMILY C OUNCIL Interlink between family and company.

10 Good CG depends on following factors Environment Perception of trust Institutions Ability to provide active support Ability to effectively monitor Company Reliability of Data Competences of the management Courts Ability to protect investors’ interests Ability to enforce decisions The importance of Corporate Governance varies according to these parameters

11 CG differentiation Environmen t Institutions Company Courts I N COUNTRIES WHERE E NVIRONMENT / I NSTITUTIONS / C OURTS ARE PERCEIVED AS WEAK OR POTENTIALLY NOT ABLE TO FULLY FULFILL THEIR ROLES A SIMPLE “C OMPLIANCE ” APPROACH TO C ORPORATE G OVERNANCE WILL HAVE LIMITED, TO NO POSITIVE EFFECT TO THE COMPANY.

What is a good Board ? Country / Region of Operations Business / Sector Company’s Age Company’s Size Size of the Board # of outside / Independent Directors Implication in day to day management # Meetings per year 12

Lack of monitoring Insider trading Related party transaction Other abuses Expropriation of minority shareholder’s rights Lack of positive challenging Wrong decisions are made Wrong strategy is adopted Lack of commitment No valued added by the board (“rubber stamp”) Threats and Opportunities are not correctly assessed 13 Concentration of power Concentration of Power Can lead toCan result in Attract investors Attract talent Increase competitiveness Increase Performance Attract investors Attract talent Increase competitiveness Increase Performance Can affect ability to

What is a good Board in the evolution of the company ? 14 4 Stages to consider Entrepreneurial Stage Early innovation, niche formation, creativity Collectivity Stage High cohesion, commitment Formalization and control Stage Stability and institutionalization Elaboration of structure Stage Doman expansion and decentralization Characteristics Company seeks to achieve a survival threshold. Less planning, More real-time decisions Period of growth. Informal communication and structure. Sense of family and cooperation Continued success and increasing structural complexity. Functional structure and greater specialization Commitment to the firm’s chosen market domain. Expansion within the chose domain. Strategies emphasizing productivity enhancement