1. Centre for Corporate Governance & Citizenship 1 Conflict & Resolution Bank Board Issues and Responsibilities Prof N Balasubramanian December 2005

2. CCG & C © IIMB Centre for Corporate Governance and Citizenship2 Definitions Conflict is the Opposition or Simultaneous Functioning Of Mutually Exclusive Impulses, Desires or Tendencies Conflict of Interest is a Conflict between the Public Obligations and Private Interests of a Public Official As Fiduciaries, Directors are in a Similar Situation

3. CCG & C © IIMB Centre for Corporate Governance and Citizenship3 Conflict of Interest Conflict of Interest Arises –when a person able to influence a decision, either by voting strength, or his official, moral or intellectual persuasion, –is likely to gain some advantage from the decision outcome –either for himself/herself or an organisation he/she is directly involved with

4. CCG & C © IIMB Centre for Corporate Governance and Citizenship4 Conflict of Interest Also when –A director’s outside duties, obligations or interests –Differ fundamentally –From his/her obligations as director of the Company

5. CCG & C © IIMB Centre for Corporate Governance and Citizenship5 Directorial Obligations Duty of Care –Time and Diligence Commitment –Normal Business Acumen & Judgement Duty of Loyalty –No Self-Dealing or Personal Gain –No Competing or Conflicting Interests –Full Transparency & Disclosure

6. CCG & C © IIMB Centre for Corporate Governance and Citizenship6 Categories of Conflict Board vs Dominant Shareholders Board vs Individual Director(s) Board vs Executive Management Board vs Stakeholders

7. CCG & C © IIMB Centre for Corporate Governance and Citizenship7 Categories of Conflict Board vs Individual Director(s) Related Party Transactions Directorships in Competing Entities Constituency Nominees Confidentiality of Client Information

8. CCG & C © IIMB Centre for Corporate Governance and Citizenship8 Categories of Conflict Board vs Dominant Shareholders Parent vs Bank –Business Strategy Related –Minority Shareholders Related –Mergers, De-mergers Negatively Impacting Other Shareholders –Preferential Share Allotments –Non-Participation in Equity Buy-Back

9. CCG & C © IIMB Centre for Corporate Governance and Citizenship9 Categories of Conflict Board vs Executive Management Poor Information Flow to Board Information Overload Inadequate/ Inefficient Time Allocation Not “Listening” to Independent Voices Compliance in Form, Not in Substance Persistent Ratification Requests to Board of Executive Decisions Beyond Authority

10. CCG & C © IIMB Centre for Corporate Governance and Citizenship10 Categories of Conflict Board vs Customers Confidentiality/ Abuse of Information Bank Role as Advisor & Implementer (Portfolio Management/ Own Mutual Funds) Bank Role as Agent & Principal (Portfolio Advice/ Trading on Own Account)

11. CCG & C © IIMB Centre for Corporate Governance and Citizenship11 Resolution Processes Full Disclosure Non-Participation in Discussion/ Decision Arms Length Evaluations/ Independent Validations Executive Sessions of Independent Directors Non-Recognition of Votes of Parties Positively Impacted

12. CCG & C © IIMB Centre for Corporate Governance and Citizenship12 Independence of Directors Essential to Bring about Objectivity & Ensure Interests of ALL Shareholders are Equitably Protected Independence Is a State of the Mind & Strength of Character Best Practice Guidelines on Independence

13. CCG & C © IIMB Centre for Corporate Governance and Citizenship13 Conflict Resolution Processes Some Thoughts Enablers for Independent Directors to be Effective –Certain Subjects to be Decided only at Meetings of Board, Not by Circulation –Quorum Requirements to Ensure Participation by Majority of Independent Directors –Certain Subjects to Require Approval by Majority of Independent Directors Participating

14. CCG & C © IIMB Centre for Corporate Governance and Citizenship14 Ethics & Conflicts of Interest Ethical Behaviour Key to Conflict Resolution & Pre-emption Equity, Transparency & Fair Play, Key Ingredients Trust & Fiduciary Obligations, Key Drivers Corporate Reputation – Indispensable Contributory to Corporate Success

15. CCG & C © IIMB Centre for Corporate Governance and Citizenship15 Conflict & Resolution Thank you for Your Time & Attention