1. 1 Functioning of Boards of Directors in Romania Prepared by Angela Ionita Vice President - EFM / A company of HKK Partners Senior Investment Officer - The Romanian Investment Fund Ltd. November, 2002

2. 2 Functioning of Boards of Directors in Romania Progress - the macroeconomic environment: –GDP, inflation, unemployment etc. –NATO –EU Progress - the Romanian capital market: –BET Index increased by more than 100%, in USD, for the first 10 months of the year 2002 (Source: BSE) –Rasdaq/ OTC Index increased by 37%, for the first 9 months of the year 2002 (Source: ANSVM)

3. 3 Functioning of Boards of Directors in Romania Corporate Governance in Romania: –“Companies Law no. 31/1990” –“Ordinance 28/2002” approved by the “Law 525/2002” - “The Romanian Securities Law” Cumulative Voting –Rules, procedures, Codes –“Transparency Tier” - Bucharest Stock Exchange Code of Corporate Governance

4. 4 Functioning of Boards of Directors in Romania Duties and powers of the Board, based on the new “Romanian Securities Law”: –takeovers –quarterly reporting –reporting in the cases the General Shareholders Meeting delegates some of its attributions to the Board –dividends –buy, sell, exchange of assets etc. –“in- kind” contributions –capital increases/ settlement of price for the capital increase –Etc.

5. 5 Functioning of Boards of Directors in Romania Composition of Boards, Independence: –size: generally, between 3- 9 members –executives/non-executives: on average, executives are not in the Board with the exception of the Chairman/CEO (exceptions: (i)illegal - MEBO / Management and Employees Buy-Outs, (ii) legal -banks) –Chairman / CEO: in general, the Chairman is the CEO, especially for MEBO and State owned companies; the Chairman is not the CEO when foreign investment funds are majority shareholders –Independent directors: very rare, in joint stock companies –Independent directors: existing in all the five SIFs (Financial Investment Funds)

6. 6 Functioning of Boards of Directors in Romania Related parties transactions: –“Romanian Securities Law”: above EUR 50,000, related parties transactions shall be disclosed Directors Committee: not implemented, although it is mentioned in the “Companies Law”; in practice, informal split of attributions takes place, in some Boards Audit, Nomination and Compensation Committees: these Committees do not exist in any law Censors / financial auditors: some “gaps” exists when the transfer from censors to financial auditors is being made Internal audit activities: not enough organized

7. 7 Functioning of Boards of Directors in Romania Boards qualifications: –For joint stock companies: there are not very specific provisions –For the SIFs: specific provisions were issued by the Romanian National Securities Commission –For the banking sector: the central bank requires some general qualifications and has the right to reject candidates

8. 8 Functioning of Boards of Directors in Romania Board compensation: –state owned companies: board fee is in general 20% of the salary/ base salary/ gross salary of the general manger; –private joint stock companies: in general, the net board fee is between USD 200-300; –banks: at the Bucharest Stock Exchange, the range of the net board fee is between USD 600 - 800 net; –there are cases when the chairman is better remunerated than the rest of the Board members (ex. banks); –directors are not remunerated based on the performance of the company;

9. 9 Functioning of Boards of Directors in Romania Board compensation: –IAS implementation requires a disclosure of the salaries of the managers and directors: this disclosure does not take place in practice –SIFs: on average, the net remuneration is between USD 300 - 500 –SIFs: performance bonus is paid to the directors of some SIFs Board evaluation: –in many cases, a proper evaluation is not taking place