1. Role of Institutional Investors in Advocating Better Corporate Governance Practices S. Toshev, Ph. D. Pension Insurance Company ‘Doverie’ PIC ‘DOVERIE’ First South East Europe Corporate Governance Roundtable 20-21 September 2001, Bucharest, Romania

2. PIC ‘DOVERIE’ Bulgarian Pension Insurance System State Social Security pay-as-you-go principle First Pillar Three-pillar pension system Supplementary Voluntary Pension Insurance individual accounts & private management Third Pillar Supplementary Mandatory Pension Insurance individual accounts & private management Third Pillar now 1994 2000

3. PIC ‘DOVERIE’ Pension Reform in Central and Eastern Europe

4. PIC ‘DOVERIE’ Market Potential Voluntary Pension Funds5 000 000 Every person over 18 years General Pension Funds 1 400 000 Every working person born after 31.12.1959 is subject to assurance Professional Pension Funds 140 000 People working under the conditions of I and II category of labor

5. PIC ‘DOVERIE’ Expected Increase of the Assets in the Funds for SMPI

6. PIC ‘DOVERIE’ Foreign Investors in the Pension Sector TBIH Allianz ING Group Newton Group Munich Re LukOil More than 75% of the capital of the pension assurance companies held by foreign investors

7. PIC ‘DOVERIE’ Investment Regulations The pension insurance company may not invest more than 5 percent of the assets of the pension fund in securities issued by one company (10 percent with the permission of the State Insurance Supervision Agency) The pension fund may not acquire more than 10 percent of the shares of one issuer or acquire interests through which to appoint directly or indirectly more than half of the members of the managing body, or in any other way to exercise decisive influence on decision-making related to the activity of the issuer

8. PIC ‘DOVERIE’ Importance of Corporate Governance The role of good corporate governance practices for the success of pension reforms in South East Europe cannot be overestimated.

9. PIC ‘DOVERIE’ Means and Ways by Which Pension Funds May Promote Improved Corporate Governance Pension funds should invest preferably in companies that follow high corporate governance standards: Most of the companies traded on Bulgarian Stock Exchange have already some corporate governance track record; Unfortunately, due to trends of concentration of ownership in the companies during the post-privatization period, in most cases problems do exist, especially with respect to dilution of minority stakes.

10. PIC ‘DOVERIE’ Means and Ways by Which Pension Funds May Promote Improved Corporate Governance Active participation in shareholders’ meetings of the companies in which investments have already been made: Efforts to make GM effective instrument of governance; Voting rights are assets of the pension fund. The management company has discretionary authority to manage fund assets. By voting in shareholders’ meetings in an informed and responsible manner on issues of corporate governance the pension insurance company discharges its fiduciary duties with respect to the pension fund; Pension funds should not be passive shareholders.

11. PIC ‘DOVERIE’ Means and Ways by Which Pension Funds May Promote Improved Corporate Governance Cooperation with policy makers and regulators in preparation of necessary amendments to the existing law which promote better corporate governance practices. Cooperation with other representatives of the private sector in preparation of voluntary standards in the area of corporate governance.