Functioning of Boards of Directors in Romania

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
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
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
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
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
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
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
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
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