The Search for Independence

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CG Mena Workshop 2 Developing Codes Content
and Consultation

• The Search for Independence..

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Traditional Public Company Abuses

• self-dealing by directors,
• unequal treatment of shareholders,
• failure to protect minority interests, and
• lack of transparency of the conduct of directors
  and senior managers.

• Independent Directors
• Add value by providing
• Objectivity
• Investor and Shareholder confidence
• Accountability, and
• Stewardship

Executive and related Directors may be able to
act as Independents, but are less likely to when
it matters.
December 2006
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Independence
Independent means self-reliant, with
objectivity unimpaired by other
interests. Executive Director means a director
who is also an employee of the company.

• Best Developed market Practice
• Responsibility on Issuer
• Simple spirit definitions requiring judgement
• Possible guidelines
• Disclosure requirement
• Best Developing Market practice
• Responsibility on Regulator
• Strict fact definitions
• Disclosure requirement

• Conceptual and Simple

e.g.

• Independent Member means a director who
• has not held, or whose Immediate Family members
  have not held, during the last three years, a key
  position in the Company, such as CEO, general
  manager, or any immediate subordinate position
• has not, and his Immediate Family members have
  not, during the last three years had any
  substantial financial dealings with the Company
• does not receive or has not received, in the last
  three years, additional remuneration or payments
  from the Company apart from a directors fee not
  linked to the Company's performance or share
  price
• is not or has not been during the last three
  years a director, partner or employee of a firm
  which is the Companys auditor
• does not represent a Significant Shareholder or a
  group of individuals and/or entities that
  collectively may act as a Significant
  Shareholder
• does not hold cross directorships or has no
  significant links with other directors through
  involvement in other companies or bodies
• has no personal service contracts with the
  Company, its Related Parties or its executive
  management or
• is not affiliated with a significant customer or
  supplier of the Company or its Related Parties.
• Executive Director means a director involved in
  the day to day management and/or in the full time
  employment of the Company, and/or any of its
  subsidiaries

• Clear
• Detailed
• Unambiguous
• Provides Guidance

e.g.
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Application

• Practical Choices for implementation..
• Mandate Independent and/or non-executive
  Directors and relax the definitions, or
• Provide clear and unambiguous definitions and
  make best practice Board composition voluntary
  (but rewarded)
• What would you choose?

William Foster
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December 2006