What is Corporate Governance?

The importance of corporate Th imp rta governance lies in its gover its contribution both to business ont tion bot prosperity and to per ity accountability. c ac ili Paragraph 1.1, Committee on Corporate Governance: Final Report Hampel Committee

Corporate governance is concerned with holding the balance por with between economic and social goals and between individual and twe conomic ndi and communal goals The aim is to align as nearly as possible the unal interests of individuals, corporations and society. est ndi tions and Sir Adrian Cadbury Corporate Governance Overview, 1999 [World Bank Report]

Corporate Governance is a mechanism through which boards and directors are able to direct, monitor and supervise the direc conduct and operation of the corporation and its management in a manner that ensures appropriate levels of authority, accountability, stewardship, leadership direction and control. ader ship,

Its about Leadership! Leadership for efficiency Lead rship effi iency to compete in the global economy, create jobs Leadership for probity (honradez, rectitud).. Lead rship pro hon adez ctitud) because investors require confidence to provide assurance of management's integrity Leadership with responsibility. Lead rship wit pons ibility. to take account of broader stakeholder interests Leadership that is accountable and transparent Lead rship hat accountable and tran par ent to build trust in companies and in the economy!!

Building Effective Board Governance Defining key board roles Def ining boar roles Board Chairman Chief Executive Officer Board Directors - executive and non-executive Putting in place board governance arrangem ents ing lace rangem ent Board committees to support decision process Supporting functions to regulate processes Board procedures and rules, e.g. conflicts of interest

 Delegated authorities for management Ensuring proper oversight and supervision suring proper ight ion Management reporting and public disclosures Assurance processes and controls

The Board of Directors is Pivotal

The board should exercise compelling and relentless leadership and should not underestimate the power of xer pellin ele ers und ere powe leading by example -evidenced by high levels of visibility and integrity, strong communications, and demanding mpl evi visi ility inte gri stro and expectations. This leadership should be clear to ALL within the organization, as well as shareholders (accionistas) xpectat ead should ALL thi rga wel der (acci oni and other stakeholders (grupos de inters). and the takehol ders inters Boardroom Behaviours oar avi our A report prepared for Sir David Walker by the Institute of i Wal av titu Chartered Secretaries and Administrators , UK June 2009 rte ecr min tra 200

Board Governance Framework

Shareholders

Chairman

Board of Directors Achievement of strategic objectives and value creation Fulfil responsibilities and duties in law and prescribed functions

Board Meetings Corporate Secretary Reporting & Disclosure

Strategy Corporate Policies & Procedures Board Governance Instruments Monitoring and Evaluation

Governance System and Controls

Board Committees Audit Committee Remuneration Committee Other Committees

CEO & Management Executive Committee Internal Controls & Assurance

Combined Assurance Model Internal Audit External Audit Other Assurance Providers Management

Key Areas of Responsibility

Information and Communication

Board Operations

Chairman a s Leader of the Board Primary role ole Provide overall leadership to the board Function Func ion Principal link between board and CEO/management team Responsible for board agenda and work plan Work with board committee chairmen Involved in selection and induction of new directors Counsel individual directors on their performance Participate in discussions with investors, key stakeholders

CEO as Leader of the Company Primary role ole Lead the management team, reporting to the board Function Func ion Work closely with board chairman Responsible for performance of management team

Formulate corporate strategy, annual business plan and budget Responsible for corporate and financial objectives Formulate major corporate policies Ensure continuous improvement in services and products Manage relations with investors, major customers, regulators

Responsible for companys long-term sustainability

Board Structureand Composition Balancing executive and non-exec. participation ing cuti and nonpar ipat ion Ensuring an effective selection process uring cti electi Key personal and professional attributes Skills aligned to strategy and business Also fill board committee requirements, where appropriate Some general guidelines genera eli Must have time to devote to responsibilities Must exercise judgment in best interests of company Must be informed about the business and its markets Must avoid interest conflicts between personal and business Must treat board information confidentially Should act objectively and be receptive to other perspectives Should prepare adequately for meetings, regular attendance

Com m on Legal Principles of Directorship Exercise reasonable standard of care Exe rea onab standard Special business acumen or expertise not necessarily required Not necessarily liable for errors of judgment Given events following financial crisis, will this change? Duty to act in best interests of the company Duty best int res com In other words, for ALL shareholders, not special interests

The legal framework and company charters should not permit practices (such as pre-meetings and fra rte shou act e-m eeting instructions on how to vote by shareholders whose votes placed a director on the board) wherein shareholders ins truction rehol der her shar eho may limit the ability of directors to exercise their duties to act in the best interest of the company and all ili directo act bes intere shareholders. share old Paragraph 90, OECDs White Paper on CDs Corporate Governance in Latin America ora ver

Benefts of Effective Board Committe s i e Assist the board in its decision making ssi Brings together non-executives and management Allows detailed discussion on management matters But, filters out operational issues that remain with management And, focuses on strategic decisions required of the board Supports board responsibilities in key areas ppor ponsi lit ies eas Audit, internal controls and risk Executive compensation and management appointments Governance issues and corporate policies Nomination and selection of non-executive directors Others, e.g. health, safety, environment, etc. Defined terms of reference and limitations Def ined refe ren lim ions Generally, no executive powers enerally,

Instrum ents to Enhance Effectiveness Board Charter setting out procedural rules ing edur Clarifies leadership roles and core responsibilities Reserves matters specifically reserved to board Sets management delegations and reporting arrangements Comprehensive induction for new directors Com ehe induc new dir Legal and regulatory obligations Financial structure of business, budgets and KPIs Understanding of strategic priorities and current status Familiarize with business operations, e.g. site visits Annual board work plan nual Meetings and budget cycle, annual reporting Code of ethics or statement of business principles Code state ent usiness nciples Defines corporate values and conduct of staff and directors

Role of Corporate Secretary

Resolves organizational matters for board meetings Explains the procedural requirements of laws, the charter, and bylaws of the company Key link between company and non-executive directors

Oversees, conducts induction trainings for newly elected directors

Works closely with Chairman and CEO on board agenda Arranges the annual shareholders meeting and other special meetings Ensures compliance with the board procedures meetings

Supervises and co- ordinates board papers & presentations Takes the minutes of board

Board Role in Financial Oversight Duty to maintain proper accounting records Duty int ain proper counting Periodic reporting of financial position, perform ance eriodic epor ing inan ial osi ion, ance Establishing, m onitoring proper internal controls stablis ing pro nte ont Ensuring proper external controls and audit uring oper nal ontrol and audit Skills, knowledge required by directors ills, dge equir dir

Boards Role in Risk Management The board should know about and evaluate the: boar now bout and aluate he: Most significant risks facing the company Possible effects on shareowners Companys management of a crisis Importance of stakeholder confidence in the organization Communications with the investment community The board should ensure that: boar ens hat: Sufficient time is devoted to discuss risk strategy Appropriate levels of awareness exist throughout the company Risk-management processes work effectively A clear risk-management policy is published

Not an easytask - Identified Risks Strategic Unfocused strategy Strategy not aligned with capabilities Complacency arising from past success Unsuccessful acquisition/abortive bid Failure to manage major changes Reputational risk Loss of investors confidence Political/general economic risk People Management leadership weak Inadequate succession planning Loss of key executives Poor employee motivation Internal communication weaknesses Marketplace Failure to respond to market trends Missed opportunities new tech., global markets Weak or obselete brands Over-reliance on a few customers Poor customer satisfaction quality/timeliness Ethical hic Failure to enact high standards of ethics Obtaining contracts unethically Stakeholder concerns on products/business probity poor community relations Suppliers/Outsourcers plier Out Over-dependence on suppliers/outsourcers Failure to manage cost/quality of outsourced service Supply chain problems Joint ventures, strategic alliances not working Financial inanc Cash flow/going concern problems Treasury operations risk Susceptibility to fraud/accounting irregularities Legal/Compliance Legal/C ianc Failure to protect intellectual property Health, safety, environmental issues Litigation risk Breach of competition, corporate, employee, tax laws

RestoringIntegrity and Trust

Boards must re-establish and enforce the standard that risks are to be undertaken for the benefit of mus -es lis nfo stand ndertaken their constituents, not for the personal gain of management. ers gem nt. George Vojta Chairman of the Advisory Board of the Yale School of Management Millstein Center for Corporate Governanance and Performance and Former Vice-Chairman, Bankers Trust Corp.

Six Critical Q uestions Directors! for Do I believe I have all the information? eli all Have I the necessary skills to m ake this decision? Hav ssa his eci ion? Do I have any conflict in this matter? any con fli thi atte Objectively, is this a rational business decision ? ively his ess decisio Can I explain this in a transparent manner? Can plain his ran spar ann Is it a responsible discharge of m y duties? spo nsi sch dut

MCIS GUIDING PRINCIPLES IS IPL Build Trust and Credibility! dibili Respect for the Individual Create a Culture of Openness and Honesty Set the Tone at the Top Uphold the Law! Law Avoid Conflicts of Interest Set Metrics and Report Results Accurately Do the Right Thing! Promote Substance over Form Be Loyal to your Company, your Family, yourself