CG Mena Workshop 2: Developing
Codes – Content and Consultation
The Search for Independence…..
William Foster
December 2006
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
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William Foster
Executive and related
Directors may be able to act
as Independents, but are
less likely to when it matters.
December 2006
Independence
“Independent” means self-reliant, with
 Best Developed market
“Executive Director” means a director
Practice
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who is also an employee of the company.
Responsibility on Issuer
Simple “spirit” definitions requiring
judgement
Possible guidelines
Disclosure requirement
Best Developing
Market practice
Responsibility on Regulator
Strict “fact” definitions
Disclosure requirement
William Foster
objectivity unimpaired by other interests.
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 director’s 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 Company’s 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
December 2006
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?
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William Foster
December 2006