Corporate Governance

1. Corporate Governance ROLE AND FUNCTION OF SUPERVISORY BOARDS IN BOSNIA AND HERZEGOVINA (FEDERATION) Created by: Faris Njemcevic, Fund Management Company PROF-IN, Sarajevo Supervisory boards in B&H

2. Introduction • Single-layer model (Supervisory board only) • Deals with firms that are subject to privatization • Supervisory board is a link between management and shreholders, where: • It has wider rights towars management, and • By laws regulate rights and responsibilities in more details Supervisory boards in B&H

3. Introduction • Role of Management continously becomes stronger, because: • Amount of information is rapidly increasing, • Business becomes more and more complex, • Supervisory board members are external and do not come from the same branch – managers lead the game • Supervisory board functions: • As a body • In the best interest of all shareholders • With limited and united responsibility towards all shareholders Supervisory boards in B&H

4. Rights and role of Supervisory board (legal framework) • Most important duties of Supervisory bord: • Chooses Management based on presented business plan; • Tracks results; • Adopts all company’s acts prescribed by law; • Makes particular decisions set by law; • Adopts financial reports (annual and semiannual) and business plan for the following year; Supervisory boards in B&H

5. Rights and role of Supervisory board (legal framework) • Most important duties of Supervisory board: • Proposes to the shareholders the way of profit sharing and loss cover; • Approves offering of new shares up to 1/3 of nominal value of existing shares; • Carries out decisions made by shareholders. • Structure of the board: • Supervisory board consists of at least 3 members; • Number must be odd; • Decision valid with majority votes. Supervisory boards in B&H

6. Supervisory boards in practice • Participants in privatization: • Citizens, • Local powerfull persons, • Privatization Investment Funds. • Detected problems: • No established labour market for Supervisory bord members; • No clear corporate ownership structure with clear company’s goals; • Many of privatized companies (with valuable real estate) were target for local powerfull persons; Supervisory boards in B&H

7. Supervisory bords in practice • Detected problems: • No developed labour market for managers, therefore Supervisory boards cannot easily find a director – most of firms need new Management; • Supervisory boards not aware of their responsibility and they think they are only delegates of some shareholders; • HRM in corporate governance is poor with no room for bonuses, benefits and stimulation; • Members of Supervisory bords are working full time elsewhere and can not devote much time to the firm. Supervisory boards in B&H

8. Recommendations • Main goal: to stop further sinking of the company; • Every firm can do better with good Manager who will get full support and motivation by its Supervisory board; • Privatization Investment Funds cannot have active approach (as strategic partner) but can contribute to restructure of companies by electing their bestpeople into Supervisory boards and Management; • Supervisory board as a profession – gather and educate Supervisory board members Supervisory boards in B&H

9. Conclusion WE NEED: A COMPREHENSIVE CONCEPT OF CORPORATE GOVERNANCE DEVELOPMENT AT THE MACRO LEVEL! Supervisory boards in B&H

10. THE END THANK YOU FOR YOUR ATTENTION!!! Name: Faris Njemcevic Company: Fund Management Company PROF-IN Sarajevo Address: Radiceva 8, Sarajevo Bosnia and Herzegovina Phone: + 387 33 26 33 00 Fax: + 387 33 26 33 02 Supervisory boards in B&H