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  1. 1. Corporate Governance ROLE AND FUNCTION OF SUPERVISORY BOARDS IN BOSNIA AND HERZEGOVINA (FEDERATION) Created by: Faris Njemcevic, Fund Management Company PROF-IN, Sarajevo
  2. 2. Introduction <ul><li>Single-layer model (Supervisory board only) </li></ul><ul><li>Deal s with firms that are subject to privatization </li></ul><ul><li>Supervisory board is a link between management and shreholders, where: </li></ul><ul><ul><li>It has wider rights towars management, and </li></ul></ul><ul><ul><li>By laws regulate rights and responsibilities in more details </li></ul></ul>
  3. 3. <ul><li>Role of Management continously become s stronger, because: </li></ul><ul><ul><li>Amount of information is rapidly increasing, </li></ul></ul><ul><ul><li>Business becomes more and more complex, </li></ul></ul><ul><ul><li>Supervisory board members are external and do not come from the same branch – managers lead the game </li></ul></ul><ul><li>Supervisory board functions: </li></ul><ul><ul><li>As a body </li></ul></ul><ul><ul><li>In the best interest of all shareholders </li></ul></ul><ul><ul><li>With limited and united responsibility towar d s all shareholders </li></ul></ul>Introduction
  4. 4. Rights and role of Supervisory board (legal framework) <ul><li>Most important duties of Supervisory bord: </li></ul><ul><ul><li>Chooses Management based on presented business plan; </li></ul></ul><ul><ul><li>Tracks results; </li></ul></ul><ul><ul><li>Adopts all company’s acts prescribed by law; </li></ul></ul><ul><ul><li>Makes particular decisions set by law; </li></ul></ul><ul><ul><li>Adopts financial reports (annual and semiannual) and business plan for the following year; </li></ul></ul>
  5. 5. Rights and role of Supervisory board (legal framework) <ul><li>Most important duties of Supervisory bo a rd: </li></ul><ul><ul><li>Proposes to the shareholders the way of profit sharing and loss cover; </li></ul></ul><ul><ul><li>Approves offering of new shares up to 1 / 3 of nominal value of existing shares; </li></ul></ul><ul><ul><li>Carries out decisions made by shareholders. </li></ul></ul><ul><li>Structure of the bo a rd: </li></ul><ul><ul><li>Supervisory bo a rd consists of at least 3 members; </li></ul></ul><ul><ul><li>Number must be odd; </li></ul></ul><ul><ul><li>Decision valid with majority votes. </li></ul></ul>
  6. 6. Supervisory bo a rds in practice <ul><li>Participants in privatization: </li></ul><ul><ul><li>Citizens, </li></ul></ul><ul><ul><li>Local powerfull persons, </li></ul></ul><ul><ul><li>Privatization Investment Funds. </li></ul></ul><ul><li>Detected problems: </li></ul><ul><ul><li>No established labour market for Supervisory bord members; </li></ul></ul><ul><ul><li>No clear corporate ownership structure with clear company’s goals; </li></ul></ul><ul><ul><li>Many of privatized companies (with valuable real estate) were target for local powerfull persons; </li></ul></ul>
  7. 7. <ul><li>Detected problems: </li></ul><ul><ul><li>No developed labour market for managers, therefore Supervisory boards cannot easily find a director – most of firms need new Management; </li></ul></ul><ul><ul><li>Supervisory boards not aware of their responsibility and they think they are only delegates of some shareholders; </li></ul></ul><ul><ul><li>HRM in corporate governance is poor with no room for bonuses, benefits and stimulation ; </li></ul></ul><ul><ul><li>Members of Supervisory bords are working full time elsewhere and can not devote much time to the firm. </li></ul></ul>Supervisory bords in practice
  8. 8. Recommendations <ul><li>Main goal: to stop further sinking of the company; </li></ul><ul><li>Every firm can do better with good Manager who will get full support and motivation by its Supervisory board; </li></ul><ul><li>Privatization Investment Funds cannot have active approach (as strategic partner) but can contribute to restructure of companies by electing their best people into Supervisory boards and Management; </li></ul><ul><li>Supervisory bo a rd as a profession – gather and e ducate Supervisory bo a rd members </li></ul>
  9. 9. Conclusion <ul><li>WE NEED: </li></ul><ul><li>A COMPREHENSIVE CONCEPT OF CORPORATE GOVERNANCE DEVELOPMENT </li></ul><ul><li>AT THE MACRO LEVEL! </li></ul>
  10. 10. THE END <ul><li>THANK YOU FOR YOUR ATTENTION!!! </li></ul>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