The document discusses the importance of implementing effective corporate governance in emerging markets to enhance market capitalization and attract investment. It outlines the evolution from a controlling governance model to a shared oversight model, emphasizing the need for independent directors (ineds) to play a meaningful role. Additionally, it highlights the transformation required for companies to become IPO-ready by fostering a culture of dialogue and accountability in board meetings.

1. CHINESE CAPITAL MARKETS DAY
20 April 2012

2. Phoenix Neftegaz Services, 2012
IS THERE A COMPELLING VALUE PROPOSITION
FOR IMPLEMENTING “BEST IN CLASS”
GOVERNANCE?
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3. Phoenix Neftegaz Services, 20123
• “rule of law” (Yukos, YPF…)
• accuracy of financial reporting (Puda
Coal, China Forest)
• domination by “controlling
shareholders” (Volkswagon, ENRC)
• behind the scenes government
influence or the influence of
networks connected to officials
(Rosneft-BP-TNK oligarchs)
• corruption (Hermitage Capital)
• “Repeatedly over the last 20 years, when
British shareholders are surveyed they
have responded that they are willing to
pay a premium for better governance in
their investee public companies.”
• “When companies from emerging markets
have competed for capital markets access
using visibly better corporate governance
models, they have been rewarded with
higher market capitalization.”
Example: Uralkali
EMERGING MARKETS LISTEES SUFFER A
MATERIAL RISK PREMIUM CHARGE –
Investors and regulators are concerned about:
EMERGING MARKETS LISTEES NOW TRADE AT 10% - 40% DISCOUNT

4. Phoenix Neftegaz Services, 2012
SUCCESSFUL GOVERNANCE IS AN EVOLUTION, NOT
A REVOLUTION
Moving from a “controlling / dominating”
operational/management model to a “shared
oversight / ‘governance’ model”
The octopus versus the outsider
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5. Phoenix Neftegaz Services, 2012
Shareholder’s Chairman dominates an Executive or Management Committee
comprised of the companies “C-suite” (CEO, CFO, etc). Very tactical and
operational. Strategy reserved to the owners.
One or two INEDs are added to the “Ex-Co” and for some period they function
more like observers than they do as INEDs having an effective voice or influence.
Chairman still dominates. C-suite still looks past INEDs for decisions.
The Chairman begins to consult with both the INEDs and the C-suite about
developing the agenda. The Chairman begins to permit discussion of more
strategic matters. The culture begins to change inside the BOD meetings, and
there is more real dialogue.
The Chairman and C-suite begin to have
some respect for the role of the INEDs.
Their vote and voice begin to be
meaningful. The business leaders begin
to view the INEDs as having some
valuable insight and practical advice for
their own everyday business issues. The
committees are beginning to have “real”
agendas and provide real input to the
BOD meetings.
The company’s outside professionals (independent auditors. attorneys, etc) and
bankers (investment and commercial) begin to see the Board as a real part of the
power and governance structure of the company. The BOD begins to approve
meaningful and material corporate decisions (budget, payroll, CAPEX, C-suite
meeting their KPIs, etc. – AND THE PROSPECTUS!!). The company is IPO-ready.
The BOD is beginning to perform at the
“combined” level of Strategy Owner of
the company; Provides oversight over
executive and management; and,
functions as the conscience on behalf of
ALL shareholders (public and ‘insider”),
the regulators and the broader
communities and stakeholders. The
shareholders and control stakeholders
delegate real responsibility to the BOD.
This is governance as a competitive
advantage in Emerging Markets.
Typical Metamorphosis from “Ex-Co” to “Governed Board’
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IT NORMALLY TAKES TWO YEARS OF WORKING WITH INEDs TO REACH THE IPO-READY STAGE!!
There must be TRUST in the INEDs and the Board process from owners

6. Phoenix Neftegaz Services, 2012
TOO MANY COMPANIES FROM EMERGING
MARKETS LIST BEFORE THEY HAVE EFFECIVE
GOVERNANCE
Too many IB’s, law firms and Big Four firms fail
to act forcefully and honestly on behalf of the
capital markets
I have personally seen companies list before
they have effective governance, and their
market cap plummets
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7. Phoenix Neftegaz Services, 2012
ONCE A COMPANY LISTS, THE VALUE OF THE
SHARES OF THE CONTROLLING SHAREHOLDERS
AND INVESTORS IS INSEPERABLE FROM THE
VALUE OF THE PUBLIC FLOAT
The very same systems and processes that support
good corporate governance generally also support
“normative public company efficient operations” (e.g.,
Risk Management, Internal Controls, Management
Reporting, KPIs and reward systems linked to
performance, etc)
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8. Phoenix Neftegaz Services, 2012
PUZZLE PIECES TO ALIGN SUCCESSFULLY
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Establish BOD
Committees and
make
them
effective
Develop annual BOD meeting schedule
linked to the true business cycle and material
events of the company
Establish the
administrative
And corporate
People and
Process to support
board
Chairman engaged on agenda-building
as serious, interactive effort
INEDs are willing
workers who actively
mentor the management
and give real time in-between
BOD meeting
Search for and hire
able and willing
INEDs
who add real value
BOD consciously attempts to
develop a culture of dialogue
and focusing on the strategic
and meaningful issues
BOD and
Committees are
engaged in
developing the
necessary controls
and processes
INEDs become
Ambassadors to the
Company’s external
constituencies consistent
with good governance

9. Phoenix Neftegaz Services, 2012
COMMITTEES
Audit
Remuneration and Positions
Strategy
Governance
(Who? What areas to focus on? Financial,
industry and “HR” skills? INEDs as teachers)
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10. Phoenix Neftegaz Services, 2012
MEETINGS
How Many?
Developing the annual calendar
Sticking to “it” –- serious, discipline!!!
Culture in the Meetings
Meeting Structure
Reports (CEO, Finance)
Dialogue
Corporate Adminis-trivia
SHOULD YOU HIRE A GOVERNANCE
CONSULTANT?10

11. Phoenix Neftegaz Services, 2012
HOW TO PICK INEDs
How Many?
Search firm or not?
Value at operational level
Gravitas / Connections
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12. Phoenix Neftegaz Services, 2012
QUESTIONS????
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