Interaction between the new code and new listing requirements

Dr. Jochen Biedermann

OECD Russia Corporate Governance RoundtableMoscow, 22-23 October 2013

Disclaimer: The views expressed in this presentation are those of the author and do not necessarily represent the opinion of the OECD Russia Corporate Governance Roundtable, the OECD or its Member countries, or of the Moscow Exchange.

OECD Russia Corporate Governance RoundtableMoscow, 22-23 October 2013

Why consider including Corporate Governance requirements into listing rules

CG report (e.g. declaration of conformity) becomes part of the annual reporting, thus increasing transparency for investors

Exchange can directly monitor and sanction missing/late reports or lack of transparency/clarity

Companies with a high grade of conformity can be emphasized, e.g. by a premium segment membership

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Corporate Governance Requirements within Stock Exchange Listing Rules

National Corporate Governance Codes

OECD Principles of Corporate Governance

International comparison does not provide a clear picture how to implement Corporate Governance rules

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* set by the listing authority (regulator or stock exchange), at least for a premium segment ** referencing German CG Codex

Country CG Law CG Code CG as part of Listing Rules*

US Sarbanes-Oxley Act NYSE CG Rules, Nasdaq Listing Rules 56xx

UK UK CG Code FSA Listing Rules

Germany Aktiengesetz** German CG Codex

France Loi de sécurité financière AFEP-MEDEF CG Code

Netherlands Act Frijns Tabaksblat Code

Switzerland (Obligationenrecht) Swiss Code SIX Richtlinie

Austria Austrian CG Codex Wiener Börse Regelwerk Prime Market

Poland Code of Best Practice for WSE Listed Comp.

Turkey CMB CG Principles for ISE Listed Companies

India Clause 49 of SEBI Listing Rules

China CSRC Sec. CG Guidelines

South Africa King Code on CG for S-A III JSE Listing Requirements

Brazil IBGC Code of Best Practice BM&FBOVESPA Novo Mercado Rules

“Living the code” rather than “obeying the law”

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● Focus on compliance: ○ Reducing legal and resulting

financial risks for the company○ Avoiding penalties or fines

● Transparency vis-à-vis relevant authorities○ CG reports are not necessarily

public

● Over-fulfilling of CG requirements does not make sense

○ Efforts and impact on existing governance are minimised

● National scope of legal requirements○ Might differ significantly from

international CG best practice

CG as cost factor

● Focus on investor communication:○ Demonstrating superior governance

to ease capital market financing○ Creating and maintaining trust

● Transparency vis-à-vis investors, in particular existing shareholders

○ CG reports become part of annual company reporting

● Over-fulfilling of CG requirements can make lots of sense

○ Achieve outstanding position among peers

● International best practice of CG rules○ Exchanges compete globally for

listings of leading international companies - their reputation is at risk

CG as important differentiator

Fulfilling legal requirements Qualifying for a (premium) listing segment

Corporate Governance as a process: Requirements have to be constantly adapted to a changing world

Example:Social Networks and Corporate Governance Analysis of hidden relationships suggests to introduce a completely different definition of independence in board of directors (www.sonean.com/sna-based-services.html, www.top1000funds.com/conversation/2013/08/14/social-networks-in-the-investment-web)

“Say, for example, you have an independent director who is actually closely connected to the rest of the board. Their efforts to maintain independence might be compromised by having been recommended to the board by an executive director with prior social ties or sharing the same mindset – these kind of ties could be disastrous if they are unable to see a problem in time.” (Murat Ünal, SONEAN)

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Exchanges can usually adapt listing rules much faster than lawmakers, who often have to wait for crisis to be able to sell major changes to the public.

Exchanges must take the leadership role in the marketplace in every field of work, including governance and listing. It is a responsibility to society, and also very good business, the right way to work.

Dr. Jochen BiedermannIndependent Exchange Industry Expert

E-mail: jbieder@gmx.de Mobile: +49 172 4549484

Thank you for your attention!Спасибо за Ваше внимание!