Corporate Governance ROLE AND FUNCTION OF SUPERVISORY BOARDS

Corporate Governance ROLE AND FUNCTION OF SUPERVISORY BOARDS IN BOSNIA AND HERZEGOVINA (FEDERATION) Created by: Faris Njemcevic, Fund Management Company PROF-IN, Sarajevo 10/25/2021 Supervisory boards in B&H 1

Introduction n 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 u By laws regulate rights and responsibilities in more details u 10/25/2021 Supervisory boards in B&H 2

Introduction n Role of Management continously becomes stronger, because: u u u n Supervisory board functions: u u u 10/25/2021 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 As a body In the best interest of all shareholders With limited and united responsibility towards all shareholders Supervisory boards in B&H 3

Rights and role of Supervisory board (legal framework) n Most important duties of Supervisory bord: Chooses Management based on presented business plan; u Tracks results; u Adopts all company’s acts prescribed by law; u Makes particular decisions set by law; u Adopts financial reports (annual and semiannual) and business plan for the following year; u 10/25/2021 Supervisory boards in B&H 4

Rights and role of Supervisory board (legal framework) n Most important duties of Supervisory board: u u u n 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: u u u 10/25/2021 Supervisory board consists of at least 3 members; Number must be odd; Decision valid with majority votes. Supervisory boards in B&H 5

Supervisory boards in practice n Participants in privatization: u u u n Citizens, Local powerfull persons, Privatization Investment Funds. Detected problems: u u u 10/25/2021 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 6

Supervisory bords in practice n Detected problems: u u 10/25/2021 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 7

Recommendations n n 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 best people into Supervisory boards and Management; Supervisory board as a profession – gather and educate Supervisory board members 10/25/2021 Supervisory boards in B&H 8

Conclusion WE NEED: A COMPREHENSIVE CONCEPT OF CORPORATE GOVERNANCE DEVELOPMENT AT THE MACRO LEVEL! 10/25/2021 Supervisory boards in B&H 9

THE END THANK YOU FOR YOUR ATTENTION!!! Name: Faris Njemcevic Company: Fund Management Company PROF-IN Sarajevo Address: Radiceva 8, Sarajevo Bosnia and Herzegovina 10/25/2021 Phone: + 387 33 26 33 00 Fax: + 387 33 26 33 02 Supervisory boards in B&H 10