A Benchmark Study to Develop a Corporate Governance Charter for Esko BVBA

A Benchmark Study to

Develop a Corporate Governance Charter for Esko BVBA

University of Groningen, the Netherlands

MSc Business Administration, Finance

Author: Lin Yan

Student ID: 1822705

Acknowledgement

This master thesis is the result of a research conducted in the Finance Department of Esko BVBA based in Gent, Belgium. Moreover, this study is also my final assignment for the Master of Finance at the Faculty of Economics and Business at the University of Groningen.

The internship in Esko lasted for three months during which Esko was going through the acquisition with the new owner from the US, Danaher Corporation. Due to this special occasion, the internship provided me with more insights regarding corporate governance. In particular, I have the opportunity to study the impact of Sarbanes-Oxley Act on corporate governance, and the interaction between SOX and the Belgian corporate governance codes. Moreover, this internship offered me with the opportunity to know how a multinational private company deals with corporate governance. Therefore, I really appreciate Esko for offering me this internship opportunity.

In particular, I would like to thank Mr. Kurt Demeuleneere, the Chief Financial Officer of Esko. By sharing his expectations and his experience regarding corporate governance matters, I was able to get on the right track and finalize the charter with practical value for Esko. I also want to thank Ms. Christel Huybrechts, my company supervisor and the Interim Group Controller, for her help in updating the information I needed and reviewing my thesis proposal. Moreover, I want to thank Ms. Saskia Verstraete, the Group Controller, for providing me with the topic of this thesis in the first place. Last but not least, I want to thank Ms. Hilde Van Damme for her help in supporting me to finish this project in Esko.

Furthermore, I would like to thank Dr. Wim Westerman, my supervisor at University of Groningen, for his efforts in giving me timely feedbacks and revising the several drafts of this thesis. I also want to thank Dr. Halit Gonenc, who was in coincidence also my Bachelor thesis supervisor last year, as my second thesis supervisor.

I would also want to thank my family and friends for their emotional support through my study in the Netherlands.

Finally, special thanks to Mr. Jean-Claude Deschamps, the former Chairman of the board of Esko, for his insightful guidance and continuous support through my entire study.

Lin Yan

ABSTRACT

This study offers suggestions to Esko BVBA, a non-listed Belgian company and a division to a US public company, in developing a corporate governance charter. In particular, this study aims at establishing the charter “as if” Esko is a stand-alone Belgian private company, and then identifying the rules that are temporarily not applicable to Esko due to the take-over by Danaher Corporation. The corporate governance charter is developed through three phases of benchmarking based on relevant official corporate governance codes and the practices of leading listed companies. The official corporate governance codes include the Sarbanes-Oxley Act (Section 301, 302, and 404), Buysse Code II, and the 2009 Belgian Code on Corporate Governance. A scorecard approach is utilized through the benchmarking process. This case study offers more insights to the academic world about the real life practices of corporate governance in a private multinational company. Moreover, this study provides an interesting situation regarding the application of two sets of corporate governance codes, one from the US and one from Belgium. The scorecard approach utilized in this study provides a possible approach for researchers in analyzing compliance of corporate governance codes by companies. Lastly, from managerial perspective, the study can serve as a guide for private companies, especially for mature Belgian private companies in establishing their tailor-made corporate governance charters.

JEL Codes: G34; G38

TABLE OF CONTENT

1.2.3. Research question and research flow chart ...10

1.2.4. Theoretical framework ...12

1.3. RESEARCH CONDITIONS ...14

2. LITERATURE STUDY ...16

2.1. THEORIES ASSOCIATED WITH THE DEVELOPMENT OF CORPORATE GOVERNANCE ...16

2.2. DEVELOPMENT OF NATIONAL CODES ON CORPORATE GOVERNANCE ...17

2.3. EVIDENCE FROM EMPIRICAL RESEARCH:COST AND BENEFITS OF COMPLIANCE ...19

2.4. CORPORATE GOVERNANCE IN PRIVATELY HELD COMPANIES ...21

2.4.1. Motivation for private companies to follow best practices of corporate governance ...21

2.4.2. There is no such corporate governance code that is “one-fits-all” ...22

2.5. AN OVERVIEW OF THE BENCHMARK CODES/REGULATIONS USED IN THIS STUDY...23

2.5.1. SOX (Sec.301, 302, and 404) and its implication on corporate governance ...23

2.5.2. Buysse Code II for non-listed Belgian companies ...25

2.5.3. The 2009 Code for listed Belgian companies ...26

2.5.4. An overview of amendments in Buysse Code II and the 2009 Code from their previous edition...27

2.6. CONCLUSION OF LITERATURE STUDY ...29

3. METHODOLOGY AND INFORMATION SOURCES ...31

3.1. DESK RESEARCH ...31

3.2. ASCORECARD APPROACH ...31

3.3. INFORMATION SOURCES ...36

4. GENERAL FRAMEWORK OF A CG CHARTER AND THE TAILOR-MADE STRUCTURE FOR ESKO ...39

4.1. GENERAL FRAMEWORK OF A CG CHARTER ...39

4.2. TAILOR MADE STRUCTURE OF THE CG CHARTER FOR ESKO ...39

5. BENCHMARKING ANALYSIS ...42

5.1. EXISTING CG CHARTER OF ESKO ...42

5.2. BENCHMARKING PHASE I:SEC.301,302, AND 404 OF SOX ...44

5.3. BENCHMARKING PHASE II:BUYSSE CODE II ...47

5.4. BENCHMARKING PHASE III:THE 2009CODE ...52

5.5. RULES TEMPORARILY NOT APPLICABLE TO ESKO...57

6. CONCLUSION AND SUMMARY OF RECOMMENDATIONS ...59

LIST OF FIGURES

Figure 1 Research Flow Chart ...11

LIST OF TABLES

Table 2 Summary of the Reference Group in Three Phases of Benchmarking ...13

Table 3 Nine Principles of the 2009 Belgian Code on Corporate Governance ...27

Table 4 Summary of Dimensions and Sub Dimensions of Scorecards ...33

Table 5 Overview of the Methods and the Information Sources Used ...37

Table 6 Summary of Changes to the General CG Charter Framework ...40

Table 7 Summary of Sections Covered in the Existing Corporate Governance Charter of Esko ...42

Table 8 Summary of the SOX Scorecards ...45

Table 9 Summary of the Buysse Scorecards ...48

1.

Introduction

This study is based on an internship in Esko BVBA (hereafter “Esko”), a privately-held, multinational company headquartered in Gent, Belgium. The aim of this study is to offer suggestions to Esko in developing a corporate governance charter (hereafter “CG charter”). As a private company, it is not compulsory for Esko to formally establish such a charter, since Esko is not under the obligation to comply with the Belgian Code on Corporate Governance. Only public companies are required to adhere to the corresponding national code on corporate governance and disclose the charter in describing major aspects of a company‟s corporate governance practices. In the case of Belgium, the reference code for listed companies is the 2009 Belgian Code on Corporate Governance (hereafter “the 2009 Code”) which requires every listed Belgian company to establish a CG charter and disclose it on the company‟s website.

Though Esko had established procedures of corporate governance during its years of operations, the management wants to develop an integrated corporate governance charter of their own so as to enhance the formality of corporate governance practice in the company. The initiative is driven by the desire of long-term and sustainable growth, and is further enhanced by the recent take-over of Esko by Danaher Corporation (hereafter “Danaher”), a listed company based in the US, in March 2011. Given the newly added “U.S. listing” flavor, it seems to be a good timing for Esko to benchmark itself against a higher standard of corporate governance, both for the expectation from the parent company and for its own long-term value creation and consistency in corporate governance. In particular, the management of Esko would like to have a CG charter that can apply to Esko “as if” it is a stand-alone Belgian private company. Based on that, the recent situation that Esko is required by Danaher should be incorporated in the CG charter of Esko.

parent company of Esko, requires Esko to comply with these sections of SOX to the largest possible extent. In the second phase, the revised CG charter of Esko based on SOX is benchmarked against Buysse Code II which is the corporate governance code for Belgian non-public companies. Lastly, the revised CG charter of Esko based on SOX and the Buysse Code II is then benchmarked against the 2009 Code which is the corporate governance code for Belgian listed companies. The benchmark study is mainly conduced through a scorecard approach. After that, the influence of the acquisition by Danaher is incorporated in the charter by specifying which rules are temporarily not applicable to Esko. That is achieved mainly through interviews with the senior management members of Esko who possess the latest information regarding the operation of the new board after the change of shareholders. In developing the charter for Esko, it is crucial to bear in mind the specific characteristics of Esko which includes its growth phase, non-listed nature and the industry Esko operates in. That is, the CG charter should be tailor made for Esko, which implies optional compliance with the benchmark codes.

The contribution of this study can be seen as follows. Firstly, given little literature of corporate governance in non-listed companies, this case study offers more insights to the academic world about the real life practices of corporate governance in a private multinational company. Secondly, this study provides an interesting situation regarding the application of corporate governance codes since two sets of corporate governance codes are dealt with in this study, one from the US and one from Belgium. Thirdly, the scorecard approach utilized in this study provides a possible approach for researchers in analyzing compliance of corporate governance codes by companies. Lastly, from managerial perspective, the study can serve as a guide for private companies, especially for mature Belgian private companies in establishing their tailor-made corporate governance charters.

1.1. Company profile

Esko is a global leader in supply of integrated solutions for packaging, sign and display finishing, commercial printing and professional publishing. Its products and services help customers raise productivity, reduce time-to-market, lower costs and expand business1. As of 2011, Esko has around 1050 employees worldwide. Its global sales and support organization covers Europe, the Americas, Asia Pacific & Japan, and is completed by a network of distribution partners in more than 45 countries. Esko is headquartered in Gent, Belgium, and has R&D and manufacturing facilities in five European countries, the United States, China and India. Esko reports consolidated annual revenue of EUR 184.2 million in 2010, representing an organic growth of 27%2, and net income of EUR 13.7 million3.

Before the acquisition by Danaher, Esko was owned by Axcel, a Danish private equity fund, starting from 2005. Under the ownership of Axcel, the board of Esko composes of only independent board members except for the CEO. There are two board committees set in this board, namely the Audit Committee and a HR & Remuneration Committee4. The existing documentation of corporate governance practices of Esko is drawn up by this board. As from March 2011, the full ownership of Esko is transferred to Danaher, a U.S. based company listed on the New York Stock Exchange. The new board which is appointed by Danaher composes of three board members with two of them being executive. The outside director of the new board of Esko also serves as director in another division of Danaher, and therefore does not qualify as an independent director to Esko. The new board takes over from the previous board as from May 2011.

1.2. Research Design

1.2.1. Problem statement

Although there are some existing documented practices of corporate governance in Esko, they are in “pieces” by which I mean they have not been systematically organized and integrated into a CG charter. Moreover, there are corporate governance practices that have been implemented in Esko but not been explicitly documented. Furthermore, some rules of the existing charter of Esko are not concrete enough compared to what is suggested by the benchmark codes.

One of the reasons that the existing charter is not well documented in Esko is that the board and management perceive some corporate governance practices as “common sense”. For example,

1 _Esko

Press Release, January 20, 2011. www.esko.com.

2

Esko Press Release, January 20, 2011.www.esko.com. 3

Esko Group Consolidated Financial Statements, December 31, 2010.

4

they take for granted that the board of directors should be responsible for the timely disclosure of financial reports, though this is not explicitly documented in existing charter of Esko. However, not documenting what may be perceived as “common sense” may cause discontinuity in the operation of corporate governance. In case of personnel change in the board or top management or in case of the changes in ownership, this common sense regarding good practices of corporate governance may not be well transferred. The point here is that the “common sense” may not be that common for everybody involved. Furthermore, given the strong market position, the promising prospect of Esko and the transfer of ownership to a US listed, strategic owner, the need and the benefits to well document corporate governance practices are quite obvious.

With the acquisition by Danaher, Esko transforms from a stand-alone company into a division of a large US corporation. Though Esko will maintain its independence in operation after the take-over, the change from a stand-alone company into a division tends to generate larger influence in terms of corporate governance. Firstly, since Esko is now a division of Danaher, the new board of Esko will be small in size and not be as autonomous and independent as the case of being a stand-alone company. In particular, the board at the level of Esko, as has been already decided by Danaher, is composed of three directors with two of them being executive. The decisions proposed by the board of Esko will need approval from the board of Danaher. Secondly, board committees will no longer exist at the level of Esko since such committees only function in Danaher‟s board. Lastly, since Danaher is a US listed company and is thus under the effect of SOX, Esko, as required by Danaher, needs to optionally comply with the requirements set in SOX (Sec. 301, 302, and 404).

Though the ownership by Danaher can be expected as relatively long-term, there is potential possibility of transfer of ownership in the future. In order to maintain the continuity of corporate governance practices, the management of Esko wants to develop a complete CG charter which can apply to Esko “as if” it is a stand-alone private company. Then the current situation of Esko, namely being a division of Danaher, is incorporated into the CG charter by claiming that certain rules are temporarily not applicable to Esko.

1.2.2. Research objective

The CG charter of Esko is developed based on a benchmark study in which the current documented corporate governance practices of Esko being benchmarked against relevant codes and regulations, and practices of selected leading listed companies. In general, there are three benchmarks deemed appropriate in conducting this benchmark study. Firstly, the relevant provisions of SOX are selected as the minimum requirement for the CG charter of Esko as it is required by Danaher. Beyond the minimum requirement, two Belgian corporate governance codes, namely the Buysse Code II for non-listed Belgian companies and the 2009 Code for listed Belgian companies, are selected as the reference codes for Esko. The 2009 Code is considered as the highest standard for Esko since the code is aimed for listed companies, which implies the highest degree of optional adoption among the three codes.

1.2.3. Research question and research flow chart

The central research question of this study is:

What can be best practices of a CG charter for Esko as if it is a stand-alone Belgian private company by benchmarking against relevant official corporate governance codes and practices of leading listed companies, and what are CG charter rules that are temporarily not applicable to Esko?

In order to answer the research question in a systematic manner, a research flow chart (see Figure 1 on the next page) is developed to map the intermediate steps taken in developing a CG charter for Esko.

Steps 1 to 3 are mainly preparation work for the benchmark study. The first step is to establish a general framework for a CG charter. In particular, it aims at understanding which aspects of corporate governance should generally be covered in a CG charter. That is achieved by analyzing the issues discussed in the official corporate governance codes and charters of the leading listed companies. The second step is then to adapt the general framework to the non-listed nature of Esko by excluding non-relevant aspects from the general framework developed in the first step. The third step is to collect, integrate and organize the existing documented corporate governance practices of Esko based on the structure developed in the second step.

freedom to choose the degree of compliance with SOX, except for the requirements regarding the certification of annual reports by CEO and CFO in SOX. The Buysse Code II is not compulsory either since the aim of the code is just to offer suggestions to non-listed companies. As for the 2009 Code, Esko can obviously exempt from compliance given its non-public nature. In fact, after the first two phases of benchmarking, the modified CG charter of Esko is believed to have achieved the basic requirements set by the parent company and the Belgian Committee on Corporate Governance for Non-listed Enterprises. The third phase of benchmarking, which involves the 2009 Code, basically serves as the function to earn extra points for the corporate governance charter of Esko. That is, to make what is good even better. In general, Esko only aims at optional compliance with each code to the largest possible extent.

Figure 1 Research Flow Chart

After the three phases of benchmarking, the resulting CG charter can be applied to Esko as if it is a stand-alone private company. Then in Step 7, the revised CG charter of Esko is reexamined to identify the rules that are temporarily not applicable to Esko given the ownership of Danaher.

1.2.4. Theoretical framework

The main concept utilized here is benchmarking. Benchmarking is defined as “the process of identifying, learning, adapting, and measuring outstanding practices and processes from any organization to improve” (Public Entity Risk Institute, 1999). Chang and Kelly (1994) suggest a detailed framework for benchmarking, and this study will follow the same framework. The benchmarking framework suggested by Chang and Kelly (1994) includes seven steps which are summarized in Table 1.

Table 1 Seven Steps for Benchmarking Study (Chang and Kelly, 1994)

1. Decide which aspect of the company needs to be analyzed; 2. Identify a limited number of critical measuring points; 3. Identify the target to be benchmarked with;

4. Collect data according to the measuring points; 5. Analyze the data and identify the gap;

6. Decide points to be improved;

7. Conduct the benchmark study continuously for monitoring purpose.

In each phase of benchmarking in this study, only the first six steps will be conducted, since the seventh step is out of the scope of this study. The following illustrates how these steps as suggested by Chang and Kelly (1994) are implemented in this study.

 Step 1

The aspect to be analyzed for all the three phases of benchmarking is the practices of a CG charter, i.e. the documentation of corporate governance practices.

 Step 2

The selection of the measuring points depends on the benchmark phase. In the first phase, the measuring points are drawn from the relevant sections of SOX, in the second phase, the measuring points are drawn from provisions in the Buysse Code II, and in the last phase, the measuring points are identified based on the 2009 Code. The details will be further explained in Chapter 3.

 Step 3

rather they set the reference for Esko in terms of best practices of CG charters. Table 2 provides a brief summary of the reference group used in each benchmarking phase.

Table 2 Summary of the Reference Group in Three Phases of Benchmarking PHASE COMPANY INDUSTRY HOME BASE LISTING

I Danaher Corporation Diversified Technology

United States NYSE

I and III Anheuser-Busch Inbev Brewers Belgium Euronext Brussels NYSE1 (for ADSs2)

I and III Delhaize Group Food Retailing Belgium Euronext Brussels NYSE (for ADSs)

Note: 1. NYSE stands for New York Stock Exchange;

2. ADS stands for American Depositary Shares. In an ADR, a foreign private issuer places its securities with a US custodian, usually a US Bank which issues depositary receipts to US investors.

For the first phase of benchmarking which involves SOX, the reference group includes: AB Inbev, Delhaize, and Danaher. Given that Danaher is the parent company of Esko and has already implemented the requirements of SOX, including Danaher in the reference group is out of the intention to achieve consistency between Esko and Danaher to the largest extent. As for the other two Belgium based listed company, they are selected based on the following criteria:

A. The company should be Belgium based and list in the US.

 This criterion is to ensure the reference company is under the effect of SOX, and at the same time being a Belgium based company as Esko.

B. The company should be included in the BEL20 index at the time of this study.

 This criterion is to ensure the representativeness and quality of the reference group regarding practices of CG charters. Evidence found in Germany (Werder et al, 2005) and Greece (Florou and Galarniotis, 2007) indicates that company size is positively associated with the degree of compliance with codes.

C. The company should have a one-tier governance structure as Esko does. D. The company should operate multi-nationally as Esko does.

E. The company should not operate in the financial industry.

 This criterion is out of the concern that the nature of financial industry usually requires extra regulations beyond the corporate governance code. To avoid redundant information for Esko, companies operate in financial industry is not considered as reference.

Based on these criteria, there are only two listed companies left, namely AB Inbev and Delhaize.

For the second phase of the benchmarking which involves the Buysse Code II, there is no reference group established. The reference used is simply the Buysse Code II. There are two reasons for not establishing a reference group of Belgium non-listed companies. Firstly, private companies may not have a formal corporate governance charter. Secondly, even if they have such a charter, they are unlikely to make the charter public since they are not under the obligation to do so.

For the third phase of the benchmarking which involves the 2009 Code, the reference group composes of AB Inbev and Delhaize. The criteria B to G mentioned above are used here as the selection criteria. Criterion A which requires the reference company to be listed in the US is redundant here, and therefore is excluded. Based on the criteria B to G, there are several qualified listed Belgian companies; however, I only include AB Inbev and Delhaize in the reference group. The reason for not including more Belgian listed company is to maintain consistency from phase I to III in the benchmarking process. Moreover, increasing the number of reference companies is not necessary in studying the best practices of corporate governance because the compliance of listed companies with corporate governance code is similarly high.

 Step 4

The data collection and explanations of measuring points are illustrated in Chapter 3 Methodology and Information Source.

 Step 5 and 6

Data analysis and the identification of areas to be improved are covered in Chapter 5 Results of Benchmarking Analysis.

1.3. Research conditions

A. The study is based on a 3-month internship in the headquarter office of Esko in Gent, Belgium. In particular, the study is conducted in the Finance and Controlling Department.

B. The end product of this study should meet the scientific requirements as formulated by the Faculty of Economics and Business in the University of Groningen.

C. The end product of this study should meet the practical relevance for Esko and comply with their requirements and expectations.

E. In case some of the information provided by Esko in this study is confidential, the confidential part is excluded from the public version of the study.

F. During the time the study is being conducted, Esko is still in the integration process into Danaher. Therefore, the feasibility of the final result of this study may alter due to new requirements from Danaher in the near future.

2. Literature Study

The aim of the literature study is to provide theoretical background to this study. In particular, corporate governance theories are introduced to get an overview about the fundamental problem embedded in corporate governance. These theories may explain the initiatives of governments in introducing corporate governance codes worldwide. Then several influential corporate governance codes are summarized to get an overview of the development of corporate governance codes around the world. Since corporate governance codes claims to offer best practices regarding corporate governance practices, the impact of compliance of codes on firm value is discussed based on documented empirical researches. Further, the impact of introduction of codes on private companies is examined. In particular, why private companies may have motivation to adopt the codes and what caution should be made. Finally, the features and contents of the benchmark codes that are utilized in this study are described, also including the amendments of these codes based on their previous versions.

2.1. Corporate governance theory

Though the aim of this study is more about the implementation of corporate governance code rather the than the theoretical aspect of corporate governance, it is necessary to introduce the related theoretical background so as to understand the initiative of the introduction and revision of corporate governance codes around the world.

The fundamental issue regarding corporate governance is to solve the so-called agency problem. The agency theory, as developed by the work of Jensen and Meckling (1976), and Fama and Jensen (1983), identifies the disadvantage associated with the principal-agent relationship. The disadvantage is the opportunism and self-interest behavior of agents or managers at the expenses of the principals or shareholders. Thereby, the agency theory views corporate governance, especially the board of directors, as an essential device in monitoring the behavior of the managers so as to avoid any kind of agency problems (Marllin, 2010, p.15).

The agency theory only emphasizes the protection of interest of shareholders, which is criticized as narrow minded. The stakeholder theory, originally elaborated by Freeman (1984), is seen as an extension of the agency theory in the sense that the stakeholder theory also considers the interest of other stakeholder groups, such as employees, suppliers, creditors, customers, and so on. The stakeholder theory advocates that corporate governance should encourage managers to maximize social welfare.

of employees can sit in the supervisory board, which is in line with the stakeholder theory. While in the Anglo-American model, there is no such setting. The board is only responsible for the maximization of shareholders‟ value, which is more in line with the logic of the agency theory. However, the influence of these theories on the development of corporate governance should not be viewed in isolation. Other institutional aspects should also be considered. These aspects include legal system, capital market development, and ownership structure (Mallin, 2010, p.20) of the country. For example, in countries with common law system, like the UK and the US, shareholder rights are better protected, which encourages more dispersed shareholdings. Given the wide existence of separation of ownership and control, the agency theory may be more relevant than the stakeholder theory in explaining the conflict of interest between managers and dispersed minority shareholders.

Based on the theories, corporate governance codes are developed in the effort to reduce the agency cost so as to protect the interest of shareholders and the stakeholders. The initiative is to narrow the gap between what is currently going on in practices, which is far from ideal, and what is considered as best practices of corporate governance. In the next section, an overview of the worldwide development of corporate governance codes is introduced.

2.2. Development of national codes on corporate governance

Since 2000, there has been a growing trend in introducing, or revising of corporate governance codes in many countries. That is mainly driven by a increasing number of accounting and financial scandals of companies. Corporate governance codes are widely introduced in the effort to regulate the governance of listed companies and try to restore the confidence of investors in the financial market.

The development of corporate governance code is rooted in the agency theory which emphasizes the role of monitoring. A majority of the issues covered by corporate governance codes worldwide are related to the monitoring of the management through the board and in particular the audit committee. The influence of the stakeholder theory can also be detected in some corporate governance codes. For instance, Buysse Code II and the 2009 Code of Belgium advocate that “corporate social responsibility” should be incorporated when firms make strategic decisions.

governance codes which serve as reference for the codes in other countries are introduced. The codes used as benchmark in this study namely SOX, Buysse Code II and the 2009 Code are discussed in more detail in later sub sections.

The Cadbury Report introduced in 1992 in the UK is considered to have fundamental impact on the development of corporate governance code not only in the UK, but also around the world (Mallin, 2010, p.37). The report aimed at listed companies in the UK. The Cadbury Report introduced the „comply or explain‟ principle for the first time. The principle means that the company should either fully comply with the rules suggested in the report or explain the reason whenever it departs from certain rules. Many codes developed thereafter adopt the same compliance principle. As for the content, the Cadbury Report covers the issues regarding “the operation of the main board; the establishment, composition, and operation of key board committees; the importance of, and contribution that can be made by non-executive directors; the reporting and control mechanisms of a business” (Mallin, 2010, p.28). The publication of the Cadbury Report was followed by several alike corporate governance reports in UK, such as the Hampel Report (1998). These reports, together with the Cadbury report (1992), were integrated and referred as the Combined Code, which is now the reference code for UK listed companies. The lasted version of the Combined Code is published in 2008.

Another influential documentation of corporate governance is SOX enacted in the US in 2002. SOX is technically not a corporate governance code but a federal law applied to listed companies and auditing companies. That implies no deviation from SOX is allowed. It is introduced as a direct reaction to several well-known financial scandals of US listed companies such as Enron and WorldCom. In terms of corporate governance, SOX covers issues regarding the independence of audit committee, enhanced financial disclosure, and internal control assessment. The influence of SOX is substantial, not only for U.S. listed companies but also for non-US companies that have a U.S. listing. The detailed requirements of SOX used in this study are further elaborated in later sub sections.

Principles on Corporate Governance in Greece (1999) and Code of Corporate Governance for Listed Companies in China (2001).

As for the context of the European Union, the development of corporate governance is to a large extent facilitated by the Winter Report (2002) and the Action Plan on “Modernizing Company Law and Enhancing Corporate Governance in the EU” initiated by the EU High Level Group of Company Law Experts in 2003. The aim of the EU Action Plan is to foster transparent and sound corporate governance practices in the EU. The priorities of the Plan include shareholder rights and obligations, internal control, and the modernization and simplification of European Company Law (Mallin, 2010, p.40).

Around the world, there has been continuous effort for nations and internal organizations to introduce and revise corporate governance codes, aiming at regulating the behavior of firms and fostering an environment of integrity within the financial market. Since the codes claim to contain best practices regarding corporate governance, compliance with the codes should convey positive information towards the investors and thus enhance firm value. The next section thus summarizes findings from empirical research regarding the impact of compliance with codes by listed companies on firm value.

2.3. Evidence from empirical research: compliance and performance

The aim of corporate governance codes and legislations is to enhance transparency and accountability of listed companies so as to mitigate the agency problem to certain extent. By complying with these best practices, firms should experience increase in firm value. However, firms at the same time incur compliance cost, such as extra filing cost and auditing cost. As a result, the net benefit of compliance is uncertain. Therefore, theoretically speaking, the degree of compliance with codes does not necessarily positively relate to firm performance. In fact, the findings in empirical research regarding the net benefit of compliance are truly mixed. These evidences mainly come from the US context after the enactment of SOX.

that less compliant firms with regards to SOX can experience abnormal returns during the gradual process of compliance with SOX. Akhigbe and Martin (2006) specifically study the impact of SOX on financial service industry in the US. By analyzing a sample of 201 financial companies, they find that except for securities companies, firms in financial industry experience valuation effect due to enhanced disclosure and governance requirements in SOX. Still in the US context, Lord & Beniot LLC, a SOX Research and Compliance firm, issued a report indicating that firms with better compliance with Section 404 of SOX, which requires companies to provide an internal control report, achieve nearly 10% extra returns compared to the Russell 3000 index. That result is based on a sample of 2481 firms during the period 2004 to 2006.

However, there are also studies that claim the compliance costs are too high to make compliance value enhancing. Weir and Laing (2000) investigate the value effect of compliance with Cadbury Report (1992) on UK listed firms. By using a sample of 200 UK public firms in year 1992 and 1995, they find that firms with full compliance with the main principles in Cadbury Report do not show better performance than the firms with either partial or non-compliance. In the US context, Engel et al. (2007) claim that the high compliance cost of SOX may actually force some public firms to go private after the enactment. They argue that there are four sources of the compliance cost of SOX that may make public firms want to be delisted. First is the preparation of the internal control report, which involves staff training and new documentation requirements, etc. Secondly, extra fee is required to pay external auditors in certifying the internal control report. The third is the time dedicated by the CEO and CFO to prepare the certification of financial reports. Lastly, the requirement in SOX regarding increased penalty of misbehavior of management may induce the managers and directors only take conservative investments.

In fact, studies have found that the benefits of compliance, especially with SOX, depend on the size of the firm. Chhaochharia and Grinstein (2007) find that compliance with SOX is not value enhancing for small firms given they earn abnormal negative returns during the process of compliance. A report by the advisory committee of SEC claims that there is a significant fixed cost involved in implementing internal control assessment required by Section 404 of SOX. During 2004, the cost of compliance with Section 404 SOX is 0.06% of revenue for US companies with revenues higher than $5 billion, while the cost is 2.55% of revenue for companies with revenue lower than $100 million (SEC, 2006).

SOX is hindered by large compliance costs. However, those evidences may not hold in other context. Firstly, the codes of other countries require far less amount of extra filing workload than SOX does. Secondly, different from SOX, a majority of corporate governance codes adopt “comply or explain” principle, which offers more flexibility to listed companies in terms of compliance. But the bottom line here is that there are both benefits and costs of compliance with codes. The lesson for Esko here is to find the right balance by fitting the codes into its own situation. The next section will explain more about the impact of corporate governance codes on non-listed companies.

2.4. Corporate governance in private companies

Both the social attention and the existing literature of corporate governance are mainly focused on listed companies. For instance, corporate governance codes only aim at public companies. No equivalent attention has been drawn to corporate governance practices for private companies. “It is difficult to say that there is a corporate governance discussion that explicitly deals with the specific problems, mechanisms, and capabilities for addressing the needs of non listed companies” (McCahery and Vermeulen, 2008, pp.3).

Considering the number of private companies which is far larger than that of public ones, the importance of guiding private companies to best practices of corporate governance is obvious. Moreover, there is increasing motivation for private companies to adopt best practices as a result of the corporate governance reform carried out in listed companies. That is, private companies have the demand of best practices regarding corporate governance. However, from the supply side, there are very few codes introduced especially for private companies. The first code for private companies is the Buysse Code I established in Belgium in 2005. After that, OECD published guidelines of corporate governance practices for non-listed companies in emerging markets in 2006. In the introduction, the guideline states the initiative of introducing this document is that “recent experience in implementing the OECD Principles of Corporate

Governance contains important lessons for improving the business environment for non-listed

companies”.

2.4.1. Motivation for private companies to follow best practices of corporate governance

First is the pressure from the capital market (Goncharov et al., 2006). If private companies follow the corporate governance codes to the largest possible extent, they will attract more funds in the capital market. For instance, in the US context, private equity funds and other institutional investors have gradually adopted SOX as their guidelines of investment (Key, 2006). Moreover, good corporate governance contributes to a professional image of a company. It guarantees the continuity of a company from the perspective of financing parties such as banks and financiers (Buysse Code II, p.7).

The second is out of initiative of long-term development. Private companies that plan to go public or ultimately be acquired by public companies will benefit from an earlier adoption of best practices of corporate governance (Key, 2006). The benefits include a premium on its selling price or smooth integration after acquisition. For the former, there is evidence indicating that institutional investors are willing to pay premium in buying a company with good corporate governance (Felton et al., 1996). A survey by McKinsey (2002) finds that most of the investors are likely to pay a premium for a company with good corporate governance. In particular, investors would pay 12% more for a well governed UK company than for a company with similar financial performance but poorer governance. The percentages are 14% for a well governed U.S. company, 21% for a well governed Japanese company, and 38% for a well governed Russian company.

Lastly, there is pressure from external auditors. That is especially true for the US context. The introduction of SOX imposes regulations on the public auditing firms to ensure they carry out their responsibilities properly. The influence of SOX on auditing firms is inevitably transferred to private companies, for instance, through stricter auditing standards (Foley & Lardner, 2007). Though this evidence is from the context of US, a similar story can be certainly found in the EU and worldwide.

In general, adopting best practices of corporate governance is a win-win situation for both private companies and the financial market in the short-run and in the long-run. However, private companies should bear in mind with some cautions when they are on the way of following the corporate governance codes. The next section summarizes these possible cautions.

2.4.2. There is no such corporate governance code that is “one-fits-all”

One clear distinction between listed and non-listed companies is the ownership structure. Listed companies usually rely on the open capital market and thus tend to have more dispersed ownership. The ownership of non-listed companies is, however, more concentrated in the hands of one or several shareholders. The agency theory thus implies lower agency cost in private companies due to more closed relationship between the shareholders and the management. In other words, private companies need less monitoring effort as required in corporate governance codes.

Moreover, private companies vary a lot in terms of the development phase. For those immature or young companies, the cost of following the best practices may outweigh the benefit. On the one hand, following the best practices may promote transparency and accountability which are desirable properties in attracting capitals. On the other hand, there is also cost associated with the process of compliance. The costs include the potential restructuring costs in implementing the new practices and the inefficiency caused by additional bureaucracy in adopting guidelines that do not fit the company. For non-listed companies such as start-ups, the requirements imposed by codes may chock off the entrepreneurship which is vital for these companies to succeed. That explains why the Buysse Code II makes recommendations to non-listed companies based on their growth phase.

In all, as put in the Buysse Code II (p.8), “Corporate governance should definitely not degenerate into a mass of formal rules. The spirit of recommendations for corporate governance should take priority over the form.” Non-listed companies should analyze their own specific situation and then decide to what extent they comply with the codes. As suggested by McCahery and Vermeulen (2008), private companies should aim for “optional adoption” of corporate governance codes to complement their existing practices. That is in fact what is being done in this study for Esko, i.e. optional adoption of the benchmark codes.

2.5. An overview of the benchmark codes used in this study

This study utilizes three benchmark codes which include Section 301, 302 and 404 of SOX, the Buysse Code II, and the 2009 Code. This section intends to give an overview of the major issues dealt in these codes. The codes will be later used in developing the scorecards in Chapter 2 and the general framework of a CG charter in Chapter 3.

2.5.1. SOX (Sec. 301, 302, and 404) and its implication on corporate governance

corporate governance is mostly through the regulations set by US SEC and enforced by rules set by US stock exchanges. The implication of the mentioned sections of SOX on corporate governance is summarized as follows.

 Sec. 301 of SOX

This section of SOX contains requirements regarding the composition, responsibility and authority of audit committee. As for composition, audit committees are required to compose solely of independent directors who are not affiliated with the company and not accept any advisory or compensatory fee from the company other than the compensation for directorship. However, SOX provides the SEC with the authority to exempt companies from the independence requirements when the SEC deems appropriate to do so. This exemption aims at coping with different governance settings of foreign companies listed in the US. For example, non-executive employees who do not qualify as independent director under SOX are allowed to sit on the supervisory board or audit committee of German companies. In that case, the SEC can exempt non-executive employees from the independent requirement (Perino, 2003).

Regarding responsibility, the audit committee should ensure procedures are established for the receipt, retention and treatment of complaints received by the company regarding accounting and auditing matters, and for confidential and anonymous submission by employees thereto. Moreover, SOX allocates more authority to the audit committee by making the audit committee, rather than the board as a whole, to be “directly” responsible for the appointment, compensation, and oversight of the work of external auditor employed by the company. Moreover, the company should authorize the audit committee to engage in external advisers at the company‟s expense.  Sec. 302 and 404 of SOX

These two sections state the certification requirement of financial statements by CEO and CFO in the effort to enforce the accountability of the management. According to SOX, the signing officers need to certify that the annual reports do not contain any material untrue statements and there is no omission of information that would cause misleading. Prior to the enactment of SOX, SEC has imposed such certification requirement on the largest public firms, but SOX further extends this requirement to all US listed companies.

employee with a significant role in the company‟s internal controls, and any significant changes in internal controls. Lastly, Sec. 404 of SOX explicitly requires that management needs to prepare an internal control report to be included in the annual report. The internal control report should state management‟s assessment of the internal controls, and such an assessment need be attested by external auditors. Difference from the independency requirements set in Sec. 301 of SOX, requirements set in Sec. 302 and 404 do not allow exemption by any companies, not even by foreign companies listed in the US.

Moreover, the certification requirement set in SOX implicitly imposes more responsibilities on the audit committee. Generally speaking, the audit committees have to take extra responsibilities in monitoring the certification process and reviewing any problems shown during the process. These implicit requirements imposed by SOX on the audit committees can be detected from CG charters of US listed companies, such as that of Danaher. For example, in the Charter of Audit Committee of Danaher, the audit committee has the responsibility to review the certification process together with the signing officers and to review the disclosure made by the signing officers regarding any material deficiencies and weakness in the internal control.

2.5.2. Buysse Code II for non-listed Belgian companies

The development of corporate governance codes in Belgium is distinctive in the sense that it is the first country to establish a corporate governance code for non-listed companies. “This was unique in the world”, a quote from Mr. Baron Paul Buysse, the chairman of the Committee on Corporate Governance for Non-listed Enterprises in Belgium. The first version of the code is published in September 2005 and is referred as the Buysse Code (hereafter “Buysse Code I”). Buysse Code I was amended given “the new dynamic with which our companies have to contend in the future” (Buysse Code II, p.6), and the revised version of the code was then published in 2009. The new code is referred as the Buysse Code II and is used as one of the benchmark codes in this study. The purpose of the code, as phrased by Mr. Buysse, is “to provide an important aid for doing business in an untroubled and efficient way…to offer our business leaders a practical manual that they can use to bring about profitable, sustainable growth” (Buysse Code II, p.6). Buysse Code II covers issues including the authority and involvement of shareholders, the operation and responsibilities of the board and board committees, responsibility and remuneration of the senior management, control and risk management, and disclosure of corporate governance rules.

companies based on their growth phase. The underlying idea is that companies in different growth phases tend to have different need and capability of corporate governance. Buysse Code II divides the evolution of corporate governance into four phases, namely 1) sound entrepreneurship, 2) advisory council, 3) active board of directors, 4) and continued expansion of the instruments of governance. Sound entrepreneurship is the phase when entrepreneurs have not yet legally structured their business as a firm. During advisory council phase, the entrepreneur sets up a council to advise his/her business. In the third phase, the company operates like a public limited company and elects a board of directors to guide and monitor the business. In the forth phase, the company need to pay further attention to the establishment and development of board committees. As has been described in the Company Profile, before the take-over by Danaher, Esko had a well functioning and active board which established two board committees to assist the board. Therefore, Esko has already advanced in the fourth phase of corporate governance evolution as described in Buysse Code II. Another feature of Buysse Code, especially for the second version, is an extensive discussion about the importance of Corporate Social Responsibility (CSR) which is not discussed so intensively in codes for listed companies. The third feature of Buysse Code, both I and II, is that it especially dedicates a separate section for corporate governance of family companies. That is also distinctive from the codes for listed companies.

Since Buysse Code, both I and II, aims at offering guidelines to non-listed companies, it does not require companies to adopt them on a “comply or explain” basis. It does not require non-listed companies to make compulsory disclosure regarding corporate governance documents. Instead, non-listed companies can decide by themselves the degree of compliance. They can also decide how much transparency they provide regarding corporate governance, though Buysse Code II suggests non-listed companies to establish a corporate governance statement to be included in the annual report.

2.5.3. The 2009 Code for listed Belgian companies

principle there are specific provisions and guidelines for practices of corporate governance. The issues covered in the 2009 Code include the operation and terms of reference of the board and that of board committees, functioning and terms of reference of the executive management, the remuneration of directors and executive managers, the authority and involvement of shareholders, and the transparency of corporate governance practices.

Table 3 Nine Principles of the 2009 Belgian Code on Corporate Governance

1. The company shall adopt a clear governance structure.

2. The company shall have an effective and efficient board that takes decisions in the corporate interest. 3. All directors shall demonstrate integrity and commitment.

4. The company shall have a rigorous and transparent procedure for the appointment and evaluation of the board and its members.

5. The board shall set up specialized committees.

6. The company shall define a clear executive management structure.

7. The company shall remunerate directors and executive managers fairly and responsibly. 8. The company shall enter into a dialogue with shareholders and potential shareholders based on a

mutual understanding of objectives and concerns.

9. The company shall ensure adequate disclosure of its corporate governance.

Source: The 2009 Belgian Code on Corporate Governance, www.corporategovernancecommittee.be.

It is compulsory for Belgian listed companies to adopt the 2009 Code as their reference code starting from the 2009 annual report. In particular, provisions, not including guidelines, should be implemented on a “comply or explain” basis”. As already required in the 2004 Code, Belgian listed companies need to disclose two corporate governance documents, namely a CG charter describing main aspects of a company‟s corporate governance, and a corporate governance statement (hereafter “CG statement”) stating more factual information relating to corporate governance. The CG charter should be made available on the company‟s website and the CG statement should be included in the annual report as a separate chapter.

2.5.4. An overview of amendments in Buysse Code II and the 2009 Code from their previous edition

general regarding best practices of corporate governance. Since these amendments will play a role in establishing the measurement framework of this benchmark study. This section thus intends to give an overview of the major changes in the old edition of Buysse Code II and the 2009 Code.  From Buysse Code I to Buysse Code II

With regards to the board of directors, a new provision is added in Buysse Code II in advocating the complementarity of the board members. Moreover, the new code specifically states the rights and obligations of directors, and details the role played by the chairman of the board.

In Buysse Code II, three new sections are added, namely the function of specialized committees of the board, remuneration of the senior management, and control and risk management. As for board committees, the new code specifies the responsibilities, composition and functioning of board committees. However, these suggestions for board committees are only aims for companies that are in the forth phase of the evolution of corporate governance. In relation to the executive management (or “senior management”), the code suggests that the remuneration of senior managers should be linked with firm performance, and that variable compensation should be included in the remuneration package. Regarding internal control and risk management, the new code specifies the role played by the board and the management respectively in the establishment, implementation and evaluation of internal control and risk management.

In general, Buysse Code is amended in the effort to converge to the 2009 Code to an appropriate extent. That can be reflected by the newly added sections of Buysse Code II which are discussed above. This can be perceived as an intention of relevant authorities in leading Belgian non-listed companies towards the best practices of corporate governance that have been implemented by listed companies.

 From the 2004 Code to the 2009 Code

In general, the major changes from the 2004 Code include the separation of the role of the chairman of the board and the CEO, more responsibilities of the board of directors, and the complete transparency about remuneration and severance pay of executives. The specific changes in the code are selectively summarized as follows.

implementation of internal control and risk management policy. The new code further specifies the separation between the chairman of the Board and the CEO.

As regarding to the operation of the board, the 2009 code enhances the requirement for regular board meetings, details the role of the company secretary, and extends the evaluation requirement towards board committees. Moreover, the role of chairman of the board in the general shareholder meeting is further clarified. The chairman should conduct the meeting and take measures to ensure the all necessary preparation thereof.

With respect to board committees, the 2009 Code puts more attention to the operation of the audit committee. The new code sets more stringent rules than the legislations regarding the number of independent directors in the audit committee. The 2009 Code suggests the audit committee to conduct at least four meetings. Moreover, the 2009 Code adds new provisions requiring all of the board committees to self-evaluate their effectiveness and the terms of reference at least twice a year.

As for the executive management, the 2009 Code enhances the accountability of the management to the board, and clarifies the responsibility of executive management for preparation and disclosure of necessary information to the board. The new code also advocates that procedures for evaluation of the CEO and other executive managers should be established. Regarding the remuneration of directors and executive management, intensive attention has been drawn in the 2009 Code in the form of adding new provisions or amending the previous ones. A remuneration report is required to be included in the CG statement and therefore in the annual report of listed companies. The remuneration report should state the remuneration policy, and the remuneration level of directors and the executive managers. The remuneration committee of the board should take the responsibility of preparing the remuneration report and submitting it to the board. Moreover, the 2009 code sets specific upper limits on the severance pay of the CEO and other executive managers, and specifies the situation when the severance pay can be set higher but need to be accompanied with justification.

In relation to shareholders, the new code further encourages an effective dialogue between the company and its shareholders by establishing a disclosure and communication policy and taking measures to encourage shareholders to participated in the general shareholders‟ meeting.

2.6. Conclusion of literature study

agency cost and restore investors‟ confidence in the financial market. In the development of corporate governance codes worldwide, the Cadbury Report in the UK and SOX in the US are considered as the most influential documents. Embedded in the agency theory, corporate governance codes mainly focus on the monitoring role played by the board. Some codes also incorporate the stakeholder theory by emphasizing corporate social responsibility, such as Buysse Code II and the 2009 Code.

Although corporate governance codes claim to contain the best practices, the impact of compliance with the codes on firm value is mixed. Existing empirical researches do not provide consistent results on this matter. Regardless of this, private companies have motivations to voluntarily follow the best practices suggested by the codes. The motivations include the pressure from the capital market, long-term development, and pressure from external auditors. However, attention needs to be drawn on the costs for private companies in following the codes, such as restructuring costs and additional bureaucracy cost. Therefore, private companies, like Esko, should “optionally adopt” the codes based on their own specific situation.

3. Methodology and Information Sources 3.1. Desk research

Given that the nature of this study is descriptive, desk research is highly employed during the study. In particular, the substantial amount of work involves collecting, analyzing and summarizing internal documents and external ones.

3.2. Scorecard approach

The scorecard approach is used to accomplish the fourth and fifth steps of benchmarking as suggested by Chang and Kelly (1994) (see Table 1). That is, to collect data according to the measuring points and analyze data to identify gaps.

Given the nature of this study, most of the information collected is qualitative. Thus, in order to effectively compare the corporate governance practices of Esko with the benchmarks, a measuring framework is necessary to transform the qualitative data into quantitative ones. The process of transforming abstract concepts into a tangible measurement is termed as „operationalization‟ by Sekaran and Bougie (2009, p.127). In particular, the operationalization process has two components. First is to identify the dimensions of the concept. Second is to develop the elements to be evaluated within each dimension. In this study, the operationalization process is accomplished through the scorecard approach.

The scorecard approach of this study follows the “Scorecard for German Corporate Governance” (hereafter “the German Scorecard”) which is introduced by DVFA5 in 2002. The German Scorecard is introduced against the background of the German Corporate Governance Code (2002) and other internationally relevant “best practice standards” (DVFA, 2002). It is designed as an analytical tool to assess the quality of corporate governance of a company. Seven dimensions regarding corporate governance are covered in the German Scorecard, and these dimensions are in line with the chapters of the German Corporate Governance Code (2002). Under each dimension, there are elements expressed in form of questions. For example, one element under the dimension of “Corporate Governance Commitment” in the Scorecard is, “Does

the company have its own specific corporate governance principles based on the „German Corporate Governance Code‟?”

The scorecard approach utilized by the German Scorecard in evaluating corporate governance

has received good reception not only in Germany, but also around the world, especially in emerging countries (Strenger, 2004). The main advantage of the scorecard approach is to allow

5

companies to easily assess the quality of their own governance situation, and make effective comparisons across companies and industries (Strenger, 2004).

By following the design of the German Scorecard, three scorecards are constructed in this study to book and analyze the results of the three phases of benchmarking. More details regarding how the scorecards of this study are established are as follows.

 Dimensions of the scorecard

Unlike the German Scorecard, this study does not use the chapters of any official codes as dimensions. The reason is that the dimensions used by these official codes are either too redundant for Esko, like the 2009 Code, or too insufficient, like SOX and the Buysse Code II. Instead, the tailor-made CG charter structure for Esko (see Appendix B) is used as dimensions of the three scorecards. The tailor-made structure of a CG charter for Esko is further elaborated in Chapter 4. In particular, there are five general dimensions, namely Governance Structure,

Shareholders and General Shareholders‟ Meetings, the Board of Directors, Specialized Committees of the Board, and CEO and the Senior Management. The Code of Conduct, as

mentioned in the tailor-made structure, does not serve as a dimension in the scorecard, since it is not required by any of the benchmark codes. The reason why this is still added to the tailor-made structure will be explained in Chapter 4. Furthermore, there are sub dimensions under each of the general dimensions, as indicated in Appendix B. For example, under the general dimension of the

Board of directors, there are six sub dimensions namely Composition and appointment, Responsibilities, Chairman of the board, Board meeting, and Evaluation, Remuneration.

Depending on the issues dealt by the benchmark codes, scorecards cover different amount of general dimensions and sub dimensions. In the first phase of benchmarking, SOX Scorecard has two general dimensions which include Specialized Committees of the Board and CEO and the

Senior Management. More specifically, SOX deals with the sub dimensions regarding the Audit Committee and the responsibilities of CEO and the Senior Management. In the second phase of

benchmarking, the Buysse Scorecard has all the general dimensions except for Governance

Structure. While in the last phase of benchmarking, the 2009 Code Scorecard covers all the five

dimensions. Table 4 (see next page) provides a summary of the dimensions and sub dimensions of the three scorecards in this study.

 Elements under each dimension of the scorecard

Table 4 Summary of Dimensions and Sub Dimensions of Scorecards

Benchmarking Phase

Dimensions (see Appendix B)

I. SOX II. Buysse III. The 2009 Code

I. Governance Structure /

II. Shareholders and General Shareholders' Meetings / /

A. Shareholder structure /

B. General Shareholders‟ meetings / /

III. The Board of Directors / /

A. Composition and appointment / /

B. Responsibilities / /

C. Chairman of the Board / /

D. Board meetings / /

E. Evaluation / /

F. Remuneration / /

IV. Specialized Committees of the Board / /

A. Audit Committee / / /

a. Composition and organization / / /

b. Meeting and Committee resources / / /

c. Responsibilities / / /

B. Nomination and Remuneration Committee / /

a. Composition and organization / /

b. Meeting and Committee resources / /

c. Responsibilities / /

V. CEO and the Senior Management / /

a. Appointment / /

b. Responsibilities / / /

c. Remuneration and performance evaluation / /

VI. Code of Conduct