Interview of Stanislav Seksnja, independent member of NIS Board of Director for daily newspaper “ Danas”

June 5, 2012

In Serbia, the institution of independent directors in large companies is a new concept in corporate governance. Can you explain, what does an independent director mean, why does one company need him/her in the Board of Directors? S. Seksnja: Independent directors have emerged as a back reaction or mechanism for overpowering of what is called the Agency Theory. In short, the essence of this theory is that the management usually has its viewpoint of the company’s development, which does not always correspond to the interest of the shareholders. A corporation is a significant element of the society and what takes place inside it affects, not only the owners, but also employees, buyers, generally speaking – the company’s environment. Therefore, in order to avoid conflict situations and ensure correspondence of interests between different interested parties – shareholders, clients, society – and the management’s vision, special mechanisms are required. Therefore the institution of independent directors has emerged. In my opinion, the role of an independent director is, above all, to be independent. We often become dependent, not because we had mean intentions, but because of the position in which we find ourselves. When a man spends twelve hours every day at his/her workplace, he/she is naturally preoccupied with his/her job, and sees things only from one viewpoint, which starts taking control of his/her conduct. In such situation, a different viewpoint is needed, and the independent directors are necessary for that very reason, in order to provide such viewpoint. You have been in NIS for more than two years, precisely in the role of an independent director. In that respect, we would like to know – To what extent have corporate governance practice changed in the company during that period, and are there any innovations which you have introduced into corporate governance? S. Seksnja: On the one hand, the practices have considerably changed. There are committees in NIS now which are very active. The Board of Directors has started working actively even outside limits of formal meetings – there are consultations and unofficial meetings in which a wide array of issues is discussed. The content of agenda to be discussed by the Board of Directors’ has changed. On the other hand, the process of changes is rather long and, although some new elements of the system occurred (participation of independent directors, committees, the corporate secretary), those new forms are sometimes still filled in with old contents. Talking about issues especially important from my viewpoint, I would like to place emphasis on process initiated by the Board of Directors regarding preparation of managers who will become the Company’s leaders in the future. Today, we do not merely make decision, as it used to be earlier, what bonuses should be awarded to the top management base on their annual results, but we also monitor preparations of the next generation of managers. We observe to which extent we keep those managers who work in the company, how they are being developed. That, it seems to me, is very important. Another significant fact is that the Board of Directors started contemplating its own future. I consider that we have carried out a very successful operation of searching, engagement, and, presently, introduction of a new independent director in the Board of Directors. This has not been done either by the management or the shareholders, this is chiefly the merit of the Board of Directors in cooperation with the management and the shareholders, and I consider this very important as well. Let us go back to your work. When you arrived in the Company, you must have noticed some weak points which were evidently present in the practice of corporate governance. Which weak points were there, and how did they affect work efficiency in the company? S. Seksnja: In my opinion, the concept of modern corporate governance itself was new to the Company. It took some time till that concept was comprehended and adopted, until the Company embraced the new rules. We have some objective obstacles since, unfortunately, we still do not have one language in which all members of the Board of Directors could equally fluently communicate. This was a huge obstacle in the beginning, presently we have learnt to work in such circumstances. The development and training process in the Board of Directors is constant. We adopt new activity formats, develop unofficial communication among the members, we converse and discuss more. Overall, I think that efficiency of so-called Board of Directors’ process gets improved by each day and each new solved task. Did you encounter any problems during the reformation process? Perhaps, in the form of miscomprehension by the management and Board of Directors’ members, or maybe you had some disputes? S. Seksnja: I would say that the management is a driving force which directly encourages the corporate governance system reformation in the Company, their energy drives active changes. Many our managers can find their way in corporate governance, whereas some of them studied that field in particular. As a result, there are no obstacles whatsoever in that road. Have you ever found yourself in the role of an intermediary between two shareholders? S. Seksnja: I get a clear picture that people in the Board of Directors are not only shareholders, but its members as well. Every member has his/her private life outside the Board of Directors; however I consider it wrong to see the Board of Directors merely as a place where the shareholders communicate with each other. The Board of Directors has a task to act collectively in the manner as to enable a maximally successful development of the Company. I strive to keep to this paradigm and propagate that idea among my colleagues. Therefore, adhering to the paradigm, in no case I may act as an intermediary between shareholders. I can only be an intermediary between some members of the Board of Directors. We give our best to work in the format of a board, not in the format of place for discussions between shareholders with independent members who conciliate them. Generally speaking, do you consider your work in NIS, for those two years, successful? Which indicators prove that? S. Seksnja: Of course, look at the financial results. They stand for an excellent job. I am a pragmatic person and I am aware that finical results also depend on many factors including those we cannot directly influence. However, I want to believe that the financial results are fruits of our works. There are other processes that might have no direct effect on the company profitability indicators. However, according to my opinion, they ensure the NIS’ stability in the long run. Firstly, it is the existence of the corporate governance system, compliance with the Board of Directors by the management and shareholders and widening the range of issues we are currently dealing with. The Board of Directors started to devote its attention to the long-term development issues such as the creation of the candidate pool, manager retention strategy and relation between their financial well-being and company interests. I am glad that I am a part of that process and I cannot say that the things are always going well. However, generally speaking, I believe that we are on the right way. Which tasks do you set for yourself in the long run? In the forthcoming period what would be your area of interest? S Seksnja: I believe that every job has limited duration. I think that the Director may successfully discharge his/her duties four to five years after which he/she should leave that position. Therefore, as far as I am concerned, I will consider the last two years as the last years that I will spend on this position. First of all, I want to focus my efforts on two things: firstly – to continue the work on creating the system of renewing managers which would be fully operational; and secondly, to improve the efficiency of the Board of Directors. It seems to me that we are on the right pathway when it comes to the engagement of professional independent directors. I believe that we should pursue in this direction I think that the number of independent directors in the following two years should considerably increase and maybe they should make a majority in the company. This is what I would like to do. And the last question, a theoretical one. In your opinion, does the process of restructuring the corporate governance is a definite process or is it everlasting process the suspension may be counterproductive? S. Seksnja: Given that this is a theoretical question and my answer will be theoretical. It depends on the period that is being deemed the measurement point. If the measurement point would be one or two years, then can say that this is the definite process. We can have for the goal a certain state that we will reach. But if you take one-hundred perspective, then the process will be everlasting as primarily the external requirements, will be altered (corporate laws were quite different twenty years ago than they are today) Secondly, our conceptual representations about the role of the Management Board will be also altered. The world was perceived in a completely different manner twenty years ago than it is today. However, people will also change whether they want to do it or not and the Board of Directors evolve.