The balance between innovation, entrepreneurism & oversight/control.

1. CHALLENGES AND DILEMMAS
IN THE BOARDROOM
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2. THE ROLE OF THE BOARD IN SETTING A
TONE OF INNOVATION AND
ENTREPRENEURISM
vs
THE BOARD’S RESPONSIBILITY FOR
OVERSIGHT AND CONTROL
2

3. 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 typical Russian “Ex-Co” to
“Governed Board”
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

4. Phoenix Neftegaz Services, 2012
SUCCESSFUL GOVERNANCE/ BOARD
FORMATION IS AN EVOLUTION, NOT A
REVOLUTION
Moving from a “controlling / dominating”
operational/management model to a “shared
oversight / ‘governance’ model”
takes at least two years of board activity
The octopus vs the shark

5. 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

6. AS STATED IN THE STRATEGY ROLE
OF THE BOARD:
THE BOARD’S ROLE: DEEP THINKING
AND LEADERSHIP, NOT
MICROMANAGEMENT
6

7. THE BOARD MUST FUNCTION AS
THE OWNER OF THE CULTURE
• THE BOARD IS THE MENTORING AGENT FOR THE CEO, “C-
SUITE”, AND CASCADING THROUGH THE ENTIRE
ORGANIZATION
• ENTREPRENEURSHIP AND INNOVATION, IF THEY ARE
CRITICAL SUCCESS FACTORS FOR THE BUSINESS MODEL,
MUST BECOME ONE OF THE DEFINING ORGANIZATIONAL
VALUES –WITH THE SAME PROCESS/SYSTEMS FOCUS AS
ANY “HARD” CONTROL SYSTEM
• TO BRING THIS TO LIFE BELOW, THIS IS HOW THE BOARD
MUST CARRY OUT ITS OWN LIFE
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8. BUT THE BOARD CAN NEVER OMIT ITS CORE
FUNCTION AS THE OVERSIGHT/”CONTROL” BODY AS
THE STEWARD OF THE ENTIRE “CORPORATE LIFE”
• THE BOARD IS NOT MANAGEMENT, BUT THEY FUNCTION AS
MANAGEMENT’S BOSS
• THE BOARD, ON A CONTINUOUS BASIS, MUST MANAGE AND
EVALUATE THE TEAM, STARTING WITH THE CEO
• THE BOARD HAS A RESPONSIBILITY TO MANAGE
SUCCESSION
• ULTIMATELY, THIS OVERSIGHT ROLE MEANS MOTIVATING OR
REPLACING
• THE BOARD’S OVERSIGHT AND CONTROL MEANS INTERNAL
CONTROLS AND RISK MANAGEMENT PROCESSES ARE A
BOARD MANDATE
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9. THE “BALANCE” BETWEEN THE
BOARD”S CULTURAL/VALUES ROLE AND
ITS CONTROL/OVERSIGHT ROLE IS THE
“LOOSE/TIGHT” DICHOTOMY
THIS BALANCE ALLOWS THE BOARD TO
ALTERNATE BETWEEN FLYING AT 10,000
METERS, AND, ALTERNATELY SWOOPING
DOWN INTO THE TREES
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10. Phoenix Neftegaz Services, 2012
TOOLS FOR THE BOARD:
WHAT IS THE ROLE OF COMMITTEES IN
DEVELOPING THE CULTURE / AND
CONTROL:
Audit
Remuneration and Positions
Strategy
Governance
Who are the right personalities? What areas/skills to focus
on? Financial, industry and “HR” skills? INEDs as teachers)
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11. Phoenix Neftegaz Services, 2012
TOOLS FOR THE BOARD:
MEETINGS
How Many?
Developing the annual calendar -- Sticking to “it” –-
serious, discipline!!! The calendar above all
Culture in and of the Meetings – board socialization
is a critical component
Meeting Structure
Reports (CEO, Finance)
Dialogue
Corporate Adminis-trivia
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12. Phoenix Neftegaz Services, 2012
TOOLS FOR THE BOARD:
HOW TO PICK INEDs
How Many? -- What do you want the Capital Markets to
Perceive?
Search firm or not?
Value at operational level
-- do you want your board members to be “guests” or
“workers”
Gravitas / Connections
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13. THE CHAIRMAN’S ROLE:
• Agenda setting – does the chairman have a team and a process?
Does he sound the members? Is there an annual board subject
matter calendar? Why not?
• Discussive – does the chairman build consensus? Does he have
the art to lead the discussion
• Materials – deadlines, fulsome but not paralyzing materials
• Schedule – committees and boards (contiguous or seriatim?)
• Socialization – boards should develop their own culture and
working relationship
• Time management – the chairman must be ruthless to manage the
agenda and the clock
• Not just the reading of resolutions – real dialogue!
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14. IS YOUR BOARD A BLACK LEATHER
BINDER, CHINA TEA CUPS AND A “YES”
SHOP?
OR,
IS YOUR BOARDROOM A LABORATORY
AND WORKSHOP?
WHICH ADDS MORE VALUE?
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15. THE CEO’S ROLE (IN THE BOARD)
• Does the CEO lead the Board’s work party?
• The standard agenda item: ops/progress on plan (CEO
and CFO)
• Is the CEO the tiger in the C Suite, but the collaborator
and Junior partner to the chairman/
• Is tthere unhealthy competition between the Chair and
the CEO?
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16. TOOLS FOR THE BOARD:
THE MEETING
• Agenda setting
• Discussive vs reading resolutions
• Materials
• Schedule
• Socialization
• Time management
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