of the equity markets circa If the applicable laws, rules and/or regulations were in place prior to the market fall, please say so.

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1 Questionnaire Regarding Recent Developments and Trends in the Standards Applicable to Listed Companies Colombia By Pablo Barraquer-Uprimny and Carlos Umaña Trujillo of Brigard & Urrutia Abogados Questions 1 Answers Is the standard a 1. Board 1.1. Are there any practices, standards or requirements regarding board independence? If so, what proportion of the board is required to be or has conventionally been independent? No, there are no practices, standards or requirements in relation with the independence of the board of a listed or unlisted company. The Superintendency of Securities is currently preparing a draft law wherein such requirements are planned to be included. EXHIBIT A in a country. 1 All questions relate to standards applicable only to domestic listed companies. The questions are not meant to deal with the foreign companies listed 2 Where the standard is only a practice (not mandatory under any existing or proposed laws, rules or regulations), please provide, where possible, an estimate of how widespread the practice is. 3 The objective is to determine whether the applicable laws, rules or regulations have changed in their text or in their application in response to the fall of the equity markets circa If the applicable laws, rules and/or regulations were in place prior to the market fall, please say so.

2 1.2. How do the principles of board independence work? 1.3. What types of relationships would preclude a member of the board from being considered independent (i.e. company s investment or commercial banker, shareholder, major client, etc)? 1 1 Note: Board independence standards seem to vary in detail but not in principle. They have also been subject to extensive comparative commentary in many countries, especially the European Union, the U.K. and the U.S. We suggest the technique used in our draft U.S. answers for initial responses in this area, i.e. a very general discussion with attached standards.

3 1.4. Is there a requirement that independent directors meet without the participation of management or interested directors? 3

4 1.5. Are there rules concerning director conflicts of interest? If so, do such rules provide for a duty of the interested director to abstain from participating in meetings or voting? Yes. Pursuant to Colombian law, the director of a company must exclude himself or herself from participating in any activity that may lead to a conflict of interest with the company. However, the director may be entitled to participate in such activities with the prior approval of the Shareholders Assembly. Requirement. These rules were adopted on December In the event that the director is also a shareholder, the quorum must be recalculated subtracting the number of shares that the director owns. In this case the director may have voice but he will not be entitled to vote the relevant decision. (Law 222 of 1995, Article 23, section 7; Article , Resolution 1200 of 1995 issued by the Superintendency of Securities). 4

5 1.6. Are there specific requirements or practices with respect to the nomination and compensation of members of the board (i.e. decisions to be made by special compensation or nomination committees, maximum compensation, limits on stock options, etc.)? 1.7. Is a two-tier board required or permitted? If permitted, is one frequently used? What is the division of functions between the two boards? 1.8. Is there any requirement or practice with respect to the separation of the roles of chairman of the board and chief executive officer? No, Colombian law does not provide for a specific requirement and there is no practice as to the nomination and compensation of members of the board. A two- tier board is not valid under Colombian law. No. Colombian law does not provide for any requirement and there is no practice as to the separation of the roles of chairman of the board and C.E.O. 5

6 1.9. Are employee or trade union representatives required to sit on the board? Are any specific procedures required to ensure that financial and other information is provided to the board by management? 1 Not by mandate of law. However, the bylaws of the company may establish such requirement. Under Colombian regulations, managers are deemed to keep the board informed with regard to the financial situation of the company. Periodically, managers and the accountant of the company must provide to the Board of Directors certified financial statements of the company In addition, managers must file at the end of the accounting period (i) a management report containing the current financial status of the company; (ii) the financial statements of the company, and (iii) a profit distribution project. (Law 222 of 1995, Articles 37 and 46). Requirement. This rule was adopted on December Please specify whether such procedures place the onus on management to keep the board informed, or whether board members are required to request information (and if so, whether management is required to comply with such requests). 6

7 2. Audits, Auditors and Audit Committees 2.1. Is there a requirement No. that audit firms rotate? Is there a requirement that audit partners rotate? 2.2. Is there a requirement No. that accounts be audited by more than one audit firm? 7

8 2.3. Are there standards or requirements on auditor independence? Yes, under Colombian law, the following people may not be appointed as auditors: (i) The partners of the company or of its subordinates; Requirement. The Colombian Code of Commerce was adopted in November, (ii) Marriage relatives within the fourth degree of consanguinity, first degree of civil relationship or second degree of affinity, or co-partners of the administrators, officers, cashier or accountant of the same company; and 2.4. Are there limitations on the type of non-audit work an auditor (or a consulting firm related to the auditor) can do for an audit client? (iii) Whoever holds in the same company or its subordinate some other position. (Colombian Code of Commerce, Article 205). No. 8

9 2.5. Have any specific No. internal approval procedures been prescribed for approving non-audit services to be performed by auditors? 2.6. Are there any No. restrictions on the employment of auditors or former auditors by the audit client? 2.7. Are there any other No. restrictions on, or disclosure requirements relating to, the extent of the relationship between the auditor and the audit client, including the disclosure of fees for any non-audit services? 2.8. Are auditors subject to self-regulation or are they regulated by an independent or state body? Auditors are regulated by the government by means the so-called Plan Único de Cuentas (PUC) (Decree 2650 of 1993) which establishes accounting standards that are to be followed by each company. Requirement. This rule was adopted on

10 2.9. Is there a requirement No. to have a separate audit committee (or internal board of auditors)? Are there any independence standards or requirements for audit committees (or internal board of auditors) that are different from general standards applicable to boards of directors and other board committees? 10

11 2.10. Are there specific guidelines or requirements allocating power between management and the audit committee (or internal board of auditors)? Is the audit committee responsible for the selection and oversight of external auditors? May the audit committee, on its own initiative, hire independent consultants or advisers? 1 1 If a company is required to have an internal board of auditors in your country, please also explain how such auditors are selected. 11

12 2.12. Is there a formal requirement that complaint procedures exist allowing accounting-related complaints and irregularities to be brought directly by employees to the audit committee? 1 1 If specific procedures are required for processing external (non-employee) complaints, please describe them as well. 12

13 3. Monitoring of Management 3.1. Are there any No. requirements for board or shareholder approval of executive compensation? Have there been any recent instances of shareholder objection to or revolt over executive compensation? 3.2. Are there any disclosure requirements with respect to top management compensation? Are there any legal limits on executive compensation? If so, do such disclosure requirements and/or limitations apply on an ongoing basis, or only in specific circumstances? No. 13

14 3.3. Is there any requirement or practice with respect to the enactment and maintenance of a code of ethics governing management? Not by mandate of law. It is worth noting that Colombian Law deems the responsibility of managers to be the one of a good businessman (rather than a good family man), thus, requesting higher degree of diligence. On the other hand, the by-laws of the company may establish such requirement. In addition, companies may adopt a Corporate Governance Code at their free will. Practice (25%) December, Except in the case of banks, is there a prohibition on company loans to directors or executive officers? Several companies that trade their stock in the Colombian Stock Exchange have adopted a Corporate Governance Codes. No. Such loans are valid if they are in best interest of the company. (Law 222 of 1995, Article 23, section 7; Article , Resolution 1200 of 1995 issued by the Superintendency of Securities). This rule was adopted in December

15 4. Shareholder Participation and Voting 4.1. Is there a requirement No. that all or certain types of shareholders (i.e. institutional investors) vote? 4.2. Are there any legal or practical limits on the voting rights (or the exercise thereof) of certain types of shareholders? 1 No Are longer term holders afforded greater voting rights? No. 1 Please describe any legal limitations or customary procedures which may disadvantage certain types of shareholders. For example, electronic voting procedures, limitations on proxy voting or proxy collections, ability of registered shareholders to split vote (i.e. depositaries), minimum holding period requirements, etc. 15

16 4.4. Are there any No. requirements for institutional investors to disclose their voting records and/or voting policies? 4.5. Are there any requirements to permit minority shareholder initiatives to be included in proxies? No Are shareholder initiatives required to be distributed by the company at the company s own expense? No. 16

17 4.7. Are shareholders agreements required to be made public? No. They are only required to be filed with the managers of the company. However, in the event of shareholders agreements pertaining to prearranged stock purchase operations in the stock market, the parties to said agreement must disclose it before the Superintendency of Securities and to the market in general, within the two months prior to the operation taking place. (Law 222/95; Resolution 157 of 2002). These rules were adopted on 1995 and 2002 respectively. 17

18 5. Disclosure 5.1. Have there been No. significant changes in disclosure requirements during the last 3 years? If so, what kinds? 5.2. How frequently must listed companies file periodic disclosures? 5.3. Have any increases in the frequency of disclosures been recently required? Listed companies must disclose their financial statements every trimester before the Superintendency of Securities. (Article of Resolution 400 of 1995 issued by the Superintendency of Securities). No. Requirement. This rule was adopted on

19 5.4. What types of disclosures, if any, must be made on a continuous basis? If the system is a continuous disclosure system, how is it enforced? Pursuant to Colombian law, every listed company must disclose to the Superintendency of Securities, the Colombian Stock Exchange, and the market any act, fact, decision or event which may be considered as outstanding or material with respect to the business or activities of the listed company. Colombian law sets forth that the acts, facts, decisions or events that are considered as outstanding or material are those that would have been considered by an expert in order to acquire, sell or maintain any given security, as well as those that would have been considered by a stockholder in order to exercise its rights at the stockholders meeting. This information that must be disclosed is referred to under Colombian Law as "Información Eventual". Requirement. This rule were adopted on 1990 and

20 5.4 (Continued) This information that must be disclosed is referred to under Colombian Law as "Información Eventual". (Article of Resolution 400 of 1995 issued by the Superintendency of Securities). If companies failed to disclose said information, they will be subject to fines imposed by the Superintendency of Securities. (Article of Resolution 400 of 1995 issued by the Superintendency of Securities, and Article 6 of Law 27 of 1990.) Every listed company shall disclose the so called Información Eventual no later than the working day after the act, fact, decision or event occurs, or the working day after the company acquires knowledge of the occurrence of such act, fact, decision or event. 20

21 5.5. Is there a requirement for companies to have specific internal disclosure controls and procedures? 5.6. Is there a requirement or practice of having a disclosure committee? (If so, has this practice developed among listed companies not also listed in the U.S.?) Yes. In the event of a potential conflict of interests, the director must disclose all relevant information of the activity that he/she pretends to enter into before the Shareholders Assembly. (Law 222 of 1995, Article 23, section 7; Article , Resolution 1200 of 1995 issued by the Superintendency of Securities). No. Requirement. These rules were adopted in

22 6. Enforcement 6.1. Please indicate whether the securities regulator has any of the following enforcement tools at its disposal: Consent decree/plea bargaining authority Authority to remove and/or bar officers and directors from service at a public corporation Authority to establish investor claims or compensation funds Authority and ability to investigate Power to fine corporations and/or individuals Power to require the forfeiture of salary or bonus The Superintendency of Securities has among other things the following tools at its disposal: Power to fine corporations and individuals. Authority and ability to investigate listed companies. Power to order disclosure. Power to order specific performance or to enjoin certain conduct Power to subpoena corporate documents Requirement. This rule was adopted in

23 Power to order disclosure Power to block or suspend transactions Power to order specific performance or to enjoin certain conduct Power to subpoena corporate documents 6.2. How frequently are enforcement actions taken by the securities regulator? 1 (i) Requesting disclosure of information (Información Eventual): Frequently, many times per month depending of the situation of each company. (ii) Reviewing corporate governance codes: Several times per year. (iii) Fining corporations and/or individuals: Few times per year. 1 Provide this information only if it is readily available. 23

24 6.3. Has there been any No. recent increase in enforcement by the securities regulator? Can shareholders seek damages against management, directors and/or the corporation formally as a group? Yes. In some cases, Colombian law provides group status to shareholders in such suits (Law 446 of 1998) Requirement. This rule was adopted on July Can directors liability be limited by the board or shareholders? 6.6. Is there a requirement that an unsuccessful plaintiff pay the defendant s legal fees? No. No. 1 Anecdotal views are acceptable. 24

25 7. Overview 7.1. In your opinion, have the recent corporate fraud scandals and developments in corporate governance, auditing and disclosure regulations in other jurisdictions significantly influenced the local independent or state regulators to adopt new regulations? No. However, there have been insolated initiatives such as requiring pension funds to invest only in securities which issuer has adopted a corporate governance code, and requiring further information from companies subject to the surveillance of the Superintendency of Companies (i.e. companies that do not trade their shares in a stock exchange). Requirement. These rules were adopted on 2001 and February 2004, respectively In your opinion, how effective have the recent changes described above been in improving investor confidence? The implementation and enforcement of corporate governance codes have had a direct effect on maintaining and increasing the investor s confidence to the point that over the last few years the securities market has had a vote of confidence. Nevertheless, the enforcement of such codes is still very light in Colombia. 25

26 7.3. Do you think that recent developments have led to significant improvements in compliance with preexisting corporate governance, auditing and disclosure standards? Yes, recent developments in corporate governance and disclosures (Resolution 400 and 1200 of 1995 of the Superintendency of Securities) favor the transparency of the securities market Do you expect to see greater international convergence of corporate governance, auditing and disclosure standards in the near future? How is this process likely to be affected, if at all, by unique local social, economic and/or political conditions in your country? We expect to see grater international convergence of corporate governance, auditing and disclosure standards in the next few years. With regard to the transparency of the market, and the levels of corporate governance, Colombia has a long road ahead. However, the Superintendency of Securities is currently working in a draft law for the capital market wherein it wants to create corporate the corporate governance standards, audit and disclosure standards for listed companies. In addition, in the last few years, there have been increased studies as to corporate governance standards in Colombia, and their 26

27 possible development, regulation and implementing. 27