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MEMORANDUM TO: Nominations Committee BestPrices

FROM: Ahmed Kamal PashaDarshan BhindeKaustubh ManoharPranal RaiRony GeorgeChiao-Wen Chang

SUBJECT: Ideal candidate for Board of Directors BestPrices

DATE: February 12, 2011

There is no worldwide acceptance on the optimum size of the Board of Directors. A very largeboard can act as a hindrance in using the members effectively and a small board can result in

shortage of experience and managerial acumen for the organization. There are well reputedexamples on the ideal composition of a companys board. The board should ideally consist ofonly a few senior executives such as; the CEO and/or CFO and/or other important seniorexecutives. BestPrices being a multinational chain can be compared to the likes of Carrefourand ALDI, where the Board of Directors consists of approximately 25% executive directors andthe rest non-executive.

The most important criterion for Non Executive Directors in a board is their independence inorder to avoid any conflict of interest. Independence broadly means that:

y They should not have been employed by the company in the last 5 years

y They should not be in a material business relationship with the company in the last 3

yearsy They should not have family ties with company directors and senior employees

y They should not have strong ties with other directors on the board

y They should not represent a major shareholder

y They should not have been on the board for more than 9 years

Also, the board should ideally consist of members with extensive knowledge of corporatefinance, auditing, financial analysis, regulation and compliance, remuneration, humanresources, change management and operation management. Additionally, all Non ExecutiveDirectors need to be experienced diplomats, good negotiators, possess excellentcommunication skills and should have the drive and energy to ensure successful outcomes.

Another important aspect is that an ideal Board will be the one in which all Non ExecutiveDirectors not only have appropriate industry experience but are also experts and have specificcompetence in their own function within that industry. This is important because this enablesproposals relating to any aspect of the business to be challenged by the Non ExecutiveDirectors. This assortment of expertise, knowledge and availability is required for todayscomplex businesses.

It is impractical to expect one director to be informed about all phases of a business. It is alsounrealistic to expect individual directors to be accessible at all times and to influence all

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decisions. Thus, in staffing most boards, it is best to think of individuals, contributing differentpieces to the total picture that to create an effective board.

Also, studies conducted in the past support the argument that the board composed of morediverse group of directors performs more effectively than less diverse boards. This pointstresses on the fact that female counterparts will add a fresh perspective to businessfunctionality and decision making. Besides, a major share of customers of a supermarket chain

like BestPrices would consist of women who are undoubtedly the decision makers in todaysnuclear families. Having a womans perspective in decision making would certainly helphighlight any gaps in service or product offerings to this segment and increase customer loyaltyto the company.

RECOMMENDATION

According to the Higgs Report, a Non Executive Director is considered independent when theboard determines that the director is independent in character and judgment and there are norelationships or circumstances which could affect, or appear to affect, the directors judgment.

Davids decision of not wanting to be considered for re-election might be taken as a huge loss

to the company because he is from the only few who possess one quality which is essential fora Non Executive Director; truly being independent. He is the CEO of a bank at a relatively youngage suggesting he has the drive and energy to ensure high-quality results for the organization.Being at his position in the financial sector means he is well aware of the current marketdynamics of all industries. On top of these qualities he is bound to be an expert in corporatefinance, auditing, business planning, financial analysis and compliance and regulation.However, it is important to note that he does not have any significant experience related toretailing of household items and this is a negative for the company. Secondly, to be the CEO ofa bank is a very demanding function and the industry is highly rigorous and time consuming.This implies that he does not have ample time to give to BestPrices. This could be the majorreason why David has decided to leave the Board of BestPrices.

Executive Directors are involved in the day to day running of the business. They have access todetails of the company operations, its success relative to its competitors, and the likely futureprospects of the organization. Non Executive Directors are invited to sit on the board andparticipate in board meetings. They do not run the day to day operations of the company butmonitor the executive activity and contribute to the development strategy. They can identify risksand opportunities that may be overlooked by the executive directors. Also since most of the NonExecutive Directors of BestPrices have served on the board for more than 9 years, theCombined Code would deem them dependent. Therefore, the new candidate would be the onlyone to serve as a truly independent director. There is a high significance of independence of thenon executives since they will not be affiliated with the organization or activities that wouldcreate a conflict of interests within the company.

An Executive Directors judgments might be clouded to indulge in Creative Accounting for taxbenefits, or buying shares to qualify for incentive schemes. But they also have to workconscientiously under stress, and therefore would not be able to devote time on non financialissues relating to Companys health in the market. Therefore it is feasible for the company tolook into hiring a Non Executive Director rather than making a senior executive from within thecompany a part of the board.

Non executives have a much better understanding of the environment in which the companyoperates, and also of the valuation of the company shares, as they are able to stand back andbetter analyze the environment. The Non Executive Director to be appointed can also play the

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role of Senior Independent Director as he can chair the meetings between the Non ExecutiveDirectors in the absence of the Chairman. Appointing an Senior Independent Director wouldhelp strengthen the company relations with institutional investors and create an approvingchannel alongside the Chairman, executives and other non executives to reassure investorsthat they can communicate effectively with the Board.

IDEAL CANDIDATE FOR BESTPRICES

From a study on the background of the current Board of Directors, it is evident that there is ahigh degree of association between some of the Non Executive Directors with the inter-workingsof BestPrices. Based on this study, we infer that these close ties and material dependence canlead to conflicts of interests and eventually cloud the judgment of the individual board members.This could lead to the erosion of stakeholder value in the long run and upset institutionalinvestors.

As suggested earlier we recommend that the Board should not stop at independence but shouldprimarily focus on recruiting a Non Executive Director who can also be appointed as a SeniorIndependent Director. An important role of the new Senior Independent Director would be tomeet with the Non Executive Directors regularly to appraise the performance of the Chairman.

The Senior Independent Director will also be responsible for chairing the NominationsCommittee to help find the next Chairman of the Board. The role of the Senior IndependentDirector would be an alternative to the Chairman in his absence and will be important forBestPrices as it will help the Board to take decisions dispassionately and independently.

y The candidate should ideally be recently retired and should have served as a seniorexecutive on the boards of at least two or three multinational companies. A retiredprofessional will be ideal as the role of a Non Executive Director would require him/her tospend ample amount of time on analysis of company reports and attend meetings withinstitutional investors and shareholders to understand shareholder concerns andopinions. For this reason, it would be ideal for the candidate to not hold more than twoboard memberships at the time of appointment

y The candidate should have been independent from BestPrices for at least 5 years to beconsidered for this role

y The candidate should have a balanced mix of technical and interpersonal skills whichwould be discussed in further detail below:

Technical Skills

o An ideal candidate should be well versed in strategic planning and should have asound understanding of the dynamics of the retail industry

o The candidate should be aware of the major competitors of BestPrices and the basisof their competitive positioning

o The candidate should have a sound understanding of the trends of corporategovernance, regulatory laws and legal understanding of the current businessenvironment, specifically in Europe.

o The candidate should be well versed on strategic accounting and financialmanagement and should have extensive knowledge of corporate finance and audits.

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o The candidate should have specific knowledge relating to the industry but it isequally important that he/she has experience in diverse backgrounds to provideindependent viewpoints to drive performance

o The candidate should be well versed in shareholder issues

o The candidate should have good understanding of companys customers, their

needs, wants and issues

o The candidate should possess experience of substantial business expansion intonew and unexplored markets in Europe and Asia Pacific.

Interpersonal Skills

o The candidate should have high ethical standards and will be needed to act withintegrity keeping the interests of the shareholders and employees in mind at all times

o Even though being a Non Executive Director is a split role, the candidate shouldpossess the ability to support executives in their leadership of the business and

should be able to monitor and supervise their performance

o The candidate should have the strength of character to constructively challenge theexecutives in the board and keep influential decision making in line with the interestsof the shareholders

o Candidate must have entrepreneurial skills, international connections and drive tocompete in the modern day market

o The candidate should make sure to use his/her external experience in the boardroom to challenge the executives

Currently the board comprises of people with vast and varied experiences, though notnecessarily industry related and lacking true independence. The proposed Senior IndependentDirector being nominated for the board would be able to influence the board with his/her widervision, knowledge and broader management capabilities to expedite the expansion phase andtake the company to new heights. Such a person having all the technical and inter personalskills mentioned earlier is recommended to be appointed directly as the Senior IndependentDirector because in the current expansion phase of the company, it is imperative that someonewith vast experience in the retail industry and knowledge of the European markets would beable to guide the company in the right direction. Although this might seem a boldrecommendation, if BestPrices wants to expand and grow its business into new markets, it isessential that the current board takes a pragmatic approach and appreciates the value that willbe added through the candidates know-how of retailing in regional and international markets.

To conclude, in the interests of the company, we emphasize the need for seniority,independence and industry related expertise on the board and hope that our recommendationwould help the Nominations Committee take the right decision.