NEWS ABOUT CORPORATE GOVERNANCE - September-October/2000

 IBGC – Brazilian Corporate Governance Institute

- On November 27^th, the Brazilian Institute of Corporate Governance – IBGC is promoting its first National Congress of Corporate Governance which will be held at the São Paulo stock exchange. This event will be the high point of the commemoration of the 5^th anniversary of the IBGC and will be extensive as it will discuss  the four pillars of Corporate Governance, stockholders, Board of Directors, CEO, External Audit and Shareholders Appointed Audit Board. The congress will commence with an official dinner which is to take place in São Paulo on Novenber 26^th. For more information or to register for the event, contact the IBGC at Tel. (11) 3043 7008 or fax (11) 3043 7005 and e-mail ibgc@ibgc.org.br or at the organizations site : www.ibgc.org.br

The  Family Business Network Creates the Brazilian Chapter

The FBN – Family business Network, an association with headquarters in Lausanne, Switzerland, which brings together families that are proprietors of companies, realized its annual conference in London this year, from the 11^th to the 14^th of October. This time over 500 participants were on hand  which was a record,11 of these were Brazilians, which was also a record. The general topic of the conference was “Tradition or Entrepreneurship in the New Economy”. Next year’s conference will be held in Italy during the month of October. In Brazil, on November 28^th, the FBN will constitute the Brazilian chapter during an event which is to be held at the Hotel Meridian in Rio de Janeiro from 9:00 to 14:00. Professor Alden Lank, the current president of FBN and one of the most preeminent authorities in the world on family businesses,  will be present at the event. This initiative is headed in Brazil by the impresario and consultant Antônio Carlos Vidigal who recently returned to Brazil from a doctorate program with specialization in family businesses in Lausanne, Switzerland. One of the topics to be addressed by Professor Lank  will be the Corporate Governance in Family Businesses. Professor Lank is the author of “Family Business – Its Governance for Sustainability”. More information may be obtained through the tel. (21) 252 8517.

Corporate Governance in Family Businesses in Brazil

Corporate Governance and Family Business are two topics that are drawing nearer to each other and there are many reasons why family businesses should practice good corporate governance. This year the Family Firm Institute, the largest and oldest institute dedicated exclusively to the family business, realized it’s  13^th annual conference from October 25^th through the 28^th in Washington DC. For the first time the FFI included among it’s events during the conference, a panel which was hosted in the Brazilian Embassy and in which debates and discussions analyzing the environment and the dynamics of the Brazilian family businesses where held. Among the lecturers present were the Ambassador, Rubens Barbosa, Ivan Lansberg, Antonio Carlos Vidigal, René Werner, Alberto Matias and Luciano Ventura. This last participant spoke on the topic of “ The Family Business in Brazil and Corporate Governance “ which can be found in it’s entire form under “Technical Material” in the LCV website : www.lcvco.com.br.

The Pension Funds in the Command of Brazilian Businesses

In a recent article published in the specialized press in Brazil, Paulo Kliass defended the right of the pension funds, sponsored by the state companies, to participate in the group that controls the privatized companies, stating that among other reasons that the alleged risk of the return to state control didn’t exist anymore once the funds were not extensions of their sponsors but independent legal entities that belonged to their participants. Speaking of pension funds, one of the prime examples of the successful achievements where the funds participation in the command of the companies is Perdigão. Since the acquisition of it’s control by a pool of pension funds it has grown at an annual rate of 15% (fifteen percent) thanks to the practice of adequate corporate governance, professional management and strategic repositioning. This last September, Perdigão obtained the approval of it’s registration with the SEC - Securities and Exchange Commission which will allow it to have its ADRs level II negotiated on the NYSE – New York Stock Exchange. It is the first Brazilian food company to obtain this type of registration on the American stock market and thus gain greater international transparency in the world market. In addition to this it will be forced to follow American accounting principles, which will reinforce the transparency policy which has been the present administrations procedure.

The Brazilian Government and Corporate Governance

The Brazilian economic authorities are convinced that, without good corporate governance there will not be a strong capital market nor foreign investments at a sufficient level to meet the needs of an emerging economy such as Brazil. In a recent interview with the Brazilian press the co-chairman of the TIAA – Teachers Insurance and Annuity Association, Peter Clapman declared that the "lack of protection for the minority shareholders is the principal reason for modest volume of investments in Brazil”. The TIAA is the largest pension fund in the world with U$ 320 billion in equity, of which only U$ 70 million invested in Brazil. Following this line the Brazilian government seems to be engaged in promoting the practice of good corporate governance in the country. In addition to its efforts with the Brazilian congress to modify the present Brazilian Corporation Law, it is introducing important changes related to the practice of corporate governance principally in reference to the protection of minority shareholders and hopes to have the bill approved in it’s entire version this year.  It also announced that it is studying several measures that will benefit companies that practice good corporate governance. This offensive by the economic area of the government in favor of corporate governance includes the Ministry of Finance, the Central Bank of Brazil, The BNDES  - Banco Nacional de Desenvolvimento Econômico e Social (the National Development Bank) and the CVM - Comissão de Valores Mobiliários (the security exchange commission). Among these measures, it is worth while mentioning the inclusion of corporate governance as a standard for selecting companies to be supported by the BNDES and who also would benefit from longer terms, extended credit  and lower costs in conformity with the quality of corporate governance. In addition to this , the BNDES intends to, through the use of professionals from the market, participate  actively on the Boards of Directors and on the Audit Boards of the companies where they are minority shareholders which suggests at least 17 large companies and a large number of smaller medium  sized companies. Furthermore the Brazilian pension funds, presently the largest investors in Brazil, could, through a measure from the CMN – the National Monetary Council,  have their investment rules made more flexible thus favoring the purchase of shares of companies that practice corporate governance. Meanwhile the CVM - Comissão de Valores Mobiliários, the Brazilian securities commission, also known as the sheriff of the financial market is persisting in its crusade to moralize the capital markets and for the protection of minority shareholders. They intend to use Instruction 31 from February 8, 1984, which establishes the rules concerning the treatment  “insider information. Recently it fined the controlling shareholder of VASP (São Paulo Airlines) for U$ 50 thousand and each members of the Board of Directors for U$ 5 thousand apiece for abusing their voting power in detriment of the minority shareholders during a recent general assembly.

This measure is a far cry from the American standards for punishments in respect to any irregular transactions that have been committed, but it may serve as a good example for the Brazilian capital markets. To conclude, it is worthwhile recording that on the wake of the project which is reformulating the current Brazilian Corporation Law and  Law 6.385 which created the CVM ( Brazilian Securities Comission), there is a discussion to deal with use of privileged information as a crime, similar to what happens in the United States.

Corporate Governance creating wealth for shareholders in Brazil.

In a recent survey conducted by the consulting firm Mckinsey & Co. (www.mckinsey.com), it quantified the good corporate governance, when it got  results that showed the premiums, that investors were willing to pay for shares of companies that had adopted the practice of good corporate governance, to be somewhere  in a range of 18,3% and 27,6 % . In Brazil the funds that are called of “Value and Liquidity”, also known as corporate governance funds, are achieving their objectives to valorize shares that have traditionally performed poorly, below the market and with little liquidity. Besides stimulating the practice of good corporate governance in the selected companies, the corporate governance funds appoint professionals from the market to their Boards of Directors and to their Audit Board. These professionals not only contribute by improving the management of the companies but also enhance the confidence of the market in the companies. The four existing corporate governance funds in the market, Fator Sinergia, Bradesco Templenton, Dynamo and Investidor Professional have managed to meet the expectations of the large institutional investors, principally the pension funds. In a recent declaration to the press, Martin Glogowsky, Financial Director of the CESP Foundation, one of the largest funds in Brazil, said that he was satisfied with the fact that they had placed 12 companies, that weren’t performing to expectations, into corporate governance funds. According to him, the results of the fund have been better than each of the individual shares. The valorization of the shares of the companies selected by these funds ends up increasing the wealth of all of it’s shareholders both minority and majority.

Corporate Governance becomes evermore globalized

Interest in the corporate governance issue is spreading throughout world, as  demonstrated by the innumerous events which are taking  place during this October.  According to the Global Proxy Watch news letter, no less than 33 events are taking place in various parts of the world. Just as an example the following are noteworthy: 02 – 03 Out., Johannesburg, South Africa  “Best Practice Corporate Reporting, Governance and Disclosure”. 02 – 03 Out.  Henley-on-Thames, U.K “The Effective Non-Executive Director. 09 Out. Arhus, Denmark “ Corporate Governance”.  11 Out. Chicago, USA “ Corporate Governance Update” 16 Out. Toronto, Canada “ Corporate Governance Briefing “ 19 – 20 Out. Kiev, Russia “ Roundtable on Corporate Governance” 27 – 28 Out. Tokyo, Japan “ Annual Corporate Governance Conference “ 31 Out.- 03 Nov.  Nairobi, Kenya “ Annual Conference, Commonwealth Association of Corporate Governance”. Among the various events it is important to note two conferences on family businesses already mentioned in the newsletter, that of FBN (12-14 Oct. London, UK) and that of the FFI (25-28 Oct. Washington, USA), which in addition to the specific panels on corporate governance, treated this topic in a general and implicit  manner in practically all of the other panels, as Corporate Governance embodies every and any relationship between shareholders or partners, including those between the same family.

National Association Corporate Directors

Between the 16^th and 18^th of October the ‘2000 Annual Corporate Governance Conference’ was held by the National Association of Corporate Governance (NACD), in Washington, D.C. – USA.

The basic theme of the conference was “ How to improve the performance of the “The Boards of Directors”. Among others, the following topics were discussed:

- The best and the worst performances by the boards of directors in companies: methods and standards of evaluation

- Comparison between boards of directors in emerging internet companies, and mature and growing companies: the selection, independence and performance of directors.

- Guardians of the future: the role of the board of directors in the shaping of corporate strategy.

- Challenges facing boards of directors in 2001: economic impact, technology and globalization and the ongoing consolidation of the companies.

Concurrently, simultaneous workshops debated topics relative to Corporate Governance such as audit committees, compensation policy of CEOs and Financial Statements. Some 230 participants from 16 countries were present. Brazil was represented by the consultant Alfredo Behrens from Datametrica and by Leonardo Viegas. member of NACD, of the Board of Directores of IBGC - Brazilian Institute of Corporate Governance and of Varig Airlines.

The Best Practices of  Corporate Governance

Taken from the Best Practices of Corporate Governance Code – Brazil

Chairman of the Board

There should be a separation of the functions of Chairman of the Board of Directors and that of Chief Executive Officer (the principal executive).