NEWS ABOUT CORPORATE GOVERNANCE - November-December/2000
IBGC
– Brazilian Corporate Governance Institute
- On
November 27, the IBGC (Brazilian Corporate Governance Institute) held its first
National Corporate Governance Congress in São Paulo, with an attendance
of over 170. The Congress was
opened with a formal dinner on Sunday, November 26 with a presentation by
Professor Alden Lank on Corporate Governance in Family Businesses.
Professor Lank is a leading authority worldwide on family businesses and,
at present, is president of the FBN (Family Business Network) based in
Lausanne, Switzerland. During
the Congress, the IBGC announced
the launch in the Internet of its Debate Forum in its website (www.ibgc.org.br).
Here, visitors can freely access and state their opinions and
criticisms of the matters under discussion, all of which relate to
Corporate Governance. The
next IBGC monthly presentation
will be held at noon on January 16, 2001, in the Private Dining Room of
the Infinito Restaurant at the São
Paulo World Trade Center, Av. Nações Unidas, 12.551, 2nd
floor. The speaker will be
the Executive Director of Publicly Quoted Corporations in São Paulo,
Maria Helena Santana. For
further information, please call (11) 3043- 7008 and speak to Catherine
Wegmüller or Vera Marques.
21st
Brazilian Pension Fund Congress
The
Brazilian Pension Fund community is currently awaiting the shortly to be
formalized approval of new legislation. This will lead to a significant
increase in the number of Brazilian pension funds and in the assets
controlled by these organizations. The
21st Brazilian Pension Fund Congress was held from November 20
through 22, in Salvador, Bahia, with an impressive attendance of 1,700.
A clear reflection of the ever increasing presence of pension funds
in corporate capital and their growing influence in managing such
corporations, Corporate Governance was once again a major topic during
this Congress. During the
formal opening ceremony, in his comments on the important role of pension
funds as vital tools in long-term savings and as the agents responsible
for strengthening the capital market, the president of the Brazilian
Central Bank, Dr. Armínio Fraga, reiterated the Brazilian Government’s
keen interest in developing and fostering good corporate governance
practices in Brazilian businesses. On the second day, during “The New
Economy and Long-Term Savings” Panel, Princeton University Economics
Professor, Economist, José Alexandre Scheinkman, harked back to the topic
of corporate governance. Citing
instances of international experience, he showed clear evidence that
“countries practicing good corporate governance have relatively larger
share markets, where the market evaluation of these countries’
corporations, measured based on their market:equity value ratio, is
comparatively greater. Moreover,
these countries show a higher number of IPO’s (Initial Public Offers),
and their corporations attract a greater volume of funds via the share
market”.
The
New Market is launched in Brazil
Corporate
Governance mechanisms in the more developed economies are established by
laws and regulatory codes, by agreements between corporations and their
shareholders, and by rules imposed by the stock exchanges.
In Brazil, despite the lag in corporate legislation amendment
approval and the refusal of many companies to accord due respect to their
shareholders, comes the good news of BOVESPA’s (São Paulo Stock Market) launch of the New Market.
This New Market is an exchange for organizations that apply good
Corporate Governance practices among other stricter codes of transparency,
increased respect for minority shareholder rights, and that only trade
ordinary shares in the market. It
was launched in São Paulo on December 11 in the presence of Brazilian
monetary authorities, investors, and market agents and will be operational
next year. All going well,
Brazil which today holds 13th place in ranking for respect for
minority shareholders (this ranking was introduced by Merrill Lynch), will
have its New Market and will leap to first place, shared with Chile, in
this ranking, well ahead of the more established capitalist countries such,
as the USA, the UK, Hong Kong, and Singapore. This New Market is a strong candidate for attracting foreign
investment, thus strengthening the local capital market and bringing in
investments at the level required to meet the needs of a developing
economy such as Brazil’s.
Corporate
Governance wins awards
First
place in the Bovespa Journalism
2000 Contest was awarded to a series of reports on Corporate Governance in
Valor Econômico, by reporter
Daniele Camba. Ms. Camba’s reports were published throughout November
and preempted many of the corporate governance principles applied in Bovespa’s New Market. In
turn, the president of Animec (National
Association of Capital Market Investors), Waldir Corrêa, recently
proclaimed the winners of the Animec
2000 Seal. The objective of this award, which was presented for the first
time this year, is to officially recognize publicly quoted corporations
and other bodies that contribute to improved majority and minority
shareholder relationships. Brasil Telecom, Saraiva, and Ultrapar won the
Publicly Quoted Corporation Award. The
Special Category awardees were the CVM
(organization similar to the US Securities and Exchange Commission), for
its efforts to protect minority shareholders, Bovespa
for the launch of the New Market, and BNDESPAR
(Banco Nacional de Desenvolvimento Participações S.A. – the BNDES
investment holding company) for its decision to only release funds to
companies that apply good Corporate Governance practices.
The awards will be presented at a formal
Bovespa lunch in February 2001.
With
the aid of the Internet, the Brazilian market will become increasingly
transparent
The
CVM is in the process of
reformulating some of its share market rules to oblige Brazilian companies
to more clearly disclose information. In reiterating that “information
is the oxygen of the market”, CVM
president, José Luiz Osório, advised the specialized business media that
the entity’s Instruction 31, governing the disclosure of material
information was issued in the seventies and, thus, in the current media
context, is totally outdated. All
significant information must now also be available on-line.
The CVM will also require
that all and any information disclosed by publicly quoted corporations
must also be included in their websites and in the CVM’s
website, which will have a special important information link.
In addition to important data, this requirement to disclose
information to the market will include road shows and seminars. Lastly,
these companies must disclose all information on the first leak about
current negotiations, or on any event of potential interest to
shareholders and to the market in general.
First-Time
Survey on Boards of Directors in Brazil
During
its last monthly presentation, the IBGC
disclosed the results of a hitherto unprecedented survey on the
composition of the Boards of Directors of publicly quoted corporations in
Brazil. The survey, sponsored
by LCV – Consultoria em Governança Corporativa e Representação de
Acionistas, covered 438 companies listed on the stock exchange (75% of its
universe) and concluded that, in several of the aspects examined, the
majority of these companies do not apply good Corporate Governance
practices. The most revealing
results were: a) the size of these boards is very small.
Almost 30% were of the legally permitted minimum number (three
members), and only 50% complied with the IBGC
code; b) the duration of the board members’ mandates tends to be too
long, thus jeopardizing renewals; c) over 40% of the Board Chairmen were
also CEO’s of their companies; and d) only 23% of the Boards examined
are fully independent of Executive Management.
The survey also analyzed some aspects of the composition of these
companies’ executive management. The complete results of the survey together with a report by
Simone Azevedo of the Gazeta
Mercantil business newspaper, are available in the Technical Materials
Section of the LCV website (www.lcvco.com.br).
Women
and Corporate Governance
As
can be seen in many high level corporate positions, the number of women
involved in corporate governance is on the increase.
In the US, women involved in corporate governance now have their
own global association, CWDI (Corporate Women Directors International),
similar to NACD (National Association of Corporate Directors). The position of CEO, one of the pillars of Corporate
Governance, in conjunction with the shareholders, the Board of Directors,
and the independent auditors (in Brazil, there is also the Conselho Fiscal or shareholder appointed audit board) are more and
more often held by women, particularly in the US. Examples are Carly Fiorina (46), Chairwoman and CEO of
Hewlett-Packard and Jeanne Jackson (49), CEO of Wal-Mart.com. In a recent
article, “The Feminine Profile of CEO’s of 2020”, published in the Gazeta
Mercantil, the newspaper’s Executive Editor, Maria Helena Tachinardi,
examines the skills that will become increasingly essential in CEO’s
over the next twenty years. According
to Tachinardi, future leadership styles will include less control and more
consensus. Moreover, the CEO of the future will have to retain talent in
the company and be skilled in forming alliances and associations.
She affirms that the CEO’s of the next millennium will need
special relational skills in topics relating to education, health, peace,
and the environment. At this
point in the article, Tachinardi asks “and why will women be more
competent in these roles?” Her
answer is that, based on the opinion of McGill University’s Professor
Nancy J. Adler, who predicts that, in 2020, one-third of the average CEO’s
time will be spent on topics beyond those directly affecting the life of
the company. The result of a
survey, whose samples included men and was carried out last October by the
Gallup Institute in six major Latin American cities, at the request of the
IDB (Interamerican Development Bank), revealed that women will
increasingly take over power positions in politics and business.
Of the people interviewed, 64% believe that women are more
concerned with the environment; 72% stated that they are more committed
than men to improving standards of education; 53% are convinced that women
possess greater diplomatic relationship management skills and, lastly, 66%
believe that women are more honest than men.
The
US SEC remains active.
Recently,
new external audit regulations, one of the pillars of Corporate Governance,
received unanimous SEC approval. These
new rules seek to eliminate or discipline the latent conflict of interest
of companies that render both auditing and consulting services to the same
company. As from now, many
large US corporations that use their accounting firms for both auditing
and consulting services, will be required to transfer either their audit
or consulting work to another firm. Alternatively,
they can comply with the new regulations requiring disclosure to the
market of the fees paid for the consulting services representing any
potential conflict of interest. The
opinion of some specialists is that, on the one hand, these organizations
will not contract consulting services from the same firm that renders
their auditing services, since the risk is too high if something goes
wrong. On the other hand, the audit firms will not be too
enthusiastic about entering into consulting agreements whose fees must be
disclosed in detail to the market. The SEC believes that, if most of these
companies discontinue their dual relationships with their auditors, it
will have won a major victory for the share market, after a five-year
battle with the major audit firms in the USA. Further in the context of
conflicts of interest, the SEC is also in the process of drawing up a set
of regulations requiring financial analysts and managers appearing on
television programs in the USA, to publicly disclose any potential
conflict of interest whenever they recommend the purchase or sale of
shares. According to the SEC,
in addition to such analysts’ personal investments in the shares whose
purchase they publicly recommend, these potential conflicts of interest
also involve the assets of the brokerage house or investment bank
represented by these analysts.
NACD
- National Association of Corporate Directors
The
NACD was founded in 1977 and is the USA’s only association of boards of
directors, directors, director candidates, and consultants to boards of
directors. It presently has
thirteen chapters spread throughout the country and its website (www.nacdonline.org)
should be visited by anyone interested or active in the area of corporate
governance.
Best
Corporate Governance Practices
-
Extract from the Best Corporate Governance Practices – Brazil Code:
“Transparency/Disclosure
Corporate
Governance Practices
- The annual (management) report should state which Best Practices Code was used by the company and explain all and any divergences from such code.
A happy beginning to the millennium
LCV NEWS -
September-October/2000
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July-August/2000
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March-April/2000
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November-December/1999
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