NEWS ABOUT CORPORATE GOVERNANCE - January-February/2001
IBGC
– Brazilian Corporate Governance Institute
- Now
into its sixth year of intense activity, the IBGC
(Brazilian Corporate Governance Institute) is extending its activities
in response to the growing influence of Corporate Governance in the
domestic and global business scenario.
Among its chief objectives are the extension of its Best Practices
Code and the creation of a Board of Directors database.
In its training and qualification area, the IBGC
will offer seven (7) courses of four (4) different programs. These are the
“Board of Directors Case Study”, the Second Brazilian Corporate
Governance Congress in November, in addition to its twelve (12) monthly
events. All training/qualification
program details are available on our site (www.ibgc.org.br).
Brazilian
Central Bank endorsement of New Market share investments.
- The Central Bank is honoring the promises of Brazil’s monetary authorities to encourage good corporate governance practices, and has made publicly available (www.bcb.gov.br), through March 2, 2001, the draft Resolution that will, in future, regulate Brazilian pension fund investments. Anyone can suggest changes that, if accepted, will result in small amendments, since the Government has already taken the basic decisions. The “new 2720”, as it is known in the market, is a reference to Resolution 2720 enacted by the National Monetary Council in April, and subsequently suspended for revision. The new resolution endorses several methods of attracting investments in New Market shares. The first and most common of these is that only pension funds allocating a minimum percentage of their funds (computed based on a variety of parameters) to the Bovespa (São Paulo Stock Exchange) New Market, are permitted to attain the maximum legally permitted share investment percentage. Another incentive for companies that apply good corporate governance practices relates to public share offers. In other words, pension fund involvement in new primary market share offers is restricted to public share offers of companies whose corporate governance principles comply with Bovespa New Market standards. The draft resolution establishes that Brazil’s major investors, its pension funds, must comply with the new regulations through to the close of 2001. It is interesting to note that the Portuguese language expression used by the Brazilian Central Bank on this matter is Governança Societária rather than Governança Corporativa, the latter being the standard Brazilian terminology.
Bovespa
(São Paulo Stock Exchange) to
appoint an ombudsman.
- The Madrid Stock
Exchange’s highly successful 1991 appointment of an ombudsman will be
the model for a similar experiment that Bovespa
intends to introduce during the first half of this year.
This endeavor, allied to the legal requirement for settling
corporate disputes through arbitration, will ensure increased transparency
and equity for all shareholders involved in this new share market sector.
This topic, in addition to several others such as the impact of the
New Market, computerized trading, the Internet, and the integration of the
Mercosul (Latin American
Southern Cone Market) Stock Markets, will be covered in a talk to be given
at 12.30 on March 9, at the Nacional
Clube in São Paulo. This
lunch is sponsored by Adeval (Association
of Securities Distributors). Tickets
and reservations at tel.: (11) 239 0155 or by e-mail at adeval@adeval.com.br.
Transparency,
Ethics, and Equity
-
The more important principles of good Corporate Governance include
Transparency, Ethics, and Equity. In Brazil, where only recently has it become an accepted
practice to appoint minority shareholder representatives to boards of
directors and shareholders appointed audit boards, we see a potential for
conflict of interests relating to privileged information.
This predicament persists despite the unequivocal position
established by Brazilian Corporation Legislation in its article 154,
paragraph 1, which states: “A board member elected by a group or
category of shareholders is bound by the same duties to the company as all
other members. Thus, in no
circumstances, even in the defense of the interests of the shareholders
who elected him/her, may such board member default in such duties.”
This rule also applies, in the case of publicly quoted corporations,
to privileged information potentially in the interests of the directors or
third parties, whereby the board members must honor the confidentiality of
any information that has not yet been made public in the market.
This somewhat controversial topic was discussed by the Chairman of
the Board of Directors of the Perdigão Group, Eggon João da Silva, in an
editorial in the November/December 2000
house organ, Revista
Perdigão Hoje, and can be found in the LCV Technical Material Section
(www.lcvco.com.br).
Study
Group - Family Firm Institute, Brazil
-
In February, the Brazil Study Group, backed by the US-based Family Firm
Institute (FFI), USA, the leading and most traditional institute dedicated
exclusively to family businesses, sponsored yet another event for its
members and people interested in family firm matters in Brazil and
throughout the world. The
event was coordinated by FFI Group members, Antônio Carlos Vidigal and
René Werner and covered two topics related to Corporate Governance in
family businesses: Independent Auditors and efficient Boards of Directors
that include outside members. The
first topic, “The Benefits of Auditing Services in Family Firms”, was
presented by Arthur Andersen Senior Partner, Paulo Pinese, and the second
topic “Family Firm Case Study” was discussed by
The
increasing globalization of Boards of Directors
-
Ever sensitive to the fluctuations of the economy, Corporate Governance
has become increasingly globalized. Among
the many indicators of this trend to internationalism is the interest of
governments and international organizations in Corporate Governance, the
number of countries that have established best practice codes, the success
of the ICGN (International Corporate Governance Network) which will hold
its seventh Annual Meeting in Tokyo, Japan from July 11 through 13 of this
year and, lastly, the globalization of Boards of Directors.
One of the principal features of the Global Boards, to use the
commonly accepted terminology for Globalized Boards of Directors, is the
involvement of independent board members of differing nationalities,
particularly from the countries where the respective companies operate. This is the case of the Spanish organization, Telefónica,
that recently appointed to its Board, Brazilian, Luiz Fernando Furlan, the
Chairman of the Sadia Board of Directors and a member of the International
Board of Coca-Cola, and Argentina’s Mario Vasquez, former senior partner
of Arthur Andersen Argentina.
Solutions
brought in from outside
-
The CEO, the shareholders, the Board of Directors, the independent
auditors, and in Brazil, the shareholder appointed audit board, are the
pillars of corporate governance. While
the Board of Directors reinforces its strength in a company’s power
structure, it is through the CEO that it influences the company’s
business. Thus, the presence of an effective CEO capable of implementing
defined strategies, one who competently carries out company operations,
and who possesses leadership and motivational skills, is the central aim
and object of any Board of Directors.
Executives such as these can swiftly upgrade the market’s value
perception of their companies.
It
is interesting to note that the Gillette Board of Directors recently
appointed former Nabisco CEO, James Kilts, as its CEO.
This was the first time in seventy years that the world leader in
shaving equipment manufacturers searched outside the company for the ideal
candidate for this important position.
The market seems to have granted its seal of approval, as evidenced
by the performance of the company’s shares that, since March 1999, had
dropped to half their value, and upon the announcement of this new
appointment, suddenly took an upward turn.
Another example of a proven solution brought in from outside is
Japan’s automobile manufacturer, Nissan.
Under the leadership of Brazil’s Carlos Ghosn, indicated by
Renault to be its own CEO, and ranking as one of the world’s 25 most
successful executives, Nissan astonished the market by overcoming its
hitherto grave problems, and reported its best results since 1990.
The
vital role of the Audit Committee in Corporate Governance
-
The Audit Committee, a technical committee answering to the Board of
Directors, and which should not be confused with the Shareholders
Appointed Audit Board required under Brazilian Corporation Law, is highly
recommended and has become a standard feature in US companies.
Not only is it a vital extension of the Board of Directors in its
important role of controlling company operations, but the Audit Committee,
that normally consists only of board members with financial and control
experience, is an effective communication channel between the Board of
Directors and the company’s independent auditors.
Few companies in Brazil avail themselves of this important offshoot
of the Board of Directors, and an essential tool for the shareholders in
general and, most especially, for those at a distance from day-to-day
company operations. The Bovespa
New Market would have done well to define some operating criteria for this
committee in its regulations. Further
to this topic, Arthur Andersen has published “Best Global Practices for
Audit Committees” analyzing the effectiveness of audit committees and
the division of responsibilities between the Board of Directors/Audit
Committee, Executive Management, the Independent Auditors, and the
Internal Auditors.
The
ongoing standardization of accounting standards in 53 countries.
-
Financial statements are an inherent part of any company’s policy of
transparency and are essential to the investor’s decision process.
In the current environment of accelerated economic globalization,
it is with enthusiasm that we receive the news that seven (7)
international consulting firms have concluded their survey of generally
accepted accounting principles in 53 countries that, in combination,
represent 95% of world GNP. This
work is the fruit of the 1999 International Accounting Development Forum,
sponsored by the World Bank, which has fostered the application of good
corporate governance practices worldwide. The World Bank intends to
consolidate these accounting standards by 2005 and thus ensure their
gradual implementation by companies planning to go global.
It
seems that the Board of Directors failed too
-
Xerox, once the pride of the US and global economies, and a symbol of
success in business and in technological innovation, is currently facing
serious problems. Worse, it
would seem that its own Board of Directors is responsible for this fall
from grace. In a recent BusinessWeek article, insinuatingly entitled
“Hush! The Board of Directors is sleeping”, Louis Lavelle lays
responsibility for the company’s difficulties at the door of its own
Board of Directors, and lists the main reasons for this conclusion: a)
unsatisfactory recent CEO succession procedures: b) a former CEO stays on
in the company; c) too few board members with a background in technology,
the company’s core business; d) few independent board members; e) board
members too busy with their involvement in several other boards of
directors; and, lastly, f) board members holding few company shares,
resulting in lack of interest in company business. Louis Lavelle’s
article can be found in the LCV website (www.lcvco.com.br),
Technical Material Section
National
Association of Corporate Directors – NACD
-
The qualification program of the US-based NACD for 2001 is already
available and may be accessed through its website (www.nacdonline.org).
Events worth noting are the NACD Annual Conference, to be held from
October 15 through 17 in Washington, and the seminar, “Guidelines for
the Board Member”. This
seminar is given four times a year in the form of an intensive one-day
session. It enables those who
attend, particularly new board members, to understand their role and
responsibilities from a US point of view of corporate governance.
Best
Corporate Governance Practices
Taken
from the Brazilian Best Corporate Governance Practices Code.
Remuneration
of the Board Member
Board members should be paid on a basis equivalent to the hourly rate of the company’s CEO, as applied to the time they actually dedicate to the company.
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