NEWS ABOUT CORPORATE GOVERNANCE - May-June/2001
IBGC
– Brazilian Corporate Governance Institute
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The
IBGC (Brazilian Corporate
Governance Institute) continues its fast paced activities in qualifying
members of boards of directors. In
the second half of this year, it will give two new editions of the first
course given in Brazil to qualify or recycle members of boards of
directors. The first, the
“Extensive Course for Board Members” will be given for the second time
in Porto Alegre, starting on August 16 and, for the seventh time in São
Paulo, starting on August 27. For
the first time, on October 23 and 24, the IBGC
is organizing its new Corporate Governance Course in the City of Recife,
in the wake of its success in São Paulo and Rio de Janeiro. In addition to giving the history of corporate governance,
this course covers the role of a board member, and the relationship
between the CEO and the Board of Directors.
The course also considers topics such as ownership, relations with
company investors, and transparent management.
During the second half of the year, for the first time in its
history, the IBGC will produce a
course on Corporate Governance for the Family Firm, beginning on September
11 in São Paulo. The aim of this course is to present and discuss the
best corporate governance practices in the context of the family firm.
Additional information available from: Tel. (11) 3043 7008 or on
the website www.ibgc.org.br.
Corporate
foreign investors are increasingly active in general shareholder meetings
in Brazil.
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Brazilian companies with securities traded in offshore stock exchanges are
no strangers to the frequent visits of foreign analysts seeking ever more
detailed information on their business.
From now on, they will also have to become accustomed to the
increasingly frequent presence of the representatives of corporate
investors who, in their capacity as shareholders of such companies, are
more and more eager to exercise their voting rights.
Unlike Brazilian corporate investors that advise their
representatives to take a passive position in general shareholders’
meetings, by abstaining from voting, the foreign corporate investors tend
to demand that their representatives regularly exercise their voting right
whenever permitted. An example of this philosophy is the case of the
voting session at a recent general meeting of the shareholders of one of
Brazil’s largest food product companies, when the representative of
several Brazilian and foreign corporate shareholders abstained from
casting his vote as attorney-in-fact for the Brazilian corporate
shareholders, and voted on all topics permitted for the category of the
foreign shareholders he represented. A sampling of some of these foreign
corporate investors that included the obligation to vote in the powers of
attorney granted to their representative: The California State Teachers
Retirement Sys, General Daily Emerging Markets Fund, General Motors
Employees G.G. Pension Trust, and IBM Tax Deferred Savings Plan.
Latest
projections in the Brazilian capital market relating to increased respect
for minority shareholder rights.
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The retraction of the Brazilian capital market over the last few years
could be coming to a close, if the proposed new corporation law (approved
by the House of Representatives and currently being examined by the Senate)
is sanctioned by the Executive Power. This can be inferred from a recent
article by Eduardo Brenner, published in the Revista Bovespa. In this very
interesting article, the author seeks to prove that the systemic Brazilian
risk factor, high market interest rates and the absence of a national
savings plan are not solely responsible, and perhaps not even the
principal culprits, for the country’s diminishing share market. He is
further of the opinion that the Brazilian share market (ranking 16th in
the context of market capitalization and 19th in the listed company
context, according to an IBRD survey) could grow dramatically with the
approval of the new law. Brenner extrapolates for the Brazilian market on
the reality of the US and worldwide minority shareholders and arrives at
some intriguing estimates. If the minority shareholder lived in Brazil in
a legal environment similar to the world average, the Brazilian share
market would have the potential to receive a further US$ 12 billion and to
list another 364 new companies on the stock exchange. The impact
would be even greater if Brazilian law offered minority shareholders right
similar to those available under US legislation. This would
represent a potential of a further US$ 75 billion and 2,529 new companies
in the Brazilian share market. It is a fact that good corporate governance
extends significantly beyond simply complying with the law. The
general disclosure of good corporate governance practices throughout
Brazilian business could bring about, in addition to all the changes that
would be introduced by the new law to attract a higher volume of funds,
new companies and, most important, new shareholders for the Brazilian
capital market.
CEO
isolation and the Board of Directors.
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In a recent Gazeta Mercantil
article, Daniela Madureira analyzed the isolation inherent to the power
structure of any CEO, and the means used to counter it. In most cases,
even when well counseled, the final word is that of the CEO who has nobody
with whom to discuss ideas, and who does not wish to or should not betray
any indecision to his/her subordinates. Moreover, the opinions of members
of the company are not necessarily objective, due to conflicts of interest
between the individuals involved. Turning
to friends outside the company is hardly an ideal solution, since many of
them will have insufficient knowledge of the company or enough business
experience. To minimize this
additional obstacle to the decision making process, many CEO’s seek
professional counseling or the opinion of their peers in other companies.
Several companies specializing in counseling such executives are
present in Brazil, such as the Fundação Dom Cabral, Career Center, and
DBM. For CEO’s seeking to
meet with other chief executives, there is the Fundação Dom Cabral
itself, DBM, and TEC, the last named a US company with six groups of 800
staff operating in the Brazilian market. For CEO’s whose companies have
a board of directors comprising experienced, professional, and independent
boards of directors, and who can discuss, share, and uphold the more
complex CEO decisions, this sense of isolation is significantly less.
Corporate
governance and its influence on corporate risk
The
academic world has always tended to regard corporate risk from two points
of view: the business risk and the company risk.
The former relates to the inherent risk in the company’s business
sector, which usually differs depending on the many different areas of
business, and which can also vary over the years.
An example is that of high technology whose inherent risks differ
from those of the financial sector, and even more from the intensive
capital industry sector. In turn, company risk is seen as the sum of its
operating risk based on its assets structure, and its financial risk,
based on its liability structure. With
the trend to increased number of shareholders in companies, many of them
of widely varying nature and/or nationalities, both the business world and
the academic world have identified a new risk, the corporate risk. This
should be added to the other two risks involved in corporate life, the
business and the company. Anywhere
in the world, corporate conflicts, when they occur, place business at risk,
even the most promising of businesses, regardless of whether they are
carried out by family firms or by publicly traded corporations.
A typical example in Brazil was the rise and fall of the Matarazzo
Group and, today, the crisis situation that Brasil Telecom is currently
undergoing, involving corporate conflicts between its three major
shareholder groups. In cases of this nature, corporate governance practices can
be of immense value. This is
because, just as company risk can be minimized by the wise management of
its assets and liabilities, so, without a shadow of doubt, can corporate
risk be minimized by good corporate governance practices.
Information
as a tool for the Board of Directors
Given
its essential role of non-involvement in a company’s day-to-day
operations, the good performance of any Board of Directors, is dependent
upon obtaining quality information sufficient to its decision level and
available on a timely basis. However,
a recent survey carried out by PriceWaterhouseCoopers involving 600
companies in the USA, the UK, and Australia, revealed that the majority of
executives partially – sometimes totally – distrust the accuracy of
the data available to manage their companies.
In view of the absolute necessity for a good information system
allied to the lack of confidence that these systems generate, based on
this survey, a board of directors, in addition to its responsibilities for
defining strategies, electing, and dismissing directors, and the selection
and dismissal of the external auditors, must permanently seek to ensure an
efficient information system. This
is essential to the efficient performance of the board’s fourth major
role, that of monitoring company operations.
International Corporate Governance Network
The
ICGN (International Corporate Governance Network) was founded by
institutional investors, all of them leading Corporate Governance
specialists, from all over the world.
Today, in its capacity as the most globalized body dedicated to
this aim, the ICGN will hold its Seventh World Conference from July 11
through 13, 2001, in Tokyo, Japan. This
meeting will be in the tradition of previous conferences held in major
cities of the world, as follows: Washington (1995), London (1996), Paris
(1997), San Francisco (1998), Frankfurt (1999), and New York (2000). This
year’s conference will be held at the Okura Hotel in Tokyo and four
hundred (400) participants from over twenty (20) countries have already
registered. The main topic
will be Global Corporate
Best Corporate Governance Practices
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Quoted from the Best Corporate Practices Code – Brazil:
General Shareholders’ Meeting.
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Summons
Ideally, the date of the
ordinary general meeting should be communicated to all shareholders by the
last day of the fiscal year, and should be selected to best facilitate
their presence.
The
summons to an extraordinary general meeting should be made with a minimum
of 15 days notice.
In
the event of the existence of American Depositary Receipts (ADR), the
summons must be made with a minimum of 40 days notice.
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Venue
The venue of general assemblies
should be selected to facilitate shareholder presence.
Current legislation should be changed in this respect.
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Agenda
and documents
All shareholders must receive
the agenda and
adequate
information with sufficient notice to take a position regarding decisions
to be made. The agenda should
never include “miscellaneous matters”, to avoid the possibility of
concealing important matters in the agenda.
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Matters
of interest to the shareholders
Shareholders should have the
opportunity to place such matters on the agenda.
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Prior
questions from the shareholders
The shareholders should always
be given the opportunity to request information from the board of
directors or the audit board. Questions must be
submitted in writing
and to the attention of the Chairman of the Board.
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Voting
regulations
The voting regulations must be well defined and available to all shareholders. They should be drawn up to facilitate the voting process, including by power of attorney or other means. Representatives must vote in accordance with the express or inferred wishes of the shareholders.
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