NEWS ABOUT CORPORATE GOVERNANCE - July-August/2001
IBGC
– Brazilian Corporate Governance Institute
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The Porto Alegre chapter of the IBGC
(Brazilian Institute of Corporate Governance), under the general
coordination of João Verner Juenemam, continues to actively promote
monthly discussions on corporate governance.
In August, a talk was given on “Corporate Governance Score System”,
a pioneer undertaking carried out by SR Rating, Brazil’s first risk
classification company. For
this occasion, SR Rating sent its CEO, Paulo Rabello de Castro and its
Corporate Governance Director, Luciano Carvalho Ventura to speak to a
large audience of interested people. A date has also been set for the
Second Brazilian Corporate Governance Congress. This will be held in São
Paulo on Monday, November 12, venue to be confirmed.
As with last year’s highly successful event, the Congress will be
opened with a gala dinner on November 11.
Among the speakers, the IBGC
is happy to confirm the presence of two of the world’s major authorities
on Corporate Governance, Robert G. Monks and Stephen Davis.
Further information available on tel. (11) 3043 7008 or on the www.ibgc.org.br
site.
BOVESPA
(São Paulo Stock Exchange) continues its task of strengthening the
Brazilian capital market.
As
part of its ongoing program of promoting good Corporate Governance
practices for all capital markets, BOVESPA
has established different Corporate Governance levels: Level 1 and Level
2, and the New Market for companies to voluntarily and formally comply
with certain Corporate Governance practices.
In a ceremony held on the new BOVESPA
premises, for which invitations were greatly in demand, fifteen (15)
companies registered for Level 1 –BOVESPA
Market. These were:
Bradesco, Itaú, Bradespar, Gerdau, Globo Cabo, Itausa, Perdigão, Randon
Participações, Sadia, Unibanco, Unibanco Holdings, Varig Part. em Serviços
Complementares, Varig Part. em Transportes Aéreos, Varig Viação Aérea
RioGrandense, and WEG. The shares of all these companies became part of a new index, the IGC
(Index of Shares under Special Corporate Governance Registration).
The chief compliance practices of Level l are: a) to maintain a
minimum number of company shares, representing 25% of capital, circulating
in the market; b) public share offers via mechanisms that promote
widespread distribution of capital: c) improvement in quarterly
disclosures, among which are consolidation and special review requirements;
d) compliance with disclosure regulations for transactions involving
shares issued by the company’s controlling
Company
directors and officers offer guarantees to minority shareholders in Brazil
The
globalization of Brazilian companies through issues of ADR’s (American
Depositary Receipts) has led to the introduction of a new type of
insurance in Brazil, one that is very common in the USA and Europe, the D
& O (directors and officers). This is a civil liability insurance
protecting board members and/or officers against indemnity cases brought
by the government, clients, employees, or shareholders, on alleged
omissions or errors against directors and officers in running the
respective company. Claims and cases brought by minority shareholders are
extremely common. With the
current growing trend in Brazil to protect minority shareholder interests,
an increased demand for this type of insurance is expected. A number of
insurance companies and brokers in Brazil, such as, Unibanco AIG, AON, and
Chubb already offer this type of insurance in the Brazilian market, and
confirm the increased demand by board members and company officers for
this type of protection.
Increasing
interest in Corporate Governance in Brazil
The
CRA-SP (São Paulo Regional
Administration Council), whose members include the greatest number of
persons with business administration background in Brazil, presided over
by Roberto Carvalho Cardoso, is one of the country’s most active
Administration Councils. It
recently sponsored a talk and debate on Corporate Governance at the
Council’s ordinary general meeting, coordinated by Luciano Carvalho
Ventura. Despite the fact
that the basic brief of Corporate Governance is based on the Agent Theory,
an economics principle, Corporate Governance is highly relevant in the
business administration field of knowledge, as such, of considerable
interest to regional business administration councils. An article written
by journalist, Alexandre Marson on this talk/debate was published in the
House Organ of the Professional Directors of the State of São Paulo, Administrador
Profissional, and is available in the site’s Technical Material
section (www.lcvco.com.br).
Improved Annual Reports
The
Annual Report is a vital part of the process of transparency in the
relationship between a company and its shareholders, and with the market
in general. MZ Consult recently carried out an interesting study showing
that many Brazilian companies wishing to attract foreign investors, who
tend to demand a greater degree of transparency than their Brazilian
counterparts, are upgrading the degree of information disclosed to the
market, in terms both of volume and of type of information. An analysis of
the annual reports of 56 companies with ADR’s in the US showed that the
average number of pages in 1998 was 8.4, which grew to 10.4 in 1999, and,
in 2000, arrived at 14. The balance sheet and environment-related
information were present on an increasingly large scale in the reports of
companies analyzed, as follows: 27.3% in 1998, 43.6 % in 1999, and 56.4 %
in 2000. The results on
disclosures in annual reports on Corporate Governance practices
implemented, have clearly shown that, for some of the companies studied,
where not a single company mentioned Corporate Governance in their 1998
and 1999 reports, 12.7% included the subject in their annual reports for
2000.
A politically incorrect CEO.
In
a recent Wall Street Journal article, based on several market opinions,
Rhadeus Herrick, cites Exxon Mobil Corp. CEO, Lee Raymond, as being too
politically incorrect for a large modern corporation. Among Herrick’s
examples was Raymond’s radical stance against the Kyoto Agreement to
fight the greenhouse effect, his intolerance of some minorities’ human
rights, and the lawsuit brought against Exxon Mobil by the USA, alleging
that the company had supported the military regime in Indonesia that had
tortured and killed people living close to its operational center in the
province of Aceh. Exxon Mobil’s competition is taking a different route.
The company’s European rivals, BP Plc and Royal Dutch/Shell Group
gave significant support to the principles set forth in the Kyoto
Agreement, and, in December, five American oil companies joined forces
with human rights groups, and agreed to examine any alleged abuse of human
rights in their overseas operations. Sixty-three year old Raymond has held
the position of CEO of Exxon Mobil since
1993 and is also Chairman of the Board of Directors.
The ill-advised practice of the same person holding these two
positions in a company could be part of the answer as to why a
professional with such a politically incorrect image, could head up a
company the size of Exxon Mobil, for so long.
Without doubt, with the backing of the Board of Directors, an
independent Chairman would have obliged Raymond to modify his position and
perhaps, even increase the market value of Exxon Mobil shares, in benefit
of the company’s shareholders.
National Association of Corporate Directors – NACD.
This
year, the Annual NACD Conference will be held at the Willard
Intercontinental Hotel, Washington, DC from October 14 through 16, its
main topic being “Adding Global Vision”. In line with the current US
economic climate, the conference will organize panels to discuss action
strategies of boards of directors. This
will cover not only periods when companies are undergoing difficulties,
but also preventive strategies to counter future problems.
Another important topic to be discussed during this conference is
evaluation of board members.
This
topic has become very relevant due to the fact that the Board of Directors
is the most important pillar of support for any Corporate Governance
procedure. Further
information on the conference may be obtained from the site: (www.nacdonline.org).
International Corporate Governance
Network
The
ICGN (International Corporate Governance Network) held its seventh World
Conference in Tokyo, Japan from July 11 through 13 this year. The main topic was “Global Corporate Governance: Myth and
Reality”, and was sponsored by the Tokyo Stock Exchange and the Japanese
Corporate Governance Forum. It
was held in the Okura Hotel, Tokyo, and attended by over 440
representatives from 23 countries. It
was hardly surprising to note that the largest representation of over 300
was the Japanese, but this was also due to the fact that Japan has great
interest in improving its companies’ level of Corporate Governance, as a
method of attracting institutional investors, particularly Us pension
funds. The second largest delegation was the 50-member US delegation.
Several countries were represented by a single delegate, among them
Thailand, China, and Russia. As
in the past, Brazil was present at the conference with its delegation
consisting of IBGC Executive
Director, Heloisa Bedicks, Sandra Guerra, Bengt Hallqvist, Luciano
Ventura, and President of the CVM
(Brazilian Securities Commission), José Luis Osório.
After his talk, Osorio was greatly applauded since he began and
ended his presentation in Japanese. After
the Conference ended, the ICGN Members’ Annual General Assembly was held. Among other matters, it elected four (4) new members to its
Board of Directors, of whom Brazil’s Sandra Guerra was one. Another piece of good news for the Brazilian community
involved in Corporate Governance topics is that Rio de Janeiro is a strong
candidate for hosting the Annual ICGN Assembly in July 2004, after Milan
in 2002 and Amsterdam in 2003.
Best
Corporate Governance Practices
Taken
from the Best Corporate Governance Practices – Brazil.
Changes in Company controls:
Change
in company control
Since the majority of
Brazilians have a single controller or a controlling group, the purchase
of the control or going private, are, at present the two major problems
encountered by Corporate Governance in Brazil.
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Option of selling minority
shares ( tag along)
Transfer of control must be effected at a transparent price.
The
sales of minority and/or preferred investments, should be based on the
bylaws, where conditions of sale must be clearly defined.
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Going private
A controller or
controlling group wishing to acquire 100% of capital, and go private,
should advise the other shareholders of its intentions.
Whenever
possible, private companies or “limitadas”
should adhere to the same principles.
The controlling shareholder should not take advantage of its
position as sole purchaser to lower the acquisition price.
The
price should represent the company’s economic value.
Status quo protection measures(poison pills)
The
Board of Directors and the Executive Management Board should not create
commitments with the specific intention of causing problems in the
transfer of company control
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