NEWS ABOUT CORPORATE GOVERNANCE - November-December/2001
IBGC
– Brazilian Corporate Governance Institute
-
On
November 12, in the presence of approximately 200 members and others, with
the support of Unibanco and Banco Real–ABN AMRO Bank, the IBGC
(Brazilian Institute of Corporate Governance) held its Second Brazilian
Corporate Governance Congress in São Paulo.
Once again, the Congress was formally opened on the preceding
evening with a gala dinner. The
speaker that night was Luiz Tarquínio Sardinha Ferro, CEO of PREVI,
Brazil’s largest pension fund and a pioneer in motivating pension funds
to demand good corporate governance practices in the companies in whose
share capital they invest. Among
the other speakers, were Robert G. Monks, international activist and
symbol of the movement for the defense of minority shareholders in the
USA, Dr. Stephen Davis, distinguished international Corporate Governance
consultant, and Peter Taylor, Director of the International Finance
Corporation’s Corporate Governance Project at the World Bank. Among the
more important Brazilian speakers were Bruno Rocha, founding partner of
Dynamo, Carlos Flory, CEO of the important and activist Petros pension
fund, Eleazar de Carvalho Filho, the current CEO of BNDES,
and José Luiz Osório, CEO of the CVM
(Brazilian Securities Commission). A
further note on the IBGC: since
“good example comes from within”, the IBGC
recently reformed its own statutes, in line with good Corporate Governance
principles. This included a democratic process permitting members to
access the Board of Directors, via a totally transparent election process,
thereby enabling interested members to take part and collaborate in the
management of the IBGC.
Accordingly, the new regulations for the election of the members of
the Board of Directors, that always takes place in March, establish that,
within sixty (60) days prior to the Ordinary General Meeting, the
Nomination Committee will formally advise all members of the commencement
of the thirty (30) day time limit to propose candidates.
Within a maximum period of fifteen (15) days prior to the Ordinary
General Meeting, the Nomination Committee will give written notice to all
members, of the names of all formally proposed candidates, to be voted at
the Meeting. The reformed statutes also established the right of any
member to be represented by a duly appointed attorney-in-fact, provided
the latter is also a member. Written
votes are also accepted from members unable to be present or who have not
appointed an attorney-in-fact to represent them at the Meeting.
The
activism of Brazilian pension funds in their shareholder role.
-
The recent ABRAPP (Brazilian
Association of Private Pension Funds) elections attested to the trend to
increasingly active role of pension funds in their capacity as minority
investors in Brazilian companies. On November 17 and 18, 2001, using an
internet voting system, ABRAPP
Example
of the success of share funds with a Corporate Governance focus
-
The Fundo Fator Sinergia managed by Banco Fator is a Corporate Governance
Fund for qualified investors. Its
objective is to manage low liquidity or over devalued shares, aimed at
maximizing its quotaholders’ investments, based on the degree to which
these companies enforce Corporate Governance practices and increasingly
honor the rights of their minority shareholders.
At present, the Fundo Fator Sinergia has a managed net equity of R$
220 million (US$ 95 milloin), one third (1/3) of which is represented by
share investments of companies that already comply with Bovespa
(São Paulo Stock Exchange) Corporate Governance Market Level 1
requirements. Furthermore, two thirds (2/3) of its share portfolio consists
of companies where the Fund is represented on the Board of Directors or
Audit Boards. Its performance
for 2001 is unequivocal proof that the observance of good Corporate
Governance practices and regard for minority shareholder rights are vital
factors for adding value to a company’s shares.
In a year where, by December 11, the IBOVESPA
(São Paulo Stock Exchange Index) had devalued by eleven point five
percent (11.5%), the value of the Fundo Fator Sinergia quota increased by
twenty point three percent (20.3%), a gain of thirty-five point nine
percent (35.9%) over the market index.
The Manager of the Fundo Fator Sinergia is Fernando Tendolini
Oliveira, a professional of long-standing experience in the capital market.
Bradesco-Templeton
and the São Paulo Stock Exchange sponsor a Corporate Governance event.
On
December 13, BTAM (Bradesco-Templeton
Asset Management) and Bovespa (São
Paulo Stock Exchange) sponsored an important event in São Paulo,
“Corporate Governance and the Capital Market”. The event was attended
by representatives of important Brazilian organizations, market
professionals, and many others with a special interest in Corporate
Governance. High points were the presentations by Peter Taylor and Robert
Monks on this topic. BTAM’s
interest in this topic derives from its role as the manager of a Corporate
Governance Fund representing qualified investors, the Fundo Bradesco
Templeton de Valor e Liquidez. This
fund has achieved a level of profitability significantly above market
rates.
The
BTAM’s Investments Director, Mauro Rodrigues da Cunha, a highly
experienced capital market professional and with a dedicated proponent of
Corporate Governance practices, was the author of an article on this event,
entitled “Monkology and Governance”, published by the business
newspaper Valor. This can be found in the Technical Material Section of the
LCV Corporate Governance website (www.lcvco.com.br).
The
Board of Directors adds value to company shares
In
a recent article, Mara Luquet, Editor of the Personal Investments and
Careers section of the business newspaper Valor,
comments on the vital role of boards of directors in creating wealth for
company shareholders. She
recommends that, on evaluating a company, potential investors should not
only analyze its projected growth and other factors, but also check out
its board of directors. The
names of these individuals will provide valuable information on the
company’s prospects. According to Luquet, “an efficient board of directors is
[the investors’] guarantee that company management is committed to its
shareholders’ interests by adding value over the long-term.
She concludes
her interesting article by quoting the opinions of two distinguished
specialists in this area, one Brazilian and the other an American. The
Brazilian, Roberto Teixeira da Costa, with his in-depth experience on
boards of directors of major companies and deacon of independent board
members in Brazil, states that “it is the prime duty of a board of
directors to avert share catastrophe and to identify poor management”.
In turn, in his book, “Experiences of Corporate Governance”,
Jay W. Lorsch, dean of the Harvard Business School doctoral points out
that the more independent board members a company has, the better.
This new prototype board has greater freedom to monitor the
performance of senior management and of the company as a whole.
And this has all been confirmed in practice. A recent survey of a sample number of 5,069 companies,
identified General Electric as the company that has most enriched its
shareholders over the last five years, by exactly US$ 226.8 billion, an
average return of 28% per annum
for its shareholders. Clearly, executive of the century, Jack Welch, was
mainly responsible for this outstanding performance.
But, if we heed the opinion of Harvard Business School’s
Corporate Governance specialist, Robert Stobaugh, considerable acclaim is
due to the company’s board of directors.
He claims that General Electric’s Board is an example to be
followed, even by the more efficient boards of other US companies, mainly
because it is “very independent”. Mara Luquet’s article can be found
in the Technical Material Section of the LCV Corporate Governance website
(www.lcvco.com.br).
Small
Brazilian investors can now invest in share funds of companies that apply
Corporate Governance practices.
Recently,
in Brazil, Banco Real established its Fundo Ethical, the first fund
investing in the capital of companies that include economic and financial,
social, and environmental aspects in their management decisions. Good
Corporate Governance is one of the criteria essential for the
eligibility
of companies whose shares could potentially be acquired by this investment
fund. It is interesting to
note that small scale investors with investments starting from as low as
one hundred reais (US$43.00),
who believe in human and economic values, applied jointly in a company,
increase their market share value, are eligible to be quotaholders of this
fund, and to benefit from its profitability.
The Fundo Ethical has the full institutional support of the IBGC
(Brazilian Institute of Corporate Governance).
Corporate
Governance and Total Quality Management
The
growing importance of Total Quality Management in companies over the last
few years is undeniable. A
Brazilian leader in this area is Porto Alegre’s PGQP
(the Gaucho Quality and
Productivity Program), formed in 1992.
On November 26, 27, and 28, under the technical coordination of
Fernando Mattos, director of Indextech - Gestão pela Qualidade Total, PGQP
held its Third International Quality Congress.
Among the international speakers were the CEO of ASQ – American
Society for Quality, Gregory Watson, CEO of the Schargel Consulting Group
– USA, Franklin Schargel, and the CEO of ontheFRONTIER – USA, Michael
Fairbanks. This International Quality Congress pioneered the combination
of two topics that, despite their importance in today’s business world,
are rarely treated jointly. In
fact, in its traditional and standard manner, quality management focuses
at an operational level, and does not fully consider how the company is
governed. Certainly in large companies, the reality is that total
quality must start at shareholder level.
In other words, total quality in large organizations, listed
companies particularly, cannot be claimed without examining the quality of
its Corporate Governance. If quality is a vital factor, it must be
measured and, for this, several quality-rating programs exist.
On the other hand, if Corporate Governance is also an important
factor for these companies, its own degree of quality must also be rated.
For this, we have the Corporate Governance Scoring System, a
pioneer program launched in Brazil by SR Rating. There has been
considerable pressure to expand Corporate Governance system evaluations as
part of the evaluation of a company’s total quality. This led technical
director, Fernando Mattos to include in the Third International Quality
Congress program, a seminar coordinated by Luciano Carvalho Ventura, on
the importance of Corporate
Governance and its rating methods, within the concept of total corporate
quality.
Changes
in the chain of command
Under
the upgraded new governance system of the Odebrecht Group, Brazil’s
largest construction company, executive Emílio Odebrecht has resigned as
Group CEO, a position he has held for the last ten years, and remains as
Chairman of the Board of Directors. He
is succeeded as CEO by attorney Pedro Novis, a career executive of the
group, which he joined as an intern in 1968.
This is a clear sign of a more up-to-date Corporate Governance
policy since, for the last three years, Emílio Odebrecht held the
positions of both CEO and Chairman of the Board. As an another example,
ninety-year old João Pedro Gouveia Vieira, Chairman of the Board of
Directors of another major Brazilian company, the Ipiranga Group, is
retiring and will be substituted by the Deputy Chairman, João Francisco
Tellechea. In the global
scenario, Brazil’s most brilliant executive, Carlos Ghosn, CEO of Nissan,
is responsible for one of the most successful rescue operations of an
automobile manufacturer in the world.
He has been announced as the natural candidate to, in 2005, succeed
Louis Schweitzer, worldwide CEO of Renault, at which time he will be in
charge of two automobile organizations, since he will retain his position
as CEO of Nissan. Lastly, Jack Welch, formerly of General Electric dubbed
executive of the century, has been confirmed as a member of the Board of
Directors of Fiat. Here,
according to the Chairman of the Board, Paulo Fresco, “what he (Welch)
will bring is his own unique business sense and his skill in identifying
business opportunities, in addition to helping Fiat upgrade its human
resources policy”.
Important
changes in United Kingdom pension fund policies
The
United Kingdom has one of the largest and oldest pension fund systems in
the world. Although British
pension funds are seen as efficient and as shareholders are very active,
it is the opinion of the British Government that there is space for
improved controls and more qualified trustees.
This is one of the reasons that the Government entrusted to Paul
Myners the task of carrying out a wide ranging review of the country’s
pension funds, culminating in the publication of the “Myners Report”.
This 201-page report makes several recommendations on transparency
and the responsibilities of the main parties involved in pension fund
investment procedures. The
British Government is now expected to introduce new legislation based on
the recommendations in this report. Regarding the level of activism of
pension funds as shareholders of companies, indicators suggest that the
new legislation will require both fund trustees as well as the investment
managers, to intervene further in the investee companies in defense of
their interests as shareholders. Furthermore,
the principles that will guide investment policies must also include US
principles of shareholder activism. Specifically, these are the principles established in the US
Labor Department’s Interpretive Bulletin on Activism, relating to the
1974 Employee Retirement Income Act, known as ERISA. This means that share
trustees will be required to vote on matters that could affect the value
of share investments in companies. Furthermore,
when the shares are retained as long-term investments, the trustees must
monitor the independence and qualifications of any candidates for
membership of these companies’ boards of directors.
Where necessary, this supervision should also extend to other
matters of interest to the shareholders, such as remuneration of company
executives, mergers and acquisitions, debt policy, and evaluation of
company performance. In other
words, these trustees will shortly be legally required to enforce and
monitor the Corporate Governance practices of the companies in which
British pension funds are shareholders.
The
City of London’s new High Sheriff.
The
City’s new High Sheriff, the FSA (Financial Services Authority) is
already operational. This
agency is unique in the world because it monitors all segments of the
financial sector, from stock exchanges to banks and brokerage houses,
including insurance companies and other market agents.
It is completely independent and not government run, although its
directors are appointed by the Government.
The FSA’s first target is to uphold the creditability of the
market as a whole, for which task it has near unrestricted powers, and
reports only to Parliament. These
powers range from levying fines of unlimited amounts to prison sentences
for financial crimes. In view
of Britain’s capital market, characterized by a wide distribution of
shares held by
both
institutional investors and small individual investors, the FSA is
expected to direct particular attention to minority shareholder rights,
which tend to be more respected in companies that apply good Corporate
Governance practices. Accordingly,
the presence of the FSA will contribute to improved corporate governance
in British business. In
Brazil, although recent amendments to the country’s Corporation Law have
extended CVM (Brazilian
Securities Commission) jurisdiction and independence, the environment of
the minority shareholder in the Brazilian capital market is still very far
from that of the City of London.
Best
Corporate Governance Practices
- Taken from the Best Corporate Governance Practices Code, Brazil.
The
Board of Directors:
Regardless of whether a company is publicly quoted or private, it
should have a Board of Directors
Mission
of the Board of Directors:
The mission of the Board of Directors is to protect the
company’s equity and to maximize the return on its owners’ investment,
thereby adding value to the organization.
The
Board of Directors shall strive to maintain company values, the owners’
beliefs and objectives in company activities, all of which must be
discussed, approved, and reviewed in a Board meeting.
Happy New Year.
LCV NEWS -
September-October/2001
LCV NEWS - January-February/2001
LCV NEWS - November-December/2000
LCV NEWS - September-October/2000
LCV NEWS -
July-August/2000
LCV NEWS - May-June/2000
LCV NEWS - March-April/2000
LCV NEWS - January-February/2000
LCV NEWS - November-December/1999
LCV NEWS - October/1999
LCV NEWS - September/1999
LCV NEWS - August/1999
LCV NEWS - July/1999
LCV NEWS - June/1999
LCV NEWS - May/1999
