NEWS ABOUT CORPORATE GOVERNANCE - March-April/2002
IBGC
– Brazilian Corporate Governance Institute
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The most
recent IBGC event was the Ordinary General Meeting held by its members on
Wednesday, March 21, 2002. As
part of the recent reform of the IBGC
by-laws, in line with good corporate governance practices, members are now
permitted to apply for a position on the Institute’s Board of Directors,
via a transparent voting system. This
enabled several interested members to register for the opportunity to
become involved in the management of the IBGC.
The election resulted in the following candidates being voted in as
Board members with a one-year term of office: Celso Giacometti, Celso Varga, José Guimarães Monforte, Lélio Lauretti, Luciano Carvalho Ventura, Maria Helena Santana,
Paulo Villares,
Roberto Faldini,
and
Ronaldo Veirano.
The General Assembly agreed on the creation of a Special Commission to
review the entire IBGC board
member election process, to which it appointed the following members:
Aline de Menezes Santos,
Antonio Carlos
Vidigal,
Bengt Hallqvist,
Guilherme Dale,
Leonardo Viegas,
Luciano Carvalho
Ventura,
Paulo Fernando
Campos Salles de Toledo, and René Werner. In a meeting held on April 16, the IBGC Board of Directors elected Mr. Paulo Villares as its Chairman,
and Messrs. Celso Giacometti and Ronaldo Veirano as Deputy Chairmen, all
with a statutory one-year term of office.
It also appointed Ms. Heloisa Bedicks as Director-General, Mr.
Fernando Alves as Treasury Director, and Dr. Nadine Baleeiro Teixeira as
Secretary, all with a statutory two-year term of office. Mr. Fernando
Alves is the Senior Partner of PriceWaterhouseCoopers and Dr. Nadine
Teixeira is the partner in charge of the Capital Market area at the law
firm of Demarest e Almeida Advogados. The new Board of Directors formally
acknowledged the dedication and excellent work performed by Mr. Alceu
Landi as Treasury Director for the last two years and to Dr. Antonio Luiz
Sampaio Carvalho who, both as substitute and holder of the office,
exercised the position of Secretary of the Board for over four years.
Lastly the Board of Directors also appointed/ratified the following
members to Committee Coordination positions, as follows: Audit Committee:
Celso Giacometti; Admissions Committee: Lélio Lauretti; Qualification
Committee: Leonardo Viegas; Communication Committee: Aline de Menezes
Santos; Congress Committee: Sandra Guerra; and Research Committee: Paulo
Conte Vasconcellos .
Once
again, Banco Itaú is a fine example of Good Corporate Governance Practices.
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In early 2001, the Banco Itaú controlling shareholders took an
unprecedented initiative: in a move towards total market transparency, for
the first time in its 56 years of activity, the bank elected to its Board
of Directors, professionals unconnected with either the controlling
shareholders’ families, or the bank’s management or staff.
These independent board members are Pérsio Arida,
former Brazilian Central Bank CEO, and Roberto Teixeira da Costa,
first CEO of the CVM (Brazilian
Securities Commission). In taking this decision, the shareholders ensured
not only increased transparency in the bank’s top management, but also
benefited from the perspective of these independent board members aligned
to that of the controllers. The
acknowledged professional competence of both sides can only contribute
positively to the bank’s administration.
A further and remarkable decision, attuned to best corporate
governance practices in relation to equitable treatment of all shareholders,
was recently taken by the bank’s controlling shareholders.
Following the example of its holding company, Itaúsa, it has
extended tag along benefits to its minority preference shareholders.
Since its introduction in March, Brazil’s new corporate
legislation has partially redeemed the tag along rights of minority
shareholders, who are now entitled to eighty percent (80%) of the amount
paid to the controlling shareholder, in the event of the sale of company
share control. The spontaneous
extension of this benefit to preference shareholders unprecedented in the
banking sector, is relatively rare in others, since only in a negligible
number of companies in the Brazilian share market, among them Editora
Saraiva, is it available to preference shareholders.
In the course of their work to upgrade corporate governance
practices, the Banco Itaú controlling shareholders will examine the
feasibility of attaining BOVESPA
Corporate Governance Level 2 that, to date, no company has achieved.
This compliance brings additional benefits for minority shareholders,
among them, the right of ordinary shareholders to receive the same price
per share as the controlling shareholders, in the event of the sale of
company share control. The tag along minimum of seventy percent (70%)
required by BOVESPA Level 2 for
preference shareholders, has already been met by the bank. Another Level 2
requirement currently being examined by the bank’s controlling
shareholders, is preference shareholder voting rights in some specific
cases, such as the bank’s merger, amalgamation, or split.
Today, we are all aware that good corporate governance greatly
contributes to adding market value to a company.
Thus, it is hardly surprising that the growing trend to corporate
governance practices has promoted Banco Itaú’s
preference shares to their position of being the most highly valued
stock in the banking sector, since they are traded at close to 2.6 times
their equity value, while the papers of their chief competitors are traded
at between 1.2 and 1.8 times their equity value.
Banco Itaú also has the highest corporate market value in Latin
America, close to US$20 billion.
Improved Brazilian capital market prospects
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There is no question that, over the last few years, the Brazilian capital
market has declined with the loss of its business to the more developed
stock markets. Nonetheless, as
pointed out in the last newsletter, some recent events have pointed to a
light at the end of the tunnel, despite reasons for only moderate optimism
on the medium and long-term future of Brazilian stock exchanges.
Let us examine these: Brazil’s new corporate law, which extended
the rights
Significant
corporate governance events in Latin America
During
April 2002, two major corporate governance events took place in Mexico
City, and were attended by a large number of IBGC
representatives. The first of these, under the leadership of Peter Taylor of the IFC,
took place on April 7, 2001 in the presence of over thirty (30)
representatives of several corporate governance compliant Latin American
organizations. The main objective of this gathering, sponsored by the
Global Corporate Governance Forum and organized by the International
Finance Corporation, was to share experiences and discuss methods for
developing corporate governance practices in Latin American companies.
It closed with the creation of the Network of Latin America
Institutes of Corporate Governance. Present
at the event were Brazil’s IBGC
(Brazilian Institute of Corporate Governance), Argentina’s IAGO
(Argentine Institute of Corporate Governance), Colombia’s CONFECAMARAS (Confederation of Chambers of Colombia), and Mexico’s
CCE (Corporate Coordinating
Council). The second event, a corporate governance round table, was part of
a series of related events begun in Brazil in 2000, continued in Argentina
in 2001, held this year in Mexico, and to be concluded next year in Chile.
The Brazilian delegation, the second largest, was represented by 19
bodies, such as the IBGC. CVM, BOVESPA,
Pension Funds, etc. Among the
speakers were José Luis Osório, Paulo Villares, Maria Helena Santana, and
Eliane Lustosa.
The
mere availability of reliable information is not sufficient for the
shareholder decision process.
Transparency,
one of good corporate governance’s most important pillars, is not
sufficient for an effective decision process for many shareholders/investors,
due to the latters’ lack of technical accounting knowledge.
Therein lies the importance of the investment analyst who, with his/her
experience and knowledge, can guide clients in their share purchase
decisions. This relationship
seemed to function admirably until certain scandals, featuring massive
conflicts of interest, came to light in that Mecca of US capitalism, Wall
Street, and involved brokerage houses of long tradition and irreproachable
reputation. The original
crusader in this defense of the small investor, the buyer of shares based
on the advice of investment analysts involved in conflicts of interests,
was New York State’s Attorney-General, Eliot Spitzer, who focused his
scrutiny on Merrill Lynch the world’s largest brokerage house.
The core of the investigation, focusing on misleading share
recommendations during the technology sector expansion in 1990, led to
evidence that some investment analysts had prepared favorable analysis
reports or reports recommending the purchase of shares in companies in
which they had no faith, based on an interest in obtaining more business
with companies in the investment banking sector. Spitzer succeeded in
obtaining a commitment to greater transparency from Merrill Lynch on its
analyses. The firm agreed to
create a page on the Internet, as early as this month of April 2002,
stating whether, over the last twelve (12) months, it did or did not own
shares and whether it had or had not received commissions for consulting
services from companies on which its analysts had published analytical
reports. Furthermore, Spitzer
has made it clear that this agreement signed with Merrill Lynch should be
used as a model for other investment banks.
Perhaps now, small shareholders/investors will be able to trust
their investment analysts.
Who
would have imagined that Swiss bank executives would ever have to disclose
their salaries to the market?
The
wave of fury in Switzerland generated by the fortunes paid in a monumental
conflict of interest, by the multinational company ABB on the retirement of
its former CEO’s, Percy Barnevik (US$89.5 million) and Goran Lindahl
(US$51 million), Marcel Ospel, CEO of Switzerland’s UBS, one of the
largest banks in the world, caused the Swiss Stock Exchange to oblige
listed companies to publish the highest salary paid to a member of their
Boards of Directors. He also
announced to the bank’s shareholders that his earnings for last year
amounted to US$7.6 million, one-third less than the US$11.2 million he
received in 2000, a salary reduction proportional to the bank’s reduced
profits for the same period. This
is another spectacular victory for shareholders over Chairmen and CEO’s,
particularly in this case, since it was achieved in Switzerland, the
country of banking and one with an image closely associated with money,
where discussing one’s earnings amounts almost to a sin.
But this lack of transparency in relation to high management
earnings is changing even in Switzerland, because shareholders are outraged
at the huge salaries paid to members of boards of directors and to top
management.
International
Corporate Governance Network
The
International Corporate Governance Network – ICGN will hold its 8th
World Conference in Milan, Italy, from July 10 through 12, 2002.
The chief topic will be “Citizen Companies – The Role of
Corporate Governance”, and will be sponsored by the Italian Stock
Exchange. Attendance at this
Conference, the world’s most important corporate governance event, is
expected to exceed that of last year’s Meeting in Tokyo, Japan, attended
by 450 participants
representing over twenty countries. One
of the most awaited panels as a result of the close relationship between
the ICGN and the global pension fund community, is the “Pension Funds –
Investor and Citizen?” panel. One
panel member will be Brazil’s Eliane Lustosa, Investments Director of
Petros, one of the country’s largest and most active pension funds. Rio
de Janeiro continues to be a strong candidate for hosting the annual ICGN
conference in July 2004, after the Amsterdam conference in 2003. Further
information on this important world corporate governance event may be
obtained from the ICGN website,(www.icgn.org).
Best
Corporate Governance Practices
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Quoted from the Best Corporate Governance Practices Code – Brazil.
The Board of Directors (cont.)
Committees
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A number of Board activities require a degree of in-depth analysis that takes up more time than is available in meetings. Different committees, each one involving some Board members, should be formed, such as: appointment, audit, salaries committees, etc. The committees must analyze their specific topics and prepare proposals. Only the full Board of Directors may take the respective decisions.
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Each company should set up at least one audit committee.
Size
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The size of a Board of Directors should vary, depending on the company’s business sector, from five to nine members.
LCV NEWS -
January-February/2002
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July-August/2000
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