NEWS ABOUT CORPORATE GOVERNANCE - July/1999
- Internet resources are playing an increasingly important role in Corporate Governance. The reasons are several, among them, that, with the Internet, the shareholder base of publicly quoted companies can be expanded at significantly lower transaction costs, shareholders are better able to monitor company performance, and, especially, vote in general meetings without being physically present. With its greater number of Internet users, the USA is the unchallenged world leader in this area, a trend that will unquestionably spread throughout the world and will significantly impact Corporate Governance practices. This propensity is only in its early stages in Brazil but, according to the President of Invest Tracker, José Cássio Bariani, there are already nine new brokerages operating on line, 15 financial data sites, and six fund administrators operating on line. A survey carried out by Invest Tracker confirms the magnitude of the search for information and concern with straightforwardness by the investors accessing the company site on the Internet.
- In a recent article, Professor Stephen Kanitz pointed out that Brazil is not a corrupt country but one that is scarcely audited. Professor Kanitz shows that countries recorded as having the lowest corruption rates are those with the highest number of auditors and other inspection authorities. He cites Denmark and the Netherlands with their 100 auditors per 100,000 inhabitants, against Brazil, with only eight auditors per 100,000 inhabitants and one of the world’s highest corruption indices, according to the World Economic Forum. This finding should surely serve as a warning for any board of directors, since, after all, one of their chief functions is to strive to protect their shareholders’ interests. For this, the support of independent, competent external and internal auditors of unblemished reputation, experienced in working with companies of this scope, nature, and complexity, is absolutely essential.
- A recent survey carried out by the IRRC showed the ranking of the highest annual salaries of directors in the S & P 500 Index in 1998, in US dollars, including fees and shareholdings:
- Colgate-Palmolive : $ 104,550
- Traveles : $100,000
- Monsanto : $ 90,000
- Phillips Petroleum : $87,040
- Aluminum Co of America: $ 85,000
- The globalization of Brazilian companies through American Depositary Receipts (ADR) issues brought with it a new branch of insurance to Brazil -D & O (directors and officers), one that is well known in the USA and Europe. This is an insurance aimed at protecting company directors and officers against indemnity actions brought by minority shareholders alleging that they have been harmed or jeopardized by the actions of or information given by a company’s directors. Among the sixty-six (66) Brazilian companies that trade in ADR in the USA, Companhia Siderúrgica Nacional (CSN) was among the first to take out D&O insurance in 1995. It will not be long before such minority shareholder claims arrive in the Brazilian market, and it is more than likely that this type of insurance will be required by the boards of directors of Brazilian companies.
- Among the world’s three leading economic giants, Japan, when compared with the USA and Germany, is the most backward in terms of good Corporate Governance practices. But, in all fairness, Japanese companies have also made enormous efforts to improve their Corporate Governance practices. In May 1998, a Better Corporate Governance Code was drawn up with the support of many public and private organizations, and the Japanese regularly send large delegations to world conferences on this topic. And, lastly, to underline the rigorousness with which the Japanese authorities intend to address Corporate Governance, very recently, six (6) former Nippon Credit Bank executives, including the former president, were imprisoned for having “embellished” the Bank’s accounts in 1997.
- The IBGC (Brazilian Institute of Corporate Governance) will shortly be giving its third Course for Members of Boards of Directors, and many have already registered. This course comprises ten modules, totaling 104 class hours. It is aimed both at boards of directors wishing to recycle their knowledge and at those who are just starting up such activities. Further information available at tel (11) 3043-7008, fax: (11) 3043 7005, or by e-mail; ibgc@amcham.com.br
- A quote from the Best Corporate Governance Code- Brazil :
- The Board of Directors’ Mission
“The mission of the Board of Directors is to protect the company assets and maximize the return on shareholders’ investments, thereby adding value to the company. The Board of Directors shall strive to ensure compliance with the values, beliefs, and objectives of the shareholders in company activities”.
