Today BM&FBOVESPA announces draft proposals to experts and to representatives of federal, state and market bodies, to enhance the corporate governance of state-run companies. The proposals have been drawn from a study carried out by the Exchange’s regulation area and will be discussed by participants at the hearing in order to create a concrete proposal applicable to these companies.
The project focuses on enhancing practices regarding the provision of information and on the governance structure of state-run companies, seeking to raise the degree of protection for investors and thus beginning a recovery process for the creditability of investors in the market.
Given the context, everyone is expected to fall in line with this initiative: efficient and sustainable allocation of resources is in the investors’ interest; the maintenance of employment and income is in the interest of wider society and those working directly at state-run companies; and the enablement of public-interest investment with capital market financing is in the interest of the capital market.
The initial proposals range from these additional obligations (related to the publication of information, including the enhancement of the Reference Form and clear delimitation of the public interest to be met by the state-run company) to obligations related to the internal control structures, such a foreseeing a Compliance Officer.
The project’s target public is state-run companies in general, whether 100% controlled by the state or whether mixed-capital and whether listed on the Exchange or not. Adherence shall be voluntarily.
Point of departure
Initial proposals to enhance the governance of state-run companies have been divided into four courses of action: transparency, internal control practices and structures, management composition and obligations of the controlling stakeholders:
Transparency:
- Annual Letter with a description of the limits on the activity of the state-run company pursuant to the public interest that justified its creation;
- Adaptation of corporate bylaws to the legislative authorization for creation of the state-run company;
- Enhancement of the information provided in the Reference Form: company activity, business plan, effects of the rules for state-run companies and other factors of significant influence;
- Drawing up and publication of an Information Disclosure Policy;
- Drawing up and publication of a Dividends Distribution Policy;
- Segregated disclosure of operational and financial data for activities of public interest;
- Detailed disclosure of related-party transactions;
- Detailed disclosure of exceptional and significant transactions;
- Publication of a Corporate Governance Report:
- Publication of a Sustainability Report.
Internal controls:
- Enhancement of internal controls through the adoption of structures and practices foreseen by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), with three lines of protection: (1st) action by managers and collaborators through the day-to-day implementation of internal controls; (2nd) Compliance Department; and (3rd) internal audit and Statutory Audit Committee (CAE);
- Risk Management Committee;
- Code of Conduct or of Ethics;
- Related-Party Transactions Policy.
Management composition:
- Creation of a Nominations or Selections and Assessment Committee, headed by an independent member of the Board of Directors;
- Drawing up of a Selection Policy, containing minimum criteria to be considered in the selection of management;
- Prohibition on the accumulation of positions of CEO and chairman of the Board of Directors;
- Board of Directors with a mandate of at most two years;
- Establishment of a maximum number of members of the Board of Directors, within a range of five to 11 board members;
- Board of Directors composed of at least 20% independent members;
- Participation of managers elected in specific training courses about the disclosure of information, compliance and the Anti-Corruption Law, as well as integration training on subjects that are essential to the company at the moment of taking a position;
Obligations of the controlling stakeholders:
- Adaptation of the corporate bylaws so that the proposed measures may be reflected;
- Broadening of the Code of Conduct for Federal Upper Management and the Code of Conduct or similar documents for state enterprises;
- Specific training courses for public authorities about disclosure of information;
- Action to guarantee that the Board of Directors has independence in electing upper management;
- Observance of the Selections Policy when management and members of the Fiscal Board are chosen;
- Selection of at least 20% independent members of the Board of Directors.
Recognition and monitoring
The Project also includes a recognition mechanism for companies that adhere to the program and for those that implement the corporate governance measures. BM&FBOVESPA will grant recognition based on the proposals of the Market Advisory Committee for Governance of State-Run Companies. All new adhesions to the program by companies shall be duly communicated through all of the BM&FBOVESPA and participant channels.
