At the event BM&FBOVESPA also presented the schedule to enhance Special Listing Segments 07/01/2015

On Tuesday morning BM&FBOVESPA presented federal, state and market bodies, and experts, with the results of the closed hearing for the Corporate Governance Program for State-Run Companies. Taking part in the event were BM&FBOVESPA CEO Edemir Pinto; Brazilian Securities Commission (CVM) chairman Leonardo Pereira; and several capital market representatives.

BM&FBOVESPA also presented a schedule for the enhancement of the Special Listing Segments, based on corporate governance best practices. The proposal includes resumed mapping of best practices as well as a public hearing programmed for the first half of 2016, and a closed hearing with companies in the special listing segments for the second half of 2016.

Public Hearing

After holding the closed hearing with market participants, alongside companies and government bodies, BM&FBOVESPA decided to broaden the discussion about the Corporate Governance Program for State-Run Companies, due to the quality of debate and bearing in mind the significance of the matter. Institutions on the Market Advisory Committee for the Governance of State-Run Companies will be encouraged to submit to members the current version of the Program resulting from the Closed Hearing, in order to gather their enhancement suggestions. The Public Hearing will have a timeframe of 60 days to receive suggestions from institutions and once this time has passed the Committee will consider a consolidated document of the suggestions received, submitting a new version to BM&FBOVESPA's deliberative bodies.

The measures have been divided into "mandatory" and "optional", separated by distinct considerations depending on significance or degree of difficulty of implementation. Additionally, scores and recognition are grouped into two categories: Category 1 in which all measures are mandatory and Category 2 in which measures are mandatory, with another 30 optional points (details are given of the categories in the attached presentation).

Results of the Closed Hearing

MEASURE CATEGORY 1 CATEGORY 2
Transparency Enhancement of the Reference Form content MANDATORY MANDATORY
Annual Corporate Governance Letter MANDATORY 1
Adaptation of the corporate bylaws to the legal authorization for the establishment of the state-run company MANDATORY 2
Information Disclosure Policy MANDATORY 2
Destination of Earnings Policy MANDATORY 1
Publication of Data Segregated by Activities of Public Interest MANDATORY 2
Integrated or Sustainability Report MANDATORY 1
Internal Controls Code of Conduct or of Ethics MANDATORY 4
Action by management and employees through the daily implementation of internal controls MANDATORY 1
Establishment of the Compliance and Risk Area MANDATORY MANDATORY
Attributes of the Compliance and Risk Area MANDATORY 2
Internal Audit and Statutory Audit Committee MANDATORY MANDATORY
Disclosure of the records of the meetings of the Statutory Audit Committee MANDATORY 4
Risk Management Policy MANDATORY 2
Related-Party Transactions Policy MANDATORY MANDATORY
Enhancement of the Attributes of the Fiscal Board MANDATORY 1
Management Minimum Standards for the Appointment of Executives and Board Members MANDATORY MANDATORY
Adherence to the Standards for the Appointment of Executives and Board Members MANDATORY MANDATORY
Nominations Committee MANDATORY 1
Assessment of Managers MANDATORY 2
Prohibition of Accumulation of Positions MANDATORY 1
Mandate of Board Members MANDATORY 1
Number of Members of the Board of Directors MANDATORY 1
30% independent directors MANDATORY 4
Training MANDATORY 2
Obligations of the Public Controlling Shareholders MANDATORY 4

The Corporate Governance Program for State-Run Companies was drawn up by the Exchange's regulation team. It was created to enhance practices regarding the provision of information and the corporate governance structures of state-run companies, seeking to restore investors' confidence and reduce state-run companies' fundraising costs.

In this context, it is hoped that everyone will align with this initiative: investors that want the efficient and sustainable allocation of their resources; civil society and the internal collaborators of state-run companies, for the maintenance of jobs and income; state-run company bodies, for the enablement of investment in the public interest, with capital market financing.

Target public

State-Owned Enterprises (publicly-traded or not).

Point of departure

At the start of April, BM&FBOVESPA launched initiatives to enhance the corporate governance of state-run companies. After a wide-ranging discussion with corporate governance experts, government bodies, mixed-capital companies' management, academics, lawyers and market professionals, on April 22, the Exchange presented the initial proposals. These were submitted to a closed hearing that ended on April 29 and which included representatives from Federal and State governments, from state-run companies, market bodies and experts in the area.

The measures were grouped into four courses of action:

  • Transparency (Disclosure of Information): the disclosure of information lets investors know the objectives of the state-run controlling company, making both its future behavior and the risks to which they are subject predictable. The correct and appropriate disclosure of information allows implicit costs to be measured and permits inspection of management and controllers' activities.
  • Internal Controls: the Exchange considers it indispensable to establish internal corporate governance mechanisms to assure that the state-run company's activity is in accordance with the public interest that justified its creation. There should be the adoption of a functional control system that is capable of removing management that diverts company activity from its purpose in order to benefit public policies that go beyond the public interest remit foreseen in the legal authorization.
  • Management composition: detailed criteria are important as regards the qualification and expertise of the Members of the Board of Directors and of the Executive Board, notably in relation to the strategic areas of activity of the state-run company, for the nomination of management.
  • Obligations of the Controlling Stakeholders: the federal government bodies must demonstrate their commitment to corporate governance best practice.

Recognition and monitoring

The Corporate Governance Program for State-Run Companies includes a recognition mechanism to be checked by BM&FBOVESPA, for companies that adhere to the program and for those that implement corporate governance measures. All new adhesions to the program by companies shall be duly reported to all BM&FBOVESPA's channels and participants. The interested company must also submit an analysis request under conditions of confidentiality.

BM&FBOVESPA's Actions

BM&FBOVESPA will carry out monitoring that is (i) periodical, on at least an annual basis; and (ii) eventual, when it becomes aware of information that may result in the upgrading or downgrading of a category. After certification, the state-run company may request withdrawal from the Program, but BM&FBOVESPA will make a final certification disclosure before ceasing to monitor the state-run company.

Enhancement Timeframe of Novo Mercado

There are further details below of the timeframe for enhancement of the Novo Mercado:

  • Mapping of corporate governance practices (2nd half/2015)
    • Resumption of surveys into practices foreseen in the listing codes and rules in other jurisdictions, including an update of mapping carried out between 2013 and 2014.
    • Identification of the additional corporate governance practices already adopted by the listed companies in Special Corporate Governance Segments
    • Purpose: to identify corporate governance items to be enhanced and to assist in drawing up material for a public hearing.
  • Public Hearing (1st half/2016)
    • Wide-ranging discussion with several interested publics, including workshops and interviews with experts.
    • Purpose: to discuss the main proposals to assist in drawing up documents for a closed hearing.
  • Closed Hearing with companies from the Special Segments (2nd half/2016)
  • 07/01/2015
    BM&FBOVESPA presents the results of the closed hearing for the Corporate Governance Program for State-Run Companies
  • 06/17/2015
    Maestro Frotas celebrates BOVESPA Mais listing
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