10/01/2015

On Wednesday afternoon BM&FBOVESPA presented the State-Owned Enterprise Governance Program. BM&FBOVESPA Chief Executive Officer Edemir Pinto took part in this event alongside capital market representatives.

Program aims

The State-Owned Enterprise Governance Program was drawn up by the Exchange's regulation team. It was created to enhance practices regarding the provision of information and corporate governance structures of state-owned enterprises, seeking to restore investors' confidence and reduce state-owned enterprises' fundraising costs.

Target public

State-Owned enterprises that are publicly traded or in the process of becoming so.

Starting point

At the start of April, BM&FBOVESPA launched initiatives to enhance the corporate governance of State-Owned enterprises. After a wide-ranging discussion with corporate governance experts; government bodies; managers of companies partly owned by the federal government, states and cities; academics; lawyers; and market professionals, on April 22, 2015 the Exchange presented its draft proposals to enhance the corporate governance practices of state-owned enterprises.

Closed Hearings

BM&FBOVESPA's proposals were discussed in May in closed hearings attended by representatives from federal and state government, from state-owned enterprises and from market bodies and by experts in the area. Due to the quality of the debate and bearing in mind the significance of the matter BM&FBOVESPA decided to broaden the discussion, starting a Public Hearings process through the State-Owned Enterprise Market Advisory Committee.

Public Hearings

The institutions on the State-Owned Enterprise Market Advisory Committee put the Program before their members in order to gather enhancement suggestions over the August and September period.

Once the suggestions period had ended, BM&FBOVESPA drew up a new document, consolidating the comments received, and resubmitted it for discussion to its deliberative bodies and to the State-owned Enterprises Market Advisory Committee ')

State-Owned Enterprise Governance Program

BM&FBOVESPA has based construction of the program on concrete and objective measures that can be implemented in the short or medium term independently of legislation or rule changes.

The measures have been grouped into four courses of action:

  • Transparency (Disclosure of Information): the disclosure of information lets investors know the objectives of the controlling state-owned enterprise. This makes the enterprise and thus the investors' risk exposure predictable. The correct and appropriate disclosure of information allows implicit costs to be measured and permits inspection of the management and controllers' activities.
  • Internal Controls: there must be the adoption of a functional control system that is capable of removing executives and board members that divert company activity away from the stated purpose in order to benefit public policies that go beyond the public interest remit foreseen in the legal authorization.
  • Board composition: there must be detailed nominations criteria encompassing the qualification and expertise of Members of the Board of Directors and Executive Board, notably in relation to the state-owned enterprise's strategic areas of activity.
  • Obligation of the Public Controlling Shareholder: the federal government bodies must demonstrate their commitment to corporate governance best practice.

The measures have been divided into 'mandatory' and 'optional', separated by distinct considerations depending on significance or the degree of implementation difficulty.

State-owned enterprises that voluntarily adhere to the State-Owned Enterprise Governance Program, implementing the 25 corporate governance measures foreseen in it, will be certified by BM&FBOVESPA in two categories: Category 1 in which all measures are mandatory; and Category 2 in which as well as six mandatory measures, the state-owned enterprise must obtain 27 out of the 37 optional points.

Whenever new companies join the program it will be duly communicated by all BM&FBOVESPA channels and participants. The interested company's submission of a request for analysis will be treated confidentiality.

Line of Action Measures Status
Transparency Disclosure of Internal Policies and Internal Controls on the SOE's website 1
Enhancement of the Reference Form content MANDATORY
Annual Corporate Governance Letter 1
Information Disclosure Policy 2
Integrated or Sustainability Report following the GRI model, for example 1
Internal Controls Encompassing decisions, separation of roles, training 1
Code of Conduct or of Ethics 4
Training about Code of Conduct 1
Installation of Compliance and Risk Area MANDATORY
Attributes of the Compliance and Risk Area 2
Internal Audit and Statutory Audit Committee MANDATORY
Disclosure of the records of the meetings of the Statutory Audit Committee 4
Risk Management Policy 2
Related-Party Transactions Policy MANDATORY
Enhancement of the Attributes of the Fiscal Board 1
Management Minimum Standards for the Appointment of Executives and Board Members MANDATORY
Adherence to the Standards for the Appointment of Executives and Board Members MANDATORY
Nominations Committee 1
Assessment of Executives and Board Members 2
Prohibition of Accumulation of Positions 2
Mandate of Board Members 1
Number of Members of the Board of Directors 1
30% independent directors 4
Training 2
Obligation of the Public Controlling Shareholder Obligation of the Public Controlling Shareholder 4

BM&FBOVESPA's activity

BM&FBOVESPA will carry out monitoring that is (i) periodical, on at least an annual basis; and (ii) events-based when it becomes aware of information that may result in the upgrading or downgrading of a category, placing certification in review until it is possible to confirm the effective adoption of the Program's measures.

After certification, the state-owned enterprise may request withdrawal from the Program, but BM&FBOVESPA will make a final certification disclosure before ceasing to monitor the state-owned enterprise.

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