Code of Best Practices of Corporate Governance and the much-awaited evolution of the Brazilian capital market

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By Renato Vetere
After two years of intense work, the Code of Best Practices of Corporate Governance – Listed Companies was launched on November 16th, 2016. On the same date, the final version of the code was officially delivered to the Brazilian Securities and Exchange Commission – CVM.
The conceiving of a code about governance for all listed companies started in the sphere of the  Grupo de Trabalho Interagentes – GT Interagentes (Interagentes Working Group), which gathers 11 associations related to the capital market and has CVM and BNDES (Brazilian National Bank for Social and Economic Development) as observers.
With all entities agreeing to take a path focused on the evolution of the Brazilian capital market, which has lost the attractiveness it used to have in the past for a long time, losing ground to other emerging markets, it was decided for the creation of a subgroup formed by representatives of all associations aimed to seek a code model that included an evolution in terms of regulation standards and a perception of the global trends to be applied in the country.
Accordingly, based on the international trends of corporate governance regulations, the code was prepared under the “apply or explain” or “practice or explain” format, including principles, fundamentals, recommended practices and guidance.
The adopted model highlights the recognition that the governance is a process and not an end in itself. Paraphrasing the Chair of the Brazilian Securities and Exchange Commission – CVM, Leonardo Pereira, the “code was not conceived to ace the final test,” but to allow companies to apply principles that meet the company’s interests and those of its shareholders and other strategic stakeholders. If the company opts to not apply them, it must at least explain the reason why.
And the explanation is not to be considered a problem or obstacle for the best governance practices. To explain is not a failure, but a way to make the company’s decision processes more transparent.
As its implementation evolves, the model was conceived to allow the market to receive more transparent information about a company’s culture and, therefore, analyze whether the practices adopted or the explanations presented are complete and adequate. This reality will allow investors and other strategic stakeholders to take more informed decisions.
The descriptions and explanations will be disclosed according to a regulation to be implemented by CVM. Meanwhile, with the launch of the code, companies committed to the basic pillars of good governance practices can already start to implement them.
Transparence, equity, accountability and corporate responsibility are key words in this process and will enable companies, “even those that do not ace in their final test,” to be regarded as examples of corporate governance for the country.
The Code of Best Practices of Corporate Governance is divided in 5 chapters:
Chapter 1 – Shareholders (shareholding structure; shareholders’ agreement; general meeting; defense measure; transfer of control; board of directors’ opinion in tender offers; allocation of income policy; and listed state-owned companies).
Chapter 2 – Board of Directors (duties; composition of the board of directors; chair of the board; evaluation of the board and of its members; succession planning; introduction of new members; compensation of board members; internal regulation of the board; and meetings of the board of directors).
Chapter 3 – Management Board (duties; nomination of members; evaluation of the CEO and of the management board members; and compensation of management board members).
Chapter 4 – Supervising and Control Bodies (audit committee; conselho fiscal; independent auditors; internal auditors; and risk management, internal controls and integrity/compliance).
Chapter 5 – Ethics and Conflict of Interest (code of conduct and reporting channel; conflict of interests; related parties transactions; stock trading policy; contributions and donations policy).
The code also recommends the adoption of a series of corporate documents, separate from or integrated with a corporate governance policy for the compliance of the recommended practices.
The Code of Best Practices of Corporate Governance is a valuable tool for the market to recover its growth, based on globally recognized principles that will help it recover its credibility over time as a result of an increase in the investments and the necessary maturing.
Renato Vetere is the legal counsel of Amec – the Association of Capital Market Investors