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3rd Latin American Corporate Governance Roundtable. Disclosure and Transparency - A Market Requirement. Maria Helena Santana. São Paulo Stock Exchange - Bovespa. April 2002. C auses Truly a market requirement. The growing influence of institutional investors size (AUM)
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3rd Latin American Corporate Governance Roundtable Disclosure and Transparency - A Market Requirement Maria Helena Santana São Paulo Stock Exchange - Bovespa April 2002
CausesTruly a market requirement • The growing influence of institutional investors • size (AUM) • more demanding posture – bad experiences • increase in the supervision of pension fund administrators • Globalization – the influence of other markets with more transparent practices • inflow of foreign investments • companies listing on foreign exchanges, mainly on the NYSE (disclosure, yes; investor rights, no)
Responsesin the last two years • Private sector - initiatives to stimulate the adoption of greater disclosure • Public sector - laws and norms • Companies - greater supply of information and improvements in Investor Relations activities
Private Sector - BOVESPA • 2001 - Novo Mercado, Levels 1 and 2 Examples of additional disclosure required: • related party transactions • trading and ownership of the company’s shares by the managers and controlling shareholders • improved Quarterly Reports, including: • consolidated financial statements • cash flow • limited audit review • 2002 - Level 1 becomes the minimum standard for companies that list on the BOVESPA (although we don’t expect any IPOs outside of Novo Mercado or Level 2)
Private Sector - ANBIDNational Association of Investment Banks • 2002 - New Code of Self-Regulation for the Capital Market • range: all members • scope: prospectus for public offerings, with disclosure at international standards • restriction: the members may only carry out operations of equities and convertible bonds with companies that are listed, at least, at Level 1 of the BOVESPA
Private Sector - ABRASCABrazilian Association of Public Companies • Award for the ‘Best Annual Report’ - 3rd edition • Criteria for scoring points: transparency in the • analysis of economic-financial aspects (MD&A) • information regarding risk factors • structures and practices of corporate governance
Private SectorHarmonization of International Accounting Norms and Practices • A group is working to stimulate Brazilian adherence to the IFRS - International Financial Reporting Standards • Brazilian presence at the IASB • IBEF - Brazilian Institute of Financial Executives • CFC - Federal Accountancy Council • IBRACON - Brazilian Institute of Independent Auditors
Public Sector • Jan/2002 - Instruction 358 of the CVM (following the approval of the Corporate Law, in Oct/2001) • disclosure of material information • disclosure of information in public offerings and large acquisitions • disclosure of information about trades by managers • policies for disclosure of information and for trading with the company’s shares (insiders)
Public Sector • In process (in the Congress) – Bill no. 3741 • Focus on financial statements’ adherence to the IASB standards, and: • cash flow • value added • extension to all companies with revenues above R$ 100 MM of the same disclosure obligations as those required of public companies
Public Sector • In hearing - First draft of CVM Recommendations on Corporate Governance • mandatory disclosure, in annual reports, of which recommendations have been adopted by the company • Two examples of recommendations: • disclosure, in quarterly financial statements, of the discussion and analysis of the factors that influenced the result • adoption of a rotation system among auditing companies and restrictions to the contracting of the firm for other services
Companies • The number of companies that voluntarily disclose additional information is growing • Study of 112 companies (excluding those at L1 and NM) • 21 present cash flow statements • of the 93 in which consolidation is compulsory in the annual financial statements, 61 already present quarterly consolidated statements
Companies • Internet - IR sites • already maintained by a substantial number of companies • participation in the Latin Finance/MZ Consult Award (2001): Brazil - 161 sites evaluated; Argentina - 18; Chile - 27; Mexico - 74 • Teleconferences • becoming more frequent, for discussion of quarterly results and/or relevant facts
Conclusion - Brazil • What we have today is still not enough • What else can be done? • stimulate the adoption of international accounting standards in Brazil • work for the approval of the Bill that improves the financial statements (PL 3741) in Congress • stimulate the companies listed on the BOVESPA and new listings to migrate to the Levels and the Novo Mercado • develop and help to develop the technological infrastructure so that the information may be accessed with greater ease and rapidity