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High Level Meeting of the State Ownership Authorities

High Level Meeting of the State Ownership Authorities. States and Government Companies Murilo Barella Slovenia – 5-6 September 2011. PSEs in Brazil: History.

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High Level Meeting of the State Ownership Authorities

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  1. High Level Meeting of the State Ownership Authorities States and Government Companies Murilo Barella Slovenia – 5-6 September 2011

  2. PSEs in Brazil: History • after World War II: State increases its economic actions, interfering on goods production and services provision = Public Sector Enterprises (PSEs) • 1980 and 1990: State restricts its activities as goods and services provider = privatizations • today: society choose to maintain several enterprises under the State property.

  3. Department of Coordination and Governance of State Enterprises - DEST • Mission: Improve the state's role as a shareholder of PSEs, encouraging the adoption of corporate governance practices and leveraging the investments of the State for the benefit of society

  4. Department of Coordination and Governance of State Enterprises - DEST Attributions • Coordinate the PSEs budget elaboration and to monitor its execution, including the fiscal goals and investments • Consolidate and inform PSEs’ economical and financial data • Approve PSEs remuneration and pension funds policies • Encourage the adoption of corporate governance best practices

  5. The Universe of PSEs in Brazil According to the activity

  6. The Universe of PSEs in Brazil According to the control • Directly 44 (Controlled PSEs) • Indirectly 103 (Controlled by the holding) Total 147

  7. Number of Employees

  8. Investments (Historical)

  9. Public Investments(Historical)

  10. Financial Results(Dec. 2010)

  11. Financial Results(Dec. 2010)

  12. PSEs • Arranged mostly in two forms: stock and public companies • Legal personality, administrative, budgetary and financial autonomy to achieve their social function and fulfill their corporate purposes • This autonomy(1) does not exclude the control by the State and the society, which is made by the National Congress through the Brazilian Court of Audit (TCU), by the Department of Coordination and Governance of State Enterprises (DEST) and by the Office of the Comptroller General (CGU), for example • General Rule for Bids(2) - the conditions and regulations for bids, direct acquisitions and conventions that apply to the hiring of works, services and acquisitions • Governed by the Brazilian Law of Corporations, and in the case of public banks, by the applicable laws of the entire financial system (Central Bank) • The SOEs’ autonomy varies according to their economic dependence: more financially independent they are greater is their autonomy • The 1988 Federal Constitution

  13. Regulation of PSEs in Brazil • PSEs are ruled by the same laws of private enterprises, including rights and obligations in the following fields: • Civil • Commercial • Labor (to perform contracting of employees only by means of public examination1) • Tax • The public banks – also to control of regulation institutions such as the Securities and Exchange Commission of Brazil (CVM), the Brazilian Stock Exchange (BOVESPA) and the Central Bank (BACEN). • The Basel Index: minimum percentage of capital demanded (8.0%). Brazil 11% for Basel Index purposes (Central Bank) – public banks (~20%) (1) The 1988 Federal Constitution

  14. The State Ownership Function PSEs

  15. The State as a Shareholder Ministry of Planning, Budget and Management(DEST) • establish corporate governance guidelines • approve the allocation of income • approve the bylaws and capital increases • fix the Board members remuneration, and to appoint one Board member Ministry of Finance • approve the financial statements • authorize the issuance of securities and the debt situation • appoint one Fiscal Council member • represent the State at the shareholders meetings Sector Ministry • gives orientation for the investment strategy • sets out the board of directors • appoints the majority of the non executive Board and Fiscal Council members

  16. Responsability for Governance • Brazilian Stock Exchange • (BOVESPA)- Securities and Exchange Commission • of Brazil • (CVM)- Superintendence of Private Insurance • (SUSEP) • - Central Bank (BACEN) • - Independent External Audit • National Congress- Brazilian Court of Audit • Department of Coordination and • Governance of State Enterprises • National Treasury Secretariat • Internal Audit- Board of Directors- Fiscal Council- Audit Committees • Office of the Comptroller General PSEs

  17. PSE’s Corporate Governance Structure • Principes: • Ethics • Transparency • Equity • Accountability • Corporate responsibility • Instruments: • - Bylaws • Code of ethics • GuidanceManuals

  18. Corporate Governance System Shareholders Vote Shareholders (1) Indication Orientation Setting strategic guidelines Investment policy and indication Sectorial Minister Supervises Supervises under the management aspect Relations with the market Priorities, government guidelines (1) Ministry of Planning and Ministry of Finance represent the State at the shareholders meetings

  19. Interministerial Corporate Governance and Federal Governmente Management of Participation Comission(CGPAR) • Authority to decide and control the execution of the proposed guidelines • Members: • Minister of State of Planning, Budget, and Management • Minister of State of Finance • Chief of Presidential Staff Office • Other Ministers of State (subject is under his portfolio) • Executive Group of technical and management support(1)(1) DEST + National Treasury Secretariat(STN) + Presidential Staff Office (CC)

  20. CGPARproposed guidelines • Number 02 – December 2010: Binding of the internal audit of the Board of Directors;Adoption or strengthening of actions that have to give transparency to the company's activities and the use of public resources, the emphasis on advertising decisions and financial flows, such as accountability to society;Emphasis on independence, impartiality and professionalism of the agents making up the frames of internal control;Internal audit of each company will be restricted to the execution of their typical activities, preventing the diversion of functions and preserving its neutrality and impartiality;Adoption of specific regulations for the body of internal audit;Internal audit can be the basis of risk management advice to senior management, andInternal audit should maintain institutional relations with the organs of control (CGU and TCU, for example).

  21. CGPARproposed guidelines • Number 03 – December 2010: The segregation of function between the chairman of the board and chief executive of the company;The practice of holding executive sessions without the presence of chairman and directors, when they are members of the board;The approval of the annual audit plan and the annual audit report by the Board without the presence of the CEO at the meeting of the college;Creating support committees for decisions of the board, according to the evaluation of the cost benefit of such a measure;The implementation or enhancement of the formal performance evaluation of management and the board of directors;The establishment of internal rules for evaluating the management and the board of directors, andThe highest and lowest remuneration must include notes to financial statements.

  22. END E-mail: murilo.barella@planejamento.gov.br

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