Annex II Program: Corporate Governance of State-Owned Enterprises (SOEs) Proposed Measures

Transcription

1 Annex II Program: Corporate Governance of State-Owned Enterprises (SOEs) Proposed Measures BM&FBOVESPA proposes a reflection on how to enhance the corporate governance practices of SOEs. The measures to be discussed have been divided into four courses of action: (i) transparency; (ii) internal control practices and structures; (iii) management and fiscal council composition and (iv) obligations of the controlling shareholders. I. Transparency: Information Disclosure Research Basis: compliance with Law 6,404/76 and in CVM Instructions 358/02 and 480/09; CVM/SEP Official Letter 02/15; OECD specific recommendations for state-owned enterprises, particularly those indicated in items I.A, II.A, II.D, III.B and V.E. 1 ; recommendations by the Andean Development Corporation (CAF) especially designed for state-owned enterprises 2 ; required or recommended practices in Sweden, Finland, Norway, Canada and the UK; Code of the Best Corporate Governance Practices issued by the Brazilian Institute of Corporate Governance (IBGC); Market Information Disclosure Steering Committee (CODIM) Guidance Statement No. 16 Relevant Information Not Disclosed to the Market. Proposal: enhancement of transparency public documents of the stateowned enterprise must evidence the public interest that justified the creation of the company and the limits of operation thereof in response to such interest, quantifying, where possible, the information provided. 1. Disclosure, on the company's website, in the specific section of "Investor Relations" (IR), of the following documents, which must be written in clear, straightforward language: 1 Available at: 2 Available at:

2 .2. (i) Annual Letter: the annual letter, signed by the members of the Board of Directors, describes the limits of the state-owned enterprise s operations so as to serve the public interest that justified the creation of such company, with prospective focus and clear delimitation of scope, quantifying indicators, whenever possible, such as (a) pricing, tariffs and cross-subsidization policies; (b) the volume of resources used to achieve the public policy objectives and the form of financing; and (c) activities and investments (CAPEX) that have underperformed the metrics used by the company to prompt investment decisions, such as return on invested capital below the weighted average cost of capital, the project s negative internal rate of return and generation of operational cash below the minimum required by the company. The indicators to be released must contemplate a minimum period of one year or correspond to the term of the multi-annual plan of the company or the controlling shareholder, if applicable. (ii) FAQ: Q & A clarifying the boundary between the public interest that justified the creation of the state-owned enterprise and the private interest, according to a script of minimum issues to be dealt with. 2. Adaptation of the corporate bylaws to the legislative authorization for the creation of the state-owned enterprise. The corporate purpose shall adhere to that law, indicating the limits of the state-owned enterprise operations to serve the public interest that justified its creation, supported by Article 238 of Law 6,404/76 3. In the event that the legislative authorization be generic, the activities must be specified, to the extent permitted by law. 3. Enhancement of the information provided in the Reference Form. The company's activities should be described with a clear distinction between regular businesses and those aimed to serve the public interest 3 Art The legal entity that controls a mixed corporation has the duties and responsibilities of the controlling shareholder (articles 116 and 117), but may conduct the company s activities to as to serve the public interest that has justified its creation.

3 that justified the creation of the state-owned enterprise, showing the boundary between public and private interests. The enhancements described above are applicable, at least, on the following items 4 :.3. (i) Item 7.1 Company s Activities or Business Plan: description of the activities addressing (a) the public interest that justified the creation of the state-owned enterprise, as provided for in the corporate purpose, separately identifying the ordinary activities required to reach the universalization targets; and (ii) the government programs (public policies) identifying the goals, the resources involved and the impact of such programs on the companies income and expenses/costs; (ii) Item 7.5 Effects of State Regulation: (a) indication of the price formation process and the rules applicable to the tariff-fixing process, including cross-subsidization and the track record of tariffs and their adjustments; and (b) indication of a decision-making process related to expenses and investments involving external agents such as executive or legislative branch agencies. (iii) Item Business Plan: disclosure of detailed information on investment (CAPEX). (iv) Item Other Factors of Material Influence: disclosure of detailed information on (a) expenses with advertising and sponsorship; and (b) decision-making process on the allocation of resources for such expenses. 4. Drawing up and publication of the Information Disclosure Policy. In accordance with the legislation and regulation in force, and therefore, aiming at disclosing timely, technical, complete and impartial information. In addition, such policy shall provide for actions of the Investment Relations Director in case of information leakage. 4 The number of items refers to CVM Instruction 480 currently in force. When the amendments proposed by CVM Instruction 552/14 become effective on 01/01/2016, item Business Plan will be item 10.8 Business Plan..

4 .4. To develop the Policy, it is recommended to abide by the CODIM Guidance Statement No. 16 on Material Information not disclosed to the Market. 5. Dividends. (a) drawing up and disclosure of the Dividends Distribution Policy; (b) disclosure of the reasons for decisions on dividends distribution according to such policy, the public policies and investment plans. 6. Separate publication of operating and financial data relating to activities in the public interest, especially those whose financial performance have underperformed the metrics used by the company for investment decisions, such as return on invested capital below the weighted average cost of capital, the project s negative internal rate of return and generation of operational cash below the minimum that is required by the company. Alternatively, there may be a segregated publication of such activities through Segment Notes, in accordance with CPC 22, or even subsidiaries could be created to carry out activities in the public interest, especially those that have underperformed the metrics mentioned above. 7. Related-party transactions: detailed disclosure of related-party transactions that comply with previously established criteria, under item II.5, and information on the trading or decision process, in due compliance with the formal procedure described in item II.5, and the reasons why the company's management believes that market conditions have been complied with and that the compensatory payment is appropriate. With regard to market conditions, it is worth highlighting the need to observe the principles of competitiveness (prices and conditions of services compatible with those on the market), compliance (adherence of services to the company s contractual terms and responsibilities), transparency (appropriate reporting of the conditions agreed upon with the appropriate application, as well the repercussion thereof on company's financial statements) and equity (establishment of mechanisms to avoid discrimination or privileges and practices to ensure that no inside information or corporate opportunities will be used for individual benefit or for the benefit of third parties).

5 8. Material and Exceptional Transactions: detailed disclosure of material and exceptional transactions that duly comply with the preestablished criteria, under item II.5, based on business decision, stating the reasons why the company's management considers that the transaction is compliant with the company's interests. 9. Publication of a Corporate Governance Report containing detailed information about corporate governance structures and practices effectively adopted by the company, covering at least the measures provided for in the SOE Governance Program. Despite other material information, such report should address the composition of the Board of Directors committees, frequency and periodicity of members attendance. 10. Publication of a Sustainability Report according to the Global Reporting Initiative (GRI) standard. II. Internal Controls: Structures and Practices Research Basis: Law 12,846/13; Decree 8,420/15; CVM Instruction 308/99; CMN Resolution 3,198/04; Sarbanes-Oxley Act; CVM/SEP Official Letter 02/15; corporate governance codes of fifteen (15) countries; international exchanges listing rules NYSE and NASDAQ, Hong Kong (HKEx), Canada (TSX) and London Stock Exchange (LSE); OECD specific recommendations for state-owned enterprises, especially those indicated in items B.B, V.C and V.E, and also those indicated in items II.F.3 and IV.E.; CAF recommendations specifically aimed at state-run companies; adoption of structures and practices set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO); required or recommended practices in Austria, Finland, France, Norwegian, Australia, Israel, Canada, United Kingdom, Chile and Colombia; CODIM Guidance Statement No. 15 Code of Conduct. 1. Adoption of structures and practices under three lines of protection: (1 st ) action by managers and collaborators through the day-to-day implementation of internal controls; (2 nd ) Compliance Department; and (3 rd ) internal audit and Statutory Audit Committee (CAE). The enhancement of internal controls shall comply with the internal control structure set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)..5.

6 .6. (i) Compliance Department. A department linked to the chief executive officer (CEO), responsible for providing the Board of Directors, the Audit Committee and the Executive Board with independent, impartial and timely assessments about the effectiveness of risk management and governance processes, the appropriateness of internal controls and compliance with rules and regulations associated with the Company's operations. The Compliance Department shall also be responsible for preparing the corporate risk report. (ii) Internal Audit, linked to the Board of Directors, responsible for (i) coordinating and defining the standards, support systems, form and periodicity of internal controls in accounting, compliance and corporate risk procedures; and (ii) preparing regular reports that include the evaluation of action plans to mitigate Company's risk factors. (iii) Statutory Audit Committee (CAE), advisory body to the Board of Directors, composed according to CVM Instruction 509/11, coordinated by an independent member of the Board of Directors and responsible for (i) overseeing the auditing functions and monitoring the internal controls; (ii) monitoring the quality and integrity of internal control mechanisms, the financial statements and the information and measurements disclosed; (iii) assessing and monitoring risk exposures; (iv) reviewing and monitoring the adequacy of transactions with related parties; (v) preparing an annual report containing information on the activities and the divergences between the management, the independent audit and the CAE in relation to the financial statements. The appointment of members of the CAE by the Board of Directors should require prior analysis of the Nomination Committee. 2. The internal control structures and practices should be compliant with the Risk Management Policy, which should enable the identification, evaluation, treatment, monitoring and communication of financial, operational, market, liquidity, credit, image and environmental risks.

7 3. Anticorruption Law and Code of Ethics. Adoption of internal integrity mechanisms and procedures, as provided for in Decree 8,420/ 15, to allow the detection and correction of deviations, frauds, irregularities and the encouragement of whistleblowing. Among these mechanisms is the development and dissemination of Codes of Conduct or of Ethics. To prepare the Code of Conduct, it is recommended to abide by the CODIM Guidance Statement No. 15 about the Code of Conduct. 4. Development and disclosure of Related-Parties Transaction Policy containing the formal procedure for treatment of such transactions, which should involve analysis by an independent body the Strategic Affairs Committee, the Independent Directors Committee or the Audit Committee depending on materiality criteria 5. To be classified as being at market conditions, such transactions must observe the requirements for competitiveness, transparency and fairness, mentioned in item I.7. The minutes of the meetings should be published. III. Composition of the Management and of the Fiscal Council Research Basis: compliance with that provided for in Law 6,404/76; CVM/SEP Official Letter 02/15; OECD specific recommendations for stateowned enterprises, especially those indicated in items II.F.2,VI.C and items II.B, II.C and VI.A; CAF recommendations specifically aimed at state-owned enterprises; corporate governance codes of fifteen (15) countries; international exchanges listing rules NYSE e NASDAQ, Hong Kong (HKEx), Canadá (TSX) and London Stock Exchange (LSE); required or recommended practices in Sweden, Austria, France, Norwegian, Finland, Australia, Israel, Canada, United Kingdom, Chile and Peru; IBGC Code of the Best Practices of Corporate Governance The criteria will be set forth in accordance with that provided for in CVM Instruction 480/09, as amended: (a) transaction or set of related transactions, whose total amount exceeds R$ 50 million; or 1% of the issuer s total assets, whichever is lower; and (b) at the management s discretion, the transaction or set of related transactions, whose total amount is lower than the parameters provided for in item I, in view of (b.1) the transactions characteristics; (b.2) the nature of the relation between the related party and the company or the controlling shareholder; and (b.3) the nature and the extension of interest of the related party in the transaction.

8 1. Creation of the Nomination Committee, headed by an independent member of the Board of Directors, having competence to assist the Controlling Shareholder and the Board of Directors in the appointment of managers through (i) the identification of the qualifications necessary for the company s management and approval of a proposal submission of rules to guide on the nomination of managers; (ii) verification of compliance of the nominees with the defined criteria; and (iii) evaluation of the profile of the elected directors and their performance in the light of the policy criteria that supported their appointment. The Nomination Committee should also assist the Controlling Shareholder and the other shareholders in the appointment of members of the Fiscal Council. The minutes of the meetings should be published. 2. Drawing up of a Nomination Policy, or equivalent document, containing the minimum criteria to be considered in the appointment of managers. The criteria should refer to the desirable qualities (a) for the body as a whole, among which the diversity of experiences; and (b) for the members of management and of the fiscal council, individually considered, as for example, availability, academic background and experience. The Nomination Policy, or an equivalent document, must prevent that representatives of a governing body or people responsible for setting the public policy of state-owned enterprises are part of the Board of Directors, and may consider the possibility of hiring a headhunter. The Nomination Policy (or an equivalent document) must be published. 3. Prohibition on the accumulation of positions of CEO and chairman of the Board of Directors. 4. Board of Directors with a mandate of at most 2 years, being the reelection permitted. 5. Establishment of a maximum and minimum number of members of the Board of Directors, within the range of 5 to 11 members..8.

9 6. Board of Directors composed of at least 20% of independent members appointed by the Controlling Shareholder, despite the appointment of other independent members by the other shareholders. 7. The elected managers must attend, annually, specific training courses about disclosure of information, compliance and the Anti-Corruption Law as well as integration training on topics that are essential to the company at the moment of taking office. IV. Obligations of the Controlling Shareholders 1. The federal entities that control the state-owned enterprises should undertake:.9. (i) (ii) To expand the Code of Conduct of the Federal Upper Management and the Codes of Conduct or similar documents of state-owned enterprises, by inserting in the list of violations to public ethics, under the supervision of the Public Ethics Commission or equivalent body rules for the members of Upper Management not to express their opinion on not yet released information that may affect the price of securities issued by the company without it being provided the simultaneous disclosure of such information to the market by the affected company. To provide training to public officials especially on (a) the duty to not disclose or comment on not yet released information that may affect the price of securities issued by the company; and (b) the reporting mechanisms for the public official to provide information to the Investor Relations Director. (iii) To assure that the Board of Directors acts independently to elect the upper management; nevertheless, members of the upper management may be appointed by the controlling shareholder, as provided for in a specific law. (iv) To observe the Nomination Policy, or equivalent document, whenever the management and members of the Fiscal Council are appointed.

10 .10. (v) (vi) To select at least 20% independent members of the Board of Directors. To approve the necessary amendments so that the company s bylaws reflect the measures proposed in this Program.