OECD
Organization for Economic Co-operation and Development
The Latin American Corporate Governance
Roundtable 2000
Session 9: Disclosure and Transparency
CSN’s view and experience
Maria Silvia Bastos Marques, CEO, CSN, Brazil
26-28 April, The São Paulo Stock Exchange, São Paulo,
Brazil
Efficient Capital Markets
Semi-strong efficient market hipothesis
 Capital markets are efficient when securities reflect all public information
available, including:
– Past market transactions
– Economic and political information, as well as market regulation
– Corporate Information - Corporate Strategy and Operational and Financial
historical Information
 Timely and thorough corporate disclosure is therefore a pre-condition to
the existance of efficient capital markets.
Goals of the Financial Statements
 Evaluate historical corporate performance:
– In order to achieve this goal, Brazilian corporates must go beyond the
minimum required by the local regulation. Equity and Fixed income
investors demand a more thorough disclosure. Therefore the volume
of voluntary disclosure has increased in order to meet market
demand.
 Provide the basis for security valuation
– Security valuation starts with the financial statements, but the
financial statements do not reflect the value of the companies. Value
must be assessed by the market through the expected cash flow. The
creation of shareholder value is precisely the difference of a
company´s expected market value and its current equity book value.
Credibility of information provided
 Preventive Auditing:
– Strict internal Policies and Procedures guarantee ethical and lawful
operational and financial standards for the company and improve
corporate performance and image.
 External Auditing of Financial Statements
– An independent auditor is important in order to guarantee the
credibility of the financial statements provided by the company.
Value of Corporations
Future performance is the key element for valuation
 Role of Corporations:
– Corporations should not disclose their internal forecasts, but
provide data that enable analysts perform consistent and
comprehensive projections and make their independent investment
decision.
 Corporate Dilema:
– Provide investors with management’s expectations without hindering
negotiatons.
– Present corporate strategy and provide a “safe-harbour” statement, in
order to avoid legal actions.
Investors Demand Strategy Disclosure
CSN’s ´99 survey with 50 Brazilian Investors - Gerp Research Institute
Most important elements taken
into acount when selecting a security
Corporate Strategy
3.44
Credibility
3.47
Transparency
 Note: 1 = most important /
9= least important
Stock Liquidity
4.60
FV / EBITDA
4.73
Financial Performance
Price / Earnings
EVA
ROE
 Investors value Corporate
Strategy, Management
Credibility and
Transparency as the most
important elements to
assess before making an
investment decision.
4.27
4.96
6.04
6.29
6.66
Vehicles for disclosure
 Formal Reporting:
– Accounting principles worldwide are expected to converge to a world
standard, facilitating peer companies comparison.
– Internationalization of the capital markets have contributed to the
development of “full disclosure” in Latin America, following the more
regulated US Capital Market (20-F, etc).
– Formal reporting is not enough to meet investors’ need of information.
 Voluntary Disclosures:
– Corporations must develop Investor Relations and Corporate
Communications areas, to enable investors to monitor Corporate and
Management performance in a more continuous base.
Voluntary Disclosure
Goal: Continuous monitor of corporate performance
 Traditional Vehicles:
– Road-Shows: For Fixed Income and Equity Investors
– Conference-Calls: Minimum of one per quarter
– Press Releases: For all relevant / material information
– One-on-one Investor Meetings: at the company and around the
market. CSN, in 1999, had 207 investor meetings.
– Plant Trips: To present the investors with the operational structure of
the company. Over 30 plant trips occur every year, with over 100
analysts visiting our steel mill.
– Participation in local and international market events (conferences,
seminars, etc.). CSN participated in 13 conferences in 1999.
Voluntary Disclosure
Goal: Continuous monitor of corporate performance
 Web-based Communication:
– Faster, Worldwide spread, cost-efficient.
– Access the individual shareholder, with no additional cost.
– Simultaneous and equitable release of information
Advantages of an Efficient Market
Fair Value of the securities
Fair assessment of corporate strategy and future performance
Corporations with good Disclosure Policies tend to be seen as
good investment alternatives in the market with lower risk-premiums
and higher market capitalization in the long-run.