3rd Latin American
Corporate Governance
Roundtable
Disclosure and Transparency A Market Requirement
Maria Helena Santana
São Paulo Stock Exchange - Bovespa
April 2002
Causes
Truly 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)
Responses
in 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 - ANBID
National 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 - ABRASCA
Brazilian 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 Sector
Harmonization 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