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Corporate Governance
Boardroom Trends in Portugal Improving Companies in Austria The Increasing Responsibility of the Board Corporate Governance as a Strategic Tool
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Corporate Governance
Contents 6 Corporate Governance as a Strategic Tool
By Carlos Lucena, Co-founder, Managing Partner and Head of the Corporate Law group of Telles de Abreu e Associados in Oporto, Portugal
8 Effective Corporate
Governance in the UAE By Helen Baines, Senior Compliance & Governance Manager at Capital Advantage in Dubai
10 Boardroom Trends in Portugal By Abel Sequeira Ferreira , Executive Director at AEM, the Portuguese Issuers Association
14 Corporate Governance: Improving Companies in Austria By Claus Ezinger, owner of KEY ACCOUNTS INTERNATIONAL – Claus Ezinger, a business consultancy specialized in Audit Committee | Supervisory Board and Directors Board working principles
16 Brazil: The Increasing Responsibility of the Board By Anders Pettersson, owner of Magnum Opus Consultancy, a company dedicated to corporate governance and general management
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Welcome... The global economic crisis brought to the fore the pertinence of corporate governance issues in industrialised, emerging and developing economies alike. As part of an effort to minimise future economic problems, policymakers and regulators are increasingly making changes to corporate governance practices in order to enhance transparency, get greater director accountability, and give shareholders more say in certain boardroom decisions. Integrity has become a critical consideration and there are considerable external pressures from investors, shareholders and even international governments, which are making waves on the decisions that are reached in the boardroom. Good corporate governance, if implemented effectively, can be a strategic asset that can help a company’s overall performance, and those that take these issues seriously tend to reap the rewards. That’s why we’ve spoken to experts around the world to find out what exactly good corporate governance is – and how you can make it work for you…
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Corporate Governance
Corporate Governance as a Strategic Tool Carlos Lucena is Co-founder, Managing Partner and Head of the Corporate Law group of Telles de Abreu e Associados, based in Oporto, Portugal
“Telles de Abreu e Associados – Sociedade de Advogados, R.L.” (TAA) is a medium-size law firm with offices both in Oporto and Lisbon, which has been providing legal services to both national and international Clients since its incorporation, more than twenty years ago. TAA is proud to provide its Clients with first-class legal services and assistance in practically all branches of law, with special focus in the areas of Corporate Law, Competition Law, Labour Law, Tax Law and Litigation, practice areas in which Telles de Abreu has gained vast experience and recognition from its Clients. The long-standing presence in its areas of practice places TAA in a comfortable situation in the market. Its boutique like office and tailor made legal services are the reason why its clients resort to its legal advice, and why TAA has an advantage against other well established law firms. Hence, TAA finds it important to accompany the emerging trends in the market, providing up-
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to-date services to its clients. That is why, since 2008, Corporate Governance has been an important focus of our legal practice. This subject has been gradually emerging as a key business concept in European countries since the beginning of the crisis, which revealed severe shortcomings in corporate governance. When most needed, existing standards failed to provide the balance that companies need in order to cultivate sound business practices. This revealed the importance of corporate governance, as the system of rules and codes of conduct relating to the management and control of companies - which is vital to all organizations regardless of their size or structure. Also, company internationalization has been imposing further integration of rules and principles in the pursuit of greater transparency and harmonization. The Portuguese legal system has not overlooked this issue, since it is already equipped with solutions that adequately address problems
associated with corporate governance, namely through the creation of the Portuguese Corporate Governance Institute, which drafted a Corporate Governance Code promoting good practices based on highly significant issues raised directly by companies. For 2013, one can expect that the role played by law firms will be increasingly important, focusing on delivering targeted corporate governance support to more clients for even better results, namely by (i) assessing a firm’s corporate governance practices and providing advice on how to improve them; (ii) building capacity of local companies and educational institutions to support corporate governance reform, and (iii) working with regulatory institutions and the government to improve corporate governance laws, regulations, good practices, codes and listing requirements, based on acquired practical expertise. A good law firm must be ready to provide its clients such support.
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The system of rules and codes of conduct relating to the management and control of companies is vital to all organizations regardless of their size or structure
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Corporate Governance
Effective Corporate Governance in the UAE Helen Baines is the Senior Compliance & Governance Manager at Capital Advantage in Dubai
Over the last few years, particularly since the realization that the global financial crisis would have an effect on the UAE, the aspect of good governance and transparency has become a real concern for both corporates and regulators. The days of the UAE being somewhat protected from external global matters such as economic downturns disappeared with the introduction of regulations to allow foreign investors and shareholders to invest in local companies which were listed on the Dubai Financial Market (DFM) and the Abu Dhabi Securities Exchange (ADX). Having foreign investors and shareholders meant that there was an immediate risk of capital flight when economic recessions hit other parts of the world, hence in 2008 the UAE stock markets witnessed huge losses on share values as overseas investors withdrew their funds to shore up falling investments in other parts of the world such as US and Europe and battle the onset of the global financial crisis. In addition, not only was the UAE Economy faced with falling stock markets and companies were faced with falling market capitalizations, corporates, particularly the larger well known entities, were also faced with falling overseas investment values. UAE entities began to find themselves the subject of many questions, from overseas and local professionals, on levels of transparency of operations and capital management, particularly since, during the global crisis, UAE authorities were quick to quell questions on whether Govern-
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ment would ‘bail out’ ailing companies, particularly those with Government ownership. These turn of events were being monitored with interest by local Corporate Governance professionals such as ourselves. Capital Advantage Consultants, of which the author of this paper is a Senior Consultant, is a niche Company Secretarial, Corporate Governance and Compliance advisory firm for entities in the region which are tasked with compliance with such laws, regulations and international contractual obligations. We design, implement and educate Board Members and Corporates on Corporate Governance Frameworks, Codes of Conducts and Ethics and reporting of the same to meet increasing regulatory obligations. Although the UAE’s capital markets are now over a decade old, the capital markets regulator, the Emirates Securities and Commodities Authority, has only issued corporate governance regulations since 2009 applying to corporates listed on the local exchanges. Such regulations are still in their infancy in terms of detail and specifics, however, the overarching principles of Board Diversity between Executive, Non-Executive and Independent Directors, corporate reporting on financial statements, corporate governance frameworks, transparency on directors compensation and remuneration are in place and generally, being adhered to by the listed companies. The main difficulty, I think, being experienced by listed corporates, at the moment, is the ability to commu-
nicate the work that they have done in the area of Corporate Governance, or the lack of, as the case may be. Outside of the remit of the Emirates Securities and Commodities Authority little work has been done by other authorities to grow good Corporate Governance practices and ethics, with the exception of the DIFC and its financial services regulator, the DFSA, who both place high importance on the good corporate governance of their authorized firms, and will monitor the same closely. With regards to Directors compensation and executive pay, the main regulations have been issued by the Emirates Securities and Commodities Authority and these are more geared to enhancing transparency of such compensation schemes rather than giving shareholders and other company stakeholders a “Say on Pay”. Similarly, current corporate governance regulations and reporting requirements do not address or encourage any establishment of “whistle blowing programs” and such programs are very rare animals to be found in any local corporate structure. In conclusion, I think corporate governance is gaining momentum in the UAE and the Gulf as a whole. Soon everyone will come to realize its importance for the good of the shareholders and the entities themselves. More emphasis needs to be placed on the fact that it is one of the most important criteria when comes the need for raising capital.
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Soon everyone will come to realize the importance of corporate governance for the good of the shareholders and the entities themselves
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Boardroom Trends in Portugal Abel Sequeira Ferreira is the Executive Director at AEM, the Portuguese Issuers Association
AEM represents the companies listed on the Portuguese Index PSI 20, as well as the majority of other issuing companies, and, as the representative voice of the Portuguese Issuers, values all subjects related to the governance of companies. In Portugal, listed companies are subject to the obligation of annually informing on compliance with the Corporate Governance Code (a set of recommendations issued by the supervisory authority (CMVM) which also took on the task of monitoring the compliance with the Code. In 2011, however, AEM presented its first “Report on the Degree of Compliance with Corporate Governance”, a major contribution to the debate and reform of the Portuguese legal system for corporate governance, carried out by Católica-Lisbon University. This was a pioneer study because of the introduc-
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tion of a Corporate Governance Index and a Corporate Governance Rating, which, published for the first time, allows for a collective assessment of the Portuguese listed companies and will make possible to determine, in the future, its evolution in this domain. Knowing that a significant part of the investment carried out in the Portuguese Exchange is currently originating from abroad, the Report adopted a methodology where compliance is evaluated according to international benchmarks, namely, (i) The recommendations and rules arising from European Law; (ii) the OCDE principles on Corporate Governance; (iii) the UK Corporate Governance Code. The Report shows that, even in the adverse environment of an excessive level of recommendatory density, heavier than the compared international benchmarks, the degree of compliance with the corporate governance recommendations by the
national listed companies is remarkably high. Indeed, for the companies listed on the PSI 20, the median values were above average, 9.425, in a maximum of 10.000, and 72.8% of the listed companies recorded ratings ranging from AAA to A. Such results are consistent with the positive assessment carried out by OCDE (OECD/ Corporate Governance Committee, Peer Review. Board Practices: Incentives and Governing Risks, (2011)) and the World Bank’s Doing Business reports showing that investor protection in Portugal is higher than the average on OCDE’s member states. Overall, and even if there is a number of difficult reforms to be implemented in Portugal, with very high levels of corporate governance compliance and business strategies already adapted to the new world trade order, Portuguese listed companies are a trade and investment opportunity for the long term.
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Corporate Governance: Improving Companies in Austria Claus Ezinger has been in international business consultancy for more than 25 years. He is the owner of KEY ACCOUNTS INTERNATIONAL – Claus Ezinger, a business consultancy specialized in Audit Committee | Supervisory Board and Directors Board working principles
Have you seen any evidence in your jurisdiction of an overall shift towards responsibility by the board and corporate control? In Austria all ATX companies are highly recommended to comply with the Austrian Corporate Governance Codex. In the annual report companies have to present their efforts in Corporate Governance issues such as gender | internationality | age – diversity in the company’s management and professional controlling structures. Salaries should mirror the engagement of the manager and the possibilities of the company, to name just a few of the 82 L, C and R regulations as offered
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in the Austrian Corporate Governance Codex. How important is corporate disclosure and transparency in today’s corporate society? Especially in the field of gender diversity in management and fair salaries for women the efforts of the companies are very much followed by women’s rights and support organisations. In Austria, as in many other countries, women are still paid significantly lower salaries than men. There was never a fair reason for that neither in the past nor nowadays but with the focus on justice, based in the Corporate Governance Codex
now very much is and can be done to solve this problem. As it is the case with a lot of other problems for example heavy overpaid manager salaries, corruption issues, just to name a few. Corporate Governance can help improve a lot of things in the future. And the most interesting thing in it is that Corporate Governance is based on virtues. Losing virtues has caused most of the sociological problems in the world. Corporate Governance is working to re-install virtues and honesty in today’s companies and eliminate corruption and injustice as much as possible.
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Corporate governance can help improve a lot of things in the future. And the most interesting thing in it is that corporate governance is based on virtues
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Brazil: The Increasing Responsibility of the Board Anders Pettersson is the owner of Magnum Opus Consultancy, a company dedicated to corporate governance and general management. He is a member of the Brazilian Institute of Corporate Governance (IBGC) since 2003 and a Certified Board Member. He is also a member of the Swedish Academy of Board Directors and has more than 12 years’ experience as General Manager / CEO for several companies, both public and private in Brazil
What are the primary sources of law, regulation and practice concerning corporate governance in your jurisdiction? Brazil has a complex set of laws and regulations depending on size of company and ownership structure. Listed companies answer under the Brazilian Comissão de Valores Mobiliários (CVM) equivalent to the American SEC. There are relatively few publicly held companies. Audit is not mandatory for non-listed companies. Have you seen any evidence in your jurisdiction of an overall shift towards responsibility by the board and corporate control?
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Yes, definitely. Since the new Civil Code, the board’s responsibility has increased the last few years where they can be held legally and financially liable for malpractices committed by the company they represent. Recent surveys have discussed a ‘trust deficit’, how do you think the current economic environment has changed perceptions of trust between business leaders, the public and external shareholders? Trust is an ongoing process which takes time to develop but quickly evaporates if transparency is not respected. External shareholders and stakeholders
are demanding and rewarding companies that abide to solid corporate governance practices. There has been a lot of talk about diversity in the boardroom, have you seen any evidence of the number of women elected to boards in your region increasing? Do you think it really makes a difference? Diversity has not reached a mature level at most boardrooms. Unfortunately women are still a minority, although some minor changes have taken place. Utilization of women’s competence is still an opportunity not seized by most organizations.
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The board’s responsibility has increased the last few years; they can be held liable for malpractices committed by the company they represent
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