3rd Latin AmericanCorporate Governance

Roundtable

Maria Helena SantanaSão Paulo Stock Exchange - Bovespa

Disclosure and Transparency -A Market Requirement

April 2002

CausesTruly 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)

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

Responsesin the last two years

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 - BOVESPA

Private Sector - ANBIDNational 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 - ABRASCABrazilian 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 SectorHarmonization 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