8 30hs 25.09.09 fernando alves grand1

Corporate Governance & Shareholder Value

CReCER 09São Paulo, Brazil

Fernando Alves

PricewaterhouseCoopers

Corporate Governance & Shareholder ValueHistorical context

“The 19th century saw the foundations being laid for modern corporations: this was the century of the entrepreneur. The 20th century became the century of management: the phenomenal growth of management theories… As the focus swings to the legitimacy and the effectiveness of the wielding of power over corporate entities worldwide, the 21st century promises to be the century of governance.”

(King II Report)



“Successful governance in the world of the 21st century requires companies to adopt an inclusive and not an exclusive approach. The company must be open to institutional activism and there must be greater emphasis on the sustainable or non-financial aspects of its performance.... The correct balance between conformance with governance principles and performance in an entrepreneurial market economy must be found, but this will be specific to each company.”

(King II Report)

Corporate Governance & Shareholder ValueHistorical context



Corporate Governance & Shareholder Value Conceptual basis

“There is no single model of good corporate governance.” OECD

“Corporate governance is “the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations”. It encompasses the mechanisms by which companies, and those in control, are held to account.”

ASX Corporate Governance Council.


“Corporate governance is the system by which business enterprises are directed and monitored, involving the relationships among Stockholders, the Board of Directors, the Executive Directors, the Independent Auditor and the Audit Committee. Good corporate governance practices have the objectives of increasing the value of the enterprise, facilitating its access to sources of capital and contributing to its perpetuity.”

IBGC - Brazilian Institute for Corporate Governance

Corporate Governance & Shareholder ValueConceptual basis


“Corporate Governance refers to the process and structure used to direct and manage the business and affairs of an organisation with the goals of ensuring its financial viability and enhancing shareholder value. Equally important, it encompasses the impact of key strategic decisions on all stakeholders, from investors and employees to customers, suppliers and the public.”

PricewaterhouseCoopers working definition

Corporate Governance & Shareholder Value Conceptual basis

“One could say that Corporate Governance is a system of “taking care” in the context of an effective management process”

The word “Governance” derive from the Greek verb “Kubernáo” which means to Steer.


Stockholders

Board ofDirectors

Alignmentof

Interests

Otherstakeholders

Management

Corporate Governance & Shareholder ValueAgents


Transparency

CorporateResponsibility Accountability

Equity

CorporateGovernance

Corporate Governance & Shareholder ValuePrinciples


Transparency – Equity – Accountability - Corporate Responsibility

Sustainability in astakeholder society

Business in society as opposed To Business and society

Boa

rd o

fD

irect

ors

Boa

rd C

omm

ittee

Exec

utiv

eD

irect

ors

Aud

itors Pillars of

Governance

Basic Principles

Best Practices

Ethics Essence

Corporate Governance & Shareholder Value Schematic view

Stak

ehol

ders

&St

ockh

olde

rs


Corporate Citizenship

(Social, Ethics, Environment)

Board Structure &

Composition

• Composition and organisation

• Induction and training

• Board remuneration

• Succession planning / identification and nomination

Strategy, Planning and Monitoring

• Vision and mission

• Strategic steering

• Corporate and management performance monitoring

Board Operation

and Effectiveness

• Boardroom conduct and relationship

• Audit committee• Nomination

committee• Remuneration

committee• Tax committee • IT committee• Risk committee• Disclosure

committees• Reputation

committee• Governance

committee

Robust Risk Management

and Compliance Processes

Transparency and

Disclosure

• Risk management framework

• Internal control

• Financial reporting

• Enhanced reporting (financial & non financial data)

• Code of conduct

• Employee relations / Health and safety

• Social responsibilities

• Environmental responsibilities

Corporate Governance & Shareholder Value Framework & Key components

Ethics


Corporate

Governance

Increasingregulations

Increasedcomplexity due to

globalisation

Transparencyand accountability

demandsIncreased

demands fromstakeholders

New technologies

Ethical andfinancialscandals

Integrity-drivenperformanceexpectations

Increasedcompetitivepressures

Corporate Governance & Shareholder Value Drivers


Stock market listing standards

Environmental standards

Stakeholder reporting standards

Accounting standards

Tax codes

Corporate Governance standards 42 1536

47 2422

36 1538

34 1145

41 1630

48 20 5

9

6

6

8

11

22

Not at all To some extent To a large extent To a very large extent

42 2920

33 3719

36 2430

39 2324

39 3218

36 36 15

9

6

9

9

9

9

CONVERGENCE: DEVELOPED VERSUS EMERGING ECONOMIESTo what extent will globalisation lead to a convergence of the following areas:

DEVELOPED ECONOMIES EMERGING ECONOMIES

- % + - % +





Tax codes


47 2422

36 1538

34 1145

41 1630

48 20 5

9

6

6

8

11

22


42 2920

33 3719

36 2430

39 2324

39 3218

36 36 15

9

6

9

9

9

9



- % + - % +





Tax codes


47 2422

36 1538

34 1145

41 1630

48 20 5

9

6

6

8

11

22


42 2920

33 3719

36 2430

39 2324

39 3218

36 36 15

9

6

9

9

9

9



- % + - % +

Source: PwC 9th Annual Global CEO Survey Globalisation and Complexity

Corporate Governance & Shareholder Value Call for improved governance and international harmonisation


Clear correlation

Strong institutional environment for governance at a country level does not eliminate governance as a potential area of risk or value destruction at the individual company level [or vice versa].

Standard & Poor’s “The Role of Country Risk In Assessing Corporate Governance” 2007

Corporate Governance & Shareholder Value Sovereign credit ratings


Mastering Business – Corporate Governance

Market model

Dispersedownership

Non-executive-majorityBoards

Broadlyaligned

incentives

Highdisclosure

Highdegree of

shareholderequality

Activetakeovermarket

Active privateequity market

(includingIPOs)

Sophisticatedinstitutionalinvestment

Institutional context

Corporatecontext

Control model

Concentratedownership

“Insider”Boards

Incentivesaligned

with coreshareholders

Reliance onfamily, bank and

public finance

Institutional context

Corporatecontext

Limiteddisclosure

Inadequateminority

protection

Limitedtakeovermarket

Underdevelopednew-issue

market

Corporate Governance & Shareholder Value Two broad corporate governance models are prevalent… but these are a world apart


Understanding the demands of the organisation’s stakeholders in terms of performance and conformance, and aligning the organisation to deliver against these objectives, in consideration of the risk appetite and risk tolerance of the organisation.

The people, processes and technology should be designed and deployed such that the achievement of objectives are measured, risks assessed and continuous improvement realised in support of effective governance, risk management and compliance.

Corporate Governance & Shareholder Value Governance, Risk and Compliance


Corporate Governance & Shareholder Value Governance, Risk and Compliance

Integrity – Driven Performance


Corporate Governance & Shareholder Value Trends and Challenges

• Regulatory harmonization.• Shift in economic centre of gravity and capital flows driving change in corporate governance practices .

• Worldwide convergence in relation to a common corporate governance doctrine / stakeholder – oriented model.

• Voluntary self adoption of best practices of corporate governance.• Increasing pressure from non traditional stakeholders (communities, environmentalists, politicians, etc.). Increasing institutional and retail activism.


Corporate Governance & Shareholder Value Trends and Challenges

• Positive correlation between good corporate governance and market capitalization / stock performance.• Greater focus on the essence of corporate governance rather than on formal governance procedures

(corporate governance as a driver to sustainability rather than just a compliance function) / value added approach.

• New corporate reporting model (financial and non financial data / XBRL / IFRS / Triple bottom line approach).

• Adoption of best practices of corporate governance as a source of competitive advantage both to companies and to countries.


©2008 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers.

Thank you very much!

Muchas gracias!

Muito obrigado!

8 30hs 25.09.09 fernando alves grand1

Economy & Finance