8 30hs 25.09.09 fernando alves grand1
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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)
PricewaterhouseCoopers
PricewaterhouseCoopers
“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
PricewaterhouseCoopers
PricewaterhouseCoopers
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.
PricewaterhouseCoopers
“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
PricewaterhouseCoopers
“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.
PricewaterhouseCoopers
Stockholders
Board ofDirectors
Alignmentof
Interests
Otherstakeholders
Management
Corporate Governance & Shareholder ValueAgents
PricewaterhouseCoopers
Transparency
CorporateResponsibility Accountability
Equity
CorporateGovernance
Corporate Governance & Shareholder ValuePrinciples
PricewaterhouseCoopers
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
PricewaterhouseCoopers
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
PricewaterhouseCoopers
Corporate
Governance
Increasingregulations
Increasedcomplexity due to
globalisation
Transparencyand accountability
demandsIncreased
demands fromstakeholders
New technologies
Ethical andfinancialscandals
Integrity-drivenperformanceexpectations
Increasedcompetitivepressures
Corporate Governance & Shareholder Value Drivers
PricewaterhouseCoopers
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
- % + - % +
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
- % + - % +
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
- % + - % +
Source: PwC 9th Annual Global CEO Survey Globalisation and Complexity
Corporate Governance & Shareholder Value Call for improved governance and international harmonisation
PricewaterhouseCoopers
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
PricewaterhouseCoopers
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
PricewaterhouseCoopers
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
PricewaterhouseCoopers
Corporate Governance & Shareholder Value Governance, Risk and Compliance
Integrity – Driven Performance
PricewaterhouseCoopers
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.
PricewaterhouseCoopers
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.
PricewaterhouseCoopers
©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!
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