Argentina: The Argentine Securities Commission Fosters Corporate Governance Regulations

Last Updated: 7 December 2007
Article by Soledad Matteozzi and Carolina Canziani Aguilar

In today’s global business world it is imperative for companies aspiring to improve their corporate rating and to achieve higher level of investments, to adopt good governance practices and transparency laws to protect investors.

Recognizing the importance of these issues prepare the companies to compete in a level playing field with companies from other countries that foster these kinds of regulations.

In this context, the Argentine Government has recently issued a set of non-mandatory corporate governance recommendations for companies that offer securities to the public ("Public Companies"), to further improve the corporate governance legal framework. On October, 2007, the Argentine Securities Commission (Comisión Nacional de Valores "C.N.V.") issued a resolution approving recommendations listed by such resolution as the minimum contents that these companies could include when issuing their own internal Corporate Governance Code.

In Argentina, the issuance of such internal Corporate Governance Code is not mandatory and according to the language of the new resolution, the list of recommendations described hereinabove, are also non-mandatory. Nevertheless, there is a new obligation for the Board of Directors of Public Companies to file a new separate report at the time of filing their financial statement with the CNV. This report shall inform to the CNV if the company follows, and in which manner, the recommendations. Otherwise, the Board of Directors shall explain in this report, the reasons why the company does not follow the recommendations, and in this case, if they will be followed in the future. This obligation is effective as of from January 1, 2008.

The main recommendations contemplated in the new resolution are summarized as follows:

Issuer’s policies towards the economic group and its members: The Board of Directors shall inform the shareholders of the company of the existence of transactions between affiliates and related companies, and transactions with shareholders and Board members, in order to assure the compliance of the duty of care, loyalty and independence.

Corporate By-Laws: The Board of Directors shall evaluate if the provisions included in the Corporate Governance Code of the company shall be included totally or partially in the By-Laws of the company. The Board of Directors must also ensure that the By-Laws provide for the obligation of the members of Board of Directors to inform of any personal interest that may constitute a conflict of interest.

Corporate strategy: The Board of Director shall approve the policies and general strategies of the company, particularly the business plan, investments and financing policies, corporate governance policies, social responsibility policy, risk management and control policies and directors and managers training policies.

Internal Control and Risk Management Policies: The Board of Directors shall inform to the shareholders if the Board has established an internal control and risk management policy, and if such policies are updated permanently to adapt them to the best practices on the subject.

Audit Committee: The Board of Directors shall explain to the shareholders the appointment procedure and composition of the Audit Committee.

Corporate Governance Committee: The Board of Directors shall appoint a Corporate Governance Committee that shall establish the guidelines for the selection and appointment of the Directors and executives of the Company.

Auto-evaluation of Board of Directors performance: Before the Annual Meeting of Shareholders of the company, the Board of Directors shall auto-evaluate their performances and file a report on the matter at the Annual Meeting.

Members of the Board of Directors. Independent Directors. The Board of Directors must explain and describe if they have a policy with respect to the number of independent Directors and its proportion in the Board. They must also inform to the public the proportion of executive, non-executive and independent Directors within the Board, indicating the category of each Director.

Board member training: The Board of Directors shall elaborate a training plan on corporate governance for its members, and the executives of the company aimed at maintaining and updating their understanding and knowledge.

Periodical meetings with Shareholders. Shareholders information services: The Board of Directors shall inform to the shareholders if they will hold informational meetings in addition to the ordinary corporate meetings of the company. The Board shall also inform to the shareholders if there is a specific office location to address questions and answers not related to the strategy of the Company.

Control market in order to favor minority shareholders. Tag along rights in takeovers: The Board of Directors shall evaluate, taking into consideration the protection of the minority shareholders rights, the convenience of the existence of a Control Market. In particular, the Board shall explain to the shareholders the basis for the decision to enroll or not in the mandatory regime for public offering acquisitions (tag-along rights).

Dividends policies: The Board of Directors shall evaluate the convenience of establishing dividends payments to shareholders.

Corporate relations with the community. Confidentiality standards and web site content: The Board of Directors shall inform the shareholders if the company has a web site with free access by the public that provide information and evacuate in an updated, informative and friendly manner, the concerns of the users of such web site.

Rotation of comptrollers and of external auditors: The Board of Directors shall analyze the rotation policy for internal and external auditors.

The application of corporate governance transparency regulations enhances the company’s performance, lead to higher level of investments and greater responsiveness to growth opportunities. If the response of the Argentine companies to these recommendations is positive we can expect a new flow of FDI and a mobilization of the Argentine Capital Markets with an increase of IPOs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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