The CNV Proposed Amendments to Rules on Corporate Governance

On December 26, 2018, the Argentine Securities and Exchange Commission (the “CNV” after its acronym in Spanish), issued General Resolution No. 778 (the “Resolution”) to modify the regime about corporate governance and to issue new rules on the Corporate Governance Code (the “Code”), to be carried out by a public consultation procedure (“procedimiento de elaboración participativa de normas”). For this decision, the CNV has taken into account the need of making changes to the current regime on corporate governance due to the need to adapt these rules to the Organization for Economic Cooperation and Development’s (the “OECD”) good corporate governance principles, which were last updated in 2015. The CNV has also considered the OECD’s invitation to members of the G20 to adopt such principles.

Among some other provisions, the Resolution proposes:

1. to replace Annex III of the Title IV of CNV’s Rules (the “Rules”), which contains the principles for a good corporate governance and the mandatory assessment scheme, for the new template of the Code, which will be included in the Rules as of the moment of issuance of this modification. The new Code will be structured on three levels: principles (the “Principles”), recommended actions (the “Actions”) and orientations (the “Orientations”). The Principles are general concepts underlying every good corporate government and they should guide and inspire the Actions and some other ad-hoc practices that each listed company may consider appropriate to apply. The Actions will be considered as applied by the companies if they are duly performed in the way described by the Code. Among some other Actions, the Code sets out that the company’s directors must create a clear work culture and set the company’s vision, mission and values; and that the directors must supervise the company’s management and make sure that it creates and maintains an appropriate internal monitoring system with clear reporting lines. Lastly, the Orientations are the justification and explanation of the Principles and Actions; in addition, they should guide, inspire and clarify the topics covered by the Code;

2. to eliminate the obligation of submitting to the CNV the answers to the mandatory items as is currently mandatory (Annex III, Title IV of the Rules) regarding compliance with every recommendation, according to the currently mandatory structure (total compliance, partial compliance, non-compliance). This submission will be replaced with the preparation of an annual report about the company’s compliance with the Actions. The companies will have to explain whether they comply with the Actions or not; if they choose not to, they will have to explain how they comply with the Principle involved;

3. to exclude the micro, small, and medium-sized enterprises (the “SME”) from the obligation of submitting an annual report to the CNV, even when the Resolution highlights the need to generate public awareness of the importance of the good corporate governance;

4. to establish that the rules regarding the compliance report will be mandatory as of the fiscal year to be initiated on January 1, 2019, allowing its anticipated voluntary adoption.

Regarding compliance by listed companies with the corporate governance practices, the spirit that underlies the Resolution is that a Company may ignore an Action if there is a good reason for that. In that case, the Company may still be considered a full-compliance entity, if its justification for the omission is aligned with the Principles that the CNV intends to protect.

Lastly, a 15-day term has been set for the public in general to submit opinions and proposals on the Resolution’s text; i.e., until January 23, 2019. Such opinions and proposals must be submitted through the CNV’s website.