Corporate Governance Code

1.    New corporate governance rules

The Corporate Governance Code (the "Code"), approved by General Resolution No 516/2007 of the Argentine Securities Commission (the "CNV” or “Comisión Nacional de Valores”), complements the legal framework established by the Transparency Decree No 677/2001 and by the CNV regulations.

The Code provides new regulations related to compliance of the board of directors' obligations. It increases requirements of disclosure of information regarding management of the corporation and independence of board members in order to protect public shareholders and the general market, reinforcing the "transparency", "full disclosure" and "efficiency" principles that should govern corporations that make public offering of their shares.

2.    Scope and date of effectiveness

The Code will rule for fiscal periods starting as from January 1, 2008. It will apply to corporations authorized to publicly offer their shares, with the exception of small and medium sized companies (PyMES), for which it will be optional.

The companies will not be obliged to adopt the Code. However, the board of directors shall annually indicate if it follows its guidelines or not. If the board does not adopt the Code, it must explain the reasons for such decision and indicate whether it considers the possibility of incorporating the guidelines in the future.

The board of directors must determine if the corporation's by-laws currently comply with Code regulations. Even though it is not expressly specified, if the board considers that such by-laws are not adapted to the Code, it should propose their amendment.

3.    Board of directors' responsibilities for good corporate governance

The Code provides obligations of different kinds for the board of directors related with corporate governance.

3.1 Role of the Board of Directors

The Code provides that the board must determine the strategy and main policies of the corporation and supervise their compliance. These must include policies of investments and financing, corporate governance, corporate social responsibility, control of risk management, and continuous training programs for directors and executive managers. 

3.2 Code Report

One of the main innovations is the requirement of the preparation by the board of directors of a report regarding the compliance with the Code (the "Code Report"). The Code Report shall be included in the board of directors’ report (“memoria”) to the annual financial statements, as a separate schedule. 

General Resolution No 516/2007 revoked prior General Resolution No 493/2006, which required the board to provide information concerning corporate governance by answering a predetermined questionnaire. The new Code Report replaces such questionnaire.

The board must also establish guidelines that will be used to measure its performance when preparing the Code Report. Such written document should serve as a guide for the evaluation of the board, determining the criteria that will be used for the measurement of its performance.

The Code Report will be publicly disclosed as relevant information of the corporation.

3.3. Committees

The Code provides that the board of directors must constitute a sufficient number of committees to manage the corporation. It provides guidelines related to the audit committee, and also proposes the creation of new committees, such as the "remuneration committee" and the "appointments and corporate governance committee".

The Code provides that the board must:

(i)            inform who proposes members of the audit committee;

(ii)           indicate if the audit committee should be presided by an independent member;

(iii)          propose to the shareholders' meeting the number of members of the board of directors it considers adequate, including the amount of independent directors; and

(iv)          establish whether it is appropriate for independent directors to hold exclusive meetings.

The "remuneration committee" must be constituted by people experienced in human resources, and it should be in charge of:

(i)           designing policies for remunerations and benefits of directors, executives, advisors and consultants;

(ii)           administrating the share purchase options' system; and

(iii)           informing on guidelines to design retirement plans for directors and executives.

The "appointments and corporate governance committee" must be in charge of:

(i)           fixing the proceedings for the selection of directors and key executives; and

(ii)           elaborating corporate governance rules – that should include the Code regulations- and supervising their compliance.

3.4 Independence

The Code contains some guidelines related to the independence of directors, executive officers, statutory auditors and external auditors.

It provides that the board of directors must ensure that the corporation's by-laws contain provisions which oblige directors to inform about their personal interests in order to avoid conflicts of interest. 

As regards directors and executive officers, it establishes that the board of directors must demonstrate

(i)           if there is any independence criteria;

(ii)           if, at the moment of their appointment, there should be a sufficient explanation with respect to the appointed member's independence;

(iii)          if it has a policy regarding maintenance of a certain proportion of independent directors; and

(iv)          the proportion of executive, non-executive and independent directors.

In respect to the statutory auditors and external auditors, the board of directors shall inform if it has policies related to the rotation of their members and, specifically concerning external auditors, it shall indicate if the rotation includes the external auditors firm or just the appointed individuals. The board shall also consider if it is convenient to appoint members of the external auditor firm as statutory auditors of the corporation.

3.5 Relationship with shareholders

The board of directors shall inform

(i)            the existence of policies regarding the relationship between the corporation and the group to which the corporation belongs; and

(ii)           transactions that have been entered into with affiliated companies, shareholders and managers.

As regards the relationship with shareholders, the board shall inform

(i)             if it organizes informative meetings for shareholders;

(ii)             if the corporation has a specific office to answer investor inquiries; and

(iii)            if it has any policies for the payment of dividends in cash.

The Code also provides that the board must provide information if the corporation has a free public access web site, where information shall be available and users' inquiries may be received.

4.    Closing remarks

Several obligations provided by the Code were already provided at least implicitly in other regulations, such as the CNV regulations, the Decree of Transparency or even the Argentine Companies Law. By approving the Code, the CNV reinforces the regulations applicable to corporations that publicly offer their shares in Argentina to ensure their good corporate governance, transparency and efficiency.