Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F Peru: Code of Good Corporate Governance for Companies Securities Issuers project for discussion (November 2001) TIP OF GOOD CORPORATE GOVERNANCE Center for Capital and Financial Market Studies 1 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F The Good Corporate Governance Council is a Special Commission, with autonomy of decision, constituted in accordance with the Eighteenth article of the Statute of the Center for Studies of Capital and Financial Markets MC&F (MC&F Association), in charge of carrying out all kinds of activities and Works aimed at improving the Corporate Governance of companies that participate in the Peruvian capital and financial market. The Center for Capital and Financial Market Studies was established in 1996 as a non-profit association dedicated to the promotion and development of these markets. 2 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F Members of the Good Corporate Governance Council Ramon Barua Alzamora General Manager of IFH Peru Ltd. - Interbank Group Roque Benavides Ganoza General Manager of the Buenaventura SAA Mining Company Past President of CONFIEP Alfonso de los Heros Pérez Albela Vice President of the Council of Good Corporate Governance1 President of the Association of Administrators of Pension Funds of Peru Partner of the Luis Echecopar García Law Firm, Lawyers Enrique Diaz Ortega President of the Good Governance Council Corporativo2 Vice President of MC&F, former President of National Supervisory Commission of Companies and Securities Cesar Luna Victoria Leon Partner of the Muñiz, Forsyth, Ramírez, Pérez - Taiman & Luna Victoria, Lawyers Alberto Luyo Luyo President of the Association of Stockbroker Companies. Director of the Lima Stock Exchange Julio Salas Sanchez Partner of the Rodrigo Elías & Medrano Law Firm, Lawyers Technical secretary Ivanna Loncharich Lozano 1 By agreement of the Good Corporate Governance Council cited in the previous footnote. 2 By agreement of the Good Corporate Governance Council, according to a meeting held on November 19, 2001. 3 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F Index I. GENERAL ISSUES REGARDING GOOD CORPORATE GOVERNANCE ..................5 II. DIRECTORY................................................. ............................................7 1. Number of board members ........................................... ....................7 2. Creation of support bodies or special commissions................... ................7 3. Remuneration............................ ........................................................... ...........................8 4. Functions and duties ...................... ........................................................... ..........8 5. Relationship of the chairman of the board of directors with management.............................. .........9 6. Type of directors.................................... ........................................................... ....9 7. Mandate period............................................. ..............................................9 8. Preparation of the new directors .................................................. .............10 9. Code of Ethics ................................ . III. RIGHTS OF THE OWNERS................................................... ..........10 1. Ownership and voting rules ........................................... .........................10 2. Registration of ownership.................... ........................................................... ............11 3. Dividend Policy ................................ ........................................................... 11 4. Changes of control of the company ........................................... ...........................11 5. Conflict resolution...................... ........................................................... ..........12 6. Relationship with stakeholders................................... ................................12 IV. DISCLOSURE OF INFORMATION ................................................ .............12 1. Principle of transparency ........................................... ..............................12 2. Financial information ............... ........................................................... ...............13 3. Disclosure on participation in the capital of the company ................................ .....13 4. Audit ........................................... ........................................................... ..........14 5. General Meeting: Timely and comprehensive information to shareholders ..................15 4 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F Peru: Code of Good Corporate Governance for Issuing Companies of Values Project for discussion comments Y I. General Issues on Good Corporate Governance Although the literature and international experience admit variants on the object of Good Corporate Governance, it can be pointed out as a general and initial postulate that its purpose is to ensure that the control and administration of companies is exercised, simultaneously, with a clear sense of responsibility. and compliance with regulations and with a marked orientation towards the maximum creation of value, in the protection of all the economic agents involved. In that order of ideas, it could demand extensive coverage and discussion to seek to define a univocal definition of Government. Corporate, so it is estimated that an appropriate point of reference on the concept is contained in the "Principles of Corporate Governance” of the OECD3 , namely: Corporate Governance involves theeconomic relationships and anyagents interest between thatinmaintain the provides company's company. structure a board for the that Corporate administration, ofcompany. establishes directors, of the Governance means through company, itsthe other shareholders theseto objectives aachieve also theare objectives, as well as the way to follow up to its performance. In this way, Corporate Governance refers, in principle, to the company's relationship with shareholders, but also in a broader sense with society as a whole. In both senses, it is valid to point out that Corporate Governance has transparency, corporate equity and the fulfillment of responsibilities within a company as inexcusable presuppositions. From an exclusively economic logic, a problem is identified in the Corporate Governance due to the fact that there 3 Organization for Economic Co-operation and Development. 5 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F asymmetric information between those who manage the company (insiders) and all the other agents that have an interest in it (outsiders). This factor enables the existence of conflicts or imbalances in the relationship between the principal (who commissions) and the agent (who manages by commission). Good Corporate Governance should precisely help to solve this problem. Consequently, the principles and criteria required to achieve Good Corporate Governance must encourage and reinforce the confidence of the different economic agents, and thereby generate a more favorable climate for investment. The company's board of directors and management are the first, but not the only ones, called to identify with these principles and criteria, and be responsible for their monitoring and application. On the other hand, it is important to highlight the close link between Corporate Governance and minority shareholder protection. Thus, an indicator of improvement in Corporate Governance consists of making progress in the aforementioned protection conditions; while said protection results from the conjunction of various factors that effectively safeguard the property rights of the shareholders. These factors include the corporate legal framework, the special rules in cases of corporate mergers or reorganizations in general, as well as the elements of Corporate Governance, among others. However, the protection framework must take care to also establish an adequate balance between majorities and minorities, so as to limit the possibility of abuse of the rights of one and the other as much as possible. Given the existence of an important diversity of legal systems, customs and institutional schemes, there is currently no universally accepted model for Good Corporate Governance. This Code is inspired by the best practices in force in the international environment. For the purposes of its preparation, the greatest possible variety of Codes that are applied in the different markets have been taken into account, based on the obligatory reference to the "Principles" of the OECD, such as the experiences of the most developed capital markets and recent advances in different Latin American markets. Based on the fundamentals explained, the Code developed here contains a set of principles and criteria as best practices that should be observed by the companies that participate 6 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F in the capital market as issuers in order to ensure Good Corporate Governance. The challenge and invitation is extended to any other company that intends to give distinctive signs of responsible administration, including those that, due to legal mandates, are exposed to fairly disperse structures of holdings of their securities. It is therefore a group of recommendations and not obligations imposed by any rule, which must demonstrate a clear capacity for self-determination and self-regulation of Peruvian companies. Additionally, the disclosure that companies make about the observance of the Code will constitute an own accord of your important complement to these practices. It is important to note that the current legislation in Peru for companies gives them enough space to adopt Good Corporate Governance standards. The main relevant legal framework for Corporate Governance is contained in the General Companies Law and the Securities Market Law and their respective complementary regulations. Also worthy of attention, in the context of potential implications for Corporate Governance, are the Law on Patrimonial Restructuring, as well as the legislation regarding investment shares. II. directory 1. Number of members of the board of directors The size of the board of directors must ensure a plurality of approaches and also enable the timely adoption of decisions. The company with an oversized or undersized board of directors can be progressively adjusted to the size it deems appropriate for its particular characteristics. 2. Creation of support bodies or special commissions Promote the creation of special commissions or support bodies in order to deal with the main problems of society, without this necessarily implying the performance of functions inherent to the board of directors. These bodies or commissions may be related to the following aspects: audits, appointments, remuneration and evaluation of the fulfillment of functions. 7 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F Regarding its integration, it is recommended that the majority of its members be independent directors. The duties of the special commissions or support bodies are subject to the circumstances and complexity of the company. 3. Remuneration The remuneration of the directors and the general manager must be set according to reasonable criteria, so as to encourage dedicated participation, ensure professional management of said officers, and avoid excesses that affect the economic situation of the company. 4. Functions and duties The main functions and duties of the board of directors must be explicitly recognized and cover aspects such as: (i) Define, review and guide business strategy. (ii) Protect the assets of the company and maximize the return on the investment of the owners. (iii) Provide shareholders and potential investors with information related to the company in a sufficient, reliable and timely manner. (iv) Control possible conflicts of interest of the main officials, members of the board of directors and owners, such as the misuse of company assets and improper transactions with third parties. (v) Ensure a formal and transparent process for the selection of directors. (vi) Timely call a general meeting of shareholders of according to the conditions established in the legislation. (vii) Promote the adoption of measures that prevent appropriation practices by shareholders with significant participation or controllers; in particular, precautions for the transactions or payment flows that are carried out between them and the company. (viii) Ensure compliance with the applicable regulations, duly weighing the interests of the shareholders. (ix) Adopt and control the effectiveness of Good Corporate Governance practices. 8 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F 5. Relationship of the chairman of the board with management a) The powers and responsibilities of the chairman of the board of directors, as well as the general manager, must be clearly defined in the bylaws or in the internal regulations of the company in order to avoid duplication of functions and possible conflicts. b) Seek to separate the positions of chairman of the board of directors and general manager, or adopt the necessary precautions in order to reduce the risks of concentration of power, in the event that the chairman of the board of directors also holds the position of general manager . The same criterion should be followed with respect to other managerial positions. 6. Type of directors The existence of a clear procedure for the selection of directors is important, where their suitability is privileged in consideration of their experience and professional training, and a reasonable number of independent directors is included. An independent director is considered to be one who is not a member of management and has no conflict of interest with the company, which is complemented by the competence of the selected director. The following are usually accepted as criteria to define a director as independent: (i) Have no direct or indirect relationship with the company, except for their respective participation in the capital, if applicable. (ii) Not be a shareholder with a significant or controlling interest in the company. (iii) Not be an employee of the company or any of its affiliates. (iv) Not be an important supplier or client of the company. (v) Not receive any other remuneration from the company, except for the remuneration or allowances received, or eventual dividends, in case they are a shareholder of the company. 7. Term of office Establish the mandate periods of the directors, observing a clearly defined renewal dynamics of the board, based on 9 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F of the particular needs of the company and of the evaluation that is deemed appropriate regarding the performance of the directors. 8. Preparation of new directors Promote induction programs for new directors in order to inform them of their legal obligations, the rules of governance of the company, and the opportunity to meet the organization directly and make contact with the main executives of the company. 9. Code of Ethics It is important to develop a Code of Ethics, approved by the company's board of directors, which is observed by the entire administration, its officials, suppliers, shareholders, among others. The code may cover topics that expose the expected behavior of those to whom it is addressed, in the different aspects of management or participation in society, such as: conflicts of interest, the duty of confidentiality, privileged information, improper payments, donations, nepotism , political activities, environment, job security, gift receipt, among others. III. Owners Rights 1. Ownership and Voting Rules Seek, as far as possible, convergence towards a single type or class of action. In this way, the company would tend to issue shares with voting rights (common shares) and would maintain the smallest variety of shares without voting rights (preferred shares or investment shares). In the relevant cases, the voting rules and voting rights granted by each class of shares must be clearly defined and must be available to all shareholders. Any changes to them are submitted to the consideration of the shareholders. Likewise, the operation of delegation of votes must be flexible and transparent. 10 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F 2. Registration of ownership The company must provide shareholders with secure methods for registering property transfers and any act that affects said value; being responsible for keeping the registration of shares, without prejudice to the responsibilities of the institution that provides the securities account book-entry service, in case the company requests its service. 3. Dividend Policy The general meeting of shareholders must annually set the company's dividend policy, including the maximum percentage to be distributed, as well as estimated dividend distribution terms. The guidelines of the dividend policy must be available to all shareholders and investors in general. 4. Changes of control of the company In cases of corporate control, markets must be allowed to function properly and transparently, taking into account: (i) The rules for the acquisition of corporate control and corporate events (such as merger, spin-off, corporate reorganization, etc.) are regulated by current legal regulations. It should be suggested that, additionally and when appropriate, they are also set forth in the company's bylaws so that investors are aware of their rights and the actions (administrative or judicial) that they can file if their rights are affected. (ii) The transfer of control must be carried out under transparent financial conditions, including the adequate disclosure of the valuation criteria that support any offer. For this purpose, the administration of the target company must establish the mechanisms that allow the holders of shares with voting rights or other securities capable of subscribing or acquiring said shares to become aware of the takeover bid and the conditions set by the offeror. . 11 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F 5. Conflict resolution When justified by cost-benefit reasons, differences between shareholders must be resolved through conflict resolution mechanisms such as conciliation and arbitration. 6. Relationship with stakeholders The company must respect the rights of all interest groups related to it, generated by its different relationships (eg workers, suppliers, creditors, etc.) as well as any other recognized in the regulations; in order to encourage and promote the achievement of the objectives of the society itself. IV. Disclosure of information 1. Principle of transparency The governance of the companies must ensure the accurate, clear and timely disclosure of all matters of importance related to the company. For this purpose, the company must consider the establishment of mechanisms to: (i) Disseminate information related to the company and attend to particular requests for information requested by shareholders or investors in general, designating a body and/or responsible personnel for this purpose. (ii) Resolve cases of doubt about the confidential nature or not of the information requested by the shareholders. The criteria must be adopted by the board of directors and ratified by the general meeting, as well as included in the statute or internal regulations of the company. (iii) Reveal information immediately and sufficiently on the so-called important facts, as well as everything related to the ownership structure of the company (variations of significant participation). (iv) Point out the possible conflicts of interest of the directors or the general manager in relation to the company's own affairs, outlining the mechanisms adopted to neutralize any potential negative effect. 12 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F 2. Financial information The accounting policy must be duly disclosed and explained, trying to apply it uniformly and continuously over time. This facilitates the perception of the future evolution of the company and ensures the consistency of the financial information (annual and intermediate frequency). If modifications to the accounting policy are proposed, the corresponding grounds and details must be submitted for the consideration of the shareholders. Due to the importance of the financial information of the annual exercise for the analysis and decision making, it is considered that without prejudice to the disclosure indicated in the regulations, it must include the following aspects: (i) Explanation regarding compliance with good corporate governance practices. (ii) Description of the individual participation in the capital of the company, as well as the remuneration attributed in the year to the directors and main executives. (iii) Review of the actions taken by the company in relation to its main financial and legal difficulties, although these do not represent, in the opinion of the general management, an immediate risk as a going concern. (iv) Indication of the date of approval of the final financial statements and delivery of the opinion regarding them agreed with the independent auditors. Likewise, specify the reasons for eventual postponement of the latter, if it were the case. 3. Disclosure on participation in the company's capital In order to disclose the possible links, the company must disclose the relationship of the shareholders with significant participation or controllers of the company, as well as the names of the directors, main executives and advisors. 13 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F 4. Audit a) Internal audit The internal auditor, in the exercise of his functions, must maintain a relationship of professional independence with respect to the company that hires him. Persons who are in any of the cases of incompatibilities contained in the respective regulations should not perform this position. The main functions of internal auditors, which are explicitly recognized, should seek to cover the following aspects: (i) Permanent evaluation of all the information generated or recorded by the activity carried out by the company, so that it is reliable and complies with the regulations. (ii) Ensure the strength of internal accounting control. (iii) Present the observations of the case to the corresponding areas, as well as propose the necessary measures, avoiding errors and preventing contingencies. (iv) Design and conduct the comprehensive internal control policy of the society. (v) Keep the board of directors and the general management informed, in writing, of the critical issues or matters of internal control that should be taken care of or known, as well as of the actions taken on any recommendation that has been presented in the reporting period. . b) External audit External auditing is a key piece of corporate governance, which can be carried out by auditing companies or independent auditors, as required by regulations or specific requirements. The external auditor must maintain clear independence from the company, a quality that must be expressed in the respective opinion. Likewise, 14 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F People who are included in any of the causes of incompatibility indicated in the relevant regulations should not be hired in this position. It is prudent to combine criteria for the renewal of external auditors with the need to have auditors with sufficient knowledge of the company's activities. As a general premise, auditing companies or independent auditors should be hired for a fixed term, and their contract can always be renewed, after evaluating the performance and professional independence demonstrated during their management. Society should make the policies it applies to these decisions known. Although external audits are generally focused on determining financial information, they can also issue opinions or specialized reports, in the following aspects: accounting expertise, operational audits, system audits, project evaluation, evaluation or implementation of cost systems. , tax audit, appraisals for asset revaluation, portfolio evaluation, inventories, or other special services. 5. General Meeting: Timely and extensive information to shareholders The corporate will of the company is expressed through the supreme body, in this sense, for the holding of the general meeting, it is recommended to take into account the following aspects, without prejudice to complying with the respective regulations of the Companies Law and the bylaws: (i) Carry it out in a place where the attendance of all shareholders is facilitated, granting facilities to exercise the right to vote through representatives, taking into account the rules of the bylaws. (ii) Shareholders must have the opportunity to appear on the agenda of various matters of corporate interest. (iii) The items on the agenda must be specified so that each issue is discussed separately, facilitating their analysis and avoiding the joint resolution of issues on which a different opinion should be held. 15 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values Machine Translated by Google advise of Good Corporate Governance Center for Studies of Capital and Financial Markets – MC&F (iv) Shareholders must have access to the appropriate information with due anticipation related to the items on the agenda so that they can form an opinion regarding said issues and exercise their voting rights responsibly. 16 Project (November 2001) Peru: Code of Good Corporate Governance for Issuing Companies of Values