The weakness of governance in Portugal

The Annual Monitoring Report, which assesses companies’ compliance with the Corporate Governance Code of the IPCG (Portuguese Institute of Corporate Governance) was issued in 2022. It is the fifth report prepared with reference to the monitoring system introduced with the Corporate Governance Code of the IPCG (Portuguese Institute of Corporate Governance). Companies) was initially approved in 2018 and is the third Corporate Governance Oversight Report revised in 2020.

The IPCG, led by João Moreira Rato, says thirty-six companies have been monitored, including the sixteen companies currently listed in the PSI index, as well as one unlisted company.

“Based on this general information, accessed privately through the CMVM information dissemination system, the reports of thirty-six companies were analysed, with reference to the year ending December 31, 2022,” the report states.

The revised Corporate Governance Code in 2020 consists of 53 recommendations, which, for monitoring purposes, have been divided into 74 sub-recommendations, “representing another important step towards self-regulation of corporate governance in Portugal,” reveals the IGCP.

Responsibility for oversight lies with the CEAM Executive Oversight and Monitoring Committee, led by Duarte Calheiros and of which Mariana Fontes da Costa is CEO.

The document, in terms of similarity to those implemented in the past four years, “represents the follow-up and monitoring work completed in relation to fiscal year 2022” according to CEAM.

This exercise leads to the conclusion that the average degree of compliance with the CGS, among all monitored exporting companies, with respect to all recommendations and sub-recommendations, was approximately 83%. In the case of issuing companies that were part of PSI in 2022, the percentage rises to approximately 95%.

These results mean a positive development in terms of average reception compared to the result obtained in fiscal year 2021. There is an increase of four percentage points (from 79% to 83%) in the total number of exporting companies considered and an increase of more Clearer in the PSI world (88% to 95%).

“It should be noted that with regard to the latter, the comparison of data compared to the previous year is directly affected by the change in the composition of the companies that make up this index,” CEAM highlights.

These global figures “reflect, to a large extent, the fact that we are facing an exercise that can be said to be consolidation, which is the result of two centripetal (approaching the center) forces,” the IGCP committee says.

On the one hand, the universe of monitored companies remained flat compared to FY2021, resulting in, in the current financial year, no issuing companies in the CGS (Corporate Governance Code) adaptation phase. On the other hand, the framework of recommendations has remained unchanged, allowing companies, in continuous dialogue with CEAM, to integrate and strengthen the approved good management practices.

In light of this, Mariana Fontes da Costa, Executive Director of the Executive Follow-up and Monitoring Committee, speaks of a stability framework, “It is clear that the companies subject to monitoring continue to develop and make efforts to adapt their behaviour, in order to deepen and highlights the adoption of good government practices, noting also that “CEAM continues to play its role in this area, seeking to promote the improvement of government practices and improve its reporting.”

“Given the continuous evolution of the results, the CEAM considers that the path to improving governance solutions for listed companies in Portugal is assured, and is expected to be strengthened in the next financial year. With the implementation of the new recommendation, the framework resulting from the revised CGS in 2023″.

Of the seven chapters that make up the CGS in the 2020 review, the chapter that provided the highest average overall reception was Chapter 1 (91%), with regard to information duties and the composition and functioning of community bodies.

The term with the lowest average overall reception (66%) was the third term, dedicated to non-executive management and supervision, but this was also the term in which reception grew the most from 2021 to 2022 (58% to 66%).

What are the most popular recommendations in 2022?

There was 100% acceptance of the recommendation to establish mechanisms to disseminate timely information to companies, shareholders, investors, other stakeholders, financial analysts and the market in general.

There was also 100% compliance with the recommendation regarding preparing minutes of meetings of administrative and supervisory bodies.

There was also 100% acceptance of the recommendation regarding disclosure on the website of the composition of bodies and committees.

The recommendation to determine the remuneration of members of the administrative and supervisory bodies and their internal committees is still 100% accepted by the committee (or by the General Assembly based on the committee’s proposal).

Finally, with a 100% acceptance rate, we found the recommendation regarding establishing a risk management function and identifying the main risks to which the exporting company is exposed.

Which recommendations are the least acceptable?

At the opposite pole, that is, in the group of less acceptable recommendations, where only 44% received acceptance, a coordinator was appointed by independent administrators.

In accordance with Recommendation III.1, independent directors must appoint a coordinator among themselves, unless the head of the governing body is himself independent.

Then, with an acceptance rate ranging between 54% and 49%, there is a committee specialized in corporate governance matters and appointments matters, respectively.

With 54% approval, there is also a recommendation for the management body to approve the system of doing business, by executive directors, for executive positions outside the group.

With the same percentage (54%) of acceptance, the community’s recommendation is to encourage proposals for electing members of corporate bodies to be accompanied by reasons related to suitability of the role to be performed, personal profile, knowledge, and curriculum. From each candidate.

The recommendation to evaluate and announce, by the Supervisory Body, the strategic lines and risk policy, before its final approval by the Management Body, has already been accepted by 60%.

Finally, with an acceptance rate of 62%, the recommendation shows that there are at least a third of non-executive board members who meet the independence requirements.

The future: a new framework of recommendations for 2023

CEAM said in a statement that it believes that the positive development we witnessed in 2022 can be consolidated, in the next fiscal year, with the implementation of the new framework of recommendations resulting from the revised Corporate Governance Code in 2023, “which is due to the stage of maturity that the Code has reached and the need to re- Organizing and updating periodically.

Among other new features, the 2023 Review will cover the topic of sustainability in a separate chapter (new Chapter 1), while the Internal Control chapter has been reorganized and strengthened with new recommendations on risks, namely environmental and social risks and risk level. Using artificial intelligence mechanisms, CEAM reveals.

The Corporate Governance Code, which is recognized by the CMVM as a code of governance for listed companies, is a soft code, as there are no penalties associated with non-compliance.

“CGS is voluntary and compliance is based on a comply or explain rule, so monitoring must ensure effective valorisation of ‘explain’ with equivalence, the IPCC reveals in the report. This means complying or explaining why you are not complying with the recommendation.