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top 30 IR Global Rankings

For IR Website, Online Annual Report, Corporate Governance and Financial Disclosure Procedures

magazine 2013

Looking ahead in IR activities

IR and social Media Rethinking the Annual Meeting “Fasten your seat belts. It’s going to be a bumpy ride.”

Striving to be the best, even in times of crisis


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Original thought requires an original partner

The world’s largest independent global investor relations consulting firm www.mzgroup.com

+55 11 3529.3637 / 3781

Atlanta Beijing Chicago Hong Kong Mumbai New York San Diego SĂŁo Paulo Taipei Vancouver 3


Technical Evaluation and Independent Review

An independent technical committee reviews IR Global Rankings findings and final rankings, testing the results and evaluations developed by IRGR analysts, and such other procedures, as they consider necessary. The independent technical review is performed to obtain reasonable assurance that the results and evaluations are free of material misstatements or omissions, and the parties acknowledge that absolute assurance is not attainable. It is acknowledged that the results, evaluations, underlying records, supporting documents and procedures are the responsibility of IRGR, in which IRGR assumes full responsibly for their integrity and fairness. Please note that Arnold & Porter does not review the Corporate Governance Ranking.

The current independent committee has the following members:

Giulio Pediconi

Founder and Managing Director of Sodali, in charge of coordinating its sales activities. Previously (2002-2006), he had been responsible for opening and developing the business for GS Proxibérica - a fully owned subsidiary of GSC Proxitalia (Georgeson Group) - in Spain, Portugal, Argentina and Brazil. During that period, he had participated to most of the largest transactions in Spain. Prior to joining Georgeson, he had been assigned to business development and internationalization tasks in Spain, Belgium and France. He obtained a degree in Political Science in Milan and received an M.B.A. in IESE (Barcelona). He is a member of the Instituto Consejeros-Administradores (Institute of Directors) in Spain.

Gregory Harrington

Partner, Arnold & Porter LLP. Gregory Harrington is a partner in the firm’s corporate and securities practice group. He has extensive experience in major international financial transactions in Latin America, particularly in the area of capital markets. His practice includes corporate and project finance, including equity and debt securities sold pursuant to SEC registration, Rule 144A or Regulation S; and listings on the New York, London, Luxembourg, and Irish Stock Exchanges; Securities Act, Securities Exchange Act and Investment Company Act compliance; and advising sponsors and lenders in connection with project finance transactions. Mr. Harrington is a graduate of the University of Chicago Law School and The George Washington University.

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Paulo Arakaki

Director at KPMG in Brazil. He is responsible for the Audit Risk Management and Ethics & Independence departments. He assumed both departments in 2004, after 17 years of experience in audit. His key areas of experience include audit (financial market and listed companies), market programs, risk management and ethics and compliance programs. He has a degree in Accounting from University of São Paulo (FEA - USP) (1994). Additionally, he is a Certified Accountant of the Federal Accounting Council (CFC), the Brazilian Securities and Exchange Commission (CVM) and the Superintendence of Private Insurance (SUSEP). He was an MBA Internal Audit instructor at FIPECAFI.

Rodrigo Alves

Rodrigo is the President of MZ Latin America. Rodrigo Alves has over 16 years of experience in capital markets and began his career on the trading desk of Banco Santander, where he served for six years. After that period he worked for 10 years in the area of investor relations, which 6 of them were at MZ, a company he helped founding and worked as an investor relations consultant. Rodrigo also has extensive experience as IR of public companies: he was investor relations manager at NET Serviços and investor relations and planning officer at GOL Linhas Aéreas. Rodrigo holds a degree in economics from PUC-SP and an MBA in finance from Ibmec-SP.


Letter from editor 2012 was marked by a series of changes in the global market due to the virtual paralysis of the capital markets. Given this low level of activity, it would be perfectly natural if there were no major innovations in market communications; the best we could hope for was that companies would maintain the good practices they had already implemented. In fact, the IR Global Rankings analysis showed that many companies had altered both the quantity and quality of the information they disclose to the market. Those firms that opted to invest in and focus on improvements instead of cutting back on their communications programs were extremely successful. The interview with BBVA is a good example, showing that the best way to survive the crisis is to invest in transparency and the expansion of investor communication tools. We also perceived that the issue of corporate governance has been gaining increasing ground in each edition of IRGR Magazine. So you cannot afford to miss the article “Rethinking the Annual Meeting”, which discusses the challenges involved in ensuring a really successful AGM. As for the case studies in this edition, you can find out a little more about the social media and how BASF has been stepping up its dialogue with investors. Reinforcing the idea that it is necessary to invest, even in hard times, you will see that this edition of IRGR Magazine has a new editorial and graphic design project which makes it much easier to read. The sections have also been reorganized and there are more topics than before.

And that is not all. The IR Global Rankings awards cycle, which was previously divided into regions (North America, Latin America, Europe, Asia/Pacific and India) will now be consolidated, i.e. there will be a single date for the opening of ranking registrations and a single date for disclosing the results. Another innovation is the introduction of a best CFO/IRO award as a means of recognizing the efforts of these executives in improving their companies’ IR programs. The award will be based on the highest number of accumulated points in the four categories under evaluation – website, annual report, corporate governance and financial disclosure procedures. The announcement and presentation of all the awards will take place at a global ceremony in London in November of this year. Our readers will also have a new internet portal shortly, containing a wealth of IR information from around the world and a series of free-access studies. Last but not least, I would like to say that all this was only possible thanks to the invaluable help of the IR Global Rankings global coordinators, sponsors and supporters. We are constantly seeking companies and institutions who wish to promote the educational work of the rankings, as well as support the progress and disclosure of good investor relations practices. We hope you like our new magazine and please don’t forget to register for the 2013 rankings. Cordially,

Paulo Barroso Head of the IR Global Rankings

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INVESTOR RELATIONS WEBSITES

INVESTOR RELATIONS WEBSITES

10 HOT&NOT What's

What's

11

TOP30 ranked in Investor Relations Websites

Online Annual Report

CORPORATE GOVERNANCE

22 HOT&NOT What's

What's

TOP30 ranked in Online Annual Report

13

Best IR website in ASIA/Pacific

16

IR Global Rankings in the world

Striving to be the best, even in times of crisis

18

20

Most Improved IR Website Worldwide

EDITOR-IN-CHIEF Paulo Barroso MANAGING EDITOR Carolina Bianchi and Laura Paggiossi STAFF GRAPHIC EDITOR Gabriela Pavan

6

24

Annual and Sustainability Report Importance, Myths, Tendencies and Truths

26

Best Online Annual Report in the World

Practices

29

TOP30 ranked in Corporate Governance

23

12

Best IR Website in the World

28 Best

30

Rethinking the Annual Meeting “Fasten your seat belts. It’s going to be a bumpy ride.”

37

Corporate governance practices of the main public companies in Brazil indicates companies’ concerns to develop their practices

40

Infosys IR Team talks about their efforts on Corporate Governance

Contributing writers Amber Usman, Ana Paula de Medeiros Carracedo, Andrea Wentscher, Angel Santodomingo, Anna Pinnow, Carlos Eduardo Baron, Delia Nogales, Doris Chan, Enrica Lee, Florian Greger, Frank Boehme, Giacomo Baizini, Gregorio Gil, Gregory Harrington, Hannes Koske, Idoia Cespedes, Ingo Rose, Ivan Ferrer, Ivan Wong, Jacky Yung, John C. Wilcox, Keith M. Korenchuk, Leandro Santana, Lisa Lal, Luca D’auria, Magdalena Moll, Maite Balbin, Manuel Alvaro, Maria Parada, Maria Vazquez, Markus Zeise, Mauricio J. Almar, Melanie Muñoz, Michelle Lam, Nicole Krawietz, Nivedita Ketkar, Oscar Diaz-Canel, Paulo Arakaki, Pedro R. O. Almeida, Rebecca Wong, Ricardo Bettoni, Rodrigo Alves, Rodrigo Garufi, Samuel M. Witten, Sheila Rodriguez, Sidney Ito, Sonia Gónzalez, Thomas Wolf, Tobias Hoeld, Vikas Agarwal, Virgina Paya.


Financial Disclosure

42

What's

trends And innovation

IR Strategy

&NOT 43

HOT

What's

by 60 Winners Industry

Winners by region & forecast articles:

TOP30 ranked in Financial Disclosure Procedures

44

The Emerging Global Standard for Effective Anti-Corruption Compliance: Meeting the Expectations of Governments Worldwide

47

Financial Disclosure Procedures in the World

48

Winners

IR and Social Media

54

62

56 Looking ahead in IR activities

58 Good Disclosure Practices and Investor Communication

Five Tips for Dealing with Results that are Below Market Expectations

Europe India 64

66

North America LATAM

68

70 Asia

52

IR and the end-of-year bonus

IR Global Rankings R. Professor Manoelito de Ornellas, 303 - 6Âş Andar, SĂŁo Paulo, SP - Brasil 04719-0740 | Phone: +55 (11) 3529-3707 1001 Avenue of the Americas, suite 411, New York, NY - USA 10018 | Phone: +1 (347) 797-5165 irgr@irglobalrankings.com | www.irglobalrankings.com

IRGR Magazine is a publication of IR Global Rankings. The total or partial reproduction of content is prohibited without prior authorization of IR Global Rankings. The articles included in this publication involve public interest subjects and are not intended to provide legal opinions or suggest any kind of investment. For circulation inquiries, address changes, request for copies or subscription inquiries contact us.

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It’s all

new here at IR Global Rankings!

Don’t miss out!

This year there will be one, unique registration period

Between 8th April and 12th July 2013


Best Corporate Governance & TOP 3 CFO in Latin America

9


INVESTOR RELATIONS WEBSITES

What's

≥≥ Animation or videos played on the IR homepage that summarize the company’s investment messages, competitive advantages, strategies, latest results or corporate image; ≥≥ Industry section updated with information on global and local aspects; ≥≥ Proactive transparency, disclosing more information than required by law or regulators; ≥≥ Compensation and contact information for all board members; ≥≥ Summary of the committee structure and membership information that shows the policy of each committee and a biography of each member; ≥≥ Translated transcripts (published in at least two languages); ≥≥ Providing detailed summaries of the information and estimates published by analysts; ≥≥ Interactive charts for stock prices, analyst recommendations, latest results, operational metrics, etc.; ≥≥ Information on Social Responsibility, ideally kept separate from the corporate website; ≥≥ Regulatory filings section with documents available in HTML, PDF, Word and Excel formats; ≥≥ Complete versions of the financial statements available for download in Excel format; ≥≥ Latest webcasts synchronized with presentations; ≥≥ Maintaining the website up-to-date; ≥≥ Allowing users to personalize the homepage; ≥≥ Complete guidance section.

What's

≥≥ ≥≥ ≥≥ ≥≥

HOT

NOT

≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥

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Institutional website mixed with the investor relations website; Information and Sections that are hard to find; Not having a link to the IR page on the corporate homepage; Not highlighting the investment message and having it “lost” in the company overview section; Not having contact information for the IR team; Not informing when sections were updated; Not having a specific SEC and local regulatory filing section; Links that do not work, go to the wrong section or take users to a page that is not in English; Messages such as “Not Found / The requested URL was not found”; Not providing a replay of the last quarterly conference call; Not having an easy way to return to the homepage or back to the top of pages; Not having both the HTML and PDF versions of the latest online annual report; Out of date information.


TOP30 COMPANY ALL - AMÉRICA LATINA LOGÍSTICA

INVESTOR RELATIONS WEBSITES

COUNTRY

REGION

INDUSTRY

SCORE

Brazil

Latin America

Industrials

Denmark

Europe

Financials

Italy

Europe

Utilities

Canada United Kingdom

North America

Basic Materials

91.8 91.5 90.5 90.0 89.0 85.8 85.5

Europe

Financials

85.0

BBVA

Spain

Europe

Financials

84.4

JSL S.A.

Brazil

Latin America

Consumer Services

Brazil United Kingdom

Latin America

Telecommunications

84.3 84.1

Europe

Oil & Gas

83.6

Brazil

Latin America

Consumer Services

83.5

Turkey

Europe

Telecommunications

Belgium United Kingdom Germany

Europe

Consumer Goods

82.0 81.8

Europe

Financials

81.6

Europe

Industrials

Luxembourg

Europe

Basic Materials

DANSKE BANK PIRELLI

Italy

Europe

Consumer Goods

BASF

Germany

Europe

Basic Materials

BAYER

Germany

Europe

Health Care

HERA POTASHCORP LAND SECURITIES

OI S.A. ROYAL DUTCH SHELL GOL LINHAS AÉREAS INTELIGENTES TURK TELEKOM DELHAIZE GROUP RBS DEUTSCHE POST DHL ARCELORMITTAL INTEL GLOBAL YATIRIM HOLDING ING GROEP MICROSOFT GRUPO PÃO DE AÇÚCAR RYDER SYSTEM, INC. GALP ENERGIA LIFE TECHNOLOGIES ARCADIS NLMK BRASKEM SOFTWARE AG

USA

North America

Health Care

Netherlands Russian Federation Brazil

Europe

Industrials

81.0 80.9 80.9 80.5 80.5 80.0 79.5 79.3 78.5 78.4 78.3

Europe

Basic Materials

78.1

Latin America

Basic Materials

Germany

Europe

Technology

78.0 77.5

USA

North America

Technology

Turkey

Europe

Utilities

Netherlands

Europe

Financials

USA

North America

Technology

Brazil

Latin America

Consumer Goods

USA

North America

Industrials

Portugal

Europe

Oil & Gas

For companies with tied scores the classification is in alphabetical order. Disclaimer: the evaluations performed for the IR Website ranking are based on the information publicly available on the respective participant website at the time of the evaluation date. Neither IR Global Rankings nor any of its supporting entities are liable for any changes that may occur on such websites after the evaluation date and that may affect the original scores and opinions provided. 11


INVESTOR RELATIONS WEBSITES

Case StudY

Best IR Website in the World ALL - América Latina Logística

What does it mean to be ranked the Best IR website in the world? ALL is very pleased to be the best IR website in the world. This awards the company’s commitment and transparency to its investors. We are always looking to continuously improve the quality of our relationship with the market, and the IR website is a very important tool to achieve this goal. In your opinion, what is the most important feature of an excellent IR website? The most important feature of an excellent IR website is the reliability of the information. As the website is a tool to assist IR activities, investors should always feel comfortable with the website’s credibility. Another important factor is navigability. The site has to be practical and agile in order to facilitate communication with the market. What steps did ALL take to improve its IR website in 2012? First, a benchmark study was conducted with the best IR websites in the world. The information collected with this benchmark study made it possible to define the tools our website did not have and that

would be essential to achieve good quality communication. At a second phase, we asked some website users for suggestions of improvement. What advice would you give to other companies wishing to improve their IR website? The objective of an investor relations’ website is to act as an information platform and offer online assistance to the market. When this goal is achieved with excellence, your reward is to know you did a good job. What are ALL’s plans for 2013? One of ALL’s values is “Methodology and Quality to improve always,” meaning that we are always in pursuit of excellence. In 2013, we will further improve our communication platforms with the market (website, iPad App, Facebook).

The information collected with this benchmark study made it possible to define the tools our website did not have and that would be essential to achieve good quality communication From left to right: Leandro Santana, Pedro R. O. Almeida, Carlos Eduardo Baron.

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Case StudY

Best IR Website in ASIA/PACIFIC CHINA TELECOM Why is it so important to invest in an IR website? The Company establishes the IR website responsible to maintain proactive communications with shareholders, investors and other capital market participants and provides them with information so as to allow them to fully understand the operation and development of the Company, thereby enhancing its corporate governance and transparency, and thus enhancing the Company’s investment value. How does the IR site aid communication with shareholders, investors and other stakeholders? With an aim of strengthening communications with the capital market and enhancing the transparency of information disclosure, the Company has provided the quarterly disclosure of revenue, operating expenses, EBITDA, net profit figures and other key operational data, and the monthly announcements of the number of access lines in service, mobile subscribers (including 3G subscribers) and wireline broadband subscribers. The Company attaches great importance to maintain timely communication with shareholders, investors and analysts. Our investor relations website not only acts as an important channel for the Company to disseminate press releases and corporate information to investors and the

capital market, but also plays a significant role in our compliance with regulatory requirements for information disclosure. What is the most important feature of a good IR website? There are several elements to build a good IR website, including content, design, ease of use, interactivity, use of technology and creativity.

Our investor relations website plays a significant role in our compliance with regulatory requirements for information disclosure

≥≥Make content easy to access and navigate ≥≥Convey a compelling investment proposition ≥≥Provide content in formats that engage investors ≥≥Be accessible and offer multiple ways to stay connected ≥≥Offer investor tools and package useful information

From left to right: Doris Chan, Rebecca Wong, Lisa Lai, Jacky Yung, Ivan Wong, Enrica Lee, Michelle Lam.

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INVESTOR RELATIONS WEBSITES

Make content easy to access for all audiences through clear labelling and signposting

What does China Telecom do to ensure the high standard of its IR website? We aim to keep our IR website at high standard by taking the following initiatives: ≥≥ Subscribe and study IR Global Rankings’ benchmark study every year in order to improve and enhance our website features and contents; ≥≥Consider the corporate website as a powerful means of communication and an expression of our brand story rather than a library or archive; ≥≥Ensure the corporate website is the definitive source of company information; ≥≥Keep all of the elements of the website simple, including the address, navigation and use of software tools. Make content easy to access for all audiences through clear labelling and signposting; ≥≥Regularly update investors with the latest website developments. This will help maintain interest and interaction; ≥≥Review site content regularly. Ensure information is timely and, where appropriate, provide

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a date so that investors can decide on relevance; ≥≥Use audio or video webcasts to provide a wider audience with access to presentations and shareholder meetings. Make this content available in an archive; ≥≥Review the international websites and those companies identified as the best in their class; ≥≥Provide qualitative as well as quantitative information to help the website stand out; ≥≥Use feedback to make improvements to the website. What does it mean to be ranked the Best IR website in Asia/Pacific? The awards exhibit that judges or capital market appreciate and recognise China Telecom’s outstanding corporate governance and transparency of information disclosure of leading standard in Asia Pacific. We shall continue to strive for maintaining a high-standard IR website and demonstrate a strong understanding of best practice and investors’ needs. Most importantly, the awards push us to keep innovation on our website.

What are the next steps now for China Telecom? We are going to revamp our IR website with the latest HTML 5 technology in near furture, giving audiences more flexibility and enabling more interactivity. HTML 5 introduces and enhances a wide range of features including form controls, multimedia, structure, and animations. In addition, we keep improving and enhancing the featues and functionalities of our mobile website, which allows investors, shareholders, media and the general public to easily browse the updated information on the Company’s website through mobile devices at any time and any place. How does China Telecom interact with visitors to the IR website? We offer many IR tools including interactive news chart, investor briefcase, add to calendar, share with friends, download to excel function, email alerts subscription and website survey to facilitate and enhance our visitors’s surfing expreience throughout our website. We also use a lot of tabs and interactive layouts (such as in Recognition & Awards, FAQs), which benefits information categorization and accessibility.


Oi. Official Sponsor.

Oi. Official Sponsor

15


IRGR IN THE

WORLD

New York

More than 2,000 par ticipant companies in

57

countries

80% recurrent participants

16


14 years of

success Beijing Shangai India

S達o Paulo

IR Global Rankings has evaluated more than

2,600

05 Continents Present in

IR websites

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INVESTOR RELATIONS WEBSITES

Interview

BBVA - Striving to be the best, even in times of crisis By laura paggiossi

Throughout 2012, we have seen many changes in the global market. As a result of the global crisis, we noticed many companies change the quantity and quality of the information that they are disclosing to the market. Many companies decided not to invest in transcription, translation, webcasts, audio and podcasts in order to weather the financial storm, however others chose to survive the crisis by focusing and investing even more so on their IR communications. We saw the effects of the Global Crisis in the 14th Edition of the IR Global Rankings, and how it is changing IR Communications around the world. The companies who chose to invest, rather than make cuts, were extremely successful. In the case of BBVA, as Oscar DíazCanel explains “we have a lot of useful information for analysts, shareholders and investors. It is important to disclose all the information required by analysts as much as possible, such as reports, presentations, webcasts, consensus, issuance etc.” BBVA understands that IR Communications are extremely important for the Company and that it is important to “Try to involve as many departments as

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you can to create a project. It is not only a project for the investor relations department but for the whole company”. BBVA not only continued to invest in their IR Program, but they were also rewarded for their efforts by being the Best Improved IR website in Europe in 2012. Oscar explains that this was achieved by “Giving enough resources in terms of maintenance, benchmarking and new technologies”, showing how important it is to constantly improve. As he explains, “BBVA has a large amount of shareholders and analysts that are demanding information and it is our aim to keep them satisfied, following our principles of customer centricity, innovation and global presence”. Describing the win, he says “It is very important to have recognition for our efforts, not only by the increase in users but also by prestigious international ranking companies”. Improving your IR website can be a challenge at the best of times, let alone in the middle of budget cuts and financial crisis. As Oscar tells us, “Firstly, identify the things to improve. Secondly, knowing to deliver the project on time and with all that’s required to be a first class web site in the world. There are

Try to involve as many departments as you can to create a project. It is not only a project for the investor relations department but for the whole company two sides to the project; the new technological requirements, which is an issue for the IT department and content management, which involves a variety of different departments within the company”. BBVA do not plan to rest on the successes of 2012. They are planning to enter 2013 striving for constant improvement “We are going to include more sections and will be including more On line reports instead of simple PDFs. We will work more in content, hearing the voice of the users”. “All of us here at IR Global Rankings would like thank all of our participants for always striving for the best. It is due to your continous hard work and dedictation that IR Global Rankings is what it is. We look forward to seeing all of your innovations in 2013.


What does it mean to BBVA to have been ranked the Most Improved IR website in Europe in 2012? It is very important to have recognition for our efforts, not only by the increase in users but also by prestigious international ranking companies. Why was it so important to BBVA to improve its IR site? BBVA has a large amount of shareholders and analysts that are demanding information and it is our aim to keep them satisfied, following our principles of customer centricity, innovation and global presence. What difficulties and obstacles did BBVA encounter in its efforts to improve its IR site?

How does BBVA ensure the continued improvement of the IR site?

Firstly, identify the things to improve. Secondly, knowing to deliver the project on time and with all that’s required to be a first class web site in the world.

Giving enough resources in terms of maintenance, benchmarking and new technologies.

There are two sides to the project; the new technological requirements, which is an issue for the IT department and content management, which involves a variety of different departments within the company.

BBVA’s IR team. From left to right: Jose Manuel Puente, Delia Nogales, Gregorio Gil, Ivan Ferrer, Sonia Gonzalez, Luca Dáuria, Maria Parada, Oscar Díaz-Canel, Virgnia Paya, Manuel Alvaro, Melanie Muñoz, Sheila Rodriguez, Idoia Cespedes, Maite Balbin, Maria Vazquez

What advice would you give a Company that is looking to improve it IR website? Try to involve as many departments as you can to create a project. It is not only a project for the investor relations department but for the whole company.

Why is an effective IR website so important to a Company? In our case, we have a lot of useful information for analysts, shareholders and investors.

How will BBVA continue to improve the IR website in 2013? Any upcoming plans to make improvements and add new content to the site?

It is important to disclose all the information required by analysts as much as possible, such as reports, presentations, webcasts, consensus, issuance etc.

We are going to include more sections and will be including more On line reports instead of simple PDFs. We will work more in content, hearing the voice of the users.

Laura Paggiossi IRGR Team

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INVESTOR RELATIONS WEBSITES

Case StudY

Most Improved IR Website Worldwide Veidekke ASA What does it mean to Veidekke ASA to have been ranked the Most Improved IR website in the world in 2012? It means that our work with IR and strategy for digital awareness are paying off. We appreciate being ranked as “most improved” and we will continue to improve all investor information, in particular dialogue and interaction. What was Veidekke ASA’s main focus for its IR website in 2012? Veidekke ASA’s main focus was continuing the work with accurate and precise information, availability on a cross-platform level and in-depth information on our key reporting areas. How exactly did Veidekke ASA improve its IR website? The improvements from 2011 – 2012 were a greater presentation of reports, webcasts and company disclosures. In addition, the President and CEO’s latest blog-post are kept continuously on the front page in both English and in Norwegian. This, along with the focus on new contracts and other press releases, was the major improvement points. Why was it so important to Veidekke ASA to have an effective IR website? One of our most important stakeholders is investors. Providing accurate and available investor information is of great importance as some of our goals are transparency,

20

building relations and keeping up to date with selected standards. Having an effective website helps us distribute information effectively and also being able to stay on top of the perspective of dialogue. By integrating social media and policies for social media targeting the investor market, we want to further strengthen our aim to become an attractive company for investors.

Providing accurate and available investor information is of great importance as some of our goals are transparency, building relations and keeping up to date with selected standards How does Veidekke ASA ensure the continued improvement of the IR site? Continued improvement of the site will include a better mobile platform, further integrating Social media channels and improving them, and making better use of analytics software in order to develop the sites further. What advice would you give a Company that is looking to improve its IR website? The best advice we can give is having the clean and great code as the pillar of the site. Developing a site from a level that is great is far better than from a mediocre level. Second, try having

“a regime” for your site’s way of portraying information – and keep to that regime. Third, make sure you know what your site is there for. What role does the site have, who are its prime target audience and how well does the content reach that audience. Sometimes the content can be great but the presentation bad and visa versa. Try making great content and great presentation. Always know what your audience is doing on your site. Tracking behavior is of utmost importance. This is how you learn your site’s strengths and weaknesses. Last, enabling social media strategy for IR will help you learn a lot, and your site will be affected with more transparency and dialogue than before. How will Veidekke ASA continue to improve the IR website in 2013? Improvements will be made to the site’s framework for mobile web but also the social media requirements will be further strengthened. We will continue the focus on openness and transparency and not at least providing insights to what affects our business in the year to come. As one of the major players in our industry in Scandinavia, we will continue to produce Economic activity reports for the building, construction and property market and make these reports available for all. Also our quarterly reports and presentations will undergo an evaluation of improvement. All quarterly and annual reports are made with full html and the work with presentation, improving tools and content quality will continue in 2013.


this couLd be Rio`s decAde, but we Like to think

weLL beyond thAt.

Light will ensure the coming international events in Rio will be a resounding success. A commitment to make sure this wonderful city will always be able to rely on a quality energy supply, both now and in the future. Best Improvement IR Website in Latin America

ri.light.com.br


ONLINE ANNUAL REPORT

What's

HOT

≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥

What's

NOT

≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥

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Including the MD&A in the online annual report file; Providing the complete financial statements in HTML; Including information on strategy and competitive advantages; Providing a specific section on risk factors; Providing a glossary with definitions of key financial indicators and terms; Detailed biographies and the compensation of management and directors; Content that downloads quickly; All content in HTML format; Promoting interactivity; Content in sections divided into sub-menus; Interactive stock price charts with option for comparisons with main peers and indexes; Providing a search tool for results inside the Online Annual Report; Financial statements with links to corresponding notes; Providing links for downloading the quarterly presentations; PDF downloads of the entire document and the various sections; Excel download option for all financial statements and operating statistics/indicators; Download center with all annual report files available for download; Good combination of flash and sound; Option to personalize displayed content.

Not providing a link to the company’s IR website; Using other languages in the English online annual report; Not providing information on corporate governance or social responsibility; Financial information available only in PDF for download; Providing information in figure format; Dumping financial statements in a single section, since dividing topics by sub-sections facilitates search efforts; Having a “single-flow” document without separating topics by section (i.e. users can only advance using “next page” options); Not providing a download center; Using low-resolution images that can become distorted; Needing more than 4 clicks to find any information; Not having a clearly structured menu with sections and sub-sections; Links that do not work, redirect to wrong locations or take users to a page that is not in English; Using an interactive PDF without links or tools and with weak navigability features; Lack of interactivity by using flash formats on all pages of the report; Heavy reports that make navigation slow; Search tools that don’t work or show content outside of the online annual report.


TOP30

Online Annual Report

COMPANY

COUNTRY

PHILIPS

Netherlands

Europe

Industrials

Canada

North America

Basic Materials

BASF

Germany

Europe

Basic Materials

HANNOVER RE

Germany

Europe

Financials

EVN AG

Austria

Europe

Utilities

AEGON

Netherlands United Kingdom Italy

Europe

Financials

SCORE 87.3 80.5 77.5 77.0 74.0 72.8

Europe

Oil & Gas

69.5

Europe

Consumer Goods

68.3

POTASHCORP

ROYAL DUTCH SHELL PIRELLI BMO FINANCIAL GROUP

REGION

INDUSTRY

Canada

North America

Financials

68.0

HINDUSTAN UNILEVER LIMITED

India

India

Consumer Goods

BBVA

Spain

Europe

Financials

Switzerland Russian Federation Canada

Europe

Industrials

66.5 66.3 65.8

Europe

Basic Materials

65.5

North America

Basic Materials

AMIL PARTICIPAÇÕES

Brazil

Latin America

Health Care

ENERGISA

Brazil

Latin America

Utilities

NUCLEUS SOFTWARE EXPORTS

India

India

Technology

Turkey

Europe

Telecommunications

63.5 62.3 61.5 60.5 60.5

Colombia

Latin America

Financials

60.3

OI S.A.

Brazil

Latin America

Telecommunications

HERA

Italy

Europe

Utilities

ADECCO SEVERSTAL CAMECO CORPORATION

TURK TELEKOM GRUPO DE INVERSIONES SURAMERICANA

ETERNIT

USA

North America

Industrials

Brazil United Kingdom Canada

Latin America

Utilities

60.0 59.8 57.5 57.3 57.0 56.0 55.5 49.5

Europe

Financials

48.5

North America

Basic Materials

Turkey

Europe

Financials

41.3 41.0

Brazil

Latin America

Industrials

Russia

Europe

Basic Materials

FIBRIA CELULOSE SA

Brazil

Latin America

Basic Materials

CHINA TELECOM

China

Asia/Pacific

Telecommunications

NLMK

STANLEY BLACK & DECKER SANTOS BRASIL RBS AGNICO-EAGLE MINES GARANTI BANK

For companies with tied scores the classification is in alphabetical order. Disclaimer: the evaluations performed for the Online Annual Report ranking are based on the information publicly available on the respective participant Online Annual Report at the time of the evaluation date. Neither IR Global Rankings nor any of its supporting entities are liable for any changes that may occur on such Online Annual Report after the evaluation date and that may affect the original scores and opinions provided. 23


ONLINE ANNUAL REPORT

ARTICLE

Annual and Sustainability Report Importance, Myths, Tendencies and Truths By Rodrigo Garufi

T

raditional annual reports are evolving from almost exclusively financial documents into much broader and more comprehensive publications for two main reasons. Firstly, there was the advent of the Internet, which made the distribution of printed reports obsolete, given that the information they contained was often out of date by the time they were published, so they were utterly unable to compete with IR websites and their powerful disclosure tools. The second major factor was the arrival of sustainability reports. The need to improve communications with stakeholders and disclose practices adopted by companies in the most varied sectors of the economy led to substantial changes in these documents, which now go well beyond the mere disclosure of financial information and corporate governance practices. Supported by the guidelines of the Global Reporting Initiative (GRI), which compiled a set of global sustainability indicators, an increasing number of companies are currently publishing reports that include these indicators. As a result, the reports have become stronger and more comprehensive since they now include social, economic and environmental information. Consequently, stakeholders are even more alert to and engaged with sustainability.

24

It is worth noting that this paradigm shift has also made companies more aware of their social and environmental responsibilities, leading them to adopt values and principles based on transparency and a commitment to sustainability. Myths Unnecessary headaches generated during the report preparation process: “Involving different suppliers in each step of the report’s preparation makes the whole process more difficult and bureaucratic.� In fact, this would be true if there were no companies specialized and focused on the one-stop-shop model for preparing annual reports. The solution is to centralize the entire process in a single agency comprising writers, editors, revisers, translators, designers, video producers, layout artists and HTML programmers.

The reports have become stronger and more comprehensive since they now include social, economic and environmental information


Only publicly-held companies can prepare these reports: Not at all. The current report model allows privately-held companies to increase their market visibility and communicate with their stakeholders in an integrated manner, in addition to representing an important management tool. There are also several financial market working groups, such as the PAC-PME, which amply disclose the benefits of this practice. The report always has to be printed in its entirety: False. It is possible to print a summarized version of the report. In fact this is one of the current segment trends. Tendencies ≥≥Online annual reports Also in regard to printing, the tendency is to use less paper and be more interactive through online reports, which are totally aligned with the principles of sustainability. ≥≥Partial printing However, some companies may still want to print some copies of their report. In order to make this process more sustainable, one viable solution is to include only the most important financial tables rather than the complete financial statements, while ensuring stakeholders’ access to the latter by including a link to the company’s IR website. ≥≥Access via tablets As with IR websites, companies are creating apps that will shortly allow access to reports via tablets and mobile phones and the reports can already be prepared in this format.

Truths ≥≥Ideal disclosure period Ideally, reports are published on the date of the Annual Shareholders’ Meeting or within 30 days of publication of the annual financial statements. The reason for this reference date is simple: annual reports were originally created to render accounts to the company’s shareholders. Nothing could be more appropriate, therefore, than delivering them on the day of the annual meeting. Few companies, however, succeed in doing this. ≥≥The sooner the better The secret to disclosing your report as soon as possible is being organized and focused. In fact, it is advisable to begin in mid-November of the previous year, thereby ensuring sufficient time to comply with the detailed report production schedule, with deadlines that can be met by companies and agencies.

Companies are creating apps that will shortly allow access to reports via tablets and mobile phones and the reports can already be prepared in this format state without contradiction that transparent annual and sustainability reports constitute the fundamental communications channel between companies and their stakeholders. There is no going back: integrated reports are already a global reality and sooner or later, companies that have not adopted them will be asked by their stakeholders to do so. In order to avoid this, do it now!

≥≥Report’s representativeness to stakeholders Nowadays, one can safely Rodrigo Garufi Partner, MZ Group

25


ONLINE ONLINE ANNUAL ANNUAL REPORT REPORT

Case StudY

Best ONLINE ANNUAL REPORT in THE WORLD PHILIPS

‘We are always keen to read the IR Global Rankings, as they provide us with useful insights with which to further enhance our communications to the financial market,’ says Philips’ Annual Report/ Investor Relations Team. Philips’ Annual Report 2011 was named among the best in the world in the 2012 edition of the IR Global Rankings: #1 in the category Online Report, #3 in Financial Disclosure Procedures, and #1 in Corporate Governance. Each year our Annual Report process begins with a benchmark of market trends in website design, navigability, interactivity and data handling. We also perform an indepth study of our website traffic statistics and visitor feedback in order to define improvement targets. In terms of content, we perform a review for full compliance on financial disclosure and a benchmark of best practices on sustainability reporting. This enables high-level integration of both financial and sustainability information in a single document that provides our stakeholders with a complete view of our performance. For our Annual Report 2011, we introduced a number of innovations. For the first time the complete Annual Report was accessible for mobile devices such as tablets and smart phones. We also enhanced the web experience by offering

26

navigation by interest area to enable quick access to desired content, and gave greater prominence, on the homepage, to leadership video material and social media. The drive to improve the web experience also extended to our Chinese-language Annual Report website, with added Mandarin functionalities including interactive charts, download section and PDF generator. Innovations for Philips’ upcoming Annual Report 2012 include further integration of the financial and sustainability content, increased video content, further development of the Chinese-language site, and closer integration with the company’s news media.

We perform an in-depth study of our website traffic statistics and visitor feedback in order to define improvement targets


CORPORATE GOVERNANCE

Good points to reflect on Corporate Governance

best practices

≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥ ≥≥

28

Does the Company have the key standing Committees? Is the Chairman separate from the CEO? Is there a policy or process to ensure Board diversity? Does the Board conduct a Board Evaluation? Do the controlling shareholders or the State have special voting rights? Do all shares of common stock have equal voting rights? Does the Company engage with shareholders on Governance matters? Do shareholders have the right to submit proposals at the Annual General Meeting (AGM)? Do shareholders have the right to pose questions before the AGM and receive answers at the AGM? Does the Company provide Tag-Along Rights (or protection to minority shareholders) in a takeover bid? Does the Company have anti-takeover measures or protection mechanisms (e.g., poison pills)? Does the Company provide a specific webpage dedicated to shareholder matters? How far in advance is the agenda for General Meeting noticed and published? Are Company disclosure documents available in English as well as in local language? Does the Board have a remuneration policy for Senior Management and Board? Is the remuneration policy linked to the Company’s financial performance and value creation? Is the remuneration plan structured with a mix of variable, fixed and deferred incentives?


TOP30 COMPANY

Corporate Governance India

India

Technology

Canada

North America

Basic Materials

PHILIPS

Netherlands

Europe

Industrials

AEGON

Netherlands United Kingdom India

Europe

Financials

SCORE 94.0 94.0 93.0 91.5

Europe

Oil & Gas

91.5

India

Consumer Goods

Germany

Europe

Basic Materials

Hong Kong

Asia/Pacific

Financials

89.0 88.5 87.5

USA

North America

Health Care

87.5

INFOSYS LIMITED POTASHCORP

ROYAL DUTCH SHELL HINDUSTAN UNILEVER LIMITED BASF HYSAN DEVELOPMENT COMPANY LIFE TECHNOLOGIES PERSISTENT SYSTEMS LIMITED

COUNTRY

REGION

INDUSTRY

India

India

Technology

USA

North America

Technology

Brazil

Latin America

Industrials

Hong Kong

Asia/Pacific

Industrials

China

Asia/Pacific

Telecommunications

Canada

North America

Oil & Gas

NUCLEUS SOFTWARE EXPORTS

India

India

Technology

SESA GOA LIMITED

India

India

Basic Materials

87.5 87.0 86.5 86.5 85.5 85.5 85.5 85.0

GODREJ CONSUMER PRODUCTS LIMITED

India

India

Consumer Goods

84.5

CISCO SYSTEMS ETERNIT PACIFIC BASIN SHIPPING LIMITED CHINA TELECOM NEXEN INC.

KOTAK MAHINDRA BANK

India

India

Financials

Canada

North America

Basic Materials

Portugal

Europe

Utilities

GAZPROM NEFT

Russia

Europe

Oil & Gas

MINDTREE LTD

India

India

Technology

USA

North America

Industrials

Russia

Europe

Financials

AANJANEYA LIFECARE LIMITED

India

India

Health Care

EDP ENERGIAS DO BRASIL

Brazil

Latin America

Utilities

84.0 83.5 81.5 80.5 79.5 79.5 79.0 78.5 78.5 77.0 76.5

Hong Kong

Asia/Pacific

Industrials

76.0

AGNICO-EAGLE MINES EDP ENERGIAS DE PORTUGAL

URS CORPORATION IC RUSS-INVEST BANKIA EVRAZ

CHINA RONGSHENG HEAVY INDUSTRIES GROUP H

Spain

Europe

Financials

Russia

Europe

Basic Materials

For companies with tied scores the classification is in alphabetical order. The evaluations for the Corporate Governance ranking are based solely on the responses provided by each participant on a specific corporate governance questionnaire elaborated by IR Global Rankings which is aimed at identifying which companies have the best corporate governance policies. However, neither IR Global Rankings nor any of its supporting entities are liable for the accuracy of the answers provided nor for the execution or not of such corporate governance policies and we do not conduct any sort of auditing of the answers provided. 29


CORPORATE GOVERNANCE

ARTICLE

Rethinking the Annual Meeting “Fasten your seat belts. It’s going to be a bumpy ride.” By John C. Wilcox

D

uring the past decade the Annual General Meeting has become a forum for confrontation with shareholders as much as an assembly for the conduct of company business. In today’s environment, companies planning their AGMs must prepare for an array of potential disruptions that can include organized opposition to agenda items, opportunistic activism and campaigns to unseat or replace directors, often accompanied by negative media coverage and reputational damage. Opinions vary widely as to whether confrontation at annual meetings is a sign of healthy corporate governance or a distraction from essential business goals. Regardless of its merits, controversy at AGMs has become a fact of life for listed companies around the world. How to avoid being surprised or forced into a defensive posture or losing control of the annual meeting is a serious challenge that corporate boards and managers will face once again in 2013. The roots of confrontation Disruptive annual meeting tactics started in the U.S. as a grass-roots methodology used primarily by small shareholders, labor unions and special interest groups. These gadfly campaigns had little impact until prominent institutional investors joined the governance

30

?

reform movement in the mid-1980s. Annual meetings gave these institutions an ideal platform to promote governance reforms, strengthen shareholder rights and call attention to egregious corporate practices. Over time the repeated successful use of these aggressive tactics transformed the annual meeting to the point where it is now viewed as a quintessential corporate governance event. Against this background of longterm trends, today’s activism has been intensified by the macroeconomic issues and unstable market conditions that affect companies around the world. These conditions create an unusually difficult global context for companies planning their annual meetings in 2013: ≥≥Three decades of successful activism and corporate governance reforms have permanently realigned the rights and powers of shareholders and corporate boards. Institutional investors are expected to oversee and engage with portfolio companies; corporate directors are expected to be fully informed and responsive to shareholder concerns. Global corporate governance standards have eliminated the old “Wall Street Rule”: companies can no longer tell

dissatisfied shareholders to mind their own business and invest elsewhere. ≥≥Changes in shareholder demographics have concentrated voting power in a powerful cadre of global institutional investors. Even hybrid companies in developing markets – those with family ownership, majority control groups, voting agreements, or state-owned “golden shares” – will usually find among their minority shareholders some sophisticated global investors who bring critical perspectives, diverse investment strategies and a wide range of attitudes toward governance and activism. ≥≥Proxy advisory firms have become a permanent fixture, facilitating the exercise of shareholder


voting rights, highlighting poor corporate governance practices and strengthening support for shareholder initiatives. The prolonged global debate over whether proxy advisors have too much power and whether they should be regulated is beside the point. Whether or not regulators in Europe or the U.S. impose new standards, proxy advisors are here to stay. Companies in all markets must develop effective ways to counter their limitations. ≥≥The global spread of Say-on-Pay voting rights (SOP) has done more than any other issue to transform the dynamics of annual meetings. SOP legitimizes shareholder scrutiny of companies’ compensation decisions, which have come to be regarded as a reliable gauge of board competence and independence. Shareholders now routinely use their SOP votes as a lever to hold boards accountable on a wide range of governance and performance issues. Directors must be prepared to explain and defend their pay decisions in terms of performance metrics and strategic business goals. ≥ ≥ Celebrity CEOs and excessive CEO pay at high-profile companies in developed markets have alienated shareholders, attracted negative media attention and generated widespread public resentment of business leaders. While rooted in broad cultural trends, the problems of overpaid imperial CEOs, high CEO turnover and mistrust of business create serious challenges for corporate boards and fodder for activists. ≥≥Inefficient financial markets. Despite the lessons of the financial crisis, stock markets and new trading platforms continue to give precedence to opaque speculative practices and high-frequency equity

trading disconnected from listed company fundamentals. These activities erode essential market functions of capital raising, liquidity and equity valuation. In addition, derivative investment strategies give rise to the possibility of “empty voting” – decoupling voting rights from stock ownership and economic interest – which undermines core governance principles. Regardless of these market distortions, companies are still under an obligation to manage investors’ expectations and deal with stock price volatility, undervaluation and other market dysfunctions.

How to avoid being surprised or forced into a defensive posture or losing control of the annual meeting is a serious challenge that corporate boards and managers will face once again in 2013

≥≥ Globalization of the investment process has added complexity and inefficiency to the logistics of shareholder meetings. Today’s cross-border proxy system is a multi-layered morass of intermediaries, third-party agents, proxy advisory firms, voting platforms and opaque back office operations. It operates with little regulatory oversight. Under these conditions, companies with global ownership have little choice but to dedicate significant time and resources to their annual meetings, even when no controversy is expected. ≥≥The advent of Stewardship Codes and Principles of Responsible Investment has turned a spotlight on the governance and conduct of institutional investors. These new and evolving standards for investment managers which emphasize transparency, engagement and responsible exercise of voting rights - increase pressure on portfolio companies in the form of closer scrutiny of AGM agendas and higher levels of shareholder participation at annual meetings. ≥≥ESG. There is growing interest in the intangible, non-financial aspects of corporate conduct

31


CORPORATE GOVERNANCE

and performance, including sustainability, environmental, social, community and governance policies (ESG). Although ESG issues are important to companies, most analysts and portfolio managers are reluctant to give them equal billing with earnings, stock price and traditional financial metrics. Companies must therefore deal with contradictory messages from institutional investors: governance activists want more attention to ESG, while portfolio managers and analysts continue to focus on earnings and stock price.

≥≥Short termism. A persistent and widespread focus on shortterm performance has distorted the incentives, metrics and strategic focus of both companies and investment professionals. Companies are told to manage for the long term but are judged on the basis of short-term results. After years of finger-pointing and rhetoric about short-termism, there is a growing consensus that all parties – financial market professionals as well as companies – must take responsibility and modify their practices in ways that will “break the short term cycle.” Companies should anticipate that pressure to modify short-term incentives will gain increasing prominence on the activist agenda. ≥≥The adversarial and legalistic U.S. governance model – with its detailed and prescriptive rules, strict compliance and systemic reliance on shareholder resolutions and litigation – continues to spread globally. U.S. institutional investors’ increasing presence in developing markets brings activism and combative tactics to the shareholder meetings of companies outside the U.S.

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This long list of trends and conditions that promote controversy, aggressive conduct and activism at AGMs is tempered by the principles-based corporate governance system that prevails in countries outside the U.S. Principles-based governance and its comply-or-explain methodology encourage board-level dialogue, consensus decision-making and flexible implementation of governance policies. This flexibility can take the edge off of activism and make it easier for companies to avoid confrontation with shareholders. Nevertheless, as the European Commission cautioned in its second Green Paper in 2011, comply-or-explain governance is only as effective as the explanations that companies are willing to provide. The Commission found that in many cases of non-compliance companies have provided little more than “group-think” and boiler-plate instead of meaningful explanations for their decisions. Weak explanations provide fertile ground for confrontation and activism. Rethinking the AGM In rethinking their AGMs, companies should question their most basic assumptions and attitudes about shareholders and the purpose of the annual meeting. Their goal should be to initiate and manage the process of change rather than reacting to external pressure. Development of a new and constructive mindset toward the annual meeting should begin with the following basic do’s and don’ts: ≥≥Don’t think about shareholders collectively. Analyze your ownership base with a view to understanding shareholders’ diverse characteristics, investment goals and track record on activism and governance issues. Understanding

your audience is key to preparing an effective message and gaining support at the annual meeting. ≥≥Don’t assume that shareholders want to use the annual meeting to micro-manage your business. In most cases the opposite is true: shareholders want the board and management to run the business, but they also want sufficient information to make an independent judgment that the job is being done well. Their goal is to cast an informed vote on agenda items, particularly the election of directors. ≥≥Don’t let activists dominate your thinking about shareholders. Rather than worrying about speculators, hedge funds and activists, companies should focus on attracting and retaining the long-term investors who will generally support the company’s annual meeting agenda. ≥≥Benchmark your company’s governance policies and practices against peer companies and global standards. Conduct a perception study among your largest institutional investors if a controversial proposal is on the agenda. Understanding your strengths and weaknesses relative to other companies will enable you to anticipate problems, prepare an appropriate proxy solicitation campaign and counter the effects of negative vote recommendations from proxy advisors. ≥≥Be unsparing in your internal analysis of conflicts of interest, relatedparty transactions, ethical problems, accounting policies, performance shortfalls, whistle-blower initiatives and other sensitive and confidential matters. Be prepared to respond appropriately in case these issues arise at the annual meeting.


CORPORATE GOVERNANCE

≥≥Be sparing in the use of outside advisors for assistance on the board’s core governance responsibilities such as compensation, director recruitment, CEO succession planning and accounting policy. Third parties should not be in the driver’s seat on issues for which shareholders hold the board of directors primarily accountable. ≥≥Initiate dialogue with institutional investors and proxy advisors. Listen to their views, but don’t look to them for guidance. There is no question that a company’s management and board understand the details of their business better than shareholders do, but they often do not understand how the business is perceived externally. Outreach and engagement with shareholders is the most effective means to deal with misperceptions and avoid negative surprises at the AGM. ≥≥Give directors a voice and a defined role at the annual meeting. Traditions of boardroom collegiality and privacy should not prevent directors from engaging with the shareholders who elect them. In addition to the annual report and meeting agenda, boards should consider providing a written report that describes the directors’ expertise and competence, explains their decision-making processes and informs shareholders about key governance issues such as compensation, succession p lanning, related-party transactions, split chair and CEO and other governance hot topics. ≥≥Don’t let legal constraints or competitive concerns override transparency in your annual meeting disclosure documents. A principlesbased “explanation” that gives confidence to shareholders should (i) provide a clear and detailed articulation of the company’s

34

business strategy and goals; (ii) explain how the board’s policies and decisions relate to the strategy and goals; and (iii) make a persuasive case that these policies and decisions will benefit shareholders. ≥≥Start AGM preparations early. Don’t underestimate the resources and expertise required for an effective cross-border solicitation campaign. Use your web site and all available technology to facilitate information flow and share voting. Coordinate these activities with your Corporate Governance, Investor Relations and Human Resources programs.

Despite the lessons of the financial crisis, stock markets and new trading platforms continue to give precedence to opaque speculative practices and high-frequency equity trading This basic advice may sound like “Annual Meetings for Dummies,” but in today’s unstable, highpressure environment it has proven remarkably difficult for companies to establish trust and make productive use of their AGMs. The New Annual Meeting A simple motto -“Treat shareholders as customers” - is the key to managing a successful annual meeting. Companies rethinking their AGM can often find a useful model in their own market research, marketing and customer relations activities. Planning for the AGM

should begin with basic research and benchmarking that can provide answers to critical starting-line questions: who are the company’s ultimate beneficial owners; what are their characteristics and investment goals; what are their perceptions about the company; how can their misperceptions and biases be corrected; how does the company’s risk profile, governance and performance compare with competitors; how can the company convince shareholders that its policies and decisions serve their interest; what sort of packaging, written materials, outreach, road shows and electronic communications can be used to build loyalty and strengthen relations with shareholders/customers. Just as companies dedicate executive time, money and resources to conducting market research and surveying customers, they should be equally willing to commit resources and underwrite the costs of identifying, characterizing and analyzing their ownership base and benchmarking their strengths and weaknesses in preparation for the AGM. Another model for AGM planning can be found in companies’ investor relations programs. However, it is wrong to assume that the AGM can piggyback on investor relations contacts and road shows developed for financial communications. A successful IR program is generally not a path to establish relations with investors’ policy and voting decision-makers. The opposite is often true. Many institutional investors suffer from the so-called “split-brain” syndrome that creates an unbridgeable gap between their investment decisions and their voting decisions. To deal with this gap companies have two choices: (1) they can develop an expanded


form of holistic investor relations that addresses both governance and non-financial issues (the board perspective) as well as the financial expectations of investors (the management perspective); or (2) they can create a separate institutional investor relations program, independent from IR, that works with the company secretary and the board of directors to engage with shareholders on ESG and other board-level issues. Both holistic IR and institutional investor relations programs require an expanded level of communication from the board of directors that should not duplicate or conflict with communications from management. Both approaches require outreach to an unfamiliar audience that includes governance policy-makers and an array of third-party agents, custodians, proxy advisory firms and other intermediaries who assist them in proxy voting. Many of these players are difficult to identify or reluctant to engage with companies. For a successful AGM, companies must be willing to simplify, clarify and amplify the information they are willing to provide in support of their policies and decisions. The existing comply-or-explain standard does not go far enough. Companies should not limit their explanations to con-compliant policies. Instead they should provide a customized, comply-and-explain narrative that tells a compelling story of how the company is being run, where it stands competitively and how its boardlevel policies and decisions (executive remuneration is a case in point) are linked to business goals. The board of directors, as the elected representatives of shareholders, should take primary responsibility for producing a narrative that explains the company’s culture and values and describes the internal processes by which governance serves business strategy.

The wish list for a successful annual meeting should also include improvements in cross-border logistics that are beyond the reach of individual companies. Some form of global initiative will be needed to achieve a more open and less costly process for cross-border communication and share voting. Long-sought goals - end-to-end vote confirmation, a vote audit trail and identification of beneficial owners - will remain elusive until global standards can be established through harmonized regulation and enforceable standards of best practice.

and eliminates contentious issues before they develop into activism. A successful AGM should be a customized and highly individual event that demonstrates the company’s commitment to serving shareholder interests while giving priority to the achievement of business goals.

Conclusion Theoretically, the annual meeting should be a litmus test that reveals whether shareholders support the company’s governance and business strategy. The level of shareholder support at the AGM should measure the degree to which the interests of the company and its shareholders are aligned. In practice, however, this correlation is rarely achieved. Many obstacles stand in the way. Mechanical and systemic complications, inadequate regulation, shareholder apathy, legal and cost concerns, poor communication, a compliant mindset and fear of shareholder activism all contribute to less than optimal results at AGMs regardless of fundamentals. These conditions are likely to worsen as macro-economic conditions, increased regulation and stewardship codes increase pressure on both companies and shareholders. In the final analysis, responsibility for a successful AGM rests with each company’s management and board. They should make certain that the AGM is a platform that informs and educates shareholders, explains the links between governance and business strategy, brings transparency to boardroom processes

John C. Wilcox Chairman, Sodali

35


CORPORATE GOVERNANCE

COUNT ON US TO GO BEYOND KPMG has high-performing people who overcome obstacles to reach their goals: agility and efficiency. As in sports, our goals are always outdoing and seeking better results. Audit, Tax, Advisory

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© 2012 KPMG Auditores Independentes, a Brazilian entity and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

36


ARTICLE

Corporate governance practices of the main public companies in Brazil indicates companies’ concerns to develop their practices By Ana Paula Carracedo, Paulo Arakaki, Sidney Ito

T

he seventh edition of the study “The Corporate Governance and the Capital Markets in Brazil”, conducted by the ACI - Audit Committee Institute of KPMG in Brasil, indicates that companies listed in the differentiated levels of governance of BM&FBovespa have been more concerned about their corporate governance practices, in certain important aspects such as: a significant number of companies assessing the effectiveness of their Board of Directors; more companies establishing the Audit Committee and the Conselho Fiscal (Fiscal

Based on the annual report through the Formulários de Referência (Reference Forms similar to the 10K in the US) of 230 listed companies, divided in Novo Mercado, Nível I and II and Traditional), there was important progress on their governance practices, even though there is still room for improvements

Council); the existence of a formal Code of Ethics and Conduct; and a greater concern about a corporate structure of risk management. The information was based on the data presented in the Companies` annual Formulário de Referência (Reference Form – a document similar to the 10K document in the US) filed by listed companies in 2012. “It is interesting to note the constant improvement in governance practices in Brazil, whether for regulatory purposes or for investors pressure or even for the companies considering the importance and benefits of adopting best practices in corporate governance. Over the past years, our capital market clearly had a significant development, becoming more mature and the adoption of best practices in corporate governance greatly contributed to this progress”, says Sidney Ito, LeadPartner for Risk Consulting at KPMG Brazil and partner in charge of the ACI - Audit Committee Institute, responsible for the study. The study shows more attention to risk exposure. The positive answers to the question “Does the company have a formal risk management policy including its objectives, strategies and instruments used?” increased in most segments: from 52% to 53% in the Tradicional group; from 74% to 80% in the Level 1 and 2

(Nível 1 and Nível 2); and from 90% to 100% in the group ADRs 2 and 3 (Brazilian companies listed in the US stock exchange). The exception was the Novo Mercado group, that noted a slight decrease in this item, from 66% to 63%. Regarding the adoption of a formal Code of Ethics and Conduct, the progress was more expressive. All companies in the ADRs 2 and 3 group reported they have this document (compared to 90% in the previous year). In the Novo Mercado, 88% now have this document (compared to 57% in the previous year); while companies in N1/N2 registered increase from 70% to 96%. Among companies listed as Tradicional, the positive answers grew from 44% to 60%. The study revealed different results relative to the average annual compensation of the Executives,. Novo Mercado presented an average increase of 24.7% during 2011 (to R$ 1.85 million paid annually in average for each executive C-level), as compared to the previous year (R$ 1.48 million); for the group Tradicional the growth was 15,3% (R$ 898.000 versusR$ 779.000). On the other hand, compensation decreased 8% among companies of the group N1 N2 (R$ 1.27 million versus R$ 1.38 million); and has also fallen 16.8% in the ADRs 2 and 3 group (R$ 1.98 million versusR$ 2.38 million). 37


CORPORATE GOVERNANCE

All companies in the ADRs 2 and 3 group reported they have Code of Ethics and Conduct (compared to 90% in the previous year). In the Novo Mercado, 88% now have this document (compared to 57% in the previous year); while companies in N1/N2 registered increase from 70% to 96%

This is the third consecutive year that the study “The Corporate Governance and the Capital Market in Brazil” is based on the companies` Formulário de Referência. These documents have served as a valuable source of information to the market, disclosing, not only financial and business information, but also the governance structure and practices of listed companies in Brazil.

Higher Revenues In average, the listed companies included in the study, reported an increase in revenues in 2011. Novo Mercado presented the best results, 46.3% higher than the previous year. Companies at Nível 1 (N1) and Nível 2 (N2) presented a 28.3% increase in net revenue from previous year. Companies in the Traditional group (Tradicional) posted results very close in comparison to the previous year, with revenues increasing by only 0.6%. ADRs 2 and 3 group totaled na average increase of 22.1%compared to the previous year. The average revenue per company was R$ 4.28 billion last year in the Novo Mercado (compared to R$ 2.926 billion in the previous year); R$ 13.108 billion for N1 N2 segments (versus R$ 10.218 billion in the previous year); R$ 9.461 billion for the Tradicional

38

group (R$ 9.409 billion in the previous year); and R$ 35.967 billion among issuers of ADRs 2 and 3 (R$ 29.452 billion in the previous year). “Once again, we recognize and point out some methodology limitations regarding the results obtained. This research collects the information reported in the companies’ Formulário de Referência regardless of their validity. We noted that, again, certain governance practices were not disclosed or were not well disclosed, which may characterize the absence of a process for collecting, consolidating and presenting all necessary information. Nevertheless, we consider the study an important instrument to understand the governance structure and processes and how well they have been developed among listed companies in Brazil”, explains Ito.

Ana Paula Carracedo Senior Manager at KPMG

Paulo Arakaki Director at KPMG in Brazil

Sidney Ito Partner at KPMG


Building bridges to capital market

Bringing High Performance to Strategy to Access Capital Market Capital Structure Optimization Financial Planning and Valuation Corporate Governance

www.lead-fin.com 39


CORPORATE GOVERNANCE

CASE STUDY

Infosys IR Team talks about their efforts on Corporate Governance

How important is effective Corporate Governance? Effective corporate governance and sound corporate practices are necessary to enhance investor confidence in the sustainability of the organization. There is no substitute to this and its importance can’t be over-emphasized. What were the main steps that Infosys took in 2012 to ensure good corporate governance practices? It is important to embrace the best practices to strengthen the organization. Our views on effective governance and disclosure standards is best summarized by the following: ≥≥‘The softest pillow is a clear conscience’

In your opinion, what is the most important corporate governance practice? Running the business with a sense of fairness, transparency and integrity. What are the next steps for Infosys? We aspire to continue to benchmark ourselves against the other leaders in this space and strive to make further improvements, wherever possible. What does it mean to Infosys to be ranked the best for Corporate Governance in the world? We are very honored and privileged to be ranked at the top globally in what is a very imperative part of our business.

≥≥‘When in doubt, disclose’ How does good Corporate Governance benefit the Company? It enhances respect, trust and confidence of all stakeholders in the company. It is not just a ‘nice to have’ but a ‘must to have’.

Avishek Lath Investor Relations at Infosys

Sandeep Mahindroo Investor Relations at Infosys

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Financial disclosure

What's

HOT

≥≥ Management Discussion & Analysis for quarterly results; ≥≥ Providing operating margins for each business line; ≥≥ Detailed financial guidance, with limited ranges. Providing guidance operating volumes is also a good initiative; ≥≥ Good explanations of operating costs and the cost structure; ≥≥ Presenting industry risk factors; ≥≥ Market share data (change and trends); ≥≥ Providing information on the key industry drivers; ≥≥ Using tables and charts to highlight non-financial information rather than having information distributed throughout the explanations; ≥≥ Providing statistics (financial and non-financial) that are easy to find; ≥≥ Providing a simulation model for the company’s operations.

What's

NOT

≥≥ Incomplete disclosure of debt (lacking information such as maturities, average contractual terms, etc.); ≥≥ Not providing a cash flow statement; ≥≥ Not providing a simple revenue breakdown; ≥≥ Excluding information on capital expenditure; ≥≥ Not disclosing the currency or accounting standard adopted; ≥≥ Not filing local and foreign statements/releases simultaneously; ≥≥ Providing only notes to the financial statements with no other explanations of results; ≥≥ Missing notices or notices published only in the local language; ≥≥ Leaving for download presentations that are not final or have review comments/markups.

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TOP30 COMPANY EVRAZ NEXTERA ENERGY EDP ENERGIAS DE PORTUGAL NLMK FEDEX CORP. CHINA TELECOM ENERGISA PHILIPS BASF FIBRIA CELULOSE SA

Financial Disclosure Procedures

COUNTRY

REGION

INDUSTRY

SCORE

United Kingdom

Europe

Basic Materials

97.0

USA

North America

Utilities

Portugal Russian Federation USA

Europe

Utilities

94.5 94.0

Europe

Basic Materials

94.0

North America

Industrials

China

Asia/Pacific

Telecommunications

Brazil

Latin America

Utilities

Netherlands

Europe

Industrials

90.0 89.0 89.0 89.0

Germany

Europe

Basic Materials

88.5

Brazil

Latin America

Basic Materials

BMO FINANCIAL GROUP

Canada

North America

Financials

CAMECO CORPORATION

Canada

North America

Basic Materials

87.5 87.0 87.0

Brazil

Latin America

Industrials

87.0

MILLS ESTRUTURAS E SERVIÇOS DE ENGENHARIA S.A. RYDER SYSTEM, INC.

USA

North America

Industrials

TURK TELEKOM

Turkey

Europe

Telecommunications

AGNICO-EAGLE MINES

Canada

North America

Basic Materials

Brazil

Latin America

Utilities

USA Russian Federation Canada

North America

Telecommunications

87.0 86.5 86.0 86.0 85.5

Europe

Oil & Gas

85.0

North America

Oil & Gas

Turkey

Europe

Industrials

SABESP

Brazil

Latin America

Utilities

AEGON

EDP ENERGIAS DO BRASIL LEAP WIRELESS GAZPROM NEFT NEXEN INC.

Netherlands

Europe

Financials

POSITIVO INFORMÁTICA

Brazil

Latin America

Technology

VALID S.A

Brazil

Latin America

Industrials

85.0 85.0 84.0 83.5 82.5 82.5

Hong Kong

Asia/Pacific

Industrials

81.0

Portugal

Europe

Oil & Gas

80.5 80.0 80.0 80.0

TAV AIRPORTS HOLDING

PACIFIC BASIN SHIPPING LIMITED GALP ENERGIA GRUPO PÃO DE AÇÚCAR

Brazil

Latin America

Consumer Goods

POTASHCORP

Canada

North America

Basic Materials

TURKCELL

Turkey

Europe

Telecommunications

For companies with tied scores the classification is in alphabetical order. Disclaimer: the evaluations for the Financial Disclosure Procedures ranking are based on the financial documents made publicly available on the respective participant website at the time of the evaluation date. Neither IR Global Rankings nor any of its supporting entities are liable for the accuracy of the information provided. 43


Financial disclosure

ARTICLE

The Emerging Global Standard for Effective Anti-Corruption Compliance: Meeting the Expectations of Governments Worldwide By Gregory Harrington, Keith M. Korenchuk, Mauricio J. Almar, Samuel M. Witten

M

ultinational corporations are subject to anti-corruption laws wherever they do business. Designing an effective anti-corruption compliance program that meets the requirements of many different laws may at first appear nearly impossible to achieve, but there is an emerging global consensus on what governments expect for anti-corruption compliance programs. I. The Emerging Global Standard The U.S. Department of Justice (DOJ) and the U.S. Securities and Exchange Commission (SEC) highlighted the existence of an emerging global standard in the recently published A Resource Guide to the U.S. Foreign Corrupt Practices Act (FCPA Guidance). The FCPA Guidance reflects in key respects the emerging common standards in its presentation of the ten “hallmarks” for an effective anti-corruption compliance program discussed below. Guidance publications of the OECD, the AsiaPacific Economic Cooperation, the ICC, Transparency International, the UN, the World Bank, and the World Economic Forum, as well as from various national governments, set out identical or similar core anti-corruption compliance program elements. II. Core Components of an Effective Anti-Corruption Compliance Program

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The following is a brief summary of the “hallmarks” in the FCPA Guidance, which reflect the emerging global standard of an effective anticorruption compliance program: Commitment from Senior Management and a Clearly Articulated Policy Against Corruption. Boards of directors and senior executives are expected to set the proper tone to create a culture of compliance throughout their organization. The high-level commitment must be reinforced by middle-managers at all levels of the company, and enforcement authorities will evaluate, as described in the FCPA Guidance, “whether senior management has clearly articulated company standards, communicated them in unambiguous terms, adhered to them scrupulously, and disseminated them throughout the organization.” Code of Conduct and Compliance Policies and Procedures. Multinational corporations must have codes of conduct, as well as anti-corruption policies and procedures, that are, as stated in the FCPA Guidance, “clear, concise, and accessible to all employees and to those conducting business on the company’s behalf” and be binding on all directors; officers; employees; and, where appropriate, subcontractors, and should be tailored to a company’s specific


individualized risks. Controls are universally expected with regards to the use of third parties, gifts, hospitality, entertainment, travel, political contributions, charitable donations, sponsorships, facilitating payments, solicitation, extortion, and acceptance of bribes. These policies and procedures should also build in appropriate reviews and approvals by qualified business, legal, and compliance personnel, as well as confirm that there is a sound system of financial and accounting procedures and a system of internal controls reasonably designed to ensure the maintenance of fair and accurate books and records with appropriate documentation to support all entries. Oversight, Autonomy, and Resources. Multinational corporations should have a dedicated compliance infrastructure with at least one, if not more, senior executives responsible for oversight and implementation, and, in the words of the FCPA Guidance, “those individuals must have appropriate authority within the organization, adequate autonomy from management, and sufficient resources to ensure that the company’s compliance program is implemented effectively.” Autonomy generally includes direct access to an organization’s governing authority, such as the board of directors or audit committee. Guidance resources also outline the necessity of dedicating adequate resources for a compliance program to be effective. Risk Assessment. An anticorruption compliance program should be designed and tailored to a company’s individualized risk. The OECD’s Good Practice Guidance on Internal Controls, Ethics, and Compliance states that programs “should be developed on the basis

of a risk assessment” and that a company’s risks should be “regularly monitored, re-assessed, and adapted as necessary.” Some factors to consider when performing a risk assessment include a company’s size, business sector, and location; level of government oversight and interaction; reliance on third parties who interact with governments on the company’s behalf; exposure to customs and immigration authorities; involvement in joint venture agreements; and the importance of licenses and permits to the operations of a business.

“a compliance program should apply from the board room to the supply room - no one should be beyond its reach.” Companies also should reward their employees for good behavior and compliance with policies and procedures. The FCPA Guidance recommends compliance as “a significant metric for managements’ bonuses,” “recognizing compliance professionals and internal audit staff,” and making “working in the company’s compliance organization a way to advance an employee’s career.”

Training and Continuing Advice. Policies and procedures cannot be effective without adequate training and ongoing advice for company directors; officers; employees; and, when appropriate, third parties. Personnel in high corruption risk areas should be trained and evaluated regularly, and the trainings should be periodic and tailored to their day-to-day work activities. Certifications should be obtained from all directors; officers; employees; and, where appropriate, third parties. As with other elements of anticorruption compliance programs, the training should be assessed periodically for effectiveness. Finally, communication of company policies and procedures should not be reserved simply to formal training programs.

Third-Party Due Diligence and Payments. Companies must be vigilant in selecting and monitoring third parties that act on their behalf. The FCPA Guidance lays out three “guiding principles” in addressing third party relationships: “understand the qualifications and associations” of third party partners, “understand the business rationale” for working with a third party, and “undertake some form of ongoing monitoring of thirdparty relationships.” Companies are expected to institute riskbased due diligence that requires management and legal approval to identify, mitigate, and respond properly to specific risks posed by its third parties; inform third parties of the company’s commitment to complying with anti-corruption and anti-bribery laws, as well as the company’s policies and procedures; and seek reciprocal commitments from third party business partners. Relationships with government-interacting third parties should include, among other protections, adequate anti-corruption commitments, termination provisions for wrongdoing, and transparency and reasonableness in payment terms. Finally, relationships with such third parties must also be continuously monitored.

Incentives and Disciplinary Measures. No compliance program can be effective if it is not enforced. To test its credibility, authorities will look to whether “a company has appropriate and clear disciplinary procedures, whether those procedures are applied reliably and promptly, and whether they are commensurate with the violation.” In the words of the FCPA Guidance,

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Financial disclosure

Confidential Reporting and Internal Investigation. An effective anti-corruption program must provide resources for company employees, and where appropriate third parties, to make anonymous reports about potential or actual misconduct. The goals are to create mechanisms - such as hotlines - so reports will be made to responsible officials as early as possible, and employees will not fear retribution or retaliation for making reports in good faith. Many companies make reporting a mandatory obligation of employment. The compliance infrastructure must have a system to respond to reports, conduct appropriate investigations, and to document the company’s response. Continuous Improvement: Periodic Testing and Review. The compliance program cannot be drafted and remain static, but needs to be periodically reviewed and tested. The FCPA Guidance recommends “employee surveys to measure their compliance culture and strength of internal controls, identify best practices, and detect new risk areas” and periodic testing of “internal controls with targeted audits to make certain that controls on paper are working in practice.” Mergers and Acquisitions: Pre-Acquisition Due Diligence and Post-Acquisition Integration. Companies may face liability for the actions of entities with which they merge, acquire, or enter into other business combinations such as joint ventures. Because of successor liability, companies cannot erase potential corruption liability through a change in ownership or structure. For these reasons, companies should conduct effective due diligence prior to entering into the business combination to determine past improper conduct and potential risks associated with

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the transaction and the business combination moving forward. Under the FCPA, government enforcement authorities will also look to whether “the acquiring company promptly incorporated the acquired company into all of its internal controls, including its compliance program.”

The compliance program cannot be drafted and remain static, but needs to be periodically reviewed and tested

III. Conclusion Governments worldwide expect companies to comply with relevant anti-corruption laws, which includes the framework and mechanisms to demonstrate to governments that proper controls are in place to prevent, detect, remediate, and respond to potential wrongdoing. While there is no one-size-fitsall program, companies that fail to have in place an effective compliance program expose themselves to increased risks of improper conduct occurring within the organization and to potentially greater corporate liability.

This article is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

Gregory Harrington Partner of Arnold & Porter

Mauricio J. Almar Associate of Arnold & Porter

Keith M. Korenchuk Partner of Arnold & Porter

Samuel M. Witten Counsel of Arnold & Porter


Case StudY

Financial Disclosure Procedures in the world EVRAZ

T

he Financial Disclosure ranking rates a small portion of the companies’ disclosure procedures and controls, as well as the quality of the financial information provided. To achieve this, IRGR analyzes the operating information, income statement, balance sheet, cash flow, guidance, conference call details and how the financial reports are disclosed and distributed. This year EVRAZ was a top performer in the financial disclosure categories analyzed by IR Global Rankings and achieved the highest score in financial disclosure worldwide. It also won the Greatest Improvement in Financial Disclosure Procedures in Europe award. “We are happy to be named the best European company in the Best Financial Disclosure Procedures category in the 2012 IR Global Rankings (IRGR) survey for the second consecutive year. This award demonstrates our resolution and continuing efforts to bring the financial disclosure standards within the company in line with international best practices. EVRAZ’s management feel themselves accountable to the company’s shareholders. A better transparency of EVRAZ’s financial information contributes to a higher level of shareholders’ trust in the company’s strategy”, commented Giacomo Baizini, CFO of EVRAZ. “We are very pleased with the recognition of our efforts to increase transparency, and we remain committed to the

continuous improvement of our financial disclosure and investor relations standards,” commented Giacomo Baizini, EVRAZ’s VicePresident of Corporate Affairs and CFO. “We are proud that we have been recognized as the best among the European companies, which are well-known for adopting best financial disclosure and investor relations practices.”

A better transparency of EVRAZ’s financial information contributes to a higher level of shareholders’ trust in the company’s strategy

EVRAZ’s financial reporting standards are an excellent example to follow, not only in terms of rigorous punctuality and consistency, but also in terms of the quality of information in the reports, which provide an excellent breakdown by business segment. The provision of a monthly investor presentation was another excellent initiative. EVRAZ is constantly working on improvements in an attempt to understand the market’s needs and concerns in order to structure its financial information disclosure to meet those needs and allow the market to conduct a proper and detailed financial analysis. IR Global Rankings lauds the efforts of the EVRAZ team to come out on top in this category.

Giacomo Baizini CFO of EVRAZ

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Financial disclosure

ARTICLE

Five Tips for Dealing with Results that are Below Market Expectations By Rodrigo Alves

D

isclosing healthy and growing results is the best possible situation for any capital market professional. At such moments, you can find any such company’s executives taking part in press conferences, public meetings with investors, conference calls with analysts and other events, talking about the company’s ability to exceed market expectations thanks to its growth strategy and the ability of its management team, and accompanied by fully-up-to-date presentations, graphs and tables prepared by specially-commissioned design agencies. When results suffer a decline, however, and are, for one reason or another, below market expectations, results disclosure procedures tend to change dramatically. The CEO and the other executives become much more elusive and events with investors are few and far between. At the same time, there is less information in the earnings releases and the quality of the content varies from a simple reading of tables to groundless explanations. In order to prevent a scenario like this from turning your company into a case study, we have listed five tips on dealing with results that do not meet the market’s expectations:

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1 – Make sure relations with the financial market are part of your company’s culture: Results disclosure and investor relations procedures go well beyond simply putting together an appropriate technological package complete with stunning graphic design work, they must be an integral part of your company’s culture. It is imperative that your company understands the real importance of its investors and of the information disclosed to them. Management must adopt a proactive approach to investor relations, facilitating access to information and accounting for results to the company’s owners, even if these results are negative.

Management must adopt a proactive approach to investor relations, facilitating access to information and accounting for results to the company’s owners, even if these results are negative


1 - Make sure relations with the financial market are part of your company’s culture 2 - Focus on credibility with the capital market 3 - Create an information disclosure methodology 4 - Remember that all companies have experienced or will experience a similar situation 5 - Make sure you have a financial communications plan for the capital market

In fact, it is precisely at such times when management’s ability to respond to investor concerns is most appreciated. 2 – Focus on credibility with the capital market: this is without question the most difficult task, but the cultural and relationship seal of confidence called CREDIBILITY is not something that cannot be achieved in the short term. In order to build credibility, you have to deliver the promised results and, whenever this proves impossible, you have to provide consistent explanations, discuss action plans and get back on track as quickly as possible (even if at a slower pace than investors would wish). This is how management builds longterm credibility with the market, thereby mitigating the impact of temporarily negative results. 3- Create an information disclosure methodology: it is vital to define annual disclosure schedules and prepare documents and events calendars in a standardized manner. Once your company has a wellestablished market relations culture and procedures, it becomes more difficult to reduce the amount of information disclosed when times are hard. In the case of the earnings

release, for example, you should clearly define the sections that will be discussed and their level of detail (data by segment, cost breakdowns, etc.); You should also discuss with management which other information should be periodically disclosed, such as monthly sales and market share reports, as well as guidance or any other operating data. Once this disclosure standard has been agreed upon, it must be maintained irrespective of the prevailing scenario. 4 – Remember that all companies have experienced or will experience a similar situation: there are absolutely no companies that have not suffered hard times, be it for a quarter or a year. If you are not paying too much attention to this item, your company probably hasn’t gone through this yet but, believe me, when it does, it will be crucial to remember this at all times. After the difficult period, those companies that maintained the same proactive disclosure methodology as the one adopted in better times are regarded by the market as benchmarks for credibility and investor relations quality. Those who run and hide, however, will continue to be regarded negatively even after the difficult period.

5 – Make sure you have a financial communications plan for the capital market: on MZ Group’s IR website (www.mzgroup.com), there are two articles by our consultants Ricardo Bettoni and Rafael Rosenberg - How to plan IR activities for the year ahead? and A little beyond the traditional IR guides and manuals, respectively - that illustrates the main aspects to be addressed in order to ensure excellent communications with the market.

Rodrigo Alves CEO of MZGroup

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Financial disclosure

playing is not enough you need to analyse the best moves

IRGR will conduct an evaluation of your company’s current IR website, Online Annual Report and/or Financial Disclosure Procedures using IR Global Rankings methodology and provide detailed feedback on what should be improved in terms of content, technological tools, design, navigability and responsiveness. This report will be tailored, designed with your company to fit your specific needs. Containing specific recommendations, you can choose to compare your company with 5, 10 or 15 peers, to create a complete picture of how your company compares.


Tailored Study

www.irglobalrankings.com S達o Paulo +55 (11) 3529-3707 New York +1 (347) 797 5165 facebook.com/irglobalrankings


Financial disclosure

ARTICLE

IR and the end-of-year bonus By Ricardo Bettoni

I

n Brazil, Investor Relations is a relatively new area, compared to countries whose capital markets are more developed. Although Brazil’s Stock Exchange has been established for decades, the market only really began to take off in 2006-2007, when there were dozens of IPOs. This listing boom led to a new levy of professionals for previously unlisted firms that were not accountable to their minority shareholders.

This revolution in companies going public saw the re-emergence of an old issue that underpins all working relations: ≥≥ How to measure if the company’s executives are doing a good job? (view of the shareholders and the Board) ≥≥ How can the executives show that their work has been effective? (view of the executives) One way of meeting both sides of the executiveshareholder equation and also help the company with its market communications is to carry out a complete diagnosis of the company, including all its stakeholders. In order to give an overview of the rationale behind such a diagnosis, we have highlighted five important topics, as well as certain questions, in order to determine how near (or far) your company is to being fairly perceived by the market. 1. Company vs. Peers Analyzing how the company is positioned in relation to its peers is essential. How is your company positioned in relation to its peers? Is its IR site the best in the sector? Is its earnings release regarded as a benchmark by sell-side analysts? Is its conference call well-attended? Why do your peers publish their guidance and your company doesn’t? Understanding your company’s positioning vis-à-vis its competitors and going the extra mile may make a huge difference.

A company is not only what it is, but rather what it appears to be

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2. Perception and value gap A company is not only what it is, but rather what it appears to be. Is your investment message appropriate? Does the market understand your business? Why are your peers receiving a better evaluation? The response to these questions may prove vital in determining Buy or Sell decisions. 3. Targeting The number of meetings with funds or potential investors is irrelevant – what is important is their quality and effectiveness. Does your IR area know who invests in your industry? Why do some funds invest in your peers but not in your company? Have you drawn up an annual plan for taking part in events, conferences and non-deal roadshows? There is a tendency for Brazilian companies to follow the calendar and suggestions of their partner banks. Clearly, this relationship is important, but if you are a prisoner to this agenda you could miss some important sales opportunities. 4. IR area Measuring exactly how many people you need to handle IR activities may significantly reduce costs, which doesn’t necessarily mean that you only need one.

There is a popular myth that IR doesn’t add value to the company but only ensures compliance with the regulators and meets the demands of the market. But could there be any truth in this? Is the area focusing on what it really needs? Is it worth internalizing all activities or appointing a jack-ofall-trades manager? In another article we mentioned that IR is marketing. Consequently, those responsible for the area must understand the importance of their jobs and value this within the company. Avoid wasting time on the basics and focus on the IR strategy, i.e. managing market and shareholder expectations, backed by an effective agenda of meetings with potential investors.

The responses to these questions vary from company to company and the market is far from being an exact science, but what is certain is that an accurate and frequently monitored diagnosis can ensure a competitive advantage for the IR area and, consequently, the company as a whole. And where does the bonus fit in? In order for IR to destroy the myth of the relative unimportance of its area, common in many companies, this type of activity is an excellent argument, since it demonstrates just how demanding and important its operations are, especially in a market that extols meritocracy.

5. Dominate the sector and its analysts Understanding the sector and what analysts think about it is a basic IR task. When the IR team has a meeting with sell-side analysts, the sector experts, is the conversation 100% secure? Does the area give selective guidance, privileging certain analysts/banks to the detriment of others? Do your peers get more coverage? The greater the coverage, the more the exposure, and the more the exposure the greater the potential liquidity of the shares. It is therefore vital to understand why analysts give more attention to other sector companies (if they do).

Ricado Bettoni Partner and Consultant, MZGroup

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trends And innovation

CASE STUDY

IR and Social Media BASF

W

hat is the impact of social media in regard to successful Investor Relations Endeavour at BASF? As early as 2009 BASF’s Investor Relations team discovered Social Media as a critical means of fostering a successful interaction with the company’s investors. Until recently, investor relations has simply meant delivering solid, upscale information to support decision-making processes. A company however, was scarcely able to influence this exchange. Integrating social media into the communication strategy has been a shift away from simply providing assistance and towards community management that is real and tangible. Looking back on four years of valuable experience, there are several key insights into this which we would like share with you.

Through Social Media we want to intensify the dialogue with existing investors and broaden our reach to new investors – investors we’ve not had on our distribution lists so far. We don’t see this as a substitute for existing communication channels, rather as an extension in both the quantity and the quality of communications.

Our approach: Social media and IR – how do these fit together?

What is essential for a commitment to social media?

Online communication has always been extremely important to BASF and the IR team. Having the IR website up-to-date was the first priority. You need a reliable base to link into and one that allows you to collect all the information you publish. But we understand Social Media as “online communications 201”: Having met the basic requirements, we’ve been ready to move to the more advanced level. Being in touch with decision makers facilitates direct feedback and offers the opportunity to monitor topics that interest our target group.

To be able to leverage communication frequency with important target groups, it is essential to have the will and dedicated support on the part of senior management. Not only time and budget funds are essential – courage and confidence are major factors as well. Senior management needs to invest in order to ensure a trusting – and therefore trustworthy – environment that qualifies as a vibrant and significant culture of feedback. This is why BASF is fundamentally committed to Social Media – and not only from an IR perspective.

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Senior management needs to invest in order to ensure a trusting environment that qualifies as a vibrant and significant culture of feedback As IRO you may want to decide which channels are the most suitable for Investor Relations, and you therefore need a dedicated IR account (e.g. Twitter, Stocktwits). On other platforms you may choose to contribute directly to existing corporate accounts (e.g. Facebook, Slideshare). BASF learned to become aware of the number of accounts maintained in the organization. We found this necessary because, at the end of the day, we want to be regarded as one company. Jobseekers, journalists, investors and analysts all use different sources, no matter which department publishes the content. And this is the critical difference between communication 101 and communication 201: to no longer think from a sender perspective, but more than ever before from the perspective of the recipient! Monitoring and sentiment analyses Online communications monitoring is developing fast. Media monitors are expanding their resources and are even including online articles

Frank Boehme - Anna Pinnow - Hannes Koske - Nicole Krawietz - Florian Greger - Amber Usman Andrea Wentscher - Thomas Wolf - Markus Zeise - Magdalena Moll (Head of IR) Tobias Hoeld - Ingo Rose

these days. This trend will sustain itself into the future. There are already many tools which are easy to use and come at no cost. In addition to this, a new trend is taking shape: the advent of sentiment analyses and social trading platforms. Computerbased platforms are starting to use social media sentiment to predict developments in the financial market. This is a fledgling discipline, yet it’s one that in our opinion has considerable potential. Even so-called “big data management� has recently used findings in social media trend analysis. Future of IR communications? We deeply believe that social media will gain even more significance in the near future and beyond into the mid- and long-term. In recent years the way we exchange views has changed fundamentally, and it is continuing to develop right now. Being online anywhere, anytime, opens up new horizons for connecting and exchanging information and opinions.

We live in an accelerated age. Recommendations, especially from friends and contacts we trust, are nowadays forming the center of gravity for information-gathering. If we look at communication within the financial market in the U.S., we might already get a first impression of what the future will look like. The key players there have been using Social Media for a number of years. Clearly, certain dynamics we can see there will be important for us too. Take home message Although the use of Social Media in respect to IR is a very young discipline that has developed rapidly over the past few years, in Europe especially it is still a discipline in its infancy. No one can foresee which communication channels will survive into the next few years, but one thing is certain: nothing is going to stop this development. We need to be open-minded about it and perceive it as a tremendous opportunity. This way we can all actively take part in building this new avenue of online communications together!

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IR INVESTOR Strategy RELATIONS WEBSITES

ARTICLE

Looking ahead in IR activities By Angel Santodomingo, CFA

I

know I am not very original compared to other heads of Investor Relations, but the questions I ask myself at the end of every financial year, when I am planning the activities for the next period, are of this type: Are we doing everything we should? Are there any aspects that escape us? Are we repeating some of them because we have done so for many years? Do investors and analysts really expect this plan from us or are we hammering in a nail that will never hold a picture? Well, not one year goes by in which these questions have a commonplace answer or a quick solution. I have headed the Investor Relations Department at Santander for almost 8 years, and the differences between each of them are obvious. This makes me reflect on the challenges facing us and the direction I think our “offer of services” to the market is taking. Before discussing these challenges, please let me clarify that the Santander parent company holds 58 road shows a year, in addition to a further 63 distributed among the different subsidiaries, i.e., a total of 121 yearly road shows. Furthermore, there are conferences, results presentations, meetings, conference calls… so the range of aspects facing us is diverse. Listed subsidiaries In Santander’s case, in recent years we have chosen a policy of listed subsidiaries. I am not ruling out the

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possibility of this being repeated in other banks and/or sectors. This policy increases the complexity, as messages and activities have to be coordinated with investors. In the first case, because it is important for the market to receive the same message - and here I am not referring to its plausibility, but the level of disclosure achieved, which includes any type of communication to the market, either verbal or in writing. But equally important is the second, the coordination of activities. For example, we try to ensure that the same investor does not receive visits from three different Santander units in the same morning. Firstly, because the investor does not usually have enough time for the same group, and secondly, because the bank would present an image of a need to see investors, which does not reflect reality. This leads us to coordinate road shows, our presence at conferences, meetings... on fixed income and equities. Investor in Fixed Income and Equities – Who to visit? The debate on whether or not to bring together both types of investor in the same road show is an open one. We have had very good experiences in joining them, although occasionally there are some investors (especially sell-side houses) who express doubts. Owing to the time available of management for road shows, it is an excellent opportunity for optimization, and

I sincerely believe that 90% of the questions and answers are the same for both types of investor. The organization of the road show can become more complex if two different brokers are used, but it can usually be easily solved. Broker or in-house? Without doubt, this depends on our level of knowledge and intelligence on the market we aim to visit. There is no single answer. We do both. Obviously, the sell-side is grateful for the road shows and it is equally obvious that in terms of who we are visiting, a direct approach can prove more effective. Looking to the future, there is something that should be considered: some investors are beginning to demand direct treatment, without going through the sell-side, and this includes road show meetings… food for thought. Where does the money come from? Geographically speaking, we have advanced significantly in recent years, in line with the investors. With very few exceptions, some years ago it was reasonably rare for a European bank or company to visit Asia. Nowadays, it is repeatedly part of the year’s normal activity. And not only because the number of local managers in the area has grown, but because: ≥≥Portfolio managers from the buyside are assigned there, although their analysts work from Europe or the U.S.


Some investors are beginning to demand direct treatment, without going through the sell-side, and this includes road show meetings… food for thought It is very normal to be present at ≥≥SWFs continue to increasingly advance towards a more active management that now not only includes just “special operations” but also traditional portfolio management. Sell-side and Buy-side Although we speak of both, they are different entities with different time horizons and different reactions to the behaviour of the company. In the banking sector, 20 years ago the sell-side was more experienced and was somewhat more aligned with the medium and long-term view. Presently, demand for its services focuses more on the short-term, although its estimates remain mediumterm. This probably responds to a duality that is difficult to break: present-day fee generators have that view and demand that service versus the traditional buy-and-hold investor. On the buy-side, the pressures are the same but are more diluted. In any event, the final debate is usually medium-term profitability.

discussions between the broker organizing the road show and the person responsible for that activity in an Investor Relations department as to how to optimize the time devoted to investors. And there is nothing wrong with either stance: they are simply speaking about different objectives.

equally so are those with members of the Investor Relations team who have sufficient knowledge to explain the Group’s complete and in-depth point of view. This is considerably more difficult than it seems: the steps forward are small and the setbacks, huge. But if we prepare the members of our departments well, there is no doubt that they can form a fundamental part of what is probably infra-used today, thus leveraging the message to the market. Generally speaking, this is a question that is being badly resolved today, in the majority of cases because of pre-established stereotypes.

Corporate Social Responsibility / JGA

Conferences

Much has been written about this. Here, I would just like to highlight the fact that five years ago, it was not even an issue, whereas now, we have several road shows per year devoted to visiting Corporate Social Responsibility departments. Added to this is the need to address possible requirements vis-à-vis a General Meeting of Shareholders, where the institutional investor is assuming an increasingly more active role. Any Investor Relations department that fails to believe that this is something that needs to be addressed with increasing intensity is very much mistaken.

Speed-dating, one-on-ones, groups, presentations, break-outs, specialists/generalists, banking-day, Iberian-day… the offer of conferences on the sell-side is hyper-inflated. There is not one single sell-side firm that does not offer something. My recommendation: conferences with firms that are strong in the market where the conference is being held. Otherwise (and also in the case of the road shows) it usually has more to do with volunteerism than reality.

Management availability I believe that it is our job to explain to the market that meetings with management are important, but

Angel Santodomingo, CFA Global Head of Investor Relations of Santander

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IR Strategy

ARTICLE

Good Disclosure Practices and Investor Communication By Nivedita Ketkar, Vikas Agarwal, Vivek Sadhale “Sunlight is said to be the best of disinfectants, electric light the most efficient policeman” Louis Brandeis, Supreme Court Justice of the United States

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$

his quote is quite old. It was cited in 1933 in the context of the Great Depression and the turmoil in global financial markets of the 1920s and illustrates that the relevance of disclosure hasn’t really changed. And it will not. In fact, regulators will demand more and more disclosures. Disclosure is a very efficient for monitoring enterprises though is not a panacea. Disclosure can function with active rule of law, participative investors amongst others. The Good Disclosure Principles include that the disclosure should be timely, relevant and complete, should highlight important information and should have regard to investor’s needs and securing investors’ protection and most importantly do not hide what needs to be disclosed. Strong transparent disclosure regime is important for monitoring the performance of the companies and promoting shareholder ability to exercise their ownership rights by keeping them well informed on the performance of the company.

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Few of the best practices which corporates can follow to ensure conveying the best and full disclosure to the Investors are listed as below: Annual Report Annual Report is the primary corporate communication medium for disseminating information on a company’s financial position, management, highlights of the Company in a year, risk management, corporate governance, etc.


Strong transparent disclosure regime is important for monitoring the performance of the companies and promoting shareholder ability to exercise their ownership rights by keeping them well informed on the performance of the company

The management must ensure that the Annual Report discloses all material information affecting the company’s performance to the shareholders in the Annual Report. Company Website The Company should have its own Investor Services website latest news and highlights, important contact credentials for investor services, information of the securities of the Company, if the Company is listed on the Stock Exchanges, historical Financials, corporate governance initiatives taken by the Company, etc.   Early on, the Investor Relation section of a company’s website was a “nice to have,” not a “need to have.” Only forward-thinking companies incorporated IR sections page on their corporate websites. Now, not only is it expected that a company should have a dedicated investor relations page, but the SEBI has outlined guidelines on Investor Section on Company’s website. Investor Calls Investors calls every quarter as well as on happening of material events establishes credibility amongst investor community and also provides level playing field to the investors.

One-on-one Meetings Management meetings provides investors direct access to the company’s management to understand the company in a better manner. Electronic Communication and Social Media In order to allow broader and immediate access by shareholders and the investment community, the use of electronic mode of communication viz; webcats, social media and social networking sites, teleconferences, etc. prove to be helpful for disclosing the Company’s standpoint and its position in the market. No doubt, disclosure is an effective tool for improving investor protection. Having said that, while regulations, processes, and best practices lay down the disclosure requirements to secure investors protection and strengthen corporate governance, they cannot ensure full and transparent disclosure automatically. For disclosure to work as an effective mechanism towards strengthening a governance tool, it is important that people who are at the helm of affairs of the corporate are trying to ‘do the right thing’ and are determined to adopt disclosure practices in letter and spirit.

Nivedita Ketkar Associate Corporate Counsel –Legal, Persistent Systems Ltd

Vikas Agarwal Associate General Manager – Corporate Secretarial, Persistent Systems Ltd

Vivek Sadhale Company Secretary & Head – Legal and Investor Relations, Persistent Systems Ltd

The views expressed in this article are strictly the personal views of the author.

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Winners

Winners by Industry Each color refers to the winner by industry per category

PotashCorp BASF

Pirelli Pirelli GRUPO PÃO DE AÇÚCAR Hindustan Unilever Limited

JSL S.A. Gafisa -

Danske Bank Hannover Re BMO Financial Group AEGON

Health Care

Bayer

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Amil Participações Amil Participações Aanjaneya Lifecare Limited

Royal Dutch Shell

Intel

Telecom

PotashCorp

ALL - América Latina Logística

Utilities

Consumer Goods Consumer Services Financials

BASF

Industrials

Financial Disclosure Procedures

Oil & Gas

Financial Disclosure Procedures

Technology

Online Annual Report

Basic Materials

Investor Relations Websites

PHILIPS FedEx Corporation PHILIPS

Royal Dutch Shell Gazprom Neft Nexen Inc. Royal Dutch Shell

Nucleus Software Exports Positivo Informática Infosys Limited

Oi S.A. Turk Telekom China Telecom China Telecom

Hera EVN AG NextEra Energy EDP Energias de Portugal


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Winners

Winners by region - Europe IR Website

Online Annual Report

BASF

AEGON

Bayer

BASF

Danske Bank*

EVN AG

Hera

Hannover Re

Pirelli

PHILIPS*

Financial Disclosure**

Corporate Governance

BASF EDP Energias de Portugal EVRAZ*

PHILIPS*

NLMK PHILIPS Turk Telekom

Best Improvement Veidekke ASA (Investor Relations Websites) BBVA (Investor Relations Websites) Turkcell (Online Annual Report) PHILIPS (Financial Disclosure Procedures) ***) (Corporate Governance)

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Company names are in alphabetical order. TOP 5 is applied for categories with more than 15 companies registered TOP 1is applied when there are less than 15 companies registered only one top prize will be awarded ( ) * First ranked in the category ( ) ** Six companies were awarded due to a tie in the scoring ( ***) The best improvement classification only applies when a company is a recurrent participant


From debt crisis to social crisis 2013 is the year that the euro area is likely to move from recession to low growth and from debt crisis to social crisis. The euro area has been in recession since last spring as uncertainty about the debt crisis caused firms to hold back investment and households to reduce consumption. In the financial market, fears of a euro break-up have eased substantially since last summer. The ECB safety net, which was first announced by ECB governor Mario Draghi in late July, was a great success. Mario Draghi was able to convince investors that Spanish government bonds were a buying opportunity - without doing much beyond giving a promise that he could buy them all if needed. So far, the ECB has not had to buy as much as a single bond under the programme. The ECB safety net is regarded as so successful that most analysts now perceive that Draghi removed an important tail risk - the euro break-up risk. We expect the improvement in financial market sentiment to spill over to the real economy in 2013. The euro area will continue to see headwinds from fiscal tightening and tight credit conditions, but the headwinds are fading. At the same time, global growth appears to be gaining momentum, which should boost euro area exports even though euro appreciation has dampened the impact a bit. All in all, the fading headwinds and global growth should lift the euro area out of recession. Indeed, most leading indicators are already rising from low levels. We expect growth to reach almost half a percent this year. It is not great, but it is a significant improvement. Unfortunately, it is not enough to stabilise labour markets.

There are now 18.8 million unemployed in the euro area. That’s an unemployment line from Copenhagen to Athens... and back! Currently, the unemployment line is getting about one kilometre longer every day. The debt crisis has become a social crisis. The biggest risk to the euro project now seems to come from the citizens of the member states not the financial markets. As the situation worsens for many people, social unrest is a real risk. Some tensions have already been seen in Greece (the rise of the Golden Down party), Spain (Catalonia wishing independence) and Italy (Beppe Grillo’s five star movement gaining popularity on an agenda of opposition to austerity and the euro project). Many euro area countries are undergoing important structural reforms. Structural reforms will help them to regain competiveness and spur sustained growth in the medium term. However, in the short run the combination of structural reforms, fiscal tightening and deleveraging will have a negative impact on growth. This will continue to be most pronounced in Greece and Spain, where rigid systems have resulted in a slow reform process and thus a slower adjustment. Ireland has adjusted more quickly and now appears to be heading out of the crisis. The competitive German economy is benefiting from extremely low interest rates partly as a result of its safe haven status. This should spur stronger growth and a pick-up in house prices although it is far, far too early to talk about a German house price bubble.

Frank Ă˜Land Danske Bank

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Winners

Winners by region - india IR Website**

Online Annual Report

Hindustan Unilever Limited Infosys Limited* SKS Microfinance Limited

Hindustan Unilever Limited*

Tata Consultancy Services Tata Steel Wipro Limited

Financial Disclosure**

Corporate Governance

Hindustan Unilever Limited Infosys Limited* Kotak Mahindra Bank

Infosys Limited*

Mind Tree Limited Oberoi Realty Tata Consultancy Services

Best Improvement Persistent systems Limited (Investor Relations Websites) ***) (Online Annual Report)

(

Nucleus Software Exports (Financial Disclosure Procedures) ***) (Corporate Governance)

(

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Company names are in alphabetical order. TOP 5 is applied for categories with more than 15 companies registered TOP 1is applied when there are less than 15 companies registered only one top prize will be awarded ( ) * First ranked in the category ( ) ** Six companies were awarded due to a tie in the scoring ( ***) The best improvement classification only applies when a company is a recurrent participant


India: looking ahead in 2013

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he year 2012 remained one of the most challenging years for the Indian economy during which the growth slowed down to 5.5%. This is the slowest growth witnessed in the last five years. Weakening of the exchange rate, Rising Inflation, High Interest rate scenario, delayed policy decision and weak global cues were some of the major reasons for the downfall in the economy. However the Indian markets have ended 2012 with returns of 26%, a feat totally unexpected at the beginning of 2012. Post the four quarters of negative returns in 2011, the BSE Sensex delivered positive/flat returns in all four quarters of 2012. This was largely on the back of the recent policy measures that were announced by the government at the end of the year 2012 and things are looking quite optimistic and a somewhat easier 2013, in our view. The economy will show signs of recovery as we move in the year 2013 especially from 2H2013 onwards. This is on the back of easing financial conditions, in part driven by some reduction in policy rates, a continuation of reforms boosting confidence, and inflation cooling off from better agriculture crop. The government strategy to cut overall spending to reduce the burgeoning fiscal deficit on one hand but roll out major projects on the other hand could spur business sentiments. Deregulation of the diesel prices is one of the major steps taken towards reducing the fiscal deficit. The RBI is highly expected to cut rates this year, which should also help. And finally, we see consumption remaining resilient, helping anchor demand.

However returning to the 9% trajectory would become purely aspirational. We believe overall, India’s GDP growth should pick-up to 6.7 per cent in 2013-14, from 5.5 per cent projected for 2012-13. With this growth we are expecting at least a 15% return from the current levels and continuing with the positive momentum witnessed since September’12. The global scenario also looks quite positive and indicates towards a marginal recovery this year. The possibility of a recession in the Euro zone and the United States (US) in 2013 is now lower. The ‘fiscal cliff’ in the US has been managed for the time being, through extension of tax cuts on middle-income households and spending cuts deferred for two months. In conclusion we remain optimistic on the revival of the Indian economy driven by some reduction in policy rates, a continuation of reforms boosting confidence. Further we expect investment demand to increase, government consumption to slow, and trade to pick up a bit.

Vibhu Agarwal Managing Director MZ India

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Winners

Winners by region - North America IR Website

Online Annual Report

Intel

Agnico-Eagle Mines

Life Technologies

BMO Financial Group

Microsoft

Cameco Corporation

PotashCorp*

PotashCorp*

Ryder System, Inc.

Stanley Black & Decker

Financial Disclosure**

Corporate Governance

Agnico-Eagle Mines BMO Financial Group Cameco Corporation

PotashCorp*

FedEx Corp. Leap Wireless NextEra Energy* Ryder System, Inc.

Best Improvement AXA Equitable (Investor Relations Websites) FedEx Corp. (Online Annual Report) Stanley Black & Decker (Online Annual Report) Life Technologies (Financial Disclosure Procedures) ***) (Corporate Governance)

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Company names are in alphabetical order. TOP 5 is applied for categories with more than 15 companies registered TOP 1is applied when there are less than 15 companies registered only one top prize will be awarded ( ) * First ranked in the category ( ) ** Seven companies were awarded due to a tie in the scoring ( ***) The best improvement classification only applies when a company is a recurrent participant


Four Trends We’re Watching in March and Beyond Real Estate We continue to see a gradual rebound in residential housing, driven by record low mortgage rates and the Fed’s commitment to keep rates low for an indefinite period of time. Home prices and transaction volumes have increased across most cities and states, with the coasts experiencing the highest growth. Single family home construction has rebounded from multi-year lows but remains less than half the rate we witnessed prior to 2007. Shadow inventories have also declined recently as banks have accelerated their remediation process for foreclosed properties or series delinquent loans. Despite higher taxes and stagnant wage growth, we expect the U.S. housing recovery to continue in 2013, which will positively impact a large populace of the work force which services this sector. Energy Commodity prices have generally trended higher since last summer following a stabilization in outlook for the EU and the euro currency. Higher industrial production and an improvement in job creation have driven demand for energy in the U.S., partially offset by a warmer winter. The clouded economic outlook for emerging markets and the uncertainty created by the fiscal cliff and debt ceiling debates in the U.S. will keep oil prices range bound for the first half of 2013. The wildcard is escalating geopolitical conflicts in Africa, the Middle East and Asia, which could significant affect both short term supply and sentiment. Energy stocks continue to trade at a steep discount to the market due

to rising cap ex, declining reserves and one-off investments that have resulted in poor returns. The US continues to increase its oil and gas production which keeps more of our dollars in country and supports local businesses in the supply chain. Technology For the first time in recent history, there does not appear to be one or two major consumer electronics products or categories that everyone is looking forward to in 2013. While more companies are coming up with bigger, faster, more efficient, and cheaper smartphones, tablets and TVs, there is no must-have technology or product. The mobile ecosystem continues to evolve, from hardware to services, for businesses and consumers. Cloudbased computing has reached mainstream, with new services focused on enhanced security and functionality across multiple devices. Dozens are companies, from startups to more established players such as Square, PayPal, Google and American Express, are investing aggressively to become a leader in mobile payments. More technology standards and regulations will need to be established before we see a hockeystick increase in user adoption of mobile payments.

earn an adequate return – this is unlikely to change for the foreseeable future. Individual investors as a whole have missed out on the stock market rebound since 2009, holding lots of cash and investing the rest in lower risk investments such as Treasuries, gold and mortgagerelated securities. Most U.S. baby boomers will have to work much longer than they anticipated in order to afford retirement. The Great Recession has also slowed population growth, particularly in developed countries. While the U.S. continues to enjoy above-average growth as a result of immigration, birth rates in the U.S. and Europe continue to trend down. Until real disposable personal income rebounds for a few years, the deceleration in global population growth is unlikely to reverse.

Wealth Effect Rich are getting richer – across the world, not just in the U.S. Wages for everyone else is stagnant and will remain so for an extended period of time. Low interest rates and aging population means investors will have to take more risks in order to

Matthew Hayden Managing Partner, MZ Group - North America

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Winners

Winners by region - Latam IR Website

Online Annual Report

ALL - América Latina Logística * GOL Linhas Aéreas Inteligentes Grupo Pão de Açucar

Amil Participações *

JSL S.A. Oi S.A.

Financial Disclosure

Corporate Governance

EDP Energias do Brasil Energisa* Fibria Celulose S.A.

Eternit*

Mills Estruturas e Serviços de Engenharia S.A. Sabesp

Best Improvement Light S.A. (Investor Relations Websites) Oi. S.A. (Online Annual Report) Grupo de Inversiones Suramericana (Financial Disclosure Procedures) ***) (Corporate Governance)

(

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Company names are in alphabetical order. TOP 5 is applied for categories with more than 15 companies registered TOP 1is applied when there are less than 15 companies registered only one top prize will be awarded ( ) * First ranked in the category ( ***) The best improvement classification only applies when a company is a recurrent participant


Latin America 2013: outlook and projections

E

very start of the year the same question arises: how will the economy perform? Analysts, bankers, entrepreneurs, governments and economists share their outlook and projections for key economic indicators. Gone are the days when they provided only local data: in today’s globalized world, any change in the mood in Asia can impact Latin America, for example. Speaking of Latin America, what to expect from the major economy and flagship of the continent in 2013? Brazil is still suffering from the global crisis, reflecting mainly the difficulties faced in Europe, United States and, more recently, China. The risk of a crisis in China seems to be materializing and, if confirmed, Brazil could be more affected than it was by the slowdown in Europe, given its greater dependence on the Chinese economy, due to the increase in commodity exports. To give an idea, Brazilian exports of commodities to China grew from 4% in 2001 to more than 20% in 2012. According to the International Monetary Fund (IMF), China’s growth rate, which ranged between 9% and 10%, should stand at 8.5% in 2013. Conversely, the Brazilian economy is expected to recover in 2013, despite some weak indicators, including the lower number of launches in the construction industry and the reduced industrial output in 2012, with a rebound expected in the oil and gas chain, agricultural prices and incentives

to investments in infrastructure by the concession program. The outlook is even brighter for the capital markets, especially after a disappointing 2012, with the worst equity performance in the last decade and only three IPOs in Brazil (Locamerica, BTG Pactual and Unicasa). For BM&FBovespa, the largest stock market in the region, 2013 is expected to be a promising year for small and medium enterprises to become listed, with at least ten public offerings estimated to raise up to R$150 million each. Domestic market growth and new consumers should benefit the development of these companies, allowing them to access the market at a low funding cost. ANBIMA, the Brazilian Financial and Capital Markets Association, believes big companies should take the lead in the resumption of IPOs. In an effort to boost the Brazilian capital market, a working group currently composed of 51 entities, including banks, law firms, auditors and associations, created PAC-PME, the Growth Acceleration Program for Small and Medium Enterprises. The initiative involves a diagnosis of the capital market and solutions to allow +750 SMEs to raise funds through stock exchanges. It is virtually impossible to predict what will happen, but times of high liquidity seem far away. In this context, this year should present a cautious recovery, with no big wave of offerings neither big surprises in terms of economic growth for the region.

Adriana Costa Partner and Consultant, MZ Group

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Winners

Winners by region - asia IR Website

Online Annual Report

Capcom China Telecom* Pacific Basin Shipping Limited

China Telecom*

Shin Kong Financial Holding Shinsei Bank

Financial Disclosure

China Telecom*

Corporate Governance

Hysan Development Company*

Best Improvement Light S.A. (Investor Relations Websites) Oi. S.A. (Online Annual Report) Grupo de Inversiones Suramericana (Financial Disclosure Procedures) ***) (Corporate Governance)

(

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Company names are in alphabetical order. TOP 5 is applied for categories with more than 15 companies registered TOP 1is applied when there are less than 15 companies registered only one top prize will be awarded ( ) * First ranked in the category ( ***) The best improvement classification only applies when a company is a recurrent participant


Is China slowing down or merely moving forward with sustainable growth?

I

arrived in China in August 2011 and on my first day here, I climbed to the highest observation deck in the world at the top of the Shanghai World Financial Center, at that time the tallest building in China. From there I could see an endless sea of skyscrapers, including the Shanghai Tower, just beside me, which was still in the early stages of construction. Only 18 months later, it had already grown to 400 meters, incredibly fast when compared to the speed at which skyscrapers are built in the rest of the world. By 2014, at the time of its completion, it will 632 meters high, making it the tallest building in China and the second tallest in the world. This exceptional pace perfectly encapsulates the astonishing speed at which China’s economy has grown in the last 10 years. On the other hand, I could also see signs of how this growth was artificially sustained. One month ago, I visited some huge and ambitious projects – towns and shopping malls – that were completely empty. I saw railways that will never make money, subway lines that go to nowhere, roads that no one drives on and cities that no one lives in. I was shocked, not to mention deeply fearful about the possible deeper meaning behind these empty projects. Was I witnessing a bubble? Everybody knows that China consumes more steel, iron ore and cement per capita than any industrial nation in history. Similarly, everybody knows that investments in infrastructure account for a huge proportion of its GDP - it is said to have built the equivalent of Rome every two months in the last decade.

But the Chinese economy is not completely immune. Although GDP continued to move up in 2009, 2010 and 2011, following the global financial crisis, the rate was well down on the double digits that had been the previous norm. The latest figures released by the country’s National Bureau of Statistics showed growth of 7.9 percent in the fourth quarter of 2012, giving annual GDP growth of 7.8 percent. Exports, imports and direct foreign investment also shrank. The slowdown has been mostly due to cyclical factors, i.e., decreased liquidity and a reduction in external demand, but it has also been the result of deliberate policy adjustments. In order to deal with the impact of the global financial crisis, at the end of 2008 the Chinese government rolled out a RMB 4 trillion stimulus package. Although the package proved successful in helping the economy to partially overcome the crisis, it also created a series of asset bubbles. Inflation began to climb, peaking at 6.45 percent in July 2011, and real estate prices soared. In order to curb inflation and quash the speculative bubbles in the property market, the government introduced a series of restrictive measures, including increasing reserve requirements six consecutive times in 2010, which led to a decline in the fixed asset investment growth rate. The government also enacted policies to restrict property purchases, which caused the real estate investment growth rate to slide by 3.9 percentage points in 2011. All in all, these policies were highly effective in reducing domestic investment.

External factors have also played an important role in cooling the economy, especially the sovereign debt crisis in Europe and the sluggish performance of the other developed nations. The U.S. and Europe are two of China’s biggest trading partners, so their floundering economies have translated into flagging exports that have helped drag down China’s growth rate. Adjustments to economic policy have also contributed to the current slowdown. The Chinese government is now changing the economic growth model from one that depends on investments and exports only, to a more balanced one that relies on investments, exports and domestic consumption, aiming to ensure sustainable growth. As a result of this new policy orientation, growth in investment spending in 2012 was lower than 2011. Consequently, China will now consume less steel, iron ore and cement. The question that remains in everyone’s mind is whether the Chinese economy will spiral downward or stabilize at a sustainable growth rate. Personally, I believe the likelihood of a hard landing is very low, which was why I chose to come to China and to live and work here for some time. Signs of strength still remain. For example, domestic consumption moved up strongly in the second half of 2012. Liquidity has also been on the rise and the CPI has been well contained after peaking in July 2011. The government has also imposed certain preventive measures to avoid a rapid decline in growth.

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Winners

For example, the People’s Bank of China (PBoC) cut interest rates twice within a month and a series of new export tax rebate measures were introduced in June 2012 to support small and medium-sized businesses, all of which is likely to help the economy. Low inflation also gives the policy-makers plenty of room to introduce monetary policy initiatives if necessary. The financial reforms are also moving ahead, with an emphasis on greater financial liberalization, such as looser controls over interest and exchange rates. Letting the market play a larger role will help correct the distorted allocation of resources and create a fair playing field for all market participants. The capital market is also developing reforms aimed at facilitating access to capital for well-managed companies, and providing incentives for companies to generate profitable returns for investors. For example, the China Securities Regulatory Commission (CSRC) has announced measures to bring transparency to the IPO pricing mechanism, give greater power and increased responsibility to companies, investors and underwriters, and implement a stricter and more effective delisting process. To further open the market and increase cross-border capital flow, the CSRC is planning to establish Exchange Traded Funds (ETFs) in the domestic market based on overseas indices, and ETFs traded in Hong Kong based on domestic indices. On the same note, the CSRC recently granted Qualified Foreign Institutional Investor (QFII) status to more overseas entities and raised their investment caps. Even though a hard landing is a remote prospect, China still needs to be cautious, however. A soft landing and long-term sustainable

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growth require continuous economic reform and wellinformed policy adjustments. Firstly, despite the central government’s relatively healthy balance sheet, local government debt has increased dramatically in recent years. Secondly, China invested excessively in the past, exemplified by the ghost town I mentioned at the beginning of this article. In 2011, investments’ share of GDP was as high as 49 percent. Although investment is one of the key drivers of economic growth, as it facilitates capital stock accumulation and technological progress, too much can be problematic as it creates overcapacity, hampers efficiency and slows consumption. In order to prevent such a disruption, China must avoid over-reliance on capital investment. Between 2008 and 2010, the local government debt to GDP ratio increased from 17.3 percent to 26.7 percent, giving a total outstanding debt ratio of 43.5 percent, which may pose default risks for local governments. To manage this risk, China must be cautious when adopting expansionary fiscal policies in the future. Thirdly, China’s exports are not going to recover any time soon. The continuing deterioration of the external scenario means that demand for China’s export goods will remain weak for an indefinite period. Also, wage increases are raising the cost of Chinese goods. Exporters are therefore forced to absorb higher costs and slash production. To assist such companies, the government must introduce urgent structural changes to stimulate domestic consumption, find a way to help afflicted enterprises move up the value chain and increase their competiveness.

Finally, the country must promote financial reform in a controlled manner. Financial liberalization, which will unquestionably benefit the Chinese economy in the long term, could also jeopardize the stability of China’s financial system in the short term if the process is not handled properly. The most difficult issue is the openness of the capital account, partial control over which having ensured that China remained relatively healthy throughout the global financial meltdown. Without proper procedures for opening up the account, short-term capital flow would be allowed to enter and leave at will, enabling speculation and arbitrage against the Chinese currency. This would leave China vulnerable to economic/currency shocks, which would prevent the financial system from working efficiently. In conclusion, I believe the current slowdown suggests that China is moving to lower, more sustainable growth, which I hope may also benefit the rest of the world.

Vivian Wang Investor Relations and Corporate Finance advisor


Participant list Aanjaneya Lifecare Limited

Energisa

ENGENHARIA S.A.

Action Construction Equipment Ltd

Engineers India Ltd

MindTree Ltd

Aditya Birla Nuvo

Equatorial Energia S.A.

Motilal Oswal Financial Services Ltd

AES Gener

Ernst & Young Terco

MRV

AGC Networks

Essar Group

Multiplus S.A.

ALL - América Latina Logística

Essar Oil

Nucleus Software Exports

Alpargatas S. A.

Essar Ports

Oberoi Realty

AmBev

Essar Shipping

Oi S.A.

Amil Participações

Estácio Participações

Pampa Energia

Anhanguera Educacional

Eternit

PDG

Arca Continental

Even Construtora e Incorporadora S.A.

PERSISTENT SYSTEMS LIMITED

Arshiya International

EZTEC Empreendimentos e Participações

Porto Seguro SA

Banco Macro

Fertilizantes Heringer

Positivo Informática

Banco Santander Brasil

FIBRIA CELULOSE SA

Qualicorp S.A.

Banco Sofisa S.A.

Firstsource Solutions Limited

RaiaDrogasil

Bancolombia

Fresnillo plc

Reliance Capital Limited

Banrisul

Gafisa

Reliance Infrastructure Ltd

Bematech

Gerdau

Reliance Power Limited

Bharat Forge Limited

Globus Spirits Limited

Rossi Residencial

BHG S.A.

Godrej Consumer Products Limited

Sabesp

BNP PARIBAS

Godrej Properties

Sanghvi Forging & Engineering Limited

BR Properties

Gol Linhas Aéreas Inteligentes

Santos Brasil

Brasil Brokers Participações S/A

Gravita India Limited

São Martinho S.A.

Braskem

Grupo Aeroportuario Del Centro Norte

Sesa Goa Limited

BRMALLS

Grupo de Inversiones Suramericana

SKS Microfinance Limited

Brookfield Incorporações SA

Grupo Pão de Açúcar

SLC Agrícola S.A.

Cia Hering

HDFC Limited

Springs Global

Cielo

Helbor Empreendimentos S.A.

SulAmérica S.A.

Comgás

Hindustan Unilever Limited

Sun Pharma

Companhia de Saneamento de Minas

HRT Participações em Petróleo S.A.

Tata Consultancy Services

Gerais

Hypermarcas S.A.

Tata Steel

Companhia Paranaense de Energia - Copel

Infosys Limited

Tecnisa S.A.

Cosan

JSL S.A.

TGLT

CPFL Energia

KEC International

TOTVS

Cyrela Brazil Realty S.A.

Klabin

Triunfo Particpações e Investimentos

Empreendimento

Kotak Mahindra Bank

S.A

DASA

Kroton Educacional

Ultrapar Participações S.A.

Duratex

Lanco Infra Ltd.

Unidas

Ecorodovias Infraestrutura e logistica

Light S.A.

Valid S.A

Edelweiss Financial Services Limited

Localiza Rent a Car

Walmart de México y Centroamérica

EDP Energias do Brasil

Lupatech

Wilson Sons

Empresas Copec

Marfrig Alimentos SA

Wipro Limited

Empresas ICA S.A.B.

Marisa

Endesa Chile

MILLS ESTRUTURAS E SERVIÇOS DE

73


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IR Global Rankings Magazine 2013  

IR Global Rankings is pleased to announce the launch of the latest IRGR Magazine! The magazine includes a summary of the key findings and re...

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