The Portuguese Securities Market Commission (CMVM) defined corporate governance as the "system of rules and codes of conduct relating to the management and control of companies." The CMVM also added that "Issuers whose shares are listed on a regulated market are the focal point in the corporate governance issue, and comprise both internal and external aspects. Internal in the sense that it implies the application of sets of organisational rules within each listed company and external, in that it relates to the evaluation of the general performance of companies which are based on the normal functioning of market mechanisms, which in turn requires the institutional investors' vital participation." (Consolidação de Fontes Normativas e do Código de Governo das Sociedades – CMVM 2007, reviewed in 2010)
The basic principles of corporate governance are set forth in the Portuguese Companies Code. Due to the increase in the number and importance of public limited-liability companies and the respective investment by small investors, the Portuguese government has reinforced the corporate governance legal framework by introducing in the Portuguese Securities Code additional principles for listed companies. As a result, the role of the regulator CMVM (Comissão do Mercado de Valores Mobiliários) has grown.
Legal background
The first set of recommendations (not mandatory) published in Portugal on the subject of corporate governance was set out by CMVM in October 1999 after the issuance in the same year by OECD (Organisation for Economic Cooperation and Development) of the first general international principles on corporate governance addressed to listed companies. The OECD general international principles on corporate governance constituted a benchmark for governments regarding the respective legislation, where the main concern was the compliance with the expectations of the respective investors for this type of company. The matters dealt with in the referred principles were, in general terms, the equal treatment of the shareholders (to be ensured through the accurate access to information), responsibilities of the board, participation in meetings, exercise of voting rights and interest sharing.
In 2001, due to the fact that most of the companies did not follow the recommendations, and/or the disclosure of the information by the relevant companies was insufficient, and also due to the economical environment at the time, CMVM published the first (mandatory) regulation on corporate governance: CMVM regulation number 7/2001. This regulation established as an obligation of the company, the compliance with the information disclosure already set out in the 1999 Recommendations. Accordingly it imposed on listed companies the obligation to disclose the degree and means of adoption of the 1999 Recommendations on a basis of comply or explain. Listed companies must publish a report on their corporate governance practices, a model for which is to be found in the annex to the referred regulation which is to be inserted in the annual management report or as an annex to the same.
This CMVM regulation was amended several times along the years by CMVM regulations 11/2003, 10/2005 and 3/2006, with the aim of harmonising the national legal environment to the international developments on the subject resulting from several European Commission recommendations issued during these years and also through the revision of the OECD principles on corporate governance.
In 2007 with the publication of the CMVM regulation 1/2007, CMVM altered once again regulation 7/2001. This amendment was originated by the approval and publication of the Decree-Law 76-A/2006 of March 29, which introduced several rules on corporate governance structures of public limited-liability companies (sociedades anónimas) into the Portuguese Companies Code and also amended the Portuguese Securities Code through Decree-Law 219/2006 of November 2, which transposed the directive on public offers of acquisition (new article 245-A).
With the publication of the CMVM regulation 5/2008, CMVM amended for the last time regulation 7/2001 by strengthening the information duties previously established in the amended regulation.
In 2009, with the approval of Decree-Law 185/2009 of August 12 2009 (which transposed the Directive 2006/46/EC of June 14 2006), most of which entered into force on January 1 2010, it is established, amongst other innovations, that the relevant companies, provided they follow a minimum content established in the Portuguese Securities Code (article 245-A), may follow a different code of corporate governance from the one that is imposed by national law. Additionally, Decree-Law 185/2009 broadens the scope of the information duty of corporate governance, by imposing the referred duty to any commercial company.
Response to financial crisis
Several corporate governance issues have resulted from the frequent worldwide financial crises, in consequence of which the legal framework on corporate governance has been reformulated and reinforced. The crisis we have been facing for more than a year was not an exception and has revealed the weakness of the system, in particular regarding the credibility of the companies' financial information, the efficiency of the companies control and the disproportion between directors' remuneration and the results of the respective companies.
As a result, the first semester of 2010 in Portugal was very fruitful for new rules and developments in corporate governance, with the issuance of new rules and recommendations by the four major institutions with competence on corporate governance issues: CMVM, Bank of Portugal (BP), the Portuguese Insurance Institute (Instituto de Seguros de Portugal – ISP) and the Portuguese Institute of Corporate Governance (Instituto Português de Corporate Governace – IPCG).
In the early part of January 2010, CMVM approved a new set of recommendations on corporate governance that deal, mainly, with the following issues:
- Criteria for determining the remuneration of directors;
- The functioning of internal risk control;
- The independence of external auditors; and
- The prevention of conflicts of interest in the agreements entered into between the company and its respective shareholders.
On January 15 2010, CMVM approved a new regulation: regulation 1/2010 (revoking the previous regulation 1/2007) which makes it mandatory for listed companies to publish the remuneration policies of its directors and members of supervisory boards. This publication should be made annually in the company's annual report of corporate governance. Among others, the individual and aggregate remuneration of directors and members of the supervisory boards, including the portions of remuneration that have already been paid and those that were deferred, must be disclosed in the company's annual report on corporate governance, as well as a breakdown of the components that led to the variable remuneration.
Companies with shares admitted to trading on a regulated market were allowed to choose a different corporate governance code from that of the CMVM, provided it complies with the following principles (established in Article 1 of the referred regulation):
- The application of a different corporate governance code is duly and previously justified and notified to CMVM;
- The code must comply with the principles and establish corporate governance practices that, overall, ensure protection of shareholders' interests as well as providing corporate governance transparency that is not inferior to that provided by the CMVM's corporate governance code;
- The code covers, at least, the matters laid down in the CMVM's code; and
- The code is issued by an institution that has recognised experts in corporate governance matters and operates independently of any particular interests.
The new regulation entered into force on February 2 2010, with the exception of the rules regarding disclosure duties of individual and aggregate remuneration that the directors and members of the supervisory boards of listed companies have received from other group companies and pension rights acquired, which will only enter into force on January 1 2011.
Due to the possibility of the application of a different corporate governance code, CMVM has created a consultation panel for the evaluation of the quality of listed companies' corporate governance which should produce an independent evaluation. This evaluation is to be complementary to the CMVM evaluation.
With the publication of Law 28/2009 of June 19, financial institutions were subject to disclosure of the remuneration policy of directors and supervisory board members, as well as the annual remuneration received by the referred members in an aggregate and individual way, in the annual accounts documents.
In this context the Bank of Portugal has identified two main areas of action:
Disclosure of the remuneration policy through the issuance of mandatory rules contained in the BP Notice 1/2010 published on February 9 2010; and
Governance and content of the remuneration policy defined in the circular letter 2/10/DSBDR which contains several recommendations on a comply-or-explain basis.
Financial institutions that do not accept deposits or other reimbursable funds from the public and invest those funds at their own risk by granting creditors the discretionary management of a financial instruments portfolio at their clients' risk are excluded from the application of the BP Notice, as it was considered that Law 28/2009 was sufficient for this type of entity.
Similar to what happened with financial institutions, the ISP has also felt the need to recommend that insurance or reinsurance companies (and to pension fund management companies subject to ISP supervision) adopt remuneration policies on a comply-or-explain basis. On April 1, rules 5/2010-R and 6/2010-R were issued, both of which establish several rules on the disclosure of information regarding the directors and supervisory board members and extend some of these obligations to employees of this type of company who are not directors or supervisory board members but which receive a variable remuneration and have key functions or exercise another professional activity that may have material impact in the risk profile of the company.
The Portuguese Institute of Corporate Governance (Instituto Português de Corporate Governance – IPCG), taking into consideration the possibility of listed companies following a different corporate governance code, proposed on January 4 2010 a final version of its Corporate Governance Code Project (Projecto de Bom Governo das Sociedades – IPCG Code) which proposes measures to protect minority shareholders and simplify corporate governance models based on the previous preliminary project (ante-projecto) presented in February 2009 and also in the statistics and results of the public consultation of this preliminary project.
The IPCG scheduled a general meeting of its members to take place on January 29 2010 in order to analyse and approve the final version of the IPCG Code. However, a couple of days before the scheduled date of the meeting, a group of major companies which were members of the IPCG and the PSI20 (Portuguese Stock Index) refused to sign the new IPCG Code and inclusively excluded themselves from members of the IPCG. According to the information made available, these companies were not in agreement with the final version of the IPGC Code which they considered, among other complaints, to be excessively complex, not very transparent, of high cost and with barely attainable objectives.
We are still waiting for news regarding the approval of an alternative code. However, for the time being, Portuguese Companies are limited to the CMVM corporate governance code. That said, we have to conclude that the financial crisis has alerted the major Portuguese institutions to the need to restore market confidence in the major companies that drive Portugal's economy. This is particularly important because currently Portugal does not have a significant small and medium company layer which might allow the economy to be protected from the failures and mismanagement of major companies.
Stated-owned companies
In Portugal, public companies (as state-owned companies) still play a key role in some economic sectors like transport, health and financial as an inheritance of years of politics linked to the welfare state. Consequently, the governance of public companies is currently seen as a very important mechanism to ensure the suitable balance between economic efficiency and public interest concerns, as well as to avoid distortions in a market where public and private companies compete.
The Portuguese legal framework on public companies' corporate governance includes different statutory law sources. On the one hand, we have general law sources like the law of the public sector companies (currently regulated by the Decree-law 558/99 of December 17, reviewed by the Decree-law 300/2007 of August 23 and finally amended by Law 64-A/2208 of December 31), the Public Companies Director's Statute (currently regulated by the Decree-law 71/2007 of March 27) and some rules of the Portuguese Companies Code. On the other hand, with the Resolution of the Cabinet Council 49/2007 of March 28 (Resolution 49/2007), we have specific and recent regulation addressed to corporate governance in public companies and to other companies where the state still has a part of the ownership, although without a dominant influence.
Resolution 49/2007 aims to define the best practices to be undertaken by public companies and is substantially based on the OECD Guidelines on Corporate Governance of State-Owned Enterprises (2005). This Resolution can be divided into three major parts:
Principles of governance addressed to the state in its ownership function.
The state shall establish a clear and consistent ownership policy, ensuring that the governance of state-owned companies is carried out in a transparent and accountable manner. In this context, the state establishes the strategic objectives to be carried out by public companies and also participates, as a shareholder, in the definition of the objectives and guidelines of private companies. In this context, the state as an owner shall exercise its ownership rights according to the legal structure of each company. Furthermore, the state must ensure a clear separation between its ownership functions and its regulatory functions. In addition, it shall also ensure that the ownership function is separate from the management of the company. For example, the state shall avoid interfering in operational matters and respect the independence of the board (the boards of these companies shall be assigned a clear mandate and shall be composed in a manner so that they can exercise their functions with an independent judgement).
Principles of governance addressed to public companies and to other companies where the state still has an ownership, though without a dominant influence.
On the other side and almost as a consequence of what is stated above, Resolution 49/2007 establishes that companies must undertake plans to ensure a transparent and efficient management always having in view the public interest, namely developing strategies linked to environmental and social responsibility. It is in such a framework that these companies shall carry out their mission and objectives. In addition, these companies must disclose material information about their economic and financial situation. That is why these companies are called to develop mechanisms of periodic reporting to the state on their economical and financial situation. Taking into account their special link to the public interest, these companies shall fully enact the principle of equal treatment among their employees and stakeholders and respect their rights, also providing periodic reports on these matters to the state.
Information Disclosure
Finally the Resolution establishes that public companies shall observe high standards of transparency and accountability, namely imposing that all relevant information about the governance of each public company shall be available on the internet.
| Author biographies |
Sofia Gouveia Pereira
Gouveia Pereira & Associados
Sofia Gouveia Pereira has a law degree at the Faculdade de Direito da Universidade Católica Portuguesa de Lisboa, 1992. She is also member of the Portuguese Bar Association (Ordem dos Advogados Portugueses), 1994.
Other qualifications include:
Postgraduate degree in Banking Law at the Faculdade de Direito da Universidade de Lisboa, 1997. Course in securities law at the Faculdade de Direito da Universidade de Lisboa, from 1997 to 1998. Master degree in corporate law at the Faculdade de Direito da Universidade Católica Portuguesa de Lisboa, on supplementary contributions of capital in the Portuguese Corporate Law, 2002.
Professional experience
Legal advisor in the Portuguese Commission of UNESCO, from 1992 to 1993.
NATO Scholarship, having made a study entitled: The role of Non-Governmental Organisations in the Founding/Consolidation of Democratic Systems, from 1993 to 1994.
Lawyer in the correspondent Portuguese law firm of Landwell (correspondent law firm of PwC), from 1993 to 2005.
Founding partner of Gouveia Pereira & Associados, Sociedade de Advogados, since 2005.
Academic background
Lecturer of Clearing in the Banking Transactions in the Banking Law Course of the Faculdade de Direito da Universidade de Lisboa, 2003
Lecturer in the Administrative and Judicial Tax Proceedings Seminary integrated in the Post-graduate degree on Public Law of the Faculdade de Direito da Universidade Católica Portuguesa, having made a lecture on the “Anti-Abuse Clause and the Process of its Enforcement”, 2001.;Lecturer of “Clearing in the Banking Transactions” in the Banking Law Course of the Faculdade de Direito da Universidade de Lisboa, 2003 and 2005; Collaborated with the organization of the third edition of the Post-graduation in Corporate and Commercial Law of the Faculdade de Direito da Universidade Católica Portuguesa, from 2003 to 2004.
Books and articles published
Books published:
"O Contrato de Abertura de Crédito Bancário" (Banking Overdrafts), Lisbon, Principia, 2000; "As Prestações Suplementares no Direito Societário Português" (Supplementary Contributions of Capital in the Portuguese Corporate Law), Principia, Lisbon, 2004.
Articles published:
“Portuguese Law on European cross-border cash pooling systems”, in International Financial Law Review, August 2001.;“Qualification of stock purchase option rights in Portugal” (cont.) in International Financial Law Review, March 2002.;“Securities Investment Companies” in International Financial Law Review, March 2002.;“New laws for mixed financial services providers” in International Financial Law Review, co-author with Margarida Lino Santos, June 2002.;“Supplementary Capital Contributions” in International Financial Law Review, July 2002.;“Funding Private Limited Companies” in International Financial Law Review, December 2003.;“New UCITS Laws”, in International Financial Law Review, co-author with Margarida Lino Santos, May 2004.;“Portugal welcomes new financial guarantee contracts”, in International Financial Law Review, October 2004.;“Insurance Mediation Activity”, The OFC Report, 2005. ;“The Community discipline and its reception in Italy and the principal Member States – Portugal”, in La società europea, Egea, Milan, co-author with Margarida Lino Santos and Margarida Amorim, 2007 and English version in 2010.
Foreign languages
English, French; Italian, German and Spanish. |
| Author biographies |
Margarida Lino Santos
Gouveia Pereira & Associados
Margarida Lino Santos holds a law degree at the Faculdade de Direito da Universidade Lusíada de Lisboa, 1995. She is also a member of the Portuguese Bar Association (Ordem dos Advogados Portugueses), 1997.
Other qualifications include:
Postgraduate degree in corporate law at the Faculdade de Direito da Universidade Católica Portuguesa de Lisboa, 2001. Course in financial and economic criminality and cybercrime by the Portuguese Bar Association (Ordem dos Advogados Portugueses), 2002. Post-graduate degree in securities law at the Instituto de Valores Mobiliários da Faculdade de Direito da Universidade de Lisboa, 2002.
Professional experience
Lawyer with special experience in civil, corporate and labour law, from 1995 to 2000. Lawyer in the correspondent Portuguese law firm of Landwell (correspondent law firm of PwC), from 2000 to 2005. Founding partner of Gouveia Pereira & Associados Sociedade de Advogados, since 2005.
Articles published
New Laws For Mixed Financial Services Providers in International Financial Law Review, co-author with Sofia Gouveia Pereira, June 2002. New UCITS Laws in International Financial Law Review, co-author with Sofia Gouveia Pereira, May 2004. Loss Of Statutory Capital in International Financial Law Review, March 2005. European Company – The Community Discipline and its Reception in Italy and the Principal Member States – Portugal, Egea, Milan, co-author with Sofia Gouveia Pereira and Margarida Amorim, 2007. Recent Evolutions on Corporate Governance, in Aspectos, Câmarta de Comércio e Indústria Luso-Francesa, co-author with Mathilde Sucena Argentier, 2009
Conferences and seminars
International Congress “Refugees: Which Future for de Post-96 Europe?”, Conselho Português para os Refugiados (CPR), with the co-operation of the United Nations High Commissioner for Refugees (UNHCR), 1996; Third Annual Meeting about Holding Structure Benefits, IFE, 2000; The new Leasing Regimen, IFE, 2002; Second Insurance Sector and Pension Funds forum, Diário Económico, 2007; Invest in Funds, Diário Económico, 2007; Seventh Energy Fórum, Diário Económico, 2008.
Foreign languages
English, French and Spanish. |
| Author biographies |
Patrícia Vinagre e Silva
Gouveia Pereira & Associados
Patrícia Vinagre e Silva has a law degree at the Faculdade de Direito da Universidade Católica Portuguesa de Lisboa, 1997. She is a member of the Portuguese Bar Association (Ordem dos Advogados Portugueses), 1999.
Other qualifications include:
LLM in public contracts at the Faculdade de Direito da Universidade de Lisboa, 2004. Lecturer in real estate law in the real estate post-graduation course of the Instituto Superior de Economia e Gestão from 2002 to 2006. Collaborator in various conferences on public contracts and litigation before the Administrative Courts organised by Vieira de Almeida & Associados, Sociedade de Advogados. Specialist lawyer in public law recognised by the Portuguese Bar Association (Ordem dos Advogados Portugueses), since 2006.
Professional experience
Lawyer at Vieira de Almeida & Associados, Sociedade de Advogados from 1999 to 2007. Senior associate at Gouveia Pereira & Associados, Sociedade de Advogados, since 2007. Partner of the law firm Gouveia Pereira & Associados, Sociedade de Advogados, since June 2008. Languages include English and French. |