- What is corporate governance?
- What are Bovespa’s levels of Corporate Governance?
- What is Petrobras’ view on the adhesion to Level II of Bovespa’s Corporate Governance?
- What is a listed company?
- What are the controlling shareholder, majority shareholder and minority shareholder?
- What are a holding company and a subsidiary?
- Does senior management enjoy any form of variable compensation-bonus scheme?
- What is the composition of the Fiscal Board and what are its functions?
- What is the mission of the Board of Directors and how is it made up?
- What are the Ordinary General Meeting (OGM) and Extraordinary General Meeting (EGM)?
- Where can I find the Company’s Bylaws? And the minutes of the Shareholders’ Meetings?
- What is the relation between Petrobras and the IBGC (Brazilian Institute of Corporate Governance)?
- What is Petrobras’ relationship with the INI (Instituto Nacional de Investidores, which means National Institute of Investors)?
- What is the value of the Company’s social and cultural contributions to the country?
- What is ISO?
- What is benchmarking?
- What is the Dow Jones Sustainability Index (DJSI)?
- What is the Sarbanes-Oxley Act and what implications does it have for Petrobras?
 1. What is corporate governance?
ANSWER:
Corporate governance is the relationship among market entities (shareholders, executives, board members) with the capacity to influence/determine the direction and performance of corporations. Good corporate governance guarantees fairness, transparency and responsibility for results.
More information on Petrobras’ corporate governance practices in Corporate Governance and also the home page of Brazilian Institute of Corporate Governance (*) (IBGC).
2. What are Bovespa’s levels of Corporate Governance?
ANSWER:
The levels of Corporate Governance represent a series of norms of conduct established by Bovespa for companies, management, and controlling shareholders, considered critical for a good share valuation and other assets issued by the company. Adhesion – which is voluntary – to these practices distinguishes the company as Level 1 or Level 2, depending on the company’s degree of commitment. There is also the “Novo Mercado” category, the principal innovation of which is the prohibition on the issue of preferred shares. Additional information can be obtained from the Bovespa website by accessing the address: www.bovespa.com.br
3. What is Petrobras’ view on the adhesion to Level II of Bovespa’s Corporate Governance?
ANSWER:
Petrobras is convinced that continued access to the capital markets will only be assured to those companies that adopt the best standards of corporate governance, of protection for minority shareholders’ rights and transparency. Through its representatives on the Board, the Federal Government has given unconditional support to an agenda for some ambitious changes with this objective in mind and all the necessary measures have been taken for the Company’s adherence to Level 2 criteria.
However, a legal question has been raised by the Attorney General for Fiscal Matters in the context of the Petroleum Law, as to whether the Federal Government can agree to respect the opinion of the preferred shareholders at the General Meetings on matters relating to mergers, spinning off part of the Company and incorporation; revaluation of assets and choice of appraising entity and contracts between interested parties. The Adhesion Contract has still not been signed, although adhesion to Level 2 of the São Paulo Stock Exchange remains one of the Company’s strategic objectives.
4. What is a listed company?
ANSWER:
A company becomes a Listed Company through an Initial Public Offering (IPO) conducted on a Stock Exchange or Over-the-Counter Market. Several types of securities can be used in an IPO, the most usual being shares and debentures convertible into shares.
Petrobras is a listed and private law mixed capital company, controlled by the Federal Government with an indeterminate period of duration and regulated by Brazilian Corporate Law (Law 6,404 of December 15 1976) and the Company Bylaws. Federal Government control is exercised through the ownership of at least fifty percent plus one share of the Company’s voting capital.
5. What are the controlling shareholder, majority shareholder and minority shareholder?
ANSWER:
The controlling shareholder is the individual or individuals together that have effective control of the company through holding the appropriate number of common shares (ON). Petrobras’ controlling shareholder is the Federal Government that has more than fifty percent of the common shares of the company and participates in the Shareholders’ Meetings through its attorney in fact.
The majority shareholder has the larger part of the total capital of a company, in other words the sum of the common and preferred shares representing more than 50% of its total capital stock.
The minority shareholder holds shares with voting rights (common shares), the total of which does not give effective control of the company.
Up to date information on Petrobras’ Capital Stock can be found in Capital Ownership.
6. What are a holding company and a subsidiary?
ANSWER:
The Petrobras System is composed of the holding, Petróleo Brasileiro S/A (that operates with four business areas - E&P (Exploration & Production), Supply, Gas & Energy, and International -; two support areas - Financial and Services -; the corporate units that are linked directly to the president, as well as several subsidiaries, among which the most relevant are BR Distribuidora, Gaspetro, Petroquisa, Transpetro, and Downstream.
7. Does senior management enjoy any form of variable compensation-bonus scheme?
ANSWER:
The members of the Board of Directors and the Executive Board receive only the same fringe benefits generally granted to our employees and their families – examples being healthcare, education expenses and complementary pension plan.
Labor contracts signed with our board directors provide for no special severance package when leaving the Company’s service.
Currently, we sponsor a defined benefit private pension plan known as PETROS, and we have recently instituted a new defined contribution plan called Petrobras VIDA, which is being challenged in the courts by the Hydrocarbons Industry Workers Labor Union and has not yet been implemented.
8. What is the composition of the Fiscal Board and what are its functions?
ANSWER:
According to the Company’s Bylaws, the Fiscal Board “comprises up to five members and their respective deputies, elected by the Regular General Assembly, all of them residing in the country, in compliance with the requirements and impediments set up by the Act on Corporations, either shareholders or not, one of whom shall be elected by the holders of the minority common stock and another by the holders of the preferred stock, in separate voting”. In addition, the Bylaws rule that “from among the members of the Fiscal Board, one shall be appointed by the Finance Minister as the representative of the National Treasury”.
The Fiscal Board’s principal function is to supervise the acts of the managers and verify compliance with the latter’s legal and statutory duties. Other functions are for example, the analysis of the financial statements for the fiscal year and give an opinion on management’s proposals with respect to changes in the capital stock, issue of debentures or subscription bonds, investment or capital budget plans, distribution of dividends, transformation, incorporation, mergers and spinning off of part of the Company’s assets.
The present breakdown of the Fiscal Board can be found in Fiscal Board.
9. What is the mission of the Board of Directors and how is it made up?
ANSWER:
The Board of Director’s objective is to foster the long-term prosperity of the business by adopting an active and independent posture and always taking into account the interests of all the shareholders. This objective is to be achieved through the supervision of the Executive Officers’ activities and the establishment of the Company’s strategic guidelines.
The Board is made up of at least five, and at the most, nine members (current composition) elected by the General Shareholders’ Meeting. The minority shareholders must be represented by at least one board director. Preferred shareholders with at least 10% of the capital stock (excluding the controlling shareholder) have powers to elect and dismiss a board member.
Get more information on the Board of Directors in Bylaws.
10. What are the Ordinary General Meeting (OGM) and Extraordinary General Meeting (EGM)?
ANSWER:
The OGM is a meeting mandatorily convened by a listed company for the verification of the results, reading, discussion and voting of the reports and election of the Fiscal Board and Board of Directors. It must be convened within four months of the end of each fiscal year.
On the other hand, the EGM is convened to discuss and decide on matters of corporate interest with the exception of those questions, which are the exclusive prerogative of the OGM. The Petrobras’ Bylaws provide for the convening of the Extraordinary General Meeting for among other purposes, changes in the Bylaws and the increase in the limit of the authorized capital.
11. Where can I find the Company’s Bylaws? And the minutes of the Shareholders’ Meetings?
ANSWER:
The Bylaws are available on the page Corporate Bylaws and the minutes on the page Minutes of the Meetings.
12. What is the relation between Petrobras and the IBGC (Brazilian Institute of Corporate Governance)?
ANSWER:
Petrobras is a Sponsor Associate Member of the IBGC. This type of association is extensive to corporate entities which IBGC’s Board of Directors deems to belong to a select group of Brazilian companies committed to good governance, publicly positioned in favor of this cause and incorporating the best practices as a target for the organization’s management.
The IBGC’s principal objective is to improve the standard of domestic company governance to achieve its success and perpetuation. Good Corporate Governance ensures its members, equitability, transparency, accountability and responsibility for the results. More information can be found in the IBGC’s site at: www.ibgc.org.br
13. What is Petrobras’ relationship with the INI (Instituto Nacional de Investidores, which means National Institute of Investors)?
ANSWER:
Petrobras, together with about 16 other companies and institutions is a founder member of the National Institute of Investors (INI), the objective of which is to foster the development of the capital markets in Brazil. The INI focuses its activities on individual investor training and education, initially through investors clubs. For more information, please go to the INI site (*).
14. What is the value of the Company’s social and cultural contributions to the country?
ANSWER:
In Brazil, Petrobras is the company that invests the most in safety, the environment and health as well as community, educational and cultural projects. In 2004, R$ 350 million was invested in these activities. More information can be found on the Social and Environmental Responsibility page of Petrobras' Investor Relations website.
15. What is ISO?
ANSWER:
ISO (International Organization for Standardization) is a 140-country network of national standards institutes with its main office in Geneva (Switzerland). The latter is responsible for coordinating the system and publishes the approved standards. In Brazil, the domestic organ is INMETRO.
There are several certificates awarded to companies that comply with pre-established operating standards. Petrobras is one of the first oil companies in the world and the only one in Brazil to have all its Business Units in Brazil and some overseas, ISO 14001 (Environmental Management System) and BS 8800 or HOSES 18001 (Occupational Safety and Health) certified. In the case of ship and self-propelled rigs are also certified under the ISM (International Safety Management) Code, specifically for the management of marine and fluvial safety.
16. What is benchmarking?
ANSWER:
Benchmarking is a dynamic management process that evaluates and compares products, services, processes and functions of leading companies in their sector/segment of business. Benchmarking is thus a part of a company’s strategy for improving its own performance. Petrobras is considered a Brazilian benchmark in most of the segments in which it operates.
In the financial market, a benchmark is a standard of reference (such as an index for example) for comparing the return of different assets over a given period. Petrobras’ shares are part of several benchmark indexes, such as the New York Stock Exchange’s NYSE World Leaders Index and the São Paulo Stock Exchange’s Ibovespa, the most important performance indicator in the Brazilian equities market. See the complete breakdown of the Ibovespa.
17. What is the Dow Jones Sustainability Index (DJSI)?
ANSWER:
The Dow Jones Sustainability Index – DJSI is comprised exclusively of companies considered both socially and environmentally responsible. These are companies that have manifested a concern for the environment and for the relationship with society in which they operate, are compatible and in harmony with the development of their businesses. The DJSI measures company performance and uses the Global Reporting Initiative (GRI) indicators. This allows investors to base their investment decisions on an integrated criterion for evaluating the sustainability of the business.
The index was created in January 1999 by the Dow Jones Indexes and by the Sustainability Asset Management (SAM) Group of Switzerland and is made up of the 10% of the best classified companies in terms of corporate sustainability among the 2,500 companies with the highest market value, components of the Dow Jones Global Index, representing nine economic sectors and 73 industrial segments in 33 countries.
Petrobras believes that its inclusion in this index is an excellent opportunity to reinforce its image and reputation with the financial community and the capital markets as a socially responsible company. This will pave the way for the entry of new investors, bringing Petrobras into line with market tendencies of investing in socially responsible companies. The inclusion of Petrobras in this index brings with it various tangible and intangible benefits. These include public recognition of the Company’s adaptation to the profile of major international companies with its strategy focused on corporate responsibility and a reduction in funding costs, among others.
18. What is the Sarbanes-Oxley Act and what implications does it have for Petrobras?
ANSWER:
The principal objective of the Sarbanes-Oxley Act is to increase the transparency and the credibility of corporate results. This Law, which was enacted in July 2002 in the United States, introduced considerable changes in accounting and corporate governance standards for companies such as Petrobras with securities traded on the US exchanges – as well as instituting a new regulatory framework for audit companies. Sarbanes-Oxley also increases the responsibility of executives, lawyers and auditors in relation to accounting fraud.
Among the Law’s principal changes impacting Petrobras are: the president and CFOs are now responsible for certifying the authenticity of the financial statements; more stringent rules are established for internal controls; new disclosure requirements are in place principally for those privy to privileged information; changes are made in corporate governance such as the creation of a code of ethics for senior executives; new penalties are introduced (when fraud is proven); and an improved monitoring of the SEC’s registration process is established.
More information and the complete Act can be found in the SEC (*) site.
(*) This link leads to an address outside the Petrobras system. Petrobras accepts no responsibility whatsoever for the contents thereof, nor for the privacy policies or practices of the websites to which it provides links.
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