of the equity markets circa If the applicable laws, rules and/or regulations were in place prior to the market fall, please say so.

Transcription

1 Questionnaire Regarding Recent Developments and Trends in the Standards Applicable to Listed Companies Costa Rica By David Arturo Campos of Laclé & Gutiérrez, Abogados EXHIBIT A Questions 1 Answers Is the standard a 1. Board 1.1. Are there any practices, standards or requirements regarding board independence? If so, what proportion of the board is required to be or has conventionally been independent? There are no board independence requirements. Generally, the directors, officers and managers are the same individuals unless the shareholders elect to appoint different officers. 1 All questions relate to standards applicable only to domestic listed companies. The questions are not meant to deal with the situation of foreign companies listed in a country. 2 Where the standard is only a practice (not mandatory under any existing or proposed laws, rules or regulations), please provide, where possible, an estimate of how widespread the practice is. 3 The objective is to determine whether the applicable laws, rules or regulations have changed in their text or in their application in response to the fall of the equity markets circa If the applicable laws, rules and/or regulations were in place prior to the market fall, please say so.

2 1.2. How do the principles of board independence work? There are no rules for the principles of board independence. The company may establish these principles based upon its articles of incorporation and bylaws.

3 1.3. What types of relationships would preclude a member of the board from being considered independent (i.e. company s investment or commercial banker, shareholder, major client, etc)? 1 There are no rules in this regard. Typically it would not be considered as independent (i) an employee of the company, (ii) an immediate family member, (iii) an officer or director, or (iv) a person receiving compensation for services different than the board of directors. The spouse of the directors and officers and their relatives by blood or marriage, can not be appointed as statutory comptrollers. However, the statutory comptroller is not a member of the board of directors. Practice. 1 Note: Board independence standards seem to vary in detail but not in principle. They have also been subject to extensive comparative commentary in many countries, especially the European Union, the U.K. and the U.S. We suggest the technique used in our draft U.S. answers for initial responses in this area, i.e. a very general discussion with attached standards. 3

4 1.4. Is there a requirement that independent directors meet without the participation of management or interested directors? 1.5. Are there rules concerning director conflicts of interest? If so, do such rules provide for a duty of the interested director to abstain from participating in meetings or voting? There are no requirements that independent directors meet separately without the participation of nonindependent directors. As stated above, the directors and managers are usually the same individuals. Regarding Limited Liability Companies, managers or assistant managers cannot undertake for their own account, operations similar to those of the company, nor assume the representation of another person or company engaged in the same trade or industry, without the express authorization of all partners. In connection with Corporations, there are no rules concerning director conflicts of interest. Generally speaking, directors may not vote on transactions in which they may have a particular interest. Practice. 4

5 1.6. Are there specific requirements or practices with respect to the nomination and compensation of members of the board (i.e. decisions to be made by special compensation or nomination committees, maximum compensation, limits on stock options, etc.)? There is no compensation process for the members of the board. Board of directors are appointed in the articles of incorporation or at the initial shareholders meeting upon formation of the corporation. Corporate business must be handled by a Board of Directors formed by at least three members, who may or may not be shareholders and will be denominated president, secretary and treasurer. Requirement Is a two-tier board required or permitted? If permitted, is one frequently used? What is the division of functions between the two boards? A two-tier board is not required by Costa Rican corporate law. N/A. 5

6 1.8. Is there any requirement or practice with respect to the separation of the roles of chairman of the board and chief executive officer? There is no requirement or practice with respect to the separation of the roles of the chairman and the CEO. In the practice, companies do not use to appoint CEOs Are employee or trade union representatives required to sit on the board? No. It is not required that employees or trade union representatives be members of the board. Practice. N/A Are any specific procedures required to ensure that financial and other information is provided to the board by management? 1 There are no specific requirements to provide financial information to the board. Depending on the line of business of the company some companies require this information to be provided. Practice. N/A 1 Please specify whether such procedures place the onus on management to keep the board informed, or whether board members are required to request information (and if so, whether management is required to comply with such requests). 6

7 2. Audits, Auditors and Audit Committees 2.1. Is there a requirement that audit firms rotate? Is there a requirement that audit partners rotate? 2.2. Is there a requirement that accounts be audited by more than one audit firm? There are no requirements that audit firms need to rotate. Only listed companies are required to be audited, otherwise it is not required. There is a regulation issued by the General Superintendency of Financial Entities (SUGEF in Spanish), that requires banks to rotate their team of auditors every three years, however, it is allowed to continue working with the same audit firm. No. There is no requirement of using more than one audit firm. Typically, accounts are audited only by one firm. Practice/requirement. N/A 2.3. Are there standards or requirements on auditor independence? No. There are neither standards nor requirements on auditor independence. There is current trend to implement auditor independence especially on audit firms known as Big Four. Practice

8 2.4. Are there limitations on the type of non-audit work an auditor (or a consulting firm related to the auditor) can do for an audit client? There are no limitations for non-audit works. Typically, auditors may provide non-audit services such as bookkeeping, appraisals, legal services, etc without any legal restriction Have any specific internal approval procedures been prescribed for approving non-audit services to be performed by auditors? There are no internal approval procedures that are required for approving non-audit services to be performed by auditors. 8

9 2.6. Are there any restrictions on the employment of auditors or former auditors by the audit client? 2.7. Are there any other restrictions on, or disclosure requirements relating to, the extent of the relationship between the auditor and the audit client, including the disclosure of fees for any non-audit services? An audit client may not hire any person that renders audit services to his Auditor, has a direct interest, those cases related to his spouse or relatives or companies in which he/she has participation. Additionally, as a common practice, former auditors may not employ a former auditor as well. There is a legal provision regarding the obligation of auditors to maintain confidentiality and not to disclose information related to its audit services. There are no restrictions or disclosure requirements relating to the extent of the relationship between the auditor and the audit client. Practice. N/A 9

10 2.8. Are auditors subject to self-regulation or are they regulated by an independent or state body? Auditors are subject to the Public Accountants Act ( Ley de Contadores Públicos ) and to the Code of Ethics ( Código de Ética ) of the Public Accountants Association ( Colegio de Contadores Públicos ) in order to comply with their regulations. Additionally, auditors are ruled by the International Financial Reporting Standards. Requirement. N/A. 10

11 2.9. Is there a requirement to have a separate audit committee (or internal board of auditors)? Are there any independence standards or requirements for audit committees (or internal board of auditors) that are different from general standards applicable to boards of directors and other board committees? No. A separate audit committee is not required. There are no independence standards or requirements for audit committees that are different from general standards applicable to boards of directors. 11

12 2.10. Are there specific guidelines or requirements allocating power between management and the audit committee (or internal board of auditors)? There are no requirements regarding to the power between management and the auditors. Companies may be supervise by either an audit firm or by a statutory comptroller, which have different obligations Is the audit committee responsible for the selection and oversight of external auditors? May the audit committee, on its own initiative, hire independent consultants or advisers? 1 It is not mandatory for companies to have an audit committee. However, the audit committee is not responsible for the selection and oversight of external auditors. Additionally, the audit committee at its own discretion may hire independent consultants or advisers. Practice. N/A 1 If a company is required to have an internal board of auditors in your country, please also explain how such auditors are selected. 12

13 2.12. Is there a formal requirement that complaint procedures exist allowing accounting-related complaints and irregularities to be brought directly by employees to the audit committee? 1 No. The audit committee is not required to comply with such procedures. 1 If specific procedures are required for processing external (non-employee) complaints, please describe them as well. 13

14 3. Monitoring of Management 3.1. Are there any requirements for board or shareholder approval of executive compensation? Have there been any recent instances of shareholder objection to or revolt over executive compensation? No. There are no requirements for board or shareholder approval of executive compensation. To the best of our knowledge, there have not been any recent instances of shareholder objection to or revolt over executive compensation Are there any disclosure requirements with respect to top management compensation? Are there any legal limits on executive compensation? If so, do such disclosure requirements and/or limitations apply on an ongoing basis, or only in specific circumstances? No. There are no disclosure requirements with respect to top management compensation. 14

15 3.3. Is there any requirement or practice with respect to the enactment and maintenance of a code of ethics governing management? No. Companies are not required to enact a code of ethics. In practice, companies enact these codes at their own discretion Except in the case of banks, is there a prohibition on company loans to directors or executive officers? No. There are no prohibitions with this regard. 15

16 4. Shareholder Participation and Voting 4.1. Is there a requirement that all or certain types of shareholders (i.e. institutional investors) vote? 4.2. Are there any legal or practical limits on the voting rights (or the exercise thereof) of certain types of shareholders? 1 The Costa Rican corporations have two systems for voting shares. A) Straight voting whereby each shareholder may cast the number of votes equal to the number of shares they may hold. B) Cumulative voting whereby each shareholder will have a minimum of votes equal to the result of multiplying the votes that would have normally corresponded to him by the number of directors to be elected. No bearer shares are allowed, only common shares. No. Voting rights, as well as privileges, restrictions, limitations and rights agreed upon by the shareholders, must be set forth within the Articles of Incorporation. Requirement. Practice N/A 1 Please describe any legal limitations or customary procedures which may disadvantage certain types of shareholders. For example, electronic voting procedures, limitations on proxy voting or proxy collections, ability of registered shareholders to split vote (i.e. depositaries), minimum holding period requirements, etc. 16

17 4.3. Are longer term holders afforded greater voting rights? No Are there any requirements for institutional investors to disclose their voting records and/or voting policies? There are no requirements for institutional investors to disclose their voting records and/or voting policies to their clients and/or shareholders Are there any requirements to permit minority shareholder initiatives to be included in proxies? 4.6. Are shareholder initiatives required to be distributed by the company at the company s own expense? Yes. A shareholder or shareholders representing at least twenty five per cent of the capital stock can request to the directors in writing, at any time, to call a shareholders meeting to discuss the matters indicated in their request. No. 17

18 4.7. Are shareholders agreements required to be made public? No. 18

19 5. Disclosure 5.1. Have there been significant changes in disclosure requirements during the last 3 years? If so, what kinds? No. There have been no corporate disclosure requirements during the last three years How frequently must listed companies file periodic disclosures? Listed companies may file financial statements once a year and other periodic disclosures on a regular basis. Requirement Have any increases in the frequency of disclosures been recently required? No. 19

20 5.4. What types of disclosures, if any, must be made on a continuous basis? If the system is a continuous disclosure system, how is it enforced? 5.5. Is there a requirement for companies to have specific internal disclosure controls and procedures? Private companies are not required to file disclosures. Listed companies are required to be audited and also are required to communicate to the General Superintendency of Securities the relevant facts which are those facts that may influence sensibly in the decisions of the investors in connection with (i) the securities in which he invest, (ii) the participants through which he invest, or (iii) the participants to whom he buy his services. No Is there a requirement or practice of having a disclosure committee? (If so, has this practice developed among listed companies not also listed in the U.S.?) No. 20

21 6. Enforcement 6.1. Please indicate whether the securities regulator has any of the following enforcement tools at its disposal: Consent decree/plea bargaining authority Authority to remove and/or bar officers and directors from service at a public corporation Authority to establish investor claims or compensation funds Authority and ability to investigate Power to fine corporations and/or individuals Power to require the forfeiture of salary or bonus The General Superintendency of Securities, referred to as the Superintendency, is an organ of maximum de-concentration of the Central Bank of Costa Rica (Banco Central de Costa Rica). The Superintendency shall concern itself with the transparency of the securities markets, the correct formulation of prices in them, protection of investors and the broadcast of the necessary information to assure these ends. Based on the foregoing, the Superintendency is entitled to take any of such measures which are regulated in the Stock Market Regulatory Act ( Ley Reguladora del Mercado de Valores ). Requirement

22 Power to order disclosure Power to block or suspend transactions Power to order specific performance or to enjoin certain conduct Power to subpoena corporate documents 6.2. How frequently are enforcement actions taken by the securities regulator? 1 The Superintendency takes enforcement actions in a constantly basis. N/A Has there been any recent increase in enforcement by the securities regulator? 2 There has been no need to increase the enforcement actions taken by the Superintendency. N/A. 1 Provide this information only if it is readily available. 2 Anecdotal views are acceptable. 22

23 6.4. Can shareholders seek damages against management, directors and/or the corporation formally as a group? The directors and other administrators must fulfill the duties imposed upon them by law and by the articles of incorporation with due diligence and are jointly and severally liable for damages resulting from the non-fulfillment of said duties, unless these are attributions corresponding to one or some directors or managers. However, there is a limitation which consists that liability of the managers can only be claimed through agreement of the general shareholders meeting, which shall appoint the person to bring the corresponding action. Requirement

24 6.5. Can directors liability be limited by the board or shareholders? The liabilities of the managers before the corporation shall extinguish: a) Through the approval of the balance sheet covering the specific operations contained therein and n the attachments, except if said approval is given by virtue of untruthful data or express reservations on the particular matter or by agreement to bring suit for liability; b) Through approval of management s performance or by express renouncement agreed by the shareholders meeting; and c) When directors proceeded in compliance with agreements of the shareholders meeting which are not manifestly illegal. Requirement

25 6.6. Is there a requirement that an unsuccessful plaintiff pay the defendant s legal fees? Yes. There is a requirement that for the cases in which exists a firm decision, the loosing party may pay the legal fees of the process. 25

26 7. Overview 7.1. In your opinion, have the recent corporate fraud scandals and developments in corporate governance, auditing and disclosure regulations in other jurisdictions significantly influenced the local independent or state regulators to adopt new regulations? There have been no recent regulations adopted with this regard. However, there is a current trend to implement a higher quality of corporate governance in corporations. Practice. N/A In your opinion, how effective have the recent changes described above been in improving investor confidence? Corporate governance is concerned with the ways in which modern corporations are directed and controlled. Corporate governance practices can vary between companies. For globally mobile investors, corporate governance has become an increasingly important factor when choosing among different investment opportunities. Practice. N/A. 26

27 7.3. Do you think that recent developments have led to significant improvements in compliance with preexisting corporate governance, auditing and disclosure standards? Our country has not been so impacted by the recent developments regarding compliance with corporate governance, auditing and disclosure standards. However, as stated above, there is a trend within corporations to implement a higher quality of corporate governance in corporations. Practice. N/A Do you expect to see greater international convergence of corporate governance, auditing and disclosure standards in the near future? How is this process likely to be affected, if at all, by unique local social, economic and/or political conditions in your country? We expect to see greater international convergence of corporate governance, auditing and disclosure standards in the near future, but specially in the area of audit firms rather than in corporations. Audit firms known as Big Four may adopt certain changes related to auditor independence based upon international trends. In corporations, we do not expect to see much changes due to the fact that generally, directors, officers and managers use to be the same individuals. N/A. 27