With the return of liquidity in the Brazil’s financial and capital markets in the post-pandemic, companies that plan to raise funds for capex or debt restructuring should implement solid corporate governance as a condition for accessing funding.
Governance is the set of management controls that aims to give confidence and transparency in corporate information, regardless of size.
In fundraising, governance provides lenders/investors with conditions to price the risk of disclosure, accountability and compliance of the borrower/issuer.
Below are 5 essential corporate governance items that should be required from Brazilian companies in fundraising process:
1. Audit of Financial Statements: Companies interested in raising funds from foreign banks, funds and investors must have their financial statements audited by an independent audit firm. This is the starting point;
2. Management Structure: The company’s management structure needs to be well defined, with clear competences and powers. The idea of the “owner”, with unlimited powers, who can change the direction of the business at will, will certainly limit lender/investors interested in taking this risk. Governance structure, with powers for the Executive Team, Board of Directors (if any) and Shareholders ‘Meeting/Partners’ Meeting, is essential;
3. Professionalization of the Team: Lenders/investors pay much attention to the capacity/sophistication of the company’s management, from the financial, commercial, operational, compliance points of view. There are countless cases of fundraising where managers misappropriated funds. Therefore, giving attention to the professionalization of the executive and managers’ team is an important aspect;
4. Corporate Documents: Investors are more and more observing whether companies in the process of raising funds have clear codes and policies for “good practices”, including (i) Code of Ethics and Compliance, (ii) Risk Management Policy, (iii) Remuneration Policy, (iv) Policy on Transactions with Related Parties, (v) Internal Regulations of the Board of Directors, Fiscal Council and Executive Team, (vi) Sustainability Policy, among others;
5. Succession and Relationship between Shareholders: A point that is generally neglected, especially by family businesses, is the part of succession and relationship between partners. Having a structured succession process and a well-defined relationship between business controllers, through Shareholders Agreements, provides greater medium/long-term stability and results in a reduction in risk perception for lenders/investors.
With the increase in liquidity in the financial and capital markets in the post-pandemic, the corporate governance items listed above will be fundamental for companies that wish to be successful in raising funds.