Corporate Governance

We must adopt sound corporate governance practices to fulfill the Algar Group’s purposes and beliefs and put our business on the right track to create value. Accordingly, we monitor our companies’ performance and capital management constantly. We believe corporate governance is strategically important, so we seek to improve it continuously by adopting the best market practices and internationally accepted principles.

We have taken part in the Latin American Companies Circle (LACC), a forum created by the Organization for Economic Co-Operation and Development (OECD) and the World Bank’s International Financial Corporation (IFC), since 2010. The LACC currently brings together 13 leading Latin American companies that adopt good corporate governance practices to help boost the development of corporate governance regionally, and share their experiences with one another and with other companies in Latin American and beyond.

Seeking to improve the best practices continuously, we are also recognized as a benchmark in family business governance. We are also in the FBN – Family Business Network, a forum created in Switzerland and comprised of companies from 60 countries. Members of the family controlling the Algar Group sit on the Executive Board of the Brazilian Chapter and on the Board of Directors of FBN International.

In addition, we created the Partners’ Board in 2016 to handle succession matters and protect the Group’s assets permanently, in keeping with our shareholders’ long-term goal. During the year, we also introduced the Algar Group’s Governance Guidelines, a policy intended to implement and consolidate our Corporate and Family Governance principles and practices. The idea is to bring the interests of our shareholders and other stakeholders into alignment and facilitate the interaction among our main governance bodies.

CORPORATE GOVERNANCE STRUCTURE

PARTNERS’ BOARD

The Partners’ Board focuses on our asset management strategy by integrating corporate and family governance. It is composed of nine shareholders and direct descendants. The Partners’ Board held four regular meetings and one special meeting in 2016. Its activities are governed by internal rules and regulations.

FAMILY COUNCIL

Responsible to the Partners’ Board, the Family Council discusses matters of interest shared by the family. It was established 15 years ago to manage the family’s human capital by addressing issues such as education, integration, information and communication among members of the large family. It also manages the family’s legacy and promotes pride in belonging to the family. The Family Council is subject to the Garcia Family Constitution, which sets forth family members’ duties on three levels – Family, Property and Work. It met five times in 2016. Two support committees – the Education Committee and the Communication Committee – were set up in March 2016.

BOARD OF DIRECTORS

The Board of Directors exists to ensure the Group’s longevity. This entails making strategic decisions about capital allocation, return on capital, performance, risk management and people management. In this regard, the Board of Directors follows the Algar Group’s culture to create value in the long term. It consists of seven members, five of whom are independent, that is, they have no ties with the Company or the controlling family, to ensure a diversity of profiles. Our Bylaws ban executive officers from sitting on the Board of Directors.

Our Internal Rules and Regulations specify the Board of Directors’ operating rules, duties and relationship with other governance bodies in accordance with the recommendations of IBCG’s (Instituto Brasileiro de Corporate Governance, or Brazilian Corporate Governance Institute) Code of Best Practices. In 2016, the Board of Directors held five regular meetings, in accordance with the schedule established in the Algar Group’s Planning and Control Cycle, and three special meetings. The Board’s performance is evaluated every year. Three key aspects are taken into account: the Board collectively, individual directors and the Chairman.

Composition of the Board of Directors on 12/31/2016

Luiz Alberto Garcia
Chairman

Aguinaldo Diniz Filho
Independent Director

José Luciano Duarte Penido
Independent Director

Marianna Garcia Malachias Andrade
Director

Eleusa Maria Garcia Melgaço
Director

Nelson Pacheco Sirotsky
Director

Sergio Alair Barroso
Independent Director

Silvio José Genesini Júnior
Independent Director

ADVISORY COMMITTEES

The Board of Directors has three advisory, non-decision-making committees composed of external experts and directors: the Audit and Risk Management, Corporate Governance and Human Talents Committees. Our Internal Rules and Regulations specify their operating rules, duties and relationship with the Board of Directors, Executive Board and the other Company bodies.

The Board of Directors also creates ad-hoc committees at any time as needed. For example, it set up a temporary Finance Committee in 2016 specifically to evaluate our methodology and process to analyze strategic projects and put them in order of priority.

Audit and Risk Management Committee – This committee ensures the quality, integrity, transparency and credibility of all the economic and financial information we publish. In addition, it guarantees we adopt an efficient corporate and operational risk management policy by focusing on effective internal and independent audit procedures, internal controls and compliance with the applicable legislation. It is assisted by the internal audit team and independent auditors, who report to the Audit and Risk Management Committee and the Board of Directors. It met six times in 2016.

Corporate Governance Committee – The Corporate Governance Committee monitors the activities and effectiveness of the Group’s corporate governance system and proposes better practices or improvements as needed, thus reinforcing our shareholders’ vision of the future and long-term prospects. The Corporate Governance Committee met once in 2016.

Human Talents Committee – The Human Talents Committee follows a policy of valuing our Human Talents; accordingly, it ensures we adopt a strategic associate management policy perceived and valued by stakeholders as a distinct feature of the Group. It monitors leadership training and development, as well as our compensation policy, organizational climate and management succession program. The Human Talents Committee met four times in 2016.

INTERNAL AUDIT

The Internal Audit team ensures transparent and independent risk assessment, internal controls, compliance with regulations, rules, internal and external policies. It follows an annual plan set jointly with the Board of Directors based on the main business risks. If the team finds any incidents of non-compliance, it prepares and monitors action plans for its recommendations. In 2016, there were 48 audits at Algar companies.

The Internal Audit team is also responsible for the Algar Group’s Canal de Integridade [Integrity Channel]. Managed by an independent company, Canal de Integridade is open to associates and any other stakeholders who want to report facts, share concerns, and ask questions about practices and behaviors related to ethical conduct, internal policies and compliance with laws and regulations. The Integrity Commission examines all submissions carefully and suggests the appropriate action when it finds any type of violation.

INDEPENDENT AUDIT

Independent auditors express an opinion on the Group’s financial statements based on audit conducted in accordance with Brazilian and international standards. Ernst & Young Auditores Independentes S.S. have been our independent auditors since 2014.

Code of Conduct – The Code of Conduct is meant to ensure the highest level of integrity and corporate ethics by serving as a reference for all the Group’s associates when interacting with different stakeholders and performing their duties. It is updated regularly – the latest version was published in 2014 – and is valid for the entire Algar Group. It sets forth the principles governing the internal and external relationships of our associates, but must be followed by contractors and suppliers as well. It is available to associates on our intranet and to suppliers and other stakeholders on the Algar Group’s website. Conducted by the Integrity Committee, the Compliance Program undertakes structured initiatives designed to promote the Algar Group’s Code of Conduct, as well as prevent, detect and handle any incidents that may occur.