Cross-listing strengthened SPCC's governance
23 February 2004
Southern Peru Copper Corporation -SPCC progressed towards deeper and more effective corpora te governance with the listing requirements of the Lima Stock Exchange and those of the New York Stock Exchange.
SPCC is not just one of the world's most important copper miners, it also has the rare distinction of digging out this valuable industrial metal from some of the highest mines in the world, up in the Andes mountains. Almost all the companies' output is exported to Asia, Europe and the Americas, and is used in the construction and electronics industries.
In Peru, the CONASEV - the Peruvian equivalent of the Securities and Exchange Commission - introduced new standards to promote the development of good corporate governance practices in 2002. When drafting its corporate governance principles, the CONASEV considered the OECD principles, and covers such issues as:
- Shareholders' rights
- Equal treatment of shareholders
- Role of stakeholders in corporate governance
- Disclosure and transparency of financial information
- Responsibilities of the board of directors
- Securities market registry
After abiding by these principles, the mining company continued its governance remodelling when it sought and obtained a listing on the New York Stock Exchange (NYSE) in 1995, allowing it to raise money more easily. This listing led to three major corporate governance achievements:
- A board composed of 15 members among whom one is elected president. Directors are elected annually at the general assembly of shareholders, 13 executives by the Class A shareholders 2 independents by the common shareholders.
- The board of directors meets regularly every three months and annually on the day of the general Assembly of shareholders. They schedule meetings in order to analyze a specific event or matter. The quorum or minimal number of members on the board that must be present for valid transaction of business is of eight members. The president of the board, or chairman, or in his absence the CEO of the company, presides over board meetings.
- SPCC is now controlled by the Mexican Mining Group, and is subject to even tougher governance now that the Sarbanes Oxley proposals have become American law.
Over the three stages of development the role of the Audit Committee has been reinforced and the responsibilities of the staff managers clearly defined, which allows for a more precise operation.
While the CEO monitors the implementation of new governance or managerial measures in financial matters, the Audit Committee is in charge of implementing it and three members present on the board and the audit committee are in charge of informing quarterly the board on the committee's achievements.
SPCC's board and audit committee discuss and analyze the company's financial condition and results of operations, as well as quantitative and qualitative disclosures of market risks, based upon consolidated financial statements, which have been prepared in accordance with Generally Accepted Accounting Principles in the United States (US GAAP).
Preparation of these financial statements requires Southern Peru's management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the reported amounts of revenues and expenses, for the reported period. The more significant areas requiring the use of management estimates and assumptions relate to revenue recognition; ore reserves; capitalized mine stripping and related estimated mine stripping ratios; the estimated useful lives of fixed assets, asset retirement obligations and litigation and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances.
The consolidated financial statements of SPCC are prepared in U.S. dollars and in accordance with Generally Accepted Accounting Principles in the United States ("U.S. GAAP"). Southern Peru, Sucursal del Peru (SPCC's branch operating in Peru) applies the Peruvian accounting principles ("Peruvian GAAP") and reports such information to the Peruvian government through CONASEV for economic and financial purposes as well as other receivables and payable amounts, and SUNAT (the National Tax Administration) for purposes of calculating its Peruvian tax liability. These amounts are calculated on the basis of Peruvian GAAP and cannot therefore be directly derived from the consolidated financial statements prepared in accordance with the US. GAAP.
This type of international cross-listings of stocks can bring advantages of liquidity, transparency, ease of trade to investors; by attracting global investors to shares across which to spread risks, companies can lower cost of capital.
Besides contributing to the development of an effective organizational structure and the management of organizations, good corporate governance practices are excellent 'business cards' for the local populations and governments.
Thus, they constitute an essential requirement, insuring the relationships between the government and local or external financial systems for the financing of local projects. Good corporate government offers a transparency in the company's constitution, organization, achievements, financial states, and its vision on its relationships with its shareholders and other stakeholders.
The company also revises its mission/vision through regular discussions between the operation and business managers and the top-management in order to make suggestions to the board of directors. The outcome is communicated to the rest of the staff using internal direct communication networks as newsletters or an Intranet.
The company's strategy is projected on three time scales: the annual plan, a 5-year plan and a 15-year plan. Each of them assesses the business strategy risks and opportunities. These plans are communicated to the management staff in two monthly meetings during which the strategy achievements and forecasts are discussed and analyzed.
By communicating the achievements of its strategy to the managerial staff (third organizational layer), Southern Peru Copper Corporation seeks to succeed by going beyond the excepted results, and credits corporate governance for this.
SPCC is flying high in corporate governance with a regime that has earned it plaudits and also enabled it to access development finance at advantageous rates.
Southern Peru Copper Corporation Code of Ethics