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Sabesp and NYSE Standards


bullet Significant Differences between our Current Corporate Governance Practices and NYSE Corporate Governance Standards

We are subject to the NYSE corporate governance listing standards.  As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies.  Under the NYSE rules, we are required only to: (a) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (b) provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules, and (c) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies.

In view of Brazilian Law 13.303/16 and new requirements of Novo Mercado Listing Regulations, the following discussion summarizes the significant differences between our current corporate governance practices and those required of U.S. listed companies:


bullet Majority of Independent Directors

The NYSE rules require that a majority of the board must consist of independent directors.  Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company.  While the Brazilian Corporate Law did not previously have a similar requirement, Federal Law No. 13,303/16 established that at least 25% of the members of the board of directors must be independent.  Under the Novo Mercado Regulations, our board of directors must evaluate the independence of directors before their election to the board. Such evaluation shall be based on a declaration prepared by the nominee.  Additionally, Brazilian Corporate Law, Federal Law No. 13,303/16 and the CVM have established rules that require directors to meet certain qualification requirements applicable to a company’s directors.  However, they do not require that we have a majority of independent directors, as required under the NYSE rules. Under our current bylaws, approved on April 27, 2018, our board of directors must have a minimum of seven members, and 25% of the board must be independent, as per the criteria established by Federal Law No. 13,303/16 and as defined under Novo Mercado Regulations.  Currently, six of our nine directors are independent, pursuant to the Novo Mercado Listing Regulations and Federal Law No. 13,303/16.  We believe these rules provide adequate assurances that our directors are independent.


bullet Executive Sessions

NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without the presence of the executive board.  The Brazilian Corporate Law does not have a similar provision.  According to this Law, up to one third of the members of the board of directors can be elected from the executive board. Our bylaws provides that the CEO shall integrate the Board of Directors, while holding such position. All other members of our board of directors meet the NYSE’s definition of “non-management” directors. There is no requirement in the Brazilian Corporate Law that non-management directors meet regularly without management. However, the Charter of the Board of Directors establishes that, by resolution of the Chairman of the Board, meetings may be held exclusively for external directors, without the presence of executives.   Our board of directors consists of nine non-management directors.


bullet Fiscal Committee

Under the Brazilian Corporate Law, the Conselho Fiscal, or fiscal committee, is a corporate body independent of management and a company’s external auditors.  The fiscal committee may be either permanent or non-permanent, in which case it is appointed by the shareholders to act during a specific fiscal year.  A fiscal committee is not equivalent to, or comparable with, a U.S. audit committee.  The primary responsibility of the fiscal committee is to review management’s activities and a Company’s financial statements, and to report its findings to the company’s shareholders. The Brazilian Corporate Law requires fiscal committee members to receive as a compensation at least 10% of the average annual amount paid to a company’s executive officers.  The Brazilian Corporate Law requires a fiscal committee to be composed of a minimum of three and a maximum of five sitting members and their respective alternates.

Under the Brazilian Corporate Law, the fiscal committee may not contain members that (i) are on our board of directors, (ii) are on the board of executive officers, (iii) are employed by us or a controlled company, or (iv) are spouses or relatives of any member of our management, up to the third degree.

Currently, our fiscal committee consists of four sitting members and his/her alternates. The fiscal committee members generally meet once a month.


bullet Audit Committee

NYSE rules require that listed companies have an audit committee that: (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.  However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies to the extent compatible with Brazilian Corporate Law.  Our audit committee, which is not equivalent to, or comparable with, a U.S. audit committee, provides assistance to our board of directors on matters involving accounting, internal controls, financial reporting and compliance.  The audit committee is mainly responsible for assisting and advising the board of directors in its responsibilities to ensure the quality, transparency and integrity of our published financial information and financial statements.  The audit committee is also responsible for supervising all matters relating to the Code of Conduct and Integrity, accounting, internal controls, the internal and independent audit functions, compliance, risk management and internal policies, such as the related-parties transaction policy. The audit committee comprises three members appointed by the board of directors, and, pursuant to our bylaws, the members of our audit committee may be appointed simultaneously to their election to the board of directors or by a subsequent resolution. The members of the audit committee shall perform their duties for the duration of their respective terms as board members or until otherwise decided by the shareholders’ meeting or by the board of directors. In the event that an audit committee member resigns or is removed from office after exercising any portion of his or her term, such member may only rejoin the audit committee from at least three years of the end of his or her term. The current members of our audit committee are Ernesto Rubens Gelbcke, Lucas Navarro Prado and Luís Eduardo Alves de Assis. All members meet the independent membership requirements of the SEC and NYSE as well as other NYSE requirements.  Ernesto Rubens Gelbcke is the committee’s “financial expert” within the scope of the SEC rules covering the disclosure of financial experts on audit committees in periodic filings pursuant to the U.S. Securities Exchange Act of 1934.


bullet Nomination/Corporate Governance and Compensation Committees


NYSE rules require that listed companies have a nomination/corporate governance committee and a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.  Required responsibilities for the nomination/corporate governance committee include, among other things, identifying and selecting qualified nomineesfor the board of directors nominees and developing a set of corporate governance principles applicable to the company.  Required responsibilities for the compensation committee include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non chief executive officer compensation, incentive compensation and equity based plans.

Under the Brazilian Corporate Law, we are not required to have a nomination/corporate governance committee or compensation committee.  However, Federal Law No. 13,303/16 and State Decree 62,349/16 established the requirement of a committee with the responsibilities of verifying the nomination process of the members of the management and of the Fiscal Council. In our annual shareholders’ meeting, held on April 27, 2018, the Eligibility and Advisory Committee was created, which is composed by representatives of our legal, human resources and compliance departments. This committee is responsible for the appointment and evaluation process of members of the management and of the fiscal council, pursuant to the statutory provision, .

We have a nomination policy, approved by the Board of Directors, which follows the guidelines defined by Federal Law No. 13,303/16, State Decree 62,349/16 and Novo Mercado Listing Regulations.

Members of the Eligibility and Advisory Committee may attend board of directors’ meetings where matters related to this committee are discussed and will have the right to speak, but not to vote, in accordance with our bylaws.

This committee is also responsible for providing methodological and procedural support to the board of directors to evaluate the performance of officers and other members of statutory committees.

The performance evaluation, individual and collective, held annually, of the members of the management and the members of committees, observing the following minimum requirements, according to the terms of Federal Law 13,303/16:

a) presentation of the acts of management, regarding the lawfulness and effectiveness of the management;

b) contribution to the earnings for the fiscal year; and

c) achievement of the purposes established in the business plan and fulfillment of the long-term strategy.

We have a remuneration policy, approved by the Board of Directors, which follows the guidelines defined by the State Capital Protection Board (CODEC - Conselho de Defesa dos Capitais do Estado). Under the Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for the profit-sharing payments to our executive officers is established by our shareholders at the annual general meeting. For further information on the composition of the compensation of the statutory bodies and the annual amounts foreseen and carried out, see “Item 13” of the Reference Form.

We expect that a written charter addressing the committee’s purpose and detailing its required responsibilities will be approved by the board of directors. 


bullet Shareholder Approval of Equity Compensation Plans

NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions.  We do not currently have any stock-based compensation plan.  If implemented such plan, there would be no requirement under Brazilian Corporate Law for it to be approved by our shareholders.  However, if the issuance of new shares in connection with any equity compensation plan exceeded the authorized capital under our bylaws, the increase in capital would require shareholder approval.


bullet Corporate Governance Guidelines

NYSE rules require that listed companies adopt and disclose corporate governance guidelines.  We are in compliance with the adoption of corporate governance provisions and guidelines required under the Novo Mercado Regulations, Federal Law No. 13,303/16 and State Decree 62,349/16. See “Item 9.C Markets—Trading on the Brazilian Stock Exchange—The Novo Mercado Segment” and “Item 16.G—Corporate Governance—Required Changes to Corporate Governance Practices of Brazilian Government-Controlled Companies” of Form 20-F, our Report on Brazilian Code of Corporate Governance and our policies available on “Corporate Governance” section of our Investor Relations website.We believe that such corporate governance guidelines applicable to us do not conflict with the guidelines established by the NYSE.


bullet Code of Conduct and Integrity

NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.  The adoption and disclosure of a formal code is not required under the Brazilian Corporate Law, however, Federal Law No. 13,303/16, State Decree 62,349/16 and the Novo Mercado Regulations require the adoption of a Code of Conduct and Integrity that should include, among other provisions, guidelines to avoid conflicts of interests, forbiddance of fraudulent acts and corruption, whistleblowing channels, protective measures to avoid retaliation regarding whistleblowers, periodic training on the content of such code and sanctions in case of code violations.

We adopt and disclose a Code of Conduct and Integrity and believes that this code complies with the requirements made by the Brazilian laws and regulations, as well as addresses the matters required to be addressed by the applicable NYSE and SEC rules.


bullet Internal Audit Function

NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control.  Our internal audit department is connected to the Board of Directors through the audit committee and reports to our Chief Executive Officer. The internal audit is responsible for annually evaluating the effectiveness of the policies and systems of risk management and internal control, as well as the program of integrity and compliance and for assuring the compliance with the requirements of Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal control over financial reporting.  



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