Sabesp Investors Relations


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Corporate Governance Structure

Sabesp is listed on the Novo Mercado, which is the listing segment in Brazil with the  highest corporate governance requirements of B3 – Brasil, Bolsa Balcão and on the New York Stock Exchange - NYSE (ADR level III) since 2002, and is subject to the rules of the Brazilian Securities and Exchange Commission (CVM) and B3, in Brazil, and the rules of the Securities and Exchange Commission (SEC) and NYSE, in the United States.

Sabesp's Corporate Governance structure is composed of:

General Shareholders' Meeting: The highest decision-making body, empowered to decide on all businesses conducted by the Company and to take the resolutions it deems appropriate for its protection and development. Among others, it is incumbent upon the Shareholders´ Meeting to elect or dismiss Board and Fiscal Council members, as well as members of the Audit Committee and Eligibility and Advisory Committee.  All documents to be analyzed or discussed at the meeting are made available at the Company's headquarters, at the Company's website, at the Brazilian Securities and Exchange Commission (CVM) and at B3, as of the call notice publication.

Proof of shareholder status may occur at any time until the opening of the Shareholders´ Meeting, in compliance with the rules set forth in our bylaws.

Board of Directors: It is currently composed of nine members with a unified two-year term, with a maximum of three consecutive renewals. In compliance with the Novo Mercado rules and Federal Law 13,303/16, six board members are independent directors, one of whom being elected by non-controlling shareholders. The Chief Executive Officer is a member of the Board of Directors, although he is not allowed to hold the position of Chairman of this Board. The Company’s Bylaws provides for the participation of one representative of the employees in the Board of Directors, with a term of office similar to that of the other directors. The assignments of the Board of Directors are established in the bylaws and its internal charter.

Audit Committee: The Board of Directors is assisted by an Audit Committee, composed of three members of the board of directors who cumulatively meet the requirements of (i) independence, (ii) technical knowledge, (iii) time availability, (iv) identification and/or compliance with the applicable exemptions, in accordance with the rules of the U.S. Securities and Exchange Commission and of the New York Stock Exchange. One of the members is a finance specialist and the Committee’s Coordinator. According to our Bylaws, the members of the Audit Committee must exercise their role until the end of their term of office as member of the Board of Directors or until resolved otherwise by the Shareholders’ Meeting or by the Board of Directors. In addition, if the member of the Committee has exercised the term of office for any period, he/she may only rejoin the Committee after at least three years after the end of the term of office. The duties and functioning of this Committee are set out in the Bylaws and in its internal charter.

Eligibility and Advisory Committee: Created in April 2018 by means of a statutory provision, is composed of three members elected at the shareholders’ meeting without a fixed term of office. Currently, the Committee includes representatives from our legal, human resources and compliance departments. This Committee is responsible for overseeing the process of appointment and evaluation of members of the board of directors and of the fiscal council, as per the statutory provision, and in compliance with Article 10 of Federal Law 13303/2016 (State-Owned Companies Law).

The internal charter of the committee shall be approved by the Board of Directors.

Fiscal Council: Permanently installed since the Company's inception, it is composed of a minimum of three and a maximum of five sitting members and respective alternates, elected annually by the General Meeting, with a maximum of two consecutive renewals. Currently, it is composed of four sitting members and respective alternates, one of them representing non-controlling shareholders. The duties and functioning of this Committee are set out in the Bylaws and in its internal charter.

Executive Board: It is composed of six members with a unified two-year term, with a maximum of three consecutive renewals. The Officers are elected by the Board of Directors, one of them being appointed Chief Executive Officer. The Chief Executive Officer shall be a member of the Board of Directors while holding the position of CEO, but he/she is not allowed to occupy the position of Chairman of the Board of Directors. The duties and functioning of the Executive Board are set out in the Bylaws and in its internal charter.

Governance Executive Department: Advise the governance processes, assisting the Chairman of the Board of Directors, the Coordinator of the Audit Committee, the Fiscal Council and the Company's Chief Executive Officer in defining the agenda of the meetings, forwarding of meeting agendas and supporting materials, in convening and conducting board meetings and general meetings and in the preparation of the minutes, among others.

Internal Audit: Responsible for assessing the adequacy of internal controls, the effectiveness of risk management and governance processes and the reliability of the processes of collecting, measuring, classifying, accumulating, recording and disclosing events and transactions, in order to prepare financial statements. For the proper fulfillment of its responsibilities, the Internal Audit department is functionally linked to the Board of Directors through the Audit Committee and administratively linked to the Chief Executive Officer. This department has access to all documents, physical and logical records, system, facilities and individuals involved in the Company’s audited activities.

External Audit: Sabesp complies with the principles that preserve the independence of the external auditor in not auditing their own work, not performing managerial functions and not advocating for their client. KPMG Auditores Independentes has been acting as independent auditor of the Company since the review of the quarterly information of June 30, 2016 and, to date, has not provided other services that exceed 5% of the fees paid for external audit services.

 

Statutory Bodies Compensation

We have a compensation policy approved by the Board of Directors, which follows the guidelines established by the State Capital Protection Board (Conselho de Defesa dos Capitais do Estado - CODEC),

As of January 2007, the Directors and Fiscal Council members compensation was established as percentages of the officers’ compensation, which is 30% for directors and 20% for members of the Fiscal Council.

In April 2018, the fixed monthly compensation of the officers was set at R$ 21,310.65. It is also granted the payment of an annual bonus, provided that the Company effectively records earnings in quarterly, semiannual and annual periods and distributes the mandatory dividend to the shareholders, even if in the form of interest on own capital. The distribution of the annual bonus is limited to six times the monthly compensation or 10% of the total amount of dividends or interest on own capital paid by the Company, whichever is less.

The monthly compensation of the members of the Audit Committee is R$10,439.52. 

Annually, the General Shareholders’ Meeting approves the global compensation amount. For more information on the composition of the compensation of statutory bodies and the annual amounts foreseen and carried out, see "Item 13" of Reference Form (only in Portuguese).

 


Code of Conduct and Integrity

We have a Code of Conduct and Integrity approved by the Board of Directors and this document comprises the main guiding principles of its activities, such as respect for society and the customers, respect for the environment, respect for people, integrity, competence, and citizenship. The Code establishes Sabesp's relationship with its various stakeholders:  directors, fiscal council members, officers, employees, customers, suppliers, shareholders, community, and society in general.

The Code includes, among other provisions, guidelines for avoiding conflicts of interest, prohibiting fraud and corruption, having a Whistleblowing Channel, avoiding retaliation to complainants, periodic training on the content of the code and sanctions in case of code violations.

The Audit Committee is responsible for periodically evaluating the adherence of the Company's practices to the provisions of the Code and to monitor the determination of infractions to the Code and the events registered in the Complaints Channel.

 


Whistleblowing Channel

We have an Internal Whistleblowing Channel, ready to respond to internal and external complaints on deviations from the Code of Conduct and Integrity. The guidelines of the whistleblowing channel, approved by the Executive Board and by the Board of Directors, provide that: (a) Any officer, manager or employee, regardless of position or role, or service provider, suspecting or knowing about a situation considered irregular, shall communicate the fact to the Whistleblowing Channel; (b) Any fact or act suspected of irregularity will be identified as an occurrence and registered, and the respective investigation will be activated, as long as it has minimum elements; (c) The investigation must always be verified with objectivity and impartiality, preserving the principles of immediacy and full defense; (d) The anonymity is guaranteed in all cases, except when there is a judicial decision ruling otherwise; (e) The secrecy and confidentiality of the information must be preserved during the investigation process; (f)

Given the employer's disciplinary power, the application of the penalty will occur within the assumptions established in the CLT (Consolidation of Labor Laws) and (g) With a view to improving the channel’s independence, the reports shall be taken with the support of a third-party firm of renowned capability.

 

Risk Management

We have a Risk Management and Compliance Department, which is administratively linked to the Chief Executive Officer and, under the terms of the Bylaws approved in April 2018, shall be headed by statutory director to be appointed by the Board of Directors, which may also count on the operational support of the Internal Audit and maintain direct dialogue with the Fiscal Council, the Audit Committee and the Board of Directors when there is suspicion of involvement in irregularities by the members of the Board of Executive Officers.

We have a corporate risk management policy, approved by the Board of Directors, which is in compliance with international standards and Brazilian technical standards, specifically the COSO - ERM: Committee of Sponsoring Organizations of the Treadway Commission Enterprise Risk Management – Framework 2004 and the ABNT Standards NBR ISO 31,000: 2009 and ISO GUIA 73: 2009.

The identified risks are monitored through indicators, measured periodically as to their impact and probability of occurrence, evaluated in detail by the competent hierarchical levels, with the definition of mitigating actions required for each situation.

We seek protection for all risks to which we are subject in the ordinary course of our business. Sabesp's risk factors are described in item 4 of the Reference Form, available on the Company's Investor Relations website, in the Financial and Operating Information section.

 

Internal Controls

The evaluation of internal controls has been carried out in a structured and systematic way since 2005, having as reference the internal controls framework of the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

The process of evaluating internal controls is reassessed annually, considering both the possible existence of new risks associated with the preparation and disclosure of financial statements and the possible significant changes in computerized processes and systems.

Internal controls include procedures for the adequacy of accounting records, preparation of financial statements in accordance with official rules and proper authorization of transactions related to the acquisition, use and disposal of Company assets.

The internal control tests are carried out by the Internal Audit Department, a unit linked to the Board of Directors through the Audit Committee and administratively linked to the Chief Executive Officer and which, since 2016, has held the QA Quality Assessment certificate, granted by the Institute of Internal Auditors of Brazil (IIA Brazil), branch of the Institute of Internal Auditors (IIA).

In addition to complying with section 404 of the Sarbanes-Oxley Act (SOX), the process of evaluating internal controls adheres to Law No. 13,303, dated June 30, 2016.

More information on the controls adopted by the Company to ensure the preparation of reliable financial statements are available in Item 5.3 of the Reference Form (only in Portuguese).


 

Arbitration Clause

Sabesp, its shareholders, directors, officers and members of the Fiscal Council, both sitting and alternate, undertake to settle through arbitration, before the Market Arbitration Chamber, in the form of its regulation, any controversy that may arise between them, related to or arising from its status as issuer, shareholders, managers and members of the Fiscal Council, in particular, those arising from the provisions set forth in Law No. 6,385/1976, Law No. 6,404/1976, our Bylaws, the National Monetary Council, the Central Bank of Brazil and the Brazilian Securities and Exchange Commission, as well as other rules applicable to the operation of the capital market in general, in addition to those contained in the Novo Mercado Regulations, other B3 regulations and the Novo Mercado Participation Agreement.


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