The coordinator of the Mergers & Acquisitions course and professor of FGV’s Sao Paulo School of Business Administration (EAESP), Oscar Malvessi, helped coordinate the Business Performance Monitoring Code. The new code is now part of a series of Corporate Governance Codes published by the Brazilian Institute of Corporate Governance (IBGC).

Malvessi explained that the code was published in a joint effort, representing IBGC’s Finance Commission, to replace the conventional archetypes of financial analysis with a modern financial and strategic analysis methodology based on VBM (Value Based Management) or Value Generation. “That was the subject of my PhD thesis in 2001. It took many years of intense negotiations to make this management methodology feasible,” he said.

The Business Performance Monitoring Code shares insights into one of the primary duties of senior managers, which is monitoring performance. In order to effectively monitor an organization’s activities, one must accurately gauge its performance in carrying out strategies and attaining results that add value to stakeholders.

Compiled as a practical guide and source of reference, the code contains multiple performance tools and indicators that help monitor any type of organization in order to generate value. The focus point of Value Generation (VEC) is to promote financial discipline in each organization’s activities, in order to disseminate and preserve its equity, while promoting continuity based on the principles of good corporate governance.

According to the professor, although most conventional business analysis indicators, such as EBITDA, Net Income, ROI and ROE, may seem consistent and accurate, their partial conception fails to adequately reveal whether an organization’s accounting results actually reflect the economic reality of funds invested by shareholders (i.e. the data is purely accounting and fiscal in nature.)  On the other hand, the fact that there must be a focus on economic result is implicit, gauging whether the return on shareholders’ equity exceeds the cost of capital (i.e. whether the invested capital is generating return and adding value to the organization.) Meritocracy and alignment of interests are also paramount when defining variable incentives to managers.

Led by Oscar Malvessi, Jorge Manoel and Fabio Corbine, the code’s development process took three years to complete.

The Business Performance Monitoring Code is available, in Portuguese.