Brazil: Amendments to the Regulations for Differentiated Corporate Governance Levels at the Brazilian Exchange

On September 9, 2010 the Brazilian Securities, Commodities and Futures Exchange (BM&FBOVESPA S.A – "Bolsa de Valores, Mercadorias e Futuros" – BVMF) announced alterations to the listing rules for companies committed to good corporate governance practices1 and admitted in the New Market ("Novo Mercado") and Levels 1 and 2 segments.

According to the Brazilian Institute of Corporate Governance (Instituto Brasileiro de Governança Corporativa - IBGC), corporate governance is a system by which companies are directed and monitored, concerning Shareholders, the Board, Directors, Independent Audit and Fiscal Council. Good practices of corporate governance aim to increase the value of the company, facilitate its access to capital and contribute to its sustainability. The admission to the Novo Mercado2 implies the compliance with good corporate governance practices, which are more rigid than those required by the current legislation in Brazil and by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM).

Ten years after BMVF first established this special listing segments a revision process was advisable due to a number of factors, including development and growth of both the equities market and the issuers, the advent of capital dilution, the need for improvement of corporate governance practices whose vulnerabilities were unveiled by the global financial crisis, and because of the improved regulatory environment prevailing in the Brazilian capital markets, of the process of convergence to IFRS started with the enactment of Law No. 11,638, of December 28, 2007, and of the heightened transparency requirements conveyed under CVM Instruction No. 480, of December 7, 2009. This revision aims to sustain the value of BMVF's listing segments, and therefore their differential and attractiveness for investors and issuers, in addition to preserving the value of the Novo Mercado segment as a national and international benchmark.

The following proposals have been approved3:

  1. Vote limitation (for Novo Mercado and Level 2). At the end to the lower limit of 5% of share capital. This means that companies will not be able to include provisions in their bylaws that limit the number of votes for shareholders with less than 5% of the share capital, except in the case of privatization (golden shares), of limits required by law or of mandatory regulations that are applicable in any particular industry.
  2. Overturning the establishment of a special quorum (for the Novo Mercado and Level 2).
  3. Overturning the clause that prevents the exercise of a favorable vote or which places the onus on shareholders, known as "eternity clause" (for the Novo Mercado and Level 2).
  4. Overturning the establishment of an obligatory rights plan when a determined shareholding is reached, which refers to the so-called "poison pills" (for the Novo Mercado).
  5. Overturning the accumulation of positions of Chairman of the Board of Directors and Chief Executive Officer - CEO (for the Novo Mercado and Levels 1 and 2).
  6. Obligation on the part of the Board of Directors to make a formal announcement within 15 days from the publication of a takeover bid (for the Novo Mercado and Level 2). This refers to the disclosure of the terms of any takeover bid, considering the interests of all shareholders.
  7. Securities trading policy (for the Novo Mercado and Levels 1 and 2). This means that companies should announce their securities trading policy.
  8. Code of conduct (for the Novo Mercado and Levels 1 and 2). According to this proposal, companies should draw up and announce a code of conduct.

Regardless of the approval or not of certain items BMVF considered important, the revision process resulted in a fully-participative and transparent debate between companies, investors and a range of market agents. The result reflects the consensus possible between firms regardless of their specifics4. It is foreseen that the rule changes will come into effect by the end of 2010, after the approval by the BMVF Board of Directors and by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários - CVM). Only after the approval by CVM, the companies will be notified of the final content of the regulations and of the deadline for adapting to the new rules.

Footnotes

1. In accordance with regulations, changes, which were decided by block vote, can only be implemented if there is not a contrary vote of over a third of the companies listed in the segment. This translates as up to 35 in the case of the Novo Mercado, an 11 maximum for Level 1 and up to six for Level 2. Anything over these numbers and the action is considered reproved.

2. The Novo Mercado is a listing segment designed for shares issued by companies that voluntarily undertake to abide by corporate governance practices and transparency requirements in additional to those already requested by the Brazilian legislation and CVM. It is based on the premise that stock valuation and liquidity are positively impacted and assured by shareholder's rights and by the quality of companies´ information. These rules, consolidated in the Listing Regulation, increase shareholder's rights and enhance the quality of information commonly disclosed by companies. Additionally, the Market Arbitration Panel for conflict resolution between investors and companies offers a safer, faster and specialized alternative to investors. The main innovation of the Novo Mercado concerns the capital stock, which must be solely represented by common shares (voting shares). In brief, publicly-held companies listed on the Novo Mercado have the following additional obligations: (i) public share offerings have to use mechanisms to favor capital dispersion and broader retail access; (ii) maintenance of a minimum free float, equivalent to 25% of the capital; (iii) same conditions provided to majority shareholders in the disposal of the company's Control will have to be extended to all shareholders (tag along); (iv) establishment of a two-year unified mandate for the entire Board of Directors, which must have five members at least, of which at least 20% shall be independent members; (v) disclosure of annual balance sheet, according to standards of the US GAAP or IFRS; (vi) improvements in quarterly reports, such as the requirement of consolidated financial statements and special audit revision; (vii) obligation to hold a tender offer by the economic value criteria, in case of delisting or cancellation of registration as publicly-held company; (vii) compliance with disclosure rules in trades involving securities issued by the company in the name of controlling shareholders; (viii) some of these obligations must be approved at the General Shareholders Meetings and included in the company´s bylaws.

3. It should be noted that three important proposals of BMVF have not been approved:

  • 1. Composition of the Board of Directors. This would result in the increase from 20% to 30% of the number of independent Board members (proposed for the Novo Mercado and Level 2) and the inclusion of a minimum of five members of whom at least 20% must be independent Board members (proposed for Level 1).

    2. Audit Committee (proposed for the Novo Mercado and Levels 1 and 2). This would result in the requirement for an Audit Committee comprised of a minimum of three members elected by the Board of Directors, of whom at least one must be an independent Board member, with a three-year deadline for forming the body.

  • 3. Takeover bid through substantial acquisition of shares (proposed for the Novo Mercado). This would be applicable in the hypothesis of a shareholder or a group of shareholders hitting 30% of the target company. The price established for the takeover bid would be the highest paid by the acquirers in the past 12 months. In the case of approval in a restricted hearing of a takeover bid following a substantial acquisition of shares, the companies listed in the Novo Mercado up to the date of the changed regulation would be able to maintain the shareholder protection clauses (poison pills) in the company´s bylaws.

4. BMVF received several suggestions about the matter since 2006, when the last reform was made. In 2008, the suggestions were systematized and passed along to the Novo Mercado Advisory Committee (CCNN), created in October 2008 and composed of 21 external members, including investors, companies, lawyers, investment banks, associations and others. From November 2008 to January 2009 subgroups were created to discuss specific themes. In June 2009,  BMVF held 16 forums with 169 representatives of companies listed in special segments. In September 2009, the New Market Challenges seminars were held in Rio de Janeiro and São Paulo, bringing together 27 panelists and with the participation of over 700 people in a broad debate open to the public. After several companies had their say, regulation minutes were drawn up and submitted to market experts and, after assessment by the Board of Directors, to listed companies in seminars held throughout May 2010.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Walter Stuber
Adriana Maria Gödel Stuber
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.