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BY-LINED ARTICLE The Development of Corporate Governance in the Brazilian Capital Market
By Thomas R. Schmuhl, Alvaro Piquet Pessoa and Barbara B. Vorndran November 17, 2008 The Legal Intelligencer The international spread of modern corporate governance theory is relatively new. Many trace it to a committee chaired by Lord Cadbury in the United Kingdom that in 1992 published what is now commonly known as the Cadbury Report. The Cadbury Report itself resulted from a series of financial scandals that occurred in the UK during the 1980s and a growing perception that dangerous market disruptions resulted from the way directors, executives and auditors were carrying out their respective fiduciary duties. The growing gap between shareholders and the persons managing and determining the fate of their investments and the resulting discontent also played a role in causing improved corporate governance to come to reality by creating stricter rules in various countries, including Brazil, the predominant and largest market in Latin America. In Brazil, the development of modern corporate governance principles can be traced to 1995, when the Brazilian Institute of Board Members (IBCA) was created. This was followed in 1997 by the enactment of legislation that had a profound impact on the rights of minority shareholders (Law 9.457/97). However, it was not until 1999 that the true watershed for Brazilian corporate governance took place, when the IBCA became the Brazilian Institute for Corporate Governance (IBGC), which launched the "Code of the Best Practices in Corporate Governance." This code was very well received by participants in the Brazilian capital market. In 2000, another major development in corporate governance occurred in Brazil when the Brazilian Stock Exchange (BOVESPA) created three new compliance levels for companies that intend to abide by stricter rules of transparency and corporate governance. On the legislative front, 2001 was a remarkable year with the entry into force of Law 10.303/2001, which revised the Corporations Law (Lei das Sociedades Annimas) granting substantial powers to minority shareholders and reducing the maximum percentage of non-voting preferred stock. With this background, it was a natural development when the Comisso de Valores Mobilirios or CVM (the counterpart of the U.S. Securities and Exchange Commission) promulgated a set of corporate governance recommendations in 2002. This action was welcomed by the market and helped create an atmosphere in which corporate governance principles and compliance could take root and grow. Recommendations Aware that greater transparency in the capital market would optimize the profitability of the companies and help protect investors, the CVM issued its 2002 corporate governance recommendations (Recomendaes da CVM sobre Governana Corporativa) to encourage corporations to change their bylaws and related corporate documents. Although the recommendations of the CVM are advisory and not mandatory, they were conceived as a guide to be used in addition to existing rules. The first section of the recommendations is devoted to transparency of shareholders meetings, corporate structure and control. It provides that all meetings are to be easily accessible to each and every shareholder. Furthermore, the matters to be discussed are to be announced to all shareholders in advance. When complex subjects are involved, at least 30 to 40 days' prior notice is mandatory. In addition, all shareholders are to have access to any agreement between a shareholder and the company, and the company is to

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04/12/2009 4:03 PM

Duane Morris LLP - The Development of Corporate Governance in the Br...

http://www.duanemorris.com/articles/article3050.html

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04/12/2009 4:03 PM