Seminar on Corporate Governance
MARIA HELENA SANTANA
New York, November 2nd, 2010
• Overview of CVM
• Periodic Disclosure
• Disclosure prior to general
shareholder meetings
• Proxy solicitations
• Tender offers
Overview of CVM
Scope of Activity
• RULE MAKING (disclosure and conduct)
• SUPERVISION (market surveillance, general
oversight of all the activities regulated by CVM)
• ENFORCEMENT (administrative procedures and
imposition of penalties – from fines to banishment
from the market place)
• MARKET DEVELOPMENT (guaranteeing a stable
regulatory framework and fostering investor
education)
Legal Mandate
• The following activities and entities are subject to
CVM’s regulation:
• Intermediaries, asset managers and other service
providers in the securities markets
• Public offerings of securities by companies,
investment funds, etc
• Entities that manage exchange and organized OTC
markets (cash and derivatives)
• Trading conducted on stock exchanges and OTC
markets
Legal Mandate
• Additionally, CVM has important responsibilities in
matters related to corporate governance
• Power to enforce compliance by public companies,
managers and shareholders with the Securities Law,
Corporate Law and rules it has enacted
• Setting and enforcing disclosure provisions (periodic
disclosure, during public offerings and prior to general
shareholder meetings)
• Setting and enforcing rules on proxy solicitations and
contests
• Setting and enforcing tender offers procedures
• Enforcing compliance with legal fiduciary duties by
managers and controlling shareholders
The Brazilian context
Regulation and Self-regulation
• But the most important step taken in the evolution of corporate
governance in Brazil was not regulation-driven and rather selfregulation-driven, market driven
• As it frequently happens, it occurred due to the need to find a
solution and not by design
• As a reaction to a failed attempt to reform the Brazilian
corporate law, the BOVESPA created contract-based corporate
governance rules – Novo Mercado
• Now, it is clear that Brazil has a hybrid system, that is based
as much in self-regulation – and so, in market incentives - as
in regulation itself
• All rule-based though, no comply or explain approach
(investors gave a strong message in favor of ‘hard law’)
• Both pillars have been trying to evolve in each one’s
dimension and coordination is considered key
Periodic Disclosure
Periodic disclosure
Rule 480
• New rules on disclosure for issuers
• Improvement on periodic disclosure (risk factors,
management discussion and analysis, executive
compensation, related party transactions)
• The new rules require managers to prepare
assessments, not just descriptions
• Setting of 2 categories of issuers with different
information obligations
• Reference Form offers an overview of the issuer and
has to be updated on a ongoing basis
• Standard for ongoing disclosure similar to that
presented to potential investors during an offering
• Faster access to market, including fast track for well
known seasoned issuers
Disclosure on
Executive compensation
• One of the Reference Form sections requires
information about executive compensation
• Before the rule came into force, there was very little
information available. Companies used to report
only the total expenditure on the remuneration of
senior managers
• Currently, the rules require disclosure of detailed
information on the remuneration policy and the
amounts paid to senior managers (previous 3 years
and current)
• lowest and highest individual amounts paid to board
members and the executive management, as well as
the average remuneration of each corporate body
Disclosure prior to
general meetings
Proxy solicitations
Rule 481
• The Brazilian law provides for, as examples:
• majority voting in director elections
• majority voting on executives remuneration – say on
pay
• But essential conditions were missing
• This regulation addresses some major obstacles
preventing shareholders from effectively exercising
their voting rights in general meetings:
• lack of information on the matters included in the
agendas of general meetings
• the costs to attend general meetings and the costs to
mobilize shareholders to define common positions in
general meetings
Disclosure prior to
general meetings
• Firstly, the rule seeks to ensure adequate
information to shareholders prior to general
meetings
• Complete disclosure required at the moment of the
meeting notice
• Rule defines the minimum information to be divulged
for the most common subjects (directors nomination,
approval of financial statements, capital increases,
executives remuneration…)
Proxy solicitations
• Any public request must be sent to all shareholders
with voting rights and must contain certain minimum
information
• Shareholders holding at least 0,5% of the
company’s capital stock can have access to the list
of shareholders’ addresses and can include
proposals in the company’s or controlling
shareholders’ proxy statement
• Reimbursement of certain expenses. Total, if the
proposal is approved. Partial, if the proposal is
refused by the GSM. If the company provides a
service on a website to host proxy requests, it has
no obligation to reimburse expenses
Empty voting
• It is not yet a hot topic in Brazil. We are still at an
early stage, seeking to ensure an appropriate level
of transparency and to stimulate participation
• We expect to see investors exercising stewardship
• Nevertheless, the Rule 481 partially addresses this
issue: anyone promoting a public request for proxy
must disclose his/her exposure in derivatives
referenced to shares of the company
Takeover Bids
Tender Offers
• The Brazilian regulation of tender offers has been
significantly improved in the early 2000s. Through
the reform of the Corporate Law and the adoption by
CVM of the Rule 361, the major problems
concerning shareholders treatment in the delisting of
companies were addressed
• More recently, due to the growing number of
companies with dispersed ownership, the regulation
of takeover bids has become an important issue
Takeover bids
Reform of Rule 361
• Main objective is to improve the rules applicable to
takeover bids
• In terms if the disclosure provisions, at the beginning of
the period of the offer:
• securities of the target company (or any derivatives) held
by itself, managers, offeror or related parties
• securities of the offeror (or derivatives) held by the target
company, its managers or related parties
• any contract involving securities of the target company
done by itself, its managers or related parties in the three
months preceding the offer, or still effective
• Daily disclosure during the offer period:
• any deal involving securities of the target company done
by the company itself, managers, the offeror or anyone
holding 2,5% of the shares
Takeover bids
• In addition to the disclosure provisions:
• Restrictions on trading and contracting derivatives
referenced to the target company’s shares
• New squeeze-out rules
• Information on the board’s opinion about the offer
• “Put up or shut up” rule
• If a competitive situation lasts for a long time, CVM may
set a deadline for the announcement of final competing
offers or require the execution of an auction procedure
Thank you
www.cvm.gov.br
[email protected]