3rd Latin American
Corporate Governance
Roundtable
Recent Corporate Governance
Developments
Maria Helena Santana
São Paulo Stock Exchange - BOVESPA
April 2002
Novo Mercado
Commitment with good corporate
governance
 Private sector initiative, based on and enforced through
a contract with BOVESPA
 Adhesion is voluntary and market driven
 Companies committed to the highest standards of
corporate governance
 Set of rules over and above the Corporations Law
reflecting market demands and requirements
Legal Reform
Corporations Law & CVM Law
 Preferred shares: the new Law assures genuine
privilege for preferred shares (although not tag along or
voting rights)
 Tag Along rights: the purchaser of a controlling
interest must make a tender offer to all the shareholders
with voting shares (ONs) at 80% of the price paid for the
controlling shares
 Delistings: tender offer at ‘fair’ value: either book
value, market value of the net worth, discounted cash
flow, market comparables, stock price on the market or
other criteria acceptable to CVM
 General shareholder meetings: minimum of 15 days
notice, with the possibility of CVM interference to
postpone the meeting
Legal Reform
Corporations Law & CVM Law
 Board of Directors: Non-controlling shareholders
representing at least 15% of the voting shares and
preferred shareholders representing 10% of the total
capital are allowed to elect board members (to be fully
phased in by 2006)
 Arbitration: bylaws may provide for resolution of
disputes through arbitration
 Criminal offenses: manipulation and insider trading
 Strengthening of the CVM: operational and budgetary
independence to CVM, five-year terms for the
Commissioners
Novo Mercado
Commitment with good corporate
governance
 Only voting shares: one share, one vote
 Full tag along rights
 Delisting: public tender offer at economic value
 Board of Directors: unified 1 year terms and a minimum
of 5 members
 Mandatory use of arbitration for shareholder/company
disputes
 25% minimum free float
Only Voting
Shares
More
Disclosure
Rights to
Investors
Rights to
Investors
More
Disclosure
More
Disclosure
IGC x Ibovespa
Compared Performance
1.200
1.100
1.000
900
800
IGC
700
600
jun/01
IBOVESPA
jul/01
ago/01
set/01
IGC
IBOVESPA
out/01
march 2002
-2,40
-5,55
nov/01
dez/01
2002
8,61
-2,38
jan/02
since 26/06/01
11,14
-8,33
fev/02
mar/02
Trading value
Participation of the corporate
governance segments
19%
18,21%
18,00%
18%
16,97%
17%
16,96%
16%
14,64%
15%
14%
13,86%
14,12%
14,20%
17
19
13%
12%
11,35%
11%
10%
15
20
9%
July
August
# of companies
September
October
November December
January
February
March
Market Capitalization
Participation of the corporate
governance segments
20,0%
19,55%
19,5%
19,42%
19,13%
19,0%
19,29%
19,13%
18,76%
18,5%
18,07%
18,0%
17,56%
17,5%
17,31%
17,0%
16,5%
15
17
19
20
16,0%
July
# of companies
August
September
October
November December
January
February
March
Novo Mercado
BOVESPA’s Perception
 The standard is set:
– the only model for new listings that is being accepted
by the market (domestic and international investors,
underwriters) is the Novo Mercado
– only very specific IPO cases will come to the Level 2
– Level 1 and Level 2 are real market requirements for
the already listed companies
 Minimum listing standard for the BOVESPA main board
(2002): Level 1