The Shareholder’s Meeting: Scope and
Procedures - Brazil
2nd Latin American Corporate Governance Roundtable
Presentation by: Bruno Rocha
Dynamo Asset Management
The Shareholder’s Meeting: Scope and Procedures - Brazil
What is the context:
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Brazil ranks well by usual corporate governance criteria for
shareholder’s meetings procedures:
1. Cumulative voting
1. Voting by proxy ( though not by mail )
2. Small % to call E.S.M. (5% of total capital)
1. Easy to obtain list of shareholders
1. Shares are not blocked before a S.M.
-
However, most shareholder’s meetings are a non-event
2nd Latin American Corporate Governance Roundtable
Dynamo
The Shareholder’s Meeting: Scope and Procedures - Brazil
Why ?
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Almost all listed companies have a defined controlling
shareholder (or a group of)
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High leverage from preferred non-voting shares:
separation of cash flow right from control rights
which, coupled with :
-
Imperfect civil law
Lack of jurisprudence and specialized courts
No tag along rights
2nd Latin American Corporate Governance Roundtable
Dynamo
The Shareholder’s Meeting: Scope and Procedures - Brazil
Leads to:
-
High value of control
-
Structural conflict of interest between controlling
and minority shareholders:
-
Dividends / Retained earnings
Related party transactions
De-listing procedures
2nd Latin American Corporate Governance Roundtable
Dynamo
The Shareholder’s Meeting: Scope and Procedures - Brazil
US / Europe x Brazil:
 Concentration of controlling power changes the
corporate governance agenda from:
-
Independent board members
Poison pills, staggered boards
Proxy mechanisms ...
... to issues not directly related to shareholder’s meetings
-
Tag along rights
Conflicts of interest (dividend policy, related parties)
De-listing procedures
 As a consequence, shareholder’s meetings in Brazil are not a
democratic exercise.
2nd Latin American Corporate Governance Roundtable
Dynamo
The Shareholder’s Meeting: Scope and Procedures - Brazil
Shareholder’s Meetings in Brazil
Procedures:
1. Prior notice
-
8 days
Problem for ADR’S
2. Nomination to the board of directors
-
Only for voting shares
Guaranteed for holders of 20% of voting shares
Possible with less than 20% through cumulative voting
2nd Latin American Corporate Governance Roundtable
Dynamo
The Shareholder’s Meeting: Scope and Procedures - Brazil
Shareholder’s Meetings in Brazil:
Procedures:
3. Representation
-
By power of attorney
Bureaucratic but effective process
4. Installment and Election for the Audit Board
-
Installment: 5% of non-voting or 10% of voting shares
Election: One seat for non voting
One seat for voting with 10% of shares
Three seats for controlling shareholders
2nd Latin American Corporate Governance Roundtable
Dynamo
The Shareholder’s Meeting: Scope and Procedures - Brazil
Shareholder’s Meetings in Brazil:
Procedures:
5. Right to put items on the agenda
-
Not clearly defined in the law
Possible if included in “Matters of General Interest”
6. Voting in situations of conflict of interest
-
Conflicted shareholder cannot vote
Problems: Definition of conflict / non-voting shares do not vote
7. Fair amount of disclosure is granted by law
2nd Latin American Corporate Governance Roundtable
Dynamo
The Shareholder’s Meeting: Scope and Procedures - Brazil
Conclusion:
- Quality of shareholder’s meetings in Brazil is poor not
because of the law, but rather because of the concentration of
ownership
- Participation (and voting) in shareholder’s meeting is always
important, even if meaningless because decisions have already
been made
- But it is crucial when minority shareholders may influence
the decision:
- Situations of conflict of interest
- Corporate restructurings (de-listings, spin-offs, mergers)
2nd Latin American Corporate Governance Roundtable
Dynamo