Source: Gazeta Mercantil, 25/11/2005

By Martha Elizabeth Corazza

The debate surrounding the bills currently being processed in Congress to once again revamp the Corporations Law and increase protection for minority shareholders will continue into 2006, dividing opinions. One school of analysts wants more legal advancements, but others prefer to focus on strengthening self-regulation to define issues such as 100% tag-along rights for all shares, including preferred shares; greater representation of minority shareholders on company boards; and the goal of "one vote, one share" (one vote for each share that makes up the company's capital stock).

The president of Bovespa, Raymundo Magliano Filho, sees no significant progress in legislation since 2001, despite isolated projects by companies. He also doesn't believe in the effectiveness of new legal changes, noting that "laws can be ineffective in certain cases." For him, improved governance should occur as a consequence of "a movement by civil society, starting with market self-regulation; it should be a voluntary process for companies, motivated by shareholder demands."

The Novo Mercado (New Market) is a good example of this movement. "It better prices the shares of companies with governance differentials; the entrepreneur notices this and the investor begins to demand their rights, increasing the importance of the minority shareholder's role." Magliano celebrates the growth of individual investors in the most recent issuances and says that the participation of these investors is around 25% to 27% of the stock exchange's activity, driven by the 1.300 investment clubs.

In the formula suggested by Marcelo Trindade, president of the Brazilian Securities and Exchange Commission (CVM), self-regulation is a complementary alternative to corporate law, valid for companies listed in special governance levels. “I don't think preferred shares should be completely banned, nor that every share should have voting rights. The day-to-day situations of a company and its shareholders are diverse, and we must be cautious so that legislative proposals do not remove the flexibility and competitiveness of businesses.”

This complementary function allows some companies, by their own decision, to adopt more rigorous governance standards without hindering the possibilities that exist in the legislation and that may be useful to others. Furthermore, companies voluntarily committed to adopting stricter rules end up gaining an important competitive advantage, says Trindade. For José Luiz Acar Pedro, president of the Board of Directors of the Brazilian Institute of Investor Relations (IBRI), although the Corporations Law is one of the great milestones of corporate legislation, high global competitiveness demands that the market continue to evolve in order not to lose credibility. He observes that Animec's questions regarding the protection of minority shareholders' interests should be treated "with the utmost importance, so that the legitimate rights of these investors are respected."

For the drafters of the new corporate law, it didn't turn out as modern as expected. Emerson Kapaz, president of the Brazilian Institute of Competitive Ethics (ETCO) and rapporteur of the project that culminated in the publication of the law in 2001, sees important advances in corporate governance, but not driven by the legislation. "The establishment of the Novo Mercado [New Market] shows that companies genuinely want to be integrated into the concept of governance, and this has been happening independently of the legislation, as in the cases of Natura and Gol." He says the law fell short of the ideal and should be reformed to incorporate new governance concepts.

The Brazilian Association of Publicly Traded Companies (Abrasca) advocates for a balance of interests. Its president, Alfried Plöger, recalls that the new law was the result of much discussion. “At the time, there were diverse interests, not always convergent, and, as always happens in a democracy, it is necessary to balance what is desired and what is possible. What happened was a consensus so that the law could be enacted, and there is no doubt that the capital market has evolved significantly since then.”

Regarding the changes that will require companies to have only common shares, as well as the changes in the accounting area, Plöger warns of the risk of "disruptions." He says: "The current law should remain in place for longer. Constant changes cause some insecurity, especially for foreign investors, who do not like changes in the rules."