The BRIC Project – Brazil -- BOVESPA’s Novo Mercado: Modern and Meaningful Corporate Governance in Brazil (Part 6)

Throughout the BRIC Project posts regarding Brazil, we have focused mainly on Bovespa’s three-tiered scheme of voluntary listing standards of corporate governance.  This post will center on the tenants of the Novo Mercado. 

The Novo Mercado (New Market) is the strictest tier of the São Paulo Stock Exchange’s (BOVESPA) three-tiered scheme of corporate governance listing requirements. (See, Novo Mercado Listing Rules)  Compliance with the Novo Mercado is entirely voluntary, as is compliance with lower tiers, Level 1 and Level 2.  According to Bovespa’s website, compliance with the Novo Mercado is premised on the idea that “stock valuation and liquidity are positively impacted and assured by shareholders’ rights and by the quality of companies’ information.”   As of March 2010, 107 companies were listed on the Novo Mercado.  (See, list).  Companies that wish to list on the Novo Mercado must fully comply with all the requirements of Bovespa’s Corporate Governance Level 1 and Level 2.The Novo Mercado is distinguished from the two more lenient tiers by two paramount listing requirements.  First, companies’ capital stock must be entirely comprised of common, voting shares.  (§3.1(vi)).  In other words, all shares which make-up a company’s capital stock must conform with a one-share-one-vote rule.  Preferred and founding shares, which receive special voting privileges, are forbidden on the Novo Mercado. (§3.1(vii)).  Secondly, regarding any disposal of control via the sale of capital stock holdings, any “public tender offer must comply with the law and with these Listing Rules and the other shareholders must be given the same treatment as the Selling Controlling Shareholder.”  (§8.1).  While all three tiers of Bovespa’s corporate governance listing requirements encourage dispersed ownership, transparency, and broader access to investors, the Novo Mercado is the only tier that requires the one-share-one-vote rule which best enables dispersed ownership.  Gorga, Érica, 29 Nw. J. Int'l L. & Bus. 439, 446 (2009), Changing the Paradigm of Stock Ownership From Concentrated Towards Dispersed Ownership?  Evidence From Brazil and Consequences for Emerging Countries.      

These strict listing standards are comparable to many of the standards enforced by the American Securities and Exchange Commission.  However, it is important to remember that compliance with these stricter listing standards is completely voluntary, and thus far applies only to public companies that both decide to list with Bovespa and agree to conduct business in accordance with the aforementioned principles. 

In the following post, we will present a broader assessment of the impact that the Novo Mercado has had in Brazil and the challenges that the advance of modern and meaningful standards of corporate governance continues to face in Brazil.