Corporate control and governance after a decade from ‘Novo Mercado’: changes in ownership structures and shareholder power in Brazil

Abstract

This paper analyzes post-financial crisis developments in the Brazilian capital markets, focusing especially on the current status of “shareholder power.” Using recent data collected in 2013, it investigates whether changes in ownership structures remain stable and assesses how these changes are currently impacting corporate control and governance. In the new emerging pattern of corporate ownership, many Novo Mercado companies lack a clear controlling shareholder and face the challenge of achieving collective action at the shareholder meeting. Novo Mercado firms therefore have successfully transitioned from a model of controlling shareholder domination to shared or minority control, introducing significantly more diversity into Brazilian corporate governance. The paper is organized as follows: Section II discusses the latest reforms promoted by BM&FBovespa on the rules of the special listing segments in response to the international financial crisis and to the changes in corporate ownership. Section III builds on the classic Berle and Means taxonomy in order to classify corporate control of Brazilian corporations and discuss how shareholder power is evolving. Section IV focuses on Brazilian corporations that have achieved the largest degree of ownership dispersion. Section V discusses the content of shareholder agreements, calling the attention of comparative corporate law scholars to the role played by shareholder coalitions. These coalitions often discipline the exercise of voting and joint control and establish barriers to the free transferability of shares. Section VI discusses the negative impact that the increased use of shareholder agreements has had on director independence and makes normative recommendations. Section VII concludes.