Proxy Solicitation and Shareholder Director Nominations in Brazil: A Comparative Analysis of Instrução CVM No 481/09

Abstract

This paper analyzes Article 28 of the Instrucao CVM No. 481/09, enacted by the Brazilian Securities and Exchange Commission (CVM) on December 2009. Article 28 provides the right for shareholders to include nominees for the board of directors in the company’s proxy material. The Instrucao CVM No. 481/09 is the first rule about proxy solicitation ever enacted in Brazil. It was released after a promising trend of ownership dispersion in the Brazilian Novo Mercado, wisely spotted by the Brazilian regulatory agency. The provision, culturally shocking for a country historically used to majority control, came to light exactly at the same time that the U.S. securities market was struggling with the SEC proposal on Facilitating Shareholder Director Nomination. That proposal’s discussion has produced a vast and interesting debate on the subject. Such rich material about shareholders’ rights, voting and proxy soliciting, resulted in an irrecusable invitation to confront what was being elaborated on in Brazil in this regard – Article 28 of Instrucao CVM No. 481/09 – with what is being synthesized in the U.S. right at this moment. The coincidence of momentums provides, in fact, a unique opportunity to highlight the differences between both countries’ regulatory approaches and to examine the Brazilian rule in light of a much more tested proposal, looking for its weaknesses, strengths, and possible ways to optimize its application or to improve its instructions. In this sense, Item 1 of the paper presents the current state of the Brazilian capital market, the context in which the Instrucao CVM No. 481/09 was elaborated on, the provision in Article 28, and the proposed comparative approach of this work. Item 2 analyzes and confronts the regulation of both countries, generally and specifically concerning the shareholder director nomination. Item 3 concludes the paper arguing that although the straightforwardness of the Brazilian provision may be compatible with the current stage of the country’s capital market, and despites the rule’s perfect timing of enactment, its relative superficiality may result in a dangerous net of improper incentives for opportunistic investors if the trend of ownership dispersion is confirmed in the future.