Corporate Governance in Brazil, like anywherelse in the world, is influenced by internal and external events, which have an impact in the values, principles and models effectively adopted. Such factors range from the global microenvironment to those related to the national microenvironment and corporate system.
The country’s recent history is an important factor in the analysis of the governance practiced by Brazilian companies. The financing sources, the leadership culture and economic context determined the way by which the Brazilian companies are being governed. As a general rule, companies with a strong leadership and financial capacity to overcome adverse economic periods are forming the prevailing system of governance in Brazil.
AZEVEDO (Simone) conducted an academic research on the subject and concluded that “the implementation of governance practices is not an easy task and becomes more difficult in Brazil”. The prevalence of family owned companies, limited capital pulverization and low percentage of shareholders with voting rights are characteristics that lead to an adverse environment for governance practices, causing more conflicts between minority and majority shareholders.
In response to the increasing demand for better standards on the governance of Brazilian companies, in the year of 2000, in the São Paulo Stock Exchange (BOVESPA), what has been called as the New Market was established, as well as the Levels of Governance Practice were set forth.
The New Market is a listing segment for shares issued by companies that voluntarily adopt governance rules that are tighter than the ones foreseen in applicable ordinary legislation. According to BOVESPA, the value and liquidity of listed shares are positively influenced by the level of security involving the rights granted to the shareholders and by the quality of the information disclosed by the companies.
BOVESPA’s specialists drafted a list of governance practices to be adopted by listed companies, its officers and controllers. Adhering to such governance practices will qualify the company as Level 1 or Level 2, depending on the extent of existing commitment. Despite of being alike, the New Market was designed for companies that have decided to go public and the Levels of Governance Practice are intended for listed companies.
Companies qualified as Level 1 are mostly committed with information disclosure improvements and capital pulverization. On the other hand, companies qualified as Level 2 must adopt all practices of Level 1 and, additionally, are subject to a range of other practices, mainly related to minority shareholders rights and protection.
The relation between better practices of governance and higher profits was measured on a recent study conducted in the United States and can be already noticed in Brazil. The conclusions indicate that the companies which adopt strong governance practices have net profit margins 21,66% higher than the segment average. In another words governance practices are a value added to those companies.