Corporate Governance in Brazil: Observations on 20002007 and Comparisons with Other Latin American a

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Corporate Governance in Brazil Observations on
2000-2007 and Comparisons with Other Latin
American and BRIC Markets

• Mike Lubrano
• Manager, Investor Corporate Practice
• IFC/World Bank CG Department
• AMCHAM Brasil - SP
• 16 May 2007

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Outline of Presentation

• CG in Brazil, then (2000) and now (2007)
• Chile, Mexico and Colombia
• Russia, India and China
• Themes
• Consciousness
• Champions
• Infrastructure

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CG in Brazil 2000

• Negative consequences of poor governance becoming
  apparent
• Overhang of non-voting shares
• rights vs. liquidity
• incentives for controllers
• Legal uncertainty
• De-listings low ball takeout offers
• Poor company performance
• Cry for help from reformers (CB, CVM, Bovespa,
  IBGC)
• Legal Reform initiative
• World Bank / IFC Study
• Uncharted political economy of governance reform
• Who benefits? Who loses? Does it work? How do
  you make it work?
• Manifest at September 2000 Investor Task Force
  meeting

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Some Milestones

• OECD Roundtable Launch April 2000
• Companies / Investors Meeting Sept. 2000
• Launch of Novo Mercado Dec. 2000
• Approval of Legal Reforms 2001
• Novo Mercado takes off 2004
• Natura listing
• Roundtable issues White Paper Sept. 2003
• Dynamo Puma II Fund 2003
• ICGN Meeting in Rio July 2004
• 5th Roundtable Meeting Rio, 2004
• Banco Real CG Credit Line late 2004
• Companies Circle May 2005
• 100th Novo Mercado Listing March 2007

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CG in Brazil 2007

• Positive consequences of good governance
  understood and demonstrable
• Almost all new shares go out on Novo Mercado
• Legal certainty in changes of control
• but anti-takeover provisions
• Serious press engagement, market consciousness
• Constituency for governance
• Public and private sector champions
• IBGC, BOVESPA, CVM, BNDES
• At least a kernal of leadership in most elements
  of the private sector
• Corporates
• Investors
• Infrastructure of Governance in place
• Legal framework (including enforcement)
• Private infrastructure (education, monitoring,
  Novo Mercado, etc.)
• Recent offerings by pulverized firms would have
  been impossible without this

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Other LA Markets

• Chile Public sector leadership and unique
  market dynamic results in legalistic approach
• Mexico Governance long seen as a problem, but
  only first steps now on public side (new
  Securities Law) and private sector response far
  behind Brazils
• Colombia Private sector leads in
  consciousness-raising, but domestic investors
  insufficiently active, despite regulatory efforts

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Russia

• Corporate Governance remains largely a foreign
  concept i.e., principally a concern for foreign
  investors
• Hydrocarbon and basic commodities boom
• Reassertion of central control
• Inclusion of foreigners in management, boards
  (and ownership) to create confidence for London
  listings
• Reliance on foreign reputational agents

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India

• Unique mix of
• Anglo-saxon expectations and legal framework
• equity culture
• market mechanisms
• and concentrated control
• Competition for financial resources
• Important role of individual investors
• Strategic and private equity investors

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China

• At least three markets Foreign listings
  domestic listed state-controlled, and true
  private firms
• Shift in style of state-ownership toward
  state-owned asset managers
• Oversight of management by owners (correlated
  with concentration of ownership)
• Entrepreneurial firms building capitalism from
  below
• Exhibiting typical founder/family firm issues
• Competition for resources may push governance
  onto the agenda
• Surplus of savings weakens market disclipline
• Governance not an issue for domestic investors
• There is corporate governance in China, but it
  is not governance in the way it is understood in
  most of the rest of the world.

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Obrigado

• Mike Lubrano