BRAZIL Trends and Developments Contributed by: Enrique Tello Hadad, Daniel Domenech Varga and Marcus Luan Silva, Loeser e Hadad Advogados
Proxy voting Recent legislative changes and regulatory develop- ments that may encourage shareholder activism include the introduction of proxy voting. The Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários, or CVM) has implemented regu- lations facilitating proxy voting, making it easier for shareholders who cannot attend in-person meetings to participate and vote. Regulatory Challenges and the Need for Reform Despite the escalating prevalence of shareholder activism in Brazil, activists encounter substantial regu- latory challenges. While Brazilian legislation has made significant advances in some areas, it still imposes barriers that impede the full exercise of shareholder rights, particularly for minority shareholders. Costs and complexity of activist campaigns One of the main challenges faced by activist share- holders in Brazil relates to the high cost and intricate nature of organising impactful campaigns. The coun- try’s legislation imposes a series of formal require- ments for proposing actions and convening meetings, which can be overwhelming for small investors or groups with limited resources. Additionally, navigating the intricate web of legislation and corporate mecha- nisms requires a profound level of understanding, pre- senting a significant barrier, particularly in a country where financial education and investor participation culture are still in development. Furthermore, many shareholders, especially minority ones, may find themselves lacking access to the nec- essary resources or knowledge to effectively mobilise campaigns. This restriction significantly diminishes the potential for activism in Brazil, as shareholders might be deterred from pursuing their objectives due to the perceived difficulty and expense associated with initiating a campaign. Nevertheless, investors are using social media, virtual forums and proxy solicitation platforms to organise coalitions, influence other shareholders and pressure management. These tools have reduced the cost and complexity of activism, particularly for smaller inves- tors with fewer resources to challenge controlling groups.
carefully assess these factors when considering their activist initiatives in the Brazilian market. Suggesting actions at general meetings One of the key methods employed by shareholders in Brazil to advocate for their interests is to suggest actions or resolutions during general meetings. This avenue is open to any shareholder, provided they adhere to the deadlines and requirements outlined by the law and the company’s bylaws. This mechanism proves to be especially beneficial for minority share- holders who aim to highlight concerns that the man- agement may not prioritise. For instance, shareholders who are focused on enhancing corporate governance may introduce reso- lutions aimed at implementing more stringent trans- parency policies or reevaluating executive compensa- tion practices. Even if these proposals do not receive approval, they can exert pressure on the management and bring crucial issues to the attention of fellow shareholders. This form of activism can be particularly effective in shedding light on governance issues and compelling companies to reevaluate their practices. Calling extraordinary general meetings Shareholders who own at least 5% of a company’s share capital are entitled to exercise their right to request the convening of an extraordinary general meeting (EGM). This meeting allows them to address specific issues that they believe require urgent atten- tion or are not being adequately handled by the com- pany’s management. The EGM serves as a powerful tool for shareholders to voice their concerns and take action when they feel that the company’s best inter- ests are at stake. One common scenario where this right is exercised is when activist shareholders use the EGM to advocate for the replacement of certain board members or to vote on a merger proposal that they deem unfavour- able. By leveraging the EGM mechanism, sharehold- ers can exert significant pressure on the management and influence decision-making in a manner that aligns with their interests, ultimately bringing about changes they believe are necessary for the company’s welfare.
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