The Association of Capital Market Investors – Amec – sent a letter to the Brazilian Securities and Exchange Commission (CVM) and B3, in which it voices its members’ concerns on the discussion about super-voting shares in Brazil. The topic is being debated by a Working Group within the Ministry of Economy to propose amendments do the Corporate Law. Amec and representatives from several organizations of the civil society and governmental institutions participate to prepare regulatory proposals for the development of the capital market.
In view of the stage of discussions about super-voting shares, Amec decided to prepare a document with its position based on a debate conducted by its Technical Commission and representatives of asset managers and pension funds that are members of the association. The document was sent to Mr. Marcelo Santos Barbosa, chairman of CVM, and presented to the Working Group.
“Regarding the ongoing debate on the amendment to the Corporate Law to allow super-voting shares, Amec would like to express its concern about the risks such change would pose to the dynamics of the Brazilian capital market. In our view, the potential gains arising from it will have short-term effects but cause harmful and irreparable consequences in the long term, incurring systemic risks in the Governance area,” says the letter, signed by Mr. Fábio Coelho, CEO of Amec.
The debate on super-voting shares, called Voto Plural in the Brazilian legal system, has gained relevance in several jurisdictions, especially due to the emergence of new tech companies. On one hand, these companies demand capital to accelerate the necessary investments, but due to the nature of their businesses, their founding partners do not seem to be interested in sharing control when it comes to strategic decisions.
The discussions gained more attention after some Brazilian companies decided to undertake their IPOs abroad. “We recognize the need to drive the competitiveness of the Brazilian capital market to promote its development, but when we look at the risks and opportunities, it seems the balance tilts towards the former if dual-class voting structures or other forms that discriminate shareholders are adopted,” the letter says.
The association believes that the consequences of a poorly structured competitive environment regarding regulations in diverse global markets can lead to a regulatory “race to the bottom” that will undermine the resilience of the Brazilian capital market, its reputation, and the quality of its corporate governance. Although there are companies that apply high governance standards with multi-class share structures, it is important to mention the numerous cases of corporate scandals in companies with super-voting structures. In such cases, Amec’s experience reveals that many shareholders are harmed and cannot rely on protection mechanisms that are common in other countries.
The letter lists a series of reasons and arguments explaining why Amec is against the adoption of super-voting shares in Brazil. “Considering the above and the high risks of the structure proposed, Amec is against the adoption of a super-voting share structure policy in the Brazilian capital market”, the document says. Amec has long defended the “one-share, one-vote” principle. This has become increasingly important as the global debate about the topic has gained more attention in the domestic market.
However, Amec understands that, if the proposal on super-voting shares is eventually approved, it should be implemented in conjunction with robust safeguards, especially considering the characteristics of the Brazilian legal and regulatory framework and the other mentioned risks. The document mentions countries such as Japan, Hong Kong and Singapore, where the mechanism was approved together with a number of safeguards to ensure the protection of minority shareholders.
If it is understood that the Brazilian capital market, the Judiciary and the supervising and punishment procedures and structure of our regulating authority are mature enough for the adoption of super-voting structures in Brazil, Amec recommends the adoption of minimum requirements to safeguard shareholders’ rights and the credibility of the Brazilian capital market. The association suggests the following:
(i) Explicit prohibition on the adoption of super-voting structures by already listed companies;
(ii) Sunset clause with a duration of seven (7) years at the most, permitted to be extended only once, as in other jurisdictions.
(iii) Considering its very personal nature, the ownership of shares with super-voting rights should be allowed only to individuals and their transfer should be prohibited, for any reason whatsoever, under penalty of loss of such characteristics;
(iv) Restriction on the exercise of super-voting rights in specific deliberations;
(v) For specific situations, include mechanisms for the right to withdraw through reimbursement based on the economic value, regardless of liquidity conditions and stock dispersion.
The English version of the document can be found here: https://en.amecbrasil.org.br/wp-content/uploads/2020/10/CARTA-PRESI-Super-Voting-Shares-in-Brazil-v01.pdf