The Corporate Governance ReviewThe Corporate

Governance Review

Law Business Research

Sixth Edition

Editor

Willem J L Calkoen

The Corporate Governance Review

The Corporate Governance ReviewReproduced with permission from Law Business Research Ltd.

This article was first published in The Corporate Governance Review – Edition 6(published in March 2016 – editor Willem J L Calkoen)

For further information please emailNick.Barette@lbresearch.com

The Corporate Governance

Review

Sixth Edition

EditorWillem J L Calkoen

Law Business Research Ltd

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i

The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book:

ACKNOWLEDGEMENTS

ADVOKATFIRMAET BA-HR DA

A&L GOODBODY

BÄR & KARRER AG

BREDIN PRAT

CARRILLO Y ASOCIADOS

THE DELAWARE COUNSEL GROUP LLP

GILBERT + TOBIN

GUEVARA & GUTIÉRREZ

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HERBERT SMITH FREEHILLS CIS LLP

HOGAN LOVELLS INTERNATIONAL LLP

J SAGAR ASSOCIATES

KOEP & PARTNERS

LEE AND LI ATTORNEYS-AT-LAW

NAUTADUTILH

NISHIMURA & ASAHI

OSLER, HOSKIN & HARCOURT LLP

Acknowledgements

ii

PATRIKIOS PAVLOU & ASSOCIATES LLC

PINHEIRO NETO ADVOGADOS

PLESNER LAW FIRM

SANTAMARINA Y STETA, SC

SCHINDLER RECHTSANWÄLTE GMBH

SLAUGHTER AND MAY

TSIBANOULIS & PARTNERS

ŢUCA ZBÂRCEA & ASOCIAŢII

URÍA MENÉNDEZ

WACHTELL, LIPTON, ROSEN & KATZ

iii

CONTENTS

Editor’s Preface ..................................................................................................viiWillem J L Calkoen

Chapter 1 AUSTRALIA .............................................................................. 1John Williamson-Noble and Tim Gordon

Chapter 2 AUSTRIA ................................................................................ 15Martin Abram and Clemens Ph Schindler

Chapter 3 BELGIUM ............................................................................... 27Elke Janssens and Virginie Ciers

Chapter 4 BOLIVIA ................................................................................. 54Jorge Inchauste and José Bernal

Chapter 5 BRAZIL ................................................................................... 65Marcelo Viveiros de Moura and Marcos Saldanha Proença

Chapter 6 CANADA ................................................................................ 77Andrew MacDougall, Robert Yalden and John Valley

Chapter 7 CHINA .................................................................................... 91Sherry Gong and Sarah Zhang

Chapter 8 CYPRUS ................................................................................ 104Stella Strati and Angeliki Epaminonda

Chapter 9 DENMARK ........................................................................... 121Jacob Christensen, Søren Toft Bjerreskov and Nicholas William Boe Stenderup

iv

Chapter 10 FINLAND ............................................................................. 136Klaus Ilmonen, Antti Kuha, Anniina Järvinen and Jesse Collin

Chapter 11 FRANCE ............................................................................... 150Didier Martin

Chapter 12 GERMANY ........................................................................... 168Carsten van de Sande and Sven H Schneider

Chapter 12 GREECE ............................................................................... 185Evy C Kyttari and Sofia Kizantidi

Chapter 14 GUATEMALA ....................................................................... 198Rodolfo Alegría and Rodrigo Callejas A

Chapter 15 INDIA ................................................................................... 209Murali Ananthasivan and Lalit Kumar

Chapter 16 IRELAND.............................................................................. 221Paul White

Chapter 17 JAPAN ................................................................................... 237Mitsuhiro Harada and Tatsuya Nakayama

Chapter 18 LUXEMBOURG ................................................................... 252Margaretha Wilkenhuysen and Steven van Waas

Chapter 19 MEXICO ............................................................................... 276Alberto Saavedra, Alfonso Monroy and Pablo Garza

Chapter 20 NAMIBIA .............................................................................. 286Hugo Meyer van den Berg and Chastin Bassingthwaighte

Chapter 21 NETHERLANDS ................................................................. 305Geert Raaijmakers and Jos Beckers

Chapter 22 NORWAY .............................................................................. 331Gudmund Knudsen and Erik Langseth

Contents

v

Chapter 23 PORTUGAL .......................................................................... 342Francisco Brito e Abreu and Joana Torres Ereio

Chapter 24 ROMANIA ............................................................................ 362Silvana Ivan and Olga Cobăsneanu

Chapter 25 RUSSIA .................................................................................. 381Danil Guryanov, Denis Morozov and Bogdana Shtoma

Chapter 25 SPAIN .................................................................................... 400Carlos Paredes and Rafael Núñez-Lagos

Chapter 27 SWEDEN .............................................................................. 415Björn Kristiansson, Caroline Folke, Sanna Böris and Per Samuelsson

Chapter 28 SWITZERLAND .................................................................. 429Rolf Watter and Katja Roth Pellanda

Chapter 28 TAIWAN ............................................................................... 447Stephen C Wu, Benjamin Y Li and Derrick C Yang

Chapter 29 UNITED KINGDOM .......................................................... 460Andy Ryde and Murray Cox

Chapter 32 UNITED STATES ................................................................ 472Adam O Emmerich, William Savitt, Sabastian V Niles and S Iliana Ongun

Chapter 30 UNITED STATES: DELAWARE ......................................... 486Ellisa O Habbart and Michael S Swoyer

Appendix 1 ABOUT THE AUTHORS .................................................... 498

Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .. 521

Contents

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EDITOR’S PREFACE

I am proud to present this new edition of The Corporate Governance Review to you.In this sixth edition, we can see that corporate governance is becoming a more

vital and all-encompassing topic with each year that passes. We all realise that the modern corporation is one of the most ingenious concepts ever devised. Our lives are dominated by corporations. We eat and breathe through them, we travel with them, we are entertained by them, most of us work for them. Most corporations aim to add value to society and they very often do. Some, however, are exploiting, polluting, poisoning and impoverishing us. A lot depends on the commitment, direction and aims of a corporation’s founders, shareholders, boards and management and employees. Do they show commitment to all stakeholders and to long-term shareholders, or mainly to short-term shareholders? There are many variations on the structure of corporations and boards within each country and between countries. All will agree that much depends on the personalities and commitment of the persons of influence in the corporation.

We see that everyone wants to be involved in ‘better corporate governance’: parliaments, governments, the European Commission, the US Securities and Exchange Commission (SEC), the Organisation for Economic Co-operation and Development (OECD), the UN’s Ruggie reports, the media, supervising national banks, shareholder activists and other stakeholders. The business world is getting more complex and overregulated, and there are more black swans, while good strategies can quite quickly become outdated. Most directors are working diligently, many with even more diligence. Nevertheless, there have been failures in some sectors, so trust has to be regained. How can directors do all their increasingly complex work and communicate with all the parties mentioned above?

What should executive directors know? What should non-executive directors know? What systems should they set up for better enterprise risk management? How can chairs create a balance against imperial CEOs? Can lead or senior directors create sufficient balance? Should most non-executive directors understand the business? How much time should they spend on their function? How independent must they be? What about diversity? Should their pay be lower? What are the stewardship responsibilities of shareholders? What are the pros and cons of shareholder rights plans?

Editor’s Preface

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Governments, the European Commission and the SEC are all pressing for more formal inflexible legislative acts, especially in the area of remuneration. Acts set minimum standards, while codes of best practice set aspirational standards.

More international investors, voting advisory associations and shareholder activists want to be involved in dialogue with boards about strategy, succession and income. Indeed, far-sighted boards have ‘selected engagements’ with stewardship shareholders to create trust. What more can they do to show all stakeholders that they are improving their enterprises other than through setting a better ‘tone from the top’? Should they put big signs on their buildings emphasising integrity, stewardship and respect?

Interest in corporate governance has been increasing since 1992, when shareholder activists forced out the CEO at General Motors and the first corporate governance code – the Cadbury Code – was written. The OECD produced a model code and many countries produced national versions along the lines of the Cadbury ‘comply or explain’ model. This has generally led to more transparency, accountability, fairness and responsibility. However, there have been instances where CEOs gradually amassed too much power or companies have not developed new strategies and have produced bad results – and sometimes even failure. More are failing since the global financial crisis than previously, hence the increased outside interest in legislation, further supervision and new corporate governance codes for boards, and stewardship codes for shareholders and shareholder activists. The European Commission is developing a regulation for this area as well.

This all implies that executive and non-executive directors should work harder and more as a team on policy, strategy and entrepreneurship. More money is lost through lax or poor directorship than through mistakes. On the other hand, corporate risk management is an essential part of directors’ responsibilities, and sets the tone from the top.

Each country has its own measures; however, the chapters of this book also show a  convergence. The concept underlying the book is of a one-volume text containing a series of reasonably short, but sufficiently detailed, jurisdictional overviews that permit convenient comparisons, where a quick ‘first look’ at key issues would be helpful to general counsel and their clients.

My aim as editor has been to achieve a high quality of content so that The Corporate Governance Review will be seen, in time, as an essential reference work in our field. To meet the all-important content quality objective, it was a condition sine qua non to attract as contributors colleagues who are among the recognised leaders in the field of corporate governance law from each jurisdiction.

I thank all the contributors who helped with this project. I hope that this book will give the reader food for thought; you always learn about your own law and best practice by reading about the laws and practices of others. Further editions of this work will obviously benefit from the thoughts and suggestions of our readers. We will be extremely grateful to receive comments and proposals on how we might improve the next edition.

Willem J L CalkoenNautaDutilhRotterdamMarch 2016

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Chapter 5

BRAZIL

Marcelo Viveiros de Moura and Marcos Saldanha Proença1

I OVERVIEW OF GOVERNANCE REGIME

The corporate governance regime applicable to Brazilian listed companies is basically established by: the Brazilian Corporation Law (Federal Law No. 6,404, of 15 December 1976, as amended), the Rulings issued by the Brazilian Securities Commission (CVM), and the listing rules issued by the São Paulo Stock Exchange (BM&FBOVESPA) to each of its listing segments.

In addition to the regulation mentioned above, the listed companies are encouraged to follow the best practice recommendations provided in the codes issued by the Brazilian Institute of Corporate Governance and by the Brazilian Association of Listed Companies. Currently the creation of a Brazilian Unified Code of Corporate Governance to be observed by Brazil-listed companies is under discussion. The expectation is that such Unified Code will be published by CVM during 2016, after the conclusion of the discussions being held with some participants of the Brazilian capital markets.

As for the listing segments of BM&FBOVESPA, the segment with the highest standards of corporate governance rules is the Novo Mercado, followed by the Level 2 and Level 1. There is also the BOVESPA MAIS, which is an organised over-the-counter market managed by BM&FBOVESPA, created as a way for the small and mid-size companies to access the capital markets.

It falls under the authority of CVM, which is a federal independent agency reporting to the Ministry of Finance, to supervise and enforce compliance by the listed companies of the Brazilian Corporation Law and the rules issued by CVM. Such enforcement can result in the imposition of fines and restrictions on the companies and its administrators.

1 Marcelo Viveiros de Moura is a partner and Marcos Saldanha Proença is a senior associate at Pinheiro Neto Advogados.

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Regarding compliance with the listing rules issued by BM&FBOVESPA, BM&FBOVESPA is responsible for supervising compliance and has the authority to impose contractual fines on companies and their administrators, and other sanctions, such as the suspension and exclusion of trading in shares in the BM&FBOVESPA environment.

Most of the Brazilian listed companies do not have a widely held stock, but we have noticed in the past years a trend from CVM to stimulate participation of minority shareholders in the governance of the companies, through the creation of a mechanism that enables all the shareholders to send their votes electronically prior to any shareholders’ meeting. The implementation of this mechanism in 2016 is not mandatory, but will become mandatory on the main companies listed in BM&FBOVESPA in 2017 and to all companies in 2018.

The CVM has also enacted some rules in recent years to improve the quality and amount of information that a listed company must disclose to its investors, which includes Ruling No. 480, published at the end of 2009, that created the ‘reference form’, a document that the companies must update at least once a year, containing very detailed information about the company, and also Ruling No. 481, published simultaneously with Ruling No. 480, which sets forth the mandatory information that must be disclosed by listed companies on an ordinary basis and prior to each of their shareholders’ meetings. Both rules mentioned above have already been adjusted to reflect some improvements that CVM understood as necessary.

Nevertheless, as regards the recent trends and developments on corporate governance in Brazil, it is worth pointing out the State-Owned Enterprise Governance Programme launched by BM&FBOVESPA in September 2015 as a way of responding to the recent scandals and political use of state-owned companies by the government. The purpose of such programme is to restore investor confidence in state-owned companies, which are significant to the Brazilian capital markets,2 through the enhancement of the corporate governance rules of such companies in the following aspects: (1) more clear disclosure on company’s objectives, (2) creation of mechanism to remove administrators that divert company activities from the stated objective, (3) establishment of detailed nomination criteria encompassing the qualification and expertise of the administrators, and (4) commitment of the public controlling shareholder to comply with corporate governance best practice.

State-owned companies may voluntarily adhere to the State-Owned Enterprise Governance Programme. Those companies that adhere to the programme will receive

2 Note: According to the State-Owned Enterprise Governance Programme disclosed by BM&FBOVESPA on 30 September 2015, on 31 August 2015 there were 30 state-owned companies listed in BM&FBOVESPA, at federal, state and municipal levels, acting in six economic sectors and accountable for 14.23 per cent of the market capitalisation (equivalent to 300 billion reais). Such companies represented, from September 2014 to August 2015, 21.9 per cent of the average daily trading volume (equivalent to 1.5 billion reais) of BM&FBOVESPA.

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a certification from BM&FBOVESPA. Up to 31 December 2015, no state-owned company had yet adhered to the programme, but we hope this programme becomes a trend in Brazil for the benefit of the Brazilian economy.

II CORPORATE LEADERSHIP

i Board structure and practices

Brazilian listed companies are managed by a board of directors3 and by an executive office. The listed companies can also install a fiscal board, which does not have the nature of managerial body but of a supervisory body.

Board of directorsThe board of directors is a decision-making body with authority to establish the company’s business policy in general; to elect and dismiss officers; to set the duties and monitor the day-to-day managerial actions of the officers; to express an opinion on any matters to be submitted to the shareholders; and to approve the implementation by the executive office of specific matters prescribed by law or under the by-laws. The authority of the board of directors established by the Brazilian Corporation Law cannot be delegated to other bodies.

The board of directors shall be composed of at least three members, but in the case of the companies listed in the Novo Mercado and Level 2 segments the board must be composed of at least five members and at least 20 per cent of the members shall be considered as ‘independent’. The members of the board of directors are not required to be Brazilian residents.

The requirements for the appointment to occupy a position in the board of directors are established in the Brazilian Corporation Law. Generally speaking, the director must be someone with an unblemished reputation who has not been condemned in an administrative or judicial procedure related to corporate crimes or irregularities.

The board of directors can create specific committees (e.g., compensation, related parties transactions and audit) to assist it in the management of the company. In this regard, it is worth pointing out that the listed companies must rotate their independent auditor every five years and the companies must wait at least three years before re-hiring the same auditor. Nevertheless, in case the listed company has installed the Statutory Audit Committee, such rotation can occur every 10 years, instead of five years.

In the event of a tender offer for the acquisition of the control of a listed company (Takeover TO), in principle, the board of directors of the listed companies is not under an obligation to make a statement as to whether or not it agrees with the terms and conditions of the Takeover TO.

Nevertheless, if the board of directors decides to make a statement on the Takeover TO, such statement shall necessarily be disclosed to the market and address some issues such as: all relevant aspects for a informed decision by the investor, especially with

3 The closely held companies are not required to have a board of directors.

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regard to the price being offered; and the material changes in the company’s financial conditions since the date of the latest financial statements or quarterly reports disclosed to the market.

In the case of companies listed in the Novo Mercado and Level 2 listing segments, the board of directors is required to prepare and disclose a reasoned previous opinion on the Takeover TO – in favour or against it – and to address the following topics: a the convenience and opportunity of the Takeover TO; b the impact of the Takeover TO on the interests of the company; c the announced strategic plans of the offeror for the company; and d any other point of consideration the board may deem relevant.

Executive boardThe executive board shall be composed by at least two officers. The officers of the Brazilian listed companies are elected and removed at any time by the board of directors.

Up to one-third of the board members may be elected for executive board positions cumulatively. Pursuant to the rules of the Novo Mercado, Level 2 and Level 1 listing segments, the offices of chairman of the board of directors and CEO cannot be accumulated by the same individual. Notwithstanding, the accumulation of those positions is allowed, on an exceptional basis, for a maximum period of three years counting from the date that the company’s shares starts to be traded in the special listing segment.

Among other duties, the executive board represents the company in dealings with third parties. The by-laws may establish that certain managerial decisions should be taken in executive board meetings only.

The by-laws will establish the number of officers permitted, the manner of their replacement, their term of office, and the assignments and powers of each officer. Officers will perform their duties separately, according to their assignments and powers, but in keeping with the other officers, and will not be held liable for any obligations assumed on behalf of the company as regards routine acts necessary for the company’s management.

If the by-laws are silent or there is no resolution adopted by the board of directors prescribing the officers’ duties, any officer may represent the company and take the actions necessary for its routine operations.

Compensation of the members of the board of directors and executive boardThe shareholders meeting shall prescribe the aggregate or individual compensation of the members of the board of directors and executive board, including benefits of any kind and representation allowances, taking into consideration their responsibilities, the time devoted to their duties, their skills and professional standing, and the market value of their services. In case the shareholders meeting approves the aggregate compensation to be paid to the company’s directors and officers, it will fall under the authority of the board of directors to approve the allocation of the compensation between the company’s directors and officers.

If the company’s by-laws sets forth a compulsory dividend equal to or above 25 per cent of the net profits, it may establish on the benefit of the company’s directors and officers a share in the company’s profits, provided that the total amount thereof does not exceed the annual compensation of the directors and officers, nor one-tenth of the

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profits, whichever is the lower. Nevertheless, directors and officers shall only be entitled to a share in the profits in a financial year for which the compulsory dividend is paid to the shareholders.

The detailed information on the compensation paid to the company’s directors and officers, including, but not limited, the breakdown of the compensation (e.g., fixed and variable compensation), the minimum, lowest and average compensation paid, must be disclosed in the company’s reference form.

Fiscal board The fiscal board is a supervisory body that is responsible for supervising the company’s directors and officers and providing information in this respect to the shareholders.

The fiscal board is a compulsory body, but need not operate on a standing basis. A non-permanent fiscal board must be instated, upon the request of shareholders representing at least 10 per cent of the voting stock or 5 per cent of the non-voting stock.

The fiscal board is composed of three through five members and a like number of alternates. The conditions for election and impairment of fiscal board members (who must be Brazilian residents) are prescribed by law.

The fiscal board has the authority to, among other things: a monitor the actions of the company’s officers and directors and verify the

compliance with their legal and statutory duties; b review and give an opinion on the board of directors’ annual report; c review and give an opinion on proposals of the management to the shareholders’

meeting relating to changes in capital, issuance of debentures or warrants, investment plans or capital budgets, dividend distribution and certain corporate reorganisations;

d report any error, fraud or criminal act and suggest useful measures to company to any officer or member of another administrative bodies, and if these fail to take any necessary steps to protect the corporation’s interest, and report to the shareholders’ meeting;

e review the balance sheet and other financial statements periodically prepared by the company; and

f examine the financial statements for the fiscal year and give and opinions about them.

The fiscal board’s authorities can be neither delegated nor attributed to any other body of the company.

ii Directors

As mentioned above, the board of directors is a decision-making body of the company, but it shall fall to the executive board the daily routine of administration of the company. All the members of the board of directors, including the outside or independent members, must receive in advance to the meetings of the board of directors the information about the matters that will be discussed and voted.

The Brazilian legislation does not expressly set that the directors have the right to visit the company’s facilities, as well as its subsidiaries, or that the directors should

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have free access to the lower management of the company. However, considering that among the duties provided in the Brazilian Corporation Law for the board of directors it is established that the board of directors shall ‘supervise the performance of the officers, examine the books and records of the company at any time, request information on contracts signed or about to be signed, and take all other necessary action’, it is expected that the directors shall have free access to the company, its subsidiaries and its lower management.

Pursuant to the Brazilian Corporation Law, the directors have the following duties and obligations: a a duty of diligence, employing the same care and diligence that every diligent and

honest person employs in its own business; b to act within the scope of their duties without misuse of power, refraining from

the performance of gratuitous or non-authorised acts, and the receipt of personal advantage by reason of the performance of their duties;

c even if elected by a certain group or class of shareholders, they have the same duty to the company as everyone else, and must not, even in the defence of the interests of those who elected them, fail to fulfil these duties;

d a duty of loyalty; e to act without conflict of interest, not intervening in any transaction where they

have an interest conflicting with that of the company; and f a duty of information.

As regards the liability of the directors, the directors shall not be held personally liable for the obligations assumed on behalf of the company as a result of a regular act of management. However, the directors shall be held liable in civil lawsuits for the losses that they cause owing to acts of negligence or fraudulent intent and in violation of the law or the company’s by-laws.

Note that the directors shall not be liable for unlawful acts performed by other directors, unless they are involved with these directors, if they neglect to perceive them or if, having knowledge of them, fail to act in order to prevent their performance. However, directors are held jointly liable in the cases of decisions taken by the board of directors.

In this particular, we note that any act of omission or negligence of the board of directors is of personal liability of each of its members, and the dissident director shall express his or her disagreement regarding the resolutions taken through the clear and written register in the minutes of the meeting of the competent administration body, in order to release him or herself from the eventual civil liability. The director who agrees with the performance of acts that violate the law or the company’s by-laws shall be held jointly liable for the losses resulting from said act.

The members of the board of directors are elected by the shareholders, who can dismiss them at any time. The shareholders representing at least one-tenth of the voting capital may request that a multiple voting procedure be adopted to entitle each share to as many votes as there are board members and to give each shareholder the right to vote cumulatively for only one candidate or to distribute his or her votes among several candidates.

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The term of office of the directors must be defined in the by-laws, but it cannot exceed three years, being permitted the re-election. In the case of the companies listed in the Novo Mercado, Level 2, Level 1 and BOVESPA MAIS listing segments, the term of office cannot exceed two years, being permitted the re-election.

The requirements for the appointment to occupy a position in the Board of Directors are established in the Brazilian Corporation Law. Generally speaking, the director must be someone with unblemished reputation, who has not been condemned in an administrative or judicial procedure related to corporate crimes or irregularities. Besides, unless waived in a shareholders’ meeting, the individuals who hold positions in companies that may be regarded as market competitors of the company, or who has any conflict of interests with the company, cannot be elected as board member.

Still, in what refers to conflict of interests, the director shall not take part in any corporate transaction in which he or she has an interest which conflicts with an interest of the company, nor in the decisions made by the other directors on the matter. He or she shall disclose his or her disqualification to the other directors and shall cause the nature and extent of his interest to be recorded in the minutes of the meeting of the board of directors.

Notwithstanding compliance with the conflict of interests provision, the director may only contract with the company at arm’s length. Any business contracted other than in arm’s-length basis is voidable, and the director concerned shall be compelled to transfer to the company all benefits which he or she may have obtained in such business.

III DISCLOSURE

The Brazilian Corporation Law has adopted the principle of full disclosure when it comes to acts or facts related to the company that may be considered relevant. The disclosure of material events is a duty of the company’s investor relations officer, who may be held personally liable for damages caused by non-disclosure.

CVM Ruling 358/2002, which sets forth the general disclosure rules for listed companies, defines ‘material event’ broadly, as any decision arising from a controlling shareholder, a general shareholder meeting or a management body of a publicly held corporation, or any other act or event of a policy, management, technical, business, economic or financial nature in connection with its business that could considerably influence the trading price of the securities issued by or related to the company; the decision by investors to buy, sell or keep those securities; and the decision by investors to exercise any rights they have as holders of securities issued by or related to the company.

At the end of 2009, CVM enacted CVM Rulings Nos. 480/2009 and 481/2009, modifying, respectively, the rules regarding: the disclosure of information by publicly held companies and the presentation of documents and information before meetings are held. The main change in disclosure issues was the introduction of the reference form, which basically compiles corporate, contractual, financial/economic, governance, and human resources information about the company. The reference form must be updated, at least once a year, or in a shorter period in the occurrence of certain events that demands the update of the information provided in the reference form.

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As for the financial reporting, the listed companies must disclose its financial statements, together with the management report, the independent auditors’ report, the opinion of the Fiscal Board, if installed, with, at least, one month in advance to the ordinary shareholders’ meeting.4

The listed companies must also disclose the standard form of financial statements (DFP), within the first three months after the end of each fiscal year. The DFP is an electronic form created in the CVM’s electronic system that must be filled in with some information obtained from the annual financial statement.

The listed companies shall also disclose, on a quarterly basis, the form of quarterly information, which is also an electronic form that must be filled in with the company’s quarterly financial information and must contain the report of the special review issued by the independent auditor.

In addition to disclose their financial statements in Portuguese, companies listed in the Novo Mercado and Level 2 listing segments must disclose them in English.

Regarding one-on-one meetings, the companies listed in the Novo Mercado, Level 2 and Level 1 listing segments are required to hold, at least once a year, a public meeting with analysts and other third parties, to disclose information about its financial and economic situation, projects and expectations.

IV CORPORATE RESPONSIBILITY

Pursuant to the Brazilian Corporation Law, all the publicly held companies must prepare on an annual basis, within their financial statement, the value added statement, which could be considered as a social balance of the company, once such statement shall inform the overall wealth produced by the company, its allocation to the items that contributed to generation of such wealth (such as employees, financiers, shareholders, the government and others), and the unallocated portion of such wealth. In addition, some companies look for certifications issued by institutes such as the Ethos Institute, the Brazilian Institute of Social and Economic Analysis (and Global Reporting Initiative, but such certification is not mandatory for listed companies.

In this sense the code published by the Brazilian Financial and Capital Markets Association (ANBIMA) regarding public offerings, set forth that the company must include in the reference form the information on the social responsibility, cultural incentives and projects on those areas implemented by the company, if any. Thus, ANBIMA’s code does not require the existence of social responsibility policies, but if there is one, it should be disclosed in the reference form.

As for compliance rules, it is worth noting that since 29 January 2014 a new anti-corruption law has been in place introducing administrative and civil liability on legal entities for illicit acts practised against local and foreign public officials. However, there is as yet no whistle-blowing legislation in force in Brazil.

4 The ordinary shareholders meeting must be held within the first four months after the end of each fiscal year.

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V SHAREHOLDERS

Each common share shall have the right to one vote in the shareholders’ meetings and it is not possible to have shares with multiple voting rights. Nevertheless, except for the companies listed in the Novo Mercado, that are required to issue only common shares, the Brazilian companies can issue preferred shares, which can be issued without voting rights.

In addition, the Brazilian Corporation Law sets forth that it would be possible to include in the company’s by-laws a provision restricting the number of votes by each shareholder. Nevertheless, the companies listed in the Novo Mercado and Level 2 listing segments are not permitted to include in their by-laws any provision restricting the number of votes of shareholders in a percentage below 5 per cent of the stock capital, except in some few cases provided in the listing rules.

In theory, shareholders should not have the ability to influence the directors’ decision. In this regard, it is worth noting that there is a specific article of the Brazilian Corporation Law that sets forth that the director shall use his or her powers to achieve the company objectives and to support its best interests, even if such interests are contrary to the shareholder, or group of shareholders, who have elected or indicated him or her.

Nevertheless, the Brazilian Corporation Law also contain a provision stating that the votes of directors can be bound to a shareholders’ agreement. Therefore, the Brazilian Corporation Law recognises that the directors can receive instructions from the shareholders on how to vote in board meetings.

The shareholders meeting has exclusive authority to: a amend the by-laws; b elect or discharge the company’s senior management and Fiscal Board members; c receive the annual accounts of the senior management and resolve on the financial

statements presented by them; d suspend the exercise of rights by a shareholder; e resolve on the appraisal of assets contributed by any shareholder to the company’s

capital; f authorise the issuance of participation certificates; g resolve on the transformation, merger, consolidation, spin-off, winding-up and

liquidation of the company; to elect and dismiss liquidators; and to examine the liquidators’ accounts; and

h authorise the senior managers to admit bankruptcy of the company and to file for concordata (debt rehabilitation).

As for the rights of dissenting shareholders, certain fundamental changes in the company entitle the shareholders who have not voted in favour of the resolution to withdraw, by refund of their shares, under the circumstances below:a in the case of the creation of preferred shares or increase of an existing class

without maintaining its ratio to the other classes, and change of a preference, a privilege or a condition of redemption or amortisation conferred upon one or more classes of preferred shares, or creation of a new and more favoured class;

b the spin-off of the company only triggers the right to withdraw if it results in a change in the corporate purposes – except when the spun-off company is

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transferred to a corporation with a main line of business that coincides with the line of business of the spun-off company – a reduction in the mandatory dividend or participation in a group of corporations;

c the reduction of the compulsory dividend in any specific fiscal year, change of corporate purpose and insertion of an arbitration clause in the by-laws;

d the approval of the ‘merger of shares’ entitles shareholders of both companies involved to withdraw; and

e a shareholder who has not voted in favour of the acquisition by the listed company of which he or she is a shareholder, of the control of a business corporation is entitled to withdraw if the purchase price exceeds 1.5 times the greatest of: the average quotation of the shares on the stock exchange during the 90 days prior to the contracting date; the net value of each share or quota, the assets and liabilities having been valued at market prices (liquidation value); and the net profit of each share or quota, which may not exceed 15 times the annual net profit per share during the past two fiscal years, monetarily adjusted.

The controlling shareholder has the duty to use its controlling power to make the company accomplish its purpose and perform its social role, and shall have duties and responsibilities towards the other shareholders of the company, those who work for the company and the community in which it operates, the rights and interests of which the controlling shareholder must loyally respect and heed.

The controlling shareholder shall be liable for any damage caused by acts performed in abuse of its power. The Brazilian Corporation Law list some examples of what would be considered an abuse of power, which include, among others, the following: a to guide a company towards an objective other than in accordance with its objects

clause or harmful to national interests, or to induce it to favour another Brazilian or foreign concern to the detriment of the minority shareholders’ interests in the profits or assets of the company or of the Brazilian economy; and

b to arrange for liquidation of a viable company or for the transformation, merger or division of a company in order to obtain, for itself or for a third party, any undue advantage to the detriment of the other shareholders, of those working for the company or of investors in the company.

As for the institutional investors, there are no specific duties provided in the Brazilian legislation and there is no code of best practice for shareholders.

i Shareholder activism

Shareholder activism is not well developed in Brazil. Nevertheless, in the past years it has been seen a growing amount of shareholder activism, especially by some fund managers, but shareholder activism is still not part of the culture of Brazilian capital markets.

The Brazilian companies more exposed to shareholders activism are those that have issued American Depository Receipts in the US market. A good example would be Petrobras, the Brazilian oil and gas company, which has been facing several lawsuits filed before the New York courts by mutual funds owing to the losses stemming from the money-laundering and corruption schemes that have recently became public.

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ii Contact with shareholders

Mandatory and best practice reporting to all shareholdersThe company must disclose to all of its shareholders, through its website, as well as CVM and BM&FBOVESPA’s websites, certain ordinary and extraordinary reports or information such as: the reference form, financial statements, minutes of the shareholders meetings, and documents necessary to be reviewed for the shareholders to exercise their voting right in shareholders’ meetings.

It is a common practice in listed companies to hold a conference call with investors right after the release of the annual or quarterly financial statement to discuss the company’s results. It is also usual for the companies to hold meetings or calls with analysts to discuss the company, to enable the analysts to issue their reports on the company.

Whenever the company holds a meeting with a specific shareholder to inform about a material fact that has not been disclosed, it is usual to have this shareholder signing a non-disclosure agreement and the shareholder would be in a black-out period where it would not be able to trade the company’s shares until the material information is disclosed to the market.

The call notices for the shareholders’ meetings of publicly held companies must be published at least three times, the first call notice being published, as a general rule, at least 15 days in advance.5

Publicly held companies are required to disclose on the same day of the first publication of the call notice the Manual of the Shareholders Meeting, which contain some detailed information about the matters to be discussed and the management proposal for each of the matters that will be voted on.

In the case of the supporting documents for the ordinary shareholders’ meeting (e.g., financial statements, management report, independent auditors report and opinion of the fiscal board), such documentation must be disclosed to the shareholders 30 days in advance to the date of the meeting.

In 2015, CVM has enacted a ruling regulating the attendance and distance voting in a shareholders’ meeting of publicly held companies, whereby the shareholders would be able to present proposals of deliberations to be voted and to vote on the deliberations of the shareholders’ meeting, observing some requirements. The implementation of this proxy voting system in 2016 is not mandatory for the companies, but as from 2017 it will be mandatory for the major companies listed in BM&FBOVESPA and as from 2018 for all the listed companies.

iii Takeover defences

Shareholder and voting rights plans, and similar measuresBrazilian Corporation Law and CVM Ruling No. 361 requires as a condition for effectiveness of the direct or indirect disposal of a controlling interest in a listed company, that the acquirer make a mandatory public tender offer (tag-along TO) for the acquisition of all the voting shares that are not part of the controlling block.

5 For some specific matters the call notice must be published 30 days in advance.

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The Tag-Along TO must ensure minority shareholders the receipt of at least 80 per cent of the value paid per voting share included in the controlling block. Nevertheless, for the companies listed in the Novo Mercado listing segment, the amount to be paid in the Tag-Along TO shall correspond to 100 per cent of the value paid per voting share included in the controlling block.

Other defences to be considered are the poison pills, which Brazilian legislation does not prevent companies from putting in place, and they are common in listed companies. The typical Brazilian poison pill requires the acquirer of an equity interest above a given threshold to make a tender offer to all shareholders for a punitive price. Poison pills must, however, be established in the by-laws of the company. As a consequence, only the shareholders’ meeting, which has exclusive authority to amend the by-laws, is empowered to put poison pills in place.

CVM has already pronounced against the provisions that prevent shareholders (or impose penalties) from voting against the exclusion of the poison pills on a case-by-case basis in a definitive manner. Furthermore, the rules of the Novo Mercado listing do not allow companies that want to trade their shares on the new market to have poison pills in their by-laws.

VI OUTLOOK

We expect that the biggest trends that we will see in the years to come in Brazil is the outbreak of proxy voting and the battle for the implementation of the State-Owned Enterprise Governance Programme launched by BM&FBOVESPA, which were mentioned above.

Nevertheless, owing to the capital markets slowdown that Brazil is currently facing as a consequence of the political and economic crisis, it is likely that such trends and evolutions will take longer to be fully implemented.

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Appendix 1

ABOUT THE AUTHORS

MARCELO VIVEIROS DE MOURA Pinheiro Neto AdvogadosGraduated with LLB from the University of Rio de Janeiro Law School (UERJ – 1988) and with LLM at the University of Cambridge (1993). Mr Moura is a partner at the corporate area of Pinheiro Neto’s Rio de Janeiro office, having also worked as visiting associate at the London office of Slaughter and May. Mr Moura has been working at Pinheiro Neto’s Rio office for 30 years. He is specialised in mergers and acquisitions (corporate restructuring); regulatory law in the oil and gas area; capital markets; insurance; project finance; administrative law; government procurements and contracts.

MARCOS SALDANHA PROENÇA Pinheiro Neto AdvogadosGraduated with an LLB from the Catholic University of Rio de Janeiro Law School (PUC-RJ 2000), Mr Proença is a senior associate at the corporate area of Pinheiro Neto’s Rio de Janeiro office, having also worked as a foreign associate at the Los Angeles office of Latham & Watkins LLP (2005–2006). Mr Proença has been working in Pinheiro Neto’s Rio de Janeiro office for 18 years. He specialises in corporate and contractual aspects, with focus on capital markets and mergers and acquisitions.

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PINHEIRO NETO ADVOGADOSRua Humaitá, No. 27516th floor, Humaitá 22261-005Rio de Janeiro, RJ BrazilTel: +55 21 2506 1600Fax: +55 21 2506 1660mvmoura@pn.com.br mproenca@pn.com.br www.pinheironeto.com.br