Review of the regulations for the Novo Mercado

Brev til BM&F BOVESPA (tilgjengelig kun på engelsk)

23. november 2009

Norges Bank Investment Management (NBIM) is the investment management division of the Norwegian central bank (Norges Bank) and is responsible for investing the international assets of the Norwegian Government Pension Fund. NBIM also manages the major share of Norges Bank's foreign exchange reserves and the Government Petroleum Insurance Fund.

NBIM holds assets in excess of NOK 2500 billion of which approximately USD 3.7 billion is invested in 117 Brazilian companies. NBIM is committed to make active use of its ownership rights in order to safeguard the financial wealth of future generations by promoting good corporate governance and high ethical, social and environmental standards at investee companies. NBIM supports initiatives that seek to strengthen the quality of corporate governance and we welcome the opportunity to contribute to the review of the regulations for the Novo Mercado.

NBIM highly appreciate this opportunity to address what we consider to be the main issues in the review of the Novo Mercado listing regulations; equal treatment of shareholders, shareholder influence and board accountability.

Novo Mercado has since its inception been a great success and contributed to improved corporate governance in Brazilian companies. Other markets have taken inspiration from Novo Mercado in developing their own listing requirements. We believe Novo Mercado has built its reputation as being a front runner, and we would therefore encourage you to continue to strive for better practices in terms of equal treatment of shareholders and accountability of company governance.

The one share one vote principle is fundamental for us as investors and constitutes one of the main attractions of the Novo Mercado segment. Any provision or possibility to circumvent this principle effectively transferring influence from some shareholders towards the management or privileged shareholders is detrimental to the attractiveness of investing in companies listed on Novo Mercado. Thus we believe that the allowance of any kind of protective measures or poison pill should be completely abolished. We also encourage the intention to implement a trigger level for mandatory buyout offers to all shareholders.

Competent and sufficiently independent boards of directors are fundamental for well-functioning corporate governance. To assure sound decision making on board level, we believe it’s important to prohibit the same person from accumulating positions as chairman of the board and CEO. We also encourage an increased level of required independent directors on the board, although we would rather like to see this requirement attain 50%. The audit committee, of which we support the mandatory establishment, should be 100% independent to be able to take a critical view on company operations and risk management.

In terms of wording of the listing regulations, you should pay attention to the use or misuse of the word “compensation”. Only “remuneration” should consistently be used to highlight the fact that the board members as well as executives are paid for a service they provide to the company.

The higher level of corporate governance attracts investors and encourages many companies to be part of Novo Mercado. We think BM&F BOVESPA should be careful that the future listing requirements are not losing their essence or leveled down according to influence from the member companies, but that current and new companies adapt to constantly improving governance standards. Novo Mercado should not be undermined but set challenging corporate standards for the companies to strive for. This is required to maintain the attractiveness of the listing segment and will thus benefit all member companies in the long run.

If companies are not ready to accept the constantly improving standards set by BM&F BOVESPA for Novo Mercado, they should not be included in this segment.

We hope that this contribution will be of assistance in convincing the Novo Mercado companies to accept improvements during the final steps of this review, and we remain at your disposal if you have any questions or if you would like to discuss our views.


Yours sincerely

Anne Kvam
Global Head of Ownership Strategies

Vegard Torsnes
Senior Analyst Ownership Strategies