First was department store chain Lojas Renner, a JC Penney spinoff. More recently aircraft maker Embraer, online retailer Submarino, and industrial supply maker Eternit have been pulverized. What, you ask, has happened to these Brazilian firms? “Pulverization” - when a company that was held by only a few owners broadens its shareholding base, so that no controlling party remains. Several other of the country’s firms may not have been completely pulverized, but they now have less than 50% of their shares concentrated in one shareholder or shareholding group - such as home builder Rossi, construction firm Gafisa, and BrasilAgro.
One of the directors of a pulverized company confided to me that, so far, he has a low opinion of US institutional investors who had bought into his company.
The problem is that big US behemoths do not pay attention to their duties as shareholders. Before pulverization, it was easy to get a quorum at shareholder meetings; the 800-pound gorilla, the controlling shareholder, would show up and make decisions.
Dispersed shareholding raises a new set of challenges for Brazilian companies, partly because of the way Brazil’s company laws are set up. For example, the high quorum requirements for annual general meetings have required Lojas Renner to round up large numbers of inattentive US shareholders who don’t bother to vote or send in their proxies. Legislative and regulatory changes are now under consideration to allow lower quorums. The Brazilians also realize they need to modernize by, for example, making it possible for shareholders to vote over the Internet.
Expect to see changes in some basic ways the Brazilian market works, in order to accommodate the new era of widely-distributed share ownership. One interesting feature of Brazilian corporate governance is the Novo Mercado (New Market), established in the year 2000 in the Sao Paulo Stock Exchange (BOVESPA) as
a trading segment designed for shares issued by companies that voluntarily undertake to abide by corporate governance practices and transparency requirements in additional to those already requested by the Brazilian Law.
Join the Conversation