Investors in Brazil looking to exercise their right as shareholders and actively participate in the oversight of the companies which they ultimately own by voting currently have the following options to do so:
- Be physically present at shareholder meetings to cast their votes;
- Vote by proxy, i.e. have someone legally physically represent them with a specific power of attorney that needs to be annually renewed (this process currently entails high administrative fees, complex bureaucratic proceedings, and even involves document notarization and authentication when a shareholder is foreign); or,
- Remote electronic voting, in relation to some of the meeting’s proposals, and only when that option is made available.
In this day and age, where we find ourselves (and everyone else) instantly connected through a simple click on a keyboard, or a touch of a mouse, it is hard to find a defensible rationale for Brazil’s need in requiring investors’ physical attendance at meetings in order for them to participate in the entirety of the voting process.
In fact, investors voting by proxy are often unable to have a say on the election of representatives of minority shareholders – unless they have an authorized representative present at the meeting, with a specific power of attorney, and have indicated the name of the candidate they support. Even in these cases, additional candidates for the position of minority shareholder representative can be presented up to and during the meeting, preventing owners from making fully informed decisions about the people who are specifically meant to represent their interests.
Change is on the horizon, though it is caught up in regulatory gridlock. In fact, measures were, up until a few weeks ago, intended to be implemented in time for the 2016 Proxy Season. However, on November 18, 2015, the Brazilian Securities & Exchange Commission (Comissão de Valores Mobiliários – “CVM”), with the issuance of two new instructions, postponed the mandatory application of Instruction 561/15, which envisaged the regulation of distance voting from January 1, 2016.
Instead, new Instruction 570/15, makes it optional for companies to apply Instruction 561/15 for 2016 annual meetings. On the other hand, Instruction 741/15 establishes the procedures to be observed by companies who decide, of their own accord, to adopt distance voting in 2016.
How did Instruction 561 come to be? Why was its application postponed?
In October 2014, the CVM proposed draft regulatory amendments aiming to improve shareholder participation at annual meetings, streamline the shareholder proposal process and, more generally, enhance corporate governance standards throughout the Brazilian market.
In April 2015, the CVM approved these amendments as Instruction 561, with the intention of making it applicable as of January 1, 20161, and therefore, making distance voting a reality for investors in Brazilian listed companies.
With the release of Instructions 570 and 741, and the subsequent changes introduced to Instruction 561, which included adjourning, for a further year, the possibility for shareholders to cast their votes remotely, the CVM needed to substantiate its decision – which it did.
In short, the CVM claims that companies, custodians and other service providers alike are not quite ready to implement the structures and processes needed to enable remote electronic voting.
As a result, Instruction 570 defers the applicability of Instruction 561 until:
- January 1, 2017: For companies that on April 9, 2015 (date of Instruction 561’s publication), had at least one listing, either on Index Brasil 100 or on the Bovespa Index; and
- January 1, 2018: For all other listed companies.
2017 – What Changes?
For 2017 annual meetings, distance voting will be regulated under Instruction 561, a possibility provided under Law 12.431 since, surprisingly, 2011. But, it seems that good news and positive changes are finally on the way – if everything goes according to plan, and if the CVM does not issue further regulations delaying Instruction 561’s application, the casting of votes at Brazilian shareholder meetings will no longer be dependent on investors’ physical presence or on a complicated and costly proxy process.
For the 2016 Proxy Season all eyes will be on which companies, if any, voluntarily decide to apply Instruction 561 in the forthcoming year. Here’s hoping increased access for foreign investors is not too distant a reality.