The changes prepared by the Brazilian Securities and Exchange Commission (CVM) for its instruction on the obligations of public companies - Instruction 202 - are arriving at the right time. This reform should have been complete some time ago, it's true. The proposed "new 202" was the theme of the seminar held at CAPITAL ABERTO’s launch, six years ago in September. Nevertheless, the modified regulation is now here to set a new standard of transparency for Brazilian companies, at precisely the right time to revitalize the marketplace for a new phase of prosperity.
The past few weeks have shown that the stock market is once again 'on the radar' for companies in search of funds to fuel growth. The BM&FBovespa is up by more than 60% since the start of the year, foreign investments are back with a bang, consumption and credit are on the rise, and Brazil is breathing easier. In this auspicious environment, listed companies have resumed raising funds by issuing new shares. Others that had shelved IPO plans, waiting for the first favorable opportunity, are not hesitating to take the plunge. If, in 2004, entrepreneurs and investors joined forces under the condition of a commitment to improve corporate governance, it now makes sense to renew this institutional backdrop, enhancing issuers' obligations toward their shareholders.
In addition to the CVM's new instruction, requiring more thorough bookkeeping records from companies that want to go public, the Novo Mercado is now undergoing a reform to raise the governance bar. It's a chance to advance a few steps on the path toward growth, putting Brazilian corporate practices in line with international standards and eliminating the distortions that have spring up along the way, such as poison pills 'pumped up' by clauses that aim to perpetuate them at the expense of shareholders' right to vote freely.
Convincing everyone to take those steps won't be easy, just as it wasn't when the Bovespa created its special governance tiers, nine years ago. But history has shown that demands that seem frightening at first may become more palatable with time, especially if the payoff is the possibility of funding an attractive business project, or putting together a hefty nest egg through secondary stock sales. For this virtuous cycle to keep functioning, it is essential for the authorities to act in order to make the Brazilian capital market ever more reliable.