The suspicion that conflicts between controlling and minority shareholders generate a loss of market value for companies has come to an end. The study What are the costs of conflicts between controlling and minority shareholders in a concentrated ownership environment?, by professors Alexandre Di Miceli and Armando Lopes Dias Junior, confirms that shareholder disputes are one of the most efficient ways to lose money, somewhere around 12% of the company within 15 days. Such was the average depreciation of 21 companies whose conflicts were covered by the media from 2001 to 2007.

Altogether, their shareholders lost US$ 7.8 billion in, basically, three types of conflict. Merger, acquisition and going private decisions; election of board members; and management choices were the categories spotlighted by the professors in their research. “In brief: they are decisions that increase the controlling shareholder’s power and/or profit to the detriment of minority shareholders”, says Di Miceli, a colleague of Dias Junior on the faculty of the University of São Paulo’s School of Economics and Administration (FEA/USP).

One of the six cases dissected by the study serves as an example of how conflicts can be disastrous for both parties. In 2006, Gerdau steelworks’ controlling family decided on a sixteenfold increase in the royalties that they received from the company for the use of their name. Expenses would jump from US$ 2 million per year to US$ 32 million. The market complained and, even after the controlling shareholders backtracked, share prices went down 9% in two weeks. As owner of 75% of the company, the Gerdau family lost approximately US$ 750 million with the maneuver.

“Clearly, making a decision that displeases minority shareholders destroys value”, says Di Miceli, for whom the study has the collateral result of highlighting the media’s role in defending corporate governance. According to Di Miceli, the Brazilian finance-oriented media’s level of independence and specialization enabled ample disclosure of conflicts and their interpretation by the market, which understood the situations as negative. “The media does very well to divulge concepts of great relevance to governance.” Twenty years ago, Di Miceli believes, the repercussion would not have been as great. Nor the damage. (Marcelo Loureiro)