Reaction to the new remuneration disclosure requirements set out by the Comissão de Valores Mobiliários (Securities and Exchange Commission of Brazil, or “CVM”), have been mixed, ranging from full and immediate compliance to complete revolt – with some companies filing lawsuits challenging the legality of the new provisions.

CVM, the regulatory body for the Brazilian securities market, recently issued new requirements of listed companies requiring more detailed disclosures regarding executive pay. The new legislation, particularly Instruction 480, requires companies to publish the lowest and highest individual remuneration amounts among directors and executive management, and the average remuneration across the company as a whole. A discussion of the executives’ incentive regime is also compulsory, along with a host of other data: the company’s principal activities, assets, capital structure, its independent auditors, risk factors, and other items. Instruction 480 was issued in early December 2009 after an eleven month public consultation process and came into force with effect from 1 January 2010.

While the new requirements, predictably, have been widely supported by investors, on the corporate side some have found compliance to be an unfair burden due to the compressed timetable forced upon them in conforming to the new standard. Companies are obliged to submit the new “Reference Form” within five months of their financial year end (and at least 30 days prior to the AGM), sending some smaller companies scrambling to collect and collate data that had not previously been gathered, much less disclosed.

Lamentably, some corporate solicitors have filed action on the new requirements, specifically bringing into question the legality of Instruction 480 on the grounds that it is unconstitutional as a violation of an executive’s right to privacy. This stance is being proffered despite the high profile nature that an executive or board position entails by definition, and comes off as a disingenuous attempt to thwart a very basic level of transparency in regards to executive remuneration. The new requirements are, in terms of remuneration disclosure, far less demanding relative to those in place in major markets throughout the world – they do not require the amounts disclosed to be associated with specific directors, which should serve to dismiss any concerns as to executive privacy. In any case, surely the need for transparency involving at-will employees and directors controlling millions of pounds of investor capital would outweigh any privacy concerns.

Despite the initial bumps in the road, the new disclosures are a welcome sight for shareholders and are undoubtedly a step in the right direction for the Brazilian markets. The move toward a quantitative disclosure of remuneration policy is offering investors insight as to how their management team is motivated and is a necessary step towards transparency and constructive dialogue between company boards and their shareholders. Those with investments in these markets will no doubt keep a sharp eye on this story as it develops.

Last Updated: 21 June 2010