Corporate Governance Guidelines
In 2000, BOVESPA introduced three special listing segments, known as Levels 1 and 2 Differentiated Corporate Governance Practices and Novo Mercado. The purpose was to establish a secondary trading market for securities issued by Brazilian publicly-held companies which abide by best corporate governance practices. The listing segments are focused on the trading of shares issued by companies which voluntarily undertake to abide by good corporate governance practices and be subject to information disclosure requirements stricter than those already imposed by the Brazilian legislation. In general, such regulations expand the shareholders’ rights and improve the quality of the information disclosed to shareholders.
The shares issued by Porto Seguro are traded on the “Novo Mercado” segment. The Novo Mercado is a special trading segment of Bovespa’s stock market, exclusively targeted at companies which satisfy minimum requirements and accept to be bound by differentiated corporate governance practices. The items below summarize the main factors that characterize the Novo Mercado segment and which are applicable to the Company:
- Division of the share capital exclusively into common shares;
- Upon the transfer of control, even though by means of a series of successive transactions, the transaction should be subject to the extension to the minority shareholders of the same terms and conditions granted to the controlling shareholder, including price (tag-along);
- As of the second year after participation in the Novo Mercado, the financial statements should be also prepared in English language and based on the “US GAAP” or “IFRS”;
- Extension to all shareholders of terms and conditions similar to those granted to the controlling shareholders upon the transfer of the company’s control (tag along).
- Conduction of a tender offer for the acquisition of all outstanding shares, at minimum, at the market price, in the event of closing of capital or cancellation of the registration for trading on the Novo Mercado.
- Board of Directors consisting of, at minimum, 5 (five) members and with a joint term of office of up to 2 (two) years, reelection being permitted. At minimum, 20% (twenty percent) of the members should be independent directors.
- Better quality of the information relating to each fiscal year, by adding to the Standard Financial Statements (DFPs) – document submitted by the listed companies to CVM and BOVESPA, disclosed to the public and containing annual financial statements – among others, the statement of cash flows.
- Better quality of the information disclosed, by adding to the Annual Information Report (IANs) -document submitted by the listed companies to CVM and BOVESPA, disclosed to the public and containing corporate information – among others: the number and characteristics of the securities issued by the company and held by the groups of controlling shareholders, members of the Board of Directors, officers and members of the Supervisory Board, as well as any changes in such positions.
- Holding of public meetings with analysts and investors, at minimum, on annual basis.
- Submission of an annual schedule, including the scheduling of corporate events, such as shareholders’ meetings, disclosure of results, etc.
- Disclosure of the terms and conditions set forth in the agreements entered into by and between the company and related parties.
- Disclosure, on monthly basis, of the trading of securities and derivatives issued by the company by controlling shareholders.
- Maintenance of a minimum portion of outstanding shares, corresponding to 25% (twenty five percent) of the company’s share capital.
- Upon the conduction of tender offers, adoption of mechanisms that favor widespread control.
- Submission to the Market Arbitration Chamber for resolution of corporate conflicts.
The compensation practices are mainly aimed at aligning the members of management with the goals of the Company and the Porto Seguro Group, encouraging professionals to add economic value to the shareholders and respect the interests of the other stakeholders in the short-, medium- and long-term. A substantial portion of management compensation is based on results, so that, by sharing risks and considering other incentive and control elements, it will align the interests of the members of management with those of the Company, the Porto Seguro Group and all the other people and companies who contribute to and depend on the good development of the group’s activities. The compensation of the members of the board of directors, statutory executive board and audit committee adopted by the Company is unified and includes all the companies of the Porto Seguro group, having as main goal:
- Encouraging the members of management to deliver superior performance, in line with the shareholders’ expectations;
- Attracting, developing and retaining the members of management who demonstrate excellence and focus on the attainment of the group’s strategic goals;
- Generating incentives and controls that encourage the members of management to balance opportunities and risks, focusing on achieving and preserving results also in the long-term;
- Encouraging a mentality focused on the continuous development of the Porto Seguro Group and the commitment to projects, initiatives and ideas which are relevant to the future of the group;
- In line with the best market practices, the compensation practices adopted by the Company consider and are aimed at the internal consistency of the group, its external competition and the motivation of the members of management.
Stock Option Plans
The stock option plan was approved in 2018 and will be implemented in 2019 for the first time. The value of stock-based compensation indicates only the value of the projection and will be converted into stocks according to the quotation of that period, in terms of the stock option plan.
Trading on Bovespa
The settlement of transactions carried out on Bovespa is made three business days counted from the trading date, without monetary restatement. The delivery of and payment for the shares are carried out by means of the clearance chamber of Bovespa, that is, CBLC. The seller should generally deliver the shares to Bovespa on the second business day counted from the trading date.
Although all outstanding shares issued by the publicly-held company can be traded on Bovespa, in the majority of the cases, less than half of the shares issued are actually available for trading by the public. The majority of the shares are frequently held by one single controlling shareholder or by a small group of persons which comprise the controlling group, including governmental agencies. An active and liquid market for the Shares may not be developed, which would restrict the investor’s ability to resell the Shares.
Regulation of the Brazilian Capital Market
The Brazilian capital market is regulated by CVM, which has overall authority on stock exchanges and capital markets, as well as by CMN and Bacen, which have, among other powers, authority to license brokerage companies, and also to regulate foreign investments and foreign exchange transactions. The Brazilian capital market is governed by Law 6,385/76, Law 6,404/76 and any instructions, resolutions and other regulatory ordinances issued by CVM.
Pursuant to Law 6,404/76, companies may be publicly-held, such as the Company, or closely-held. Any company is a publicly-held company when the securities issued by such company are admitted for trading on stock exchanges or over-the-counter markets. All publicly-held companies are registered with CVM and should disclose periodical information and reports. The securities issued by a publicly-held company can be traded on the Brazilian stock exchanges or on the Brazilian over-the-counter markets. The shares issued by a publicly-held company, such as the Shares, can also be traded by means of private transactions, subject to certain restrictions.
The over-the-counter market is divided into two categories: (i) organized over-the-counter market, where trading activities are supervised by self-regulatory entities authorized by CVM; and (ii) non-organized the-counter market, where trading activities are not supervised by self-regulatory entities authorized by CVM. In any event, the transaction carried out on the over-the-counter market consists of direct trading among persons, outside the stock exchange, upon the intermediation of a financial institution authorized by CVM. No special license, in addition to the registration with CVM (and, in the case of organized over-the-counter markets, registration with the applicable over-the-counter market), is required for the trading of securities issued by a publicly-held company on the over-the-counter market, it being understood that all transactions carried out on the Brazilian over-the-counter market should be informed to CVM by the respective intermediary institutions.
The trading of any security may be suspended by Bovespa prior to the publication of a material event notice. The trading may also be suspended upon Bovespa’s or CVM’s discretion, if there is reasonable indication that any company has provided inadequate information with respect to any material event or has provided inadequate answers in any investigation conducted by CVM or the respective stock exchange, among other reasons.
Law 6,385/76 and the regulations issued by CVM provide for obligations to disclose information, restrictions on trading in reliance upon inside information and manipulation of prices, in addition to protection of minority shareholders, among others.
Any trading carried out on the Brazilian stock exchanges by non-resident persons are subject to certain restrictions pursuant to the Brazilian legislation applicable to foreign investments.