Challenges to Improving Governance Standards: The Case of Novo Mercado and Issuers in Brazil
Key Takeaways
- The B3 stock exchange’s recent attempt to enhance governance requirements for its premium Novo Mercado listing segment was voted down by constituent companies.
- Proposed changes included increased board independence requirements, a cap on external board commitments, more reliable financial reporting, updated disciplinary measures for irregular conduct, and more flexibility in choice of arbitration forum.
- Companies that already met the new requirements nonetheless voted to reject them, objecting to the stock exchange’s voting process for updates and lack of engagement with constituents.
- The proposed updates are now on hold as the B3 conducts a review of the voting process for approving changes to the Novo Mercado listing requirements.
The most recent attempt to update governance requirements on the Novo Mercado, a special listing segment on Brazil’s stock exchange (B3), was met with significant resistance from its constituent companies. The resistance from issuers culminated with their rejection across the board of all proposed changes. Interestingly, the response was driven not only by an opposition to proposed changes, but also as a reaction to a voting process that the issuers considered unfair. With updates to the corporate governance requirements for Novo Mercado constituents now on hold, the outcome has prompted Brazil’s stock exchange to review its own governance procedures.
Background on Corporate Governance Regulation in Brazil
Brazil’s B3 stock exchange includes a basic listing segment, where companies need only follow Brazilian legislation and Brazilian Security Exchange Commission (CVM) regulations, and five special listing segments that require compliance with more specific standards. Of these special listing segments, the Novo Mercado carries the highest corporate governance standards in the country. Due to the voluntary nature of the special listing segments, their regulations may only be materially amended if approved by their members. This differs from the top-down processes of other markets.
The last significant listing segment reform took place in 2017. Notable changes to Novo Mercado included the introduction of a minimum board independence requirement of 20%, or two independent members, whichever greater; the requirement for the establishment of an audit committee, with one independent member and one financial expert; and the setting and the mandatory disclosure of certain corporate policies, such as a remuneration policy and a nomination policy.1 Notably, the 20% board independence requirement has subsequently become mandatory for all publicly listed companies under CVM Resolution 168, taking away the hallmark element of Novo Mercado’s regulations.
The 2024-2025 Novo Mercado Reform: Consultation Process and Main Proposed Changes
The 2024-2025 Novo Mercado reform, the first major revamp since 2017, began with the aim of adopting additional corporate governance requirements to help mitigate risks and ultimately contribute to making Brazil’s capital market more attractive for local and international investors.
The update process started in May 2024, when B3 kicked off the first of two public consultation rounds, with the aim of gathering feedback and commentary from the market -- including from publicly listed companies, investors, regulators and other relevant actors.
Key amendments in the initial proposal included the possibility of putting the Novo Mercado seal under review, to warn the market of any material irregularities, along with increased board independence requirements, a cap on external board commitments, more reliable financial reporting, updated disciplinary measures for irregular conduct, and more flexibility in choice of arbitration forum.2
Left out of the proposal were items like the introduction of mandatory recovery provisions, such as clawbacks. B3 had tested the waters by asking if companies listed on the Novo Mercado should be required to include minimum rules for deferral and clawbacks in the future. The prevailing market sentiment was that, while important, remuneration-related matters still needed to further mature in Brazil before being made mandatory. Instead, B3 expressed their intention to advance best remuneration practices, including clawback and malus clauses, through educational activities, studies and market guidelines.3
Issuer Feedback and Resulting Revisions
Following the public consultation, the proposed text was amended in order to address issuer feedback and resubmitted to the market. The main change was replacing the Novo Mercado seal under review with the “Novo Mercado Warning,” with fewer triggering events, and allowing for company input and clear disclosure procedures. This was to assuage issuers that the revision was only an informational measure for transparency, without implying automatic sanctions or their removal from the listing segment. The proposal was also tweaked to establish an early warning to be sent to the company 48 hours before its issuance. Further clarifications and exceptions were also added to other proposed changes.
Reforms to the Voting Process
Under current Novo Mercado regulations,4 any reform requires approval from constituent members and will be vetoed if one-third of them reject it. To vote on the proposed reform, each company must publish the minutes of the board meeting with their voting decisions. If a company abstains from the vote, this is considered as consent to the proposed reform.
In Spring 2025, the final text of the proposals5 went up for vote, but B3 also made further changes related to the voting process itself. Initially, the 190 companies listed in Novo Mercado had been asked to vote on the proposed changes by block, with all items being divided into three groups: (i) basic changes; (ii) Novo Mercado Warning; and (iii) reliability of financial statements. However, after exchanges with executives and board members, B3 decided to amend the voting method to an item-by-item basis, allowing companies to vote on each topic separately. The voting deadline was also extended from one to three months.
Inside the Rejection: What Drove Issuer Pushback
The end of the voting period saw companies overwhelmingly rejecting the new Novo Mercado regulations. Votes were cast by 152 companies, with 74 against all items, well clear of the one-third mark, 70 in favor of some items and a mere 8 in favor of all items. The most controversial item was, unsurprisingly, the Novo Mercado Warning, with only 14 companies supporting it despite the softening of its terms.
Notably, some of the concerns cited by companies in their published board minutes involved the overall reform process, rather than the content of the proposals. A lack of transparency about the added value of the proposed changes, a lack of engagement with companies, and the method of counting abstains as favorable votes were all frequently cited – including by multiple issuers who highlighted that they were rejecting the proposals, despite already voluntarily complying with most items.
Conclusion
The failed reform underscored how difficult it can be to increase corporate governance standards in Brazil, as even the regulations of B3’s star listing segment could not be changed unilaterally by the stock exchange without broad issuer consent. While the proposed changes were largely in line with shareholders’ interests and international best practices, issuer concerns surrounding the overall process precluded approval of the reforms at this time.
In the wake of issuer pushback, B3 has committed to initiating a broad discussion through 2025 to review the voting process for approving changes to the Novo Mercado listing requirements. In the meantime, the existing rules will remain in place. All eyes will be on whether this review leads to procedural reforms that can facilitate improved corporate governance standards down the road.
Notes and References
- B3 Exchange. Evolução dos Segmentos Especiais Novo Mercado – principais alterações. October 4, 2017. Accessed November 23, 2025. https://www.b3.com.br/data/files/4B/D3/6F/B2/7F963610B4199636790D8AA8/Evolucao_Segmentos_Especiais__NM_aprovado%20CVM__WS__04.10.2017_.pdf.
- B3 Exchange. Public Consultation No. 01/2024 - DIE. Accessed November 23, 2025. https://www.b3.com.br/data/files/DF/A6/B3/5E/51B3F8100E866AE8AC094EA8/Public%20consultation%20-%20Novo%20Mercado%20Evolution.pdf.
- B3 Exchange. Public Consultation No. 02/2024 – DIE. Accessed November 23, 2025. https://www.b3.com.br/data/files/B2/86/3A/68/400C29106EEC8429AC094EA8/Second%20Public%20Consultation%20-%20Novo%20Mercado%20Evolution.pdf.
- B3 Exchange. Novo Mercado Listing Regulation. October 3, 2017. Accessed November 23, 2025. https://www.b3.com.br/data/files/E6/11/48/DC/E0372610D290A226790D8AA8/Novo%20Mercado%20Listing%20Regulation%20(Oct%203%202017).pdf.
- B3 Exchange. Closed Hearing No. 1/2025 DIE. Accessed November 23, 2025. https://www.b3.com.br/data/files/13/C0/74/39/9C5269109B3D0D59AC094EA8/Closed%20hearing%20-%20Novo%20Mercado%20Evolution.pdf.
