Brazil Exchange Asks State Companies to Go Beyond Letter of Law

Latin America’s biggest securities exchange is urging Brazil’s state-owned companies to do more than the law requires in improving corporate governance as part of an effort to make the nation’s stocks more attractive to investors.

BM&FBovespa SA is proposing that the companies voluntarily join a program under which members agree to follow tighter rules. The initiative, scheduled to start June 30, will require them to establish an internal audit committee to oversee businesses, follow clear rules when hiring executives and disclose more information to shareholders, BM&FBovespa director Flavia Mouta told reporters in Sao Paulo on Thursday.

The plan is an attempt to instill confidence in a market that has been struggling to overcome a corruption scandal engulfing state-controlled oil producer Petroleo Brasileiro SA. The company hasn’t reported audited results since 2014’s second quarter as it tries to measure losses stemming from alleged bribes paid in contracts with suppliers. State-owned enterprises on the Ibovespa have lost 49 percent of their market value since 2010, compared with a 23 percent drop for other stocks.

“Our goal is to boost investor confidence in those companies,” BM&FBovespa Chief Executive Officer Edemir Pinto told reporters. “We want these companies to follow rules that are more strict than the law.”

BM&FBovespa has been working on the initiative with the securities watchdog CVM. The program will be open for state-owned companies even if they aren’t publicly traded. Admission will be managed by BM&FBovespa, which will also monitor members to insure that rules are being followed. The details of the plan will be discussed with companies and regulators starting April 22, Pinto said.

“We understand that state-owned companies have their own peculiarities, but that doesn’t mean they can’t be more transparent,” Leonardo Pereira, the head of CVM, told reporters.

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