Corporate governance in Brazil used to be so bad that many investors avoided the market altogether. Brazilian companies had (and still have, in many cases) a two-tier share structure combining voting shares and ordinary shares. Typically the owners would control the company through the voting shares, and ordinary shareholders would miss out during takeovers and other crucial events.
The challenge faced by capital markets authorities in trying to change this situation was in getting the legislation passed in congress. Lawmakers were bound to view proposals as an attack on Brazil’s numerous family companies and oppose them. Instead, they introduced a new market, the Novo Mercado, on which companies that met modern corporate governance standards could list, reassuring minority investors they would be treated fairly. Companies that conformed to only some of the requirements were granted either level 1 or level 2 status to reflect their improvements.