Regulations
India and Brazil have long-standing laws on the establishment of companies. Brazil's Law 6404, or the Corporations Law of 1976, and its amendment of 2001, lay out the guidelines for incorporation and briefly outline rights and duties of management and shareholders.

India's Companies Act has been in place since 1956 and sets out the current three-tier system of administration on the national, state and regional level. In 1997, the act was overhauled, dropping the prohibition on company share repurchase and on issuing shares with different voting rights.

China formalized its Company Law in 1993, dealing with incorporation and directorships. Russia's Federal Law on Joint Stock Companies is more recent. Parts of the 1995 law are based on the American Bar Association's Model Business Corporation Act.

The Securities and Exchange Board of India (SEBI) regulates Indian securities. Brazilian securities are regulated by the Securities and Exchange Commission of Brazil (CVM), which was created by Law 6385 on Dec. 7, 1976. Brazil's main exchange, the Sao Paolo Stock Exchange (Bovespa) was broken into three tiers in 2001, with only the highest, Novo Mercado, being subject to the strictest disclosure rules. Only 2.9 percent of all listed Brazilian companies are on the Novo Mercado (New Market) level, which also has a section that offers incentives for small companies to join the capital market.

Russia's Federal Commission for the Securities Market (FCSM), established in 1996, was replaced with the Federal Financial Markets Service (FFMS) in 2004, which inherited all of the former FCSM's controlling and supervisory powers. The China Securities Regulatory Commission (CRSC) was formed in 1992.

Ownership
In all of the BRIC markets, the major obstacle to minority shareholder rights is consolidated ownership. The national governments in the BRICs are still major stockholders to one extent or another.

Chinese companies have three types of shares: government shares, legal representative shares, and public shares. The first two types are non-tradable and can account for 60 to 80 percent of each company's total shares. Tradable shares, broken down into domestic and foreign, are dispersed among many individual investors, with institutional investors making up a paltry 0.5 percent. The larger the company in China, the more state shares it has, providing greater government control.

There is also a great deal of state control at Brazilian companies, mostly of infrastructure companies like utilities and transportation. A 1989 measure passed by the Brazilian legislature gave the state authority to privatize these companies, but the law reserved a 51 percent mandatory majority ownership for the state.

Large controlling shareholders present a problem in Russia and India, too. Many Russian companies suffer from low liquidity because the founders of the company or the parent company control most of the shares. Russian law also gives the federal government a "golden share," conferring a good deal of power over potential changes to company charters.

Family-owned companies are still quite prevalent in India, with family members and acquaintances controlling large parts of the shares and much of the board as well. India's pension system is still fairly weak, and the market is dominated by 30 or so controlling families. Other major controlling shareholders are Indian lending banks, whose representatives on the board tend to be less concerned with boosting stock prices than with making sure that loans are repaid.

Boards and Meetings
Shareholders in India and Russia owning 10 percent or more may call extraordinary meetings. In Brazil, owners of 5 percent of shares or higher may call a meeting eight days after the board has promised one and failed to deliver. Notice of annual meetings must be provided at least 15 days before the event in Brazil and must be published at least three times before the meeting. The notice period is 21 days in India and 30 in Russia.

Requirements for--and definitions of--board independence vary widely. China passed a regulation in 2001 requiring one-third of directors to be independent, and any nominating, auditing and compensation committees to be entirely independent. However, the law gives no official definition of independence. Chinese companies have a two-tier board system, but the supervisory board is often subject to the will of the executives and may not have any real oversight responsibility.

India also maintains a similarly vague definition of independence, requiring one-third independence if the chairman is independent, and half if the chairman is an executive. Indian codes of governance do not recommend a separation of chairman and CEO positions, nor do they mention compensation committees. However, with increasing interest from foreign shareholders, many larger Indian companies are adhering to practices recommended by the SEBI, which more closely resemble Western standards. All Indian boards are classified.

Russian boards are two-tiered, with a board of directors and an executive board. Federal commercial law provides that shareholders elect both, but companies can opt to change this in their charters under the law. Still, executives cannot comprise more than a quarter of directors, and the General Director (CEO) cannot be chairman at the same time. Like Brazil, directors are elected by cumulative vote, but Russia imposes no term limits.

Brazilian boards are three-tiered, with executives, directors, and a supervisory board that must be completely independent and cannot have its duties dictated by other boards. Directors are elected by shareholders, and at least three of them must be shareholders themselves. Executives are elected by the board of directors. Brazilian securities law requires companies to disclose director bonuses, stock options and shares, as well as their professional affiliations.

Voting and Shareholder Rights
Shareholders in Russia that own no less than 2 percent of aggregate shares can put forward proposals, but they must be introduced within 30 days of the end of the fiscal year in the case of an annual meeting. Proposals must be submitted at least 30 days before an extraordinary general meeting. Either the shareholder or a proxy must be present at annual meetings, but in the case of extraordinary meetings, many are conducted by postal vote. It is not required, but vote results are often disclosed in Russia, some by meeting minutes on company Web sites.

India rarely allows voting by mail; mostly shareholders or their proxies must be present, because voting is largely by show of hands. Election or removal of directors is considered an "ordinary" resolution and requires a simple majority to pass. India is unique in that its director nominations require a one-time fee of INR 500 ($11) 14 days before the meeting, refundable if the director is elected. Disclosure of vote results is not required and is therefore seldom practiced.

Shareholder proposals are uncommon in Brazil, though allowed by law. Like Russian firms, Brazilian companies may choose to disclose vote results in their meeting minutes. Under Brazilian law, companies can issue nearly unlimited non-voting shares, acting effectively to separate corporate control from cash flow rights.

China's voting system is the least developed of the four markets. Proxy voting is "recommended" by law. The Binding Code of Corporate Governance of 2002 mandates cumulative voting in director elections only for companies with more than 30 percent ownership by controlling shareholders. "The institution for implementing shareholders' rights is unsatisfactory," wrote Ruyin Hu of the Shanghai Stock Exchange in a 2005 study.

Corporate governance within the BRICs is not likely to move anywhere but forward as international pressure increases. In 2005, China began to experiment with floating more of its previously non-tradable government shares to gauge market effect. There is a push in India to make 1997's Desirable Corporate Governance Code mandatory. Brazilian regulators are pushing for the adoption of Generally Accepted Accounting Practices like those in the United States.

The Russian Institute of Directors, a nonprofit partnership, puts out reports on improvements in corporate governance every year. In early 2006, the National Council on Corporate Governance put out a report recommending, among other things, the legal establishment of audit committees, transparency of company affiliations to decrease related party transactions, and disclosure of major shareholders. The report also stressed the importance of bringing Russian accounting standards to a global level. A copy of the report is available here.

Accountability and disclosure standards, such as the ones required by the Sarbanes-Oxley Act in the U.S. or the governance principles outlined in the U.K.'s Combined Code, are a fair way down the road for the BRICs. But outside pressure for greater transparency and the urgent need for more foreign portfolio investments can only propel these emerging markets to that goal.