Corporate governance has become a central theme in the business world, representing a set of practices and policies aimed at ensuring transparency, integrity, and ethics in business operations. In Brazil, the importance of corporate governance has grown exponentially in recent decades, driven by the demand for greater transparency and the need to attract quality investments, especially after the creation of legislation such as the Anti-Corruption Law (Law No. 12.846/2013).
The growing interest in governance, in turn, is also linked to the evolution of the concept of compliance, a framework that ensures that the company operates in accordance with applicable laws, regulations and ethical standards, as well as acting to prevent illegal practices within its activities.
In this article you will learn about the history of the topic in Brazil and the most recent trends and changes in Brazilian corporate governance, exploring the transformations driven by the regulatory environment and new social and environmental expectations. Furthermore, government incentive initiatives, such as the Empresa Pró-Ética program of the Comptroller General of the Union (CGU), will also be discussed, as well as future perspectives for corporate governance in Brazil.
Corporate Governance and Compliance: Definitions and Importance
Corporate governance is "a system comprised of principles, rules, structures, and processes by which organizations are directed and monitored, with a view to generating sustainable value for the organization, its shareholders, and society in general."
This set of guidelines, often created by internal boards and committees, seeks to protect the interests of shareholders and stakeholders, including employees, customers, suppliers, communities, and the environment itself. Successful corporate governance combines principles of transparency, fairness, accountability, and corporate responsibility to align business practices with best ethical practices.
The Role of Compliance in Corporate Governance
On the other hand, compliance encompasses the set of actions and policies adopted by a company to ensure conformity with internal and external laws, norms, and regulations. Although distinct, governance and compliance are deeply interconnected concepts: corporate governance creates the environment where compliance can be effectively implemented. In this sense, a robust compliance system helps companies identify risks, prevent irregular conduct, and mitigate legal and reputational impacts.
These practices gained notoriety in Brazil following corruption scandals in large companies, revealed by high-profile national investigations such as Operation Lava Jato, which uncovered one of the largest money laundering and embezzlement schemes in the country, and increasing pressure from investors and regulators.
Since then, driven by the demands of the public, the market, and investors, boards of directors have been strengthened, and audit and ethics committees have become crucial elements in the governance structure, ensuring integrity and transparency in the company's decisions and operations.
Furthermore, it is noted that, historically, companies have been investing more and more in corporate governance, especially through their compliance departments and increasingly robust integrity policies.
The Growth of Investment in Corporate Governance in Brazil and Worldwide
The adoption of corporate governance practices has been increasingly considered by investors as a crucial factor in evaluating companies. Internationally, the Organisation for Economic Co-operation and Development (OECD) already incorporates corporate governance guidelines that encourage member and observer countries to promote integrity in companies.
This global movement was driven by financial crises and scandals that shook confidence in the markets, such as the Enron case in the United States in the 2000s and, more recently, the Petrobras scandal in Brazil, as previously mentioned.
Given this scenario, investors, shareholders, and the general public have begun demanding more control and security mechanisms regarding business practices and potential illicit conduct by companies, since corruption scandals and investigations with significant negative repercussions have the power to generate irreversible reputational damage and impact the economy of the business and entire nations.
The Role of Anti-Corruption Law and the Brazilian Capital Market
In Brazil, the Anti-Corruption Law represented a milestone in promoting corporate integrity. By directly holding companies accountable for acts of corruption, the law encouraged many organizations to adopt governance and compliance practices to prevent illicit conduct. Furthermore, the Brazilian capital market, through the B3 Stock Exchange and sustainability indices such as the Corporate Sustainability Index (ISE), has been promoting companies that adhere to good governance practices.
This growth reflects a greater demand for transparency and ethics from consumers and investors. With increased access to information and the growing relevance of environmental, social, and governance (ESG) factors, there is pressure on companies to adopt higher standards of corporate responsibility.
Currently, corporate governance is no longer seen merely as a regulatory obligation, but also as a factor of market competitiveness, attracting investors seeking companies committed to sustainability and transparency. Furthermore, the increase in regulations worldwide requires companies, especially multinationals, to maintain high standards of corporate ethics to remain competitive and compliant with international norms and guidelines.
Evolution of Corporate Governance in Brazil
Corporate governance in Brazil has undergone a significant transformation in recent decades. In its early stages, the practice was restricted to large corporations, often state-owned, which adopted board and audit structures to oversee their operations. Over time, however, these practices have expanded to medium-sized and family-owned businesses, influenced by the internationalization of the Brazilian economy and the adoption of global standards.
In the last decade, since the implementation of the Anti-Corruption Law, corporate governance has become a priority for companies of all sizes and sectors. This is because, in addition to seeking to encourage the practice of integrity policies and the prevention of illicit conduct, the law also creates more severe penalties for non-compliant companies and, consequently, has led public entities to carry out more efficient monitoring.
To assist and encourage companies, the CGU (Brazilian Federal Comptroller General) has adopted several guidelines and promoted companies that adhere to integrity control mechanisms. For example, the entity has a collection of guides and guidelines on the development of private integrity programs, which are constantly updated according to market practices.
Other institutions, such as the Brazilian Institute of Corporate Governance (IBGC), have encouraged the adoption of best practices through materials such as the Code of Best Practices in Corporate Governance, promoting a more ethical and transparent business environment. Furthermore, companies are increasingly embracing the concept of environmental compliance and social responsibility, engaging in programs that seek to mitigate environmental impacts and improve life in the communities where they operate, and adopting new, more complex trends in corporate governance, such as ESG.
Current Trends and the Evolution of Corporate Governance
In the current Brazilian scenario, after the introduction of a corporate compliance culture through the creation of specialized areas on the subject, the development of corporate integrity policies, and the provision of training, companies have entered a new phase of developing more elaborate and complex aspects, such as diversity, transparency, and accountability.
The adoption of structures such as independent boards of directors and compliance committees has become a market requirement and a positive signal for investors. B3 created listing segments, such as the Novo Mercado, which demands high governance standards for listed companies, encouraging the adoption of practices that respect shareholder rights and guarantee transparency and fairness in commercial relations, which companies demonstrate through the completion of Reference Forms (FRE) for disclosure and to allow market monitoring.
Government Incentive Measures
Brazilian government entities, especially the CGU (Office of the Comptroller General), recognize the importance of corporate governance for market integrity and competitiveness. In addition to the documents and guidelines already mentioned, the CGU also has the Pro-Ethics Company program, which evaluates companies' integrity programs, and the Brazil Pact for Business Integrity, through which companies commit to maintaining high ethical standards.
Regarding the Pro-Ethics Company program, led by the Comptroller General of the Union (CGU). The program's objective is to promote ethics and transparency in companies and reward those that adopt effective measures to prevent corruption and other irregularities.
Created in 2010, the Pro-Ethics Company seal of recognition is awarded to companies that demonstrate a commitment to good integrity practices, according to the criteria of the CGU (Brazilian Federal Comptroller General). The program evaluates compliance policies, internal controls and transparency, as well as social and environmental responsibility initiatives.
Companies participating in the program gain positive visibility in the market, promoting an image of reliability that attracts investors and consumers. Furthermore, adherence to the Pro-Ethics program can serve as a differentiating criterion in public tenders and contracts with the government, encouraging the adoption of ethical practices in companies that intend to do business with the public sector.
Brazil Pact for Corporate Integrity: Expansion and Commitment to Ethics
The Brazil Pact for Corporate Integrity is a measure launched in 2024 by the CGU (Brazilian Comptroller General's Office) with the objective of expanding the promotion of corporate integrity, disseminating knowledge on the subject, and raising awareness among companies about the relevance of the topic. To participate, companies commit to the pact and complete a self-assessment form of their compliance program so that they can analyze areas for improvement and development.
Despite its short time since launch, the CGU reports that more than 100 companies have already joined the Brazil Pact. Furthermore, a monitoring panel has also been launched, through which the general public can consult the names of the signatory companies and the responses to the self-assessment.
These are examples of how the development of a corporate governance and compliance culture is encouraged from both a public and private perspective, becoming a requirement and expectation of the market, investors, the public, and public entities.
Trends and Future Perspectives for Corporate Governance in Brazil
Trends and future prospects in corporate governance in Brazil point to a scenario where ethics, transparency, and sustainability have become central values in the business environment. Below, we address the main trends that have shaped and will continue to influence corporate governance in the country.
ESG Investment
The growing importance of Environmental, Social, and Governance (ESG) criteria is transforming corporate governance into a competitive differentiator. Companies are increasingly being held accountable for environmental and social sustainability practices, and ESG has become a crucial metric for institutional investors seeking to minimize risk. This demand creates a need for companies to include socio-environmental responsibility as part of their governance.
Companies that fail to adapt their operations to more sustainable practices may face difficulties in raising capital and attracting investors. Brazil, as one of the emerging economies, is in a leading position in several ESG practices due to its biodiversity and international pressure for sustainable policies.
Digital Transformation and Data Protection
Another critical point in corporate governance is digital transformation and the need to protect customer and partner data. The General Data Protection Law (LGPD) has brought strict requirements for the use and storage of data, directly impacting corporate governance.
Compliance with the LGPD (Brazilian General Data Protection Law) requires companies to develop cybersecurity policies and appoint professionals to the role of Data Protection Officer (DPO). Furthermore, organizations must demonstrate that they maintain data confidentiality and comply with the privacy requirements established by law, under penalty of fines and administrative sanctions.
Inclusion of Diversity and Promotion of Equity
Another increasingly relevant aspect of corporate governance is the inclusion of diversity and the promotion of equity in companies. Large investors and international organizations have been pressuring corporations to promote inclusive diversity in their teams and boards, with a focus on gender equity, inclusion of racial minorities, and representation of LGBTQIA+ people.
These practices not only create a more inclusive and equitable work environment, but also result in financial gains. Several studies indicate that companies that promote diversity show superior performance in terms of innovation and profitability. Consequently, the company expands its opportunities for talent development and strengthening its organizational culture.
For this to happen effectively, companies must map their diversity statistics and patterns and, based on this information, create structured plans to promote diversity and become more inclusive according to the reality of the business. Furthermore, it is also important to train leaders and managers to promote these measures as company values. Similarly, offering training to employees is an important strategy, preventing structural biases from being reproduced in the corporate environment.
Governance for Small and Medium Enterprises
Corporate governance is also gaining traction among small and medium-sized enterprises (SMEs), which traditionally faced challenges in adopting these practices, either due to a lack of resources or the perception that a complex structure was unnecessary. However, this reality is changing, as the market has signaled that governance and compliance practices are advantageous for companies of all sizes. Therefore, adopting these principles has become a competitive differentiator, strengthening market reliability and opening new growth opportunities for SMEs.
Simplified Practices and Incentives for Small Businesses
Small businesses can adopt governance practices in a simplified way, such as developing internal ethics policies, implementing whistleblowing channels, and conducting periodic audits. This generates value and contributes to the business's longevity.
Furthermore, as part of the CGU's measures to promote integrity, the entity developed a guide on integrity for small businesses and the development of integrity measures for these companies. The document highlights the importance of these companies operating in accordance with ethical standards demanded by the market, which is seen as increasingly important by society in general.
Conclusion
Corporate governance in Brazil has advanced significantly, becoming fundamental for companies seeking transparency, ethics, and best practices. Driven by legislation such as the Anti-Corruption Law and programs like the Pro-Ethics Company initiative, governance and compliance have become established market requirements, attracting investment and strengthening corporate credibility.
With the increasing adoption of ESG criteria, the digitization of processes, and the incorporation of practices focused on equity and social responsibility, the corporate governance landscape in Brazil appears promising and is constantly evolving. However, this progress requires a continuous commitment from companies, investors, and regulators to ensure that transparency and ethics remain at the heart of business decisions.
References
Corporate Governance. Brazilian Institute of Corporate Governance – IBGC . Available at: https://www.ibgc.org.br/conhecimento/governanca-corporativa . Accessed on: November 15, 2024.
Corporate Governance and Compliance: Understand the differences! LECJune 11, 2019. Available at: https://lec.com.br/governanca-corporativa-e-compliance-entenda-as-diferencas/Accessed on: November 15, 2024.
CAMPOS, Tiago Soares. Operation Lava Jet; Brasil Escola. Available at: https://brasilescola.uol.com.br/brasil/operacao-lava-jato.htm. Accessed November 15, 2024.
OZORIO, Leticia. ESG. ExaminationNovember 11, 2024. Available at: https://exame.com/esg/67-das-empresas-abertas-aderem-a-governanca-corporativa-mas-ritmo-e-de-desaceleracao-diz-estudo/. Accessed on: Nov. 15 2024.
One example of this is the OECD Due Diligence Guide for Responsible Business Conduct. Available at: https://mneguidelines.oecd.org/guia-da-ocde-de-devida-diligencia-para-uma-conduta-empresarial-responsavel-2.pdf
MATOS, Fábio, RYDLEWSKI, Carlos. Eron Case: remembering one of the biggest corporate frauds in history. Metrópoles, January 21, 2023. Available at: https://www.metropoles.com/negocios/caso-enron-relembre-uma-das-maiores-fraudes-corporativas-da-historia. Accessed on: Nov. 17 2024.
For more information: https://www.b3.com.br/pt_br/market-data-e-indices/indices/indices-de-sustentabilidade/indice-de-sustentabilidade-empresarial-ise-b3.htm.
Available in: https://www.gov.br/cgu/pt-br/centrais-de-conteudo/publicacoes/integridade/colecao-programa-de-integridade-privada.
Brazil's Comptroller General's Office (CGU) publishes new Guidelines for Private Companies. News ToU, 15 Oct. 2024. Available at: https://www.gov.br/cgu/pt-br/assuntos/noticias/2024/10/cgu-publica-novo-guia-de-diretrizes-para-empresas-privadas. Accessed on 17 Nov. 2024.
Corporate Governance and the Capital Market: 18th edition. KPMG, 2024. Available at: https://assets.kpmg.com/content/dam/kpmg/br/pdf/2023/11/A-Governanca-Corporativa-e-o-Mercado-de-Capitais-18-ed-2023.pdfAccessed on November 17, 2024.
What is a Reference Form (FRE) and how to use it to invest better. B3, 07 June. 2023. Available at: https://borainvestir.b3.com.br/noticias/mercado/o-que-e-formulario-de-referencia-fre-e-como-usa-lo-para-investir-melhor/. Accessed on 17 Nov. 2024.
Pro-Ethics: Questions and Answers. ToU. Available in: https://www.gov.br/cgu/pt-br/assuntos/integridade-privada/avaliacao-e-promocao-da-integridade-privada/empresa-pro-etica/saiba-mais. Accessed on 17 Nov. 2024.
Brazil Pact. ToU. Available in: https://www.gov.br/cgu/pt-br/assuntos/integridade-privada/pacto-brasil. Accessed on: Nov. 17 2024.
The Brazil Pact already has the participation of more than 100 companies and may be a prerequisite for the Pro-Ethics program. CGU News, 28 Aug. 2024. Available at: https://www.gov.br/cgu/pt-br/assuntos/noticias/2024/08/pacto-brasil-ja-conta-com-a-adesao-de-mais-de-100-empresas-e-pode-ser-pre-requisito-para-o-programa-pro-etica. Accessed on: Nov. 17 2024.
ESG maturity is advancing in Brazilian companies, and 51% have a sustainability strategy. Examination, 8 Oct. 2024. Available at: https://exame.com/bussola/maturidade-esg-avanca-nas-empresas-brasileiras-e-51-tem-estrategia-de-sustentabilidade/. Accessed on: Nov. 17 2024.
Diversity and inclusion in companies: why it matters! SEBRAE, 07 June. 2023. Available at: https://sebrae.com.br/sites/PortalSebrae/artigos/diversidade-e-inclusao-nas-empresas-porque-isso-e-importante,8c8a4bf7a2b56810VgnVCM1000001b00320aRCRD#:~:text=Investir%20em%20diversidade%20e%20inclus%C3%A3o,as%20seguintes%20vantagens%20s%C3%A3o%20percebidas:. Accessed on: Nov. 19 2024.
Integrity for small businesses. ToU, 2017. Available at: https://www.gov.br/cgu/pt-br/centrais-de-conteudo/publicacoes/integridade/arquivos/pequenos-negocios.pdf. Accessed on: Nov. 19 2024.
Corporate Governance and the Capital Market: 18th edition. KPMG, 2024. Available at: https://assets.kpmg.com/content/dam/kpmg/br/pdf/2023/11/A-Governanca-Corporativa-e-o-Mercado-de-Capitais-18-ed-2023.pdfAccessed on November 17, 2024.
