Governance in Brazilian state-owned enterprises

In August 2013, Brazil enacted Law 12.846/2013, which created a raft of new anti-corruption laws. For businesses, regardless of their legal or constitutional status, these laws introduced accountability for any harm caused to national or foreign public administration. By extension, these laws also place responsibility on individuals for their actions. Rosangela Pereira Peixoto, RS Technical Regional Director, Russell Bedford, Brazil comments

Brazil’s anti-corruption laws also legislate for the sanctions that can apply to those in breach while reinforcing the need for businesses to behave ethically, transparently, and with integrity. Failure to do so means being submitted to an administrative accountability process (PAR), possible sanctions, and entry on a national register of sanctioned companies (CNEP).

Rosangela Pereira Peixoto
RS Technical Regional Director
Russell Bedford Brazil

Impact on state-owned companies

While these anti-corruption laws apply to all businesses regardless of their legal constitution, Brazilian state-owned and mixed capital companies must also follow the provisions of Law 13.303/2016. This legislates how these businesses are structured and sets minimum requirements for corporate governance, risk management, and internal controls. Further legislation contained in Law 12.843/2013 underpins the Brazilian government’s attempts to improve international perception of Brazilian companies by enforcing governance, and compliance with accepted and sustainable business practices. The sanctions contained in this legislation, applying to companies as well as individuals representing companies, extend to fines and disqualification from doing business with public-sector businesses.

Progress so far

Although the law has applied since 2013, it is the last five years that have seen a big move in restructured governance practices among Brazilian state-owned companies. Twenty years ago, governance extended no further than submitting accounts to governing bodies; now there is a much greater interest in how these accounts have been generated, the internal controls that govern them, the processes in place to mitigate risk and the action plans that exist to respond to these risks. Collectively, this reinforces the integrity of business processes.

Management commitment to change

Currently, there is much importance placed on risk management, compliance, and corporate governance. This is no less important in the public sector where ethics, integrity and transparency must exist in all business relationships. Managers must manage in line with an integrity programme that must include a commitment among senior management and boards to apply the principles and monitor success.

This integrity programme, with its accompanying risk management and mitigation policies, brings a responsibility for, and a challenge to the governance of state-owned companies. The fact that something has always happened this way no longer carries validity – a change in culture is necessary and society now demands more ethical, transparent, and sustainable business practices.

Encouragingly, Brazilian state-owned companies have shown interest in strengthening their governance structures, seeking help from external business consultants where the necessary compliance and risk management expertise doesn’t exist in-house. These are positive actions and can only help to change culture and behaviour, changes that must come from the top with managers leading and influencing by example.

Maintaining momentum

The business world is undergoing a cultural transformation. State-owned companies cannot operate outside this transformation and must demand more agile responses to managing risk, and a real commitment to more ethical behaviour. These changes must start visibly with senior management and cascade down to the lowest level of the structure. Brazilian state-owned companies have started on this journey and must continue working towards sustained cultural and behavioural change.

Main image credit: SERGIO V S RANGEL / Shutterstock