Corporate Governance in Brazil – An International Trade Union Perspective

A Hans-Böckler-Foundation research paper prepared by Pierre Habbard, for TUAC (Trade Union Advisory Committee) to the OECD, May 4, 2010

Research paper on corporate governance, worker participation and the stewardship of workers’ capital in Brazil.

Conclusions and Issues for Discussion:

Corporate governance in Brazil remains dominated by controlling shareholders and wealthy families in particular, who through a dual class system and pyramid group structures have been able to maintain control over the private sector in spite of two decades of deregulation and market opening. This is not surprising in the context of an emerging economy although the level of concentration of ownership in Brazil is particularly high even by emerging economy and Latin American standards. The wave of privatisation in the late 1990s was supposed to have led to improved market discipline among corporate managers and  installed shareholder value governance and AGM democracy. In fact it had exactly the opposite effect. The IMF-supported reforms allowed the grip of very wealthy families over the economy to continue, while allowing large parts of the most profitable and competitive sectors to be transferred to foreign ownership.

The election of Lula to the Presidency at the end of 2002 and the parliamentary majority won by the Workers’ Party the PT can be seen as a catalyst for helping to shake up the well established and powerful interests of Brazilian controlling families. In anticipation of the widely expected electoral win of the PT, the incumbent government of Cardoso succeeded in 2001 where it had failed in 1997 at the time of the privatisations, to partly redress the bias of the regulatory framework in favour of controlling shareholders. It did so with a very measured reform of the corporate law, and with the introduction of voluntary Novo Mercado listing segments. From the point of view of the “political economy of reform” the policy of Cardoso was a belated attempt to rehabilitate, in the eyes of the public, the most unequal and authoritarian aspects of Brazilian private sector governance, while at the same time locking into self-regulation the more demanding measures of corporate governance. This two-tier level reform that took place in 2001 – (i) measured reform of corporate law supplemented by (ii) self-regulatory initiatives – and the political independence granted to the stock exchange authority the CVM was aimed at preventing more radical change of policy direction after the election of the PT in 2003.

102. Since 2003 Lula’s government has implemented important reforms to increase social inclusion which mark a clear shift from the policies of the past in a progressive direction. Examples include the democratisation of the governance of pension funds as a stand-alone policy objective, which had been initiated by the PT under the last Cardoso government, but which was moved further up the reform agenda. By contrast government activism has been less visible on corporate law issues – confirming the successful initiatives of the pre-Lula election. An exception is that concerning creditors’ rights and the reform of the Bankruptcy law in 2005.(continue reading)


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