Autor:Michael Freitas Mohallem, Beto Vasconcelos and Guilherme France
Ocupação do Autor:Professor at FGV Rio Law School/Professor at FGV Rio Law School/Researcher at FGV Rio Law School
Integrity and Transparency in Brazil’s State-Owned Enterprises 13
29 DEVELOPMENT BANK OF LATIN AMERICA. Corporate Governance in Latin America: Importance for State Owned Enterprises – SOEs. Corporación
Andina de Fomento, 2012, p. 23-4. Available at:
pdf?sequence=1&isAllowed=y>. Accessed on: May 6, 2017.
30 IBGC Code of best practices of corporate governance. São Paulo, 2016. Available at:
Attachments/23610/IBGC-CMPGEN-Vers%c3%a3o%20Final.pdf>. Accessed on: March, 2019.
31 DEVELOPMENT BANK OF LATIN AMERICA. Corporate Governance in Latin America: Importance for State Owned Enterprises – SOEs. Corporación Andina de
Fomento, 2012, p. 11. Available at: .
Accessed on: May 6, 2017.
32 This index is based on five factors: “The index consists of five pillars based on the OECD (2006), the World Bank (2006), and the CAF (2010) guidelines for
SOEs: i) the legal and regulatory framework to which SOEs are subject; ii) the ‘25 4 Afterwards’, the database was revised in September and December
2014 and January through February 2015 to minimize possible errors. Any error that remains is the full responsibility of the authors, the degree to which
the designated representative of the ownership effectively exercises his role; iii) the existence and equitable treatment of minority shareholders (if any);
iv) transparency and disclosure of information; and v) appointment of the Board of Directors”. DEVELOPMENT BANK OF LATIN AMERICA. Transparency
in the Corporate Governance of State-Owned Enterprises in Latin America. Corporación Andina de Fomento, 2015, p. 37. Available at:>. Accessed on: May 7, 2017.
States have several reasons to support
corporate governance principles in SOEs, seeing
as they play a leading role in their respective
sectors, and should serve as an example for private
companies. The betterment of private companies
via the promotion of corporate governance-related
good practices in SOEs is, thus, a welcome side
effect. Compliance with global standards and norms
becomes increasingly necessary in a scenario
in which SOEs are becoming increasingly more
international, wherein transnational networks
gain strength. The reduction of business risks and
the improvement of business practices generate
benefits for SOEs and, consequently, for the public
as a whole. Even (and especially) achieving public
policy goals depends on sound, well-organised and
sustainable SOEs29.
According to the Brazilian Institute for Corporate
Governance (IBGC, the “Instituto Brasileiro de
Governança Corporativa” in Portuguese), corporate
governance is:
The system by which companies and other organizations are managed,
monitored and encouraged. It involves the relationships between shareholders,
the board of directors, the executive management, supervisory and control
bodies and other stakeholders. Good corporate governance practices convert
basic principles into objective recommendations, aligning different interests
with a view to preserving and optimizing the long-term economic value of the
organization, facilitating its access to resources and contributing to the quality
of management, its longevity and the common good30.
Governance rules for SOEs must strengthen
oversight and monitoring organs – assemblies,
boards and internal monitoring structures –
and define the rules for relationships between
different actors in a clear manner. They must
also increase transparency and accountability
mechanisms pertaining to the relevant
In regional terms, Brazilian SOEs have good
comparative indicators regarding governance and
transparency. The Transparency in the Corporate
Governance of State-Owned Enterprises Index,
a ranking prepared by the Development Bank
of Latin America, places Brazil’s SOEs in the
region in third place, second only to Peruvian
and Colombian companies32.
Transparency Internacional – Brazil14
The point of convergence for governance-
related analyses and recommendations in SOEs,
international organisations, as well as non-
governmental and academic organisations is the
need to clearly distinguish the role of the State as
the partial or sole owner of said enterprises and its
role in regulating a given sector of the economy
and determining public policies.
33 The centralised model also has the advantage of minimising the room for political interference, increasing the potential for professionalisation, promoting
coherence and consistency when applying corporate governance standards to all SOEs, enabling better management of State assets and achieving
greater transparency and accountability by supervising and monitoring the performance of SOEs. WORLD BANK. Corporate Governance of State-Owned
Enterprises: a toolkit. Washington, D.C.: World Bank, 2014, p. 78. Available at:
Corporate-governance-of-state-owned-enterprises-a-toolkit>. Accessed on: May 5, 2017.
34 Instituted by Decree nº 6,021/2007, CGPAR is comprised of the Ministers of Finance, the Chief of Staff and the Minister of Planning, which heads the
35 WORLD BANK. Corporate Governance of State-Owned Enterprises: a toolkit. Washington, D.C.: World Bank, 2014, p. 73. Available at:>. Accessed on: May 5, 2017.
This separation is necessary to minimise
conflicts of interest, especially in those sectors
where SOEs compete with private companies. In
such cases, uncertainty over said roles can lead to
market imbalances due to the inherent advantages
of SOEs, such as favourable tax regimes, financial
or material subsidies, and other forms of state-
provided advantages.
The way in which the State controls the
companies it owns is therefore one of the most
relevant aspects of understanding them. The World
Bank has analysed a myriad of arrangements
whereby the State exercises ownership over said
companies and concludes that the best one is
precisely that which distributes between different
entities the following types of roles: the State as
entrepreneur and the State as regulator33.
Brazil’s dual model distances itself from
this ideal one. At the federal level, a sectorial
ministry with jurisdiction over the related
subject area shares responsibilities with a
second ministry – in this case, the Ministry
of Planning, via SEST. Brazil’s Federal Inter-
ministerial Committee on Corporate Governance
and Equity Interest Management (CGPAR, the
“Comissão Interministerial de Governança
Corporativa e de Administração de Participações
Societárias da União” in Portuguese) also plays
an important role34. This model, however, has
several shortcomings:
The [dual] model also has its weaknesses. Finance ministries often
focus on budgetary and financial issues but may lack the authority and
power the line ministries have over SOEs, as well as the capacity to act
as an owner and strong advocate for SOE reforms. Moreover, the dual
mode, like the decentralised model, allows for continued dispersion of
other key ownership functions, such as board nominations, planning and
investment decisions, and monitoring performance35.
The World Bank argues that there are more
appropriate governance models, a goal towards
which several countries are ostensibly heading.
The centralised model – in which only one entity
Integrity and Transparency in Brazil’s State-Owned Enterprises 15
acts as agent and majority shareholder on behalf
of the government and monitors all SOEs – has
been adopted in recent years by Indonesia, China
and Chile, and has been in force in developed
countries such as the United Kingdom, Finland
and Norway36.
The World Bank, however, suggests some
possibilities for specific reforms to these
more traditional models – which is to say, the
decentralised model, where only the sectorial
ministry has a commanding role over the SOEs,
and the dual model, an alternative that is more
palatable, politically speaking. They are as
follows: (i) limit the role of sectorial ministries
to the more central functions of an owner (voting
at meetings and overseeing the performance
of SOEs); (ii) develop concrete barriers against
political interference in business decisions; (iii)
grant more autonomy to SOEs and empower
their boards of directors so they take on greater
responsibilities; (iv) strengthen the monitoring
units of finance ministries; (v) devise and put
36 Ibid, p. 82.
37 Ibid, p. 74-5.
38 ARAGÃO, A. Empresas estatais: o regime jurídico das empresas públicas e sociedades de economia mista. São Paulo: Forense, 2017, p. 319.
39 The limitations on the possibility of removing nominees from these positions also follow this logic, such as, for example, in Law No. 11,652 of 2008,
which assigned mandates to the Empresa Brasileira de Comunicações’ directors. The SOEs Act, however, did not expand the use of mandates for said
companies’ directors, and Provisional Presidential Decree No. 744 of 2016 repealed Law No. 11,652 in these respects, so this has not been an alternative
that has been applied in Brazil.
in place systems to monitor and compare the
performance of sectorial ministries concerning
their role as owners; among other suggestions
The issue that creates difficulties specifically
in the relationship between the State as monitor/
owner and SOEs is the myriad ways in which
the State exercises some form of power over
said companies. Among these, we may find
the following examples: (i) as entities that are
administrated indirectly, SOEs are subject to
administrative scrutiny; (ii) as commercial entities,
SOEs depend on how controlling shareholders
or unitholders exercise their prerogatives; (iii)
seeing as they either conduct business activities
or provide public services, SOEs are also subject
to regulatory bodies or entities, in the same way
as private companies38.
Each of these forms of exercise of power is
subject to its own logic and to specific organisms
within the state.
SOEs are subject to ministerial supervision,
specifically by the ministry whose purview
covers their economic sector (or, in the case of
states and municipalities, the secretariat). This
ministerial supervision implies a form of political
control, which is performed mainly through the
appointment and removal of the heads of SOEs,
as well as a form of administrative control,
done either through their ability to revise and
reconsider certain decisions or their obligation
to follow guidelines.
However, these controls cannot be exercised
without limitation. It is precisely with the aim
of limiting the exercise of political control that
the State-Owned Enterprises Act introduced
requirements for the appointment of SOEs’
directors and board members
. Minimum
requirements include qualifications, which is to
Transparency Internacional – Brazil16
say, certain characteristics that are required of
all appointees, such as academic background,
professional experience40 and restrictions which
40 Law No. 13,303/2016, article 17 – “The members of the Executive Board and those appointed to the positions of director, including chairperson, general
manager and chief executive officer, shall be chosen from citizens of sound reputation and outstanding professional expertise, and must meet, alternatively,
one of the requirements listed in subitems ‘a’, ‘b’ and ‘c’ of item I and, cumulatively, the requirements of items II and III: I – have professional experience
of at least: a) 10 (ten) years, in the public or private sector, in the public company or mixed-capital corporations’ area of operation, or in a related area,
or b) 4 (four) years in the exercise of at least one of the following positions: 1. senior management or leadership position in a company of similar size
or purpose to that of the public company or mixed-capital corporation in question, wherein a senior management position is understood as being in the
company’s two (2) highest non-statutory hierarchical levels; 2. at-will appointed position or function of public trust equivalent to DAS-4 level or higher
in the public sector; 3. position of teacher or researcher in the public company or mixed-capital corporation’s areas of operation; c) 4 (four) years of
experience as an independent professional directly or indirectly linked of the public company or mixed-capital corporation’s area of activity; II – have an
academic background that is compatible with the position to which they were appointed; and III – not fit the ineligibility cases provided for in item I of
the head provision of article 1 of Complementary Law No. 64 of May 18, 1990, as amended by Complementary Law No. 135 of June 4, 2010”.
41 IBGC. Boas práticas de governança corporativa para sociedades de economia mista. São Paulo, 2015, p. 13. Available at:
br/userfiles/2014/files/Arquivos_Site/Caderno14.PDF>. Accessed on: April 10, 2017.
42 Ibid, p. 13-4.
reinforce independence in performing their roles,
such as not being leader of a party (article 17, §2).
The balance between pursuing the public
interest and concerns for economic performance
depends on the clarity given to the state’s role as
owner and entrepreneur.
There are opposing views on the priority of
different goals, according to differing views on the
role of the State in the economy. The search for a
balance between them is a pursuit that faces practical
and political obstacles, and this paper does not intend
to suggest which one should be the prevailing view.
Ultimately, it is the voters’ choice. What is intended to
be signalled is that, regardless of the choices (political
and economic), they must all be transparent, to the
benefit of both citizens and other economic agents
that depend on the economic performance of SOEs,
as minority shareholders.
This is why the Brazilian Institute for Corporate
Governance suggests that:
The management of each corporate entity should ratify and disclose
a property and ownership policy [...] which shall define and justify
the purposes of the State as shareholder, provide for the adoption of
corporate governance good practices, and grant operational autonomy
to the management of the MCC [Mixed-Capital Company] so that it has
the means to achieve its established corporate goals and objectives. The
document should also inform the State’s strategic positioning concerning
aspects such as areas or sectors of investment and development41.
This concern over transparency also involves
the decision-making processes by which the
State’s property rights will be exercised. It is
imperative that society is aware of the distribution
of jurisdictions among governmental organs and
entities, and how it defines the conduct of SOEs
– even in determining the votes of directors
appointed by the government. In addition, it is
essential that any costs in pursuing public policies
be reported in advance and in a transparent
manner, as well as the expected (positive or
negative) returns42.
Integrity and Transparency in Brazil’s State-Owned Enterprises 17
These issues should guide the relationship
of the State as the owner with minority partners
and other shareholders. More specifically, the
OECD recommends that (i) all shareholders should
be treated equally; (ii) the level of transparency
must be very high, including ensuring that all are
provided information simultaneously; (iii) there be
43 OCDE. OECD Guidelines on Corporate Governance of State-Owned Enterprises. Paris, 2015, p. 22. Available at:
OECD-Guidelines-Corporate-Governance-SOEs-2015.pdf>. Accessed on: May 5, 2017.
44 IBGC. Boas práticas de governança corporativa para sociedades de economia mista. São Paulo, 2015, p. 12-3. Available at:>. Accessed on: April 10, 2017.
45 Ibid, p. 16.
an active policy of consultation and communication
with shareholders; (iv) the participation of minority
shareholders in decision-making bodies should
be facilitated; and (v) transactions between the
State and SOEs, as well as those between the
SOEs themselves, should be conducted in terms
consistent with the market43.
In addition to acting as administrator and
owner, the State plays a third role, which exerts
influence on the activities of SOEs in a way that
should not be underestimated. As a regulator of
several sectors of the economy, when determining
the regulatory policies applicable to all agents
operating in that sector, the State will affect the
activities of SOEs and their prospects. As obvious
examples, we have the resolutions issued by the
National Petroleum Agency (ANP, the “Agência
Nacional do Petróleo” in Portuguese), which affect
Petrobras, and decisions by the National Electric
Energy Agency (ANEEL, the “Agência Nacional
de Energia Elétrica” in Portuguese) which impact
Eletrobras’ plans.
Therefore, the exercise of regulatory powers
conducted independently of the exercise of
ownership is essential to ensure not only a level-
playing field for all actors involved
– private
and public – but also greater decision-making
autonomy for regulators, who will be enabled to
make decisions based on the general public interest,
not on possible impacts on the affected SOEs.
In the context described above, the Executive
Board plays an essential role in ensuring the
balance between these roles, especially that of
administrator and that of owner. It is responsible
for ensuring that SOEs meet their public interest
objectives as laid down in the legislation
that outlined them, but also for ensuring the
financial health and the company’s efficient
and rational operation. In this sense, the Board
acts as a mediator for the company and the
partners, informing the latter of relevant facts
and monitoring the performance of the former’s
board of directors45.
Board members must act autonomously
and independently. Essential measures include
preventing them from getting into conflict of
interests situations and ensuring that they receive
adequate compensation. The composition of the
Board, ideally, will respect not only the diversity
of professional experiences and academic
backgrounds, but will also seek to encompass
Transparency Internacional – Brazil18
multiple socio-cultural backgrounds, ensuring the
participation of women46 and minorities.
The Board performs its functions by outlining
strategies and overseeing the management of
daily activities, based on the mandates and
objectives set by the government. It is also
responsible for establishing performance
46 Gender diversity is important, not only for ensuring women’s representation in decision-making spaces, and for providing SOEs’ female employees with
a symbolic demonstration of the possibility of rising in the ranks, but also because greater diversity produces a more balanced and rational decision-
making process. YOSHINAGA, C. Diversidade de gênero nos conselhos tende a levar a decisões mais racionais. Poder 360. São Paulo, September 22,
2017. Available at: levar-a-decisoes-mais-racionais/>.
Accessed on: September 23, 2017.
47 OCDE. OECD Guidelines on Corporate Governance of State-Owned Enterprises. Paris, 2015, p. 70. Available at:
OECD-Guidelines-Corporate-Governance-SOEs-2015.pdf>. Accessed on: May 5, 2017.
goals (and verifying the results), as well as
identifying risks (and minimizing them)
. In this
sense, the Executive Board plays a key role in
establishing SOEs’ Integrity Programs, ensuring
that transparency and fighting corruption are
top guidelines for said companies in all their
B3, the company that manages the São Paulo Stock Exchange, released in September 2015
the SOEs’ Distinction in Governance Program. The program
[...] aims to contribute to the restoration of the relationship of trust between investors and
SOEs by relying on the alignment of various interests. Investors are interested in the efficient and
sustainable allocation of their resources; civil society and State-Owned Enterprises’ employees
care about the maintenance of income and employment; finally, the Federation’s entities are
interested in the viability of public interest investments with capital market financing.
The purpose of this program is to act as an incentive mechanism, by certifying SOEs in specific
categories, to improve institutional practices. It had, however, part of its purpose impaired by the
enactment of the State-Owned Enterprises Act – until 2017, no SOE had requested membership to
the program – which required a readjustment of its terms. Finally, in May 2017, the new version of
the program took into consideration the terms and requirements imposed by the Act and changed
the membership and certification mechanism.
The program revolves around four lines of action, which have not been changed by the
2017 reformulation. They pertain to transparency, internal controls, the Executive Board and the
Supervisory Board, as well as to corporate governance in general.
Due to the changes made, there has been an increase in interest by SOEs in participating in
the program, as evidenced by the certification of Petrobras and Banco do Brasil in August 2017.

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