Brazilian state firms urged to adopt tighter governance guidelines

Measures aimed at regaining trust of investors amid corruption probe into state oil producer Petrobras

Brazil’s largest stock exchange operator and the country’s securities regulator have asked state-owned companies to voluntarily adhere to stricter guidelines designed to improve corporate governance to rebuild investors’ trust after a series of corruption scandals.

Exchange operator BM&F Bovespa, with the backing of Brazilian securities regulator Comissão de Valores Mobiliários (CVM), has issued a call for greater governance from companies that are partly or wholly owned by the federal or state governments, including greater disclosure, stricter internal controls and improved administration.

‘The program is based on three principles: credibility, given the need to rebuild investor confidence in state-owned enterprises; alignment of interests, fostering a shared focus for government, investors, employees and society as a whole; and best practice in corporate government, using the tools developed for this purpose over time,’ BM&F Bovespa says in a press release.

‘Its action will also be developed along three main lines: more transparent disclosure of information to shareholders, implementation or enhancement of internal controls, and improved mechanisms for selecting, appointing and evaluating administrators.’

The move comes amid a growing corruption scandal surrounding majority state-owned oil producer Petrobras. The company hasn’t issued an earnings report since the second quarter of last year amid a probe into accusations that it consistently overpaid for contractors and assets in a massive web of corruption. The ruling Workers’ Party and other political parties are accused of receiving illicit funds from the alleged scheme.

Adherence to the measures, which go beyond current regulatory and legal requirements in Brazil, will be entirely voluntary. BM&F Bovespa says state companies that adhere to the program – which is also open to state companies that aren’t publicly traded – will be recognized for improvements in governance through awards, public ceremonies such as the ringing of the opening bell and more. The adherence to the program of each company will also be announced publicly.

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