Brazil is, unfortunately in a reverse manner, undergoing a moment of deep reflection in relation to acts of corporate management, further involving a deep crisis of moral conscience and ethical behavior.
Despite the need of investments in educational base policies, fundamental to minimize disastrous performances which go against ethics and transparency, the culture of compliance starts to be considered, not only to minimize risks in general, but also to testify as to the positive image and reputation of companies and their leaders, essential when it comes to close a deal.
Although already existing, the matter was not given due importance. It is undeniable that recent events further to the publication of the Brazilian Anticorruption Law, establishing strong monetary penalties and civil and administrative liability of companies, led to an increasing interest on the subject.
The Brazilian Anticorruption Law grants internal effectiveness to the treaties signed by Brazil within the scope of the OECD, the United Nations and the OAS, compelling the country to administratively process national and multinational legal entities involved in public corruption.
The context described above, along with the treatment given by the European countries and the United States, led not only Brazilian subsidiaries, but also national companies, including those comprised by the so-called middle market, to focus its attention on the area of compliance.
As a matter of fact, the great majority of Brazilian companies are not prepared to abide by the rules imposed by the Anticorruption Law and even less, to implement compliance rules in its organizations.
The first step is the awareness that compliance is necessary, regardless of the size of the company.
The introduction of a compliance culture must start at the top management level, passing on to the staff, and must be a priority in the company’s administration.
Identifying risks is essential for implementing the program. Understanding the business, the organizational culture of the company, the channels of communication with clients and suppliers and the information flow are some of the important issues in order to identify the departments most subject to deviation of conduct, such as, for example, purchasing, obtainment of licenses and permits, compliance with governmental requirements, and relationship with suppliers.
From there on, it becomes easier to create opposition mechanisms and to disclose the ethical standards to be followed by the company. These may comprise, for instance, the introduction of rules of ethical conduct which guide the company’s activities, the review of contracts which involve the company, particularly, the insertion of compliance clauses to minimize risks, the investigation and monitoring of third parties involved in the activities of the company, the creation of tools to attract and to ensure the secrecy of denouncement, and mechanisms to identify and investigate possible infractions, apart from continuous training to solidify the company’s policy towards its employees.
In an article published by Professor Ana Paula Candeloro, two relevant data may be verified: (i) the “Global Fraud Report – Annual Edition 2011/2012” from Kroll Inc. indicates that the researched companies lost, in average, 2,1% of their yearly profit as a result of frauds (it is noted that this figure does not include expenses with investigations, attorneys’ fees and governmental penalties, nor damage to the involved companies’ reputation). From a total of 1200 executive officers of all parts of the world, 18% have informed that losses within a period of one year resulting from fraud have totaled 4% of the profit, while ¼ of the companies of this group have verified losses exceeding 10% of the profit; and (ii) according to the research carried out by the University of Oxford, the reputation of a company may correspond to approximately 40% of its market value.
It may thus be concluded that good/safe management combined with the protection of the major asset – image of the company in the market – correspond to a considerable growth in its profitability.
The advantages in the implementation of a compliance program range from the administrative and judicial spheres to the market sphere. Whenever there is a compliance policy implemented and active, there may be a reduction in the penalty imposed upon the company and its managers in a proven case of corruption.
Benefits are also significant as regards the image and reputation of the company in the market, improving its position towards the competition and its positive image before clients and consumers.
A good compliance program leads to reduction of internal costs, mitigation of risks of imposition of fines and penalties and proposition of judicial and administrative suits and, consequently, a lower impact on the company’s cash, reflecting in the company’s balance sheet and in its market value. Daily, there is a great variety of examples in the media, showing the effects of corruption in the financial health of the largest companies in the country.
Therefore, the introduction of good compliance practices, although not ensuring the elimination of unethical or illegal practices, leads to considerable minimization of risks.
Nowadays, there is an increasing demand for the implementation of compliance policies in small and medium-sized companies, customized to their needs and proportional to the volume and complexity of their activities.
Ultimately, the subject is vast, but there is one certainty: a compliance program adjusted to the needs of the company will be an efficient instrument of corporate governance, supporting the institution itself to exercise transparency and to ensure corporate social responsibility.
Ernani Teixeira Ribeiro Junior was an associate at Pacheco Neto Sanden Teisseire Law Firm.