Brazil: keeping it in the family

Abstract

Although recent changes in the legal and institutional framework governing relations between controlling and minority shareholders may help local capital markets develop, major problems persist and serious obstacles to reform remain. Long-term finance is hard to find, existing governance procedures offer shareholders inadequate protection, and the fact that many Brazilian corporations are still often family-owned can militate against efficient management. The legal system is unsatisfactory, supervision inadequate. The best hope may lie in the emergence of pension funds which by their sheer size could fulfil a monitoring role. Problems of corporate governance have repercussions beyond the financial and economic sectors because they reflect deeper problems within Brazilian society. Brazil is a country with strong authoritarian traditions, and inadequate corporate governance laws make it possible to perpetuate authoritarian and concentrated influence over governance structures. There are signs of change but there are also real problems relating to regulation and the risk that the agencies responsible for policing large companies - notably privatised utilities - may come under the influence of the bodies they are supposed to be supervising. ©2003 CIPE and OECD.