Is the Brazilian market a place of happy people?

One of the most important aspects of a good corporate governance structure is the ability to handle conflicts of interest.

Holding the positions of Chairman (President of the Board) and CEO (Chief Executive Officer) is a practice long opposed by advocates of good governance practices. The BM&F BOVESPA’s New Market Regulations include this separation of roles among the requirements for a company to have its shares traded in this segment.

But what about a shareholder who is also Chairman of the Board of one of the company’s main suppliers? How should this issue be handled?

The issue of conflict of interest gained prominence with the recent announcement of the acquisition of a stake in Carrefour’s Brazilian subsidiary by Abílio Diniz (through Península, his family office); the same Abílio Diniz who is a shareholder and chairman of the board of BRF, one of the main suppliers of the aforementioned supermarket chain.

Brazilian Corporations Law (article 156) establishes that “an administrator is prohibited from intervening in any corporate transaction in which they have a conflicting interest with that of the company, as well as in the decisions made by other administrators regarding such transactions, and they must inform the other administrators of their impediment and have the nature and extent of their interest recorded in the minutes of the board of directors or executive board meeting.”

The same concept of abstention when there is a conflict of interest is propagated in texts that recommend best practices in corporate governance, both in Brazil and abroad.

Along these lines, Abílio Diniz, should he decide to remain as Chairman of the Board of BRF, should pay close attention to decisions in which the interests of Carrefour and BRF are directly or indirectly involved.

It is important to remember that Abílio Diniz is also a shareholder of BRF and should therefore exercise the same caution regarding the power to influence the companies’ decisions when the interests of both are at stake, regardless of whether he holds a position on the board.

It is also worth highlighting that a good corporate governance structure should be able to balance the political power of its directors and shareholders, so that a single shareholder or director does not hold the power to absolutely and unilaterally direct or influence the company’s business.

The market will be attentive to the repercussions of Diniz’s acquisition and will decide whether his behavior in governance matters will represent another lesson from this prominent strategist or a challenge to good governance practices.

Brazilian investors have been punished by the recent events involving OGX and Petrobras. The market has been a hostile place. We hope that Diniz’s actions will help make the Brazilian market (and not just his supermarket chain) a place for happy people!