Petrobras and its Corporate Governance Board

One of the measures suggested by Petrobras in response to the crisis it is facing is the creation of a Corporate Governance Directorate. But what does this mean? Solution? Evolution?

The Petrobras crisis stems from several factors. We are practically facing the perfect storm: (a) the fall in the price of a barrel of oil, (b) questioning of investments and operations that are, at the very least, poorly planned (Pasadena refinery); (c) accusations of a lack of transparency in its financial statements; and (d) allegations of endemic corruption.

There is a remedy for every ailment. A measure for every issue raised. It is true that some measures address more than one issue and can be very beneficial, but it is not possible to believe that a single, isolated action can calm investors’ anxieties.

The creation of a Corporate Governance Directorate by Petrobras is beneficial and demonstrates the company’s formal commitment to the effectiveness of its governance system. Optimists may interpret the measure as an intensification of the company’s existing controls and a greater focus on transparency and accountability, among other benefits.

Pessimists, however, may view the measure as an acknowledgment that the company’s corporate governance has, until now, been relegated to a secondary issue, despite the obligations inherent to a publicly traded company with securities traded on the New York Stock Exchange. From this, one can infer that the probability of finding other negative issues within the company is reasonably high.

Escaping pessimistic or optimistic perspectives and emphasizing the technical aspect, I view the creation of the Corporate Governance Directorate by Petrobras favorably. Any action aimed at strengthening a company’s governance structure is valid and brings value to shareholders and stakeholders.

The counterpoint I offer is that the measure will not have short-term effects, beyond a slight relief from the damage to the company’s tarnished image. The adoption of good corporate governance practices by an organization can ensure its long-term sustainability, and the main studies on the subject demonstrate that governance is capable of generating value for investors.

However, the good results are reaped after several periods of planting, not overnight. The measure implemented by Petrobras should be seen as a renewal of the company’s commitment to its investors and an acknowledgment that the current structure is not sufficient for what the market demands in terms of risk control, transparency, accountability, responsibility, etc., but it is far from being the solution to the crisis the company is experiencing.