Brazilian companies still lack compliance departments

Amid the reform of the special listing segments of exchange operator B3, most companies on Novo Mercado still don’t have specific compliance departments, which are in general subordinated or connected to other activities within their administrative structure.

A survey identified that two-thirds of the listed companies on Novo Mercado, the strictest corporate-governance segment, still don’t have departments dedicated specifically to these functions, among which is the guarantee and verification of the compliance with legal and regulatory norms, in addition to the detection and combat of irregularities and violations of internal policies.

This doesn’t mean that the companies don’t have people taking care of these matters, but that, at least in the majority of cases, there isn’t a sector that is dedicated only to this – half of the companies, for example, have some type of program for risk management. The study considered as a specific department the one in which it was possible to identify some level of independence, without being connected or within other departments or committees with several responsibilities, like personnel management or legal counsel.

It was also examined, in April and May, the reference forms of the companies and sought to answer three questions to classify the specificity of the department: what are the main internal control practices, which organizational structures are involved, and whether there is a formalized policy of risk management and compliance.

It’s possible to show with the study that companies have formalized divisions of internal audit, which are often connected to compliance. However, differently from the auditing actions, which verify through sampling if the company is booking its numbers in accordance with the accounting standards, compliance is a deeper activity, aimed at the creation of a corporate culture in which all the employees are stimulated to combat irregularities.

In the Novo Mercado reform, B3 doesn’t impose requirements of a department exclusively for compliance. According to the exchange operator’s proposal, which is in the process of a vote, companies should implement this role, and also the attributions of internal audit, internal controls and risks.

Although it is seen as an important step in relation to the current regulation of the segment, which doesn’t establish these demands, a greater advance would be to treat compliance as a more independent function and, mainly, to act in the oversight of adherence to rules, considering that the involvement of large companies in corruption scandals has cast doubts on the capacity of Novo Mercado to act against irregularities.

Meat processor JBS, investigated by the Securities and Exchange Commission of Brazil (CVM) for transactions carried out in the financial market, already had, since November 2015, a policy of relations and management of risks with government entities and public agents. On May 26, one week after the outbreak of the scandal of bribery payments to politicians by its controlling shareholders, the company said that it had created a governance committee, responsible for implementing compliance practices. On June 14, in another move to try to reinforce the department, JBS announced the nomination of attorney Marcel Proença to the position of global director of compliance and the hiring of law firm White & Case to support the project.

To avoid the repeat of cases like this one, the responsibility for verification, is primarily up to regulatory agencies and to the companies’ board of directors and fiscal councils, but the B3 itself could periodically take on the responsibility of checking whether there is sufficient evidence that the committees and responsible departments are active, and not only that the company has a set of rules.

The Novo Mercado currently has 130 listed companies.

Source: Valor Econômico