The accounting scandal at retail chain Americanas has intensified discussions around “clawback” policies for recouping bonuses and benefits previously awarded to executives. This practice is becoming increasingly common both in Brazil and the United States, particularly among Brazilian companies with ADRs listed on the American market, such as Ambev and Vale, which already implement such rules.

07/12/2024

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Americanas said that it is awaiting the conclusion of ongoing investigations to reclaim any bonuses that improperly awarded — Foto: Domingos Peixoto/Agência Globo

Antonio Tavares Paes Júnior, a partner at Costa Tavares Paes Advogados with a master’s degree in corporate law from Columbia University, reports a surge in inquiries about clawback clauses. “The Americanas case has shed light on a topic that was previously obscure and rarely discussed outside confidential settings,” he said.

Reflecting the growing adoption of these clawback clauses, Mr. Paes Júnior noted an expansion in the range of scenarios they cover. He pointed to a recent contract he drafted, stipulating that an executive must return bonuses if they breach a non-compete agreement.

In May, B3, the Brazilian stock exchange, initiated a public consultation to discuss whether companies at its highest governance level should be mandated to implement clawback rules. These provisions typically allow a company to recoup compensation in cases of contractual breaches or managerial misconduct.

In the United States, the Securities and Exchange Commission (SEC) required companies listed on major stock exchanges like the New York Stock Exchange or Nasdaq to institute a clawback policy by December 1, 2023. This mandate also affects Brazilian companies with American Depositary Receipts (ADRs) traded in the U.S.

For instance, Ambev has a clawback policy that mandates the return of any compensation improperly received over the three completed fiscal years if the company’s financial statements are restated. In accounting terms, a fiscal year refers to a 12-month period used by corporations to compute their financial outcomes.

In its documentation, the beverage giant Ambev revealed that its clawback policy was implemented on December 1 of the previous year, aligning with the New York Stock Exchange requirements. When queried via email about whether the financial scandal at Americanas influenced the formulation of its clauses, Ambev responded that it was merely adhering to U.S. capital market regulations.

Similarly, Vale, also listed on the New York Stock Exchange, had established clawback clauses prior to the SEC’s mandate requiring such policies. The mining giant, however, chose not to comment on the issue.

Although Brazil lacks a specific law mandating clawback policies for bonus payments, numerous companies have pursued legal action to recoup payments made to executives implicated in fraud or corruption.

Americanas, currently without a clawback policy, has said that it is awaiting the conclusion of ongoing investigations to hold those involved in the alleged embezzlement accountable and to reclaim any bonuses that may have been improperly awarded. Similarly, shipbuilder Sete Brasil, which has been under court-supervised reorganization since 2016, has adopted this approach.

Engulfed in the wave of corruption scandals unveiled by Operation Car Wash, which uncovered corruption schemes in Brazil, Sete Brasil is seeking the return of bonuses from three former executives who received these payments during their tenure, as reported by Valor.

The lawsuits against these executives are confidential, but a source familiar with their developments confirmed that both have been ordered to repay millions of dollars to Sete Brasil. One of these cases is currently pending appeal before Brazil’s Superior Court of Justice.

The third executive involved with Sete Brasil consented to repay the court-mandated sum in installments.

“Having a ‘clawback’ policy simplifies the process of reclaiming funds [that were received improperly],” said Marcelo Lamego Carpenter, a partner at Sergio Bermudes Advogados, which represents Sete Brasil. “In Sete Brasil’s situation, had the executives been under such a policy, it might have precluded the numerous defenses [they presented in court].”

Moreover, a 2010 resolution from Brazil’s Central Bank mandates that unpaid portions of variable compensation for directors of financial institutions “must be proportionally returned” in cases of significant profit declines. “This is not a clawback per se,” clarifies Érika Seddon, a labor law partner at Mattos Filho.

An expert who asked to remain anonymous believes the Americanas scandal will likely encourage the adoption of clawback policies, though it’s largely driven by the existing obligations from the SEC.

On the regulatory front, a recent directive from the Brazilian Securities and Exchange Commission (CVM) requires companies with a clawback policy to disclose it on the agency’s website, according to Henrique Ferreira Antunes, a partner in the capital markets practice at Mattos Filho. “The concept of clawback as a cornerstone of good governance has been around, but it was truly catalyzed in 2022 by the SEC’s mandates, affecting both American and Brazilian companies listed abroad,” Mr. Antunes further explained.

*Por Rodrigo Carro — São Paulo

Source: Valor International

https://valorinternational.globo.com/