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11/05/2021

Artigo de Francisco Petros em destaque no Euro Latam Lex

“Corporate governance: from private to public. Taking care of governance as an asset for all”

Veículo: Euro Latam Lex

Corporate governance has been progressing every day in the world for at least fifty years. The “balance of powers” between the executive board, the board of directors and the shareholders was already well delineated in the rules that deal with the topic in the main jurisdictions of central and peripheral capitalism. However, the checks & balances necessary for the full and proper functioning of corporate governance do, de facto, depend on even more specific rules and on “best practices”. The latter are much less relevant due to their inclusion in contracts and bylaws and, eventually, shareholders’ agreements, and much more critical due to the performance of the management body (managers, officers) and boards with the advisory committees. Indeed, practice is much more determinant of business success than what is formally established.

Several fundamental factors determine the effectiveness of corporate governance from the point of view of the direct exercise of directive and advisory actions by companies, such as capital management, long-term business strategy, technological innovation and people management (which are also professionals) and business administration focused on environmental and social sustainability, among other themes to be considered.

Family businesses are unlikely to allow governance from which the development of modern business management themes can be carried out without family leaders having an explicit and solid engagement in relation to business development.

Accordingly, the success or not of this kind of governance depends on personal and professional factors of the entrepreneurs. The flaws and qualities of family members engaged in governance are mixed with their ability to exercise good management and corporate governance, even if the companies are professionalized. At the other end, we have companies without defined control (corporations), in which the formal aspects and the system of checks and balances of corporate governance are much more important.

The balance of power between management and the supervision of managers must be much more refined, effective and solid if there is to be business success for all stakeholders. The big risk, in this case, is the “seizure of power” of the managers who stand in defense of their more direct and short-term interests, which usually collide with the more organic objectives of the growth and development of companies.

Here, it is not uncommon for the control system to be weakened by attracting board members and committee members who ally with managers in order to deviate social purposes towards the interests of the main officers of the companies.

Excesses in relation to managers’ remuneration and bonuses are signs of this process. In addition, in this context, risk management deteriorates, and the possibility of operational and financial collapses increases. For instance, the development of American capitalism moved from family businesses to this model of corporations, especially from the 1960s on.

However, the development of global capitalism demonstrates that the theme already crosses the microeconomic field and advances over increasingly extensive economic and social strata. A large part of the shareholdings is for retirement and pensions.

Therefore, corporate governance, which is typically private in nature, gains contours that elevate it to the level of “public interest”. After all, the failure of companies can mean substantial losses for individuals. Capitalism of the social market economy is composed of “capitalists” going from “workers” in the factory floor to the most liberal professionals.

Capitalism of the social market economy is composed of “capitalists” going from “workers” in the factory floor to the most liberal professionals.

When highlighting these issues, it is seen that diffuse and social rights, already so relevant to the field of consumer or environmental law, are increasingly related to corporate governance.

In times of pandemic and in the midst of the most relevant human tragedy since World War II, the behavior of company officers and board members, especially big ones, as well as investors in the financial and capital markets, must be engaged in the task of taking care of governance as a good for everyone and not just for those who directly act to achieve corporate goals. The Earth is not flat, but the business world is increasingly flat.

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