How Brazil's Petrobras is tackling wrongdoings

Monday, January 22, 2018

In early 2015 Brazil's Petrobras created a governance and compliance office in the wake of the Lava Jato (Car Wash) corruption probe to mitigate further wrongdoings. Nearing the end of his first term as head of the office, João Adalberto Elek Junior spoke to BNamericas about such issues and the future of the state-run oil firm.

BNamericas: What are the main results obtained by Petrobras' governance and compliance office so far? What went wrong, and what is Petrobras doing right now?

Elek: Petrobras used to have a highly hierarchical order where an orientation from a superior had a huge weight. I have heard stories about difficulties deliberately created to hinder the career development of employees who had questioned or criticized orders coming from above. I also observed that the company's denunciation channels had low credibility, with few people using them as they lacked confidence. That was the environment where things happened.

BNamericas: At the end of 2017 federal judge Sérgio Moro (in charge of the Lava Jato operation) suggested, during an event held by Petrobras, the company rewards employees who file corruption denunciations to encourage them.

Elek: He did. But what we actually did was to outsource the denunciation channels and guarantee absolute secrecy and anonymity in order to avoid exposing the employees to potential retaliations. As a result, the amount of denunciations has significantly increased. So today I can assure that controlling mechanisms are stronger than before.

BNamericas: The Lava Jato operation also showed the high level of political influence over the company...

Elek: There were several issues. In 2015, after Lava Jato unveiled the existence of cartels formed by service providers, we implemented an integrity diligence procedure to be applied to our suppliers, which is 100% in force. This is also valid for divestment operations: before selling an asset, we will evaluate the potential buyer's background. In addition, we have introduced an integrity model for our employees, including directors.

BNamericas: Which measures have been specifically taken to deal with political encroachment?

Elek: Petrobras is an open capital company, and we cannot turn a blind eye on any of our shareholders rights. So we have formed an appointment committee, following the new state-run companies federal law, responsible for evaluating names indicated by the controller [Brazil's government] to occupy seats on Petrobras' board. At the end of the day, it is extremely unpleasant for the controller to include someone who does not meet requisites listed on the company's statute, according to the committee recommendations.

BNamericas: What are the requirements for assuming a seat on Petrobras' board?

Elek: No one who has acted as union leader, is linked to political parties, or had been remunerated by public agencies in the last 36 months is eligible.

BNamericas: Are these rules already in force?

Elek: The respective law established a 24-month deadline for firms to integrally commit to it. So we will be fully meeting its requirements as of April.

BNamericas: What is the potential impact of the US$2.95bn deal  to settle a class action suit before the US supreme court?

Elek: The way we see it, this was the best option to have the case resolved, considering our position of not acknowledging guilt and that we managed to significantly reduce the values initially claimed. If the case moved to a popular jury, we could risk facing a more severe penalty.

BNamericas: Petrobras has so far recovered approximately 1.5bn reais (US$460mn) in Brazil with the Lava Jato operation. How much more does the company believe it will be able to recover?

Elek: We are seeking reparation and reimbursement through several legal instruments and processes. In 2014, we registered a total value estimate of 6.2bn reais referring to resources lost due to wrong-doings. We have been relatively successful in recovering money from Lava Jato, but the speed at which it will happen in the future is beyond our control. Nevertheless, we are optimistic that the recovered amounts will grow.

BNamericas: Judge Moro has publicly assured the Lava Jato operation will continue. How is Petrobras dealing with this prospect?

Elek: Whatever is good for the Brazil is good for Petrobras, so if they keep 'cleaning up' the country, that is a positive thing. We just expect that whenever authorities recognize there were illicit practices affecting us we are reimbursed.

BNamericas: What is the future for Petrobras' governance and compliance office? Has it been effectively consolidated within the company?

Elek: The basic elements in terms of governance and compliance are being included in our statute. It is very unlikely to have all that we have done in recent years thrown away. It is a non-return path.

BNamericas: Your mandate ends in April. What then?

Elek: We are not talking about a person, but a position that remains. The governance and compliance principles have already been established.

BNamericas: What about Petrobras' 'black list', which includes groups not allowed to close contracts with the company, will it continue to be updated? How are negotiations going regarding the end of the blockage of service providers?

Elek: We have been actively talking with them. Companies not yet removed from the list are seeking ways for achieving that. But those who fail to prove they have created proper mechanisms meeting our compliance requirements will hardly succeed.

BNamericas: Petrobras has been acknowledged by the Brazilian stock exchange for governance improvements. What does that mean?

Elek: We have been awarded Bovespa's certification for adhering to its state-run firms governance highlight program, which assures investors we are being well managed. Meanwhile, we are applying for the corporate governance certificate (level 2), which, in brief, allows minority shareholders to increase their participation in the company's decision making processes.  

About João Adalberto Elek Junior

João Adalberto Elek Junior is Petrobras current governance and compliance director. Previously, he served as the CFO of Fibria Celulose, where he also held the investor relations, risk control and management, and finance positions. He also served as director of financial and investor relations at NET telecom carrier and was Executive Director and Financial Director at AT&T Brazil and Latin America, respectively. João Adalberto Elek Junior has also around 20 years of experience at Citibank, where he served as CFO in the retail area.

About the company

Petróleo Brasileiro (Petrobras) is a Brazilian state-run energy company engaged in the exploration of oil and gas; production, refining and supply of crude and oil products; and generation of electric power using renewable energy sources.