Brazil’s CEOs Have Nothing to Hide



One of the flimsiest arguments against holding management accountable to shareholders is being played out in a Brazilian courtroom.

Chief executive officers of Brazil’s biggest companies are mounting a legal fight to block a regulation forcing them to disclose their pay packages to investors, according to Bloomberg News. Their argument: It’s dangerous in Brazil’s deeply unequal society for the rich to reveal how much they make.

This is the type of issue that sets apart publicly traded companies in transparent markets from those run like personal fiefdoms. Unfortunately for Brazil’s corporate governance culture the debate has been cynically framed as an issue of personal safety.

Or as Jose Castro Neves, the lawyer leading the battle for the Brazilian Institute of Finance Executives in Rio de Janeiro, put it: “In Brazil, if you say how much you make, you’re an idiot, irresponsible, or an exhibitionist.”

Castro Neves and his employers argue that being rich in Brazil is hard. Apparently corporate leaders have had to “change their lives” by riding in bullet-proof vehicles, hiring bodyguards and setting up barbed-wire fences around their compounds. But most rich people do this anyway even in the absence of pay disclosure.

Unfortunately, success in almost any society with widespread poverty has a price. And it comes in the form of reduced personal safety. Being rich in Latin America has always gone hand in hand with the need for tight security. In a country like Brazil, as in most developing nations, would-be kidnappers don’t need to go over a proxy statement to find a good target to seize and extort.

Those who want less corporate transparency in Brazil like to cite the 1989 kidnapping of Abilio Diniz, who ran the Grupo Pao de Acucar supermarket chain. But Diniz’s kidnapping was a political move meant to sabotage former Brazilian President Luiz Inacio Lula da Silva’s first bid for office. And the kidnappers included two Canadian citizens — hardly homegrown criminals looking for a big payday.

One can blame inept and corrupt government in Brasilia, shortsighted elites and even history for Brazil’s yawning wealth gap. But that isn’t a persuasive argument for investors who have sunk part of their savings into a Brazilian company such as planemaker Embraer or Banco Itau, Latin America’s largest bank. Shareholders shouldn’t be penalized for Brazil’s pervasive inequality.

Publicly traded companies, especially those with U.S.-listed depositary shares, can attract capital more easily and cheaply. Those benefits come with basic obligations. Disclosing executive pay to insure companies aren’t run for the enrichment of those in the boardroom or senior management is one of them.

It is hard for investors to take emerging-market companies seriously if they refuse to abide by basic tenets of corporate governance just because their societies somehow function differently.

The shenanigans that arise from inadequate corporate oversight also give ammunition to the populists who argue that capitalism as practiced in many emerging economies is rigged in favor of the few at the expense of the many. In markets where shareholder rights are actively undermined, they have a valid point.

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