brazil sa final

8/3/2019 Brazil SA Final

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Jyothi D (55)

Lavanya P (64)

M. Valdez (73)

Noyonika Roy (82)

Pramod (91)

Raj Mohan (98)

Cross Cultural issues in Business

Ethics: Brazil and South Africa


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Government

BRAZIL SOUTH AFRICA

y Federal Republicy Executive:

y Chief of State: Presidenty

Head of Government:President.y Legislative: Bicameral.

y Federal Senate (81 seats)y Chamber of Deputies (513

seats)

y Judicial: Supreme FederalTribunal. Judges are appointedfor life (retirement age of 70)

y Multiple political parties.

y Republic

y Executive:y Chief of State: Presidenty

Head of Government: Presidenty Legislative: Bicameral

y National Council of Provinces (90seats)

y National Assembly (400 seats)

y Judicial:y Constitutional court, Supreme

Court of Appeals, High courts,Magistrate Courts.

y Multiple political parties.


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Economyy BRAZIL

Characterized by large and well-developed agricultural, mining,manufacturing, and service sectors, Brazil's economy outweighs that of allother South American countries, and Brazil is expanding its presence in worldmarkets. Since 2003, Brazil has steadily improved its macroeconomic stability,building up foreign reserves, and reducing its debt profile by shifting its debt

burden toward real denominated and domestically held instruments. In 2008,Brazil became a net external creditor and two ratings agencies awardedinvestment grade status to its debt.

y SOUTHAFRICASouth Africa is a middle-income, emerging market with an abundant supply of

natural resources; well-developed financial, legal, communications, energy, andtransport sectors; a stock exchange that is the 18th largest in the world; andmodern infrastructure supporting a relatively efficient distribution of goods tomajor urban centers throughout the region.


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EconomyBRAZIL SOUTHAFRICA

GDP $2.09Trillion $357.3 Billion

PER CAPITA (PPP) $10,800 $10,700

GROWTH RATE 7.5% 2.8%

AGRICULTURE 5.8% 2.5%

INDUSTRY 26.8% 30.8%

SERVICES 67.4% 66.8%

UNEMPLOYMENT RATE 6.7% 24.9%

POPULATION 203,429,773 49,004,031

POPULATION BELOWPOVERTY LINE

26% 50%


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PeopleB

RAZILSOUTH

AFRICA

ETHNIC GROUPS White 53.7%, Mulatto (mixedwhite and black) 38.5%, Black6.2%, other (includes Japanese,

Arab, Amerindian) 0.9%,unspecified 0.7%

Black African 79%,White 9.6%,Colored 8.9%,

Indian/Asian 2.5%

RELIGIONS Roman Catholic (nominal)73.6%, Protestant 15.4%,

Spiritualist 1.3%,Bantu/voodoo 0.3%, other1.8%, unspecified 0.2%, none7.4%

Protestant 36.6% (ZionistChristian 11.1%,Pentecostal/Charismatic

8.2%, Methodist 6.8%,Dutch Reformed 6.7%,Anglican 3.8%), Catholic7.1%, Muslim 1.5%, otherChristian 36%, other2.3%, unspecified 1.4%,

none 15.1%


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History - Brazil

y Pedro lvares Cabral on April 22, 1500

y From the 16th to the 19th centuries, Brazil was a colony ofPortugal

y

Colony to exploit brazilwood tree (red dye) and sugar andcoffee

y Empire of Brazil after a military coup in 1889

y Dictatorship rule (1930-1934 and 1937-1945) and military

rule (1964-1985)


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History South Africa

y Dominated by very diverse ethnic groups aboriginalKhoisan, Dutch and British descendants, slaves from EastIndies

y

Discovery of diamonds annexations by the Britishy Anglo Boer wars

y Apartheid


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ETHICS IN BRAZIL ANDSOUTH AFRICA


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BRAZIL

y

DIRTY

MO

NEY

: Poor record keeping and accounting practicescan cover illegal activities such as drug trafficking and moneylaundering. It may also facilitate tax evasion and other misuse ofresources.

y

INT

ELLECTU

AL PRO

PERTY

: Overall, intellectual propertyrights are broadly respected, but impunity and lack of lawenforcement mechanisms have encouraged piracy and the violationof software and music licenses. The government has a heightenedinterest in strengthening intellectual property protection as localR&D output grows.


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y GERSONS LAW: Take advantage of every situation to getahead. This mentality is used from time to time to justifyunethical behavior. While in decline, the attitude persists incertain regions, especially outside of international business

centers.y DISCRIMINATION ATWORK: Despite progress in recent

years, women and black workers still face instances ofinequality in the work environment. Past lack of access to

education and rural living are partially to blame; however, this ischanging as Brazil urbanizes and access to education improves.


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y Brazilian managerial culture is characterized byy paternalismy power concentrationy personal relationshipsy strong loyalty to ones in-group and leadery

flexibility.


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Organizational Ethics

Organizational ethics is based on the preference for social cohesion,which is cemented by loyalty to the group leader.The leader, on the other hand, is responsible for each group members

well- being. This web of reciprocal obligations could lead to both positiveand negative outcomesPositive: High performance, LoyaltyNegative: Collective Mistake

Eg:y Selection of captains to settle the Brazilian territory was based on their

loyalty to the Crown.y This system was perpetuated in the slave agricultural economy where

favors were exchanged for work and protection. Kinship-type relationsdeveloped in which the ruling landowner represented the paternal figure


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y Flexibility in business reflects a realization that there is an'intermediary path' between what is and what is not allowed\

y PRACTICE OF JEITINHOy Jeitinho [is] a special way of managing obstacles in order to find a

way out of bureaucracy.y It is a way to find the middle path between what is allowed bynumerous laws and regulations, and what is practically possibleand makes sense

y An adaptation mechanism which allows individuals and businessesto function despite the rigid and stifling legislative environment,massive bureaucracy, paternalistic management systems, and theoligarchic economic structure, dominated by powerful hereditaryclans.


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What is unethical in Brazily Another characteristic of the Brazilian society is significant

income disparity and concentration of wealth in the hands ofa small portion of the population.

y Brazil is among ten countries of the world with most unequal

distribution of wealth.y The country is rich in natural resources, and it went through

a succession of booms, triggered by the discoveries of newsources of wealth

y

Each of these booms created successive waves of powerful,ultra-rich dynasties, which controlled and may still control adisproportionate share of countrys wealth.


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Lack of integrity and fairnessy Lack of Integrity and fairness due to Jeitinhoy

Integrity requires doing what we say, and always acting in good faith.

1998-99 Brazilian Financial Scam

y Speculative raids on South-East Asia led to the confiscation of more than $100 billion ofhard currency reserves.

y On 11 September 1998, amidst turmoil on the Sao Paulo stock exchange, some $1.7billion had quietly left the country in a single day.

y In October, the pace of capital flight (funneled through the forex market) was runningat the pace of $400 million a day.

y The vaults of the Central Bank of Brazil were being ransacked by 'institutionalspeculators' with the tacit collusion of the government of President Fernando HenriqueCardoso.

y The Brazilian authorities stood idle: on instructions from their Wall Street masters, noexchange controls were to be instituted to mitigate the outflow of money wealth.

y The country faced imminent bankruptcy; the State apparatus is under the control ofBrasilia's external creditors.

y IMF intervention and Governments role saved the face of the country


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Company Ethics

y Mele, Debeljuh, and Arruda (2006) found that the majorityof 100 largest companies in Brazil had some form of formalor informal ethical policies.

y

Respondents believed that development of formal ethicspolicies was an important factor in developing ethicalbusiness cultures, and that central role in implementingethical policies rests with CEOs.

y

According to a nationwide survey in 2009, 189 organizationsout of the top 500 companies operating in Brazil, explicitlyadopted corporate codes of ethics (a 27% increase from2008), (IBEN, 2009).


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Corporate Sustainability Index

y The introduction of the corporate sustainability index (ISE),involving up to 40 publicly traded companies of the SaoPaulo Stock Exchange (BOVESPA) and based on responsiblebusiness practices, indicates the growing relevance ofbusiness ethics in Brazil (Rossi, 2009).

y Twenty-six out of the current twenty-eight companies listedin the ISE have explicit codes of ethics.


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SOUTH AFRICAy

WO

RKPLACE INEQU

ALITY

AND DIS

CRIMINAT

IO

N:Concerns for discriminatory practices are unique in this developingcountry in that there are not only issues with discrimination basedon gender, race and religion, but other measures such as age, sexualorientation, HI V/AIDS status and disability.

y BRIBERY: South African companies not only see bribery as anaccepted practice when conducting business in the region, but anecessary component for success.


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y CORRUPTION: Its a commonly held belief in SouthAfrica that corruption efforts have taken a back seat to otherpressing issues like poverty, HI V/AIDS, inequalities and highunemployment.

y FRAUDS : Increase in the number of fraud cases in publicand private sector businesses. Ernst & Young released its 11thGlobal Fraud Survey Driving Ethical Growth in 2010 whichrevealed more incidents of fraud about 38% of the cases, asof 2010. Included forging bank documents, tax evasion, falseinsurance claims and electronic funds transfer fraud


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Ethics in Employmenty The Legislation Framework

y Basic Conditions of Employment Act

y Employment Equity Act

y Skills Development Act

y Codes of Good Practicesy Promotion of Equality and Prevention of Unfair Discrimination Act

y Human Sciences Research Council - statutory research councily Developed a Code of ethics in business in SA

y purpose of this Code is to establish a set of ethical values and standards


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Ethics in Employmenty Key Values Observed

y Impartialityy Accountabilityy Competitiony Integrityy Openness

y Ranking on Hiring and Firing Practices

Country Rank 2012

Brazil 131

South Africa 135


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Organisational Ethics

y Many cases of Bribery prevalent among many businessmanagers, but many seem to claim they are gifts.

y Incidences of collusion and price-fixing

y

Ethics Suicidey Set ethical standards with minimum legal compliancey No effective implementationy Eg. An inexperienced officer in charge of the ethics programme

in the organisation


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Ease of Doing Business Index

Country Rank 2012

Brazil 126

South Africa 35

y Index created by World Bank

y Higher rankings indicate better, usually simpler,regulations for businesses and stronger protections of

property rightsy Even if SA has favourable conditions for doing business,

it is undone by the disastrous consequences ofApartheid(48-94)


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Corruption Perception Index 2010

y Transparency International publishes CPI every year since1995.

y Ranks countries by their perceived levels of corruption, asdetermined by expert assessments and opinion surveys

Country CPI 2010 Rank

Brazil 3.7 69

South Africa 4.5 54


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Bribe Payers Index 2011

y This is also published by Transparency International since2007.

y Unique tool capturing the supply side of international bribery,specifically focussing on bribes paid by the private sector.

y According to a survey by PWC in 2005, 70% of Brazilianfirms report having spent at least 3% of revenues on bribes.

Country BPI 2011 Rank

Brazil 7.7 14

South Africa 7.6 15


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Child Labour Issues

y More concentrated in African countries than in LatinAmerica.

y Recent study indicated that proportion of child labourers

rises to 25% from the early 14% in African countries.y On the contrary, Brazil is said to have seen a decrease in the

number of child labourers, thanks to Bolsa Familia,worlds largest CCT (conditional cash transfers) programme.


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HOFSTEDE INDICES


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Individualism

y Brazil (IDV) - 38 Latin American population score -21.

y Latin countries are considered to be Collectivist.

y Close long-term commitment to the member group

y Loyalty over-rides most other societal rules.y South Africa IDV of 65

y European presence


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Power distancey Brazil-69y Honors referent powers, and

perceives a cleardelineation between

superiors andsubordinates and betweenthe young and the old.

y Values obedience inchildren.

y Expects teachers to beauthoritarian and directstudent learning.

y South Africa - 49(relatively low)

y Evidenced from protestsagainst White rule


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Masculinity / Femininityy Brazil 49 - Places higher

value on people, quality oflife and nurturing.

y Interprets gender roles more

fluidly and places greatervalue on cooperative effortsand service.

y Possess strong concern forsocial harmony and

human relationships.

y South Africa 59

y The way South Africanbusiness works in masculinityvs. femininity actually follows

what is known as the Mayoreffect. This has a hugeimpact on the businessbehavior, management styles,and leadership styles.

y

Business in South Africa isusually more conservativeand will follow ahierarchy.


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Uncertainty Avoidance Index

y

Brazil's highest Hofstede Dimension is Uncertainty Avoidance(UAI) is 76, indicating the societys low level of tolerance foruncertainty.

y rules, laws, policies, and regulations are adopted and

implementedy Society is very risk adverse.

y South Africas is low at 49, indicating that it accepts changemore readily

South Africa Brazil

49 76


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Long term orientation index

y Business relations may take longer to develop especially for outsidersy Brazilian government is usually willing to take long-term decisions,

mostly because of the fact of participation by civil society and privatesector is very active in the countryy High long-term orientation ranking signifies Brazil has respect for

tradition and supports a strong work ethic where long term rewards areexpected as a result of todays work

y

SouthAfrica may also fare high asThe long term relations it establishes (BRICS)High flow of FDIs (Fifth in terms of FDIs from China, Acquisitions

established by companies across the world)Increase in FDI by 63% from 2009 (Source:World bank reports)

South Africa Brazil

N/A 65


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A Comparison of the indices: Summary


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Corporate Governance-Brazil

1990s

The wave of privatisation was supposed to have led to improved market disciplineamong corporate managers and installed shareholder value governance and AGMdemocracy. IMF supported reforms led to large parts of the most profitable andcompetitive sectors to be transferred to foreign ownership.

2001 Two-tier level reform (Cardoso Government) (i) measured reform of corporate law

supplemented by (ii) self-regulatory initiatives and the political independencegranted to the stock exchange authority

2003

Catalyst Lula government Also looked at social inclusion.Examples include thedemocratisation of the governance of pension funds as a stand-alone policyobjective.By contrast government activism has been less visible on corporate lawissues


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Corporate Governance-Brazil

y PRE LULA -The reform of the corporate law 6404/76 of 2001 achieved some

progress in enabling minority shareholders to serve as counterweights to thecontrolling shareholder group. But progress was limited not least for shareholdersright to access the agenda of the AGM which still is something for the future inBrazil.

y Greater complexity of law itself.CG map has not increased in clarity.

y There are the Board of Directors (around which gravitate the Fiscal Board and theAGM) and the shareholder agreement that binds the shareholders in forming acontrolling block.

y Being ruled by civil law doctrine, the duties of directors include a requirement fordirectors to serve the social purpose of the company. This is something that might beconsidered undesirable by World Bank and OECD experts for whom directorsduties can only conceivably be toward the shareholders and the shareholders only.


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Corporate Governance-South Africa

1980s

Tariffs and political isolation shielded firms from foreign productcompetition, while financial sanctions kept international institutions out ofthe domestic capital market, and South African firms out of internationalcapital markets.

2001

South African corporations witness a new political system, rapid tradeliberalisation, demanding international investors, an emerging-markets crisisand rapid-fire regulatory reform.

Diversified holdings and the entrenchment of control through pyramidstructures have fallen from favour.

The rapid changes are explained by the development path chosen by South Africasince becoming a democracy. Upon taking power in 1994, the government choseto eschew confiscation of property, and instead to seek growth. increase mobilization of both

domestic and foreign capital, as well as use that capital more efficiently


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Corporate Governance-South Africa

Modest Debt to equity ratios.

But in future, proper disclosure, governanceand market oversight will be the mostimportant check on corporate gearing andbank lending.

Stability

A knock-on effect of improved performancewould be more attractive capital markets, and

larger capital in flows. Converselymisallocating resources to improve returns forcontrol blocs, and shielding poormanagements from the market for corporatecontrol, will, if pervasive, reduce growth

Growth

Corporate governance, essentially implies the quality of corporate monitoring and decision-making, that mainly impacts both stability and growth prospects.

A deep security culture Forces for changeAreas of poor performance Need for truly independent directorsA robust market for corporate control

Disclosure of director remuneration


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y Founded by Cecil Rhodes (SA)

y Setting up of a Cartel and British supporty US conviction of DeBeers and GE

y Poor treatment of Distributors


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y Exploitation of workers

y Council of Foreign Relations (CFR) and Old boy network

y Exploitation of Diamond rich African Nations


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BancoMarka in Brazil

y Usage ofInside Information aboutForeign Exchange

y January 1999 - End of Pegged Exchange ratepolicy to dollar

y Banco Markos bet for a strong Real, it wasin trouble

y Banco Marko asks for BCB presidents aid.

y Did the BCB President Yeild?


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The Trial

y BCB presidents defense after being accused???

y BCB Boards reaction???

y Witnesses confessy Involvement of Brazil stock exchange.

y What happened to the Guilty????y

BCB President and Banco Chiefy The Aftermath


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y Is something fundamentally wrong with Brazilian culture or

their legal system?y Banking culture

y Buy Rumor and sell fact

y Contacts

y Brazilian Culture accepted practices like Insider trading

y Brotherhood way of doing business


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brazil sa final

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