Petrobras: Addressing controversy

Addressing controversy through better nomination, compliance and auditing

Governance engagement case study by EOS 

Picked for the Alliance Trust portfolio by GQG Partners as at 30 September 2022.

Area of engagement

Petrobras is one of the largest producers of oil and gas in the world, engaged in exploration and production, refining, energy generation and trading. The company has over 100 subsidiaries, some of which are managed with a significant degree of independence, and as such subject to political interference. This generated controversy related to bribery and corruption during the “Lava-Jato” (“Car Wash”) scandal. Since 2017, the EOS team has engaged with Petrobras in the development of its governance framework of subsidiaries, on topics such as board composition and effectiveness, board nomination policy, and conduct and compliance.

Outcome

In all the previously mentioned areas the EOS team has seen significant progress, in line with the expectations contained in its Brazil Corporate Governance Principles. Changes at the company include the introduction of a framework for corporate governance of subsidiaries, formally approved in Q2 2018, and the creation of the new Petrobras conglomerate audit committee, separate from the Petrobras parent company audit committee. The EOS team discussed the effectiveness of the new framework with independent board members and gained assurance that the improved governance of subsidiaries has led to better oversight on nomination, compliance and audit, as well as improved operational efficiency at the subsidiary level.