LatinFinance - January/February 2017 - 29
"Training is worthwhile. It is a huge
change of mentality. This is why nearly 75%
of companies say they are going to spend
more on training," he says.
Focus on governance
The impact of Lava Jato and other corruption scandals has emphasized the need
in most companies to strengthen internal
controls and monitor the day-to-day running of business more closely. In the survey,
86% of respondents believe the main financial impact of improved governance in their
company will be better risk management.
"Compliance and corporate governance
are two items that are in fashion," says
Oduvaldo Lara, TozziniFreire's corporate
governance partner. "Companies have been
considering those as an internal investment
to prevent future problems and improve
existing internal controls."
Roughly 70% believe that better governance will also improve operating efficiency. "Companies are looking more closely at
their production processes to see how they
can produce more without investing more,"
he says.
Corporate governance issues have risen
to prominence in recent years. Brazil's
securities and exchange commission, the
CVM, launched a code of corporate governance for listed companies in November. It
includes a set of rules to improve transparency. Companies that choose not to follow
certain guidelines will have to justify their
decision not to do so.
When asked which areas of corporate
governance are more important, 85% of respondents point to mechanisms that allow
companies to control risks and 77% point
to the existence of a solid environment to
ensure compliance.
Although there is an increased focus on
corporate governance, companies seem to
have limited expectations for increased capital markets activity in the coming months.
Almost two-thirds of respondents (63%) to
the survey - which was conducted ahead of
the 2016 US elections - say their companies
do not intend to tap markets in 2017.
More than half, however, expect their
companies to get involved in merger and
acquisition activity next year. Factors range
from the impact of Lava Jato encouraging
companies to put assets up for sale and the
exchange rate, to more market-friendly policies under Brazil's Temer government.
"There has been an increase in interest
from last year," says Maria Beatriz Bueno
Kowalewski, TozziniFreire's merger and ac-
SHIN JAE KIM, TOZZINIFREIRE
"THERE IS A GROWING
COMPLIANCE
CULTURE. THERE
ARE DEMANDS FROM
EVERYONE. WE HAVE
TO CHANGE THE WAY
WE CONDUCT
BUSINESS"
quisition partner. "Assets are cheap because
the price/ebitda multiple has fallen considerably in recent years. Investors try to buy
at a low price but they also expect a greater
return when the real appreciates," she says.
Taxing matters
Compliance has emerged as the most pressing issue for companies operating in Brazil.
Meanwhile, lingering concern over tax and
labor matters, which were identified as
issues in previous surveys, continue. This
indicates they are still an important drag on
companies' operations in Latin America's
biggest economy.
Not a single respondent says compliance
with Brazil's tax laws is easy. Nearly 93% say
the laws are highly complex.
"It is not like a crying boy who complains
because he has too much work to do. It
is real. A normal company has to comply
with more than 10,000 different laws and
regulations. It is very easy for you to commit
mistakes, and any mistake is subject to very
high penalties. It is a very complex system
that penalizes the tax payer very much,"
says Ana Claudia Utumi, TozziniFreire's tax
partner.
"It works against investment in general,
because companies spend so much money
complying with their tax obligations. They
could spend their money on something that
is more productive instead, and on some-
thing that would add more value."
Beyond such complexity, executives continue to complain about constant changes in
the legislation and frequent changes in the
interpretation of the laws. Utumi says that
companies are confronted with at least one
important change a week. "Generally these
changes are not in line with what would
really make sense economically, or how to
improve the tax system but they are rather
meant to increase tax revenues," she says.
According to the World Bank's Doing
Business survey, a Brazilian company has to
pay 10 different types of taxes, and devote
2,038 hours per year to comply with their
obligations, much higher than the average
of 342 hours in Latin America.
The tax rate is equivalent to 68% of
company earnings, as opposed to 46% in
Latin America on average. Brazil ranks 181st
globally in the paying taxes category, out of
190 countries.
Hard labor
Labor costs are another chief concern.
Executives say the degree of protection
granted to employees is paternalistic. They
complain about the lack of flexibility and
legal security. In the event of a legal dispute,
the legislation tends to protect employees.
"It is one of the greatest corporate costs.
Some 10 years ago, the greatest concern
during executives' meetings was related
to tax issues. Now the issue is how to curb
labor costs in order to gain efficiency," says
André Fittipaldi, TozziniFreire's labor issues' partner.
More than half of respondents (54%) find
labor relations and disputes very difficult to
deal with. Reform prospects have proved
elusive, but "Congress will eventually have
to take up this issue," says Fittipaldi. Ives
Gandra Martins, president of Brazil's high
court for labor, the TST, has also spoken in
favor of changes in labor legislation.
Labor reform is on the current government agenda. Higher courts, such as the
TST and the Supreme Court (STF), have discussed changes in outsourcing regulations
and other labor-related issues. But changing
the way Brazil deals with its workers will be
a tough battle. LF
LatinFinance Investor perception studies
are underwritten by sponsors. The editors
retain editorial control over the magazine
articles to ensure their objectivity and
independence.
January/February 2017 - L ATINFINA NCE.COM 29
http://www.LATINFINANCE.COM
Table of Contents for the Digital Edition of LatinFinance - January/February 2017
Contents
LatinFinance - January/February 2017 - Cover1
LatinFinance - January/February 2017 - Cover2
LatinFinance - January/February 2017 - Contents
LatinFinance - January/February 2017 - 2
LatinFinance - January/February 2017 - 3
LatinFinance - January/February 2017 - 4
LatinFinance - January/February 2017 - 5
LatinFinance - January/February 2017 - 6
LatinFinance - January/February 2017 - 7
LatinFinance - January/February 2017 - 8
LatinFinance - January/February 2017 - 9
LatinFinance - January/February 2017 - 10
LatinFinance - January/February 2017 - 11
LatinFinance - January/February 2017 - 12
LatinFinance - January/February 2017 - 13
LatinFinance - January/February 2017 - 14
LatinFinance - January/February 2017 - 15
LatinFinance - January/February 2017 - 16
LatinFinance - January/February 2017 - 17
LatinFinance - January/February 2017 - 18
LatinFinance - January/February 2017 - 19
LatinFinance - January/February 2017 - 20
LatinFinance - January/February 2017 - 21
LatinFinance - January/February 2017 - 22
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LatinFinance - January/February 2017 - 24
LatinFinance - January/February 2017 - 25
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LatinFinance - January/February 2017 - 48
LatinFinance - January/February 2017 - Cover3
LatinFinance - January/February 2017 - Cover4
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