This regular section of Ethisphere Magazine focuses on compliance and ethics in global business. Each issue spotlights a different country, with excerpts from Ethisphere Council research.
With the fifth largest population and the tenth largest economy in the world, Brazil is a young, vibrant and attractive place for doing business. Established in the sixteenth century as a colony of Portugal, the democratic Federative Republic of Brazil is a multiethnic and Portuguese-speaking society. Brazil enjoys a privileged location, natural resources and an economy growing at a rate of more than 4 percent each year. The country has gone to great lengths to open its economy and is pursuing broad efforts to develop its infrastructure and institutions. However, Brazil faces several bureaucratic and systematic difficulties, including a history of political corruption that could slow future progress. Brazilian business norms are undergoing change, and many past practices that were ethically questionable are quickly disappearing, especially in the globally-linked business capitals of the country. Still, this BRIC economy can be a challenging, albeit high potential place for business.
THE ETHICAL CLIMATE FOR FOREIGN ENTERPRISES
Businesses entering Brazil should be aware of ethically challenging situations, and establish strategies to address potential corruption ahead of time. Two sets of issues should be considered: Cultural concepts and ethical challenges.
CULTURAL CONCEPTS
Certain Brazilian business traditions may appear suspect to their international counterparts. These practices should be understood in their broader cultural context, and responses to them must conform to the company’s compliance policies.
The so-called Jeitinhio Brasileiro is commonly understood as “giving someone a break.” In Brazil, the Jeitinhio is not seen as a form of corruption but a demand for empathy and help when confronting overly rigid or restrictive rules. Bureaucratic regulatory processes often lead to alternative ways of accomplishing objectives. These “breaks” rarely require explicit bribery but should be carefully scrutinized per company policy.
A despachante is a third party that facilitates applications, permits and business transactions. The utility of a despanchante is, again, a result of the complexity of regulations for establishing and operating a business. a despachante is often an accredited professional from an accounting or law firm that facilitates processes for a fee. Executives should guard against inappropriate or illegal services. a lack of official registration or the inability to provide receipts should be warning signs. If utilizing a despachante, check references and clarify the type of services that you are seeking.
ETHICAL CHALLENGES
Political corruption has been a historic issue for Brazil, and the country has experienced a number of scandals, including the 1992 impeachment of President Collor de Mello and the 2005 resignation of finance Minister alfonso Palocci. Playing to the widely-held belief that corruption is a root cause of Brazil’s income disparity, President luiz Inácio lula da Silva was reelected in 2006 with a declared personal war on corruption. Since then, Brazil has ratified the oECd anti-Bribery Convention, the United nations Convention against Corruption, the OAS Inter-American Convention against Corruption and the United nations Convention against Transnational organized Crime. Federal agents have become increasingly effective at targeting crimes like tax evasion, but judicial processes and responses remain slow. These efforts have earned the country a “Moderate” rating in the 2006 Global Integrity Index.
Important efforts are also underway in the private sector—more than 400 local companies have signed the Brazilian Pact for Integrity and against Corruption, affirming their own “zero-tolerance” approach to corruption.
Excessive bureaucracy has been a factor in political corruption, and the government has begun to scrutinize taxation, employment and registration regulations. Brazilians have been known to complain about the “Brazil Cost,” a reference to the extra costs caused by an inefficient taxation system, poor infrastructure and red tape. In fact, the World Economic Forum’s 2007–2008 Global Competitiveness Report ranked “tax regulations” as the most problematic factor for doing business in Brazil. In recent years, rulings to streamline judicial and bureaucratic processes have been proposed, but a fragmented political system means delays and disputes over improvements.
Intellectual property protection in Brazil is another concern. Most cases of IP infringement are related to piracy and violation of software copyrights, and the law protecting industrial property, patents and copyrights is inadequate. However, the government is making an effort to strengthen intellectual property protection and as a result Brazil was promoted from a “Priority” to a “Special” watch list by the International Intellectual Property alliance in 2006.
These issues require multinationals operating in Brazil to be consistent and clear about implementing their policies while ensuring that all employees are aware of corporate expectations. While the following recommendations should be standard procedure for businesses no matter where they operate, they are of particular importance in Brazil.
Etiquette Tip: You Should Know Before You Go
GREETINGS
In Brazil, business introductions are usually made through a mutual contact. Formality is mainly expected when greeting elders, where the use of “o senhor” (men) or “a senhora” (women) is appropriate. Men shake hands and women double kiss on the cheeks (alternating them from left to right). However, it is expected that non-Brazilians may only shake hands, and women traditionally extend their hand first. Once relationships have been developed, greetings become less formal and may include hugging or a pat on the back.
Avoid the “o.K.” hand signal as it is considered a rude gesture in Brazil.
GIFT GIVING
Gift giving is not expected when doing business, although a traditional gift from the person’s home country is considered an appropriate gesture. The exception is when you are invited to someone’s house. Always bring a gift such as flowers for the hostess of the house–orchids are recommended. avoid gifts that have a connotation with the number 13, anything purple or black (mourning colors), knives and handkerchiefs. If you forget or are unable to bring something, flowers with a thank-you note should be sent the day after.
BUSINESS CARDS
Business cards are exchanged during introductions and given to everyone attending the meeting. It is considered appropriate to have the business card in both English and Portuguese, although not necessary. If providing a card in Portuguese, always hand it over with the Portuguese side facing up.
BUSINESS MEETINGS
Although time is more fluid in Brazil, business is traditionally punctual. always make appointments in advance, with meetings best scheduled between 10 a.m. and noon or 3 p.m. and 5 p.m.
Brazilians dress fashionably, so a stylish business suit or dress is appropriate. Three-piece suits traditionally denote executive positions, so refrain from them if you do not hold a senior role. Ties with short-sleeved shirts, jeans or sport shirts should be avoided.
Successful business in Brazil often directly results from the fostering of more personal relationships with your associates. Brazilians like to feel comfortable with you, so always allow some time to socialize.
Lunch is a Brazilian’s most important meal, so plan at least two hours for working lunches. Business talk is often reserved for the end of the meal with the traditional coffee.
DINNERS AND SOCIAL EVENTS
Brazilians prefer to get to know business partners, and social gatherings are a good chance to make a good impression. during dinner, most of the conversation will be informal. Good conversation topics include soccer, family and children. avoid discussions about argentina, politics, poverty, income distribution, the rain forest and U.S. government policy. although located in South america, Brazilians do not speak Spanish and do not consider themselves Hispanic. avoid mixing English words in the middle of Portuguese phrases as it is perceived negatively.
Mind your manners when eating with Brazilians—eating with your hands, using a fork for cutting, drinking straight from the bottle and speaking while chewing—will all be looked on with disfavor.
Most meals finish with coffee. Brazilians love their coffee and compliments are appreciated.
The bill should be either paid for by one person or evenly divided among the group. Tipping is typically 10 percent in Brazil but is frequently included in the bill.
FIVE COMPLIANCE AND ETHICS ISSUES TO CONSIDER
01 // CORRUPTION
According to a business survey conducted in 2005 by PriceWaterhouse Coopers, 70 percent of firms in Brazil report having spent at least 3 percent of revenues on bribes. Most of these bribes are to expedite procedures, special treatment or access to traditional transactions.
DEAL WITH IT Given recent history, Brazilian business people have become sensitive to corruption and how it impacts Brazil’s future growth and investment opportunities. Federal agents are also increasingly effective in policing illegal business behavior. You will therefore likely encounter understanding when you make the case for compliance. Transparency in any business relationship or activity, however, such as accounting practices that allow for the review of resource use provides the best assurance. In dealing with any political contributions, be sure to follow the stipulations established by the Internal Revenue Service and be prepared for a potential audit at any time.
02 // DIRTY MONEY In 2000, a report by CPI accused more than 800 Brazilians, including politicians and influential business figures, of drug trafficking. Poor record keeping and accounting practices can cover illegal activities such as drug trafficking and money laundering. Imprecise records can also facilitate tax evasion and other misuse of resources.
DEAL WITH IT Do not engage in business transactions with individuals that have roles in unidentified businesses, government or public offices. Keep all records as clear and organized as possible and keep an electronic or hard copy of any relevant monetary transactions. Also, keep updated records of employees and suppliers and request copies of official identification whenever you formalize any type of working relationship. There are certified credit check services, like those offered by Serasa, that allow financial and tax due diligence of business partners.
03 // INTELLECTUAL PROPERTY Overall, intellectual property rights are broadly respected, but impunity and lack of law enforcement mechanisms have encouraged piracy and the violation of software and music licenses. The government has a heightened interest in strengthening intellectual property protection as local R&d output grows.
DEAL WITH IT Register all patents, trademarks, copyrights and any innovation that may be subject to intellectual property verification with Brazilian authorities. The National Industrial Property Institute (INPI) in Brazil, in addition to a number of local consultants, can assist in the prosecution of intellectual property violations. Make sure that software and copyrighted materials are fully licensed and compliant with international regulations.
04 // GÉRSON’S LAW In the 1970s, Gérson, a famous soccer player, appeared in a cigarette advertising campaign saying, “Take advantage of every situation to get ahead.” Sometimes called Gérson’s law, this mentality is used from time to time to justify unethical behavior. While in decline, the attitude persists in certain regions, especially outside of international business centers.
DEAL WITH IT Ethics and compliance training will increase your employee’s understanding of what is appropriate behavior as well as the risks that unethical action poses for company. With agents outside your company, it is important to evaluate a potential partner’s commitment to ethical practice prior to formalizing a relationship.
05 // DISCRIMINATION AT WORK Despite progress in recent years, women and black workers still face instances of inequality in the work environment. Past lack of access to education and rural living are partially to blame; however, this is changing as Brazil urbanizes and access to education improves.
DEAL WITH IT Potentially discriminatory decisions can be avoided by adequate controls and objective evaluations of individual qualifications. Having clear compliance rules as well as a zero-tolerance mandate will decrease the likelihood of discrimination at work.
