In August 2023, the Brazilian Institute of Corporate Governance (IBGC) published the 6th edition of its Code of Best Practices in Corporate Governance. The current document introduces innovations in several areas, incorporating quantitative and qualitative standards focused on ESG (Environmental, Social, and Governance) practices. Stakeholderism influences its development, beginning with the ethical foundation of corporate governance, which extends to the principles of governance (integrity, transparency, equity, accountability, and sustainability). The recommendations aim to protect not only shareholders but also employees, suppliers, customers, communities, the environment, and society at large.
This broader ethical concern regarding the selection of interests to be protected leads to a reformulation of the very concept of corporate governance (1) presented in the document. Sustainability and the balance among the interests of all parties become central. This focus is evident in recommendations such as that regarding diversity in the composition of the board of directors. The document values a plurality of perspectives in the decision-making process, despite what we view as a lack of practical recommendations in this regard.
The IBGC Code (soft law) is gaining attention at a time when the European Union is in an advanced stage of discussions regarding its draft Directive on Business and Human Rights (hard law) and the global agenda is debating parameters for responsible capitalism.
The current stage of development in European Union (EU) corporate law is characterized by Stefan Grundmann as the “green box” phase. The central concept proposed by the professor at Humboldt University is based on the idea that responsibility toward the community and across generations is paramount, both in economic activities and in corporate law. The professor cites three clear examples of this perspective identified in major EU corporate law initiatives over the past decade: (i) preventing the externalization of the adverse effects of private action onto the community (taxpayers); (ii) proactive protection of fundamental values, when the European economy is the source of risks to those values; and (iii) calls on key decision-makers to share their strategies, make them transparent, subject them to scrutiny, and, furthermore, refrain from injustices (2).
These discussions also call for innovations in the governance of organizations.
A historical study of corporate governance allows us to identify that social demands (especially crises) trigger the transformation of recommendations (soft law) into hard law (3). Here we ask: on the occasion of the IBGC’s publication of this new code, what is the document’s utility in the current context of significant social demands requiring that businesses be operated in an ethical and sustainable manner?
Our question highlights an important dilemma in the field of corporate governance: should we opt for the creation of hard law or soft law when seeking to improve corporate governance?
One of the reasons that justifies the relevance of corporate governance codes is that they effectively encourage organizations to implement more robust governance structures and to improve the disclosure of information to market participants (4). This argument highlights the ethical orientation of the new IBGC Code and aligns it with CVM Resolution No. 59/2021. We note that the CVM’s regulations reflect the agency’s concern with ESG issues, as explained by Luciano Timm, Henrique Misawa, and Patrícia Medeiros (5).
The specialized literature, in distinguishing between different types of Corporate Governance Codes, points out that these documents can be viewed as mechanisms that facilitate the convergence of governance practices across countries. This convergence is the result of various external forces, the most powerful of which are globalization, market liberalization, and the influence of foreign investors (6).
In conclusion, the IBGC’s current Code of Best Practices in Corporate Governance comes at an opportune time. However, there is a need for regulatory and binding initiatives (hard law) that keep pace with global developments.
(1) Corporate governance is a system composed of principles, rules, structures, and processes through which organizations are managed and monitored, with the aim of generating sustainable value for the organization, its shareholders, and society at large. This system guides the actions of governance agents and other individuals within an organization in the pursuit of a balance among the interests of all stakeholders, thereby contributing positively to society and the environment. In Código de Melhores Práticas de Governança Corporativa. Disponível aqui. Acesso em: 15.08.2023.
(2) GRUNDMANN, Stefan. European Company Law in transformation-strive for participation and sustainability. Yearbook of European Law, 2023, yead002.
(3) ROSENVALD, Nelson; OLIVEIRA, Fabrício. Governança nos grupos societários: Inovações. Editora Foco, 2023 e OLIVEIRA, Fabrício de Souza. Governança Corporativa: a crise financeira e os seus efeitos (equívocos e possibilidades). 1. ed. Rio de Janeiro: Editora Processo, 2022.
(4) DUH, Mojca. Corporate governance codes and their role in improving corporate governance practice. Corporate governance and strategic decision making, 2017, 8: 53-87.
(5) Os impactos da nova Resolução CVM n. 59. Disponível aqui. Acesso em: 15.08.2023.
(6) DUH, Mojca. Corporate governance codes and their role in improving corporate governance practice. Corporate governance and strategic decision making, 2017, 8: 53-87.