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Cross Cultural issues in Business Ethics: Brazil and South Africa

Jyothi D (55) Lavanya P (64) M. Valdez (73) Noyonika Roy (82) Pramod (91) Raj Mohan (98)

y Federal Republic y Executive:
y Chief of State: President y Head of Government:

y Republic y Executive: y Chief of State: President y Head of Government: President y Legislative: Bicameral y National Council of Provinces (90


y Legislative: Bicameral.
y Federal Senate (81 seats) y Chamber of Deputies (513


seats) y National Assembly (400 seats)

y Judicial:

y Judicial: Supreme Federal

Tribunal. Judges are appointed for life (retirement age of 70) y Multiple political parties.

y Constitutional court, Supreme

Court of Appeals, High courts, Magistrate Courts.

y Multiple political parties.


Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, Brazil's economy outweighs that of all other South American countries, and Brazil is expanding its presence in world markets. 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 awarded investment grade status to its debt.

South Africa is a middle-income, emerging market with an abundant supply of natural resources; well-developed financial, legal, communications, energy, and transport sectors; a stock exchange that is the 18th largest in the world; and modern infrastructure supporting a relatively efficient distribution of goods to major urban centers throughout the region.

BRAZIL GDP PER CAPITA (PPP) GROWTH RATE AGRICULTURE INDUSTRY SERVICES UNEMPLOYMENT RATE POPULATION POPULATION BELOW POVERTY LINE $2.09Trillion $10,800 7.5% 5.8% 26.8% 67.4% 6.7% 203,429,773 26% SOUTH AFRICA $357.3 Billion $10,700 2.8% 2.5% 30.8% 66.8% 24.9% 49,004,031 50%


White 53.7%, Mulatto (mixed white and black) 38.5%, Black 6.2%, other (includes Japanese, Arab, Amerindian) 0.9%, unspecified 0.7% Roman Catholic (nominal) 73.6%, Protestant 15.4%, Spiritualist 1.3%, Bantu/voodoo 0.3%, other 1.8%, unspecified 0.2%, none 7.4%

Black African 79%, White 9.6%, Colored 8.9%, Indian/Asian 2.5%

Protestant 36.6% (Zionist Christian 11.1%, Pentecostal/Charismatic 8.2%, Methodist 6.8%, Dutch Reformed 6.7%, Anglican 3.8%), Catholic 7.1%, Muslim 1.5%, other Christian 36%, other 2.3%, unspecified 1.4%, none 15.1%


History - Brazil
y Pedro lvares Cabral on April 22, 1500 y From the 16th to the 19th centuries, Brazil was a colony of

Portugal y Colony to exploit brazilwood tree (red dye) and sugar and coffee y Empire of Brazil after a military coup in 1889 y Dictatorship rule (1930-1934 and 1937-1945) and military rule (1964-1985)

History South Africa

y Dominated by very diverse ethnic groups aboriginal

Khoisan, Dutch and British descendants, slaves from East Indies y Discovery of diamonds annexations by the British y Anglo Boer wars y Apartheid


y DIRTY MONEY: Poor record keeping and accounting practices

can cover illegal activities such as drug trafficking and money laundering. It may also facilitate tax evasion and other misuse of resources. y 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.

y GERSONS LAW: Take advantage of every situation to get

ahead. 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. y 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.

y Brazilian managerial culture is characterized by y paternalism y power concentration y personal relationships y strong loyalty to ones in-group and leader y flexibility.

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 positive and negative outcomes
 Positive: High performance, Loyalty  Negative: 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 relations developed in which the ruling landowner represented the paternal figure

y Flexibility in business reflects a realization that there is an y y y

'intermediary path' between what is and what is not allowed\ PRACTICE OF JEITINHO Jeitinho [is] a special way of managing obstacles in order to find a way out of bureaucracy. It is a way to find the middle path between what is allowed by numerous laws and regulations, and what is practically possible and makes sense An adaptation mechanism which allows individuals and businesses to function despite the rigid and stifling legislative environment, massive bureaucracy, paternalistic management systems, and the oligarchic economic structure, dominated by powerful hereditary clans.

What is unethical in Brazil

y Another characteristic of the Brazilian society is significant

income disparity and concentration of wealth in the hands of a 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 new sources of wealth y Each of these booms created successive waves of powerful, ultra-rich dynasties, which controlled and may still control a disproportionate share of countrys wealth.

Lack of integrity and fairness

y Lack of Integrity and fairness due to Jeitinho y 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 of y y y

y y y

hard currency reserves. On 11 September 1998, amidst turmoil on the Sao Paulo stock exchange, some $1.7 billion had quietly left the country in a single day. In October, the pace of capital flight (funneled through the forex market) was running at the pace of $400 million a day. The vaults of the Central Bank of Brazil were being ransacked by 'institutional speculators' with the tacit collusion of the government of President Fernando Henrique Cardoso. The Brazilian authorities stood idle: on instructions from their Wall Street masters, no exchange controls were to be instituted to mitigate the outflow of money wealth. The country faced imminent bankruptcy; the State apparatus is under the control of Brasilia's external creditors. IMF intervention and Governments role saved the face of the country

Company Ethics
y Mele, Debeljuh, and Arruda (2006) found that the majority

of 100 largest companies in Brazil had some form of formal or informal ethical policies. y Respondents believed that development of formal ethics policies was an important factor in developing ethical business cultures, and that central role in implementing ethical policies rests with CEOs. y According to a nationwide survey in 2009, 189 organizations out of the top 500 companies operating in Brazil, explicitly adopted corporate codes of ethics (a 27% increase from 2008), (IBEN, 2009).

Corporate Sustainability Index

y The introduction of the corporate sustainability index (ISE),

involving up to 40 publicly traded companies of the Sao Paulo Stock Exchange (BOVESPA) and based on responsible business practices, indicates the growing relevance of business ethics in Brazil (Rossi, 2009). y Twenty-six out of the current twenty-eight companies listed in the ISE have explicit codes of ethics.


Concerns for discriminatory practices are unique in this developing country in that there are not only issues with discrimination based on gender, race and religion, but other measures such as age, sexual orientation, HI V/AIDS status and disability. y BRIBERY: South African companies not only see bribery as an accepted practice when conducting business in the region, but a necessary component for success.

y CORRUPTION: Its a commonly held belief in South

Africa that corruption efforts have taken a back seat to other pressing issues like poverty, HI V/AIDS, inequalities and high unemployment. y FRAUDS : Increase in the number of fraud cases in public and private sector businesses. Ernst & Young released its 11th Global Fraud Survey Driving Ethical Growth in 2010 which revealed more incidents of fraud about 38% of the cases, as of 2010. Included forging bank documents, tax evasion, false insurance claims and electronic funds transfer fraud

Ethics in Employment
y The Legislation Framework y Basic Conditions of Employment Act y Employment Equity Act y Skills Development Act y Codes of Good Practices y Promotion of Equality and Prevention of Unfair Discrimination Act y Human Sciences Research Council - statutory research council y Developed a Code of ethics in business in SA y purpose of this Code is to establish a set of ethical values and standards

Ethics in Employment
y Key Values Observed y Impartiality y Accountability y Competition y Integrity y Openness y Ranking on Hiring and Firing Practices

Country Brazil South Africa

Rank 2012 131 135

Organisational Ethics
y Many cases of Bribery prevalent among many business

managers, but many seem to claim they are gifts. y Incidences of collusion and price-fixing y Ethics Suicide
y Set ethical standards with minimum legal compliance y No effective implementation y Eg. An inexperienced officer in charge of the ethics programme

in the organisation

Ease of Doing Business Index

y Index created by World Bank

y Higher rankings indicate better, usually simpler,

regulations for businesses and stronger protections of property rights y Even if SA has favourable conditions for doing business, it is undone by the disastrous consequences of Apartheid(48-94) Country Brazil South Africa Rank 2012 126 35

Corruption Perception Index 2010

y Transparency International publishes CPI every year since

1995. y Ranks countries by their perceived levels of corruption, as determined by expert assessments and opinion surveys

Country Brazil South Africa

CPI 2010 3.7 4.5

Rank 69 54

Bribe Payers Index 2011

y This is also published by Transparency International since

2007. 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 Brazilian firms report having spent at least 3% of revenues on bribes.

Country Brazil South Africa

BPI 2011 7.7 7.6

Rank 14 15

Child Labour Issues

y More concentrated in African countries than in Latin

America. 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.


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

Power distance
y Brazil-69 y Honors referent powers, and y South Africa - 49

perceives a clear delineation between superiors and subordinates and between the young and the old. y Values obedience in children. y Expects teachers to be authoritarian and direct student learning.

(relatively low) y Evidenced from protests against White rule

Masculinity / Femininity
y Brazil 49 - Places higher

value on people, quality of life and nurturing. y Interprets gender roles more fluidly and places greater value on cooperative efforts and service. y Possess strong concern for social harmony and human relationships.

y South Africa 59 y The way South African

business works in masculinity vs. femininity actually follows what is known as the Mayor effect. This has a huge impact on the business behavior, management styles, and leadership styles. y Business in South Africa is usually more conservative and will follow a hierarchy.

Uncertainty Avoidance Index

South Africa 49 Brazil 76

y Brazil's highest Hofstede Dimension is Uncertainty Avoidance

(UAI) is 76, indicating the societys low level of tolerance for uncertainty. y rules, laws, policies, and regulations are adopted and implemented y Society is very risk adverse. y South Africas is low at 49, indicating that it accepts change more readily

Long term orientation index

South Africa N/A Brazil 65

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

mostly because of the fact of participation by civil society and private sector is very active in the country y High long-term orientation ranking signifies Brazil has respect for tradition and supports a strong work ethic where long term rewards are expected as a result of todays work y South Africa may also fare high as
 The 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)

A Comparison of the indices: Summary

Corporate Governance-Brazil
1990s 2001 2003
The wave of privatisation was supposed to have led to improved market discipline among corporate managers and installed shareholder value governance and AGM democracy. IMF supported reforms led to large parts of the most profitable and competitive sectors to be transferred to foreign ownership.

Two-tier level reform (Cardoso Government) (i) measured reform of corporate law supplemented by (ii) self-regulatory initiatives and the political independence granted to the stock exchange authority

Catalyst Lula government Also looked at social inclusion.Examples include the democratisation of the governance of pension funds as a stand-alone policy objective.By contrast government activism has been less visible on corporate law issues

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 the controlling shareholder group. But progress was limited not least for shareholders right to access the agenda of the AGM which still is something for the future in Brazil.
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 the

AGM) and the shareholder agreement that binds the shareholders in forming a controlling block.
y Being ruled by civil law doctrine, the duties of directors include a requirement for

directors to serve the social purpose of the company. This is something that might be considered undesirable by World Bank and OECD experts for whom directors duties can only conceivably be toward the shareholders and the shareholders only.

Corporate Governance-South Africa

1980s 2001

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

South African corporations witness a new political system, rapid trade liberalisation, demanding international investors, an emerging-markets crisis and rapid-fire regulatory reform. Diversified holdings and the entrenchment of control through pyramid structures have fallen from favour.

The rapid changes are explained by the development path chosen by South Africa since becoming a democracy. Upon taking power in 1994, the government chose to 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

Corporate Governance-South Africa

Corporate governance, essentially implies the quality of corporate monitoring and decisionmaking, that mainly impacts both stability and growth prospects.
Modest Debt to equity ratios. But in future, proper disclosure, governance and market oversight will be the most important check on corporate gearing and bank lending.

A knock-on effect of improved performance would be more attractive capital markets, and larger capital in flows. Conversely misallocating resources to improve returns for control blocs, and shielding poor managements from the market for corporate control, will, if pervasive, reduce growth

A deep security culture Forces for change Areas of poor performance Need for truly independent directors A robust market for corporate control Disclosure of director remuneration

y Founded by Cecil Rhodes (SA) y Setting up of a Cartel and British support

y US conviction of DeBeers and GE

y Poor treatment of Distributors

y Exploitation of workers y Council of Foreign Relations (CFR) and Old boy network y Exploitation of Diamond rich African Nations

Banco Marka in Brazil

y Usage of Inside Information about y y y y

Foreign Exchange January 1999 - End of Pegged Exchange rate policy to dollar Banco Markos bet for a strong Real, it was in trouble Banco Marko asks for BCB presidents aid. Did the BCB President Yeild?

The Trial
y BCB presidents defense after being accused??? y BCB Boards reaction??? y Witnesses confess y Involvement of Brazil stock exchange. y What happened to the Guilty????
y BCB President and Banco Chief

y The Aftermath

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