Corporate Governance & Risk Management in Financial Institutions: An International Comparison between Brazil and Germany

Abstract

In this monograph, we have discussed various aspects of corporate governance and risk management from an international viewpoint and with a special focus on Brazil and Germany as well as banking, taking into account the developments since the beginning of the latest financial crisis in 2007/2008. Clearly, Brazil and Germany are quite different countries – culturally and economically. Still, there are some similarities, reflected for instance in total market capitalization of listed companies or the Open Budget Index. In terms of corporate governance, we could confirm that the general impression is still that of clear differences, but when looking deeper into the different topics, we found that diff erences are diminishing as Brazil is improving in these areas, while Germany appears to progress quite slowly. With regards to risk management, differences are perceived to be strong overall, but appear to be muted in the area of financial services, certainly due to strict and similar or even identical regulation (e.g. Basel III). Our analysis of data from surveys used for this study shows that there have been moderate increases in perceived quality, regulation and importance of both, risk management and corporate governance. This is largely true for both countries; still we found that especially regarding corporate governance, such increases have been lower or even non-existent in Germany. The reason might be that the Brazilian society feels a stronger necessity to improve in those areas than that of Germany, which might have started from a higher level. Still, the crises (financial and European sovereign) have had more impact – although still moderate – on Germany than on Brazil. The hypotheses that corporate governance and risk management had become more important over the 2007-2013 period could however not be fully confirmed, given that results of the analysis of annual reports did not produce consistent results. Agreement existed amongst participants in our survey that risk management is a part of corporate governance, although also here, affirmation from participants covering Germany was weaker than that from respondents working in Brazil. Consequently, we believe that risk management should be included as a section in its own right in those corporate governance codes where this is not yet the case today. This would also help to further strengthen the conceptual integration of risk management as part of corporate governance and might support the advancement of both. Furthermore, the establishment of risk-, advisory- and remuneration-committees (where not already in place) and Family Councils for family-owned businesses might be helpful to instill more discipline and achieve a higher internal independence. In summary, no major changes have been perceived to have taken place in the areas of corporate governance and risk management since the beginning of the financial crisis, while it is evident that a number of (regulatory) developments have occurred during t hat period. They may however have been relatively constant and were therefore, subjectively, less noted, or expectations had been higher so that the actions taken appear weak in the perception of our respondents.