Successful pressure for board reform at a Brazilian global oil giant has led to a strategic turnaround and strengthened corporate governance.
Historically, the Brazilian government has stacked the company's board by appointing nine of the 11 seats and allowing minority shareholders, including state-controlled pension funds, to vote for the remaining two. In 2008, it significantly increased production after making major oil discoveries in offshore pre-salt fields. To exploit its discoveries, the Brazilian oil giant more than quadrupled its borrowing levels over the next five years to a peak of about $140bn in 2014, compared to just $30bn previously. Increasing its leverage ratio from one-times to five-times. By 2015, with leverage rising faster than production, mounting interest costs put extreme pressure on cash flows ahead of the $12bn in principal payments it was due to pay in 2016. Added pressure was caused by its debt squeeze coinciding with slumping oil prices and the epic Car Wash corruption scandal becoming public.