Petrobras is one of the largest producers of oil and gas in the world, engaged in exploration and production, refining, energy generation and trading.
The company has over 100 subsidiaries, ranging from special purpose vehicles established as part of a project finance structure, to fully-fledged companies, with their own supervisory and executive boards. Historically, the major subsidiaries, some of them established by acts of parliament, have been managed with a significant degree of independence from their parent company and subject to political interference. This generated controversy related to bribery and corruption during the “Lava-Jato" (“Car Wash”) scandal.
Since 2017, we have engaged with Petrobras in the development of its governance framework of subsidiaries, on topics such as board composition and effectiveness, board nomination policy, and conduct and compliance. We discussed with senior executives how the company could implement best practice regarding control and oversight, as well as operational efficiency. In subsequent meetings, we were assured that this was a priority for the board.
In all the previously mentioned areas, we have seen significant progress, in line with the expectations contained in our Brazil Corporate Governance Principles. Changes at the company include the introduction of a framework for corporate governance of subsidiaries, which was formally approved in Q2 2018. The creation of the new Petrobras conglomerate audit committee, separate from the Petrobras parent company audit committee, was approved at an extraordinary shareholders’ meeting in Q4 2018. We discussed the effectiveness of the new framework with independent board members, especially the conglomerate audit committee, currently covering 15 of Petrobras’ subsidiaries.
We have gained assurance from our engagement with independent directors that the improved governance of subsidiaries has led to better oversight on nomination, compliance and audit, as well as improved operational efficiency at the subsidiary level.