Reputation on the #1 board
Driven by the interest of showing how boards of directors deal with the topic of reputation and deal with the complexity of these new times in organizations, the Reputation Feed inaugurates the special series of interviews with José Monforte Reputation on the board. Monforte, who has contributed to more than 20 collegiate bodies in his career, such as Eletrobras, Petrobras, Bank of Brazil, Alive and CCR, among other state and private companies, and was also one of the formulators of the governance of the Natura. In this conversation, he objectively relates the main governance challenges, does not shy away from examining errors and pointing out how they could have been avoided in the Americanas case, defends greater proximity between the board and management and states that reputation permeates the entire company.
Read the main excerpts from this interview below.
“The challenge is almost that of governance live full time, because the world is moving like this, in real time”
Not since the Industrial Revolution has Brazil's business history faced such a complex environment. It's an accelerated change in relation to everything. Digital advancement, and now Artificial Intelligence, for example, have imposed very large modernization challenges while also bringing risks to companies. It also substantially changed the relationship between company and employee. This affects everything: the way we work, the way we pay, the way we recognize ourselves. Today, the board needs to understand governance in relation to both people and company processes. There is still a lot of risk that needs to be addressed, which is present at all times and has been magnified by the cyber risk. The Brazilian situation has always been volatile, somewhat unpredictable. Therefore, in the good name of governance, the strategies to face these challenges are people development, managing risk and monitoring results. The challenge is almost one of governance live full time, because the world is moving like this, in real time.
“Loyalty is more important than financial capital”
The new currency for the company is stakeholder loyalty. You can only repeat a good performance if you keep the elements that contribute to your success intact: relationship with supplier, relationship with customer, relationship with society. If you stop to think about it, no business works if society doesn't accept it. Today, loyalty is a more important capital than financial capital. What do stakeholders require to be loyal, to give this currency to companies? They require companies to have a reputation. If today we are going to discuss reputation, it is not as an agenda item, but in several actions or areas, from formatting a planning process to structuring a purpose, including measuring how well it is being evaluated or poorly evaluated.
“The purpose was integrated into the exercise of strategic planning”
In the past, purpose was not very common (in the discussion of strategic planning). It had a mission, vision, values and so on. What is the purpose? It is this reason to be expanded to moral aspects, social obligations, a broader vision. Today, the difference is that this has been integrated into the strategic planning exercise, especially because you have to make action plans in two main areas: business and sustainability. I participated in the beginning of Natura's governance, and that was religion there, 23 years ago. You started with the people, the guardian of values. It was a somewhat unique governance. Since then, I have seen the evolution, some still out of convenience, many out of conviction. Whether out of conviction or convenience, you will have the correct posture. It must be like this, because it is good business.
“Do I want to have a good reputation? Which are the guidelines for that?"
There is an agenda to discuss reputation specifically in the councilsyou? No. The question is what is the reputation. Reputation is the way I am evaluated and recognized by the world with which I relate. What does this world expect from me to recognize a good reputation? May I do things correctly and deliver what I promise. I understand that there are a set of things, although there is no specific item, of reputation discussion. Do I want to have a good reputation, recognition and loyalty from my stakeholders? What supports this? Which are the guidelines for that?
In general, compliance, which is the first stage of saying: 'look, there is a whole set of rules that must be obeyed and, therefore, we will have a good reputation if we respect these regulatory frameworks'. The second issue is that society does not recognize a good reputation in those who have bad practices and corruption. So, there are elements to measure or find out if you are acting with integrity. In these aspects, companies have evolved a lot. In other words, I would say that there is no tendency to bring up the specific discussion of what reputation is; I would say that there is, indeed, greater adoption of discussing and evaluating whether the company is practicing all the policies that lead it to maintain a good reputation.
“The incentives given to executives are what establish the balance between short- and long-term trade off”
The long term only exists if you have a sum of successful short terms, otherwise you won't get there. In other words, you will maintain good suppliers, employees and loyal customers and you must have good financial balance and generate some results for shareholders. In companies with dispersed capital, where the figures of the president and directors assume great importance, there is a discussion of how much they act to prioritize benefits and remuneration for performance in the short term, forgetting the long term. Therefore, executive remuneration policies are one of the most central themes in governance. This is where balanced interest in the short and long term must be built. And the council is the guardian. Remuneration has to be in line with the culture, purpose and reputation you want to have. The advisor has to be aware of this, and in the companies, in most of which I have been and am, adjustments to incentive and remuneration policies are quite present and frequent. The incentives given to executives establish the balance between short- and long-term trade-offs.
“Americanas is an outlier”
I don't believe in governance and boards that don't have a deep level of engagement with the company. Americanas is an outlier. How has the issue evolved over so long? I don't have all the information to make a final judgment, but board meetings were expected to be quarterly. I don't know what the practice was, but quarterly meetings are insufficient for the level of engagement and information (necessary) for the council. It is necessary to deepen the board's involvement with a larger group of the company's management, interact, understand, get to know people. Often, only the company president goes to the board. Am I interacting? Let me challenge a little the assumptions that are bringing me here. It is not doubting, but challenging. Why is this debt growing so much? It's difficult to consider, not having all the information.
“Governance is about engagement, proximity to management”
It is necessary to know how far the board should act in relation to management. There is, indeed, a concern that the board will not start managing the company and become as responsible for management acts as the managers themselves. And, certainly, the degree of involvement varies slightly depending on the companies' stage of development. But my vision of governance is one of engagement, of proximity to management. Furthermore, by virtue of company law, in publicly traded companies, the director is the administrator, he must be absolutely informed and have the ability to reflect and understand in order to decide.
“Governance effectively happens
in the committees”
Governance effectively takes place in committees. The council meets on a diverse agenda, without time to delve deeply into all the issues. Who does this for the councils? The committees, which break down the issues and management proposals and advise the board. Therefore, it is requested, not required, that the committees be populated by advisors and subject matter experts. And I add the area manager. This is where interaction, engagement and in-depth study of the subjects takes place. Governance exists to support the process for company success. You have to put together something that works.
The council must be complementary in its competencies and very homogeneous in its ability to interact
"The operating dynamics
is to influence and
let yourself be influenced”
The advisor has to be a great generalist and bring to the company a specific skill for that moment in the mandate. You must also have interpersonal skills, that is, the ability to interact in a collegiate manner. The working dynamics of a council is to influence and allow yourself to be influenced. Those who have specific knowledge are those who will influence others more on a given subject. And those who are not experts will try to understand what the other person is saying. The council must be complementary in its skills and ability to interpret things and also very homogeneous in its ability to interact.
"If you don't have a set of preventative measures, you will live in crisisIt is"
You have to have well-defined action plans to deal with the crisis, but you have to have absolutely well-defined compliance, policies and risk management. This is crisis prevention. Crisis management means acting on it, so the best thing is to prevent it from happening. The entire company must have a clear definition of who the spokesperson is, who constitutes the crisis committee, and how the company should act. All of this is a set that must be there. But first, you need to have risk management and compliance, which are action plans that prevent a crisis. Often, crises are inevitable, they happen despite you. If you don't have this set of preventative measures, you will live in crisis. Crisis management processes need to be present at all times.
More about José Monforte
The economist has an important role in the development of governance in the country, having been chairman of the board of the Brazilian Institute of Corporate Governance (IBGC), from April 2004 to March 2008. Previously, he had a consolidated executive career in the financial system, working in institutions like Merrill Lynch and Citibank. Upon leaving the executive chair, he chose modern business models, the future of work and the future of money as his study topics. Today, he contributes to the Board of Directors of Assaí Atacadista and the transport infrastructure company CCR. He is a board partner of Brazilian climate-tech BlueBell Index and is on the advisory board of the data monetization startup DrumWave, created by São Paulo native André Velloso, in Silicon Valley.
Christianne Schmitt is editor of the Reputation Feed
• In the next interview in the Reputation on the board series: Dan Ioschpe, president of the Board of Directors of Iochpe-Maxion and member of the boards of Embraer, WEG and Cosan, among others.