Any misstep regarding a labor or tax regulation can prove costly. “If you do have an issue, not only can the penalties be large, but you can spend 3 or 4 or even 10 years working through the judicial system,” Brown says.
“The court system is very, very tedious to work through, and it’s not clear you’re going to get the right answer at the end of the day,” says Greg Hayes, finance chief at United Technologies, the $53 billion global industrial conglomerate. He cites the example of a value-added tax dispute the company had several years ago in which it won its case at the Supreme Court level in Brazil but still couldn’t achieve effective enforcement at the local level.
Still, Brown points out that while the courts can be maddeningly slow, at least there is a system. “Compared to China, where the legal system is much less structured and capable of dealing with issues, in Brazil you will work your way through the courts and eventually come out with a result,” he says.
The Wild South
Brazil also has its share of other problems that are common to many emerging markets: namely, corruption and security threats. “It is the corruption issue that scares me the most,” says Hayes. To combat the risk of fraud, United Technologies has implemented a rigorous audit and ethics program in Brazil and at all of its international locations. The company’s internal audit team travels to its large branches in Brazil multiple times a year, its outside auditor visits regularly, and members of the finance team in the United States make frequent trips to the company’s operating units in Brazil. “It may be overkill, but we’re trying to make sure we never have a big problem,” says Hayes. The company also requires ethics training and course work for all employees throughout the year. An online system allows for anonymous reporting of any problems. “The combination of those things lets me sleep at night,” Hayes says.
Personal security remains a significant risk in Brazil, says Aon’s Monaghan. “The kidnapping level is high and they target businesspeople,” she says. “It hasn’t been proven whether that has deterred foreign direct investment, but I don’t see how it can’t.” But Monaghan adds that the international spotlight that will shine on the country as it prepares to host the 2014 World Cup and the 2016 Summer Olympics has increased the government’s sense of urgency about tackling the problem. “Crime prevention is a serious topic of discussion in Brazil, and it’s being addressed, but at the moment, it’s still there,” she says.
For now, High Street’s Harding urges executives planning a trip to Brazil to line up carefully vetted drivers and bodyguards to escort them from the airport to the hotel and then to all meetings during their stay. “It’s a different risk profile than in Europe or China,” he says. “Security has to be at the forefront of your planning.”