Introduction as the global financial crisis and the




The financial crisis of 2007–2008,
also known as the global financial crisis and the 2008 financial crisis, is
considered to have been the worst financial crisis since the Great Depression
of the 1930. The financial crises start in December 2007, in which the lost of trust
of American investors in secured mortgage lead to a crises of liquidities which
determinate a substantial injection of capital in the financial market from American
Federal Reserve, Bank of England, and Central Bank of Europe. TED spread index
jumps in July 2007, it grows for one year and then it grows again in 2008,
reaching a new record of 4,65% in October 2008. The crises got worse in 2008
because the exchange stock went in a period of instability and then fall down.
In the weeks followed a big number of banks, creditors and insurance companies
went bankrupt.

The collapse of the Federal
Housing Administration (US) is often made responsible for the crisis. But the
vulnerability of the financial system was caused by complicated and leveraged
financial and leveraged contracts and monetary policy, the US monetary policy.
setting a negligible credit price and thus favoring a very high leverage ratio
and, according to American economist John Bellamy Foster.




Overview of Petrobas.

Petrobras is the biggestoil company in Brazil
and one of the biggestworld. Created in 1953 under the government of Getúlio
Vargas. On October 3,

Petrobras, abbreviation of Petróleo
Brasileiro S.A., Brazilian oil and gas company  engaged in the exploration, production,
refining, and transport of domestic petroleum and petroleum products.
Originally was a state-owned monopoly, Petrobras became majority-owned by the
state but competes against other Brazilian companies as well as against foreign
companies. Petrobras also forms partnerships with domestic and foreign
companies, and it operates in more than 25 countries around the world. It the
biggest company in Brazil and South America. Its headquarted  in Rio de Janeiro.

 Petrobras was granted a monopoly over Brazil’s
imports of crude oil in 1963, and it took over Brazil’s privately owned
refineries after they were nationalized in 1964. In 1995, as part of a campaign
to privatize state-owned industries, the Brazilian government proposed a
constitutional amendment ending Petrobras’s monopoly over exploitation of the
country’s oil and natural gas. With the passage of the amendment in 1997, these
industries were opened to foreign competition for the first time, obliging
Petrobras to submit competitive bids to the Agência Nacional do Petróleo (ANP;
National Petroleum Agency), the state organ responsible for granting
concessions to produce oil and gas on Brazilian territory. At the same time,
the amendment relieved Petrobras of its old requirement to meet production
quotas, while allowing the company to enter joint ventures with foreign companies
to produce, refine, and distribute oil and natural gas products in Brazil.

In 2006 a consortium between Petrobras
and British and Portuguese companies made the first of several important oil
and gas discoveries some 250 km (150 miles) offshore in the Santos Basin.
Located under 2,000 metres (6,500 feet) of water and as much as 5,000 metres
(16,500 feet) of oceanic crust, these so-called pre-salt finds (located below
thick salt formations) were so large that they held out the possibility of
reestablishing Brazil as a world-class petroleum producer. The Brazilian state
responded by creating a new agency, Petrosal, to regulate production of the
reserves, and it mandated that Petrobras be involved in every project in the
pre-salt zone.

Beginning in late 2014,
Petrobras—already suffering from declining international oil prices—found
itself at the centre of a huge political scandal. A sweeping investigation
alleged that Petrobras officials, the ruling Workers’ Party and some of it
members, and members of its coalition partner, the Party of the Brazilian
Democratic Movement, had received millions of dollars in kickbacks for
contracts with Petrobras, principally from construction firms.


The Board of Directors approved a new
organizational structure management and governance model.

Petrobras decided to do this changes
to as a response of the reality of the oil and gas industry, which is leading
them to prioritize more the profitable activities .The restructuring involves
activity redistribution, area mergers, and a review of the decision-making
model. One of the central objectives is to enhance the control and compliance
mechanisms. The changes are expected to allow for cost reductions worth up to
R$1.8 billion per year. Also planned is a reduction of at least 30 percent in
the number of managerial positions in non-operational areas. We have about 7500
approved management functions, of which 5300 are in non-operational areas. This
 reformulation adjusts the structure and
management to the vision set forth under our 2015-2019 Business Plan, the
ultimate goals of which are to create value and deleverage. In addition, it
extends the efforts to reinforce the control, compliance, and transparency

The first phase of the restructuring
will result in the reduction of 14 positions in senior management. The number
of departments will be decreased from seven to six with the merger of the
Downstream and Gas & Power areas. The total managerial positions linked
directly to the Board of Directors, the president, and the directors,
meanwhile, will be reduced to 41, down from 54.

The second phase, will cover the other
management team positions. Appointments and team allocations will take place
from March.

Accountability and compliance

Six Statutory Technical Committees
will be created comprising executive managers who will be tasked with
prescreenning and issuing recommendations on issues to be decided by the
directors, who will share responsibility in decision-making. Because of their
statutory nature, the committees’ acts will be subject to the oversight of the
Securities and Exchange Commission (CVM).There will be new integrity, technical
expertise, and management analysis criteria for the appointment of executive
management. In addition, the Board of Directors will be responsible for
approving both appointments and terminations for these positions.By
strengthening commitment to compliance, our restructuring provides for changes
in internal control over hiring and investments. Good and service procurement
activities will be concentrated at the new Human Resource, SMS, and Services

Investment project deployment will be
centralized at the new Production Development & Technology Department
(DP&T). This new structure will concentrate project deployment management
and technical skills.


Hiring for investment projects, as a
rule, three departments: the department of the requester, which conceives the
basic technical project; DP&T, which will develop the project, and the HR,
SMS and Services Department, which shall bid and contract goods and services.
This redesigned project and service hiring process avoids excessive
concentration in decision making.

Aiming to increase business
profitability, the new model promotes area mergers to improve the use of
synergies among them. Thus, Downstream and Gas & Power will comprise the
Refining and Natural Gas Department.

The Exploration and Production
Department will be organized per asset class, with the creation of structures
for Deep Waters, Ultra-Deep Waters, Onshore and Shallow Waters, enabling the
improved management of the value added by the assets and the optimization of
oil and gas production


A Brief History Of Corporate Governance

Corporate Wrongs Over the Recent Past
Over the past two decades, the investment world has seen a large number of
scandals relating to companies which are attributed to failure of governance.
These have been caused by a combination of number of factors, principally the
three corporate sins.

Company mangers (principally the
executive directors) lost sense of business or corporate ethics. Earnings
become the prime measure of a company’s success. Directors were not prepared to
show low profits or losses. This led to the use of unethical practices (like
creative accounting, falsification of books etc. ) to increase or show higher
earnings.  Boards were generally
ineffective and played into the hands of executive directors, approving
improper financial statements and condoning unfair corporate decisions. Mangers
awarded themselves huge bonuses and stock options, often at the expense of
other shareholders. Company concentrated on short term gains and showing higher
current profits, often sacrificing the long term objectives.  Auditors colluded or failed to stop the
executive directors from using improper accounting policies. In the process they
lost their independence which they surrendered for getting higher audit fees. The
disparity in remunerations between higher and lower level employees grew to
uncomfortable levels. A culture of greed developed among senior managers. Most
small investors lost interest in long term investments and concentrated on
short term gains through share price movements.

 Some Major Corporate Tragedies Arising out Of
Poor Governance in UK is Barings Bank .The management of this bank failed
completely in its internal controls, letting a single employee cause a loss of
$1.4 billion in stock trading. When Nick Leeson, its head of settlements
department was made of trading, he was not asked to relinquish the former
charge. This was a fatal internal control failure that allowed his activities
go completely unchecked. The bank never questioned the legitimacy of huge
payments authorized by Leeson to Singapore Money Exchange (SIMAX) and Osaka
Stock Exchange (OSE). The bank with 233 years history and considered one of
Britain’s best merchant banks eventually had to close its operations in


Polly Peck International

 This company went from being a small firm with
a market capitalization of just £300,000 to being a constituent of FTSE 100
index in less than 10 years with a market value of over £1.7 billion. Its
principal owner, Asil Nader, set up or bought over 200 subsidiary companies in
various parts of the world including interests in Japanese Company Sansui, but
mostly in Turkey and Northern Cyprus. A large number of irregular payments to
Cyprus companies were detected, totaling over £58 million. Asil Nader was
formally charged with 70 counts of fraud when the company collapsed in 1991

The world reaction to these corporate
wrongs was massive and led to the development of laws and codes for better
corporate governance.  Some of the
international initiatives on governance are: Cadbury Report 1992 (UK) .
Following serious financial scandals and collapses and a perceived general lack
of confidence in the financial reporting of many UK companies, the Financial
Reporting Council, the London Stock Exchange and the Accountancy Profession
established the Committee on the Financial Aspects of Corporate Governance, in
May 1991. It was chaired by Sir Adrian Cadbury and came out with its landmark
report in Dec. 1992, recommending a Code of Best Practice with which the boards
of all listed companies should comply.

 The organization of Economic Cooperation and
Development (OECD) published its principles of Corporate Governance in 1999.
Prior to its issuance, the document was discussed with the governments of
members countries, private sector and relevant international organizations like
the World Bank. The main principles ordained by the document are :the rights of
shareholders must be protected,  all
shareholders should be equitably treated. ,all stakeholders should be allowed
to play their role as provided in the law, importance of timely and accurate
disclosures to promote transparency.

Accountability and responsibility of
the board of directors.

 Basle Committee Guidelines (1999). This
committee issued its guidelines in 1999 related to enhancing corporate
governance in the banking companies. These have been influential in the
development of corporate governance practices in the banks across the world. It
covers many things, including: compensation issues of directors, there should
be appropriate oversight by and on senior management, the importance of the
work by both internal and external auditors, and internal checks.

 Smith Report 2003 (UK) . This report covered
the role and importance of audit committees. It stated that while all directors
have a duty to act in the interest of the company, the audit committee has a
particular role, acting independently from executive directors, to ensure that
the interests of shareholders are properly protected in relation to the
financial reporting and internal controls.

 Code of Corporate Governance issued by SECP,
2002 Pakistan’s regulatory body SEC issued a code of corporate governance in
2002 which was subsequently revised in 2005. All stock exchanges were required
to add the code clauses to their listing requirements. There are six main areas
addressed by this code, i.e. the board of directors, CFO and company secretary,
corporate and financial reporting framework, corporate ownership structure,
audit committee and compliance with the code of corporate governance.

Emergence of Corporate Governance
Models. Corporate Governance refers to the way companies are financed and
structured in an economy in terms of entrepreneurial and functional
decision-making. Over the past forty years or so, three main models of
corporate governance have been emerged in the world. Most of countries in the
world have one or other of these models. These are: Anglo-American Model (AAM ),
Japanese Model (JM), German Model (GM) .