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The Role of Informal Institutions in the Enforcement of Rules and How to Improve Corporate and Public Governance in Brazil: Studies Based on a Set of Corporate Governance Cases Involving State-Owned Companies

This paper aims to evaluate how informal institutions affect the formal ones and how legal proposals may improve both corporate governance and public administration. Through a set of corporate governance cases, especially the recent cases on Petrobras, the state-owned company involved in accusations of illegal bribery and corruption schemes, we examine how minority shareholders’ protection rules are affected by informal institutions, such as political and social norms. After that, this paper points out the institutional proposals that policymakers, academics, and organizations are recommending to improve corporate governance in Brazil and how such institutional mechanisms may also be useful in public governance. It concludes that the state, reinforced by informal institutions and acting as the controlling shareholder of companies such as Petrobras, has been a leading player in the expropriation of minority shareholders’ rights in Brazil. Moreover, its actions have also caused economic and social problems for the stakeholders of the state-owned companies, mainly suppliers and workers. Finally, the author further believes that the outcome of the interaction between formal and informal institutions in corporate and public governance is under-researched in Brazil. Hence, to promote its social and economic development, this interaction between institutions must be studied in greater depth, and, consequently, its negative effects can be minimized through better institutional design.