Published On: September 1, 2017

Business Gets Smart

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Marcio Kumruian opened a shoe store with his cousin in an empty part of a São Paulo parking garage in 2000. What started as a word-of-mouth operation serving the university next door eventually moved to a mall and then to an online store. Today, Netshoes is an e-commerce company with a 13-story headquarters, which includes basketball courts, a ping-pong table, open offices, diversity workshops, and U$148 million raised in a New York IPO.

An IPO is an “Initial Public Offering,” which means a privately-held and managed company offers shares of itself on the stock market. The term “public” in IPO does not refer to any type of government control or ownership, but rather the entrance of public stockholders, i.e. anyone. Companies that go “public” also create a Board of Directors, which has the power to hire and fire the company’s CEO, as recently happened with Uber.

An IPO signals a giant leap forward for a company, betting on its own stability and long-term growth. By selling stock in itself, a company gets an immediate and large infusion of investment capital, providing a foundation for its continued growth. A company can choose to issue its IPO and be registered on any specific stock market it chooses. The countries with the largest economies, such as the US, China, Germany, and Japan have the largest stock markets.

New York Stock Exchange

New York Stock Exchange

Netshoes is one of many Brazilian companies trying to distance itself from the specter of corruption in Brazil, as the economy accelerates after two years of contraction. An estimated 15 IPOs could be held in São Paulo this year, while some Brazilian companies, like Netshoes, maintain their headquarters in São Paulo but enter the New York stock market.

Many of these young Brazilian companies promote what Renato Franklin, CEO of Brazilian rental car company Movida, calls “a new way of doing business.” They lean hard into international best practices — largely American — to inspire investor confidence. This new approach to business, along with new regulations, has begun to transform the Brazilian business world, affecting everything from employee habits to anti-bribery measures to efforts to diversify Brazil’s largely White and male-managed companies.

To expand onto the international market, Brazilian companies must first recognize that “business as usual” in Brazil doesn’t always translate outside the country. In addition to insisting Brazilian employees have a working knowledge of English, differences in business culture from one country to another must be recognized. For example, Brazilians often end their business emails with the sign-off “hugs,” whereas in other countries, “sincerely” would be appropriate.

Netshoes Distribution Center

Netshoes Distribution Center

What foreigners doing business with Brazilian companies don’t realize is “treating someone like family is a sign of trust,” says Thiago de Aragão, intelligence director at the Brazilian consultancy Arko Advice. Additionally, as Brazilian companies internationalize, typical practices in trusted companies like company-paid meals have rubbed up against regulations, such as the US Foreign Corrupt Practices Act, Thiago says, causing “very awkward moments” when Brazilian executives try to offer wine, for example, to visiting American government officials. Brazilian companies are learning to adjust.

Although Netshoes takes its cues in office design from Silicon Valley, other Brazilian companies, like brokerage firm XP Investimentos, look to New York’s Wall Street for its work culture. XP spent much of this year preparing for an IPO on the New York Stock Exchange coordinated by the largest bank in the US, JPMorgan Chase.

“My hours are more similar to the American banking world than those typical in Rio de Janeiro,” says Gilvan Costa, an XP broker, as he fields questions from clients via WhatsApp and reviews charts at his desk late into the evening. According to a local saying, one sign of the difference in productivity between Rio and São Paulo is that Brazil’s national meal, feijoada, often consumed with the national liquor cachaça, is served on Fridays in Rio and on Saturdays in São Paulo. However, according to business experts, São Paulo and New York–style seriousness on Friday afternoons is catching on at companies all across Brazil.

Modern office design

Modern office design

The biggest change in ‘business as usual’ in Brazil is not in office design or productivity, but in rooting out corruption. In 2014 a new law required companies to add compliance measures. Between 2015 and 2016, the companies surveyed by auditor KPMG with compliance measures in place rose from 57 percent to 76 percent. Influential, too, is a 2013 law that allows reduced criminal sentences for employees who turn in colleagues for corruption. Gilvan, the broker, prefers to schedule in-person meetings. “All of my phone calls are being recorded by regulators,” he says.

ipo-fe-lA much-discussed cover story in leading Brazilian business magazine Você S/A highlighted how the country’s companies, besides rooting out corruption, are also aiming to align with international attitudes about increased workplace diversity. “Target programs in hiring and support groups for women employees are the new factors that set apart the companies atop our annual index of best Brazilian companies to work for,” Você S/A’s Elisa Tozzi said.

Tozzi says programs to support Black, LGBT, and disabled workers are less common, although they are catching on via a few multinationals who make them explicit priorities. For Netshoes COO Graziele Rocha, “Brazilian companies that don’t pay attention to workplace diversity are behind.” Also, they can now be sued: Brazilian banks Itaú and Santander implemented recruiting programs for Black employees after high-profile non-profits attempted to sue them for damages under a Brazilian federal law defining racism as a crime.

The fact alone that a Brazilian company plans to do an IPO on an international stock exchange does not mean they have abandoned old habits. One of 2017’s most anticipated New York public offerings was that of the meatpacking giant JBS. Andrea Minardi, a business school professor at São Paulo’s Insper, says sharp drops in JBS’s stock price are part of “a necessary moment for Brazil” because they reflect decreased shareholder tolerance for corruption. In the past, as a saying goes, corruption in Brazil would “always end in pizza.” However, JBS management is not getting much enjoyment from pizza these days. One of the latest companies in Brazil to boycott JBS products, saying their values do not align, is Domino’s.

[This article appeared originally on the OZY website in different form.]

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