Prof. Ligia Maura Costa, FGV EAESP, Director of the FGVethics – FGV Center for Ethics, Transparency, Integrity and Compliance Studies, looks into two recent breaches of compliance in Brazil and calls for  a genuine commitment to ESG practices for the benefit of firms, employees, society, and planet.

Governance Gone Wrong: Brazil, China, and the slippery slope of labor laws by Ligia Maura Costa. Related research: Anticorruption policies in Brazil and the operation car wash: institutional and economic analysis (2020). Lessons of operation car wash: a legal, institutional and economic analysis. Washington, DC: Wilson Center, p. 22-51. https://www.wilsoncenter.org/publication/lessons-operation-car-wash.

Corporate misconduct knows no borders, but when governance fails, the consequences fall on the most vulnerable. Two recent labor violations in Brazil, one in the South and another in the Northeast, expose not only regulatory failures but also the contrasting ways domestic and foreign companies navigate (or exploit) local laws.

In the South, Brazilian wineries relied on subcontractors to exploit local workers*. In the Northeast, a Chinese contractor, Jinjiang Group, working for BYD, imported its own workforce and subjected them to near-slavery conditions. Despite their different governance cultures, both companies ended up violating Brazilian labor laws. This raises a fundamental question: why do corporations, regardless of origin, assume that can evade the law?

The Issue: Compliance as an afterthought

Brazil has one of the most comprehensive labor laws in Latin America, yet these cases highlight a troubling reality: regulations mean little when corporations, whether Brazilian or foreign, treat compliance as an afterthought rather than an obligation. The scandal in the South was particularly revealing. Companies like Vinícola Aurora, Cooperativa Garibaldi, and Salton, while publicly championing ESG (Environmental, Social, Governance) principles, outsourced labor to a subcontractor that operated as if Brazil’s labor code (Consolidação das Leis do Trabalho – CLT) was a mere suggestion rather than enforceable law.

Forced labor is prohibited, formal contracts are mandatory, and workers’ rights must be upheld. Yet, these wineries either turned a blind eye or, worse, actively ignored the law. Their excuse? “We didn’t know what the subcontractor was doing”.  The classic governance loophole.

While the wineries’ governance failure reflects a lack of supply chain oversight, the BYD and Jinjiang case in the Northeast presented a different governance challenge: the lack of enforcement of labor laws in cross-border operations. A Chinese multinational established operations in Brazil, bringing in Chinese workers while behaving as if Brazilian labor laws had a “Foreign Workers Not Applicable” clause.

The allegations were: workers had passports confiscated, wages withheld and were subjected to overcrowded and unsanitary living conditions alongside exhausting work hours. Under Brazilian law, this was not just a labor violation; it could also be considered human trafficking. When authorities intervened, BYD quickly distanced itself from Jinjiang and relocated the workers to hotels and tried to move on. But this move reinforced another issue: the reactive rather than the proactive approach to corporate governance that plagues many multinationals operating abroad.

A regulatory dilemma

At the heart of both scandals lies a failure of corporate governance in Brazil, but for different reasons. Brazilian companies, despite operating within a familiar legal framework, have historically engaged in a cat-and-mouse game with labor regulations: exploiting loopholes, delegating responsibility to subcontractors, and assuming enforcement is weak enough to allow “flexibility.” Compliance, for them, is often a reaction rather than a value or a principle.

Chinese firms, on the other hand, follow a different governance reasoning. When expanding abroad, Chinese firms may bring governance models with certain labor practices that are tolerated in China. But Brazil is not China. Labor laws apply equally to domestic and foreign firms and extend to all employees in Brazil, regardless of nationality, and the notion that a company can import its own workforce and override local labor protections is, at best, naïve.

Both cases also expose a regulatory dilemma for Brazil. Despite having strong labor laws, enforcement remains inconsistent, and corporations, especially those with political or economic influence, often face delayed consequences. If Brazil wants to be taken seriously as a country that protects workers’ rights, then companies, whether Brazilian, Chinese, or from Mars, must face penalties for legal violations.

Responsible Governance in Brazil – good for firms, employees, society, and planet

What makes these scandals more frustrating is that they were entirely avoidable. ESG is not just a corporate trend but a framework for sustainable business, ensuring that companies align economic growth with social responsibility, environmental stewardship, and long-term ethical governance.

Without a genuine commitment to these principles, corporate governance becomes little more than an empty marketing exercise. The wineries could have conducted basic due diligence on their subcontractors. BYD could have ensured that Jinjiang complied with Brazilian labor laws before breaking ground. Both cases prove that governance failures are not just about bad actors; it is about bad systems, poor oversight, and a corporate culture where cutting corners takes precedence over ethical business practices.

So, what happens next? Brazilian authorities intervened, but the real test lies in whether these companies, and others watching, will implement changes or simply wait for the next scandal. Governance is not only about damage control after getting caught; it requires internal mechanisms that prevent, monitor and control violations before they occur. If corporate governance remains a simple public relations tool, then the cycle of exploitation, exposure, and empty apologies will continue, whether in the vineyards of the South, the factories of the Northeast, or beyond Brazil’s borders.

* Costa, L.M. ESG and the wine sector: turning viniculture grapes from sour to sweet.

Useful links:

• Link up with Prof. Costa on LinkedIn
• Read a related article: Ethics & Compliance in Firms: Why it happens and what makes it effective
• Visit the FGV Center for Ethics, Ethics, Transparency and Compliance Studies website
• Discover FGS EAESP Brazil and apply for the FGV OneMBA and residency.

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