A Cure for Private Sector Corruption? Corporate Governance Codes in Peru 

In this post, Dr John Lawrence, a former PhD student of the UCL Institute of the Americas, writes about his recently published book, based on his doctoral dissertation, Take-Up, Resistance and Transformation of Corporate Governance Codes, (Palgrave, 2025). 

A Cure for Private Sector Corruption? Corporate Governance Codes in Peru 

 John Lawrence 

Two events occurred in 2014 that affected corporate life in Peru in two very different ways. 

The first, the Odebrecht scandal, came to light in late 2014, when Brazilian authorities uncovered a massive public sector bribery scheme involving $788 million in bribes across 12 countries in Latin America. Odebrecht was the largest construction company in the region and had created a new department to pay bribes to government officials responsible for contracting with infrastructure firms to build new projects. The scandal is often referred to as Lava Jato or “car wash” because investigations into money laundering through car washes led, through Petrobras, the state oil company, to Odebrecht. The story broke in Peru in 2017. It turned out that Odebrecht had chosen Peru as its staging post outside Brazil because of the high level of tolerance to corruption – Peruvians were believed to be generally tolerant of bribery if it meant that they had new roads and bridges! Pointing to this supposed tolerant attitude to corruption, in their defence, Odebrecht claimed merely to have ‘industrialized a widespread cottage industry’.  

The second, in early 2014, was the launch in Peru of a voluntary governance code to guide the behaviour of corporations listed on the Lima exchange. Voluntary corporate governance codes started in the United Kingdom in 1992. Following several corporate scandals, Sir Adrian Cadbury led a committee to develop a new approach to how corporations should be managed. The committee recommended that corporations should be required to compare their governance structures with those considered global best practice. The code covered how the board should be structured and how they should operate, how board committees should play a role indecision-making, the treatment of minority shareholders, risk management and transparency in reporting. Compliance reporting was required by law, but corporations were not obliged to comply with every rule in the code, just explain why they did not.  The 2014 Peruvian code was based in part on the UK code; it required corporations to report annually to their financial market regulator on their compliance with its 88 rules, perhaps the most radical of which was the appointment of up to three independent non-executive directors onto the boards of directors of public limited companies. 

But in Peru, as in many other countries in the region, most corporations were owned by a score of very wealthy families who operated public companies more like private companies because they not only dominated board membership, but their family members also often held executive positions. This raised questions regarding how corporate leaders in Peru responded to the imposition of this new reporting convention especially given the impending revelation that Peru was Odebrecht’s first port of call for its platform of international bribery, and why  they bothered to take the new governance code seriously when compliance was, after all, voluntary. 

 In my book, Take-up, Resistance and Transformation, I explored these issues and showed how some corporations took a creative approach to engaging with the international business community.   

My initial hypothesis was that, given the history of ownership of corporations by wealthy families,  they would protect their powerful positions in one of two ways. Either they would resist complying with the code any more that they already did, or they would exaggerate their compliance and use this to virtue posture in their public relations.  

I used two research methodologies: interviews with over 50 executives, owners, and others involved in the financial markets or agencies lobbying for better corporate behaviour; and detailed analysis of the annual returns of 200+ corporations for seven years across all 88 rules in the 2014 code. I also developed eight case studies to explore in depth the range of stances corporate leaders took towards the code.   

I found several  firms with low levels of compliance that either ignored the code or used it as a power play. For example, some corporations hired junior family members or their own retired executives to pose as independent directors.  Others would appoint independents but keep them on for a very short time and replace them with a new contingent with no experience of the firm, thereby ensuring that the independents never learned enough about the firm to have any influence. One company set up board committees to address topics such as board membership, director remuneration and governance, only to have the President of the firm and founder-ownerchair, and so control, every board committee! 

 However, I discovered a significant group of corporations that took compliance with the code seriously and not only increased their compliance year on year but did so in the most sensitive areas – those concerning the introduction of third parties into governance. These corporations were interested in following best practice governance though not just for its own sake. They had discovered that their business partners and financiers in the international markets were concerned to make good decisions about who they dealt with and were using the published governance information as an important data point.  Corporations such as Ferreycorp, Credicorp and COSAPI were actively using their code compliance to send a signal to the business community that they were credible firms to deal with – Ferreycorp because it both wanted to keep its prized agency with Caterpiller, and because it was planning a new bond issue, Credicorp because it was actively involved in the corporate credit markets and needed a spotless reputation following illegal political contributions by a member of its owning family, and COSAPI because they had been caught up in the Odebrecht scandal and were rebuilding their reputation with business partners on construction projects. 

Corruption remains a major issue in the public sector in Peru. But a part of the corporate sector at least is contributing to reversing the image of Peru as Odebrecht’s launch pad. 

 

John Lawrence completed his PhD in political economy at the Institute of the Americas in 2024, in which the focus was on understanding how companies registered with the Lima stock exchange made decisions on corporate governance matters in general and on their compliance with a voluntary code introduced in 2014. Before  academia, he had a successful career in management consulting in the financial services markets. He is currently an independent director and also enrolled on an MA in Philosophy and Artificial Intelligence.