The Public and the Private in Odebrecht’s Vocabulary

Abstract

It was announced in Congress that a “criminal society” formed by construction companies was in charge of public sector decisions, directing bids and overcharging expenses in order to divert resources to political campaigns. Despite the similarities with Carwash operation, the year was 1993, when Odebrecht was luckier in weathering scandals. This paper asks what are the ways that enabled a particular pattern of state-firm relations from emerging by looking at one of the country’s largest private companies. It uses historical and judicial documents as sources to identify organizational knowledge as the main explanatory variable for the behavior of executives when interacting with state officials. This contribution scrutinizes a determinant for systemic corruption in a developmental state that is informal, durable and useful from the stand-point of corporations.

1 Introduction

It was announced in Congress that a “criminal society” formed by construction companies was in charge of public sector decisions, directing bids and overcharging expenses in order to divert resources to political campaigns. The year was 1993, but the staging could have taken place in several other times in Brazil’s history. Like many other episodes in which malfeasance was reported, the Parliamentary Commission launched to investigate the construction sector “ended up in pizza”, a common slang to say nobody was punished. Odebrecht was at the center of it. This same luck in weathering scandals was gone a few years later when Erga Omnes Operation, named after the latin brocard meaning “For Everyone”, arrested the company´s then president, and heir of the family business, Marcelo Bahia Odebrecht. The 14^th phase of the Car Wash probe, the set of investigations on graft that hit Brazil and Latin America, was a fallout for the economic and political elites that had been until then successful in securing wins at a biased game in the tropical setting. But what are the ways, largely missed by scholars, that enabled this pattern of state-firm relations from emerging on the first place? The empirical argument put forward here is that the boundaries between private and public are far more than blurred in the Brazilian context, and that from the standpoint of the second largest private group operating in the country,¹ the imbricated relationship with the state was a deep-rooted strategy, one that would potentially still be employed, so long as the desired outputs continued to be secured.

An economic organization very active in public procurement and one of the few enterprises who could provide services and products to the state administration in the construction and chemical sectors, the story of the Odebrecht group offers relevant lessons for understanding state-business relations. We draw on institutional polycentrism, its understanding that institutions originate from and are configured by multiple sources, to analyze the interaction between Odebrecht and the state, locate the public and private spheres, as well as the place where they are interwoven. A qualitative approach will be employed to retrace episodes and narratives when business and statesmen relate while trying to detect stable patterns in their interaction across time. To this end, we intend to gauge, using the empiric material available from criminal investigations and historical sources with corporate communication, both the formal and informal exchange practices so as to identify patterns of action. The underlying assumption is that political and economic actors choose the formal rules to follow and couple them with informal ones in a process that may generate a mismatch between the written and unwritten norms.

To bypass a normative view of corruption, we will rely on data produced by the organization in two different contexts: first a historical one, tracing episodes when Odebrechtian interests were enmeshed with the government’s, then a judicial one, when its executives spoke before the judiciary and the malfeasance had already been exposed. Instead of following a definition of corruption or tracing its manifestation in an inductive exercise, the research agenda ahead lies on taking stock of elements from the organizational knowledge repertoire that express how, for the Brazilian case, the public and private sectors are permanently in contact.

The objective of this paper is to scholarly inquire the boundaries between the public and private spheres as understood by the Odebrecht organization. Rather than following a normative approach, empirical material from the enterprise and its members touching on the topic of corporate-state relations from throughout its history (1943–2019) will be used to derive conclusions about the meaning of interactions and boundaries between the private and the public. Over the long term, what have those who repeatedly interacted within a set of institutional arrangements learn about how to relate to one another? What does that tell us about predicting decision-making in the future, when similar actors engage in similar problem-solving activities? To scrutinize domestic determinants for systematic corruption taking the company as an example, the text has been structured in three main parts. The first section will present a conceptual and methodological scheme. The second section will enter the Brazilian setting and Odebrecht´s place in it through a historical rescue of episodes of contact between the infrastructure and petrochemical industry and the government followed by a scheme of exchange of favors framed as a strategic game. In the third section, findings of actors’ preferences will be discussed with the aid of an interpretive method. We finish the chapter with concluding remarks.

2 Conceptual and Methodological Scheme

With respect to the extent of meddling in the economic affairs, states can be more or less intrusive. The literature on regulation outlines that capitalist states can be classified according to the kinds of priorities in regards to government–business relationships. There are those in which a developmental orientation, or substantive matters, is key, and others where a regulatory orientation, or formal matters, predominates. Traditionally, research efforts have focused on the rise of the regulatory state associated with the US and European Madisonian models, characterized by its market‐rationality and clear ambitions of modernization, standardization and good governance. At the flip side, the developmental state, coined as a typology to capture inductively the characteristics of the Japanese state in the era of high growth, would give leeway for the bureaucracy to “guide” business using its discretion (Johnson, 1982). Because this governance system would still be based on trust and tacit agreements between business and governmental elites, it would conserve the discretionary style of a positive state, rather than having evolved to a rule-bound, legalistic policy style (Majone, 1997).

Together with Japan, Brazil has been positioned as a developmental state where powers shift towards the Executive and discretion takes precedence over legality. In a stark contrast with the US model, rather than the Legislative, the Executive would manage the regulatory activities, exerting influence through budgetary provisions (Prado, 2010). For scholars from the legal field, the Brazilian setting would be marked by “a public–private relationship with greater organizational verticality, in the form of pacts and bargaining between the state and interest groups” undermining the emergence of a pluralistic representation found in adversarial legalistic governance (Schapiro, 2018, p. 583). An orientation towards development has been the priority of Brazil’s administration for seven centuries, but not only the governmental elites participated in this endeavor. Anchored in the notion of “institutional complementarities”, Matthew Taylor (2020) argues “developmentalism” survived until these days unfolding complementarities across the private and public spheres. In a self-reinforcing strategic choice game, such complementarities offer incentives for economic and political actors to select individually optimal but collectively suboptimal choices. The combination of the developmental state; autonomous government bureaucracy; weak regulatory control and coalitional presidentialism makes of Brazil a “developmental hierarchical market economy” (Taylor, 2020). Non-market and hierarchical relations in and across business is one of the features of the variety of capitalism found in Latin America. Rather than liberal market economies (LMEs) of Anglophone countries or the coordinated market economies (CMEs) of northern European countries, the distinctive type of Ibero-American States would be hierarchical market economies (HMEs) (Schneider, 2009).

The frame that shifts attention from institutional changes to continuities was a timely rebuttal to the canyons of economic liberalization. Casting aside the claim that “in developing countries, the history of developed countries is being repeated” was an exercise proposed by one of Brazil’s former president, when still a sociologist (Cardoso & Faletto, 1970, p. 34). His ideas challenged modernization theory introducing concepts like path dependence, critical junctures and punctuated equilibrium to explain the Brazilian historical experience. In terms of the relationship between state and economic development, the state assumed the role of a “great entrepreneur” in developing countries. Besides the positive externality, the stimulus offered by the state, an entity with far more resources to attract and secure investments in a nascent economy, a negative one would be that “somehow, the private entrepreneur ends up depending on official institutions to maintain the pace of growth of their businesses” (Cardoso, 1961, p. 160). If the effects of institutions on firm actions is interdependent, then market behavior in Brazil has historically been based in a reliance on a strong public sector. Before deeming a country more corrupt only because it has a relatively large public sector, the specific types of political influence in place merit more scientific attention (Scott, 1972). This chapter intends to be one step in this direction concerning Brazil.

Contrary to the idea that economic marketisation curbs corruption, the incentives for corruption offered by transition economies (Tonoyan et al., 2010) and a co-development of the market and corruption (Gong & Zhou, 2015) have been empirically proven. Using data from 26 transition economies between 1998 and 2009, interaction between formal and informal institutions—such as customs, traditions, social norms and deeply entrenched beliefs—positively influenced high-growth firms (Krasniqi & Desai, 2016). Evidence from North Africa shows that trade openness, in the short run, reduces local firms’ profits on the domestic market, favoring corruption (Delavallade, 2012). Studies of modern days Eastern European economies suggest that the difficulty to make public administration more rule-based and less corrupt should be understood in light of legal cultures and political traditions already existing before the transition to a market economy (Solomon & Gadowska, 2018). New regulation would be a necessary, yet insufficient condition for preventing corruption in public procurement in countries where the state relies on a very narrow group of people to perform various functions (Ateljevic & Budak, 2010).

Informal institutions affecting entrepreneurs in transition countries were the object of careful investigations (Horak & Klein, 2016; Williams & Vorley, 2015; Williams et al., 2016). Evidence that interpersonal relations, social capital, and establishing trust with government officials has a positive effect on entrepreneurial activities has been found in a multitude of emerging economies (Cao et al., 2016; Wales et al., 2016). It is undisputed that in some contexts informal practices whereby government officials demand or receive gifts, bribes and other payments from private sector firms and provide a service in return are an efficient strategy at the firm level. Even in countries like the USA and France, with a strong rule of law, networks still offer the potential for positive returns to entrepreneurs (Batjargal et al., 2013). In regards to the mechanisms by which business and political elites interact there is no consensus, and different factors should be accounted for by careful analysts of the topic. A distinction between administrative and electoral corruption is a good place to start (Scott, 1972). Some efforts point out to differences between the economic incentives of corruption for public procurement and fiscal matters. Evidence from firms in 75 developing countries supports that in public procurement, corruption is a supply-side phenomenon, with bribe transactions generally initiated by firms to secure public contracts, rather than being requested by public officials. The opposite occurs with tax administration, which tends to be mainly a demand-side phenomenon (Gauthier et al., 2020). The demand and supply sides of bribery orient the frame of the game sketched for the Odebrecht executive and public officer.

According to democratic theory, “private interests contaminate public purposes in a democracy”, or corrupt exchange happen, “when they influence the government without the warrant of the democratic process” (Thompson, 1995, p. 28). The early liberal project we inherited that had to do with securing the dividing lines between state and society, public and private, “has been molded, ex post and with a certain clumsiness, to democratic politics and institutions”. (Warren, 2004, p. 329). Even if the concept still bears the marks of these origins, considering system malfeasance as a plague “in a way tantamount to a cancer” or a product of morally unconscious executives and public officers oversimplifies the economic and political landscape that is context-specific. In terms of definitions, if benefits, or expected gains, are accounted for at the firm’s behavioral dispositions, even if they did not necessarily follow in the course of the events, then the private-regarding interests were reputed to have entered the other-regarding realm and will thus be considered here.

Brazil is an intrusive state with a developmental orientation, yet the role played by the economic elites in response to state centrism remains to be further explored. How did the relations between business and statesmen grow deep-seated and linkages between private and public become rife? What argumentation schemes are employed by enterprise managers to represent “typical” aspects of their job roles when interacting with governmental bodies and officers? In regards to Odebrecht, the hypothesis is its executives share a similar orientation to the one of governmental elites. Rather than passively, we expect them to actively engage in reshaping, evading, and channeling the orientation in pursuance of their own goals. The discourse-historical approach used to treat the available data distinguishes between the discourses’ content, or topics, its strategies and its linguistic means (Wodak, 2011, p. 38). Instead of operationalizing the method in detail, the intent of the data processing was to focus on conventional evaluations and usages of language. Therefore, categorization devices related to bribery employed by members of the organization under study are at the core of the data analysis.

This chapter wishes to empirically explore private/public boundaries across the history of a big player of the infrastructure and petrochemical sectors in the world economy in its interaction with the Brazilian government. First, we will use historical sources to retrace Odebrecht’s trajectory following the steps of the three generations ahead of the family business. Second, based on a strategic action theoretical framework following Ostrom and Ostrom (2004), a configuration of transactions between businessmen and statesmen will be put forward where an executive from the company is interacting with a public official with the aim to secure a contract. Third, outputs will be discussed in light of the interpretive method of qualitative content analysis (Mayring, 2000), where categories are formal and informal practices, dealing with the private (Odebrecht) and the public (the state). Apart from historical and bibliographical sources, evidence from a dataset comprised of 8 sentenced criminal cases from which testimonies² of 48 members of Odebrecht (at the time of the investigations) is presented in the sections that follow. Not having been produced for scientific purposes, they belong to the judicial genre, and should be interpreted in light of their limitations (Kersting & Erdmann, 2014). As speakers, executives are responsive to the particularities of context as well as content, so before accusations they structure the readability of their testimonies in one fashion whereas when giving a newspaper interview for a profile piece they do so in another. This property of the “act-text-act” sequence (Smith, 2006) will be considered for the analysis.

3 The Brazilian Setting and Odebrecht’s Place in It

This section is dedicated to a historical rescue of episodes of interaction between Odebrecht, a representative of the infrastructure and petrochemical industry, and the Brazilian government. We will proceed referring to episodes from the firm’s early childhood, teenage years and as a grown up, an aging which accompanied the consolidation of democracy in Brazil, or the periods before, during and after the military rule (1964–1985). By a twist of fate, Odebrecht steered towards progress once Petrobras, state-controlled Brazilian oil group and largest company, started to grow. That was decades before both companies ran into the pitfalls of a well-equipped and carefully planned investigative probe. Car Wash, sometimes referred to as Petrolão (Portuguese for “big oil”), stroke hard both giants: at its outset, in 2015, Odebrecht lost almost $88 million compared with a net profit of $210 million in the previous year while Petrobras recorded a loss of almost $8.5bn on revenue of $97bn.

Almost half a century before both were embroiled in the corruption investigation, Petrobras’ main office, a 26-story building in downtown Rio de Janeiro, was built by Odebrecht. The construction firm founded in 1944 in Salvador, state of Bahia, by Norberto Odebrecht, the son of a German immigrant, had “fingerprints on most of the continent’s developmental touchstones” (McManamy & Schmid, 2001) But in the years when only southeastern companies were granted infrastructure works, it had not always been like that. The reason? Lack of political support, in Norberto’s own words—that would later become a gospel for the firm’s team.³ As the prospects of exploring oil at the coast made the administration of Petrobras decide to build its headquarters in Rio, the winds of fortune finally blew for Odebrecht and they won the public contest. Its market expansion enabled the company to move to the Southeast, Brazil’s most industrialized region. Apart from a long-pursued goal, the geographic sprawl also meant being closer to the centers of power, and overcoming the threshold of political support that had stopped them from participating in the construction of Brasilia, planned to be the new capital, in the 1960s. Years later, Odebrecht S.A., a holding company that conducted business in multiple industries, including engineering, construction, infrastructure, energy, chemicals, utilities and real estate, was at the top of the Latin American ranking (Odebrecht, 2015a, b).

4 The days of the Forefathers: Cracking the Doors Open

Norberto inherited from his father a bankrupt construction company, but the lessons learned while recovering it became an important part of the corporate storytelling for the generations that followed. In order to do so, the first pact the young entrepreneur established was a political one, with Banco da Bahia, the company’s main creditor, which became an ally in the conquest of new clients. The second pact, an economic one, promised the clients a better performance in shorter time and for less money. The third was a social pact, a “partnership” entered with the construction workers of his father’s firm (Moura, 2014) whose wages would be compensated through profit-sharing. This feature was the embryo of the decentralization that defined the company in the years to come. Norberto juggled his studies in engineering with efforts to regain footing, and after graduating in 1943 founded his own company “Norberto Odebrecht” the following year. In his own words, looking back on the early days: “Those men decided to respect the newly graduated engineer and, in the course of time, came to trust him” (ibid).

Son of a German immigrant, Norberto moved from Southern Brazil to the Northeast as a child. In Salvador, at the age of 12, he stopped being educated by a Lutheran pastor and first started to learn Portuguese in a school. Tuned with the protestant ethos, Norberto was perplexed with the manners of the local elite, differentiating himself by saying “I came to the world to serve and not to be served” (Moura, 2014). So that no doubts remained, the boss made clear to his subordinates that building a profitable relationship with decision-makers was a resource-intensive task. At the Northeast macro region, the firm’s expansion was facilitated by the Northeast Development Superintendence (Sudene) in the 1960s. Along with the support of fortuitous macroeconomic conditions, the ties with the oil giant enabled the Baianos to finally move towards the South. In what history would later see as a longer spurt, Odebrecht was first associated with Petrobras by building a pipeline in the year of its foundation, in 1953. Besides doing Petrobras’ main office and the capital city’s Galeao International Airport and Federal University, Odebrecht won in 1972 a competition to build the Angra I Thermonuclear Plant in the same Rio de Janeiro state. The regional differences were not negligible, nonetheless, and affected the organizational culture a great deal: “When we went to Angola, the shock was much smaller than when we went to the South”, said Norberto in retrospect (Lucena, 2014).

Ernesto Geisel, Petrobras president (1969–1973) and later president of the Republic (1974–1979), was a crucial partner at the time. During the Geisel administration, a breakthrough in prospecting resulted in absolute success for oil exploration in the Brazilian territory and placed Petrobras at the top of the rank in deep waters oil production technology worldwide. This promoted a boost at national key industries ahead of large petrochemical and refining enterprises, and the construction and assembling of offshore platforms. To translate it with the aid of numbers, the real growth of the group was 212% between 1973 and 1977 (Fantine & Alves, 2008).

Not only Odebrecht prospered from the economic scenario in the “miraculous” years that followed with the country steadily growing 10% every year. In 1985, an entrepreneur reported to the Senate’s Commission of Inquiry on state-owned companies that Geisel, the head of state, had blatantly disregarded the law so as to favor a number of businessmen from the petrochemical sector, among whom Norberto Odebrecht. The matter surrounded Petroquisa, a project put forward during the dictatorship to develop the petrochemical sector by encouraging Brazilian entrepreneurs to enter the business, having the government’s partnership as an incentive. “The oil is ours” had been the slogan for Petrobras’ foundation in 1953, a symbol of Brazilian sovereignty. In a country where the industry’s autonomy was only relative, given the share of foreign capital, exploring sovereign oil was a statement against the drain on the income created in Brazil towards the economies of developed countries. Ever since the days of Getúlio Vargas, “father of the industry”, matters of national interest continued to play an important role when business conglomerates decided the fate of the domestic economy.⁴

Ernesto Geisel’s decisions also paved the way for Odebrecht’s internationalization. His administration was the first worldwide, in 1975, to establish diplomatic relations with Angola, where the company would take charge of all civil construction works involved in the Capanda hydroelectric plant project, soon to become the largest Brazilian investment in the African continent (Cardoso, 2015a, b). Due to the size of the project—the company’s services involved constructing the dam itself, access roads, industrial plants, maintenance facilities, office buildings and residential compounds—unless the Brazilian state had given its blessing, Odebrecht’s budget would be earmarked. The solution envisioned was a bold one: Petrobras took on the responsibility of paying upfront for the goods and services provided by Odebrecht in exchange for crude oil shipments from Angola.⁵ Roberto Dias, the company’s director of institutional relations at the time, was convinced that Angola was a promising investment and engaged in the bilateral negotiations on behalf of the proposal to trade works for oil. Since then, Odebrecht’s international strategy, aligned with the domestic one, relied on “real connections with politicians and politics” (Calixto & Gama, 2016). Thanks to the firm’s relationship with home country institutions, it was already becoming “a transnational fed by the State” (Vigna, 2013).

After departing from the presidency, the relationship between Ernesto Geisel and the businessmen he had worked with would endure, especially the ones from the petrochemical sector, where he coupled technical and practical credentials. In the 1980s, Geisel’s appointment to the boards of Northeast Chemistry (Norquisa), and the Northeast Petrochemical Company, (Copene) was a proposal from several businessmen, among them Norberto Odebrecht. As Norberto, Geisel was born to a family of German origin and educated in the Lutheran tradition. According to historical sources, after meeting in 1969, the two men maintained periodic meetings to discuss the “great topics of the country”, and they are probably the best example that entanglement is a socio-physical phenomenon in Brazil (Maranhão, 1980).

Norberto Odebrecht used to say: “I get in the mud with the pigs, but come out clean at the other end in a white suit” (Gaspar, 2020, p. 48), one among many of his lessons to the generations to come, all gathered in the Survival, Growth and Perpetuity series with Odebrecht’s Entrepreneurial Technology. Before the family empire was hit by Car Wash, Norberto passed away. In 2014, he would be remembered saying: “We are all products of the choices we make and the opportunities that life gives us. We have to turn the crisis into an opportunity. It takes more courage than analysis, because if you just keep analyzing, time passes” (source). The management blueprint of courageous leaders accompanied the second generation ahead of the family business.

5 The Boomers’ Generation: Keeping the Doors Open

When his father stepped off in the early 1990s and Emilio took over the stewardship of the family business, a lot had changed. Some continuities, though, remained, because horses should not be changed in midstream (time que tá ganhando não se mexe, the Portuguese popular verb with soccer). Excellency “in Brazil’s rough-and-tumble regional patronage game” (Millman, 1993) was one of the informal rules whose validity was retained. Shortly after Norberto had been in a nine-page story at Playboy Brazil entitled “Blood, gold and mud” (Barros, 1992), Forbes magazine published a profile piece on his son, Emilio Odebrecht. Because of the critics to the company’s unorthodox market practices, Norberto contacted the Brazilian outlet’s director with a protest: “Do you think I like having to pay thugs to release what the governments owe me?” Emilio, for his turn, was quoted at Forbes saying “A man has to look far into the future to withstand the present. You have to be an optimist” (Millman, 1993). As a businessman, he was praised for “A principled way of life and business” (Javetski et al., 2014), even if his habits were less ascetic than that of his father and son. Expansive and charismatic, Emilio enjoyed food, wine, women, and art (Gaspar, 2020). Born in 1945, Emilio experienced the Tropicalist movement and the birth of Bossa Nova. Idealist, like other Baby Boomers, Emilio was engaged with problems of national concern, publishing in several newspapers his ideas “to build a more citizen, egalitarian, and productive country in which future generations can have a better life” (Odebrecht, 2008).

For Emilio, Odebrecht’s second generation in office, the interests of the company and those of the country overlapped. In Emilio’s vision, among the many duties of the entrepreneurs there is a civic one. To “give their contributions on how to solve shortcomings, difficulties”, regardless of whether inside or outside the organization’s direct goals. Asked more recently about what he meant saying that the executives had to offer solutions to the country’s problems, Emilio Odebrecht replied the Federal Prosecution stating:

The educational process, how to solve the educational problem in the country? This has always been a concern of ours in this sense. We were responsible for contributing to the Congress in several, let’s say... What do you call it... Public policies, for example, the concession law, we were an organization, when it came up, that worked abroad, in the United States, and had the most information capable of making contributions in this sense, this is what I wanted to say, these are the types of contributions (Emilio Odebrecht, Criminal proceeding 5054932-88.2016.404.7000).

His nationalist vision was also present in regards to the petrochemical sector, in which Odebrecht managed to secure a massive share. The organization spent the 1980s buying stakes in petrochemical companies owned by foreigners who had withdrawn from the country, and the 1990s taking advantage of the privatization rounds, controlled 47% of Brazil’s petrochemical production in the early 2000s, Odebrecht Braskem S.A. was founded in 2002, gathering all the petrochemical assets from the group into one publicly traded company. Listed in São Paulo, New York and Madrid, its equity was held principally by Odebrecht (38.3%), Petroquisa (Petrobras Quimica SA 35.8%), and BNDES 5 (5.5%), with an open float on the market of about 20.4%. Odebrecht’s voting rights surpassed 50%, making it the controlling shareholder of Braskem (Glemser & Lelux, 2011).

When a debate surrounding Petrobras’ monopoly changing to a model of open concessions started, Emilio was cited by Fernando Henrique Cardoso (1995–2003), then president:

He [Emilio] works in petrochemicals and has a certain vision of Brazil, he is not simply a money maker. He also thinks that if Petrobras doesn’t enter the competition, nobody will hold it [i.e., it is necessary to break the monopoly in order to have competition and thus give parameters to the company] (Cardoso, 2015a, b, p. 134).

Not only Emilio and former president FHC conceived the interaction between businessmen and statesmen as such. The justification of the proximity between the economic and the political elite grounded on instrumental reasons, to make Brazil more productive, was reciprocated by elected authorities. Before the audience, Luiz Inácio Lula da Silva (2003–2011) confirmed the understanding that corporate responsibility encompassed social interest. Quoting Lula, at the ceremony launching the Paulinea Petrochemical complex in 2007: “The laying of this cornerstone for a new polypropylene plant goes far beyond the symbolic act that marks the beginning of a project. Here, the public and private sectors have joined hands to meet the real demands of Brazilian society” (Da Silva, 2007). The proximity among the two leaders, the political and the entrepreneurial, was no secret, but Car Wash investigations would reveal the stability of the relationship, and attribute a negative valence to the depth of governmental alignment between them. In a speech at Odebrecht’s 60^th anniversary, Lula called Emilio a companheiro and friend. At a famous statement in the Petrobras investigation Emilio admitted, with a sense of pride “I had the same relationship with all the presidents that preceded Lula” (Emilio Odebrecht, Criminal proceeding 5021365-32.2017.4.04.7000).

Emilio led the company through the emerging-markets crisis in the early 2000s and laid the groundwork for succession. Pedro Novis, a nonfamily member—but long-standing member of Odebrecht and close friend of Emilio—was CEO from 2002 to 2008 to help ease the transition to the next generation. Before law-enforcement, Mr. Novis adopted a defensive stance: “What was always clear is that these expenses (associated with political relations) were incurred and necessary. And as far as I remember and was aware, in much smaller volumes (in my days) than they became over time” (Pedro Novis, Criminal proceeding 5054932-88.2016.404.7000. Resorting to a strategic argument, Novis grounds the separation between an initial phase, in which he took part, and another, that followed, according to the necessity and scope of “unaccounted payments”. Novis partook of Emilio’s view that infrastructure in Brazil was “so backward, outdated” that creating the conditions for the company to survive was simultaneously “in the interest of the country” and an enabler for Odebrecht’s development. “I tried to explore in these dialogues, the opportunity to make the government aware of what was needed” (ibid. Consequently, the dialogue between businessmen and statesmen was not only necessary, but it was wished and also recommended as a macro-political orientation.

The company’s expansion beyond national markets is another narrative of the second generation. In conformity with the group’s economic liberalization, such strategy would stand (on the verge of) disconformity with following formal rules. Apart from Angola, Odebrecht secured many projects abroad in the 1970s, mostly in countries that were aligned with Brazil’s geopolitical base of influence—in the Latin American and lusophone African regions. In 1979, with the construction of the Charcani V hydroelectric plant in Peru, the internationalization process continued. Later, the detour works of the Maule River and the construction of the Colbún-Machicura Hydroelectric Power Plant, both in Chile, were carried out. Soon after, Odebrecht began its operations in Argentina with the construction of the Pichi-Picún-Leufú Hydroelectric Power Plant in Patagonia and the Santa Elena Irrigation System in the Guayaquil region of Ecuador. In a country like Brazil, where many preferred to safeguard their advantageous positions in the domestic market over improving market access opportunities abroad, Odebrecht steering to become internationally competitive at the engineering market within Latin America was quite an achievement. In 1991, Odebrecht became the first Brazilian company to undertake a public work project in the United States, winning a public bid for the expansion of the Metromover, a surface subway serving the central area of Miami, Florida (Melo et al., 2016).

From the standpoint of Pedro Novis, the internationalization of the organization “started to generate certain opportunities” at the same time it subjected the organization to constraints:

At first, (the internationalization of the organization) aimed at maximizing results, through tax planning, through the creation of companies where the countries in which we operated had more flexible tax legislation and allowed us to send results abroad, and this process was, on the one hand, expanding to the extent that the organization expanded its foreign operations. (...) And, on the other hand, the requirements, the requests, the demands, I would even say, for resources of this type, extra-accounting, Caixa dois, were also expanding, for reasons that are not up for evaluation here... politics, the system here and in other countries (Pedro Novis, Criminal proceeding 5054932-88.2016.404.7000).

Interestingly, framing internationalization as the culprit for more informality is a narrative that suits the idea of the paradoxes of modern capitalism. Such claim that unaccounted expenses went from being bounded and “necessary” to ample as a result of the activities performed by the business does not stand on its own, nonetheless, given that investments in foreign markets were no novelty for Odebrecht’s second generation. Pedro Novis and Emilio Odebrecht’s defense strategy, portraying the illegal practices in a general frame contingent on the economic needs, were more successful in securing a lenient treatment at the negotiations with law-enforcers than the claims of the generation than replaced them.

6 Generation X: Minding the Gap

When Marcelo Odebrecht took over the leadership of the family business in 2009 the company he encountered had fulfilled the strategic goals set by Emilio and was a fast-growing business. His forefathers’ recipe book had been tested repeatedly over the 66 years, and even if “they had set a very high bar for him”, Marcelo “also knew he could rely on the entrepreneur-partners he inherited” (Glemser & Lelux, 2011). More than any other regular Odebrecht employee, his grandfather and father’s corporate attitudes when interacting with the state impacted his own way of acquiring, processing, retaining, and using knowledge contingencies and information. A few remarkable differences, though, existed. Marcelo’s business role model was not Emilio, but the grandfather, Norberto Odebrecht, with whom he shared affinities and similarities. In the eyes of the governments of Lula and Dilma Rousseff (2011–2016), Odebrecht’s new CEO had a reputation of being a troublemaker and far more inflexible than his father. He liked to think that because he was more consistent and responsible than his predecessor, the survival and perpetuity of the group were his responsibility (Gaspar, 2020).

While for Baby Boomers leading is the same as commanding and controlling, given their respect for hierarchies, generation X tends to value competencies when taking on leadership (Yu & Miller, 2005), something that matches with Marcelo’s trajectory. In furtherance of the family’s Lutheran upbringing and “on-the-job” education, he combined practical⁶ with technical experience to acquire the necessary skills for becoming the steward of the family business. After an engineering degree, an international MBA and passages at Odebrecht plants in Brazil and at a British subsidiary, Marcelo took the helm of the company aged 42. More skeptical and self-centered than the father, he was far less sociable (Gaspar, 2020). Even if their strategies were not always identical, the company continued its route to prosperity. Odebrecht was celebrated as the World’s Best Family-Owned Business in 2010 by Switzerland’s Institute for Management Development (IMD). The company’s commitment to social responsibility led Braskem to build a manufacturing plant in Southern Brazil to develop “green plastic” the year Marcelo stepped in as CEO (Calixto & Gama, 2016). When honored as 2012’s Engineer of the Year, he paid homage to Odebrecht’s almost 200,000 workers, spread in more than 500 locations, on five continents. By 2014, Odebrecht was considered the most internationalized Brazilian company (Fundação Dom Cabral, 2014).

Among the 27 countries the company operated in 2016 was the U.S, where, thanks to the FCPA (Foreign Corrupt Practices Act), non-American multinational enterprises like Odebrecht could be prosecuted. Facing the Car Wash probe and substantial evidence of the firm’s involvement in wrongdoing, the Brazilian family-owned business waived indictment and pled guilty to a conspiracy charge in violation of anti-bribery provisions. By then, Marcelo was in prison in Paraná, Southern Brazil, and had been dismissed from his duties as CEO. Pursuant to the agreement entered with the U.S Department of Justice, between approximately 2001 and 2016, Odebrecht corruptly made millions of dollars in payments to, and for the benefit of, foreign officials, foreign political parties, foreign political party officials and foreign political candidates to secure an improper advantage and to influence them in order to obtain and retain business in various countries around the world. The bribery was concealed through a “secret financial structure” known as the Division of Structured Operations (“DOE”, in the Portuguese acronym) that was used by the executives and officers at the highest levels of the company taking part in the bribery. Thanks to a subversion of formal rules, Odebrecht and its co-conspirators received approximately $3.336 billion in ill-gotten benefits.⁷

Rule-subversion by means of channeling money into politics was one of the preferred ways of companies exposed in the Petrolão. When law-enforcers asked if he would have donated funds to electoral campaigns without expecting to get the tax exemption measures for Braskem, Marcelo Odebrecht admitted: “I probably wouldn’t have donated 100 million reais if the advantage [REIQ⁸] hadn’t come out” (Criminal proceeding 5021365-32.2017.4.04.7000). This example casts light on two important characteristics the private-public framework before us. The first is reciprocity, and an expectation that holders of public office, the other side of the engagement, will act in conformity. The second is its rational-theory backup from the standpoint of the briber.

In accounting terms, contributing was an optimal strategy for the firm. As one of the attorneys asks Marcelo Odebrecht: “If this tax debt installment plan was not approved, would Braskem’s situation be a pre-insolvency situation?” and he responds “It could have gone bankrupt, it probably was going to go bankrupt. The liabilities could have reached I think 4 billion.” (Marcelo Odebrecht’s testimony in Criminal proceeding 5054932-88.2016.4.04.7000, p.55) The concrete advantages are made clear in this example of the suitability between the legislative measures and the corporation’s needs. Also, “the money came out of the petrochemical industry’s coffers, the biggest beneficiary of the president’s tax exemption package” (ibid). We may predict the same economic-driven orientation found at the top echelons of the hierarchy to be present across the organization, regardless of its particular contours. The richness in details provided by Marcelo Odebrecht when explaining the workings behind the transaction shed light on an important difference with his predecessors. As far as our empiric material goes, no evidence has been found of a counterpart matching the “dialogues”, or requests made by Norberto or Emilio’s team towards political acquaintances to get things done as the company expected to. We will return to this point later, using the narratives of other executives before law enforcers after the game is sketched in the section that follows.

Once illegal activities were uncovered, the initial efforts from the company were somewhat similar to other episodes in which accusations of corruption were made. Norberto had spoken at a hearing before the Congress in 1979 to defend himself against accusations of embezzlement, overpricing and favoritism in the construction of the Angra nuclear complex and countered other accusations like the one regarding the North-South Railway in 1987. Emilio had outmaneuvered investigations that destabilized Brazil in the outset of the return of democracy, when Fernando Collor was ousted from presidency. The president’s brother, Pedro Collor, expressly denounced undercover negotiations on behalf of Odebrecht for the Bank of Brazil to release a loan of 82.5 million dollars for the Trasvase Santa Elena in Ecuador. Those recollections anchored the belief held by Odebrecht father and son they would manage to prevent the family’s tradition of excellence from being tainted when the money-laundering probe evolved to uncover a major scam involving Petrobras. Early on, when search warrants targeted the company offices, a public note dismissed the accusations saying “the company and its executives, since the beginning of Car Wash, have always been at the disposal of the authorities to collaborate with the investigations”.⁹ The investigation had already put other competitors from the construction sector behind bars, and the episodes that unraveled replaced Odebrecht’s tradition to weather scandals with a sense of surviving the storm it was at the center of.

“The need to tackle corruption is real”, wrote Emilio in newspaper Folha de Sao Paulo “Just like it is necessary that society, the media and leaders act so that Brazil stops tolerating incompetence, irresponsibility and a lack of preparation in public administration”. His op-ed followed the idealistic tone he became famous for: “It is essential that the energy of the nation be channeled into the debate of what we need to do to change the country”.¹⁰ Within a couple of days, the company’s CEO Marcelo Odebrecht was arrested at the aforementioned Erga Omnes operation. By late 2016, having already entered into negotiations, the conglomerate recognized having “participated in improper practices in its business activities” (Odebrecht, 2016). Convinced that the horse race was way past midstream and a change was in order, because things took a turn for the worse, “Sorry, Odebrecht erred” was the title of the note issued. It stated:

It doesn’t matter if we gave in to external pressures. Nor does it matter if there are vices that need to be fought or corrected in the relationship between private companies and the public sector. What matters most is that we recognized our involvement, we colluded with such practices, and we did not fight them as we should have. It was a big mistake, a violation of our own principles, an aggression to consecrated values of honesty and ethics. We will not allow it to happen again. Therefore, Odebrecht apologizes, including for not having taken this initiative sooner (Odebrecht, 2016).

When a negotiation round was entered with the Brazilian authorities, 147 employees of Odebrecht provided information on illicit activities, of which 77 formally signed agreements with the Public Prosecution as whistleblowers in exchange for a more lenient treatment.

Because the acts were widespread and the misconduct entrenched at the organizational level, Odebrecht centralized its defense strategy before U.S, Brazilian and Swiss authorities. In Brazil alone, the 77 agreements costed the company roughly 260 million USD (Valenti, 2020). Odebrecht was subject to penalties in the various jurisdictions totaling approximately USD 2.6 billion.¹¹

The above biographical descriptions retelling the historically salient episodes of Odebrecht’s rise to the top of the Brazilian market can be divided into four clusters: i) before the company had access to the political arena, in the “pre-history” of the organization ii) when the access was first established (Norberto: 1st generation), iii) when the access was secured and leveraged (Emilio: 2 cd generation) and iv) as the access started to be challenged and became exposed by law-enforcement (Marcelo: 3rd generation). From the standpoint of an Odebrecht looking back on successful endeavors prior to Car Wash, informal relations with a high level of trust had increased the likelihood of expected outcomes and decreased the uncertainty risks posed by excessively bureaucratic regulations. The memory of being left off from strategic contracts like Brasília in the 1960s was fresh, and the antidote was clear at the business blueprint: sustained political support.

7 A Private–public Configuration

This section will approach the narratives of Odebrecht’s executives after exposure by investigative authorities. The focus is on the enterprise managers, those “entrepreneurs” or “leaders” in charge of the execution of an “action plan”, because of their vantage point to speak about private–public interaction. According to the Odebrecht Entrepreneurial Technology (OET), the processes led by the entrepreneurs are instituted with a focus on the clients’ needs. “Dreaming the Client’s Dream” was the firm’s Vision 2020 set a decade before. Qualitative studies with company employees suggest “there is no vision of the organization-client interaction, but rather a need to develop a leader-client interaction, a perspective which personalizes the organization in relation to the customers” (Lamb et al., 2017). Nonetheless, this managerial setup does not exclude the centrality of the meso level, as there is broad evidence of a collective, or odebrechtian social capital, often activated by the entrepreneurs when conducting business and applying their action plan.

By “client”, Norberto actually meant the governor, a personal entity sitting in the position to deliberate, not the state, an impersonal one (Gaspar, 2020). Instead of bureaucratizing, or overly restricting the relations among the almost 200 thousand members of Odebrecht, infusing values like “Client needs are at the top of our hierarchy” was a more effective way for solving coordination problems. Besides, the existing system of autonomy for CEOs to develop action plans “imposes responsibilities on every component of the organization”, enables looking at executives and public officers to ascertain how “client-company” relations were construed. We now focus on these two sets of actors, representative of the private and business sectors, foreseeing how they would choose in a setting involving a public contract. The proposed model is following (Ostrom & Ostrom, 2004).

To describe the structure of the action situation, interaction between a company member who wishes to secure a contract and a public official, we are considering:

• i. a set of players: one from Odebrecht and the other from the state bureaucracy,

• ii. the role to be filled by participants in the “bribery game”: to earn the contract; to secure a “toll”,

• iii. the allowable actions and their linkage to outcomes: to offer/not offer; to request/not to request,

• iv. the level of control each participant has over choice and the information available about the structure of the action situation, and

• v. the costs and benefits—which serve as incentives and deterrents—assigned to actions and outcomes.

In a first stage the game is sketched, and in a second one the potential outcomes are understood in light of the organizational setting, i.e. the fact that Odebrecht executives are facing repetitive social and economic dilemmas when interacting with public officers while trying to secure a project. Instead of using a game-theoretic model with rigor, we are considering that in interactive settings individual decisions are influenced by the decision of other agents in ways that are not entirely reducible to price mechanisms. For example, that the leaders themselves considered the Entrepreneurial Technology as “intangible values” which the representatives of the family should secure is an indicative of this.

The reason for focusing on Odebrecht playing first at this sequential game is twofold. First, looking at company members as the first movers offers a theoretical advantage. In principle, learning in organizations is a collective process whereby the cumulated volume of knowledge stored over time reaches the individual, who refines and exploits the beliefs he holds and occasionally sets new ones (Simon, 1991). Thanks to organizational routines, corporate actors can dodge coordination problems that state cadres in administrative offices often struggle with. Second, it offers an analytical advantage that looking at holders of public office would not. In the state bureaucracy, a multitude of organizations and sectors were involved in the uncovered activities—ranging from the Legislative, like the House of Representatives’ Commission of Mines and Energy, to the Executive, with financial bodies like the Brazilian Development Bank (BNDES) and technical ones like Petrobras’ refining and supply department, only at the federal level, not to mention state interactions. Should the principal-agent model be applied and self-interest be at the center of a traditional frame “citizen vs. bureaucrat”, the choices could be attributed to externalities outside the interactive setting.¹² To bypass that, the Odebrecht executive has the chance of moving first in the game below.

In the Odebrecht bribery game, the executive (Player 1) needs to complete a task of securing a contract using the minimum amount of resources possible. At his disposal, besides the parallel budget of the company that allows for “Indirect General Expenses” (Despesas Gerais Indiretas, DGI in Portuguese), he accesses the stock of knowledge of the organization, in parts established at the company’s philosophy, described in the Entrepreneurial Technology, expectations assigned to fulfil institutionalized roles, information channels and like apparatus. He can either not offer any bribes or start upfront by making a payment. Should he choose the latter, it is irrelevant whether or not the officer will accept, even if our frame is of non-benevolent players, and the only relevant piece of information is whether the bribe has a counterpart from that officer or not, such as a particular request that this authority sees a license to be issued more expeditiously or a given public bid to be publicized prior to the initiation of the contest.¹³ In other words, the public officer (Player 2) only has a chance to play at the second stage if the bribe was not offered. The game ends if the executive decides right from the start to provide “help”, “support”, “back-up” (more likely for political/electoral transactions) or “toll”, “prize”, “kickback” (for administrative transactions). After the executive’s offer, the public official (Player 2) may sequentially acquiesce and refrain from moving, or, instead, demand a bribe in order to let the executive (P1) have his prize.

The executive may subsequently accept or reject the bribe demand (3rd stage of Subgame 1 and 2 cd stage of Subgame 2). This third stage of Subgame 1, when the executive moves again, is architecturally similar to that of his first move, but strategically different—since when Player 1 chooses again he knows his choice of trying to get the contract without bribing was not successful at first, as a request from Player 2 followed. We expect the probability of the executive not to pay (s2: s2’) to be fairly small under this circumstance. In a slightly modified representation of another sketch following the demand-side approach, Subgame 2, the executive (P1) has not already tried and failed at securing the contract without offering a bribe, but the public officer (P2) moves first and requests a bribe. Faced with the officer’s request, the Odebrecht executive decides whether to pay or not assessing the risk of saying no to the “toll” or “kickback” demanded. He is more likely to pursue the bribing strategy because a) formal incentive mechanisms in place are supportive to do cost allocation of present and future bribes; and b) informal incentives recommend the executive to keep a trust relationship and to secure networks (Fig. 1).

Fig. 1

Source: by the author

Strategic action game between Odebrecht and public officer.

The unlikelihood of no bribery in both Subgame 1 and 2 is supported by the speech of the executives: “No, no, it was the following, it was systemic, we knew that by signing the contract there would be an improper advantage for Engineering and an improper advantage for the Supply area” (Rogério Araújo, Criminal proceeding 5015608-57.2017.404.7000). Before law-enforcement, another colleague also clarified the configuration of the private-public intercourse with the state-owned oil company: “Payment of bribes at Petrobras, either at a certain moment, provoked or not, it always happened, as a rule it always happened. In this case, the counterpart was that once the bidding was cancelled, it didn′t go into rebidding” (Marcio Faria, Criminal proceeding 5015608-57.2017.404.7000). The second part of the executives’ explanation touches on the output of the bribe interaction: whether the expected behavior was matched with a specific conduct by the holder of public office or rather configured a long-term investment on a quality relationship with State authorities (often through electoral donations). In that particular criminal procedure, the executive is explaining kickbacks paid as a result of a contract that Odebrecht gained together with a consortium comprised of other construction companies, namely UTC and Mendes Júnior, organized as a cartel to secure that particular work. Both Mr. Araújo and Mr. Faria confirm a payment of 15 million reais¹⁴ to the Supply and Services departments in exchange for the recipients to refrain from launching an invitation for rebids on that contract. The bid had been launched by Petrobras under normal (competitive) conditions, but the lowest price was not in line with the company’s price fluctuation, and Petrobras cancelled the bid. Then the cartel agreed on the price and proceeded to negotiate directly with Petrobras, whose executive directors did not restart the bidding competition having reached an agreement upon an unofficial payment, which expresses a bribery situation initiated by the firm, or the supply side (s1: S1´).

A different configuration explains a bribery situation that took place after the outset of Car Wash, when, according to an Odebrecht executive, the company was being pressured to pay 17 million reais as “toll” in exchange for a loan from Banco do Brasil to the firm’s Agroindustrial branch. Initially the demand was met with a denial, but Aldemir Bendine, the former bureaucrat ahead of the public bank in question, took over Petrobras’ presidency. Instead of risking to spoil the relations with its most important client, Odebrecht settled with paying a smaller amount: 3 million reais:

The idea was that it should be a value that was not so small that it would look like something to be unhappy about and create more anger or risk of some retaliation, or create a show of power, but also that it was not anything that would give the impression that there would be a payment of the 17. (…) The 3 million was actually, in my understanding that Marcelo authorized me to do, was actually to pay a debt that they (public officers involved) understood, they thought they were creditors of a debt that they had with the president of Petrobras, that is, in fact the intention was that we would not have a pendency of a debt that they thought they were creditors of (Fernando Reis, Criminal proceeding 5035263-15.2017.404.7000).

The bribery acts of this particular agreement are expressed at Subgame 2, with the public officer from the financial institution requesting a payment upfront, the Odebrecht executive responding negatively, but later changing its original decision to end up paying. Aside from the low probability of no bribery, even when the company did deny a request for kickback “the no was always an evasive ‘no’, in the sense of deflating the request, so as not to create enmity with the public authorities” (ibid). This evidence that the organizational institutionalizes knowledge prescribed a particular way to avoid negative externalities that could potentially damage the company’s reputation confirms how operative the informal rules were. So does the delegated autonomy with which Mr. Reis considers himself to be invested when anchoring his ultimate decision to pay an amount in terms of the CEO’s implicit authorization to settle the dispute that way.

Departing from the game-theoretical approach, we will now categorize the results in reference to the organizational knowledge stocks related to the relationships. Using an interpretative approach, the underlying patterns behind the content of the speech of Odebrecht executives will be discussed in reference to a multi-levelled field connecting individuals, organizations and state. To introduce the next step, a quote from Emilio Odebrecht synthesizes the complex surrounding entrepreneurial leaders when selecting a preferred course of action:

The executives were not oriented to take (orientations) to anyone, they were oriented to build their dialog agendas with the authorities taking contributions of what was important for the country and not selfishly taking only their own interests (Emílio Odebrecht, Criminal proceeding 5054932-88.2016.404.7000).

While specific and immediate demands from the executives would fall under “selfish”, for their pertinence with the concrete action plans, broader and medium-term investments are closer to the “altruistic” contributions. For Emilio, born an Odebrechtian leader, the latter should trump the first.

Recognizing that the accounts of how, and why, executives decide as they do are contingent on the context, three temporalities have been identified in the business-politics narratives: (1) the first addresses the past, (2) the second the present, and the (3) third the future (See Appendix I). They express different strategies, put in place by different speakers, but simultaneously available for the organization. In other words, since Odebrecht, together with other construction companies, had anti-competitive activities regarding Petrobras in a cartel and engaged in several electoral donations throughout the democratic period. The case study is one of systematic corruption, therefore Odebrecht could resort to multiple strategies aimed at long, medium, or short-term goals, or accomplishments, at a time. Its members, nonetheless, stood at an inferior dimension in the organizational ladder. Their speech as enterprise manager participating in a typical bribery situation for earning a public should fit in one: either activating a remote source of social capital (managed by the high man on the totem pole), a moderate source (a pecking order that relied on institutional relations he was responsible for), or a specific source (coming from the lowest rung of the ladder, the led, conditional on his blessing as leader).

First, the relationships inherited are retrospective, they refer to the past and its agents are the first and second generation of Odebrecht. It is a state verb, to inherit, or rather a past participial adjective “inherited”, for relationships are something received by succession, therefore gained without special exertion of efforts. Apart from Marcelo, another noteworthy example of the legacy principle is Claudio Melo Filho. He replaced his father, the group’s director of institutional relations in Brasília, who had to step away due to an illness. Melo Filho was recruited because they shared “the same profile, that of a hard-working young man, an enterprising engineer, innovative, creative” and also since he was “a man of the Odebrecht Group’s absolute confidence precisely because of his ability to work within the line Norberto Odebrecht drew up of full dedication to the Group’s business goals” (Paes Landim, 2012, p. ?). Years later, in his plea bargain, Melo Filho used the word “inherited” to describe many political acquaintances symbolically transferred from his father.

Second, best expressed with “to replenish”, in the indicative form of the verb, vocals the business-state relationship is now undergoing maintenance: that executives are making sure the overall quality of the bond between economic and political affairs stays in its optimal state (one of trustworthiness). Among the job attributions of a business leader is the maintenance of personal proximity with players capable of hampering or helping the business under his responsibility. Their performance at building and strengthening informal relations would take precedence over technical matters, especially when the employee did not have an accumulated social capital prior to job entry:

The role of a superintendent director is much more strategic politics, than ... everything that concerns the work, we ... even the works, let’s say, formal ones, we didn’t go into much detail. At that time my concern, I remember well, was that the governor was changing… I had lived 17 years abroad, I had almost no relationships in São Paulo, I needed to speed things up in some way, somehow. To establish networks... Because they were going to change secretaries and governor and I had three very big contracts in São Paulo, with many problems (Carlos Paschoal, Criminal proceeding 5021365-32.2017.404.7000).

Should the ties be “healthy”, apart from securing open doors with decision-makers and gatekeepers, the leader would occasionally be spared from requests for bribes from public officers. This form of exchange often took place through electoral donations or other things of value to an elected official or a political party, but not always. Replenishing the relationship is defined by a loose correspondence between the bribe and the expected benefit, which differentiates it from the next action orientation.

Third, also an action verb, “to channel” expresses an activity carried out in the present intended to generate effects in the future. When the executives either requested the Division of Structured Operations by their own hand or authorized the demands of payments for the benefit of public officials and political party officials coming from subordinates, they did so to secure a specific business advantage, conscious of a correspondence between the beneficiary and the desired act. At Odebrecht’s vocabulary, those would be “the transaction costs of a project” and the so-called “rule of the game” that Mr. Faria and Mr. Araújo’s aforementioned accounts present as “inevitable” when interacting with Petrobras.

8 Coupling Formal Rules and Informal Rules for Optimal Results

In regards to other emerging economies, where informal institutions are of special significance, Brazil is characterized by “accommodating” informal rules that get around the effectively enforced but restrictive formal institutions and reconcile varying objectives that are held between actors in both formal and informal settings (Estrin & Preverzer 2011; Eunni & Manolova, 2012). Not long ago, enforced prescriptions about certain prohibited acts were fairly loosely grounded, and the boundaries between public and private were more elusive than the written norms regulating corrupt behaviors wished. The practices uncovered at the Petrolão scandal suggest that Odebrecht, and the construction sector, was mimicking compliant behavior to divert regulatory efforts. Even if public tender contests resembled market competition, the cartel-setting confirms it had not embodied the substance of what antitrust and competition law would expect. Inspired by the new public management movement (NPM), this set of market imperatives, carried just as many perils as promises in the Brazilian context. For them to make past ink and paper, norms need more than enactment. The Portuguese expression “a lei não pega”, alludes to the notion that written rules, though part of statutory law, are not enforced and often end up being overlooked. Gaining social legitimacy is an extralegal factor demanded from enacted legislation that is at odds with customary practices, without which conflict situations between the law in books and law in action frequently arise.

Domestic and public life in Brazil were shaped by a colonial and imperial past when the realms of the state, the market and the society were not fully separated. Like this chapter has tried to do with Odebrecht, contemporary Brazilian sociability is better understood if its constitutive nuclei are retraced historically. In the confines of the Latin language and Roman law, the word privus (single, individual) gave rise to two variants privatus (private) and privus-lex (law for a private individual) or privilegium (privilege), which in Brazil often came to mean the same thing.¹⁵ Informal institutions have been, before and since formal norms emerged, capable of providing answers to conflict situations within and across the different spheres. Reminiscent of the French expression plus ça change, plus c′est la même chose adapted to Odebrecht’s vocabulary: “Everything changes, on a base that never changes” (Odebrecht, 2015a, b). Thanks to contiguity and access to politics, Latin America’s largest construction and engineering conglomerate profited from written and unwritten rules and was actively engaged at agenda building and agenda-setting. Refraining to change horses midstream in what was incontestably a winning race, having the government as its main partner, was the most rational course of action available to company members with a successful recipe like the one developed by Norberto, the forefather of the Odebrecht family business.

Back to where this chapter started, in 1992 when the (CPI das Empreiteiras) “ended up in pizza”. Documents found at the house of one of Odebrecht’s directors proved that in order to secure projects, the firm manipulated, along with other eight companies, the Brazilian budgetary provisions. The evidence was robust: in the 1992 budget alone, Odebrecht had managed to get sixty-three amendments and twenty subprograms allocated to projects of its interest. To quote Paulo Bisol, the senator conducting the works of the Commission of Inquiry: “It is not a parallel power. It is superior. The Brazilian state is (an) instrument in its hands”. Now, the landscape of control and oversight mechanisms was very much altered in regards to the early 1990s, particularly at the federal level (Praça & Taylor, 2014). Institutional changes enabled Car Wash to happen, a breakthrough in the fight against corruption (Castro & Ansari, 2017), and regulatory control by the Judiciary improved in regards to construction companies. While unenforced prescriptions add another layer to the institutional configuration that makes the Brazilian state more accessible to interest groups, some progress has been made. Framing unaccounted electoral donations (or caixa dois, literally, an “unofficial cash till”) as part of the “rule of the game” has long worked as a defense strategy before public opinion and courts. Petrolão revealed that the practice strengthened the ties between business and governmental elites, particularly the ones responsible to monitor, undertake inquires and conduct investigations on the industrial activities of Petrobras. The Public Prosecution, alongside other institutions in the web of accountability, managed to sustain a claim that many, if not most, electoral donations had business interests behind them.¹⁶ Marcelo’s own account that he would not have donated one hundred million reais to the campaign if the expected tax exemption to the benefit of Braskem was not granted confirms how structured the gambling actually was, and the compromises donations entailed for the incumbents.

Rather than eventually wearing out, as do most tangible forms of productive capital, well-established, yet informal, relations grow to constitute a form of “durable capital” that becomes more refined and ingrained through repeated use (David, 1994). Its costs are “sunk” for the ones who learned them without investing efforts in building them. There are strong reasons to believe that, throughout its history, Odebrecht’s interaction with the state has been a cooperative, instead of a competitive game: where all strategies took precedence over the one in which the executive does not bribe, irrespective of whether he offers or the public officer solicits first. Thanks to the coupling of formal rules that allow a margin of discretion to the public officers conducting public procurement at the demand side, of Petrobras, and informal rules in vigor among the members of Odebrecht with undisputed effectiveness before Car Wash, bribery was a cooperative game in the Brazilian setting. Shared historical experiences and conscious perceptions of a shared past provide shortcuts for groups of people to form a system of consistent mutual expectations when they are not readily able to arrive at a common course of action via direct discussion of the problem before them (Lewis, 1969). Thus, the eventual outcome of a bribery game between executives and bureaucrats is codetermined by early and, quite possibly, adventitious choices from both players and their organizations.

Research on multinational corporations impacted by Car Wash Operation have shown an increase in formal corporate governance for preventing and fighting corruption (Barboza, 2020). The perils of restricting the analysis to official documents and above the surface behavior, however, are the elements that lie underneath, often the bulk of the behavior’s mass. Like the iceberg analogy suggests, the role of unwritten rules below the tip of the organizational façade should not be underestimated. To some extent, the interaction between the company and its members and the state and public officials were more open in the past, and became less open (and more informal) as institutional constraints started to be implemented—be it in the legislation or in the kind of market imperatives being pushed at the sector, like compliance measures. Nonetheless, even if the narrative might have changed, the actors continued to be accessing the organizational repertoire and the same knowledge bases that regarded an interlock between the private and the public as beneficial to achieve a shared purpose of development.

Informal organizational arrangements have been, for Odebrecht and the Brazilian State, the key to success of the 70-year-old firm before its CEO, Marcelo Odebrecht, was arrested. Irrespective of reforms at the front-stage, exogenously imposed by law-enforcers trustworthy of compliance and integrity systems, the company’s backstage may retain a different configuration (MacLean et al., 2015). The argument used by Marcelo Odebrecht´s successor in the company´s presidency, Newton Souza, after having unsuccessfully tried to request a meeting with Aldemar Bendine, Petrobras’ then president, is illustrative. Mr. Souza, trying to regain reputation for the firm downgraded to a BBB minus rating, Standard & Poor’s lowest investment grade (Brandimarte, 2015), decided to take an alternative course of action, through informality:

I tried to find out internally, within Odebrecht, who had knowledge, who had relations with President Bendine so we could make him aware of the importance of us telling him our version (in regards to Petrobras’ revocation of a contract with Odebrecht Oil and Gas) and see what could be done to prevent these developments from happening. At this point we identified Fernando Reis among the leaders of the organization, who said he had a relationship with him and was willing to call him, this was the information he gave me, to try to set up this meeting. After a few days Fernando returned saying that yes, President Bendine was willing to meet with us (Newton Souza, Criminal proceeding 5035263-15.2017.404.7000).

Activating personal and informal channels is not irrational if it achieves the ends it aims to. In a rule-bound, legalistic system, formal rules should take precedence over substantive matters, but not always do they secure optimal outcomes for the entrepreneur. It is plausible that a symbolic adoption of ethical programs is decoupled from actual implementation, given that decoupling is not a binary choice (i.e., say vs. do) but bears nuanced organizational actions (Fiss & Zajac, 2006).

For Odebrecht at Brazil’s modern setting, both historical examples and discourse analysis indicate informal relations tend to often display more “hillclimbing” features as compared to following formal rules. As any other study of a modern economic organization was expected to depict, the Odebrecht group has acted on the spectrum of legitimacy, occasionally crossing the boundaries as an illegal sideline for an otherwise legal enterprise across its history. Contact between members of the economic and political realms is not something that can, or should, be completely avoided, though. Private incursions may contribute, rather than tarnish the common good when made in conformity with regulation. The notion of ‘publicness’ from the republican tradition, when combined with a skepticism on the effectiveness of formal rules alone, can provide an initial answer to the puzzle.

9 Conclusion

Rather than advancing traditional approaches of intertwinement between entrepreneurs and politicians, we have argued corruption, and encroachment of private interests in the public sphere, is not a mal adaptive reaction to regulation, but rather an adaptive one because of the competitive advantages it provides to its agents, business or statesmen. Quoting Emilio Odebrecht, with a structural account for the overlapping between the construction and the oil giants: “Without a doubt Petrobras has always been, since my time as an executive and afterwards, a multifaceted company with the organization because at the same time it was a partner, it was a client, it was a supplier” (Emilio Odebrecht, Criminal proceeding 5035263-15.2017.404.7000). Other contributions in the present volume will be dedicated to elements that may enhance our understanding of issues on organizational culture and collective mindsets surrounding corporate-state relations in Brazil.

Despite having tried to sketch configurations for strategic and communicative action, the complex cognitive systems available for individuals render it difficult for the analyst to ascertain what working rules underlie an ongoing situation, like bribery, especially when considering both formal and informal rules. We have not attempted to predict organizational behavior but to provide a more general framework to understand the interaction between business and statesmen in a bifold fashion, where the main divide is across the private and public sphere. For the modelling, having as second player a public officer that may be a technocrat or a politician, mandate holder, comes at a cost. Even if it oversimplifies the relationship that often involves intermediaries (or brokers), other designs have shortcomings for explaining the research question developed here: how Odebrecht entrepreneurs depict a typical situation of interaction with the state, either through its elected representatives or civil servants. As the specialized literature has already established: heuristics like shared histories, organizational routines and corporate language may permit concise articulation, but its consequences in behavior often depend on a much richer background of understanding that is not fully articulable (Cohen et al., 1996).

Drawing lessons from Odebrecht, Brazil’s institutional arrangement appears to have been too flexible to cope with the conditions posed by the firm, as well as the government, in pursuance of their developmental goals. Such arrangements, nonetheless, were unable to meet the needs of a set of actors at the justice system, part of the state bureaucracy, for whom anti-corruption grew to become more than salient, but a spearhead against political malfeasance. Just how much continuity and change the regulatory landscape is undergoing, and its impact on opportunity structures available for the economic and governmental elites is a question that remains unanswered. In terms of rule-setting, findings suggest that the classical liberal frame of a radical separation between private and public affairs is doomed to fail, and insights from a republican tradition are welcome. Preventive measures from ready-made templates that worked for other polities that share little with Brazil except the fact that they were, sometime in the far past, as underdeveloped as the stage the country finds itself today are abundant, rhetorical, yet of questionable effectiveness. To advance, understanding the competitive advantage of blurring the boundaries between private and public from the standpoint of a big firm is educational, and merits further investigation across sectors.

Culturalists have argued Brazil has many structures capable of uniting the house (the kin, the private) with the street (the others, the public), like Carnival, “in which everything and nothing is simultaneously represented and, apparently, solved” (Da Matta, 1997, p. 135). It is unquestionable that the long-lasting pattern of morally questionable relations between the business and governmental elites revealed in the Car Wash plot looted public coffers. But its usefulness in securing state-business relations that had historically been guaranteed through interpersonal bonds remains an open field for further explorations. Comparative studies could help unpacking the effect of culture within the Brazilian institutional landscape and across other in emerging economies.