This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (August 25, 2017).
Amid allegations of fraud, Brazil's Gerdau says founding family will leave management
SÃO PAULO -- Gerdau SA, one of the largest steelmakers in the Americas, said Thursday its founding family will exit from the group's executive management after more than a century at its helm, as the company fights allegations of tax fraud.
The head of Brazil's operations, Gustavo Werneck, will take over as chief executive in January, succeeding André Gerdau Johannpeter, who will remain on the steelmaker's board, Gerdau said Thursday.
Federal prosecutors Thursday filed charges against a tax director at Gerdau and several other consultants and lawyers linked to the company, accusing the men of agreeing to bribe officials as part of a nationwide tax-evasion scheme. Gerdau denied wrongdoing.
The company said it had been planning the management shake-up for the past year, describing it as "an important step in the evolution of its corporate governance." Mr. Gerdau Johannpeter denied that it was motivated by probes into alleged wrongdoing by the company.
Executive Vice Presidents Claudio Johannpeter and Guilherme Gerdau Johannpeter, fellow family members, will also step down from their management roles but remain board members.
Brazil's largest family-run companies are being forced to review their management structures in the wake of massive investigations into corruption and tax fraud across the country.
Odebrecht, Latin America's largest construction group, told The Wall Street Journal in June that its billionaire founding family would no longer occupy top executive roles at the company. Odebrecht admitted last year to paying almost $800 million in bribes as part of the Car Wash corruption scheme, signing in December what was at the time the biggest anticorruption settlement in history.
Gerdau is under investigation in a separate inquiry into corruption at Brazil's tax auditing court -- a probe known as Operation Zealots. Prosecutors believe dozens of companies bribed officials at the court to rule in their favor over tax disputes as a way to avoid paying billions of dollars in taxes.
Federal prosecutors Thursday filed corruption-related charges against 14 men, including Raul Schneider, a tax director at Gerdau. Prosecutors accused the group of concocting a scheme to pay about $13 million in bribes to officials between 2011 and 2014 to significantly reduce the company's tax bill. Gerdau said Mr. Schneider wouldn't comment separately from the company, which denied wrongdoing, saying in a statement that it had never authorized any illegal acts on its behalf.
André Gerdau Johannpeter said Thursday that the management changes would allow the family to focus on the company's longer-term strategy. "Our role as representatives of the controlling company has more strategic value," he said.
Gerdau's new CEO, Mr. Werneck, is a 44-year-old Harvard-trained executive who has been at the company since 2004.
André Gerdau Johannpeter praised his successor Thursday, highlighting Mr. Werneck's ability to overcome "important challenges" as well as his "contagious energy."
Gerdau ranks as the largest producer in the Americas of long steel products, commonly used in construction, and the fourth-largest steelmaker overall in North America. In recent years, it has also battled to expand production of flat steel -- used by the automotive industry.
Thursday's announcement represents the biggest management shake-up for the company since it was founded by André Gerdau Johannpeter's forefather, João Gerdau, in 1901 in Brazil's southern cowboy state of Rio Grande do Sul.
"I see it as positive for the company," said Celson Plácido, chief strategist at São Paulo investment firm XP Investimentos, adding that it was inevitable that Brazil's family-run companies would seek to professionalize their management.
"Even if the family has competent people, the market will always question the motive behind putting someone in a particular role," said Mr. Plácido.
As Brazil's other steelmakers have suffered deeply in the country's recent recession, Gerdau's exposure to infrastructure projects and its strategy to become self-sufficient in iron ore have helped shield it from the worst of the industry's crisis.
Earlier this month, Gerdau reported net profit of about $24 million for the second quarter, down from $25 million a year earlier.
Write to Luciana Magalhães at Luciana.Magalhaes@wsj.com and Samantha Pearson at email@example.com
(END) Dow Jones Newswires
August 25, 2017 02:47 ET (06:47 GMT)