A company’s reputation is one of the most important assets to protect, but until very recently it was not part of contractual relationships in Brazil.
For Brazilian legislation this type of damage can occur through different types of conduct, and can be carried out directly by the company, as well as by suppliers, partners and even customers. Causes such as corruption, the use of child labor or slavery-like labor, racism, environmental or sexual scandals are all potential sources of reputational damage.
And precisely because of the difficulty of the company’s direct control over the practices of companies and/or people with whom it has a relationship, it is essential to formalize these relationships through contracts that provide protection against direct and indirect damage in the event of reputational damage, in addition to risk mitigation mechanisms.
Here we highlight some precautions that should be taken to mitigate these risks in Brazil:
1. Declaration and Warranties. Include declarations and warranties to the other Party regarding ethical conduct, compliance and compliance with anti-corruption laws and labor standards of the other Party and its partners.
2. Non-Defamation. Include an obligation for one Party not to make any statement that may harm the reputation of the other.
3. Audits. Allow for prior audits of the other Party, as well as the right to continuous verification of reputation and reputational risks, as well as the obligation to disclose any investigation or process that may affect the image.
4. Retraction, Correction and Distancing. Allow for the right of public response according to the injured party’s own criteria, including the disclosure of the termination of the contract in the media, financed by the party causing the damage, as well as obliging the party causing the damage to publicly defend the injured party.
5. Survival. Provide for the maintenance of reputational obligations, including the payment of penalties and compensation, after the termination of the contract.
6. Penalty. Establishment of a substantial non-compensatory fine, losses and damages, in addition to the immediate termination of the contract, and specific to the party that causes reputational damage.
Contractual protection against reputational damage is not only a legal protection, but a strategic necessity in the current business environment. Organizations that neglect this aspect expose themselves to unnecessary risks that can compromise their survival in the market, since the simple implementation of contractual mechanisms for reputational protection in Brazil can solve in a very practical way the economic impacts of reputational exposure, which demonstrates not only legal diligence, but also long-term business vision.
