(inglês e português)- The text discusses the importance of adopting good corporate governance practices in publicly traded state-owned companies.
Reading O Globo newspaper on May 13, 2016, the headline “Pente-fino nas estatais”[i] (meaning “scrutinizing state-owned companies”) caught my sight. The reporters say that Michel Temer (interim president) asked his team to ‘passar um pente-fino’ (to scrutinize) state-owned companies, by making a thorough evaluation of all contracts and imposing a management that is better evaluated by the market. They also state that “this does not mean that state-owned companies will no longer be populated by political party appointed individuals. If, before the command was divided among the political parties PT, PMDB and PP, with the departure of the PT members, politicians of the other two parties will split the bounty among themselves.”
At the end of 2015, three important events advanced the corporate governance cause in state-owned companies. The first was the fifth edition of the OECD Guidelines of State-Owned Enterprises, the two others, specific to us, were the first edition of IBGC’s book on state-owned company best practices (Caderno de Boas Práticas de Governança para Sociedades de Economia Mista) and the stock exchange’s certification program (Programa Destaque em Governança de Estatais da BMFBovespa). The first two contain best practices guidelines that address critical issues of corporate governance in state-owned enterprises, while the third certifies companies for the objective practices they agree to adopt.
Corporate Governance in state-owned enterprises is no trivial issue for Brazil, since these companies have a “robust participation among listed companies’ due to market capitalization and daily trading volumes, and a large contingent of retail investors in their base”[ii] . Additionally, they operate in infrastructure sectors that are fundamental for the Brazilian economy.
A third, rarely mentioned point is that the initial capital invested by the State in these companies was obtained, directly or indirectly, from taxes. If poor management results in the need for additional capital, the funds employed by the State (Federal or State level) to maintain its controlled share, will also be raised from tax payers pockets, that is, from our work, taking away from our current and future income.
For these reasons the quality of the corporate governance in state-owned enterprises is critical. In addition to all issues faced by any company, state-owned enterprises have a few extra. According to IBGC , “the main challenge faced by Sociedades de Economia Mista (SEM) (publicly trade state-owned enterprises) is to reconcile their public mandate with entrepreneurial objectives”[iii]. If, on one hand, they have social targets and public policies to pursue, on the other, they need to maintain economic sustainability and provide market returns to shareholders. The other is political party interference: executive members that are chosen by non-technical requirements and who are not, necessarily, the ones that better fulfill company needs, but that are loyal to a political party agenda.
To prepare the company to face these risks, best practices recommend that its by-laws clearly state the corporate objective and the collective interest it should pursue protecting it against “opportunistic interference from the ruling party’s economic policy”[iv] . Furthermore, the State as proprietor function should be segregated from others performed and make explicit which State organism will be responsible for exercising ownership rights. This recommendation avoids that various State organisms interfere with the decision making at the state-owned company level making impossible to identify who is accountable.
As in any company, shareholders elect the Board of Directors in a general meeting, and this body, in turn, makes strategic, risk taking, capital structure decisions. It also appoints, monitors and cares for the succession of the CEO/management. It follows that the influence of the State as a shareholder should be manifested by the exercise of voting rights. The Board of Directors, in turn, should be formed by members whose technical and behavioral qualifications have been previously discussed and made explicit and who are independent, autonomous to be diligent and loyal to the company, and not to the group of shareholder who elected them.
We observe on the piece of news, that neither the journalists, nor what they say about the members of the interim government seem to be concerned by corporate governance best practices. Moreover, their readers are likely not to be surprised or revolted by such news, were the journalists to expect that, they would have already mentioned such practices in their text.
I conclude, therefore, that Brazilian culture, on average, has no knowledge of governance issues and is not disgusted by the appointment of state-owned company executives by political parties. This is the bad news. The worst is that culture is difficult to change. The good news is that it is possible to change culture. And that there couldn’t be a better moment to pursue this change once another headline “Novo fôlego à privatização”[v] (New impetus to privatization) on the same newspaper on May 15, 2015 seems to indicate that there is interest in increasing the number of publicly trade state-owned enterprises.
[i] Jornal O Globo 13 de maio de 2016 “Pente-fino nas estatais” de Gabriela Valente, Geralda Doca, Martha Beck, Glauce Cavalcanti, Luciane Carneiro – Caderno Economia
[ii] Programa Destaque em Governança de Estatais – BMFBovespa –pagina 2
[iii] Caderno de Boas Práticas de Governança Corporativa para Sociedades de Economia Mista, IBGC 2015
[iv] (same as iv)
[v] Jornal O Globo, 15 de maio de 2016 “Novo Fôlego à Privatização” Geralda Doca – Caderno Economia
Free translation by Silvia Pereira