Changing the State-owned Companies Law puts in check Brazil’s entry into the OECD, say entities

A document signed by capital market associations was sent this Friday (24) to members of the government and the National Congress warning about the risks of an eventual relaxation of the State-owned Companies Law.

According to the entities, the proposal to amend the legislation goes against relevant achievements and jeopardizes Brazil’s ambition to join the OECD (Organization for Economic Cooperation and Development).

The law came into the government’s sights after Jair Bolsonaro (PL) tried, once again, to replace the president of Petrobras due to dissatisfaction with a fuel price readjustment that could impact his electoral intentions.

This week, members of the center defended the flexibilization of the law to facilitate changes in the command of the company. The national president of the PT, federal deputy Gleisi Hoffmann (PR), also defended changes.

The official letter is signed by Amec (Association of Investors in the Capital Market), Apimec (Association of Investment Analysts and Professionals in the Capital Markets of Brazil), IBGC (Brazilian Institute of Corporate Governance), Ibri (Brazilian Institute of Investor Relations ) and Instituto Ethos.

According to the document, the applicants against the State-Owned Companies Law aim to weaken the requirements and prohibitions for the appointment of directors and directors.

“These provisions form the main shield of the legislation against the risk of capture of state-owned companies by party-political interests, which were responsible for notorious cases of corruption, inefficiency in the allocation of public resources and in meeting electoral and personal objectives, to the detriment of of the social objectives for which the companies were created”, says the text.

The State-Owned Companies Responsibility Law (13,303/2016), sanctioned in 2016 by the then interim president Michel Temer (MDB), was approved in response to a series of investigations that pointed to political use of companies in previous administrations.

At the time, it was said that one of the main objectives of the project was the professionalization of the management of state-owned companies. Therefore, new rules were created, prohibiting, for example, the appointment of party leaders or politicians who had contested elections in the previous 36 months.

In the official letter, the entities emphasize that the alignment with these standards is one of the steps foreseen in the process of joining Brazil to the OECD.

In a report published at the end of 2020, the group of rich countries acknowledged that SOE boards have become more independent from interference as a result of the SOE Law.

“The ban on appointing politicians and other individuals in conflict of interest has proven successful in reducing some forms of political patronage using director and executive positions,” the report says.

The OECD also recommended that Brazil go beyond the achievements already achieved, extending the requirements and prohibitions to all committees of the board of directors and the fiscal council.

“We ask public authorities, both the Executive and the Legislative branches, for attention and willingness to protect the current legislation and combat any attempt at change that promotes setbacks”, say the entities.

3 YEARS

is the minimum time required for the nominee to have ceased to exercise activities in a political party or in an electoral campaign

25%

is the proportion of independent members that the board of directors must have

​0.5%

is the upper limit that advertising and sponsorship expenses can exceed the previous year’s revenue