Ana Paula Vescovi: The shielding of state-owned companies

The approval of the State-Owned Companies Responsibility Law (law 13,303, of 2016) was a turning point for public companies. The progress in terms of transparent and efficient management of public patrimony is indisputable, leading it to contribute to the increase of collective well-being to the detriment of the interests of pressure groups.

In the year of its approval, after the 2014-2016 recession, the situation of federal public companies gave warning signs. In aggregate, they had losses. The equity of the 46 companies directly controlled by the Federal Government (proportional to their participation) was R$ 228 billion (3.6% of GDP), and some of these state-owned companies were on the verge of demanding funds from the Treasury to fulfill obligations. Among these, 11 had negative equity.

Denunciations of misconduct and arbitrariness in the control of prices and tariffs were not uncommon. And reputational erosion was great, which contributed to the fact that the market value of companies listed on the Stock Exchange (B3) was still below their net worth.

Since then, the results have improved. Union equity in directly controlled companies rose 75% from 2016 to 2020 —average of 15% per year— and reached 5.3% of GDP. Companies with negative equity were limited to six at the end of 2020.

The innovations introduced in 2016 deal with two vectors: bids and contracts, and corporate governance. The State-Owned Companies Law was reinforced by other initiatives, such as the Anti-Corruption Law (law 12,846, of 2013) and the new Law on Improbity (law 14,320, of 2021), to promote a significant change in the public corporate environment. Additionally, the technical competence of regulatory and supervisory agencies should fulfill the role of ensuring the healthy functioning of the market.

There is no incompatibility between a transparent, technical, integrity management focused on the fulfillment of business objectives and the improvement of social well-being. Well-managed companies invest and generate value through the payment of salaries, taxes and dividends. Commodity producers still pay government rents (royalties) for the exploitation of natural resources. Thus, they contribute to the long-term growth of the economy.

Upon receiving these revenues, governments can implement public policies that mitigate economic cycles, without attacking the coexistence of these companies with market rules or their profitability, and without destroying value for their employees, suppliers, shareholders and benefited communities.

What the law has brought to public companies is aimed at raising levels of excellence in management and integrity — something that, for the private sector, has long been a minimum requirement to make a company eligible to attract investors in B3. Since 2000, B3 has created a seal of recognition, the Novo Mercado, for companies with a high level of governance.

In the case of state-owned companies, the law brought obligations to establish governance structures, such as boards of directors and committees, capable of making strategic decisions in a collegiate manner, anticipating risks and ensuring the development of the business.

Furthermore, it requires the definition of policies aimed at technical management, by correcting the failures of internal controls and ensuring competitiveness requirements, even implying the fixing of prices capable of covering the costs of the services provided or according to market parameters. Ensures hiring with a technical profile, remuneration and compatible incentives; requires codes of ethical conduct and integrity, with rules for the explicit prohibition (and accountability) of acts of corruption and fraud.

Finally, it requires the preparation of an annual corporate governance letter, with the function of communicating to the public its long-term strategy and business plan, making commitments and evaluating the results of management.

Such obligations were incorporated into the statutes of all companies in the months following the approval of the State-Owned Companies Act. A real work front!

As a reference, the private sector has been deepening its ESG (environmental, social and governance) commitments, without giving up on profitability. On the contrary, adherence to this agenda fulfills the objective of promoting businesses engaged in social inclusion and in the transition to a greener economy, helping to mitigate risks. This has been the guide for companies to earn the trust of their customers, investors and surroundings. It is about generating value and, at the same time, assuming part of the responsibility for greater well-being.

If, on the one hand, state-owned companies should work even harder for an ESG agenda that ensures their social legitimacy, on the other hand, they cannot be blamed for any gaps in public policies. These, through Treasury funding, are the appropriate instruments to, for example, mitigate the risks of rationing, hunger, social unrest related to the current global shortage of fuel and food.

Another discussion would be whether or not to privatize some of these companies. But as long as they are public, modifying the foundations of the State-Owned Companies Law —which has brought a culture of profitability, sustainability and responsibility— will be a huge setback for institutions that, with the effort and benefit of many, have been contributing to more inclusive growth in Brazil. .