Change in the State-Owned Law harms the country’s development, say market representatives

The effort of the elected government of Luiz Inácio Lula da Silva (PT) to change the State-Owned Companies Law and, thus, facilitate appointments of politicians to the command of public companies was strongly criticized by entities of the financial market and that act in the defense of the best practices of governance.

“Damage resulting from undue political-partisan interference harms the public coffers and the quality of services and products delivered to the population and negatively affects the Brazilian business environment”, says a note of rejection against the changes in the State-owned Law signed jointly by Amec (Association of Investors in the Capital Market), Apimec Brasil (Association of Analysts and Investment Professionals of the Capital Market in Brazil), IBGC (Brazilian Institute of Corporate Governance), IBDEE (Brazilian Institute of Business Law and Ethics), INAC (Institute I Do Not Accept Corruption) and Ethos Institute for Business and Responsibility.

The legislation, approved in 2016, was amended to reduce the quarantine period for nominees to hold positions of president and director of public companies to 30 days. The change may pave the way for ex-Minister Aloizio Mercadante to become president of BNDES (National Bank for Economic and Social Development).

Still according to the repudiation note, the changes in the law also end up compromising the country’s development and the mitigation of social inequality.

“In the case of mixed capital companies listed on the Stock Exchange, the impacts reach investors, harming the attractiveness of the Brazilian capital market as an important source of financing for economic activities”, says the document.

Reflecting the movement towards the change intended by the elected government in the State-Owned Companies Law, Petrobras shares fell by almost 10% on the Brazilian Stock Exchange in the trading session this Wednesday (14). After the strong drop the day before, the state’s shares have an adjustment session this Thursday (15) and operate with an increase of more than 1% around 1:20 pm – with gains of 1.65%, in the case of ordinary shares, and 1 .16% of preferred shares.

Due to the increased perception of political risk in relation to the company, Genial Investimentos downgraded its recommendation for Petrobras shares from purchase to maintenance. “The flow of news from the elected government traces a business orientation that we consider negative for the company’s thesis”, says analyst Vitor Sousa in a report.

According to the Genial analyst, the alteration in the State-Owned Companies Law means the fall of the “line of defense” of the interests of minority shareholders in relation to the guidance of the company’s business. “It’s no use hitting the edge of a knife and insisting on a ‘case’ that runs the risk of not taking ownership of the current cycle of oil prices.”

In the repudiation note, the entities also point out that the State-Owned Companies Law was the result of a long legislative process, with the interaction of civil society, and represented a substantial advance in the corporate governance of federal, state and municipal state-owned companies and in the adoption of shielding against the risk of capture by partisan political interests.

They say that the law establishes means for the selection of candidates for the administration of state-owned companies to be guided by professionalism, technical qualification, ethics and compliance with the objectives of these companies, strengthening their integrity, governance, management and efficiency.

In addition, it is highlighted the fact that the standards introduced by the 2016 text meet the recommendations of national and international references, including the governance guidelines for state-owned companies of the OECD (Organization for Economic Cooperation and Development).

“The alignment with these standards is one of the steps foreseen in the process of Brazil’s accession to the OECD, which has already publicly recognized that the boards of directors of federal state-owned companies have increased their independence from party-political interference due to the impediments established by the State-Owned Companies Law” , says the note.

The organizations that sign the document say they trust that the external control bodies and the Judiciary itself will fulfill their attributions, inspecting and punishing those responsible for deviations from legal norms and governance systems of state-owned companies and regulatory agencies.

“It is necessary that the members of the Executive and Legislative Powers act to preserve Law 13.303/16 [Lei das Estatais]combating any attempt at undue change, which results in setbacks.”