Understand the rules that seek to shield Petrobras from political interference

This Wednesday (13), Petrobras’ general meeting approved the name of José Mauro Ferreira Coelho for the company’s board, paving the way for him to assume the presidency of the state-owned company and, with that, end a troubled process of exchanging command that, once again, raised doubts about the vulnerability of the state-owned company to political influences.

The confusion began after the dismissal of General Joaquim Silva e Luna, who was at odds with President Jair Bolsonaro (PL) due to the mega-increase in fuel prices. The government’s decision was interpreted as an attempt to press for a review of the price policy.​

Then, it was time for the appointment of Adriano Pires to sound the interference alert. The then nominee for the presidency of the state-owned company was linked to Carlos Suarez, a businessman with interests in the gas sector and close to politicians from the center – among them the president of the Chamber, Arthur Lira (PP-AL).

Coelho, on the other hand, is considered a technical name and must maintain the current fuel price policy. The result showed that the room for maneuver in the state-owned company is limited and one of the reasons for this is the governance and compliance rules adopted by the company.

As a controlling shareholder, the federal government is able to change the management of the state-owned company with some ease. So much so that Coelho will be the third president in just over three years of Bolsonaro’s administration.

However, government influence is limited — at least on paper. After Operation Car Wash, Petrobras made changes to its bylaws, implementing measures to protect the interests of shareholders.

A good part of the new internal rules were aimed at preventing cases of corruption.

In addition to creating committees to control directors, the state-owned company adopted a new disciplinary regime, inaugurated a whistleblowing channel operated by a specialized company, and changed the bidding system to combat fraud.

Petrobras even prohibited in the code of conduct that its employees meet with politicians without the presence of witnesses.

New changes to the statute were scheduled to be discussed at Wednesday’s assembly, but the government managed to postpone the vote at the request of the MME (Ministry of Mines and Energy), on the grounds that it had not had the opportunity to evaluate the measures.

The government’s request was criticized by minority shareholders in favor of the measures, who even filed a complaint with the CVM (Brazilian Securities and Exchange Commission) for abuse of the government’s voting power during the meeting.

Among other changes, Petrobras proposes to transfer decisions on the social responsibility policy to the board of directors and establish a qualified quorum for the appointment and dismissal of the state-owned company’s Director of Governance.

In response, Petrobras’ Governance Director, Salvador Dahan, said this Thursday (14th) that the company presented to various government bodies the proposal to reform the bylaws that reinforces the company’s governance structure.

Understand below the rules in force that seek to shield the state-owned company from external interference.

State-owned companies law

The main locks are based on the State Responsibility Law (13,303/2016), sanctioned in 2016 by the then interim president Michel Temer (MDB).

The legislation established rules for the appointment of directors and directors, prohibiting the appointment of party leaders or politicians who had contested elections in the previous 36 months.

Another requirement is that the chosen person has ten years’ experience in positions in companies in the sector or four years in similar companies.

Afterwards, the nomination needs to go through internal reviews. Known as a “background check”, the assessment includes not only the candidates’ curriculum, but also investigates whether they are the target of lawsuits, whether they have financial debts or have worked in political parties.

The statute also prohibits the appointment of people who did business with the government or with Petrobras itself in the previous three years. The existence of family members in these conditions is also an impediment.

governance structure

Since 2016, the oil company has also made changes to its governance model to improve the decision-making process.

The general meeting of shareholders is the body composed of all shareholders. The fiscal council is responsible for overseeing whether management complies with the law and the bylaws, as well as providing an opinion on the financial statements.

The board of directors is the body responsible for approving strategies and appointments for the company’s board of directors. While the president of Petrobras and the eight executive directors are responsible for managing the company.

It is from the council that changes in fuel price policy can come about. Currently, of the 11 seats, seven are occupied by government appointees, three by minority shareholders and one reserved for employee representatives.

However, both the State-Owned Companies Law and the Petrobras statute have mechanisms to avoid operations at a loss — which reduces the chances of price damming.

Financial market rules

As a publicly traded company, the oil company is supervised by capital market control bodies.

In Brazil, the company follows CVM (Securities and Exchange Commission) and B3 rules. Already abroad, it complies with the determinations of similar bodies, such as the SEC (Securities and Exchange Commission), in the United States.

There are so many obstacles to sudden changes that the financial market was little stressed by the back-and-forth of nominations for the presidency of Petrobras. The confusion was even seen as an indication that the governance rules were working well.

On the day of Silva e Luna’s resignation, the petro’s most traded shares fell 2.17%. But the following day, the company’s shares rose 2.22%, leading the Exchange to record its best result since August 2021.

Experts see room for improvement in governance

For specialists in corporate governance, the internal changes made by Petrobras in recent years, as well as the State-Owned Companies Law, have improved the company’s compliance. However, some decisions still cause strangeness.

Fabio Lucato, a partner at Chediak Advogados and a specialist in compliance and investigations, says that the oil company has become a more prepared company after Lava Jato. On the other hand, he still notices constant political interference.

“One thing is what is in the codes and another is what we see in practice. We still realize that there is an influence that ends up contaminating the performance. This is commonplace”, he says.

Lucato recalls that Petrobras is a relevant player in the economy, impacting from the price of gasoline to the performance of the Stock Exchange and the popularity of candidates.

“Of course the president will be with the Minister of Economy ‘pari passu’ [no mesmo passo] to try to take on some kind of management. The company is susceptible to this, although the integrity and corruption prevention program seeks precisely to bring governance rules and minimize these influences”, she says.

For Jonathan Mazon, a partner at Junqueira Ie Advogados and a specialist in corporate governance, Petrobras’ governance appears to be robust on paper and the unsuccessful attempts to interfere in the pricing policy indicate a good functioning.

However, he understands that the back-and-forth in command of the state-owned company is excessive. “It is hardly possible to continue a consistent policy with so many changes of command. If it were a private company, I would say that there is some issue of governance, or a lack of governance”, he says.

Both he and Lucato agree that no corporate governance is infallible, as human and political factors cannot be disregarded. “It’s always possible to have a degree of interference, even if it’s simply changing people,” says Mazon.