Rising fuel prices, which rose by 27% in the 12 months to June, driven by rising international oil prices, threaten one of the laws created in the context of the fight against corruption: the Law on State Companies, approved and enacted in 2016 under the government of Michel Temer.

Organizations and experts say that any change in the law not only represents a failure in the management of these companies, but also threatens the government’s bid to join the Organization for Economic Co-operation and Development (OECD), a “club” of excellence that brings together the world’s most advanced.

The President of the Chamber of Deputies, Artur Lira (PP-AL), demanded that the Ministry of Economy submit an interim measure to amend the Public Companies Law, while the leader of the government in the House of Representatives, Ricardo Barros (PP-PR), confirmed that an interim measure is being worked out in this direction.

The stated goal is to provide greater “synergy” between business and government at the moment. In practice, the idea is to force the board of directors of Petrobras to obey the orders of President Jair Bolsonaro (LP) not to adjust the fuel.

Although this proposal came from allies of the government, it was supported by the opposition. PT President Glasey Hoffmann defended that the Public Companies Act should be revised to allow the appointment of politicians to directorships and boards of directors. She says the law criminalizes politics.

In the midst of an attempt to reinstate political interference in state-owned companies, the Ministry of Economy reported that Union-controlled companies earned almost 1 trillion reais last year, reaching their highest profit in 13 years. The economic team – contrary to the changes in the Law on State Companies – links these results precisely with the professionalization of state companies.

“The State Companies Law has closed the door to the political exploitation of public companies by setting up barriers and requirements for appointments to senior positions and to the board of directors,” emphasizes the manager of institutional and government relations at the Brazilian Institute. Corporate Governance (IBGC), Daniel Gregorio.

In the midst of a legislative review debate, former President Temer said that initiatives to promote changes to the State Companies Law should not even be considered. “What is expected of the political world is that it constantly improves Brazilian legislation and institutions so that it does not contribute to failure. The law, which is supposed to be amputated, meant a moralization of the public activities of state-owned companies and a big step forward in the political customs of the country,” he said in a note.

Misguided Petrobras Pricing Strategy

Another criticism of the position of politicians comes from the vice-president of the National Association of Federal Tax Inspectors of Brazil (Unafisco) Kléber Cabral. He acknowledges that fuel prices are exorbitant, but points out that the way to change this scenario is not to change the State Companies Law. “Abiding by the law would mean removing the protection against mismanagement and corruption and opening up space for inefficiency and falsification.”

According to him, the main achievements obtained through the adoption of the Law on State Companies, which responded to popular demand, were the non-political orientation of public companies and companies with mixed capital, improved agreement (compliance with laws and rules of conduct) and increased transparency of inspections. “The same actors who were exposed and convicted six or seven years ago in state-owned companies want to return to the surface,” says Cabral.

Markus Dantas, the IRS auditor who worked on Operação Lava Jato, also says Petrobras’s way of dealing with pricing issues does not involve changing the legal framework to fight corruption. “Amendments to the State Companies Law would encourage a return to corruption.”

Restrictions on political action in state-owned companies, established by legislation adopted in 2016, are strict. The legislation establishes that the appointment to the board of directors and directors of the company:

• A representative of the regulator to whom a public company or company with mixed capital reports;
• Minister of State, Secretary of State, Municipal Secretary;
• The holder of a position that does not have a permanent connection with the public service, of a special nature or senior management and advice in public administration;
• Statutory leader of a political party;
• The holder of a mandate in the legislature of any subject of the federation, even if he has a license to office;
• An individual who, in the past 36 months, has served as a member of the policy-making body of a political party or in work related to the organization, structuring and conduct of an election campaign;
• a person working in a trade union organization;
• A person who has signed an agreement or partnership as a supplier or purchaser, purchaser or supplier of goods or services of any nature with a political-administrative person controlling a public company or a company with mixed capital, or with the company or company itself, for a period of less than three years before the date of appointment; as well as
• A person who has or may have any form of conflict of interest with a political/administrative person who controls a public or mixed capital company, or with the company or company itself.

According to Dantas, the law is clear: “administrators must be people with technical ability and experience, and have an education appropriate to the position they hold.”

How Financial Market Entities Reacted to the Idea of ​​Amending the Law on State Companies

Entities connected with the financial market also spoke out against changes to the State Companies Law. On June 24, the Association of Capital Markets Investors (Amec), the Association of Analysts and Professionals in Capital Markets Investments (Apimec), the IBGC, the Brazilian Institute of Investor Relations (IBRI) and the Ethos Institute of Companies and Social Responsibility sent a letter to parliamentarians and the Federal Executive with a warning about the risk of failure in the event of changes to the Law on State Companies.

In the opinion of the organizations, the proposed change runs counter to relevant recent developments and jeopardizes Brazil’s aspirations to join the OECD. The document emphasizes that the attacks on the legislation are aimed at dehydrating the demands and bans on holding positions of board members and directors.

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

The organizations note that the damage from the intervention of political parties is not limited to the state treasury and the quality of services provided to the population: “in the case of companies with mixed capital listed on the stock exchange, the impact affects private investors, damaging the attractiveness of the Brazilian capital market as a source of financing for economic activity” .

According to the signatories of the letter, the rules contained in the law serve to ensure that the management of companies is professional, by applying technical criteria for the selection of administrators and following recommendations from national and international sources, including management guidelines for companies in OECD countries. The alignment with these standards is one of the steps envisaged in the process of Brazil’s accession to the international organization.

The organization acknowledged in a report released in late 2020 that state company boards have become more independent of political party interference due to the hurdles imposed by the State Companies Law.

And he recommended that Brazil go further, seeking improvements such as extending the requirements and prohibitions to all board committees and fiscal boards, effectively giving the board of directors the power to appoint and dismiss the company’s CEO, as well as rules and procedures. for the appointment and appointment of directors.

Polls show improved governance of state-owned companies

Loosening the SOEs Law would also end the virtuous cycle of maturation of governance systems and the integrity of SOEs, the organizations say. According to the Secretariat for the Coordination and Management of Federal State Enterprises of the Ministry of Economy, the score for assessing compliance with the rules and practices of good governance in federal state-owned companies almost doubled between 2017 and 2021, reaching 8.07 on a scale that extends to 10.

Another study by the IBGC indicates that between 2018 and 2020 there has been an increase in the share of independent directors in independent public companies (from 21% to 30%) and the adoption of formal processes for assessing the effectiveness of directors (from 51% to 83%).