Americanas case reflects the risk of only seeking results – 02/23/2023 – Market

When it decided, still in 2019, to zero its position in Americanas, the manager specialized in ESG Fama Investimentos was still unaware of the crisis that would lead to the request for judicial recovery to settle a debt of more than R$ 40 billion in early January.

But he already saw little transparency in its balance sheet and questioned the company’s strategy, which prided itself on being “obsessed with results”. “I would never have imagined that it was an issue of this size, but there were signs there”, recalls one of the founders of Fama, Fábio Alperowitch.

An ESG specialist and adviser to organizations that promote social responsibility and greater corporate awareness, he argues that the case is not isolated. “It is an emblematic case of the failure of a toxic culture that seeks results at any cost.”

You defended in an article, shortly after the beginning of the crisis, that the case of Americanas is not an isolated case, but a product of a more hostile culture of capitalism. Why?

My intention at that time was for us not to be casuistry, because we cannot treat the case of the Americanas as the case of the Americanas. It is an emblematic case of the failure of a toxic culture that seeks results at any cost. If we treat it as an American case, we turn a blind eye to everything else.

What would that culture be?

In the 1990s, companies were managed entirely in favor of shareholders, without concern for other stakeholders. Therefore, a company that “crushed” suppliers to the point of even breaking them was well regarded because it was capturing the result for itself. A company that delivered poor quality products or provided poor service was well regarded because it increased the bottom line at the expense of customer satisfaction. The same reasoning applies to employees: no investment was made in the well-being of the work environment, communities, minorities, the environment or governments. This capitalism is in decline and making room for a more inclusive capitalism that includes stakeholders [públicos de interesse] in their decision-making processes. This new capitalism has produced companies that are more responsible, longer lasting, more respected, that are able to attract and retain talent and make better decisions.

You also wrote about the system of incentives for executives, with bonuses and shares, which can lead to decisions in their own benefit. Does this explain these cases?

Yes, but I don’t think we can blame the incentive system. I think we have to blame the exaggeration of the incentive system. And the fact that the incentive system is not accompanied by indicators other than financial ones. But he has a positive side too, it’s that old story: between the antidote and the poison, the question is the dose. We need to know how to dose it exactly so that it doesn’t turn into poison. I think it’s a little more in that direction.

And how how is this done? In recent years here in Brazil, we have had some cases of reinforcement in this type of incentive, such as at Americanas, at Petrobras…

There is no substantial reflection on incentive policies [no Brasil]. First, because the easiest path is not to reflect, it is to continue inertia. Second, because it is convenient for many people. As most investors look a lot at the short term, executives look at the short term a lot… And unfortunately the corporate world and the financial world are not very empathetic to those who suffer externalities [de uma atividade]. Then they see the result looking at the financial and do not take into account other issues.

Eletrobras, for example, has just increased the president’s salary to R$300,000, claiming that it has a very big challenge ahead of it and needs to have the best professionals in the market.

Do you know what will happen? In three years, Eletrobras will say that it needs an even better person, so instead of R$300,000, it has to pay R$500,000, then R$800,000. There is no limit, there will never be a limit. And this is creating more and more distance between the top and the average worker in the company, because nobody says that down there the person also needs to be well paid. Americanas had the biggest wage gap in Brazil in 2019 and the second biggest in 2021. And it only gives incentive to the top, which is probably the one who knew what was going on. It is a harmful culture.

That was one of the reasons Fama dropped the position in Americanas in 2019, right?

It was a combination of factors. First, we detected a lot of tension with suppliers. There is always tension between retailer and supplier, there is always a fight, buying cheaper, buying to sell faster… But it was going far beyond what is inherent to the business: suppliers not being paid, suppliers with returned goods… It also had a very large turnover of executives, for some reason Americanas was not able to retain people. Another thing that drew attention was this wage gap. And the balance sheet was not very transparent when compared to other companies in the sector. The accounts they published were very agglutinated, it’s like they put a lot of things in the “others”. What are these “others”? The answers were laconic. The financial result also started to bother us, the amount they paid in interest was disproportionate to the size of the debt. Why is the company paying so much interest? It didn’t make sense for the debt she reports. So, whoops, there’s something there. Well, I would never have imagined that it was a question of this size, but there were signs there.

Looking back, it appears that market governance has not worked. There was no alert from the rating agency, audit…

No, Americanas do not have governance. And there is an issue when we are dealing with the trio: there is an aura around them, which makes all processes worse. A bank that will theoretically give credit should be cold, look at the numbers. But no: “this is from [Jorge Paulo] Lemann, if you ever have a problem, the guy is a billionaire, he’s going to put money in and so on, so I trust him”. An environment that is not critical is created. People who are in this ecosystem tend to agree with everything.

Returning a bit to the issue of wage disparity: we do not see a debate on the subject in the country. Why?

This will hardly come from the business environment, it will come from civil society. There are some entities, such as the Ethos Institute, that try to bring this agenda. But we need a much greater effort from the private sector to reduce inequality. There is a work by the governance consultant Renato Chaves, who publishes a ranking of wage inequality in companies, which is very interesting, but it still does not become a demand because nobody reads it, it does not appear in the Sheet. All of this data should become a demand from society: why does the CEO of Renner earn a hundred times more than the company average and the CEO of Americanas earns six hundred times more?

Isn’t promoting a change in behavior also an ESG role?

The big issue with ESG is when choices are needed and those choices are not necessarily trivial, even more so for the traditional decision maker, who is still the middle-aged straight white male who comes from an unempathetic culture. Essence ESG hasn’t touched these people yet. And there is total reductionism. It’s thinking that within E only climate change is worth and that within climate change it’s only worth carbon. No one talks about biodiversity, water, the circular economy. The carbon issue has a perverse side, because it becomes a license to transgress. It’s not bad, but it’s again the question between the antidote and the poison. I emit X tons of carbon, buy so many credits and thus gain a safe conduct to commit all kinds of transgressions.

The impression is that the acronym ESG treats the environment as a higher priority, but Brazil has complex social problems. Shouldn’t that also be an important axis?

It should. The person who coined the term ESG back in 2004 or 2005 was genius, because talking about responsible investment was a more abstract thing. However, in doing so you also spoil the understanding, as if it were possible to separate the social from the environmental. When we talk about climate change, we are not talking about one or two degrees more temperature, we are talking about climate refugees, flooded areas, places becoming inhospitable to live, more expensive food and increased inequality and poverty . So it’s all social in the end. Now, you’re absolutely right: this environmental vision is more from richer countries, which don’t have so many social problems. Then you come to the most transphobic country in the world, one of the most racist, one of the greatest social inequalities, one of the ones with the most accidents at work… Brazil has 53% of black people, so if there is no movement of local investors bringing up the issue of racial equity, there will be no outside pressure in this regard.

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fabio Alperowitch, 51, is the founder of FAMA Investimentos and responsible for managing an equity fund focused on companies adhering to good ESG practices. With a degree in business administration from FGV, he is an adviser to organizations such as WWF Brasil, Instituto Ethos and Capitalismo Consciente Brasil.