Americanas: what does the case have to do with ESG? – 01/17/2023 – Market

The explanation for the R$20 billion Americanas scandal is still uncertain. If the inconsistencies in the balance sheet are the result of error or fraud, it will be up to the authorities investigating the case to respond. But regardless of the cause, experts say a well-crafted ESG policy would have prevented the problem.

The acronym that became a fever in the business world is the abbreviation in English for environmental, social and corporate governance. In the case of the retailer, this last pillar is what is at the root of the gap revealed last week.

Governance is the way a company organizes its decision-making structure and gives transparency to administrative processes. Companies with this well-developed pillar are those that take care of the fairness of their activities, guaranteeing the independence of the board of directors and investing in accountability mechanisms.

Considering the parameters adopted by the market, Americanas has a good assessment of its corporate governance — at least in theory.

The retailer is part of indexes that are benchmarks on the Stock Exchange, such as the Novo Market —which brings together companies with “a highly differentiated corporate governance standard”, according to B3— and the ISE (Corporate Sustainability Index), dedicated to companies with good ESG practices .

However, even participating in the elite of good practices, Americanas admitted last Wednesday (11) a billionaire accounting inconsistency in its results, shocking customers, financial institutions and market agents by the size of the figure.

By way of comparison, BRL 20 billion is double the budget that the Ministry of Culture will have in 2023.

The gap was revealed by then CEO Sérgio Rial when he resigned just ten days after taking office. According to him, “withdrawal risk” operations, when a company hires a bank to advance receivables to suppliers, were recorded incorrectly for years.

Instead of being considered as debts to financial institutions, they were included as expenses with suppliers, which did not compromise the company’s results.

For Gui Athia, an international consultant, the episode can be considered a case of “governance washing”.

Like greenwashing —when a company says it does more for the environment than it actually does— the term refers to a false commitment to good corporate governance practices.

“It seems strange to me that a company of this size, with auditors of the size it had, not realizing this with very simple governance controls”, he says.

When contacted, Americanas did not respond to requests for the report until the publication of this text.

According to Athia, the crisis could have a large cascading effect, and could have been avoided with governance aspects, which involve not only Americanas, but regulatory bodies, auditing companies and investment funds.

“How can the institutions involved be believed? People have to believe in something. They cannot put money under the mattress or stop working because they imagine that the company has a balance sheet that is not being transparent.”

Marcos Rodrigues, a partner at BR Rating, the Brazilian ESG risk rating agency, says that the accounting scandal clearly indicates a “very serious error” in management.

“It is not possible to lightly make any accusation that it was a deliberate practice. But, regardless of that, no instance of corporate governance being caught shows that this was not being done in the best way”, he says.

In his view, Americanas’ fiscal council, as well as the board of directors, board of directors and audit firm are responsible for the episode.

“It is strange that a number greater than the company’s net worth remains so long without having much transparency, which is a pillar of corporate governance.”

Rodrigues questions the retailer’s permanence in the financial market indices, and thinks it opportune that the Exchange itself reassess the mechanisms for admitting and controlling the indicators.

By note, A B3 said it was gathering all available information and assessing the impacts of the Americanas case on the ISE. According to the index methodology, a company can be excluded in crisis situations, but it must go through a fact-finding process.

In a conversation with journalists this Tuesday (17), the chief executive of B3, Gilson Finkelsztain, said that the Novo Market rules do not provide for the exclusion of companies involved in scandals or fraud.

For Roberto Gonzalez, a specialist in corporate governance, the accounting gap revealed by Americanas does not detract from the credibility of the index, which played an important role in encouraging good practices in the private sector.

However, he agrees that the episode suggests problems in governance, even if in theory everything was working well.

“I’d like to say that corporate governance is a lifeline, but unfortunately it doesn’t exist. What we do know is that it makes it harder for things to happen,” he says.

Americanas case reflects obsession with results

Fabio Alperowitch, founder of Fama Investimentos, a fund manager focused on ESG, says that it is possible to look at the episode from two perspectives. One is to understand Americanas as responsible for an unprecedented scandal. It’s another to see it as part of a larger system.

“We have a money-oriented culture in the business sector, obsessed with financial results, in spite of anything,” he says.

In 2019, Fama zeroed its exposure to Americanas for ESG-related issues. In a report published at the time, the manager justifies the decision due to “the high turnover of executives, either due to some evidence of a strained relationship in the supply chain, or due to a certain opacity of the financial statements and constant difficulty in accessing the company”.

In addition, says Alperowitch, the size of the interest to be paid by Americanas did not match the financial result, implying that it was referring to a much larger debt.

The manager also comments on the fact that the retailer has among its main shareholders the founders of 3G Capital, Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira.

The trio of billionaires has a good reputation in the market, but for Alperowitch, you have to question that. “Good part [da reputação] is a reflection of the size of the bank account. The market deifies too many people who earn a lot of money”.

He recalls other governance episodes with companies controlled by the trio’s executives.

In 2019, for example, Kraft Heinz had to make a massive $15.4 billion adjustment to its balance sheet after having overvalued its asset values.

After an agreement worth US$ 62 million with the SEC (regulatory body of the capital market in the United States), the lawsuit filed against the company was closed, without Kraft admitting or denying accounting misconduct.

Vanessa Pinsky, specialist in ESG and researcher at USP, also highlights the “obsession with costs and expenses”, an expression that appears in Americanas’ sustainability policy as “the only variables under the company’s control”.

“Being obsessed with results, as one of the main values ​​of a company, can lead to ethical problems and alignment with stakeholder expectations [partes interessadas]”, it says.

“It’s no use having robust compliance processes if there isn’t an ESG and integrity culture in the company”, he adds.