Lula government assumes plan to interfere in the management of private companies

The negative repercussions of the appointment of ministers Carlos Lupi (Social Security) and Anielle Franco (Racial Equality) to the Board of Directors of Santa Catarina’s Tupy, one of the main multinational foundries, did not intimidate the National Bank for Economic and Social Development (BNDES).

The state development bank has already planned a new wave of new appointments for the boards of companies in which it has a stake.

The director of the capital markets and sustainable finance area at BNDES, Natália Dias, told the newspaper “Valor” in September that there will be “other changes later this year”. The objective, according to her, is to “maximize” participation in companies in which the bank is a partner.

The stance is opposite to that adopted during the four years of Jair Bolsonaro’s (PL) government. From 2019 to 2022, the bank assisted the government in the privatization processes of state-owned companies. In his own backyard, he sold shares in companies and sought to be a discreet partner in those in which he maintained a stake.

Today, BNDES is a partner in 16 public companies, 11 of which are private. In addition to Tupy, JBS, Energisa, Eletrobras, Copel, Hidrovias do Brasil, Iochpe-Maxion, Coteminas, Springs Global Participações, Oi and Companhia Siderúrgica Nacional (CSN) are in the bank’s portfolio. In some, the government may be entitled to more than one seat.

The rigging of public administration through political appointments to the boards of directors of state-owned companies is an old and common practice, especially in the governments of President Luiz Inácio Lula da Silva (PT). The method, however, has been intensifying in the current administration with appointments to positions in private companies in which the government has a shareholding through BNDES.

This was the case with the nomination of Anielle and Lupi, in August, which provoked reactions from the market and criticism from opponents. The two ministers, whose appointment was challenged due to their lack of experience in the sector and technical preparation, occupied the seats belonging to BNDESPar, the holding arm of BNDES, which holds 28.2% of the company’s shares. Each one will receive at least R$36,115.00 per month as a counselor, which will be added to the minister’s salary.

Report from People’s Gazette showed that the appointment of the two ministers violated the BNDES’s own appointment policy for company and entity boards. approved a few months earlier.

Appointment that is more political than technical generates apprehension, says expert

Alexandre Oliveira, board member and member of the Strategy Committee of the Brazilian Institute of Corporate Governance (IBGC), considers that the Tupy case is not just a setback in terms of good practices, but a turning point, especially as the company is part of the B3 Novo Market group, a segment that brings together companies with the strictest governance standards.

“The resignation of two qualified technical advisors with knowledge of the metallurgy sector was imposed for the entry of unprepared people into an international private industry”, highlights Oliveira. This called into question, according to the advisor, the company’s control mechanisms and credibility.

Regarding the new indications, Oliveira states that it will be necessary to intensify vigilance so that there is no “tupynization” of companies with public participation. “An appointment perceived as more political than technical generates apprehension regarding the type of decisions that will be taken, since the board’s objective is to preserve and generate value for the company”, he highlights.

“It is necessary to remember that the government, as a shareholder, has the right to make nominations. The point is the qualification of the nominees. Society needs to be alert to prevent appointments that compromise the company’s decisions or increase the risk of corruption and unethical practices”, he warns .

In state-owned companies, flexibility in the law facilitates political appointments

In the advisor’s assessment, the government’s strategy has as its backdrop the relaxation of the State Law, which regulated the appointment process for positions in public or mixed-economy companies.

Approved in 2016, during the Michel Temer government, in the wake of Operation Lava Jato, which revealed a bribery scheme at Petrobras, the legislation was considered an institutional advance. “The Law on State-Owned Companies complies with internationally recognized recommendations and standards, which are now being dismantled”, states Oliveira.

In December last year, with the support of the President of the House, Arthur Lira (PP-PL), the Chamber approved a bill to relax the rules. The Senate resisted the changes and the PCdoB, an ally of Lula, filed a Direct Action of Unconstitutionality (ADI) with the Federal Supreme Court (STF).

In March, the trial began in the virtual plenary and minister André Mendonça asked for a view. The PCdoB appealed alleging urgency and minister Ricardo Lewandowski granted an injunction that overturned the three-year quarantine imposed by law on political leaders in management positions at state-owned companies and mixed-economy companies. The decision allowed the appointment of Aloizio Mercadante (PT) to the presidency of BNDES.

In April, BNDES removed all independent directors from companies in which it has a stake and appointed bank employees in their place to fulfill a buffer mandate. The market’s assessment is that they are waiting for the State Law to be overturned once and for all so that the government can make whatever indications it wishes.

Favoring colleagues and intervention in companies

For experts heard by People’s Gazette, the government’s interventionist bias can be assessed from two angles. On the one hand, favoring party “comrades” and income supplementation for public administration allies. In an article, the former president of the Securities and Exchange Commission, Marcelo Trindade, even classified appointments to boards as a “luxury gig” for sponsored people.

The second angle, consolidated in the new management of BNDES under the presidency of Mercadante, is political, and relates to the project of gaining more decision-making power in councils and executive boards, in order to expand the role of the State in the economy.

Núbia De Paula, coordinator of Gran Faculdade and specialist in Public Law, considers the second one to be more serious. “The biggest problem is not the R$30,000 or R$40,000 paid to counselors, but the rigging and interventionism in the private sector,” she says.

The nominations serve as prizes for allies and exchange currency for political support for issues of interest to the government, the professor believes. The counterpart for companies is proximity to the government, with facilitation of financing, transfer of know-how or networking for influence and favors. “Large companies want this approach. It’s a political exchange”, she assesses.

There is, however, a cost not only to the business, but also to the company’s credibility with investors. In the case of Tupy, the company’s shares on B3 fell 3% at the time of the announcement of Anielle and Lupi’s appointment. “The board of directors is the ‘heart’ of a company. How can people who have no experience and knowledge of the sector define the future of a company?”, asks De Paula.

Lula tries to influence decisions of the country’s largest companies

The high degree of interventionism of the Lula government contrasts with Jair Bolsonaro’s administration. At BNDES, the past management sought to reduce stakes in companies, with massive sale of shares. And, in the companies in which he remained a partner, the bank tried not to interfere.

Since taking office, Lula has tried directly or indirectly to influence the direction of some of the largest Brazilian companies.

He tried to appoint former Finance Minister Guido Mantega as CEO of Vale, the largest private company in the country, but was met with reaction from the company’s board, which has built solid governance since privatization.

At Eletrobras, privatized in 2022, the government wants to increase its participation in the board of directors. The attempt, in this case, through action in the Federal Supreme Court (STF).

For Petrobras, Lula had two nominees rejected by the board of directors, and later considered ineligible by the Securities and Exchange Commission (CVM).

At Copel in Paraná, privatized in August, the government tried, via BNDES, to prevent the company’s migration to B3’s Novo Market. According to BNACO, the migration “would dilute BNDESPar’s economic and political interests in the company”.