Amec publishes Notice to the Market about Petrobras
Amec – the Association of Capital Market Investors – has carefully analyzed corporate governance-related issues in Petrobras that have contributed to the current scenario, broadly announced by the press. Economists and lawyers of the associations’ technical team, as well as board members, analyzed and discussed each point of the case. Based on these analyses, the association published, on March 11, its arguments and conclusions about the company’s corporate governance problems and their implications for the domestic market.
In the document, the entity also addresses its position on the company since 2009, at the time of its capital increase. Amec has publicly expressed its opinion about the case, questioning the evaluation of such rights and the barring of the controlling shareholder vote in view of the evident conflict of interests in the deliberation about the appraisal report. After that, Petrobrás made changes to its proposal, announcing that the Federal Government would use government bonds to increase its capital and pay onerous assignments referring to the extraction of oil barrels.
In addition to its independent opinion, Amec has also led, together with the Brazilian Institute of Corporate Governance (IBGC), a joint declaration of 16 capital market associations pointing out and warning about the huge risks involved in the operation. This initiative resulted in a letter submitted to the rapporteur of the Special Committee in the House of Representatives and to several congressmen interested in the measure.
The association was also invited to participate in the public hearing promoted by the mentioned Special Committee to discuss the draft law and hear statements by the capital market’s representatives about the operation. On September 30, 2009, Amec’s then superintendent Edison Garcia participated in the debate of the Special Committee about the pre-salt, introducing the association’s position against specific items proposed.
Click here to access the shorthand notes of the debate.
After such measures, Petrobras announced a new position, including changes to the treatment given to the operation’s minority shareholders. The company communicated the creation of a committee with representatives of minority shareholders, the possibility of using federal government debt bonds to purchase new shares, stating that the rights of minority shareholders were to be respected.
It was strange that oil exploration rights were used in the capital increase and that Petrobras did not allow that the evaluation of oil barrels was submitted to the scrutiny of minority shareholders. Additionally, Petrobras made changes to its bylaws to allow its board of directors to deliberate over the capital increase, once again barring minority shareholders from taking part in the decisions related to the mentioned transaction.
Petrobras called an Extraordinary General Meeting for August 12, 2010 to deliberate about the approval of the criteria and methodologies to set the value of the government bonds, among other issues. Additionally, it also sought to approve the delegation of powers to its board of directors to accept the appraisal report.
Amec submitted a query to the Brazilian Securities Exchange Commission (CVM) about the possible conflict on the government voting on the matters in the agenda, especially with respect to the approval of the methodology for the preparing of the appraisal report related to the pricing the government bonds used in the capital increase. Although the answer was sent to Amec only after the beginning of the EGM, CVM’s technical area confirmed that the government should refrain from voting.
Amec also questioned the possible unlawfulness in the proposal of delegating the competence for the effective approval of the appraisal report to be board of directors, an exclusive duty of the shareholders’ meeting according to the corporate law.
PROXY VOTING
In March, 2011, Amec held its first international event in London. At the meeting, Edison Garcia, the association’s then CEO, and Pedro Bastos, vice president and board member, made a presentation about the Brazilian capital market and the corporate governance practices in the country.
It was during this event, at Brazil Corporate Governance Seminar, that Amec’s representatives debated for the first time with foreigners about the difficulties the candidates recommended by Amec to Petrobras’ board of directors had to vote. According to the legislation, the nominees indicated by minority shareholders are not required to be included in the general meeting notice – their names are informed only on the meeting date, what makes virtually impossible for foreign investors to vote on these nominees. That’s what happened in Petrobras’ 2011 general meeting, revealing some weaknesses of voting processes in Brazilian companies.
BOARD OF DIRECTORS
The first attempt by minority shareholders to influence on the election of Petrobras’ board of directors took place in the 4th quarter of 2011, when Fábio Barbosa left Banco Santander’s presidency and Petrobras’ board of directors. Non-controlling shareholders nominated Amec’s then CEO, Edison Garcia, but the company chose the businessman Josué Gomes da Silva, son of the country’s then vice president José Alencar (1931-2011).
In August 2011, Amec and a group of 16 foreign investors submitted a letter to Petrobras’ chairman and Minister of Finance Guido Mantega and to the company CEO, Graça Foster, pointing out governance issues and criticizing the representativeness of minority shareholders and the way found by the company to finance its heavy investment plans.
The group of investors that at that time represented more than $2 trillion invested primarily in emerging economies did not consider itself represented by the members Gerdau and Gomes da Silva. Both were reelected as a result of the power of pension funds of government-controlled companies, such as Petros, Previ, and Funcef, and the Brazilian National Bank for Economic and Social Development (BNDES). Despite that the funds and the development bank voted as minority shareholders, they were always aligned with the federal government that, in turn, controls both the company and BNDES.
In the following years, the group of minority shareholders continued to talk with the government, Previ and BNDES to advance in the discussion.
In 2012, Petrobras’ minority shareholders joined to try to influence on the decisions about the future of the company. In the Annual General Meeting held on March, they nominated Mauro Rodrigues da Cunha, Amec’s then vice president, and the international manager Francisco Drohojowski to the seats set aside for minority shareholders in the company’s board of directors. After the voting process, the businessmen Jorge Gerdau and Josué Gomes da Silva, already members and whose names had not even been assigned, were reelected. Later on, the meeting was subject to an investigation by the Brazilian Securities and Exchange Commission that, in 2014, punished Petros, Previ and Funcef for voting in candidates to the seats set aside for minority shareholders. Petrobras’ then CFO and Director of Relations with Investors and BNDES signed a Plea Agreement.
In 2013, minority shareholders finally managed to elect independent members for the company’s board of directors and Conselho Fiscal. After two frustrating attempts, a significant number of domestic and foreign investors was able to elect a candidate of their choice to the government-controlled company’s board of directors, Mauro Rodrigues da Cunha, CEO of Amec, in addition to two members to its Conselho Fiscal, Reginaldo Alexandre, CEO of APIMEC Nacional, and Walter Albertoni, Amec’s legal advisor. By then, candidates were exclusively invited by the controlling shareholder. The election took place in the company’s annual shareholders meeting, in April.
The choice of the names to represent minority shareholders was a teamwork that had the support of the foreign management companies Aberdeen, Hermes, Foreign & Colonial, and BlackRock.
Petrobras’ 2014 AGM held on April 2 was a historical event. The company’s minority shareholders, among which foreign funds and individuals, joined and managed to elect two independent representatives for the oil company’s board of directors.
The consultant José Monforte was the new independent member elected to the seat previously occupied by Jorge Gerdau, and the economist Mauro Rodrigues da Cunha, CEO of Amec, was reelected to represent minority common shareholders.
Click here to access Amec Notice to the Market
