In what is becoming an annual tradition, fuel price increases in Brazil have prompted the federal government to replace Petrobras’ CEO ahead of the company’s shareholder meeting. After raising concern across the market, last year’s executive turnover ultimately went smoothly. But this time things aren’t going according to plan, with the government’s preferred CEO candidate and proposed board chair both withdrawing their names from consideration.
Whether attending in person or participating by proxy, voting in Brazil is complicated. That’s despite (arguably, in some ways, because of) a raft of recent regulations aimed at empowering shareholders. You might expect that having a controlling shareholder would simplify matters by giving one party the final say over most of the board — but being a vital part of the national economy, and at the whim of Brazilian President Jair Bolsonaro, creates its own complications.
Last year, then-CEO Roberto da Cunha Castello Branco’s insistence on maintaining the fuel price and international levy policies implemented by his predecessor, Pedro Parente, prompted Bolsonaro to seek a replacement. He selected Joaquim Silva e Luna, an Army General and former Defence Minister, who had stated a belief that state-controlled companies should “contemplate social questions”, leading to market concerns that he would make strategic decisions that were not in the interests of long-term shareholders.
Yet in practice, Petrobras did not switch course following the appointment. Nor was this simply a matter of changes taking time to implement — on several occasions Silva e Luna publicly defended the existing price policies.
In something of a repeat, Silva e Luna’s insistence on maintaining Parente’s fuel price and international levy policies have once again prompted Bolsonaro to seek a replacement. However, this time the process looks to be more complicated. He initially picked Adriano Pires de Andrade, an economist who appears less amenable to the president’s policy preferences, having publicly defended the company’s fuel price policy and need for privatisation and independence as recently as last October.
However, earlier this week Mr. Pires de Andrade withdrew his name from consideration in response to concerns over potential conflicts relating to his consultancy work in the Brazilian energy sector. The decision came just after Rodolfo Landim, who had been proposed to serve as the board’s chair, declined the nomination after an internal compliance committee raised concerns about his own potential conflicts.
Notably, the market has had a very different reaction this time around. Whereas last year Petrobras’ share price fell 21.7% after Silva e Luna’s appointment was announced, this year’s CEO turnover led to a 3% increase on announcement of Pires de Andrade’s appointment, and a 1% drop on his withdrawal. This may reflect confidence in Pires de Andrade given his public support for stability, or reduced concern about the impact of federal interference given the company’s firm policies over the past year.
All of this drama (including both Pires de Andrade’s appointment and withdrawal) has come after the deadline for amending the proxy card, being 20 days prior to the meeting. However, while the final names won’t appear on the meeting agenda, that’s largely an administrative footnote – whoever the Brazilian government wants to serve as CEO and chair will almost certainly join the board in due course, thanks to its controlling interest. However, with the meeting barely a week away, identifying candidates in time to present them to shareholders could be difficult. One name that has drawn attention is Caio Paes de Andrade, an advisor to Paulo Guedes, the Minister of the Economy.
Since Petrobras is controlled, the influence of minority owners on the situation is limited. That said, shareholders do have some decisions to make. If they opt to conduct board elections via cumulative voting, they will then have the opportunity to allocate their votes between José João Abdalla Filho and Marcelo Gasparino da Silva, two candidates nominated by minority shareholders (both are independent). And for the separate supervisory council elections, they can choose to vote either on the three-director slate proposed by management, or on the individual candidate proposed by minority shareholders, but not both – a vote on the supervisory council slate will disqualify a vote on the minority candidate.
Speaking of minority candidates – in the last week of March at least three were proposed to the board who are not reflected in the proxy form issued by Petrobras on March 23. However, these three additional minority candidates do appear on the proxy card issued to ADR holders. ADR holders who see all the nominees on their ballots will have the option of either allocating cumulative votes on the two minority candidates included on the standard form, or voting for one of the three additional minority candidates via separate proposals.
The mechanics are tricky enough without the additional wrinkles that come from political interference — after all, voting in Brazil is complicated.
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