A Petrobras it was the pivot of the increase in the perception of state risk in Brazil when President Jair Bolsonaro decided to remove former President Roberto Castello Branco and place General Joaquim Silva e Luna at the head of the company. The distrust of state-owned companies continues. But, even because of this situation, almost no one realized that the oil company may have a record number of representatives on the board of directors elected by minority shareholders – up to five members. Situation beyond unusual.
In the list of candidates for the board election that will take place at the general meeting on August 27, there are three names nominated by market investors: Marcelo Gasparino, Pedro Medeiros and Juca Abdalla. There are important mathematical chances that the trio will be elected. The result would force the controlling Union to increase the total number of members of the board of directors to 13. Thus, there would be seven representatives from the National Treasury (or the government), five from minority shareholders and the representative chosen by the workers.
In addition to the eight vacancies – or ten, depending on the result – that will be filled with this election, the collegiate already has Rodrigo Mesquita Pereira and Marcelo Mesquita, elected respectively by preferred shareholders and common stockholders (in addition to Rosangela Buzanelli Torres, chosen by the workers).
This off-season board selection meeting is the fruit of this year’s controversial election. The documents used for the regular meeting provoked controversy. The combination of company manuals and voting instructions by agencies providing services to foreigners ended up inducing an error in the distribution of votes. The practical result was the election of only one new member selected by minority shareholders to the board, when there was a chance for two names to be won.
As a result, Marcelo Gasparino, elected at the time, chose to resign. As the collegiate was formed by multiple vote — when shareholders ask for a voting system in which they choose name by name, rather than a ticket —, Gasparino’s decision provoked the need for a new election. In collegiate formed by multiple vote, the fall of one can lead to the fall of all.
This controversy, combined with the understanding of the Brazilian Securities Commission (CVM) that there was confusion in the votes, ended up forcing the state-owned company to convene a new meeting to form the council more quickly than it intended. Only this time, the market names increased.
This meeting, in addition to the unprecedented situation at Petrobras, can put a famous and unknown character, at the same time, in focus: billionaire Juca Abdalla, as José João Abdalla Filho is known, owner of Banco Classico, created to manage the fortune he inherited of his father, an industrialist from the 60s.
The billionaire, who doesn’t like the spotlight, is gradually offering to become a much more public figure. It is currently the largest shareholder, soaring, in Cemig, second only to the State of Minas Gerais. Its fund, Dinâmica Energia, holds 26% of the common shares and 5.60% of the preferred shares, which gives it a 12.5% stake in the state-owned Minas Gerais company. Since last year, “as owner” of this position, he decided to compose the company’s board.
Now, you can go to an absurdly bigger window. Something that is curious for a person who doesn’t like to appear, be photographed, issue opinions or give interviews. If there’s something that requires an opinion, it’s Petrobras’ board of directors. And it’s not from today.
At the last Petrobras meeting, 78% of the company’s voting capital attended. In other words, minority shareholders participated with 27% of the capital of common shares. If all these votes were distributed equally across the three market names, they would all be elected. This is the ideal scenario, in the candidates’ view, but less likely. However, to deal with reality, there is an organization of investors. If there is little to guarantee a positive result for the whole trio, there is a group, in which Abdalla’s own participation is included, which will leave to vote on the day, at the time of the assembly, being able to concentrate on the name that has the position weaker.
Abdalla is famous for being the largest individual shareholder in Petrobras, with around 1% of the state-owned company, which means a fortune, in the oil company alone, in excess of R$3.5 billion. But that’s not the only big investment. At Cemig, it has more than R$ 2.75 billion allocated. And this is just what is known, in addition to a historic slice in Eletrobras.
The dilemmas of remote voting
The remote voting mechanism ended the excuses for absenteeism from the assemblies. But it brought other challenges. At Petrobras’ annual general meeting at the beginning of the year, it was the issue of the order in which the names were presented that affected the count. Now, there is another “voting industry” dilemma that becomes explicit – and its inconsistencies.
After being vaccinated, Petrobras produced a remote voting bulletin worthy of a class for elementary school students. Proof of misunderstandings and legal questions. There is a problem, however. The international managers’ voting industry, dominated by the Intitutional Shareholder Services (ISS) and Broadbridge platforms, follows the American logic of elections.
In Brazil, when multiple voting is selected as a dynamic for election – something that depends on the request of investors who have at least 5% of the company’s capital – each common share is entitled to as many votes as there are board seats. In that case, an investor may choose to focus all of his firepower on just one or a few candidates to secure his election. You do not need to vote for a total compatible with the number of seats. But you need to let me know how you want to distribute your firepower.
To deal with this scenario, the remote voting bulletin produced by Petrobras asks investors to distribute their votes among the names on the list. In other words, fill in the bulletin not with an X – the traditional ones for, against and abstention –, but with a number.
Technical issue: ISS and Broadbridge platforms do not offer this possibility. They only allow answers to be marked and not written.
An even bigger problem: Petrobras said it will disregard votes that do not fill in this form. Aware of this challenge, the only alternative left to the company was to offer investors as an alternative to send the distribution of votes to its investor relations department by email. Foreign shareholders do not like having work and even less like processes that are not always the same, that are exceptions. It is still unclear what impact this issue might have on the final result.
icing on the cake
Just to show how the mechanics of the voting industry still have a lot to improve, investors who hold ADRs, the stock receipts traded on the New York Stock Exchange, don’t have to worry about any of that.
They can fill out their documents the way they did before — with the option to just select the names on which votes should be concentrated, in that case. This is because the documentation is diverse and reflects the communication that this shareholder has with the custodian of the shares that back the receipts — it is the custodians who, in fact, carry out the votes.
It seems that everything is clearer for the participants this time. Clearer, however, does not mean less complex. There are fine print to pay attention.
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