ESG well done would avoid American scandal, experts say

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

The acronym that has become a fever in the business world is the English abbreviation of environmental, social and corporate governance. In the retailer’s case, this last pillar is what’s 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 businesses, 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 indices that are benchmarks on the stock exchange, such as the Novo Mercado —which brings together companies with “a very differentiated standard of corporate governance”, according to B3— and the ISE (Corporate Sustainability Index), dedicated to companies with ESG good practices .

However, despite participating in the elite of best practices, Americanas last Wednesday (11) admitted a billion-dollar 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 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, “callout risk” transactions, when a company hires a bank to advance accounts receivable to suppliers, have been misrecorded for years.

Instead of being treated as payables to financial institutions, they were included as expenses with suppliers, which did not affect 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 claims 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 statutory auditors the size it used to be, doesn’t realize this with very simple governance controls,” he says.

When contacted, Americanas did not respond to report requests until this text was published.

According to Athia, the crisis could have a large cascading effect, and could be avoided with aspects of governance, involving not only American companies, but regulatory bodies, auditing firms and investment funds.

“How can you believe the institutions involved? People have to believe in something. They can’t put money under the mattress or stop working because they imagine the company has a non-transparent balance sheet.”

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

“It is not possible to lightly accuse that this was a deliberate practice. But, regardless of that, no corporate governance case captured demonstrates that this was not done in the best way,” he says.

In his view, the tax board of Americanas, as well as the board of directors, the board of directors and the accounting firm are responsible for the episode.

“It’s strange that a number above the company’s equity go so long without having much transparency, which is a pillar of corporate governance.”

Rodrigues wonders about the permanence of the operator in the financial market indices, and deems it appropriate for the same stock exchange to review the mechanisms for admission and control of the indicators.

In a footnote, 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 cognitive process.

In a conversation with reporters this Tuesday (17), the CEO of B3, Gilson Finkelsztain, said that the rules of Novo Mercado 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 has played an important role in encouraging good practices in the private sector.

However, he agrees that the episode hints at government troubles, even though in theory everything was fine.

“I would 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.

The case of Americana reflects an obsession with results

Fabio Alperowitch, founder of Fama Investimentos, an ESG-focused fund manager, says it’s possible to watch the episode from two perspectives. One is to interpret Americans as responsible for an unprecedented scandal. Another is to see it as part of a larger system.

“We have a money-oriented culture in the business sector, obsessed with financial results no matter what,” she says.

In 2019, Fama zeroed its exposure to Americanas over ESG issues. In a report published at the time, the executive motivated the decision with “the high turnover of executives, partly due to some evidence of a tense relationship in the supply chain, partly opaque balance sheets and the constant difficulty of accessing the company ”.

Furthermore, says Alperowitch, the amount of interest Americanas owed did not match the financial result, implying that it was 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 have a good reputation in the market, but for Alperowitch you have to question it. “Good part [da reputação] it is a reflection of the size of the bank account. The market deifies too many people who make a lot of money.”

Remember other episodes of governance with companies controlled by the executives of the trio.

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

After a settlement worth $62 million with the SEC (capital market regulator in the United States), the lawsuit filed against the company was dropped, without Kraft admitting or denying accounting wrongdoing.

Vanessa Pinsky, an ESG specialist 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 core values ​​of a company, can lead to ethical issues and alignment with stakeholder expectations [partes interessadas]”, He says.

“There is no point in having robust compliance processes in place without an ESG and integrity culture in place,” he adds.

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