“Social justice” capitalism hits the stock market: B3 wants racial and gender quotas for companies

After the controversies involving ESG as a means of imposing progressive guidelines on corporations in the United States, the São Paulo Stock Exchange (B3) wants to require publicly traded Brazilian companies to allocate racial and gender quotas for senior leadership positions and include performance indicators linked to environmental, social and corporate governance in management’s variable compensation policies. The proposals were discussed at a public hearing in mid-August and can receive contributions from society until 16 in September. The goal is for the new inclusion and diversity rules to come into force next year and for companies to have until 2025 to start adapting or to present justifications for non-compliance. The consequences of non-adherence and lack of explanation can lead to delisting from the stock exchange.

The mechanism proposed by B3 provides “that Brazilian companies have at least one woman and one member of minority community (black or brown people, members of the LGBTQIA+ community or people with disabilities) on its board of directors or statutory board”. The criterion for all cases will be self-declaration, and the company can elect the same member who accumulates both characteristics, that is, the election of a black woman would fulfill the requirement.

According to a report by B3, 60% of the 423 companies listed on the stock exchange this year do not have any women among them. its statutory directors and 37% do not have female participation on the board of directors. The database reported by the companies does not include information on race.

“We understand that B3’s role is also to help induce changes and advances in the financial market. The issue of diversity is one that we need to prioritize, and we believe that the implementation of best practices should take place progressively, with deadlines that allow the necessary evolution of diversity within companies. Even on the issue of female participation, which society has been debating for a long time, it appears that most of the listed companies still do not have any women on their statutory boards and boards of directors”, says B3’s Vice President of Operations, Viviane Basso.

The Brazilian stock exchange initiative is inspired by changes in the listing rules of the United Kingdom and the Nasdaq (US), Australia, Hong Kong, Tokyo and Singapore stock exchanges. The participation of women in senior leadership was a concern found by B3 in all of them, while the rules of diversity, involving areas such as nationality, race and sexual orientation, were adopted by a part of those analyzed. “The proposed measures follow the international trend of inducing greater diversity in the financial market and will need to be adopted in shorter terms when compared to similar initiatives announced by other exchanges and regulatory bodies around the world”, states B3 in a statement.

Opinion of those who invest

Founding partner of Liberta Investimentos and other companies that offer services in the financial market, the entrepreneur Leandro Ruschel is a critic of the B3 initiative, which he considers “very negative, not only for the market, but for society”. “The market promotes prosperity and economic growth for everyone, because it is based on free enterprise and competition. Anyone is free to start and manage a business. The main objective of corporations has always been to generate profit and, through that, to offer better products and services, at lower prices, in an environment of free competition. When this model of success is abandoned to adopt political decisions that interfere with this objective, there is less prosperity for society”, he explains.

For Ruschel, adopting subjective criteria for selecting business leaders is “inefficient and unfair.” “Brazil is a very mixed country, there is no way to reach a conclusion about being black or white. you end up using racial courts, and this is very negative. Even the concept of man and woman today is subjective, the person declares himself to be of a certain gender and it is offensive to take a position against it”, he says. “I am radically in favor of equality. of opportunities. It cannot be prejudiced because of skin color, sex, religion or whatever, but make room for those who try harder to have more capacity and reach the best positions. The performer wants him to be the leader. The opposite starts to create more animosity, generates more division and conflict”, adds the investor.

The imposition of diversity quotas is even more serious, in Ruschel’s opinion, due to the fact that that the Brazilian stock exchange has no competition. “The exchange should not interfere, but offer the trading environment and ensure that market rules are respected. Do not define public policies of a socialist nature, even more obligatorily: either you do this or you cannot be listed. Unlike the United States, where, if I don’t like one bag, I go after another, in Brazil it’s a monopoly. If I want to publicly offer shares, I’ll have to go through B3”, he argues.

On the other hand, economist Pablo Spyer, a partner at XP Investimentos, approves B3’s proposal, which, in his opinion, it has an educational nature and intends to “fulfill a role of good practices”. “B3 has this DNA, and I welcome this agenda to bring diversity. In fact, it’s still a proposal, it’s in audience, and people can make contributions”, he reinforces.

In favor of meritocracy, Spyer says that the idea is not to give positions to those who has no professional preparation, but fighting the racism of “not hiring because it’s black.” “There are several male chauvinists who don’t want to put women, but it’s not to put those who don’t understand the business. You have to be a good professional, trained, hardworking. It is not just white men who have this, it is necessary to expand, it is necessary to invite women, blacks, browns, the disabled, LGBT”, he adds.

“The idea is to fight racism, it’s not right not to hire because it’s black; fight homophobia, show that inclusion is good for the company in the end. And it’s not equal pay either, the woman can earn more, because she’s better. It means removing racism and including meritocracy”, says Spyer.

Last year, XP Investimentos became a defendant in a public civil action brought by entities of the black and feminist movements, on the charge of “lack of diversity”. The lawsuit came after the publication of a photograph that showed the company’s employees, mostly men, white and young. In the action, the entities ask for compensation of R$ million for collective moral damage to “all black people and women from Brazil” who applied for vacancies at the company and at Ável Corretora de Seguros, since the photo would prove that the hiring policy of both would be “notoriously exclusionary and discriminatory”.

In the US, experience points to problems

The idea that a company’s objective should not be limited to shareholders’ profit, but rather aim at building a better world for all is not new, but it has gained traction in recent years. With more than five decades of existence, the concept of “stakeholder capitalism” (or capitalism of the parties: employees, customers, suppliers, local communities and society in general) has been growing in the world since the publication of the Davos Manifesto 2020, signed by the founder and executive president of the World Economic Forum, Klaus Schwab (also responsible for coining the term in the years 1970).

The text argues that “a company is more than an economic unit that generates wealth. It fulfills human and social aspirations as part of a larger social system. Performance must be measured not only by the return to shareholders, but also by the way in which it achieves its environmental, social and good governance objectives” and has supported the adoption of policy measures within corporations.

The problems of this line of business conduct have already been felt in the United States, with the boycott of brands by the consumer public, the increase in legislation against militant companies and the reaction of shareholders against the politicization of companies.

Commenting on the decision of US banks not to do or restrict business with companies and people linked to the manufacture of weapons and ammunition, columnist Jonathan Tobin, from the US conservative magazine National Review, warned that this type of restriction is incompatible with democracy. He points out that when “socially responsible” loans or investments start to dictate that companies stop selling some product or reduce sales to certain buyers, it is a sign that banks are assuming power that was not given to them through voting. .

“The notion that what these banks are doing is merely the free market in action is a distortion of the truth. These restrictions are an attempt to use the power of banks to circumvent the normal legal and political process. For Congress to stand by and let the bankers neutralize the Second Amendment [que protege o direito da população e dos policiais à legítima defesa, por meio de porte e posse de armas] would be a dereliction of duty, not a defense of the free market,” opines Tobin.

Similar concern with democracy is pointed out by Leandro Ruschel, in relation to the new rules of the B3, since the separation between market and politics is a “guarantee of freedom”. “Economic power is substantial in itself, money is a form of power. Political power has to move away from economic power. This type of measure must be debated in Parliament, by the representatives of the people, to see if the rules will be adopted and if this can be changed. When companies arrogate to themselves the right to decide public policies, they cannot vote against it. I realize that this union between economic and political power, promoted by corporations such as BlackRock and other managers, is offensive to democracy because it concentrates economic and political power in the hands of a few people”, he analyzes.

For critics, another controversial point of measures such as the adoption of ESG criteria is their high cost of implementation, which can even lead the business to competitive disadvantages. In this context, investors end up considering companies that invest in leftist militancy agendas (such as the existence of a sustainable action plan and diversity in their management staff) more attractive than those that guarantee the highest financial returns to their shareholders.

“ESG has therefore become a very pernicious driving force in American business, which is leading companies to adopt political values ​​at the expense of traditional business values”, opines the writer Stephen R. Soukup, author of the book “The Dictatorship of Woke Capital: How Political Correctness Captured Big Business”, still unedited in Brazil.

Pressure on B3

For at least two years, B3 has been facing charges for the implementation affirmative action and diversity rules for listed companies. In August 2020, Educafro sent a letter to the exchange’s president, Gilson Finkelsztain, pointing out “the ineffectiveness and propagation of inequalities by B3’s governance policies”. Signed by the founder, Frei David, the letter “accuses B3 of being silent in its regulatory role of instituting conditions, parameters and governance policies for companies that trade their shares in the Brazilian financial market”. According to a text published on the Educafro website, at the time, “the Stock Exchange is colluding and contributes to racial and gender inequalities”.

In December of last year, the stock exchange do Brasil became a supporter of the Pact for the Promotion of Racial Equity, with the objective of “encouraging the market to advance on the subject”. One of the actions of the Pact is the Pact was the Racial ESG Protocol in Brazil, whose proposal involves the adoption of affirmative actions, improving the quality of education and training of black professionals. One of the pillars of the Pact is the ESG Racial Equity Index (IEER), which volved by econometricians from USP and INSPER, “to measure the racial imbalance within organizations in terms of income allocated to black professionals, when compared to the percentage of blacks in the economically active population in the region where the company operates”.

“B3’s institutional support is an invitation for companies, not just listed companies, but those operating in the financial market in general, to review their practices, draw up plans and take action . Adopting ESG practices means providing an environment of equity and respect, and this coordinated evolution on the part of companies tends to contribute significantly to the structural transformation that we all hope for”, said Ana Buchaim, Executive Director of People, Marketing, Communication and Sustainability. of B3 at the time. The companies’ adhesion at that time, therefore, was voluntary.

Now, what is being discussed at B3 are rules in the “practice or explain” model. In other words, “companies that eventually fail to move forward will need to indicate to the market and investors in general the reasons that made progress unfeasible”. Until the next day 16, market actors and society as a whole can send contributions by email ( that will be evaluated by B3 . The final text of the new rules will be submitted to the approval of internal bodies and the Securities and Exchange Commission (CVM), a state body that regulates and supervises the capital market. B3 also committed to fully disclose all public statements that are sent.

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