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Vale’s 15-candidate shortlist for CEO excludes government nominees

Mining company to cut list to three by July’s end, with CEO appointment expected in August

07/10/2024

Vale’s board wants to turn the page and is looking for an executive who can lead the company’s growth process — Foto: Leo Pinheiro/Valor

Vale’s board wants to turn the page and is looking for an executive who can lead the company’s growth process — Foto: Leo Pinheiro/Valor

An initial shortlist of 15 potential candidates for Vale’s CEO position was made public Tuesday amidst the mining company’s troubled succession process, which has been dragging on since 2023. The names—most of them revealed by O Globo Columnist Lauro Jardim—include executives from major Brazilian companies, including Embraer, Gerdau, Klabin, and Engie. Only two are from the mining sector, two are foreigners, and only one is a woman, engineer Ana Zambelli, who has a long history in the oil and gas sector.

Valor found that this first selection, prepared by Russell Reynolds consultancy, has displeased Previ, the pension fund of Banco do Brasil’s employees, as it lacks a name closer to the government.

In the selection process, the head-hunting consultancy indicates some executives who are regarded as top priorities for the position and suggests candidates who are willing to participate in a second stage of the process. The idea is that three names would be selected by the end of the month and the selection would be completed by the end of August, according to people familiar with the matter. Valor did not have access to the scores each of these top candidates received.

Some of the company’s shareholders interviewed by Valor expressed dissatisfaction with the list prepared by the consultancy.

Names such as Cristiano Teixeira (Klabin), Gustavo Werneck (Gerdau), and Francisco Gomes Neto (Embraer) were well received by shareholders given their successful track record in their respective companies. Other names, such as Pedro Parente (EB Capital) and Antonio Maciel Neto (CAOA), are said not to represent the invigorating “new blood” that the company wants to bring in to grow again, according to sources. When contacted, none of the executives on the list returned the calls. The foreign executives cited, Pablo Di Si (Volkswagen) and Antonio Filosa (Jeep), would face resistance from shareholders. Mr. Filosa said he has not been contacted.

The selection carried out by the head-hunting consultancy focused on names linked to the industrial sector, according to one candidate who spoke with Valor. The list does not include executives linked to the financial market.

Some shareholders argue that Vale’s succession process should be accelerated to end the crisis opened by the expected change in command. However, the difficulty in finding an executive who could start immediately is highlighted as the main hindrance in the process.

Executives included in the list who spoke on condition of anonymity confirmed that immediate availability may be a problem but it could be negotiated. Some cite problems related to the environmental disasters caused by Vale’s dam bursts in Mariana (2015) and Brumadinho (2019), in Minas Gerais, although the company represents an important challenge in a seasoned executive’s career.

Behind the scenes, Previ, a key shareholder since Vale’s 1997 privatization, has been seen as the Brazilian president’s point of contact for the CEO succession process from the start of the Lula administration. This process has been marked by several government attempts to intervene in the company.

Sources close to Previ denied that there is any type of pressure to change or add names to the first list of candidates provided by Russel Reynolds. Valor found that the list was submitted on Monday (8) to the people and compensation committee, coordinated by Previ’s CEO João Fukunaga, who holds one of the pension fund’s two seats on Vale’s board of directors. Previ’s other board member is the company’s chairman, Daniel Stieler. The board met on Tuesday (9) and the list was discussed. Messrs. Fukunaga and Stieler did not immediately respond to Valor’s request for comments.

Some names close to the government that have been mentioned as possible candidates include Paulo Caffarelli, former Banco do Brasil CEO, and, more recently, Bruno Dantas, president of the Federal Court of Accounts (TCU). The first name cited was former Minister of Finance Guido Mantega, but this potential nomination wasn’t well received by the market. The discussions about the mining company’s succession divided the board. Other names mentioned during the succession process included Vale’s former CEO Murilo Ferreira, who was ahead of the mining company during the Rousseff administration, and Aldemir Bendine. Their names were not on Russell Reynolds’s initial list. Mr. Dantas did not immediately respond to Valor’s request for comments.

Vale’s CEO succession process has a defined governance protocol, and the company has announced a timeline for Eduardo Bartolomeo, the current CEO, to be replaced by December. However, the negative impact of this prolonged process on the company has prompted shareholders and managers to work towards expediting the CEO transition. Officially, these expedited dates are not part of the company’s publicly disclosed timeline.

Russell Reynolds’s first list will be narrowed down to reduce the number of candidates to three names. According to sources, there is an agreement under which the final list should include an internal candidate, who could be Chief Financial Officer Gustavo Pimenta. Then, there would be two other candidates to be appointed and the name of the new CEO would emerge from this list of three.

Valor found that in the first list, the consultancy made a selection by including candidates according to technical criteria. However, the final decision on whoever would move on to the next stage of selection will be up to Vale’s board of directors, currently comprised of 11 members, after two independent directors resigned. José Luciano Penido resigned in March when a letter signed by him criticizing the succession process became public. He made a recanting statement a month later and an internal investigation by Vale indicated that the succession process complied with governance. Last week, Canadian board member Vera Marie Inkster also resigned.

The board was reduced to six independent members, which is below the rules set by the company’s bylaws. Vale should call an Extraordinary General Meeting (AGE), on a date yet to be set, to reconstitute the board.

In a note released on Tuesday (9) night, the mining company informed that Russell Reynolds continues to provide the company with advisory services to select the new CEO. “The actions by Vale’s board of directors continue to be carried out as per communication to the market on May 1, 2024. Vale’s CEO succession process is carried out in compliance with the company’s bylaws and corporate policies, as well as the board of directors’ internal regulations and current legislation.” The company adds that Vale’s board of directors has not reached any conclusion to date regarding the list of candidates and reaffirms that it will keep the market posted on any relevant developments regarding the selection of the new CEO.

Vale’s management is pursuing an executive with a profile capable of taking the company back to growth after the problems that followed dam collapses in recent years. The company faces environmental licensing problems, especially in Pará, where its main reserves are located, in Carajás. According to sources close to the company, there is a mix of competencies to be observed in choosing the new CEO. That includes, for example, a required international experience in previous positions held by the executive. Another point pursued is that the executive has good communication skills and a focus on institutional relationships with stakeholders.

*Por Mônica Scaramuzzo, Francisco Góes, Stella Fontes, Kariny Leal — São Paulo, Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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Stocks may rise if Vale joins sustainability index, investors say

Shareholders believe company can return to listings with ESG improvements

08/23/2022

Brumadinho disaster contributed to several questions about the Vale’s environmental and safety practices — Foto: Bruno Correia/Nitro via AP

Brumadinho disaster contributed to several questions about the Vale’s environmental and safety practices — Foto: Bruno Correia/Nitro via AP

Since Vale became a “true corporation” in 2020, the market has been speculating about the sale of significant parts of the shares that are still in the hands of the former controlling group of the mining company. But as the company still trades at a discount compared with international peers, some of these shareholders are expecting higher prices to leave their positions. These shareholders expect, for example, that Vale will return to the sustainability indexes of stock exchanges, which could reduce the gap between the mining company and stocks of its main competitors – BHP Billiton and Rio Tinto.

Of Vale’s former controlling group, only Previ (8.61%) and Mitsui (5.99%) maintain more than 5% of the company’s capital. Bradespar, the equity arm of Bradesco and a shareholders since privatization, in 1997, now holds a 3.59% stake. Shareholders in this group has been selling stocks gradually and reducing their stakes, but still hold relevant positions. The exception is the Brazilian Development Bank (BNDES), which left the company completely.

The shares, which traded around R$98 in July last year, is now just under R$70. In March 2020, due to the effects of the collapse of the tailings dam in Brumadinho, the company fell to R$25.66 in the stock market. Sources recalled that some analysts put the target price at R$150 at some point and estimated that the return or entry into sustainability indexes could drive prices and the sale of stocks by former members of the controlling group.

The problem is that some banks have seen difficulties for Vale to deliver the expected growth in iron ore production and the commodity is not expected to maintain the high prices seen recently. These two factors are penalizing the company. Itaú BBA, for example, downgraded the company this month to “market perform” in the wake of lower iron ore prices, lower than expected production growth and higher cost of capital.

Investors who left the company, however, could look again at Vale as the company advances in ESG, as there are funds with governance rules that require investing only in companies with certain governance and sustainability “stamps.” But much work is needed to get there.

Dam accidents at Samarco (a Vale-BHP Billiton joint venture) in 2015 in Mariana and Vale’s own disaster in Brumadinho in 2019 have contributed to several questions about the company’s environmental and safety practices. The Government Pension Fund of Norway, for example, sold its entire stake in Vale in 2020 after the accidents. Also after Brumadinho, the Church of England divested its positions in the company.

Vale was part of B3’s Corporate Sustainability Index (ISE B3) between 2011 and 2015 and was removed after the Samarco dam collapse. The purpose of the ISE is to measure the average share price performance of companies selected for their commitment to corporate sustainability. The index supports investors in their decision-making and induces companies to adopt ESG best practices.

Companies apply for the ISE every year, and the exchange holds a selection process. In the United States, the Dow Jones Sustainability Index follows the same line: companies apply and there is a methodology to be followed.

After Brumadinho, Vale has significantly changed its ESG approach. Although it is not part of the portfolio of the main sustainability indexes of stock exchanges in the world, the company uses the reports and evaluations of the Dow Jones Sustainability Index and other ESG data providers — such as MSCI, Sustainalytics, ISS, and Glass Lewis — to develop and implement the best environmental, social and governance practices in its internal actions and processes.

In 2019, Vale mapped the top 63 ESG gaps and created an action plan to bridge them by 2030. So far, 54 of those gaps have been solved, and the company estimates that three more will be closed this year. Among those already completed are the further detailing of executive compensation; the consolidation of a majority of independent members on the board of directors and the CEO; and due diligence processes concerning human rights.

“The company is undergoing an intense cultural transformation, which seeks to put people and safety at the center of the decisions,” Vale said in a statement.

A source close to the company said that, today, Vale is “fully capable” to be part of the sustainability indexes of stock exchanges and emphasizes that the steps taken by the company in the ESG area are “solid in all spheres.”

“The [ESG] goals are completely tied to executive compensation and solidly embedded in the strategic plan. After Brumadinho, there was a very solid work of culture change in the company,” said the source, for whom it would be “no surprise” that the mining company would be included in the sustainability indexes.

The source added that, in this process, the company is likely to face “prejudices” still related to the accidents with the dams, since “outsiders and stakeholders may not see the depth of the changes in the company.”

“I don’t see why Vale shouldn’t join [sustainability indexes] in 2022 or 2023. I don’t see why it shouldn’t plead [for the entry],” says the source, recalling that the company was the first major mining company to commit to Scope 3 decarbonization goals, which consist of helping to reduce customer emissions.

Another source linked with investors in the company stressed that Vale has “come a long way” in setting and meeting ESG targets. “As the company continues to deliver on its commitments on this front, closing gaps, ESG rating providers should begin to recognize the company’s improvement,” says the source, who declined to provide a forecast for when the mining company will rejoin sustainability indexes.

For him, predicting the timing of this return to the indexes is very difficult, because there are subjective aspects of great relevance, such as the absorption of the effects of Brumadinho by stakeholders. “It takes time and a lot of effort from the company to prove that won’t happen again,” he said.

The source also recalled that, about the discount against international peers, there is still an operational issue, since Vale has been having difficulty in delivering the expected production volume. In other words, the mere entry into sustainability indexes may not guarantee a significant surge in the short term. “There is also a discount because of the operational performance below expectations in recent years,” the source said.

*By Rafael Rosas, Juliana Schincariol — Rio de Janeiro

Source: Valor International

https://valorinternational.globo.com/
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SEC says Vale misled investors over safety before dam collapse

Regulator accuses Vale of misleading investors about safety issues before the Brumadinho dam collapse — Foto: Agência Brasil
Regulator accuses Vale of misleading investors about safety issues before the Brumadinho dam collapse — Foto: Agência Brasil

Vale is in the crosshairs of the task force set up by the U.S. Securities and Exchange Commission to identify flaws or distortions in information provided by companies regarding ESG. In a document released Thursday, the regulator accuses the mining company of misleading investors about safety issues before the Brumadinho dam collapse in 2019, which killed 270 people and caused environmental damage.

According to SEC’s view, Vale manipulated safety audits and obtained fraudulent stability certificates since 2016. The regulator claims that Vale knew for years that the Brumadinho dam did not meet internationally recognized safety standards, but still ensured its stability certification in its sustainability reports.

The SEC’s complaint, filed in court in the Eastern District of New York, accuses Vale of violating antifraud and reporting provisions of the U.S. federal securities laws and seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties.

“While allegedly concealing the environmental and economic risks posed by its dam, Vale misled investors and raised more than $1 billion in our debt markets while its securities actively traded on the NYSE,” said Melissa Hodgman, associate director of SEC’s Division of Enforcement. “Today’s filing shows that we will aggressively protect our markets from wrongdoers, no matter where they are in the world.”

Vale denies the allegations, including the claim that its disclosures violated the U.S. law, and said in a statement to the market that it will vigorously defend itself. “The company reiterates the commitment it made right after the rupture of the dam, and which has guided it ever since, to the remediation and compensation of the damage caused by the event.”

It is the second accusation by the SEC involving a Brazilian company in 10 days. Last week, the regulator and the U.S. Department of Justice filed suit against the former CFO of IRB, Fernando Passos. IRB is listed in Brazil, but did a road show in the United States with false information about Warren Buffett’s investment in its stocks.

The ESG task force was created by the SEC in March. In the document, the SEC thanks the collaboration of the Brazilian Federal Prosecution Service, the Prosecution Service of Minas Gerais, and the Securities and Exchange Commission of Brazil (CVM).

The accusation did not affect Vale’s stocks, as investors seem to be more interested in the large buyback program launched by the company. Vale announced a buyback of up to 500 million shares, which corresponds to 10% of the shares with the public – a program that could cost it more than R$40 billion.

The company shares are still discounted compared with international peers precisely because of the negative history in ESG – the Brumadinho disaster was preceded by the one in Mariana, also in Minas Gerais – and its consequences in financial and regulatory terms.

The original story in Portuguese was first published on Valor’s business website Pipeline.

Source: Valor International

https://valorinternational.globo.com

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