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What is up to market agents when a publicly traded company is involved, directly or indirectly, in a case of slave labor?
The question divides opinions regarding the application of sanctions and penalties. O E-Investor sought experts to reflect on ESG aspects, especially corporate governance and social responsibility, based on the discovery of slave labor at the festival Lollapalooza 2023performed in Brazil by Time For Fun (SHOW3).
One day before the premiere of the music festival at the Interlagos Racetrack, in the city of São Paulo, it was reported that five outsourced professionals had been rescued, who worked in the preparation of the event in conditions analogous to slavery, according to inspection by the Ministry of Labor and Social Security.
The company’s share, listed on the B3 in the Novo Mercado segment, ended that day down 7.87%, at R$ 1.99. However, analysts estimate that the devaluation reflected more the economic aspects and investor dissatisfaction with the company’s balance sheet, released in the same week.
According to a note from the ministry, the workers were informal, sleeping on the floor or on beverage pallets, without electricity, many without mattresses, on cardboard or wooden boards, without receiving personal protective equipment (PPE). “They worked as porters for 12 hours during the day (from 7 am to 7 pm) and at night they were forced to sleep at the Interlagos Racetrack, at the various beverage storage points, to monitor the loads”, says the statement.
To the Repórter Brasil website, which disclosed the case, the festival replied that “it is strictly prohibited by T4F” for workers to sleep on site, which led the company to end the legal relationship established with Yellow Stripe. “T4F considers this an isolated fact, vehemently repudiates it and will continue with a strong stance in the face of any non-compliance with rules by outsourced companies”, said the company.
The market reaction
“The market is not giving due weight because the company, at least until now, has not made a statement to shareholders”, says Marco Saravalle, CNPI analyst and founding partner of Sara Invest and BM&C.
According to Saravalle, shares have suffered due to several factors, such as the macroeconomic scenario and the loss of some important shows (Justin Bieber in 2022 and Blink 182 at Lolla), in addition to the result that came worse in some points, mainly in working capital.
Even though T4F has improved some numbers, Satravalle assesses that the results are lower than market expectations. In the fourth quarter of 2022, the company reported a net loss of BRL 14.9 million, down 24.3% compared to the same period in 2021. The Ebitda (English acronym for earnings before interest, taxes, depreciation and amortization) recurring amounted to BRL 4.6 million between October and December of last year, an increase of 48.4% compared to the fourth quarter of 2021.
“Time For Fun has improved revenues, but it is a company that is still at a loss”, says Ricardo Brasil, founder of Gava Investimentos and postgraduate in financial analysis.
To investors interested in the action, the founder of Gava says that, even with the possibility of turn around, the company was greatly affected by the pandemic. “Even before the pandemic, it was not as peaceful a sector as one imagines”, evaluates Brasil.
Saravalle, in turn, sees the paper discounted and thinks it is a good investment. “We have a buy recommendation. The company is trading at very, very low prices. We see an excessive discount on paper”, says the analyst, who estimates R$ 4.20 as a reasonable price for the share.
How did the company report to the market?
Despite the repercussion on the networks and in some press vehicles, T4F has not issued an official position on the subject, either through the disclosure of a material fact or notice to shareholders. Which makes it seem like the company has moved on despite what happened.
On Monday (27th), for example, T4F published a material fact informing about musical chairs on board of directors. Marcelo Beraldo resigned as content director. Fernando Luiz Alterio stepped down as Chief Financial and Investor Relations Officer at the Company, and was replaced in both roles by Diego Marcelo Parente. But nothing about the Lolla case was made public in the IR (Investor Relations) section.
In the documents, the company provides its Risk Management Policy and Code of Conduct and Ethics, which provide some indications on the labor issue. questioned by E-Investor regarding clarifications about the fact and its possible implications, the company did not respond.
“We always wait for a statement from the company itself. It’s always important. If it actually happened, the company needs to disclose a material fact. If the company goes ahead with any process, I also think that some communication should be published”, says Saravalle.
Repercussion in justice and political demands
The Public Ministry of Labor in São Paulo reported that it opened a procedure to investigate the case and that the rescued workers have already had their situations regularized and received severance pay and overtime.
Federal deputy Erika Hilton (Psol-SP) also reported on her social networks that she asked the Securities and Exchange Commission (CVM) and B3 to withdraw T4F from the Novo Mercado. “A company that does not consider flagrant slave labor at its biggest event to be a ‘material fact’ does not demonstrate the corporate governance it claims to have and is required by its listing on the Exchange,” wrote Hilton.
T4F, which calls itself the largest entertainment company in South America, was created in 1983 and has been listed on the Brazilian stock exchange on the Novo Mercado since 2011. This is the B3 segment intended for trading shares of companies that voluntarily adopt corporate governance practices in addition to those required by Brazilian law, according to B3 itself.
The current regulations of the Novo Mercado do not mention slave labor, but indicate, in the requirements for entry and permanence in the segment, that companies must prepare and disclose a code of conduct for their functional and administrative staff, which must include, among other points, “duties towards civil society, such as socio-environmental responsibility, respect for human rights, and labor relations”.
The regulation also presents rules and conditions for the application of sanctions, which, depending on the case, may result in a written warning, fine, public censure, disclosed on the B3 website and other means of disseminating data, suspension or compulsory withdrawal from the New Market.
In its Code of Conduct and Ethics, the company makes some notes on the health and protection of its workers, and sets forth as unexpected conduct “allowing any type of exploitation of human beings in our business, including slave labor, human trafficking, sexual exploitation, labor exploitation and child abuse.”
O E-Investor questioned B3 about the T4F case, the Exchange’s devices to act in cases of listed companies involved in slave labor, the number of complaints and lawsuits and the applicable punishments. The company replied that “it is monitoring the case and will provide all the information eventually requested and that will help the work to be carried out by the competent bodies in the investigation of the complaints”.
The CVM, also questioned by the report, replied that the matter in question falls under the primary competence of the Public Ministry of Labor and the Labor Court and that, as the autarchy is a regulatory body of the Brazilian capital market, the issue is not directly inserted in its competence. In addition, it cited documents that seek to encourage or recommend the disclosure of information on ESG practices.
What is up to regulators
Although regulators have already tightened the noose – or tried to – against public companies in the search for the effective execution of better environmental, social and governance (ESG) practices, this challenge is an ongoing, time-consuming and also difficult one. However, they need to be faced.
Lígia Maura Costa, coordinator of the Center for Studies in Ethics, Transparency, Integrity and Compliance (FGVethics) at FGV EASP, argues that companies also need to be punished by market regulators, within their attributions.
“B3 needs to take a tougher stance in relation to slave labor and other issues related to the ESG agenda, when it has proof of this type of conduct among its associated companies”, says Costa. “If it took a firmer stance, in the event of major repercussions, obviously companies will understand the message and will want to change”, he believes.
In general, ESG practices result from the provision of information by the companies themselves, who respond to various questionnaires and checklists to, for example, enter some kind of Stock Exchange index, such as sustainability. But it is precisely in this aspect that specialists argue that there needs to be greater and better monitoring of this information by regulators, as well as greater action to investigate when a serious case comes to light.
Haroldo Levy Neto, technical director of the Association of Capital Market Investment Analysts and Professionals (Apimec Brasil), defends involuntary changes, but points out that in some cases it is necessary for regulators to be incisive with their regulations and even legislation, when companies they do not comply.
“Illegal things, such as slave labor, continue to occur even in publicly traded companies, because apparently they didn’t have enough eyes to see”, says Levy Neto. “It is not a checklist. It’s about making sure that (companies) are doing it”, he reinforces.
Costa points out that B3 has already been committed, in line with other major world exchanges, to various sustainability initiatives, such as the 2030 Agenda and the Sustainable Development Goals (SDGs) of the United Nations (UN).
“If a company has a minimum compliance department, it can check and avoid being caught with slave labor. And a company that has a high turnover, which has shares with a differentiated market value, to have working conditions similar to slavery in the 21st century. It needs to be punished”, says Costa.
The terrain of the ESG agenda is vast and there is still much work to be done. After all, this is a broad topic and is in constant debate and construction. But the commitment of market entities, in addition to providing a safer environment for investors, can also contribute to eradicating a problem that should no longer be reported, and also be an example for other countries.
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