Eletrobras Faces Governance Crossroads as Proxy Advisers Shift on Diversity

Brazil’s state-controlled power giant, Eletrobras, finds itself at the center of a high-stakes corporate governance battle as it prepares for its first contested board election since privatization in 2022. The April 29 shareholder vote will decide whether the Brazilian government can expand its influence on the company’s board—a decision now complicated by a seismic shift in proxy adviser policies. Institutional Shareholder Services (ISS), a key influencer of institutional investor votes, has reversed its stance on diversity metrics, a move Eletrobras openly disputes. The outcome could reshape corporate governance norms in Brazil and beyond.

A Divided Board, A Divided Proxy Landscape

Eletrobras’ board election pits the Brazilian government—seeking to boost its board representation from two to three seats—against shareholders who fear overreach. The government’s nominees include figures like former energy ministers Silas Rondeau and Nelson Hubner, alongside Mauricio Tolmasquim, a Petrobras executive. These candidates’ approval hinges on shareholders ratifying a governance agreement that would cap the government’s voting power at 10%, despite its 45% equity stake.

Proxy advisers’ recent retreat from diversity criteria complicates this calculus. ISS, which previously emphasized board diversity, now explicitly ignores race, gender, or ethnicity when recommending votes. Glass Lewis, meanwhile, has softened its stance, while BlackRock and Vanguard have abandoned numerical diversity targets. This policy reversal—driven by U.S. regulatory rollbacks and anti-DEI sentiment—strikes at the heart of Eletrobras’ defense of its current governance structure, which it claims balances diverse perspectives.

Regulatory Crosscurrents and Shareholder Distrust

The 2025 proxy season is defined by a broader retreat from ESG mandates. The SEC’s abandonment of climate disclosure rules and Nasdaq’s withdrawal of board diversity requirements have emboldened companies to resist DEI pressures. For Eletrobras, this creates a paradox: its governance agreement, which includes provisions for independent board oversight, now faces scrutiny not just from shareholders but also from a regulatory environment increasingly skeptical of social governance metrics.

Compounding tensions is Eletrobras’ proposed compensation package of R$83.8 million for executives and directors—an average of R$118,300 per month per director—that has drawn criticism. ISS, while supportive of the board overhaul, may temper its recommendations if pay structures appear excessive relative to shareholder returns.

The Vote’s Dual Risks for Investors

Shareholders face a binary choice with outsized consequences:
1. Approve the governance agreement: This grants the government three board seats, aligning with ISS’s recommendation but risking accusations of excessive state control. Eletrobras’ shares could rally if investors view the move as stabilizing governance.
2. Reject the agreement: The government’s influence shrinks to two seats, empowering dissident candidates like Vanessa Claro Lopes and independent directors. This could pressure management to address governance flaws but may introduce volatility as Eletrobras navigates a more fragmented board.

The SEC’s new Schedule 13G rules further complicate the picture, potentially deterring institutional investors from public engagement due to fears of regulatory exposure. This could skew voting outcomes toward smaller shareholders or activist groups.

Conclusion: A Governance Litmus Test

Eletrobras’ April 29 vote is more than a corporate governance test—it’s a referendum on the role of diversity in boardrooms and the influence of proxy advisers in an era of regulatory retreat. ISS’s shift reflects a broader ideological pivot away from DEI mandates, but Eletrobras’ rebuttal underscores the tension between market norms and state influence.

Investors should weigh two key data points:
- Historical returns: Eletrobras’ stock has underperformed the Ibovespa by 15% since its privatization, suggesting governance reforms are overdue.
- Voting trends: In 2024, anti-DEI shareholder proposals globally garnered just 2.3% support, but their rise signals a growing backlash against perceived “social” governance overreach.

If shareholders approve the government’s expanded board role, it could signal acceptance of state-backed corporate governance—a model with risks for minority investors. A rejection, however, might ignite broader calls for transparency and independent oversight, aligning Eletrobras more closely with global corporate governance standards. Either way, the outcome will set a precedent for post-privatization state enterprises in Brazil and beyond.

As Eletrobras’ boardroom battle unfolds, investors must decide whether to bet on regulatory headwinds or the promise of a more balanced, transparent future.