|Issue:||Latin America III 1998|
|Topic:||Lessons of Telebras: The Leadership of Sergio Motta|
|Author:||Roger Marinzoli, Vinode Ramgopal, Richard Morris and Sergio Camillo|
|Title:||Global Privatisation and Telecommunications Group|
|Organisation:||Lehman Brothers, USA|
The restructuring and sale of Telebras may well be seen as the most astonishing of the many privatisations in the past two decades. Led by Sergio Motta, the former Minister of Communications, his leadership represented the sine qua non for maintaining the process on track despite the many bureaucratic and political challenges. But most importantly, he promulgated the vision that it was more than just a mere sale – it was a policy to ensure that Brazilians would reap the benefits of the global communications revolution.
When all is said and done – and little has been said about how it was done – the restructuring and sale of Telebras may well be seen as the most astonishing of the many privatisations that have taken place over the past two decades. It was the largest in history, selling US$19 billion of government assets in six hours, on a single day, before national television and a disbelieving telecommunications world. It broke most, if not all, the rules for emerging markets’ privatisations. It separated the largest Latin American telephone company into twelve new regional companies – the only comparable is the break-up of AT&T, which took over four years to accomplish. It introduced competition in every telecommunications service simultaneous with the privatisation. It legislated, staffed and trained an advanced and credible telecommunication regulatory authority. It adhered to the specifications of the US Securities and Exchange Commission (SEC), the most demanding market authority in the world. And all of this – the creation of new companies, the establishment of a new business framework and the sale itself – was achieved at a time when there was growing scepticism in the global capital markets about the wisdom of investing in emerging markets in general, and Brazil in particular. While much may be written about the development of the privatisation policy, the leadership demonstrated by the former Minister of Communications, Sergio Motta, provides ample lessons regarding the implementation of such a grand undertaking. While the strategy of privatisation was already endorsed by Brazilian society, many bureaucratic and political challenges were poised to derail the Telebras process. His leadership represented the sine qua non for maintaining the process on track. But he also promulgated the vision that the privatisation was more than just a mere sale – it was a policy meant to ensure that Brazilians would reap the benefits of the global communications revolution. A Comprehensive Methodology Motta’s approach to the development and the implementation of the privatisation process could best be described as a systematic, top-down approach. He accepted the notion that privatisation encompassed far more than the divestiture of the state’s ownership interests; it was a complete process which entailed the removal of the state from the Brazilian telecommunications industry. This meant the concomitant liberalisation of the sector, the redesigning of the regulatory apparatus, and the restructuring of the existing Telebras assets. While divestiture could certainly be implemented without these changes, Motta wanted an outcome that could optimally balance social welfare, industry reform, and valuation. In developing this vision, Motta sought informed input from institutions that could provide him with a global perspective. He first obtained the assistance of the International Telecommunications Union (ITU). He then hired a series of domestic and international advisors, through a transparent process, to advise him on all of the strategic and tactical aspects of the privatisation. Lehman Brothers and Dresdner Kleinwort Benson jointly served as his strategic and financial advisors from June 1996 until March 1998. McKinsey & Co. was hired for the same period to advise on the formation of regulatory policy. In July 1997, Arthur Anderson was appointed to assist with technological restructuring, the reorganisation of human resources, and auditing the companies for the SEC registration process. A number of domestic and international legal firms (such as Motta, Fernandes, Rocha and Simpson, Thacher) were also hired to develop the legal restructuring strategy. From the outset of the process, the Minister adopted what he termed a “Platonic approach”: the design of a comprehensive restructuring and sale programme from each ideal form of liberalisation, restructuring, and privatisation strategies. The strategies were tailored for the Brazilian situation and then integrated to form a compromised optimisation. He did not initially limit ideas out of political, timing, or feasibility considerations; in fact, he often required his advisors to develop ideas without central guidance. This comprehensive, open-ended approach was realised in weekly Executive Council meetings, where – surrounded by up to twenty advisors at a time – he would synthesise the proposed strategies into policy. Selective Delegation To assist him with the process, Motta delegated important tasks to key subordinates. He appointed a troika of individuals within his Ministry to head the three bodies most influential to the privatisation programme. The former Minister of Communications, Fernando Xavier Ferreira, was appointed as the President of the Telebras System; the new Deputy Minister of Communications, Renato Guerriero, was tasked with developing the new independent regulatory agency known as Anatel; and the Minister’s special advisor, Ercio Zilli, became the master of the privatisation structure. Xavier focused on restructuring Telebras, a challenge of Herculean proportions given the sheer size of the system and regional political rivalries. He served as Motta’s spokesman to the Telebras companies, ensuring that company resistance was overcome and worked to transform the corporate culture and to mitigate employee concerns. He also represented views of the company’s management and shareholders at the Executive Council meetings, indicating the levels of transformation that the system would endure. Above all, he contributed an important perspective to Motta’s methodology – the need for rapid implementation to avoid the loss of trained talent and to sustain the company’s performance in the interim period. Guerreiro acted as Motta’s navigator to the 21st century telecommunications sector. Under the Telebras structure, Brazil was enthralled to a monolithic apparatus beset by inefficiencies, where consumers waited years for prohibitively expensive telephone lines. Guerreiro was responsible for developing an industry policy compatible with the onset of global competition. In devising this policy, he had to balance the objectives of short-term monetisation of the Telebras assets with the longer-term benefits of managed competition for the consumer market. Guerreiro adopted a cautious and deliberate approach, developing telecommunications policy piecemeal. In Motta’s Executive Council meetings, he represented the voice of the regulator, focusing on the balance between competition and supervision to achieve the best possible outcome for the Brazilian consumer. Zilli was the engineer tasked with ensuring that the process held together while moving forward rapidly. He was the Ministry’s coordinator of the process; he acted as the Minister’s scribe and counsellor, recording policy development in what everyone referred to as his “little red book” – a series of red, double-lined notepads. Given his vantage point, he understood the implications of all policy decisions and provided Motta with an unequivocal frame of reference. True to his technocratic training and expertise, Zilli acted as the consummate civil servant; he kept the chronogram on track and he sided with those strategies that enabled the process to maintain momentum. Bold Tactical Solutions Cognisant of the issues that could derail the process, Motta adopted a bold approach to dealing with bureaucratic and political impediments. Timing was critical; a rigorous schedule had to be followed. The real constraint was the Presidential elections scheduled for October, 1998. To ensure a successful sale – adding another victory to the Cardoso administration’s portfolio – the Telecommunications Law had to be developed by the end of 1996, the restructuring had to begin by October, 1997, and a simultaneous sale of all of the companies had to be completed by July, 1998. With the help of his advisors, Motta developed a ‘critical path’ timetable devised during the middle of 1996, The chronogram served as the tactical battle-plan by which he measured the progress of the process. Motta used it to ensure that all the constituencies involved in the process aligned their interests and their work with this aggressive plan of action. Although criticised roundly many times as being unrealistically aggressive, his application of deadlines enabled the process to remain on track. As time ran short on the restructuring and sales process, he acted to circumvent the bureaucratic processes. Rather than hiring external advisors through the traditional Government framework, he used an equally acceptable (although unorthodox) method of hiring them through the ITU. Instead of waiting for formal shareholder approval to reorganise the Telebras assets, he established ‘virtual holding companies’ to redistribute management and employees to begin the necessary reorganisation. He mobilised an army of people from within Telebras and the Ministry to implement his plans. In a brilliant move, he ensured that the Brazilian legal appeal process would not impede the timing of the sales by proposing the centralisation of the judicial review process in a single city with a very large, dedicated, and experienced juridical staff. Aligned with his immutable chronogram, these and other bold tactics broke the potential bureaucratic and political barricades. Selling the Privatisation Motta served as the chief public spokesman for the sale of Telebras. Recognising the importance of momentum and transparency, he often scheduled press conferences immediately after his Executive Council meetings. These weekly pronouncements were events of high drama, as he stood surrounded by inquiring reporters, rasping out his vision of the future Brazilian telecommunications sector. During these public monologues, he would highlight the ineptitude of the current system – at one point lambasting the ‘thieves’ who resold telephone lines when the Telebras system could not provide them – in order to generate public consensus behind his efforts. As speculation about the future outcome of the Telebras system mounted, Motta clamped down on unauthorised dialogues with the press to ensure that his messages were understood by the global markets, the public, and Telebras employees. Motta’s sales pitch represented a multi-pronged approach, targeting the various constituents involved in the privatisation. To address Congress, Zilli and his legal team drafted an exposition of the privatisation vision in the preamble to the General Telecommunications Law. To engage key administration officials, Motta convened intra-governmental councils on a periodic basis to bombard them with expert advice to support his policy directions. Close friends in the administration, such as President Cardoso and the President of the National Bank for Economic and Social Development (BNDES), Luiz Mendonca de Barros, were consulted regularly through informal meetings. Motta coordinated formal communication programmes for employees and stockholders with Xavier. And to generate interest in the Telebras companies prior to the sales, he instructed his financial advisors to preview the privatisation framework with global telecommunications companies. Motta’s Commitment One of the few unquestioned lessons of the decades of privatisation is that they do not succeed without a political champion. Political gadfly, President’s friend, and party politician, Sergio Motta embodied the will needed to achieve the vision of privatising Telebras in so short a time. Physically imposing and possessed of a forceful, outspoken character, Motta was appointed by President Cardoso for the specific purpose of transforming the telecommunications sector. He was given the authority and the resources to get the job done. Although he had the direct and personal backing of the President, he still had to use his formidable political skills to drive such an important and politically sensitive programme; he used a ‘bulldog’ approach that worked, contradicting critics who believed that only an individual with finesse could prevail. In short, he was a political champion; an individual empowered with the ability to succeed and possessed of a character driven to succeed. For Motta, the Telebras privatisation was a highly personal commitment. His interest in the development of Brazil was unquestionable; he had spent most of his professional career as an engineer and a consultant developing infrastructure projects in Brazil. He took great care to ensure that his process was free of the taint of corruption; he insisted that every stage be made as transparent as possible to avoid political backlash. The most striking examples of his involvement were evidenced in his direct participation in the deliberations of his Executive Councils. He dedicated hours to this process, meeting virtually every week to guide the policy-making discussions. Motta wanted every detail of the privatisation to proceed according to plan, so that – as political champion – he could be highly informed in order to deal with the political challenges that arose. Conclusion As with all great victories, great prices must be paid, and Motta expended much of his energies on this last effort. Sadly, he died only months before his vision was realised with the auction of the new companies on July 29th 1998. Motta’s last years, however, were a testament to the advice he passed on to his friend, President Cardoso, through a deathbed letter: “do not think small.”