A Review of Corporate
Governance Initiatives in Latin
America (1998-2002)
Mike Lubrano
International Finance Corporation
April 8, 2002
Committing to Good Governance
Rules and Enforcement Mechanisms
Private
Quasi
Private/
Public
Public
(establishing
the rules)
Contract
Voluntary
Standards
Law/
Regulation
Ex Post
Arbitration
Special
Arbitral
Bodies
Judicial
Ex Ante
(enforcement)
Colors of the Spectrum – From Public to
Private (and Mixed)
• Legal Reforms (Chile,
Brazil, Mexico,
Argentina)
• Legal Investment
Regimes (Chile,
Brazil, Colombia)
• Stock Exchange
Listing Rules
(Bovespa)
• “Voluntary” Codes of
Best Practice (Mexico,
more in the works)
• Ratings (Voluntary
and Comparative)
• Ad Hoc Contracting
(Tag-along; Nonvoting Shares)
Legal Reforms
• Response to Scandal; Crisis
• Made CG a Permanent Part of Development
Agenda (Capital Markets; Competitiveness)
• Battle Lines Drawn (Good, Bad, Ugly)
• Considerable Political Capital Expended
• “One-Size-Fits-All” Problem
• Results – No Panacea; Compromise; Raised
the Floor
Legal Investment Regimes
• Reflect Growing Importance of Pension Regime
• Use of Regulatory Authority (Prudential Norms)
• Normative (Chile, Brazil) vs. Disclosure
(Colombia)
• Focus on Access to Capital
• Results: Still Early; Companies Forced to
Consider Future Financing Sources; Highlights
Need for Greater Engagement by Fund Managers;
Care Required – Potential for Distortions
Listing Rules
•
•
•
•
Born of Dramatic Contraction of Markets
Reflect New Focus on Quality vs. Quantity of Issuers
Unavoidable Conflict with Some Issuers
Requires Consensus on Objectively-Determinable
Shortcomings in Law/Practice
• Novo Mercado Represents a Solution to “One-Size-FitsAll” Problem
• Results: Exchanges Clearly in the Game (Sometimes
Innovators); Provides Companies with a Means to
Communicate Their Good CG to Investors; Impact on IPO
Market, Public Expectations; Element in Development of
Regional Mid-Cap Market?
Codes of Best Practices
• Public/Private (Mexico) or Private (Brazil)
Standard-Setting Initiatives
• Disclosure Requirements for Listed Companies
(Mexico)
• Drafting Process Can Serve Educational,
Engagement Goals (Direct Involvement of CEOs)
• Results: Important First Step in Developing
Sustainable Culture of CG for Both Public and
Private Companies; Require Institutionalization
with Multi-Sector Involvement (Institutes of
Directors/Corporate Governance)
Ratings
• Response to Perceived Demand for Independent
CG Analysis of Companies
• Commercial, Non-Profit (Code-based), Journalists
• Commercial CG Rating Services Still in Search of
a Viable Business Model
–
–
–
–
Who pays?
Voluntary or Involuntary?
Intensive or Extensive?
National or Global?
• Is There a Market for “Free-Standing” CG
Analysis?
Ad Hoc Contracting
• Always Present / Always Will Be
• Usually Primary-Market Driven
• Focus on Objectively-Determinable Issues: TagAlong; Minority Rights; Conflicts of Interest; Delisting, Squeeze-Out
• Importance for Policy Makers: Revealed
Preference (What Do Investors Really Want, What
Will They Pay?); Set Precedents for More
Institutionalized Responses (Code Content;
Listing Rules, etc.)
Gracias / Obrigado / Thanks
Mike Lubrano
International Finance Corporation
Latin America Corporate Governance Roundtable
Third Meeting
Mexico, DF April 8, 2002