Main Board Issues in Chile
Ricardo Escobar C.
Carey Cía. Ltda.
Recent Changes
• Corporations Law
• Securities Law
• Pension Funds Law
• Tender offers
• Related party
transactions
• Procedures to
demand
compensations
• Election of
directors
• Audit committee
Board Issues
I.
Management of the corporation
II. Directors Committee (audit committee)
III. New circumstances, conclusions and
predictions
I. Management Powers
• Management and representation of the
company
• Based on:
– Appointment and removal of directors by
shareholders
– Directors act for the sole interest of the
company
Appointment and Removal
• Concentrated ownership
• Number of Board members
• The role of Pension Funds (AFPs)
– Share value
– Voting power
AFPs Investment Restrictions
• No single shareholder owns more than 65%
• Minority shareholders must own 10% at
least
• 15% of voting shares must be owned by at
least 100 unrelated shareholders, with a US
$ 2500 investment each
AFPs Voting Restrictions
AFPs cannot vote for candidates to the Board
who:
• Are controlling shareholders or related to
the controlling shareholder
• Are shareholders (or related to) owning
10% or more of the company
• Directors of the AFP or related to the AFP
Group
Acting Only for the Company
• Majority of the Board is related to the
controlling shareholder
• Areas of risk: related party transactions and
insider trading
• Solution: Strengthening of legal procedures
to demand compensation for shareholders
and the company itself
II. Directors Committee
• Mandatory in companies worth at least US
$ 38 MN (30 to 40 corporations in 2001)
• Seven members Board
• Three Directors, two must be “independent”
• Supervise: executive management, the
Board, auditors, rating agencies, etc.
Committee’s Practical Issues
• Shortage of independent directors
– Elected without controlling shareholder votes
– Unrelated to the controller
• Budget and remuneration
– Approved at the annual shareholders meeting
– Examples: CCU US$ 25.000 annual budget
Telefonica US$ 770 monthly fee
Practical Effects
•
•
•
•
•
No public denounces in 2001
Enactment effect
The “AFPs Director”
Monthly meeting, minutes, public access
So, it may be working
III. What can be Expected?
• Professional independent directors
• Fewer cases of controlling shareholders and
related party abuses
• The “Enron effect”
– Auditors selection
– Audit procedures
– Larger budget for the Directors Committee
Chile, a corporate paradise?
Not quite, yet.
Some Negative Elements
• Still a too small capital market
– More listed corporations
– More investors
• The Code of Sound Corporate Practices
– Nice start
– Cold present