Corporate governance in emerging countries

1 Corporate Governance in Emerging Markets

Corporate governance in Corporate governance in emerging countriesemerging countries

Daniel CórdovaDean of the School of Economics of UPC

And Executive Director of INVERTIR

With the support of :


1. Corporate governance in emerging countries2. Corporate governance in family businesses3. Case study4. Some activities in Peru

• First Corporate Governance contest• Corporate Governance Diploma• Guidelines for independent directors appointed by pension

funds• Studies in process

ContentContent


From an academic subject to a real concern … From an academic subject to a real concern …


The OCDE , Andean and Peruvian CodesThe OCDE , Andean and Peruvian Codes


TWO APPROACHES FOR CORPORATE GOVERNANCETWO APPROACHES FOR CORPORATE GOVERNANCE

The “negative” approach:

Agency problems between Managementand (atomized) shareholders. Risk controls, transparency, etc.

The “positive” approach

Good corporate governance as a way to increase company value

Predominant in academic literature

Approach to address closed-family businesses governance issues

More relevant for emerging markets


TWO MAIN ISSUES FOR CLOSED-FAMILY BUSINESSESTWO MAIN ISSUES FOR CLOSED-FAMILY BUSINESSES

• Succession Plan and the role of shareholders, directors and managers

• Access to better financial conditions (capital market)

To increase the company value


Foundational Age

FunctionalOrganization

Delegation

CorporateOrganization

Leadershipcrisis

ManagementIndependencecrisis

Control crisis

Management andProperty together

Management and propertyseparated

Siz

e

Company age

Better corporate governance, better path of growth Better corporate governance, better path of growth


Better corporate governance, better relationshipFamily – Shareholders – Directors - ManagementBetter corporate governance, better relationship

Family – Shareholders – Directors - Management

Shareholders Directors ManagementFamily

From personal relationships and informal rules to impersonal relationships and formal rules


Better Corporate Governance, better financial conditionsBetter Corporate Governance, better financial conditions

FamilyBusiness

ProfessionalCompany

Corporation

Own capital

Regular loans form banks

Capital markets

Financi

al

Cost

Company size

Complex financialstructures


• Family company listed at the Lima Stock Exchange• More than 30 years old company• US$ 60 million annual sales• No Strategic Plan• Shares:

– 75% voting shares– 25% no voting shares

• Board: family members and lawyers of the family

• Management: – 4 family members (2-2 brothers-cousins) with salary and “general manager empowerment”– O “true” professional general manager

Case study: mining family businessCase study: mining family business

- 35 % family- 20 % en Treasury - 20 % floating shares


Challenges (1999-2000)• Mining prices were low• Directors compensation system and expenses were not informed to

shareholders – Cross pockets (family and – Investments on companies related to directors

• Two groups in conflict:– Two family directors wanted to continue the same way– Two family directors wanted to make a radical corporate governance reform

• Shares were not liquid at the LSE:– “I don’t care about share value at the LSE”, Vice Chairman of the Board.– “I need to sale my shares and I can not” Member of the family

Case Study : mining family businessCase Study : mining family business


The dilemma: ¿To grow or the disappear?The dilemma: ¿To grow or the disappear?

• High risk related to mining prices

• Undercapitalization• Bad management• Family-managers

overpaid• Permanent conflict of

interests• Law suits between

managers

To disappear To grow (actually happened)

• One share – one vote : Public Offer

• Professional CEO and CFO

• Regulation of Board compensation

• “Empowerment” of management

• Tender policy for acquisitions

• Concentration in core business

• Investors relations policy

• Sale of treasury shares to pensions funds

• New international strategic investors


Share price of the mining company at LSE after the reformsShare price of the mining company at LSE after the reforms

one shareone vote


Auspician: Asesor Técnico:

Some activities in Peru: Corporate governance contestSome activities in Peru: Corporate governance contest


Shareholders treatment

• Shareholders meetings

• Information for shareholders

• Dividends policies

Board policies

• Independent directors

• Conflict of interest

• Committees and auditing

Transparency

• Opportunity

• Clarity

• Mechanisms


Management StructureAnd risk management

Social Responsibility

• Management structure

• Procedures …

• Planning and contingencies

• Relationship with suppliers, clients,Community

• Relationships with workers

• Environment policies


Best Annual Report

Best governance in privatized

company

Best information system

Deal of the Year


Corporate Governance Training Program

Corporate Governance Training Program


Handbook for independentDirectors appointed by pension

funds

Handbook for independentDirectors appointed by pension

funds

• International and national context

• The Board and the Peruvian Law

• The Board and CG Guidelines

• Pensions Funds and independent Directors

• Recommendations


• Corporate Governance for Family Businesses• Good and bad cases on corporate governance

(with CAF)• Corporate Governance in emerging markets (20

cases studies)• Assessment on corporate Governance for SOE

(with IFC)

Studies in processStudies in process


Corporate governance in Corporate governance in emerging countriesemerging countries

Daniel CórdovaDean of the School of Economics of UPC

And Executive Director of INVERTIR

With the support of :

Corporate governance in emerging countries

Documents

Transcript of Corporate governance in emerging countries