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 :
2 Corporate Governance in Emerging Markets
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
3 Corporate Governance in Emerging Markets
From an academic subject to a real concern … From an academic subject to a real concern …
4 Corporate Governance in Emerging Markets
The OCDE , Andean and Peruvian CodesThe OCDE , Andean and Peruvian Codes
5 Corporate Governance in Emerging Markets
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
6 Corporate Governance in 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
7 Corporate Governance in Emerging Markets
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
8 Corporate Governance in Emerging Markets
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
9 Corporate Governance in Emerging Markets
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
10 Corporate Governance in Emerging Markets
• 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
11 Corporate Governance in Emerging Markets
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
12 Corporate Governance in Emerging Markets
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
13 Corporate Governance in Emerging Markets
Share price of the mining company at LSE after the reformsShare price of the mining company at LSE after the reforms
one shareone vote
14 Corporate Governance in Emerging Markets
Auspician: Asesor Técnico:
Some activities in Peru: Corporate governance contestSome activities in Peru: Corporate governance contest
15 Corporate Governance in Emerging Markets
Shareholders treatment
• Shareholders meetings
• Information for shareholders
• Dividends policies
Board policies
• Independent directors
• Conflict of interest
• Committees and auditing
Transparency
• Opportunity
• Clarity
• Mechanisms
16 Corporate Governance in Emerging Markets
Management StructureAnd risk management
Social Responsibility
• Management structure
• Procedures …
• Planning and contingencies
• Relationship with suppliers, clients,Community
• Relationships with workers
• Environment policies
17 Corporate Governance in Emerging Markets
Best Annual Report
Best governance in privatized
company
Best information system
Deal of the Year
18 Corporate Governance in Emerging Markets
Corporate Governance Training Program
Corporate Governance Training Program
19 Corporate Governance in Emerging Markets
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
20 Corporate Governance in Emerging Markets
• 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
21 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 :