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Main Board Issues in Chile

Main Board Issues in Chile. Ricardo Escobar C. Carey Cía. Ltda. Corporations Law Securities Law Pension Funds Law. Tender offers Related party transactions Procedures to demand compensations Election of directors Audit committee. Recent Changes. Board Issues.

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Main Board Issues in Chile

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  1. Main Board Issues in Chile Ricardo Escobar C. Carey Cía. Ltda.

  2. Corporations Law Securities Law Pension Funds Law Tender offers Related party transactions Procedures to demand compensations Election of directors Audit committee Recent Changes

  3. Board Issues I. Management of the corporation II. Directors Committee (audit committee) III. New circumstances, conclusions and predictions

  4. 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

  5. Appointment and Removal • Concentrated ownership • Number of Board members • The role of Pension Funds (AFPs) • Share value • Voting power

  6. 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

  7. 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

  8. 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

  9. 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.

  10. 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

  11. Practical Effects • No public denounces in 2001 • Enactment effect • The “AFPs Director” • Monthly meeting, minutes, public access • So, it may be working

  12. 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

  13. Chile, a corporate paradise? Not quite, yet.

  14. Some Negative Elements • Still a too small capital market • More listed corporations • More investors • The Code of Sound Corporate Practices • Nice start • Cold present

  15. We will see how it goes, in Santiago next year

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