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Corporate governance in emerging countries

Corporate governance in emerging countries. With the support of :. Daniel Córdova. Dean of the School of Economics of UPC And Executive Director of INVERTIR. Content. Corporate governance in emerging countries Corporate governance in family businesses Case study Some activities in Peru

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Corporate governance in emerging countries

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  1. Corporate governance in emerging countries With the support of : Daniel Córdova Dean of the School of Economics of UPC And Executive Director of INVERTIR

  2. Content • Corporate governance in emerging countries • Corporate governance in family businesses • Case study • Some activities in Peru • First Corporate Governance contest • Corporate Governance Diploma • Guidelines for independent directors appointed by pension funds • Studies in process

  3. From an academic subject to a real concern …

  4. The OCDE , Andean and Peruvian Codes

  5. TWO APPROACHES FOR CORPORATE GOVERNANCE The “negative” approach: Agency problems between Management and (atomized) shareholders. Risk controls, transparency, etc. Predominant in academic literature Approach to address closed-family businesses governance issues The “positive” approach Good corporate governance as a way to increase company value More relevant for emerging markets

  6. TWO 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. Better corporate governance, better path of growth Control crisis Management Independence crisis Corporate Organization Size Leadership crisis Delegation Foundational Age Functional Organization Company age Management and Property together Management and property separated

  8. Better corporate governance, better relationship Family – Shareholders – Directors - Management Family Shareholders Directors Management From personal relationships and informal rules to impersonal relationships and formal rules

  9. Better Corporate Governance, better financial conditions Family Business Own capital Professional Company Regular loans form banks Financial Cost Corporation Complex financial structures Capital markets Company size

  10. Case study: mining family business • 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 • 35 % family • 20 % en Treasury • 20 % floating shares

  11. Case Study : mining family business 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

  12. 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. Share price of the mining company at LSE after the reforms one share one vote

  14. Some activities in Peru: Corporate governance contest Auspician: Asesor Técnico:

  15. Shareholders meetings • Information for shareholders • Dividends policies Shareholders treatment • Independent directors • Conflict of interest • Committees and auditing Board policies • Opportunity • Clarity • Mechanisms Transparency

  16. Management structure • Procedures … • Planning and contingencies Management Structure And risk management • Relationship with suppliers, clients, • Community • Relationships with workers • Environment policies Social Responsibility

  17. Deal of the Year Best Annual Report Best governance in privatized company Best information system

  18. Corporate Governance Training Program

  19. 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. Studies in process • 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)

  21. Corporate governance in emerging countries With the support of : Daniel Córdova Dean of the School of Economics of UPC And Executive Director of INVERTIR

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