corporate governance last updated 27&29 nov 07 latin american law
TRANSCRIPT
Corporate governance
Last updated 27&29 Nov 07
Latin American Law
Today’s topics
• Separation of ownership and control in LatAm – “Tunneling” of corporate assets– Protection of minority shareholders
• Oversight mechanisms– Ex-ante internal corporate processes– Ex-post external judicial review– Ex-post criminal sanctions– Alternatives: non-judicial review
• External pressure– Local financial markets – International financial markets – IMF liberalization– Academic literature
Business organizations …
Latin American (Spanish)• sociedad anónima (SA)• sociedad cerrada• sociedad colectiva • sociedad en comandita
(sociedad comanditaria)• sociedad de empresas
(en participación)• sociedad de inversiones • sociedad de responsabilidad
limitada (SRL)• sociedad filial• sociedad matriz• sociedad por acciones• sociedad pública (corporación)• sociedad unipersonal
United States
__ corporation
_ closed corporation
_ general partnership
_ government agency
_ limited partnership
_ joint venture
_ individual corporation
_ investment company
_ limited liability company
_ parent company
_ subsidiary company
Latin American (Spanish)• sociedad anónima (SA)• sociedad cerrada• sociedad colectiva• sociedad en comandita
(sociedad comanditaria)• sociedad de empresas
(en participación)• sociedad de inversiones • sociedad de responsabilidad
limitada (SRL)• sociedad filial• sociedad matriz• sociedad por acciones• sociedad pública (corporación)• sociedad unipersonal
United States
AJ corporation
B closed corporation
C general partnership
K government agency
D limited partnership
E joint venture
L individual corporation
F investment company
G limited liability company
I parent company
H subsidiary company
What is “corporate governance”?
Prof. Joe McCahery
Corporate governance
Forms of self-dealing• Executive com / perks• Transfer pricing • Taking corporate opportunities• Personal loans• Outright theft
MinorityShs
ControlShs
Corporation
Board
Affiliate
100%
80%20%
Corporate governance
Forms of self-dealing• Executive com / perks• Transfer pricing • Taking corporate opportunities• Personal loans• Outright theft
MinorityShs
ControlShs
Corporation
Board
AffiliateK
100%
80%20%
Lex Mundi (2005)Law and Economics of Self-Dealing
Ex-ante control(SH approval / pre tx
disclosure / inde review)
Ex-post control(public disclosure /
standing / evidence / ease of proof)
Public enforce(fines / prison terms /
control person / approvers)
United States .33 .97 .00
Germany .14 .42 1.00
France .08 .68 .50
Argentina .50 .39 .00
Bolivia .00 .16 .25
Brazil .22 .36 .50
Chile .50 .75 1.00
Colombia .83 .32 .00
Mexico .19 .16 .50
Venezuela .08 .09 .00
The results, please …
Lex Mundi (2005)Law and Economics of Self-Dealing
Stock market(market cap / GDP)
Block premium(control vs
non-control shares)
Concentration (percentage owned by
insiders / affiliates)
United States 142.1 2% 20%
Germany 54.7 11% 48%
France 89.5 1% 34%
Argentina 58.1 12% 53%
Bolivia 15.6 -- 54%
Brazil 38.4 49% 57%
Chile 89.7 15% 45%
Colombia 14.3 15% 63%
Mexico 21.9 47% 64%
Venezuela 5.5 28% 51%
Francisco Reyes, Corporate Governance in Latin America (2006)
Can legal transplantation work?
Legal transplants
1. Cost-saving transplant2. Externally-dictated transplant3. Inserted transplant4. Legitimacy-generating
transplant
Jonathan Miller(Southwest Law School)
• Model for borrowing
• Gain perspective
• Discover truths
• Impose / power
Value of knowing other legal systems
Lat Am joins the world …
Consider corporate formation …
(in Argentina)
Promoters
Notary
Comptroller
Public Registry
Members
Bank
Company(manager / director)
Board
SupervisoryCouncil
FORMATION STRUCTURE
Single act
Public subscription
Argentina Business Organizations Act
Article 59: The managers of the organization shall act loyally and exercise the level of care of a good businessman. If they neglect their obligations they are responsible unlimitedly and jointly for any harm that may result from their acts or omissions.
How do you run the business?Who might sue you?
IESE Business School in Spain: Argentine life is “characterized by making the least possible effort, ignoring the law and seeking individual advantage over any other interest.”
Jen Beatty
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Shareholders
Holding Company
Lat Am
Multinational Corporation
US
ColombiaArgentinaHolding
Mexico
Operating Export
Europe
Reform proposals …
“White Paper on Corporate Governance in Latin America”
Recommendations• One-share / one-vote (no
non-voting shares) • Shareholder access to
nomination• ADR holder voting rights• Withdrawal rights (on
delisting)• Financial reporting (including
ownership structure)• Minority board representation
(cumulative voting)• Enforcement ????
Pyramid
Corporation(profit center)
Public Shs
Public Shs
Public Shs
Holding C
Holding B
Holding A
40% 60%
60%
60%
40%
40%
What is A’s investment compared to public shareholders?
A
End