Advances and Trends in Chilean Boards

Transcripción

1 Advances and Trends in Chilean Boards Dieter Linneberg A. Executive Director Centro de Gobierno Corporativo y Mercado de Capitales Universidad de Chile

2 Context A study conducted by the center of corporate governance and capital markets, based on responses of board members of the most important Chilean companies (market cap over 70% of IPSA Index), has found important results on the status of corporate governance in Chilean Companies. This study includes results about the board structure and functioning, principles and practices of corporate governance and risk management among others. This presentation focuses on the strengths and weaknesses of corporate governance. It also presents suggestions to improve corporate governance in Chilean companies.

3 Strengths of Corporate Governance in Chilean Companies Is There a Best Practices Code Functioning in the Company? No 26% Yes 74% Does the Company have Policies to Protect Minority Shareholders? No 28% Yes 72% Are any Board Members also Executive? No 82% Yes 18% 74% of Chilean companies has a functioning best practices code on corporate governance. 82% of the executives are not members of the Board 72% has policies to protect minority shareholders (e.g. tag along rights, disclosure policy for stakeholders, etc)

4 Strengths of Corporate Governance in Chilean Companies Improves Company's Corporate Image Allows to Separate Family Issues from Society Issues Ensures BMetter Representativity of Minority Shareholders Reduces Risk of Conflicts Between Board Members and Executive Management Benefits of Corporate Governance Improves Company Management Improves Transparency Reduces Risk of Company Conflicts Attends Legal and Regulatory Requirements in a Better Way Allows Better Alignment Between Shareholders and Executives Facilitates Access to Capital Ensures Survival of the Company Facilitates Succesion Process Reduces Capital Costs 68% 68% 64% 62% 62% 77% 75% 72% 95% 89% 86% 82% 82% Wide support among Chilean board members on benefits of corporate governance. There is awareness in the boards of the benefits of corporate governance

5 Weaknesses of Corporate Governance in Chilean Companies Existence of Board's Committees Board Committe Audit Committe Finance Committe 33% Risk Committe 21% Strategy Committe 21% Human Resources Committe 19% Ethics Committe 10% 52% 75% Committees still developing. 75% of the companies have a Board Committee, but this committee is mandatory for public firms. Succession Committe 4% Only one 16% Women in The Board Two or More 8% No Women on the Board 76% There is room for improvement in diversity within the board. 76% of the boards do not count on female presence.

6 Weaknesses of Corporate Governance in Chilean Companies Board Assessment Board Remuneration 3% 3% 3% 360º Assessment Fix 72% 14% External Evaluators Linked to presence in meetings 31% Other Linked to company's short term results 26% Self Assessment Linked to company's long term results 8% 77% There is no formal mechanism Other Linked to board assesment 2% 8% In 77% of the boards there is no formal mechanism of board assessment. In only 8% of the firms, the remuneration of the board is linked to long term results.

7 Board Responsibilities Responsabilidades del Directorio Tomar decisiones de importancia estratégica Definir directrices y validar la estrategia de la empresa Monitorear los principales riesgos del negocio y definir su gestión Monitorear el desempeño de los negocios y la salud financiera de la empresa Garantizar que los patrones de conducta, políticas internas y las exigencias legales sean Representar fielmente las creencias y propósitos de los accionistas Evaluar el desempeño de los miembros de la Plana Ejecutiva Top responsibilities are related to company s strategy. Monitoring and control are the other important responsibilities. Definir y monitorear la estructura de capital 4.0 Aprobar las indicaciones de los miembros de la Plana Ejecutiva 3.9

8 Main Issues in Board Meeting Principales temas en la reunión de Directorio Desempeño del negocio Metas de la empresa Portfolio de negocios, inversiones y desinversiones The main subjects are related to short term performance. Company s strategy is in 4th place Estrategia de la empresa Discusiones sobre los principales riesgos del negocio Estructura de capital / Pasivos Auditoría independiente Buenas prácticas corporativas Política de gestión de conflicto de intereses Política de divulgación de informaciones Evaluación de los ejecutivos de la empresa This shows a contradiction with board responsibilities, where the strategy was the most important.

9 Board qualities Cualidades de un Director Integridad personal Visión estratégica y de largo 4.6 Motivación 4.5 Sentido Crítico 4.4 Apertura a nuevas ideas 4.3 Independencia/ausencia de 4.3 Entender estados financieros y 4.3 Conocimiento de buenas 4.1 Visión externa del mercado 4.0 Disponibilidad de tiempo 4.0 Experiencia como alto ejecutivo 3.9 Conocimiento de la empresa 3.8 Conocimiento de las 3.7 Conocimiento de la industria 3.7 Liderazgo 3.6 Experiencia internacional e In board members opinion, personal qualities are more important than knowledge about the company or industry. Personal integrity, having a strategic vision and motivation are the three most important.

10 Risk Management Does the Company Has a Explict Risk Policy? NS/NR 11% No 34% NS/NR 14% No 32% Yes 55% Does the company has an specialized area in charge of risks? Yes 54% 69% of the board members surveyed find risk management important or very important. 55% of Chilean companies have an explicit risk policy and 54% has a specialized risk management area. These results don t reflect the importance that the board assigns to Risk Management

11 Weaknesses of Corporate Governance in Chilean Companies Board Assessment Board Remuneration 3% 3% 3% 360º Assessment Fix 72% 14% External Evaluators Linked to presence in meetings 31% Other Linked to company's short term results 26% Self Assessment Linked to company's long term results 8% 77% There is no formal mechanism Other Linked to board assesment 2% 8% In 77% of the boards there is no formal mechanism of board assessment. In only 8% of the firms, the remuneration of the board is linked to long term results.

12 Suggestions to Improve Corporate Governance Practices in Chilean Companies Promote the creation of committees. This will help the board to make better and more informed decisions. It will make board members more expert about important subjects to the company. Encourage boards to perform assessments. This can help to identify strengths and weaknesses to improve management of the company. Finally, to provide the right incentives to create value from the board. These incentives should refer to short and long term, looking to increase the value of the company without compromising the future.

13 Advances and Trends in Chilean Boards Dieter Linneberg A. Executive Director Centro de Gobierno Corporativo y Mercado de Capitales Universidad de Chile