Mike Lubrano International Finance Corporation April 8, 2002 A Review of Corporate Governance Initiatives in Latin America (1998-2002) Mike Lubrano International Finance Corporation April 8, 2002

Committing to Good Governance Rules and Enforcement Mechanisms     Private Quasi Private/ Public  Ex Ante (establishing the rules) Contract Voluntary Standards Law/ Regulation Ex Post (enforcement) Arbitration Special Arbitral Bodies Judicial  

Colors of the Spectrum – From Public to Private (and Mixed) Legal Reforms (Chile, Brazil, Mexico, Argentina) Legal Investment Regimes (Chile, Brazil, Colombia) Stock Exchange Listing Rules (Bovespa) “Voluntary” Codes of Best Practice (Mexico, more in the works) Ratings (Voluntary and Comparative) Ad Hoc Contracting (Tag-along; Non-voting Shares) Basically, this presentation sets out what I hope is a useful typology.

Legal Reforms Response to Scandal; Crisis Made CG a Permanent Part of Development Agenda (Capital Markets; Competitiveness) Battle Lines Drawn (Good, Bad, Ugly) Considerable Political Capital Expended “One-Size-Fits-All” Problem Results – No Panacea; Compromise; Raised the Floor

Legal Investment Regimes Reflect Growing Importance of Pension Regime Use of Regulatory Authority (Prudential Norms) Normative (Chile, Brazil) vs. Disclosure (Colombia) Focus on Access to Capital Results: Still Early; Companies Forced to Consider Future Financing Sources; Highlights Need for Greater Engagement by Fund Managers; Care Required – Potential for Distortions

Listing Rules Born of Dramatic Contraction of Markets Reflect New Focus on Quality vs. Quantity of Issuers Unavoidable Conflict with Some Issuers Requires Consensus on Objectively-Determinable Shortcomings in Law/Practice Novo Mercado Represents a Solution to “One-Size-Fits-All” Problem Results: Exchanges Clearly in the Game (Sometimes Innovators); Provides Companies with a Means to Communicate Their Good CG to Investors; Impact on IPO Market, Public Expectations; Element in Development of Regional Mid-Cap Market? This was easiest in Brazil because components were those that failed to be included in the legal reform

Codes of Best Practices Public/Private (Mexico) or Private (Brazil) Standard-Setting Initiatives Disclosure Requirements for Listed Companies (Mexico) Drafting Process Can Serve Educational, Engagement Goals (Direct Involvement of CEOs) Results: Important First Step in Developing Sustainable Culture of CG for Both Public and Private Companies; Require Institutionalization with Multi-Sector Involvement (Institutes of Directors/Corporate Governance)

Ratings Response to Perceived Demand for Independent CG Analysis of Companies Commercial, Non-Profit (Code-based), Journalists Commercial CG Rating Services Still in Search of a Viable Business Model Who pays? Voluntary or Involuntary? Intensive or Extensive? National or Global? Is There a Market for “Free-Standing” CG Analysis? Of course, CG is (or should be) an integral element of debt rating carried on by established agencies.

Ad Hoc Contracting Always Present / Always Will Be Usually Primary-Market Driven Focus on Objectively-Determinable Issues: Tag-Along; Minority Rights; Conflicts of Interest; De-listing, Squeeze-Out Importance for Policy Makers: Revealed Preference (What Do Investors Really Want, What Will They Pay?); Set Precedents for More Institutionalized Responses (Code Content; Listing Rules, etc.) Focuses on the Primary Market, when Investors have the greatest influence

Gracias / Obrigado / Thanks Mike Lubrano International Finance Corporation Latin America Corporate Governance Roundtable Third Meeting Mexico, DF April 8, 2002