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

Corporate Governance in Emerging Markets 2 1.Corporate governance in emerging countries 2.Corporate governance in family businesses 3.Case study 4.Some activities in Peru First Corporate Governance contest Corporate Governance Diploma Guidelines for independent directors appointed by pension funds Studies in process Content

Corporate Governance in Emerging Markets 3 From an academic subject to a real concern …

Corporate Governance in Emerging Markets 4 The OCDE, Andean and Peruvian Codes

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

Corporate Governance in 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

Corporate Governance in Emerging Markets 7 Foundational Age Functional Organization Delegation Corporate Organization Leadership crisis Management Independence crisis Control crisis Management and Property together Management and property separated Size Company age Better corporate governance, better path of growth

Corporate Governance in Emerging Markets 8 Better corporate governance, better relationship Family – Shareholders – Directors - Management Better corporate governance, better relationship Family – Shareholders – Directors - Management Shareholders DirectorsManagement Family From personal relationships and informal rules to impersonal relationships and formal rules

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

Corporate Governance in Emerging Markets 10 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 Case study: mining family business - 35 % family - 20 % en Treasury - 20 % floating shares

Corporate Governance in Emerging Markets 11 Challenges ( ) 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 Case Study : mining family business

Corporate Governance in Emerging Markets 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 disappearTo 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

Corporate Governance in Emerging Markets 13 Share price of the mining company at LSE after the reforms one share one vote

Corporate Governance in Emerging Markets 14 Auspician:Asesor Técnico: Some activities in Peru: Corporate governance contest

Corporate Governance in Emerging Markets 15 Shareholders treatment Shareholders meetings Information for shareholders Dividends policies Board policies Independent directors Conflict of interest Committees and auditing Transparency Opportunity Clarity Mechanisms

Corporate Governance in Emerging Markets 16 Management Structure And risk management Social Responsibility Management structure Procedures … Planning and contingencies Relationship with suppliers, clients, Community Relationships with workers Environment policies

Corporate Governance in Emerging Markets 17 Best Annual Report Best governance in privatized company Best information system Deal of the Year

Corporate Governance in Emerging Markets 18 Corporate Governance Training Program

Corporate Governance in Emerging Markets 19 Handbook for independent Directors 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

Corporate Governance in Emerging Markets 20 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) Studies in process

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