1. Corporate Governance in Venezuela Elena Monecke Fernando Pazmino Dr. Christine Zöllner MiBA WiSe 2012/13 December 17th 2012

2. Agenda 1.Economic and political background 2.Corporate governance in Venezuela 3.Firm ownership structure and control 4.Key players in corporate governance in Venezuela 5.Regulations and Guidelines 6.Practical example: PDVSA 7.Recommendations & Conclusion 8.References

3. 1. Economic and political background  “Paternalistic State”  Instability  High corruption index  Nationalization and expropriation of companies  High state intervention in the economy

4. 2. Corporate Governance in Venezuela  Low score in terms of investors protection  Inter-firm governance variation is large  Misunderstanding CG

5. 3. Firm ownership structure and control 1.Family owned enterprises  SME’s:  Large majority of companies  Protocols  Succession issues  Financing  Large FOE 2.State owned enterprises 3.Listed companies

6. 4. Key players in CG in Venezuela Local Players:  National Securities Commission (CNV)  National Network of Competitiveness (CONAPRI)  Venezuelan Confederation of Industries (CONINDUSTRIA)  Venezuelan Executive Association (AVE) Regional Players:  Andean Development Corporation (CAF)  Inter-American Development Bank  Organization for Economic Co-operation and Development (OECD)

7. 5. Regulations and Guidelines Regulation issued by the National Securities Commission:  The board of directors of entities, which stocks are traded in the national stock exchanges should be formed by at least 1/5 of independent directors  The following are not considered independent directors:  Executives or managers that have an active position in that company and/or another company that directly or indirectly controls the majority of shares and/or has effective control of the previous company  Any person that has received monetary remuneration in the previous fiscal year from a company that directly or indirectly controls the majority of shares or has effective control of the previous company  The company must publish the respective CVs for each board member  Entities which stocks are traded in the national stock exchanges must have an “Audit Committee” integrated mostly by independent directors

8. 5. Regulations and Guidelines Latin American Roundtable on Corporate Governance:  Non-binding guidelines  Forum issuing a “White Paper on Corporate Governance in Latin America”  Effective framework for ongoing policy dialogue and a multilateral exchange of experiences  Brings together: Policy makers, regulators, business leaders, investors, labor organizations, experts from the region  Receives financial support from the “Global Corporate Governance Forum”

9. 5. Regulations and Guidelines Reform Priorities: 1.Taking voting rights seriously 2.Treating shareholders fairly during changes in corporate control and de-listings 3.Ensuring the integrity of financial reporting and improving the disclosure of related party transaction 4.Developing effective boards of directors 5.Improving the quality, effectiveness and predictability of the legal and regulatory framework 6.Continuing regional cooperation

10. 5. Regulations and Guidelines Importance for family owned enterprises in Venezuela to adopt CG practices: 1.Managing Growth 2.Succession Planning 3.Preserving Family Harmony 4.Recruitment and Promotion 5.Ensuring Fairness

11. 5. Regulations and Guidelines OECD Guidelines on CG of State-Owned Enterprises: 1.Ensuring an Effective Legal and Regulatory Framework for State-Owned Enterprises 2.The State Acting as an Owner 3.Equitable Treatment of Shareholders 4.Relations with Stakeholders 5.Transparency and Disclosure 6.The Responsibilities of the Boards of State-Owned Enterprises

12. 6. Practical Example: PDVSA  Government has transformed PDVSA corporate management from private-oriented professionals into pro-Chavez political appointees  President of PDVSA, is also the Minister of Energy and Oil  External Director of PDVSA, is also de Vice-Minister of Hydrocarbons  Corporate Disclosure: Generally reduced flow of information, with some recent disclosures  In 2006, PDVSA purchased $83 Mio U.S. bonds so that it could stop reporting to the SEC  Company issued internally-checked financial data in early 2007

13. 6. Practical Example: PDVSA  Transparency within PDVSA has significantly diminished  Combination of pro-government corporate management and limited disclosures is giving the company trouble financing itself in the capital market, even though it is one of the biggest oil companies in the world located in one of the top ten oil producer nations.

14. 7. Recommendations & Conclusion 1.Introduce CG in non-listed companies 2.Positive results when adopting CG practices 3.Adapt CG according to region considering their particular characteristics 4.Better corporate governance practices are positively related to ‘firm valuation’ in Venezuela 5.CG even more important in political instable countries

15. 8. References  Aguilera, R., 2008, A comparative analysis of corporate governance systems in Latin America: Argentina, Brazil, Chile, Colombia and Venezuela, University of Illinois at Champaign-Urbana, Available at:, Accessed 10.12.2012http://ssrn.com/abstract=1147749  Corporate Governance for Family Businesses, HAWKAMAH: The Institute of Corporate Governance, Available at:, Accessed 11.12.2012http://www.hawkamah.org/sectors/family_owned_enterprises/files/CG_for-FamilyBusinesses-Leaflet_DRAFT.pdf  Garay, U. and Gonzalez M., 2008, Corporate Governance and Firm Value: The Case of Venezuela, Blackwell Publishing Ltd, [journal compilation], Available at:, Accessed 09.12.2012http://www.iesa.edu.ve/informe_gestion/Corporate%20Governance%20and%20Firm%20Value%20The%20Case%20of%2 0Venezuela_Ur.pdf  Gathmann, S., 2005, Venezuela: Promoting a national agenda based on ethics, transparency and accountability, OECD, [online], Available at:, Accessed 13.12.2012http://www.keepeek.com/Digital-Asset-Management/oecd/governance/corporate-governance-of- non-listed-companies-in-emerging-markets/venezuela_9789264035744-17-en  Hults, D., 2007, Petroleos de Venezuela S.A. (PDVSA), Stanford University, Available at:, Accessed 14.12.2012http://pesd.stanford.edu/  OECD Guidelines on CG of State-Owned Enterprises, 2005, OECD, Available at: http://www.oecd.org/corporate/corporateaffairs/corporategovernanceofstate-ownedenterprises/34803211.pdf>, Accessed 05.12.2012 http://www.oecd.org/corporate/corporateaffairs/corporategovernanceofstate-ownedenterprises/34803211.pdf  SODALI and GOVERNANCE CONSULTANTS S.A., 2012, White Paper the importance of corporate governance in state owned enterprises-SOEs, CAF, Available at:, Accessed 16.12.2012http://gc.caf.com/upload/pubs/White%20Paper%20Corporate%20Governance%20(english).pdf  Venezuelan official gazette, 2005, Available at:, Accessed 05.12.2012www.tsj.gov.ve  White Paper on Corporate Governance in Latin America, 2003, OECD, Available at:, Accessed 14.12.2012http://www.ecgi.org/codes/documents/latin_america_en.pdf

16. Thank you for your attention!