Corporate governance in Latin America: the relevance of OECD principles for the board's integrity and directors' independence

Abstract

Boards of directors are characterized as important elements for good corporate governance. In this regard, the present study aims to associate governance practices of Latin American companies to the principles recommended by the Organization for Economic Cooperation and Development, OECD, for that region (Brazil, Argentina, Mexico and Chile). Among the seven principles recommended for Latin America, this work focused only on the fifth principle, which addresses the "Responsibilities of the Board" and, more specifically, the recommendations concerning the "Board's Integrity and Directors' Independence". The main objective is to evaluate companies' attitudes in relation to managers' responsibilities and supervision as a way to ensure control and the results expected by shareholders. To that end, a questionnaire expressing the major OECD governance recommendations for Latin America was designed and confronted with the laws of those four countries and the corporate practices of the companies in the sample, in order to identify additional procedures in relation to those required by legislation. Results showed that Mexico is the country with the highest rates of compliance with OECD recommendations, followed by Brazil, Argentina and Chile. In general, the major weak points are the absence of specific committees composed of at least a majority of independent directors and the prohibition of practices like previous meetings or voting instructions by shareholders to directors.