Board Evolution in Latin America

Latin America is often treated as a homogeneous region with a common language, history or culture, but in fact it is a very diverse realm. While it would be futile to attempt a rigorous description of ‘Latin American Board Practices’, we can take a modest ‘10,000 feet view’ to describe the broader issues affecting the corporate governance in the region.

Listed corporations in Latin America, with very rare exceptions, are largely dominated by the figure of a controlling shareholder (CS). They are either family-controlled business groups, multinational corporations or the State. Besides preferred series, these CSs own in fact more than 50 per cent of the common stock. Even figures of 70 per cent or 80 per cent are not rare.

Board composition and processes are largely a direct reflection of this ownership structure. The ‘disciplining’ threat of a hostile takeover is just science fiction here.

The majority of the board is elected by the CS, including family members, executives of the business group or, in the case of State controlled firms, government officers or political figures of the ruling parties. These boards, typically 9-11 members in size, will also have one or two directors voted by minority shareholders. Chairman of the board will generally be appointed directly by the CS (if not appointing him/herself).

In general, chairman and CEO will be two distinct individuals. In fact, in many countries of the region, the law prohibits CEOs to be members of the board. Here the hire/fire and compensation of CEOs will almost invariably be at the discretion of the controlling shareholder. The latter will usually get involved in the most important management decisions and secure a perfect alignment with the CEO and his/her team. The theoretical agent-owner challenges of other latitudes will not apply here.

For the full article and the changes ocurring in Latin America see:

http://ethicalboardroom.com/leadership/board-effectiveness/board-evolution-latin-america/