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/

This article was written a decade ago and very little has changed

This paper addresses the fact that in today’s evolving corporate governance process that actual performance may well be retarded by the rapid proliferation of intrusive regulatory requirements, zealous enforcement initiatives and the cottage industries that have grown up around them. Rather than address the “emperor’s clothes” phenomenon, such heightened regulatory attention to corporate governance has driven many further away from substantive improvements, largely because management and corporate directors have often responded by becoming more risk averse[1].

The emphasis on quarterly earnings at the expense of long-term growth has garnered significant attention in the last two decades. A new scholarship has arisen which has focussed on the interests of the owners of the corporation which include, depending on one’s point of view, shareholders and other stakeholders. Long term value is readily distinguished from short term returns often generated by managers who are incentivized by the time horizon of their compensation arrangements. In his retrospective on the first decade of what he terms the “global corporate governance revolution”, Stephen Davis recounts the wise comment once made by Harvard University President Larry Summers, that “in the history of the world, no one has ever washed a rented car”. As with corporations themselves, far too much of people’s savings are managed as if rented, rather than owned. Davis observes that, “things go deeply amiss when owner passivity is so chronic”.

See the full paper in: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2583613

Management is fundamentally about making decisions. In organizations, key decisions are often made by groups — boards, senior management teams, finance committees and so on — rather than by single individuals. Thus, an important role of the person leading a decision-making team is to know how to combine multiple opinions — in effect, to become a decision manager. We have found that how a decision is made can significantly affect the outcome of that decision. Hence, the ideas discussed in this article are applicable to any setting in which one has to “decide how to decide.” For the sake of clarity, we illustrate these ideas in the context of boards of directors.

The board of directors is responsible for a company’s most important decisions. In turn, a key responsibility of the chairman is to lead the board so that, collectively, the board can make the best possible decisions for the company. The chairman guides the discussion among the board members and tries to get the most out of their expertise.

Imagine you are the chairman and that, after many hours of discussion about whether or not to acquire a competitor, three members strongly oppose the acquisition, while you, four board members and the CEO support it. You need the board to make a decision now, because if your company doesn’t buy this competitor soon, some other company is likely to do it. How would you combine the opinions of the nine board members to reach the best possible decision?

You have at least three choices.

• You could argue, “This is a make-or-break decision, so we will only pursue it if there’s unanimity.” There isn’t, so you don’t buy the competitor.
• You could argue, “It seems that we have discussed this thoroughly and have a clear majority, so that should be the decision.” With six out of nine board members in favor, you buy.
• You could attempt to delegate the decision to the CEO, arguing, “The CEO and his team have worked for months on this decision; they are the experts. We should not step into their job, so I suggest we trust them.” This, too, would lead to buying the company.

If you want to read the full article:

http://sloanreview.mit.edu/article/when-consensus-hurts-the-company/