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Corporate Governance
Academic literature focuses on the direct relationship between economic growth, the development of financial markets and, the more transparent and accountable, corporate governance which recognizes that it is to the best interest of a corporation to respect the rights and interests of its shareholders. Higher standards of corporate governance are also good growth predictors of the value of a company and the increase of dividend payments. They can also predict surges in stock exchange openings and more cost-efficient capital markets.
The main objective of corporate governance is based on the decision of regulating all relationships within a corporation. In fact, it focuses on increasing the information that corporations must provide to their shareholders and the regulators in charge of monitoring them. Furthermore, it aims to ensure adequate oversight of the market which allows for more fluid operations, and directs and controls corporations in order to ensure their transparency and demonstrate how boards of directors manage company assets. It also provides conflict solution tools when interests collide among stakeholders and protects all shareholders’ interests. However, corporate governance gives special consideration to the interests of minority shareholders, which prevents majority shareholders from taking opportunistic control over a corporation’s assets at the expense of its general investors. This situation tends to occur when a corporation is controlled by a single majority shareholder, a family or an economic group. Conflict also tends to arise between administrators in charge of management and investors, who own corporate assets. On one hand investors need the specialized human capital possessed by administrators to obtain revenue while the latter needs the resources of investors in order to materialize their projects.
Even though Chile has been a prime example in areas such as corporate management and corporate law in South America, international practices on matters such as these are continuously evolving. Since Chile is completely active in the international economic community, it has been essential for its legislation to adapt to new international standards regarding corporate governance. This was rendered concrete through “Law 20.382” which seeks to elevate Chile’s Corporate Governance to meet the highest of international standards. To achieve this, a number of modifications were made to the Securities Market Act, Corporate Law and the Commercial Code. These modifications are focused on increasing the information which corporations must deliver to both, their own shareholders, and to the regulator in charge of supervising them. Among these modifications include: ensuring adequate oversight of markets that allow for more fluid operations; modifying the legal presumptions of access to privileged information; protecting minority shareholders by increasing their control, which as a result, reduces the asymmetry in system information management through improved communication and informative transparency; and specifying the responsibilities of the board of directors by promoting the designation of independent directors and an increased demand in finalizing transactions with related parties. The objective of this is to raise market transparency levels, as well as, investors’ trust. Overall, this law aims to improve companies’ trust, investment, financing and value with the objectives of improving performance and moving towards a more modern and globalized economy.
There are many tasks and challenges this country has to face in regards to corporate governance, especially in matters relating to information asymmetry, on how company boards are directed, the treatment of shareholders (both minority and majority), and inner control systems, among others. These matters are not solely resolved through a legal framework, but through cultural changes in a corporation’s inner practices.
María Fernanda Russi
Associate, Bussines Group