Governance lag

Corporate governance in Latin America is improving, slowly.

Latin American corporations lag behind their European and US counterparts in corporate governance and board transparency. The 2020 Annual State of Corporate Governance in Latin America showed that 34.7% of the boards of the 139 companies analysed in the region showed a low level of independence, 11.9 percentage points from global standards.

A seasoned non-executive director in Peru commented, “Boards in the region have been modernised and professionalised but there is still work to do. The need for independent directors is becoming more accepted, even in unlisted companies, but the role of the board is still being confused with the role of the shareholder.”

“Boards in the region have been modernised and professionalised but there is still work to do.”

Seasoned non-executive director, Peru

The resulting economic hardships caused by the pandemic have posed new challenges to the board of companies which need to be more transparent in the disclosure of financial results, risk mitigation practices, resource placing and sustainability policies. The CEO of a large, family-owned business in Chile commented, “Technology is helping all companies to provide more timely information to their boards and shareholders. The area that needs to be improved is strategy, there is a tendency for board meetings to become informative rather than strategic.”

An investor representative on the board of a Brazilian company agreed, “Several of the boards I sit on have become a kind of expansion of the management team, and these board meetings are just informative. There is a lot of room for improvement here. I would also like to see ESG issues rising up the agenda of boards in Latin America.”

“Several of the boards I sit on have become a kind of expansion of the management team, and these board meetings are just informative.”

Investor board representative, Brazil

Boards of family-owned businesses in the region are more complicated as family members tend to be involved in the management, oversight and ownership of the company, with a tendency to duplicate roles and hold information that other board members lack. However, as corporate regulations increasingly demand greater transparency, institutional investors require better standards of corporate governance from boards to allow them to continue as shareholders.

These measures should include regular renewal of directors, the appointment of more independent board members and better due diligence on directors to avoid conflicts of interest. At an operational level, corporations would benefit from a greater level of transparency if the boards established specific performance goals, decision-making structures, and regulatory compliance guidelines, reported Deloitte Colombia in its April 2021 New Corporate Governance practices report.

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