Global Policy Forum

Corporate Governance a State of Mind

World Economic Forum
February 27, 2001

At the World Economic Forum's Mexico Meeting 2001 in Cancun, 495 participants from 22 countries gathered for a second day to discuss the pressing issues facing the country following Vicente Fox's recent election to the presidency of Mexico. "Corporate Governance is a state of mind," claimed Georges Ugeux, Group Executive Vice-President of the New York Stock Exchange, during the early session on corporate governance, setting the tone of the discussion. "The four main factors that determine investors' effective rights (besides their nominal rights) are the legal system, accounting practices, the prevailing business culture and the country's institutions," stated Rogelio Ramí­rez de la O, President of Ecanal, Mexico. He described the current obstacles to a more effective and efficient system of corporate governance, and suggested some key steps that need to be taken. Among these, he mentioned reviewing existing laws, modernizing standards, providing more information to shareholders, enforcing existing regulations, promoting best practices and disseminating successful cases that serve as motivating examples.

Among the most renowned of such examples of innovation and leadership in the field is TV Azteca, which won the Best Corporate Governance Award of the US last year. Its Chairman, President and Chief Executive Officer, Ricardo B. Salinas-Pliego, described how the company had gone far beyond what legal and stock exchange requirements demanded to produce an institutional arrangement that gave significant representation to outside investors and independent board members. Downplaying the role of regulations, he argued for voluntary mechanisms that respond, more and more these days, to very demanding market incentives. He summed up by saying that the "strong competition for capital is shaping the behaviour of firms."

A similar perspective was offered by John Barham, Editor, Latin Finance, USA, who explained how the change in the balance of power between firms and markets, in favour of the latter, is having a transforming impact on corporate governance. Two trends are clearly evident: firms' needs for larger volumes of capital, at better rates than they can get in their home markets (thus having to go to international markets), and the dramatic increase in the size and resources of foreign institutional investors, which now impose tougher terms for their engagement. Combining these forces leads Latin American enterprises that seek capital (both equity and debt) to improve their corporate governance in order to comply with the higher standards of transparency, accountability and independence.

Everardo Elizondo, Deputy Governor of the Central Bank of Mexico, shared with participants the results of a survey on corporate governance that pinpointed three of the major challenges that Mexican companies need to address: protection of minority shareholders, the lack of clear and sufficient information, and an insufficient number of independent directors on their boards. He argued that these traits of Mexican corporate governance are conditioning the flow of investment, which is lower than it would otherwise be, thus becoming a factor hindering economic development. At the same time, he noted that there have been improvements in the past few years, particularly as more Mexican companies engage in relationships with US partners who demand better practices in this arena.

In summing up, "Management should not consider corporate governance as a straightjacket, but rather as a means to lower its cost of capital," stated Frédéric Sicre, Managing Director of the Centre for Regional Strategies at the World Economic Forum. He outlined the World Economic Forum's initiative to promote better corporate governance, with an approach that goes beyond the current discussion in the field. He described the project's characteristics, and the pilot case in Russia, indicating the use of a code of conduct, increased transparency and incentive systems to foster better corporate behaviour on behalf of firms.


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