CORPORATE GOVERNANCE

Although it is common to hear the term “Corporate Governance” when providing suggestions to shareholders on how to improve the legal corporate policies and bylaws of the company, the concept Corporate Governance is not always well understood.

By Corporate Governance we refer to the set of principles and norms that regulates the organization, integration and functioning of the different decision-making bodies of a company, these being:

• The shareholders
• The Managing Board
• The Supervisory Board

Good Corporate Governance will contribute to obtain the following objectives:

• It provides the necessary incentives to protect the interests of the company and the shareholders.
• It protects the interests of stakeholders and ensures commitment, efficiency and transparency.
• This set of premises stimulates company investment which is why the concept of Corporate Governance has such an important relevance.

PRINCIPLES OF CORPORATE GOVERNANCE

The Organization for Economic Co-operation and Development (OECD) has issued the Principles of Corporate Governance to provide guidance for corporate governance in public enterprises mainly.

These principles offer a framework for forming and implementing good corporate governance through which the company may obtain different benefits, including amongst others:

• Strengthen trust on behalf of the shareholders.
• Equitable treatment of shareholders.
• Attract investments which may in turn increase the value of the shares.
• Obtain maximum gain of human capital.
• Stability and sustainability in the organization.
• Transparency in the decisions of the Board of Directors.
• Clear definitions of faculties and responsibilities.
• Obtain legal corporate principles which distinguish the company from competitors.
• Fraud prevention.

In Mexico the Coordinating Council for Companies (CCE – Consejo Coordinador Empresarial) has issued a Code for Improved Corporate Practices that provides recommendations for better corporate governance in Mexican companies.

The principles of this Code are focused on establishing better corporate practices in order to contribute to a better integration and operation of the Managing Board and its intermediate assisting organs and can be applied to all private and public companies in general.

As an example we’d like to outline the salient features of a shareholders’ meeting:

• The agenda should be clear and precise, avoiding ambiguous language so as to clearly articulate the points to discuss.
• The shareholders must be notified at least 15 days prior to the meeting and the notification must include:

-         The profile and curriculum of the candidate directors and/or office-holders

-         The annual financial report

-         Information relevant to the points on the agenda.

As to the Managing Board, the aforementioned Code suggests to include beside the obligations established by law, the following responsibilities:

• To monitor the company’s operations
• To guarantee an equitable treatment of shareholders and protect their interests
• To promote communication and improve the quality of the information
• To appoint the General Director and office-holders
• To ensure that the company has the necessary mechanisms to check that the different legal and tax dispositions are being fulfilled
• To assure investors and stakeholders of the honest and responsible management of the company.

It is therefore suggested that the Managing Board be composed by between 3 to 15 members and it is recommended to include independent members.

It is also recommended that:

• The Board meets for session at least 4 times a year.
• Its functioning does not depend on one person only.
• The board members receive the necessary information to make decisions during sessions.
• The company provides a regulatory frame for board members to act, defining for example: notifications in case of a conflict of interests, use of the company’s assets, professional commitment, labor policies, etc.

As to the Commissary of the company, it is suggested that the office of Commissary and of External Auditor be fulfilled by different individuals even if they do realize similar operations so as to avoid a conflict of interests. It is therefore recommended that the person who signs the auditor’s report on the annual financial situation be different from the person who fulfills the office of Commissary, although both individuals can be partners and collaborate in the same company.

From the above we can conclude that having good Corporate Governance may help us to establish a notable difference as to our competitors, improving our market position and creating trust in our shareholders and future investors.

 
Rivadeneyra, Treviño & de Campo, S.C.