Latin American Capital Markets

442 MIKE LUBRANOBox 14-1 IFunctions of the Board of DirectorsThe OECD principles highlight some key functions that the board should perform, including:• Treating all stakeholders fairly• Reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets, andbusiness plans; setting performance objectives; monitoring implementation and corporateperformance; overseeing major capital expenditures, acquisitions, and divestitures; ensuringcompliance with applicable law; taking into account the interests of shareholders; selecting,compensating, monitoring, and, when necessary, replacing key executives; and overseeing successionplanning• Reviewing remuneration for key executives and boards and ensuring a formal and transparentboard nomination process• Monitoring and managing potential conflicts of interest of management, board members, andshareholders, including misuse of corporate assets and abuse in related-party transactions• Ensuring the integrity of the corporation's accounting and financial reporting systems, includingthe independent audit, and seeing that appropriate systems of control are in place, in particularsystems for monitoring risk, financial control, and compliance with the law• Monitoring the effectiveness of the governance practices under which the board operates andmaking changes as needed• Overseeing the process of disclosure and communications.tional legislatures to remain quiescent. In the past five years, OECD countries andemerging markets have undertaken numerous reforms of company law and capitalmarket legislation. 3 In Latin America, high-profile amendments to the legal and regulatoryframework have become law in the four major markets: Argentina, Brazil, Chile,and Mexico. 4 Similar legislation was introduced in Colombia in 2002.Scandals, the Impetus for ReformsThe reforms of Latin American company and securities laws were typically conceivedin the aftermath (or sometimes during the course) of scandals in public securities3 U.S. President Bush signed the Sarbanes-Oxley Act of 2002 on July 30, 2002 (Pub 6. No 107-204, 116 Start. 745[2002]). Sarbanes-Oxley introduced sweeping changes in the requirements for corporate governance of public companieslisted in the United States.4 In Chile, December 2000 (mandatory tender offers, pension fund-nominated directors, class actions, special proceduresand board committees for transactions with affiliates, and director responsibility); Argentina, June 2001 (mandatorytender offers, audit committees, and shareholder rights); Mexico, June 2001 (nonvoting shares, independent directors,and code compliance disclosure); Brazil, November 2001 (mandatory tender offers, accounting standards,board representation for minority voting and nonvoting shareholders, voting procedures, and legal authorization forarbitration).Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub