Latin American Capital Markets

452 MIKELUBRANOMexico: Push-starting a CodeIn the aftermath of the Mexican banking sector collapse of 1995-96, it was apparentthat the financial system had done little to promote sound corporate governancepractices among securities issuers and borrowers. The evident lack of transparencyand accountability in the corporate sector complicated the process of financial systemresolution, contributing to the more than $ 100 billion cost of the rescue ofMexico's banking system. In late 1999, the Comision Nacional Bancaria y deValores(CNBV), Mexico's banking and securities supervisor launched an initiative to draft acode of best practices for public companies. Mexico's Business Coordinating Council(the umbrella group including most national corporate and financial sector associations)was tapped to coordinate the private sector's contribution to the effort, and itselected well-known academics and representatives of the legal community to participate.Theresult was a set of fairly mild guidelines focusing largely on the quality offinancial information and disclosure and on the composition and functioning of boardsof directors.The code requires the boards of public companies to establish finance,compensation, and audit committees; a majority of directors on the audit committeesmust be independent of management and controllers. From the start of the process,it was expected that public companies would be required to disclose periodically theextent to which their practices were in compliance with the code. Soon after publicationof the code, the CNBV issued a regulation requiring such periodic disclosure.The Mexican approach contrasts importantly with what has occurred in theother large market in the region, Brazil.The Brazilian Code of Best Practice of CorporateGovernance, produced by the Brazilian Institute of Corporate Governance,was instigated and produced by a strictly private entity. 18 Its aim is to set higher standardsto which it encourages private companies to aspire. Independently, Brazil'ssecurities regulator has issued the significantly more modest Recommendations forCorporate Governance, with which, as in Mexico, companies are required to complyor disclose. 19Prospects for Effectiveness and EnforcementWhat is the significance of a voluntary code that is issued, for all intents and purposes,by the regulator? Should such a code be regarded as a legal prescription to be en-18 See www.cvm.gov.brCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub19 See www.cvm.gov.br