Latin American Capital Markets

CORPORATE GOVERNANCE AND CAPITAL MARKET DEVELOPMENT 457suits from the initiatives in Brazil, Colombia, and elsewhere would seem to indicatethat there is likely to be space in Latin America and other emerging markets for combinationsof legal reforms, strictly voluntary initiatives, and intermediate forms of quasiprivatelegal rules enforceable by private means (such as special listing segments, ratings,other types of benchmarking, and investment disclosure regimes). Indeed, someof the most effective mechanisms may be found in these intermediate forms.Key market characteristics that almost certainly affect the trajectory of publicand private corporate governance initiatives and their prospects for effectivenessinclude:• Relative adequacy of existing practices. Are the salient problems relatively objectivelydeterminable (such as a lack of tag-along rights, too many nonvotingshares, application of substandard accounting rules, and uncertain rules forprotection of minority shareholders in delistings) or subtle (poor audit quality;lackluster boards; and managers, boards, regulators, and investors in conflict)?• Number, size, and industry of public issuers. Is there a club atmosphere amongcontrolling shareholders and corporate executives, or are there multiple centersof entrepreneurship, competing aggressively in the financial markets (andperhaps in the political sphere as well)?• Number, size, and nature of principal investor groups (institutional, pension, andinternational groups). How well are the investors governed? Are there distortionsin their incentives or conflicts of interest that limit the extent towhich they are profit maximizers?• Resources of the enforcement mechanisms (courts, regulators, and existing alternativedispute resolution). What enforcement agents are realistically in thebest position to see that the parties perform according to their contracts,observe standards, and comply with regulations?Markets are idiosyncratic. Indeed, the importance (and even the presence) ofthe economic actors involved in public debate over reforms and private initiatives isa function of the characteristics of the market. In the interest of encouraging furtherexamination, analysis, and debate among policymakers and practitioners, some tentativeobservations are offered:• The most effective initiatives in the short-to-medium term will probably beprivate voluntary efforts that build on the limited legal reform efforts alreadyundertaken.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub