Main Board Issues in Chile

1
Main Board Issues in Chile

• Ricardo Escobar C.
• Carey Cía. Ltda.

2
Recent Changes

• Corporations Law
• Securities Law
• Pension Funds Law

• Tender offers
• Related party transactions
• Procedures to demand compensations
• Election of directors
• Audit committee

3
Board Issues

• I. Management of the corporation
• II. Directors Committee (audit committee)
• III. New circumstances, conclusions and
  predictions

4
I. Management Powers

• Management and representation of the company
• Based on
• Appointment and removal of directors by
  shareholders
• Directors act for the sole interest of the company

5
Appointment and Removal

• Concentrated ownership
• Number of Board members
• The role of Pension Funds (AFPs)
• Share value
• Voting power

6
AFPs Investment Restrictions

• No single shareholder owns more than 65
• Minority shareholders must own 10 at least
• 15 of voting shares must be owned by at least
  100 unrelated shareholders, with a US 2500
  investment each

7
AFPs Voting Restrictions

• AFPs cannot vote for candidates to the Board who
• Are controlling shareholders or related to the
  controlling shareholder
• Are shareholders (or related to) owning 10 or
  more of the company
• Directors of the AFP or related to the AFP Group

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Acting Only for the Company

• Majority of the Board is related to the
  controlling shareholder
• Areas of risk related party transactions and
  insider trading
• Solution Strengthening of legal procedures to
  demand compensation for shareholders and the
  company itself

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II. Directors Committee

• Mandatory in companies worth at least US 38 MN
  (30 to 40 corporations in 2001)
• Seven members Board
• Three Directors, two must be independent
• Supervise executive management, the Board,
  auditors, rating agencies, etc.

10
Committees Practical Issues

• Shortage of independent directors
• Elected without controlling shareholder votes
• Unrelated to the controller
• Budget and remuneration
• Approved at the annual shareholders meeting
• Examples CCU US 25.000 annual budget
• Telefonica US 770 monthly fee

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Practical Effects

• No public denounces in 2001
• Enactment effect
• The AFPs Director
• Monthly meeting, minutes, public access
• So, it may be working

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III. What can be Expected?

• Professional independent directors
• Fewer cases of controlling shareholders and
  related party abuses
• The Enron effect
• Auditors selection
• Audit procedures
• Larger budget for the Directors Committee

13
Chile, a corporate paradise?
Not quite, yet.
14
Some Negative Elements

• Still a too small capital market
• More listed corporations
• More investors
• The Code of Sound Corporate Practices
• Nice start
• Cold present

15
We will see how it goes, in Santiago next year