Advances and Trends in Chilean Boards

Dieter Linneberg A.Executive Director

Centro de Gobierno Corporativo y Mercado de Capitales

Universidad de Chile

Context

A study conducted by the center of corporate governanceand capital markets, based on responses of boardmembers of the most important Chilean companies(market cap over 70% of IPSA Index), has found importantresults on the status of corporate governance in ChileanCompanies.

This study includes results about the board structure andfunctioning, principles and practices of corporategovernance and risk management among others.

This presentation focuses on the strengths and weaknessesof corporate governance. It also presents suggestions toimprove corporate governance in Chilean companies.

Strengths of Corporate Governance in Chilean Companies

74% of Chilean companies has a functioning best practices code on corporate governance.

82% of the executives are not members of the Board

72% has policies to protect minority shareholders (e.g. tag along rights, disclosure policy for stakeholders, etc)

Yes

74%

No

26%

Is There a Best Practices Code

Functioning in the Company?

Yes

72%

No

28%

Does the Company have

Policies to Protect Minority

Shareholders?

Yes

18%

No

82%

Are any Board Members also

Executive?

Strengths of Corporate Governance in Chilean Companies

Wide support among Chilean board members on benefits of corporate governance.

There is awareness in the boards of the benefits of corporate governance

62%

62%

64%

68%

68%

72%

75%

77%

82%

82%

86%

89%

95%

Reduces Capital Costs

Facilitates Succesion Process

Reduces Risk of Conflicts Between Board Members and Executive Management

Ensures Survival of the Company

Ensures BMetter Representativity of Minority Shareholders

Allows to Separate Family Issues from Society Issues

Facilitates Access to Capital

Allows Better Alignment Between Shareholders and Executives

Attends Legal and Regulatory Requirements in a Better Way

Reduces Risk of Company Conflicts

Improves Company's Corporate Image

Improves Transparency

Improves Company Management

Benefits of Corporate Governance

Weaknesses of Corporate Governance in Chilean Companies

Committees still developing. 75% of the companies have a Board Committee, but this committee is mandatory for public firms.

There is room for improvement in diversity within the board. 76% of the boards do not count on female presence.

No

Women on the

Board76%

Only

one16%

Two or

More8%

Women in The Board

75%

52%

33%

21%

21%

19%

10%

4%

Board Committe

Audit Committe

Finance Committe

Risk Committe

Strategy Committe

Human Resources Committe

Ethics Committe

Succession Committe

Existence of Board's Committees

Weaknesses of Corporate Governance in Chilean Companies

In 77% of the boards there is no formal mechanism of board assessment.

In only 8% of the firms, the remuneration of the board is linked to long term results.

3% 3%

3%

14%

77%

Board Assessment

360º Assessment

External Evaluators

Other

Self Assessment

There is no formal mechanism

72%

31%

26%

8%

8%

2%

Fix

Linked to presence in meetings

Linked to company's short term results

Linked to company's long term results

Other

Linked to board assesment

Board Remuneration

Board Responsibilities

Top responsibilitiesare related tocompany´sstrategy.

Monitoring andcontrol are theother importantresponsibilities.

3.9

4.0

4.2

4.2

4.4

4.5

4.5

4.7

4.7

Aprobar las indicaciones de los miembros de la Plana Ejecutiva

Definir y monitorear la estructura de capital

Evaluar el desempeño de los miembros de la Plana Ejecutiva

Representar fielmente las creencias y propósitos de los

accionistas

Garantizar que los patrones de conducta, políticas internas y las

exigencias legales sean …

Monitorear el desempeño de los negocios y la salud financiera de

la empresa

Monitorear los principales riesgos del negocio y definir su

gestión

Definir directrices y validar la estrategia de la empresa

Tomar decisiones de importancia estratégica

Responsabilidades del Directorio

Main Issues in Board Meeting

The main subjects are related to short term performance. Company’s strategy is in 4th place

This shows a contradiction with board responsibilities, where the strategy was the most important.

2.6

3.1

3.2

3.3

3.5

3.7

3.8

4.0

4.0

4.1

4.6

Evaluación de los ejecutivos de la

empresa

Política de divulgación de

informaciones

Política de gestión de conflicto de

intereses

Buenas prácticas corporativas

Auditoría independiente

Estructura de capital / Pasivos

Discusiones sobre los principales

riesgos del negocio

Estrategia de la empresa

Portfolio de negocios, inversiones

y desinversiones

Metas de la empresa

Desempeño del negocio

Principales temas en la reunión de Directorio

Board qualities

In board members’ opinion, personal qualities are more important than knowledge about the company or industry.

Personal integrity, having a strategic vision and motivation are the three most important.

3.5

3.6

3.7

3.7

3.8

3.9

4.0

4.0

4.1

4.3

4.3

4.3

4.4

4.5

4.6

4.8

Experiencia internacional e …

Liderazgo

Conocimiento de la industria

Conocimiento de las …

Conocimiento de la empresa

Experiencia como alto ejecutivo

Disponibilidad de tiempo

Visión externa del mercado

Conocimiento de buenas …

Entender estados financieros y …

Independencia/ausencia de …

Apertura a nuevas ideas

Sentido Crítico

Motivación

Visión estratégica y de largo …

Integridad personal

Cualidades de un Director

Risk Management

69% of the boardmembers surveyed findrisk managementimportant or veryimportant.

55% of Chileancompanies have anexplicit risk policy and54% has a specializedrisk management area.

These results don’treflect the importancethat the board assigns toRisk Management

Yes

54%No

32%

NS/NR

14%

Does the company has an

specialized area in charge of

risks?

Yes

55%No

34%

NS/NR

11%

Does the Company Has a Explict

Risk Policy?

Weaknesses of Corporate Governance in Chilean Companies

In 77% of the boards there is no formal mechanism of board assessment.

In only 8% of the firms, the remuneration of the board is linked to long term results.

3% 3%

3%

14%

77%

Board Assessment

360º Assessment

External Evaluators

Other

Self Assessment

There is no formal mechanism

72%

31%

26%

8%

8%

2%

Fix

Linked to presence in meetings

Linked to company's short term results

Linked to company's long term results

Other

Linked to board assesment

Board Remuneration

Suggestions to Improve Corporate Governance Practices in Chilean Companies Promote the creation of committees. This will help the

board to make better and more informed decisions. It will make board members more expert about important subjects to the company.

Encourage boards to perform assessments. This can help to identify strengths and weaknesses to improve management of the company.

Finally, to provide the right incentives to create value from the board. These incentives should refer to short and long term, looking to increase the value of the company without compromising the future.

Advances and Trends in Chilean Boards

Dieter Linneberg A.Executive Director

Centro de Gobierno Corporativo y Mercado de Capitales

Universidad de Chile