Business Ethics and Corporate Governance in Latin America

The most important characteristics of Latin American economies that influence the development of corporate governance are: rapid technological change, economic globalization, concentration of ownership, defined control, and the need for capital. Most companies are controlled by dominant groups (often families that fulfill the role of owners as well as managers). Controlling shareholders have on average 60 percent-70 percent of the voting rights. Family control remains the norm for most of the region’s nonlisted small and medium-sized enterprises. About 25 percent of public companies have shareholder agreements. Majority shareholders—clearly identified and actively engaged—can be a great strength for a company by ensuring active oversight of management and providing a ready source of financial support to the company at critical moments (OECD 2003, 9). Nevertheless, if earnings are limited and financial resources considered insufficient to attain the desired growth rate, the challenge is to find domestic and international sources of capital. This often implies that governance practices have to be adapted to meet the demands of outside sources of finance, without sacrificing the benefits of the alignment of ownership and defined control.