Corporate Governance in Chile

The purpose of this paper is to describe the main features of the Chilean corporate governance regime during the ‘90s and to evaluate how well it runs. According to the existing literature, Chile’s system can best be described as an “insider” one. Large groups organized in a pyramidal fashion typically control publicly traded companies. In spite of this, corporate governance discriminates moderately against small shareholders or outsiders (e.g. bondholders). Some of the reasons behind this are the monitoring role of some financial institutions, such as AFPs (pension fund managers), the insurance and banking regulation, and an active supervisory agency. However, since the onset of the 1997-98 world financial crisis, Chilean capital markets have been gloomy. Capital outflows from the region have not been the only cause, but also a number of large takeovers of domestic corporations by multinationals and some well publicized cases of rent extraction from minority parties are to blame. In an attempt to revive a flagging market, some vices in corporate practices have been corrected (partially) by the enacting of the so-called “Ley de OPA” (PTO law) in December 2000. This law is aimed at protecting of minority shareholders’ rights. The Chilean experience illustrates the importance of factors not usually considered in discussions on corporate governance for developing countries, such as regulated institutional investors and banking sector legislation.