| BUSINESSWEEK ONLINE : MARCH 1, 1999 ISSUE | ||||||||
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| INTERNATIONAL -- LATIN AMERICA
Commentary: Crack Open Mexico's Crony-Packed Boards (int'l edition) For decades, a close-knit group of families based in Mexico City and Monterrey has dominated the boards of most major Mexican corporations. Among this business elite, the rule tends to be simple: ''You sit on my board, I'll sit on yours.'' The result: rubber-stamp decisions that ensure tight family control of companies and protection from the scrutiny of outsiders. Not until the bank collapses of the past few years, which cost taxpayers $65 billion, have Mexicans even questioned the ethical soundness of this closed system. Now, a team of government technocrats is trying to crack open Mexico's crony-packed corporate boards. They want to shine a critical light on executives who pay themselves multimillion-dollar bonuses or lend huge sums to friends and relatives. It's a reform whose time has come. But the approach of the National Banking & Securities Commission (CNBV) is sure to be ineffective: It has asked four top executives--most from big family-controlled companies--to help create a voluntary code of ethics for corporate boards. As one well-known executive puts it: ''You can't have the fat cats making the new rules and expect to see real change.'' The government is moving far too timidly. The commission's idea is to require every publicly traded company to report each year on the composition of its board, including the number of outside directors and the existence of oversight committees. The information will be posted at the Mexican Stock Exchange so that ''the market will begin to differentiate between well-run companies and badly run companies,'' explains CNBV official Guillermo Zamarripa. Without requiring boards to take action to open themselves up, the commission wants to recommend ''best business practices,'' like those common in U.S. and European boardrooms. But even these voluntary recommendations are meeting resistance from the four corporate chieftains now advising the government. The advisers are Carlos Slim Helu, chairman of Telmex and founder of industrial-retail conglomerate Grupo Carso; Dionisio Garza Medina, CEO of food and steelmaker Alfa; Fernando Senderos Mestre, chairman of auto-parts and real estate giant Desc; and Alberto Bailleres Gonzalez, chairman of retailer Palacio de Hierro. Each of their companies is publicly traded but has been under family control for decades. Sources familiar with the commission's deliberations say the executives have nixed several key proposals, including a mandatory retirement age and limits on the number of boards that directors can serve on. So far, the main guideline on which advisers agree is that boards should appoint more outside directors. ''Outsiders often provide better and cheaper advice than consultants do,'' says Slim. NO RECOURSE. The government is reluctant to make its corporate governance guidelines mandatory, for fear of hamstringing companies. But the technocrats could take more decisive steps to bolster their reform effort. For example, the government could invite more progressive executives, such as Sanluis Chairman Antonio Madero Bracho, into the debate. Twelve of the 17 board members of Sanluis Corp., a $300 million auto-parts supplier, come from outside management. And half its shares are held by international investors. ''We have to abide by the rules that make those investors trust us,'' says Madero. The government should also beef up the righTs of minority shareholders. In many Mexican companies, much of the stock available to outsiders carries no voting rights. So these investors have no recourse when family shareholders make decisions they disagree with or that dilute their stakes. Regulators should curb nonvoting shares. In the end, it may be market forces--rather than government rules--that push Mexican companies to open up. In today's jittery climate, only the best-run emerging-market companies will attract the foreign investment they need to finance their expansion plans. If foreign investors shun the stock of questionabLe companies, even Mexico's tightly held family companies may be persuaded to mend their ways. By Geri Smith _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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