Secretary-General

How to improve integrity and corporate governance in Latin America

 

VI Ibero-American Business Summit

Promoting business integrity and good corporate governance in Latin America

Remarks by Angel Gurría, OECD Secretary-General

3 December 2010, Mar del Plata, Argentina

Dear friends, ladies and gentlemen,

It is an honour and a great pleasure for me to address the closing session of this year’s Ibero-American Business Summit. I would like to thank the Ibero-American General Secretariat and the Unión Industrial Argentina for hosting us here in Mar del Plata.

Over the past two days, you have been discussing the challenges and opportunities facing the private sector in Ibero-America, addressing such important issues as the role of the Translatinas, the growing ties with Asian emerging economies and the fostering of innovation through better co-ordination between universities and companies.

Today, I would like to address one topic that is very much related to the items you have been debating and that has a profound impact on the performance of the private sector, the health of our economies and the well-being of our fellow citizens. The topic I am referring to is business integrity and good corporate governance.

Latin America is performing well, but the crisis was a wake-up call

Let me start by highlighting that the OECD sees positive economic prospects for the region in the next two years.

Fiscal positions and the financial sectors of Latin America have remained relatively stable during the crisis, thanks to responsible macro-economic management and prudent financial regulation in recent years. This is a major achievement after decades of macro-economic instability and recurring currency and financial crises.

As I underlined earlier this morning when we presented our Latin American Economic Outlook, prepared by the OECD, growth forecasts are favourable compared with OECD economies. While we project 2.3% growth for the OECD member countries in 2011, Latin America will grow by 4%. We expect Mexico to grow by 3.5%; Brazil by 4.3%; and Chile by an encouraging 6.2%.

However, this needs to be put into a broader perspective. Many emerging economies are growing two or three times faster than Latin America. Moreover, productivity growth has been sluggish and inequality is still the widest in the world.

But let me go back to the crisis. What started as a financial turmoil turned into a full-btown economic and social crisis, with enormous unemployment, and even worse youth unemployment. I may add that the sovereign debt problems we are seeing today in Europe are just the latest manifestation of this rolling set of problems.

One of the main causes of this crisis was the failure of regulation and supervision mechanisms. This is an aspect that we in the OECD and the G20 have put at the centre of our work. Regulators let banks hide enormous exposures off their balance sheets – until they had to recognise losses in the hundreds of billions of dollars. Nor were supervisors able tot see the mounting concentrations of risk, and to act accordingly.

But it is not just a problem of regulation and supervision of financial institutions. It is also a question of good corporate governance and sound risk management. Boards of directors did not fulfil their oversight duty and they did not properly evaluate the risks that operators were assuming. Neither did the risk committees, the executive committees, the loan committees, or any other corporate governance body.

The difficulty is that these problems affect all of us. People depend on businesses for their jobs, and businesses and our economies depend on the financial system. And because  economies are so interconnected, the mistakes and failures of banks and other companies in one country have repercussions in all sectors of activity, as can be seen in the credit and liquidity problems that we have been through, and that many countries are still experiencing.

Governments and central banks did a decent job of managing the financial crisis and preventing economic collapse. But we are just beginning to create the new rules of the game needed to prevent a similar crisis from recurring. When it comes to financial regulation, the Financial Stability Board (FSB) is taking the lead, specifically in discussions on how to implement Basel III. But the “rules of the game” go beyond that, and include issues related to corporate governance and business integrity.

How the OECD can help

When I am asked how the work of the OECD can help in Latin American countries I always point out that it is not only about the specific activities and projects that we carry out with each country, but also about our role in establishing international standards, monitoring and comparisons. This is particularly true in the area of promoting business integrity and good corporate governance, where we also have very active Latin American partners. 

At last year’s OECD Ministerial Council meeting, several countries participating in this Ibero-American Summit— including Brazil, Chile, Mexico, Portugal and Spain—joined others to agree to a Declaration on Propriety, Integrity and Transparency in the Conduct of International Business and Finance, which we call PIT. The Declaration was built on the many instruments that OECD and its partners have developed to guide and improve the conduct of corporate business.  I would like to mention a few of them and speak about how they benefit Latin American countries and their private sectors. 

Perhaps the best known OECD instrument in this domain is the Anti-Bribery Convention.  This legally binding treaty requires signatories to make it a crime for domestic companies to bribe a foreign official in the course of their business dealings outside the country.  

Argentina, Brazil, Chile and Mexico, as well as Spain and Portugal, are among the original signatories who negotiated the Convention, which is well known for its close monitoring of how each country implements its obligations, including whether its enforcement is effective. Today there are over 200 ongoing investigations.

With regard to good corporate governance, the OECD Principles of Corporate Governance are the recognised global standard. As good behaviour cannot be legislated, soft law has a key role to play in at least outlining what good behaviour means. Hence, our Principles describe the “outcomes” that corporate rules and codes of conduct should achieve in areas such as board performance, stock exchange listing requirements, protection of minority shareholders, and transparency.

Since 2000, the OECD has been working with countries of the region through its Roundtable on Corporate Governance in Latin America, where practitioners meet regularly to share experience. The Roundtable used the OECD Principles to launch work on a “White Paper” of priorities for corporate governance in Latin America, which included recommendations for improving the quality, effectiveness and predictability of the legal and regulatory framework; ensuring that voting rights are used responsibly; improving the transparency of transactions; and developing effective boards of directors.

A direct spin-off of this work has been the creation of a Circle of Latin American Companies that provides leadership in enacting and advocating governance improvements in the region. Governments will also launch in 2011 a new initiative to support the corporate governance of state-owned enterprises in the region.

Finally, and given the presence here of some of the largest multinationals operating in the region, I wish to mention the OECD Guidelines for Multinational Enterprises, to which seven Ibero-American countries have already adhered: Argentina, Brazil, Chile, Mexico, Peru, Portugal and Spain. The Guidelines express government’s expectations on how their multinationals ought to behave outside their home jurisdiction, in all major areas of business ethics, including labour and human rights, environment, anti-corruption and taxation. These guidelines, which we are now revising to adapt them to the current context, draw on universally agreed standards and principles as well as OECD instruments such as those already mentioned. 

Ladies and gentlemen, dear friends,

These are just a few examples of how the OECD can help build stronger, cleaner and fairer economies.
The private sector is a tremendous force for positive change and development in our societies. That is why we devote so much attention to how best to leverage this force.

Latin American governments and companies know that good governance and integrity make sound business sense as well as sound moral and ethical sense. I am very pleased at the progress made by the private and public sectors across the region to eradicate corruption and instil good corporate governance practices. This will be key to restoring the legitimacy of the market economy and helping us turn globalisation into an effective vehicle for human progress.

Thank you very much.

 

 

 

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