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Corporate Governance: A match made in heaven or a relationship on the rocks?

Corporate Governance: A match made in heaven or a relationship on the rocks?

As in romance, a company and its corporate governance structure can be a match made in heaven. Together they can ensure greater competitiveness, transparency and access to international financial markets. Consequently this attracts more investors to the country. And while the “perfect marriage” does not exist, when it comes to family business, corporate governance fosters harmony. If handled poorly, it can put the relationship on the rocks, making it problematic, uncomfortable, and at risk of corporate failure.
ADRIANA M. FERREIRA
AUGUST 14 2020

Corporate Governance: A match made in heaven or a relationship on the rocks?

To strengthen corporate governance, the Inter-American Development Bank recently launched a series of forums. It is a joint effort between the Industries and Services Division of the Structured and Corporate Finance Department and the Country Representative in Ecuador, Morgan Doyle. The goal was to promote the development of sustainable business by exploring funding opportunities and exchanging knowledge with innovative entrepreneurs. In the end, we hope this contributes to economic growth and better distribution of resources to benefit the community and the environment.

The first of these sessions sought to stimulate idea-sharing on corporate governance in Latin America. It was carried out in Ecuador, a country with strong economic growth, where family businesses play a dominant role in industries such as agriculture, textiles, fuels and cement. Such is their importance that, according to an article published in “Editorial Vistazo”, 77 percent of the largest companies in the country are family-owned. When small and medium enterprises are taken into account, the number rises to an astonishing 95 percent. This translates into family businesses having an enormous share of the country’s gross domestic product of Ecuador.

In the meeting with companies such as Adelca, Endesa-Botrosa,Indurama, Industrias Ales, Pronaca, Vicunha Ecuador and Banco Atlántida, three basic principles related to corporate governance were highlighted:

1. Corporate governance provides firms with a framework that helps set strategic goals for the company. It determines a plan of action that can be used to achieve and monitor their compliance, enabling the business to remain sustainable over time.

2. Ownership vs. Governance: The distinction between the two, along with the development of Succession Protocols and Dispute Resolutions, keeps channels of communication open and fosters an environment of trust that is vital to company survival.

3. Succession Plans define the business dynamics and demonstrate that an organization is prepared for events in both the medium and long term. As a publication of the Quito Stock Exchange and the IDB states, a company’s vision for success and business management is always defined by its founders, but must be carried over to the next generation. Its importance for business continuity is crucial given that currently 80 percent of companies that fail first manifest problems of governance and the absence of rules of succession.

Following the success of this first meeting, the IDB is working on future editions of the forum, which will focus on other areas of sustainable business development. A second meeting will discuss issues related to energy efficiency and corporate social responsibility. A final one will present operations and case studies from the private sector.  Beyond that, the organizers are looking forward to extending this effort to other countries in the region and thus, continuing to work towards developing sustainable businesses in Latin America and the Caribbean.

AUTHORS

Climate change

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