Corporate Governance in Venezuela

Corporate Governance
in Venezuela
Elena Monecke
Fernando Pazmino
Dr. Christine Zöllner
WiSe 2012/13
December 17th 2012
Economic and political background
Corporate governance in Venezuela
Firm ownership structure and control
Key players in corporate governance in Venezuela
Regulations and Guidelines
Practical example: PDVSA
Recommendations & Conclusion
1. Economic and political background
 “Paternalistic State”
 Instability
 High corruption index
 Nationalization and expropriation of companies
 High state intervention in the economy
2. Corporate Governance in Venezuela
 Low score in terms of investors protection
 Inter-firm governance variation is large
 Misunderstanding CG
3. Firm ownership structure and control
1. Family owned enterprises
 SME’s:
Large majority of companies
Succession issues
 Large FOE
2. State owned enterprises
3. Listed companies
4. Key players in CG in Venezuela
Local Players:
National Securities Commission (CNV)
National Network of Competitiveness (CONAPRI)
Venezuelan Confederation of Industries (CONINDUSTRIA)
Venezuelan Executive Association (AVE)
Regional Players:
Andean Development Corporation (CAF)
Inter-American Development Bank
Organization for Economic Co-operation and Development
5. Regulations and Guidelines
Regulation issued by the National Securities Commission:
The board of directors of entities, which stocks are traded in the national stock
exchanges should be formed by at least 1/5 of independent directors
 The following are not considered independent directors:
 Executives or managers that have an active position in that company and/or another company
that directly or indirectly controls the majority of shares and/or has effective control of the
previous company
 Any person that has received monetary remuneration in the previous fiscal year from a
company that directly or indirectly controls the majority of shares or has effective control of
the previous company
The company must publish the respective CVs for each board member
Entities which stocks are traded in the national stock exchanges must have an
“Audit Committee” integrated mostly by independent directors
5. Regulations and Guidelines
Latin American Roundtable on Corporate
 Non-binding guidelines
 Forum issuing a “White Paper on Corporate Governance in
Latin America”
 Effective framework for ongoing policy dialogue and a
multilateral exchange of experiences
 Brings together: Policy makers, regulators, business leaders,
investors, labor organizations, experts from the region
 Receives financial support from the “Global Corporate
Governance Forum”
5. Regulations and Guidelines
Reform Priorities:
1. Taking voting rights seriously
2. Treating shareholders fairly during changes in corporate
control and de-listings
3. Ensuring the integrity of financial reporting and improving
the disclosure of related party transaction
4. Developing effective boards of directors
5. Improving the quality, effectiveness and predictability of the
legal and regulatory framework
6. Continuing regional cooperation
5. Regulations and Guidelines
Importance for family owned enterprises in Venezuela
to adopt CG practices:
Managing Growth
Succession Planning
Preserving Family Harmony
Recruitment and Promotion
Ensuring Fairness
5. Regulations and Guidelines
OECD Guidelines on CG of State-Owned Enterprises:
1. Ensuring an Effective Legal and Regulatory Framework for
State-Owned Enterprises
2. The State Acting as an Owner
3. Equitable Treatment of Shareholders
4. Relations with Stakeholders
5. Transparency and Disclosure
6. The Responsibilities of the Boards of State-Owned
6. Practical Example: PDVSA
 Government has transformed PDVSA corporate management
from private-oriented professionals into pro-Chavez political
 President of PDVSA, is also the Minister of Energy and Oil
 External Director of PDVSA, is also de Vice-Minister of Hydrocarbons
 Corporate Disclosure: Generally reduced flow of information,
with some recent disclosures
 In 2006, PDVSA purchased $83 Mio U.S. bonds so that it could stop
reporting to the SEC
 Company issued internally-checked financial data in early 2007
6. Practical Example: PDVSA
 Transparency within PDVSA has significantly diminished
 Combination of pro-government corporate management and
limited disclosures is giving the company trouble financing
itself in the capital market, even though it is one of the
biggest oil companies in the world located in one of the top
ten oil producer nations.
7. Recommendations & Conclusion
1. Introduce CG in non-listed companies
2. Positive results when adopting CG practices
3. Adapt CG according to region considering their
particular characteristics
4. Better corporate governance practices are
positively related to ‘firm valuation’ in Venezuela
5. CG even more important in political instable
8. References
Aguilera, R., 2008, A comparative analysis of corporate governance systems in Latin America: Argentina, Brazil, Chile,
Colombia and Venezuela, University of Illinois at Champaign-Urbana, Available at: <>,
Accessed 10.12.2012
Corporate Governance for Family Businesses, HAWKAMAH: The Institute of Corporate Governance, Available at:
Accessed 11.12.2012
Garay, U. and Gonzalez M., 2008, Corporate Governance and Firm Value: The Case of Venezuela, Blackwell Publishing Ltd,
[journal compilation], Available at:
0Venezuela_Ur.pdf>, Accessed 09.12.2012
Gathmann, S., 2005, Venezuela: Promoting a national agenda based on ethics, transparency and accountability, OECD,
[online], Available at: <>, Accessed 13.12.2012
Hults, D., 2007, Petroleos de Venezuela S.A. (PDVSA), Stanford University, Available at: <>,
Accessed 14.12.2012
OECD Guidelines on CG of State-Owned Enterprises, 2005, OECD, Available at:>, Accessed
SODALI and GOVERNANCE CONSULTANTS S.A., 2012, White Paper the importance of corporate governance in state owned
enterprises-SOEs, CAF, Available at:
<>, Accessed 16.12.2012
Venezuelan official gazette, 2005, Available at: <>, Accessed 05.12.2012
White Paper on Corporate Governance in Latin America, 2003, OECD, Available at:
<>, Accessed 14.12.2012
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