During the last few years, several articles have been written and research has been conducted on corporate governance. Some researchers have focused their analysis on the importance or lack of importance of corporate governance for companies and the market in general, others have placed emphasis on the manner a company should be managed to achieve good corporate governance, while others have focused on external agents to monitor whether or not good corporate governance exists in a company.
What researchers cannot deny is that the board of directors plays a key role so, with this in mind, many research projects have focused on determining the size that the board of directors should have, the optimum number of independent directors, the duties of the board, and the structure that board committees should have.
In Peru, our legal system contains some corporate governance rules applicable to directors. Thus, for instance, the Business Corporation Law and the Stock Exchange Law :
(i) Establish limitations on the types of contracts that directors can sign with the company, providing that contracts must focus on the activities usually carried out by the company with third parties and that they must be carried out under market conditions.
(ii) Prohibit directors from receiving company money or goods without the approval of the board.
(iii) Establish rules to deal with conflicts of interest.
(iv) Prohibit directors from taking part, whether directly or indirectly, in activities which could compete with those carried out by the company, without the express approval of the company.
(v) Require the board of directors to previously approve, without the participation of the director concerned, the signing of contracts involving at least 5% of the company’s assets with persons related to the members of the board.
On the other hand, the corporate governance compliance forms approved by the Securities Market Superintendency, which are to be published by companies the securities of which are registered on the Securities Market Public Register, include information on the number of independent directors that a company should have, their powers and duties, the existence of a work plan and a code of ethics, mechanisms for managing conflicts, etc. However, as we know, issuers are not obliged to comply with the principles, which are simple recommendations the fulfillment or non-fulfillment of which is reflected in the aforesaid forms.
The latest research on the characteristics that a board of directors should have as far as corporate governance is concerned has focused on evaluating:
(i) Whether or not a company is managed by directors who are really independent; that is, directors who are not only “formally” independent but also independent in terms of social relations, compensation, and business relations.
(ii) Whether or not diversity actually exists in the board, not only in terms of education, profession or experience, but also in terms of social responsibility and knowledge of what participating in a public market means as far as the regulatory framework and financial terms are concerned.
(iii) Whether or not their main duties include adding value to the company and receiving a compensation payment for adding value to the company and, regarding this aspect, whether or not there is a compensation committee in place and whether or not the amount of the compensation paid to directors is publicly known.
(iv) Whether or not a plan exists to monitor the fulfillment of the best practices in terms of honesty and integrity, and whether or not the process involved in hiring certain key company officers takes these factors into account.
(v) Whether or not a plan exists to deal with technological breakthroughs, for instance to avoid losing sensitive or confidential information or to avoid causing harm to the company’s reputation due to the lack of a clear policy on the use of social networks.
The various crises faced by boards of directors during the last few years have obliged researchers to analyze how to strengthen the board. Technological breakthroughs are undoubtedly changing society and creating many challenges as to the manner a company is to be managed. Within this context, it is indispensable to know how a company is structured and managed in order to know what is needed to strengthen its board and, with it, corporate governance.