Author: | Published: 9 Oct 2003
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Corporate governance is not explicitly defined under Chilean law, but its most recognized principles are laid down in the Corporations Act and the Securities Act. There is no doubt that the issues of transparency, control of corporate management, avoidance of abuses from large shareholders, directors, or executive officers, and protection of minority shareholders and stakeholders have nowadays become major issues worldwide.

As in most jurisdictions, over the last ten years corporate governance has become a leading topic in Chile, aimed at finding the best organizational arrangements both to protect shareholders' rights and at the same time protect the companies themselves so as to increase their economic efficiency, thus creating a sound environment for the development of the local capital markets.

Chile, with the introduction of new legislation, has sought to develop and strengthen competitive and performing companies, attract investors to the local stock exchanges and foster domestic and foreign investments in the local capital markets, especially those from institutional investors. It is a trend that recognizes that investment decisions each time are more concerned with the accountability of each company and the market where it operates its business, in a scenario where institutional investors are placing strong pressure for the adoption of appropriate corporate governance structures. This is due, among other things, to the globalization of the capital markets, the strong presence of institutional investors, the growth and diffusion of shareholding among the general public and the increasing internationalization of Chilean companies.

Instead of a self-regulation approach or the elaboration of recommendations, guidelines, codes of conduct or reports, as in the anglo-american and other European countries, the solutions in Chile have been found through statutory regulation. In recent years, new legislation has been enacted on tender share offers, privileged information, insider trading, stock option plans, short-sales of securities, companies' stock repurchases, business groups, controlling shareholders and shareholder-voting agreements, and at the same time has improved the existing regulations on disclosures of ownership and company information, control acquisitions, shareholders' preemptive and appraisal rights, related-party transactions or self-interested transactions, and liability of directors and officers. Companies have started also to promote business ethics codes.


One of the most salient issues discussed in corporate governance is the material dissociation of ownership and management, where those making the decisions for the organization do not necessarily bear the risks of those decisions. This problem is not typically faced in Chilean companies as in most cases they are owned by majority shareholders who do exercise an effective control at the companies' boards and shareholders' meetings. The legislation has focused on how to protect the rights of minority shareholders from the controlling shareholders and their dominance on the companies' corporate bodies.

Chilean law contemplates a rigorous organization of the decision-making and management structure of companies, which provides a good degree of protection for shareholders' rights in the relationship with the board, and adequately balances the powers and authorities of the different bodies within a company. It places strong emphasis on the scope of resolutions or actions pertaining to the shareholders or the board, deals with the duties and liabilities of the board members, its internal organization and its relationship with the day-to-day management, and the disclosure of full information to the shareholders, the investors, the exchanges and the public at large.


The shareholders' meeting is the supreme corporate body of a company. As a general duty, all shareholders must exercise their corporate rights with due respect of the rights of the company and those of the other shareholders.

Each shareholder may cast one vote per share of common or preferred stock. Shares with multiple voting rights are prohibited.

Shareholders can get very actively involved in the decision-making process and have authority to give binding orders and directives to the board and management. The following matters are reserved to their decision: (i) the approval of the company's financial statements and the auditor's report; (ii) the allocation of profits and distribution of dividends; (iii) the election and removal of directors and auditors; (iv) the dissolution, merger, consolidation, spin-off or conversion into another type of company; (v) any amendments to its by-laws; (vi) the issuance of convertible debt; (vii) the transfer of 50% or more of the assets of the company, whether such transfer includes or not its liabilities, or the disposition of 50% or more of its liabilities; and (viii) the creation of any security interest or the granting of any guaranty in favor of third-party obligations, other than its affiliates.


Directors are elected by the shareholders at their annual meeting. Each shareholder may cast all its votes to one nominee, or distribute its votes among the nominees at its discretion. The top votegetters' nominees in one and a same voting process are elected as directors. This system allows minority shareholders to obtain representation on the board.

Listed companies are managed by a five-member board minimum. But a minimum of seven members is required in the case of large corporations (those having a market capitalization of at least $35 million approximately). The board structure is one tier.

The board is vested with broad authority to manage the company in the ordinary course of its business and affairs as to achieve its corporate purpose, with the sole limitation of those powers and authority entrusted by the by-laws or the law to the shareholders meeting. The board's role is to elaborate and lead the strategic corporate business plan, supervise its implementation and performance by the executive officers and develop the corporate internal controls.

It is a duty of the board to appoint and remove the CEO. The authority of the CEO and any other appointee of the board is determined by the board. CEOs are precluded from simultaneously holding the office of board chairman, director, auditor or accountant. In fact, CEOs are far from dominating the management of a company, have no intervention on the appointment of directors and have only those authorities vested on them by the board.

Directors elected by any group or class of shareholders owe the same fiduciary duties that other directors have to the company and to the other shareholders, and cannot under any circumstances disregard their duties to the company or to the other shareholders that did not elect them based upon the fact that they are acting in the interest of the electing shareholders.

Directors and executive officers are required to perform their duties with such same care and diligence as persons ordinarily use in their own business and affairs, are responsible for assessing the financial and business position of the company, and are liable in the event of bankruptcy or insolvency of the company. They are jointly and severally liable for the damages caused to the company or its shareholders. Any provision in the by-laws or any agreement or resolution passed by the shareholders exempting or limiting this liability is null and void.


The seven-member board of large listed companies must appoint three of their members to form part of a supervisory committee, the majority of whom must be independent, ie, unrelated to the controlling shareholder. In case the minority shareholders' stakes do not entitle them to elect an independent director, the board still needs to create this committee, but not with independent members.

The committee's duties include: (i) the examination of the financial statements and the external auditors' report submitted by the board to the shareholders, and providing an opinion on them; (ii) the proposal of external auditors and risk rating agencies to the board; (iii) the review of the company's related-party transactions; (iv) the examination of the compensation systems and plans for senior executives; and (v) any others indicated in the by-laws or entrusted by the shareholders' meeting or the board of directors.


Directors are jointly and severally liable among them and with the company for damages and fines arising due to a breach of the law, the by-laws or the rulings of Chile's SEC. Any damages to a company arising out of any such breach grants any shareholder or group of shareholders representing 5% of the company's stock, or any of the directors, the right to sue for damages on behalf and for the sole benefit of the company (although they do not have the legal representation of the company), any of those liable vis-¹-vis the company. If the plaintiffs do not succeed in their suit, they shall bear all associated costs; otherwise, they may recover them from the defendants. In a derivative suit, any recovery goes directly to the company.


On June 2003 the government launched a new capital markets reform that improves further Chile's corporate government standards on issues such as disclosure of information, insider trading, shareholders' institutional rights, related-party transactions and government agency supervision.

Claro y Cía
Apoquindo 3721, 13th Floor
PO Box 1867
Santiago 1
Tel: +56 2 367 3000
Fax: +56 2 367 3003