Financila Standar Report

Financial Standards Report

Principles of Corporate Governance

Venezuela
December 2010

www.eStandardsForum.org

Financial Standards Report Venezuela
December 2010

Principles of Corporate Governance
LEVEL OF COMPLIANCE: INSUFFICIENT INFORMATION

Summary
Venezuela lags behind many of its neighbors in modernizing its corporate governance system according to a 2008 paper by RuthAguilera. Instead of a consolidated set of rules or guidelines, legislation on corporate governance is scattered throughout Venezuela’s legal framework with statutes in the Commercial Code, Securities Market Law, Civil Code, Civil Procedure Code, Law of Public Registration and Notary Of ce. Additionally, the securities regulator, the National Securities Superintendency can issue resolutions, oftendrafted in conjunction with the Venezuelan Association of Securities Issuers. However, in a 2009 presentation, Sonia de Paolo de Gathmann notes that companies are reluctant to comply with the national legislation and that the Venezuelan regulatory institutions have been hindered in ensuring proper enforcement by a lack of resources and poor organizational structure. A 2007 Organization forEconomic Cooperation and Development (OECD) report notes that the Andean Corporate Governance Code (CAGC) offers a potential corporate governance framework for Venezuela based on the OECD Principles. However, as of November 2010, there is insuf cient information as to whether the country has chosen to apply the CAGC.

enacted by the securities regulator in 2005. However, de Gathmann (2009) reports thatVenezuelan companies, especially family-owned businesses, have been reluctant to apply corporate governance legislation. This is especially true of non-listed entities, which she points out have little incentive to follow good corporate governance practices if they are not integrated into Venezuela’s capital market. Moreover, a 2008 paper by Ruth Aguilera adds that corruption is rampant, signicantly raising the cost of doing business, and that the legal protections afforded to minority shareholders in Venezuela are lower than those in neighboring countries. She concludes that Venezuela "lag[s] far behind" (p. 26) Argentina, Brazil and Chile in terms of the modernization of its corporate governance system. With regard to convergence with international standards, a 2007 Organization forEconomic Co-operation and Development (OECD) report notes that the Andean Corporate Governance Code (CAGC) provides a potential corporate governance framework for ve Andean countries, including Venezuela. Based on the 2004 OECD Principles, the CAGC includes a set of systematically arranged basic rules with 51 speci c measures that de ne internationally accepted standards of corporate governance. Asof November 2010 however, publicly available information does not indicate if Venezuela has adopted the CAGC as its national standard. In the meantime though, the Venezuelan Association of Executives (AVE), a nonpro t organization dedicated to promoting good management practices, has been involved in encouraging the use of the CAGC amongst Venezuelan companies. As part of a joint project with theAndean Development Corporation (CAF), the AVE implemented a 10 month training program for small and medium-sized entities (SMEs) in 2009. According to the CAF website, the program speci cally adapted the CAGC to the needs of SMEs, though there is insuf cient publicly available information assessing the program’s success.

General Overview
In a 2009 paper, Sonia de Paolo de Gathmann highlightsthe lack of a consolidated set of corporate governance rules in Venezuela. Instead, corporate governance legislation can be found in the Commercial Code, Securities Market Law, Civil Code, Civil Procedure Code, Law of Public Registration and Notary Of ce and the resolutions issued by the securities regulator. As de Gathmann points out in a 2006 paper, these resolutions are often developed as the...