May 9, 2016
Latin America 2016 Emerging Trends in Corporate Boards
The last two years have been particularly challenging for corporate directors in Latin America. Winds of change are blowing strong and they are coming from different directions at the same time. The end of the ‘commodities supercycle’ hit Latin American economies hard. Less demand and lower prices of oil, minerals or wood pulp translated into slower economic growth, inflation and currency devaluations. In the last 12 months alone local currencies have dropped from 10 per cent to 45 per cent of their value against the US dollar.Cheaper commodities also increased public budget deficits. The need for more resources is on the agenda of nearly every Latin American government and a wave of tax reforms, corporate rate hikes, loss exemptions and new collecting mechanisms have spread across the region. Economic pressures are forcing boards and management to adjust quickly. Just two years ago, projections forecast billions of dollars would be invested into green fields and capacity expansion. Now the priorities are much more tactical and short term: to cut costs dramatically, improve efficiency, adjust organisations and develop new customers outside of their traditional markets.It is no mystery that, in the age of internet and social media, business practices are becoming more transparent. Customers are more informed and empowered than ever to challenge corporate giants. Latin America is no exception but the local practices of government or family-controlled corporations are having a hard time adjusting to this paradigm shift. Recent scandals regarding competition and politics are a good example. As the role of state intervention in the economy decreased from the 1990s, competition law became more stringent in Latin America. Most governments have either strengthened the regulation itself or the supervision and enforcing capabilities. Last year was particularly active, and a number of corporations in the paper, poultry and retail sectors were fined for anti-competitive practices. Many others are still under investigation. Their boards and CEOs are facing the challenge of significant drops in market value, economic penalties and severely damaged reputation. Another particularly affected area has been the interface of corporations and politics. This situation is true in most countries in the region but the most spectacular reactions are coming from Brazil.
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