Case study by GovernArt and Vigeo Eiris Chile SpA
Give a brief overview of your project’s objectives and how your approach to the subject matter differed from previous research.
Vigeo Eiris Chile and GovernArt published the Corporate Governance Annual Study 2020, Performance of Latin American Companies. The main objective of the study was to observe the corporate governance performance of Latin American companies. Released in Spanish and English, it is the first study to provide detailed research and analysis of how 139 companies in Brazil, Chile, Colombia, Mexico and Peru, tackle risks related to business ethics and corporate governance, split over seven aspects of evaluation.
Vigeo Eiris Chile and GovernArt’s approach differed from previous research in the following aspects:
- It was the first research of its kind to look at corporate governance and business ethics directly related to Latin American companies.
- The data collection process and analysis used not only the company’s websites and public documentation, but also included direct communication via online questionnaires and external stakeholders’ sources.
- The study gives a global overview of the performance of companies in the region, and compares countries with each other for each aspect of the evaluation.
- The research looks at how Latin American companies are performing compared to the rest of the world, highlighting strengths and areas of improvement.
- For most of the seven aspects of evaluation, noteworthy trends have been analysed and contrasted with the national context.
- Emphasis has been put on companies with the highest performances, detailing their approach to each aspect, while some of the most significant controversies have been highlighted, along with controversy statistics.
- Vigeo Eiris Chile and GovernArt assess Latin American companies through this same methodology every 12 to 24 months, to provide updated assessment to its investors.
Describe your methodology, including how you addressed macro trends and mechanisms for effecting systemic change.
The study’s methodology contains three key elements:
ONE: Geographical scope
The study assessed 139 companies that are part of the universe of research of Vigeo Eiris. These companies are headquartered in five Latin American countries, broken down as follows: Brazil: 55, Mexico: 28, Chile: 26, Peru: 18, and Colombia: 12.
TWO: Aspects of evaluation
The study evaluated companies based on seven aspects, which were gathered into two categories:
- Board of Directors
- Audit & Internal Controls
- Executive Remuneration
- Prevention of Corruption
- Prevention of Anti-competitive Practices
- Transparency and Integrity of Influence Strategies and Practices.
N.B. the relevance of each aspect of evaluation for the sector or industry was taken into account, meaning that some of them have not been assessed for all 139 companies.
The performance of the companies was scored on a scale from 0 to 100. The average score per country was provided on an overall basis (average of the seven aspects of evaluation). In addition, the average score for each aspect of evaluation was also displayed at country level.
The study shows a regional ranking and a ranking per country based on the overall score, as well as a ranking of the companies achieving the top 10 scores for each aspect of evaluation.
The study contributes substantially to advancing knowledge and understanding for each aspect of evaluation, by providing both qualitative and quantitative information.
The seven aspects are assessed following the same structure:
- Overview: clear information on topics of interest assessed for each aspect, and why they matter.
- Global performance of LATAM companies: the study shows quantitative information about the overall score of companies in the region, and detailed statistics of practices implemented by these companies.
- Noteworthy trends: trends worth highlighting and analysing (e.g. when a country is performing above or below its peers in a certain aspect of evaluation, which is contrasted with regulations at country level).
- Top performers: explanation of the performance of the three companies achieving the highest score, per aspect of evaluation.
- Controversies: statistics about the controversial cases identified in the region linked to the aspect of evaluation in question, and details about the major cases.
Outline how your findings have been applied in a practical context and their wider benefits for investors or the financial system.
The Study demonstrated new, meaningful insights into the macro trends of the governance performance of Latin American companies. The quantitative and qualitative information, the rankings, and the scores contained within the research can be used as a primary source of information by investors that pay special attention to governance and ethics issues, in order to further drive their investments in a country or a specific company.
Latin American investors who are starting to consider ESG factors in their investment decisions can use the results of this study to challenge companies and identify key areas of improvements at a country level.
The highlights of the study provide consolidated indicators that allow investors to focus on a few main governance topics, if they are not able themselves to conduct a holistic governance assessment of companies.
The detailed information also allows the investee companies themselves to compare what they have implemented and reported, versus what is expected from the market players, in particular on those aspects where Latin American companies are performing below the other markets, such as Europe and North America. Based on their assessment, companies could choose to focus on areas of improvement, which in turn would enable them to attract responsible investors, but also inspire other companies in the country and industry in which they evolve.
Finally, the qualitative content of the study is useful for Latin American pensions and securities regulators like the Chilean Comisión para los Mercados Financieros, which is currently updating ESG and corporate governance reporting standards and best practices.