Chilean Corporate Governance’s weak link

There is a silent paradox at the heart of Chilean companies. The body entrusted by law with senior management, setting strategic direction and protecting shareholders is, quite often, the least prepared to carry out those functions.

The board exists, meets, signs minutes and satisfies quorum requirements. But it does not always govern.

The problem is not the people; it’s the design. Chilean boards are, in most cases, made up of capable, well-intentioned professionals; however, the structure, culture and incentives are not right. And three symptoms recur with striking regularity.

The first is strategic passivity. Chile’s Corporations Law grants the board the broadest powers to manage the company, and in practice, that rule coexists with the opposite reality: boards approve what management proposes, ratify decisions that have already been made, and rarely exercise the scrutiny the law entrusts to them.

The CEO sets the agenda, the same team that will execute the plans prepares the reports, and the board deliberates on what others have already decided. When things go well, no one notices.

When things go wrong, the inevitable question is: where was the board?

The second symptom is undisclosed conflicts of interest. Article 44 of Law No. 18,046 clearly sets out the duty to abstain when a director has an interest in a transaction. It is a clear and reasonable rule. In practice, however, its application faces a structural difficulty specific to Chilean companies: a director appointed by a controlling shareholder tends to vote in that shareholder’s particular interest rather than in the general interest of the company.

An undisclosed conflict of interest does not just taint the specific decision; it erodes trust in the entire board.

The third symptom is the illusion of the independent director. Chile adopted this figure under the influence of international corporate governance standards. The idea was to have a voice free of ties to the controlling shareholder, capable of representing minority shareholders’ interests and providing a genuine check.

However, what we often see is different: the “independent” director is proposed by the very controlling shareholder they are supposed to oversee, elected at a shareholders’ meeting that shareholder controls, and aware that their re-election depends on maintaining a functional relationship with the person who appointed them.

Under these conditions, independence is formal: it exists on paper, operates at the margins, and gives way precisely when it is needed most.

These three problems are not unique to Chile, but their intensity locally has its own causes. The concentrated ownership structure of Chilean companies — where a controlling shareholder typically exercises effective control — reduces the tension that, in other markets, disciplines the board. In markets with dispersed ownership, a director who fails to fulfill their role can lose it.
In Chile, that threat exists only in theory.

Opinion column published in Diario Financiero.