A few months after the national financial system supervisory board, Conassif, published its Corporate Governance regulations containing the international principles and standards that regulated entities should incorporate into their strategies, Costa Rica’s Corporate Governance Institute (IGC in the Spanish acronym), has taken the next step in the country’s drive to promote best corporate governance practices throughout business with the publication of this code.

The Voluntary Code uses the OECD’s Corporate Governance principles as its template, taking these to formulate specific good practice recommendations. It gives organisations greater flexibility to achieve compliance, so that each institution can adopt its own policies and practices, even if these are not covered in the code, to fulfil the same purpose.

The new edition contains the following general principles:

Shareholder rights

• Equitable treatment. - Guarantee fair treatment for shareholders in the same category, and particularly minority shareholders.
• Participation in meetings. - Ensure that shareholders can take part and vote in General Meetings, and have appropriate information channels for accessing the information they need to cast informed votes on the agenda motions (at least 15 calendar days before meetings).  
• Access to information. - Guarantee their right to receive and ask for timely, clear and accurate information, including mechanisms that enable them to express their opinion about the institution’s activities.
• Ownership. - Define procedures for filing share ownership securely and reliably and keeping these updated.
• Information transparency. - Provide shareholders with sufficient information, which must be accurate, timely and given to all. Ensure there is an investor relations policy in place.

Board of Directors and its members’ responsibilities

• Composition. - The Board of Directors should be sufficiently numerous to enable directors to perform effectively and fully participate in meetings. Members of the Board will be appointed for a maximum term of three years, and at least two should be independent.
• Integrity. - Directors should fulfil the requirements of probity, integrity, ethics, diligence and availability needed to perform their duties with an independent criterion, acting always in the interest of the institution and of its shareholders.
• Duties and rights. - New directors should be given an induction course so that they can learn about the business, their powers and responsibilities.
• Structure, operations and functions. - The institution must have procedures, work plans and regulations covering the Board of Directors, so that it can perform its duties properly. Committees can be constituted (at the very least, the Audit committee and the Remuneration & Compensation Committees will be mandatory) to support the Board in fulfilling its responsibilities. Every committee should have its own set of regulations, governing its composition and operations.
• Management. - There should be a clear separation of powers between the board of directors and management. Management must implement the institution’s internal control mechanisms, within the framework of the guidelines approved by the board, and report regularly to the board about the institution’s financial and operating performance. Its performance will be assessed every year by the board.
• Related parties. - Policies and procedures must be put together to evaluate, approve and disclose certain transactions between the institution and related parties.

Family companies

The Code dedicates an entire chapter to good practice recommendations for family firms.  Specifically, they should have a defining framework (family protocol) for the relationship between the family and the company, set out in a formal document that states the family vision, values and principles.

It also recommends that governance bodies (Family Council and Family Meeting) be created, enabling the family and the company to communicate.

Other issues

The document contains a number of appendices with simple policies that can be adopted voluntarily. These include attachments on investor relations, buying and selling directors’ and senior management’s shares, what constitutes important information, audit committees and compensation & remuneration committees.

The audit committee, in particular, must comprise a majority of independent directors and the Chair of the board of directors may not sit on it.

Adopting the code

Institutions’ boards of directors will have to adopt a resolution to uphold this voluntary code, and inform the General Meeting of the resolution.  Adopting it will mean that the institution will have to write its own corporate governance code, taking as a reference the principles and practices recommended in this code.

Once adopted, if the institution decides not to apply the code, it must inform the General Meeting, indicating the reasons for this decision.

Annual Compliance Report

Every year, the institution must publish an Annual Compliance report, to consist of a review of compliance with the principles and practices in the voluntary code. The Report (Appendix 6 of the Code) must be made available to shareholders and other stakeholders, and should be signed off by the Board of Directors.

In the event of non-compliance with any of the principles in the code, the institution must explain the reasons it did not comply and the actions it intends to take to achieve compliance.