CHAPTER 8

An Interview with Jaime Serra-Puche

Jaime is the most central independent director of listed firms in Mexico for 2015. Centrality is determined by the number of directorships on boards with high connectivity. Jaime is currently the Chairman of BBVA Bancomer, the country’s largest financial institution. He is also a director at: Tenaris, Vitro, Fondo Mexico. In the past he has held directorships at Chiquita (United States), Grupo Ferroviario Mexicano, Grupo Modelo, Southern Peru Copper, Rotoplas, Fresnillo, and Alpek.

He holds a BA in political science from UNAM, a master’s in economics from Colegio de Mexico, and a PhD in economics from Yale. He was deputy secretary of the treasury, secretary of the treasury, secretary of trade and industry, and is currently chairman of SAI Consulting. Jaime is probably best known as Mexico’s chief negotiator for NAFTA.

• •How do you compare being a board member in the United States versus in Mexico?

1. a.Who is in charge: in the United States the board is really in charge of crucial decisions.
2. b.Diligence: a director in Mexico does not invest a lot of time to prepare for a board meeting. In the United States, you are expected to prepare and study for each meeting.
3. c.Rigor: there is more consistency in the United States regarding fiduciary duty and the time you devote to a board. In Mexico, that same fiduciary duty exists but directors devote less time to board work.

• •What are the main obstacles for improving corporate governance in Mexico?

1. a.Roles: top managers in Mexico see the board as a formality and not as a potential contributor to their performance. Projects presented at board meetings are already processed and boards are expected to approve them. In the United States, a board usually works with top managers to improve their projects before they are approved.
2. b.Attributes: directors in Mexico tend to be older males with more social affinity to their peers. Average tenure of directors is also longer, with fewer age or tenure limits to service.
3. c.Information access: the level and depth of information available to directors in Mexico is low. This is partially a consequence of not only our weak institutional environment but also strategic avoidance schemes where controlling shareholders prefer to control agendas.
4. d.Ownership concentration. Mexico has high levels of ownership concentration and average firm age is high. Hence, controlling shareholders do not have enough incentives to use their boards as vehicles for change. Most firms feel successful with their status quo. Many family firms become public but only modify their governance to comply with regulation. The main motivation of family firms to become public is to facilitate succession.

• •How can corporate governance improve in Mexico?

1. a.CEO succession plans are almost nonexistent in Mexico and in other countries it is a regulatory requirement. Cemex is one of the few firms that have them in place and that is why when Lorenzo Zambrano died their stock price did not suffer much.
2. b.Board and CEO evaluation need to be performed periodically and in a consistent manner. As we speak, they only take place episodically.
3. c.Regulation: there is room for improvement. Policy makers can incentivize the presence of foreign institutional investors as block holders. They could also impose stricter regulations on dual class shares and pyramidal structures than inhibit the one share–one vote principle.
4. d.Culture: the value of regulation has not permeated. Firms comply with governance regulations as if they were just requirements. They do not adhere to the “spirit” of these norms. Within boards, there is little value placed on board debate. The ideas that can be generated through discussions with independent board members do not seem to be attractive for managers or controlling shareholders. Relationships between controlling shareholders and independent directors tend to be personal and this inhibits director accountability. When a controlling shareholder invites an independent director to join a board it is difficult to establish a frank dialogue as to what is expected…and there should be one, because if there is none then a sense of “collusion” can remain in the relationship and it becomes hard for that independent member to debate with the people that invited him/her. Independent board members, therefore, need to improve their understanding of what it means to be “independent” from the moment they are invited to join; they are supposed to represent minority—and not majority—shareholders and this issue should be in the first conversations with whomever invites them to join a board. Of course, this can be uncomfortable but is certainly necessary. On the other hand, majority owners also need to appreciate the value that independent mentalities bring to the table…not just in open board discussions but in board committees and evaluation processes.
5. e.Inequality: Mexican society is hierarchical and highly unequal so the idea of directors as members of a “small world” often takes place, and this contributes to perpetuate differences that society as a whole must try to overcome. We need more “new economy” firms in our stock exchange. This should help to modernize director mentalities and roles.
6. f.Board diligence systems: I have worked on this quite a bit now that I am serving as chairman at BBVA. These systems are prevalent in many US boards and they help board members be better prepared for meetings. They are safe encrypted software programs where directors can see—and not print—the materials related to future meetings.
7. g.Executive sessions only for independent members. This is still a rarity in Mexico because owners feel uncomfortable with them….but they are certainly necessary to improve the quality of independence in most boards.

• •Can you share one or two of your most difficult moments as a director?

One of them took place while serving at the Chiquita board in the United States. We were paying “security fees” to a guerrilla group so that our banana farmers could work. This group eventually joined the governmental list of terrorist groups but Chiquita only learned this afterward and, as a consequence, we gained a serious legal liability with the US government. As an independent board member, I pushed the board for voluntary disclosure. The board agreed and even though it was voluntary, our reputation and stock price decreased. We had to pay over US$100 million in legal fees and penalties over several years to solve this issue.

A second difficult issue happened at a large Mexican firm where independent board members had to become referees of a serious problem between two of the firm’s controlling families. We were able to avoid litigation and eventually convinced both parties to recruit professional talent to manage the firm.