As I finish writing this book in August of 2019 a new government came into power. Most people chose this regime because it was perceived as an “outsider” option. Corruption and insecurity in Mexico have grown to historical peaks and the incoming president promised to tackle both issues. These problems have been remediated in other countries by having a state that creates incentives for people to invest and innovate, guaranteeing property rights (Acemoglu and Robinson 2013). Chile, South Korea, and Singapore were once poor emerging countries that have rapidly evolved to an almost developed country status by strengthening their institutions and investing in innovation. The new Mexican government is introducing changes that instead of strengthening institutions can weaken them: they have capped salaries for all top levels of government at the equivalent of the new Mexican president’s salary of US$5,273 per month, which ranks as the third lowest salary for a Latin American president (El Economista 2018). Most high ranking officers and technical members of government were above this level, and as a result, many of them have chosen to leave either as early retirees or to search for opportunities in the private sector. The new congress has also passed a law where the new anticorruption general attorney who was initially going to be independent will now respond to the president. They also want the National Energy Commission to respond to the energy secretary. “Lopez Obrador takes on Mexico’s institutions” (Financial Times 2019) summarizes several of these issues.
Why is this important for boards? In Chapter 3 we discussed how institutions are an essential part of the perceived level of corporate governance among business executives in a country; if you can rely on a sound legal framework, your level of discomfort with having large block holders is not important. Thus, in emerging countries, it is much easier for an incoming president—especially if they have a congress majority—to change laws and regulations. Hence, if country institutions are weakened over the next few years, the only way that corporate boards in Mexico can increase their perceived effectiveness among their stakeholders is by filling the country “institutional voids” (Palepu and Khanna 1998): having more independent directors, committees, meetings, board and CEO evaluations. This is one of the reasons why board independence is related to performance only in emerging countries (Rivas and Villamil 2018) because firms need to build up internally the institutions that their context does not have.
Thank you so much for taking the time to read what I have to say.
Jose Luis Rivas