Corporate Governance and Pension Fund Administrators: The Chilean Case

The proper functioning of corporate governance has a positive impact on the competitiveness and growth of an economy. The characteristics of the capital markets influence th structure of established companies’ problems with agency,by determining the different models and corporate governance requirements that are enacted in these markets. The objective of the study is to analyze the impact of the individual capitalization pension system in corporate governance practices by studying the Chilean case. It is observed that the establishment of private pension funds positively affects the quality of corporate governance. This effect is produced by different mechanisms: i) indirectly, by expanding the capital markets and financial resources; ii) directly, by increasing the demands exerted by pension fund administrators (PFAs) on firms that they have resources invested in, iii) and by influencing public institutions and regulatory framework that affects corporate governance.We identify specific cases where the active participation of PFAs have in turn led to the establishment or improvement of legislation. In particular, the paper reviews the details of the Fasa S.A. case, whose board was a public failure,but lead to the enactment of the 2009 Law on Corporate Governance and Independent Directors.