In a 2007 publication on corporate governance in Guatemala, Alvarado-Riedel and Cofino identify the Code of Commerce as the primary source for corporate governance regulations in Guatemala. The Code covers the formation, types, and differences of business associations, shareholder issues, and governance matters. In addition, the Consumer Protection Law, the Securities and Goods Market Law, the Banks and Financial Groups Law, and the Competition Law Bill contain provisions on specific corporate governance issues within the respective industry. Shareholders appoint members of the board or a sole administrator at the shareholders meeting and grant them the powers, faculties, and authorizations they need to manage the company. The board owes a duty of care to the shareholders, the company, and its creditors, and is liable to them for any damages or losses it causes. With respect to the equitable treatment of shareholders, Alvarado-Riedel and Cofino point out that minority shareholder rights and protections are very weak in Guatemala. Overall, there is insufficient information publicly available as to Guatemala's compliance with the Organization for Economic Cooperation and Development Principles of Corporate Governance.

General Overview

According to a 2007 publication on corporate governance in Guatemala by Alvarado-Riedel and Cofino, the primary source for corporate governance regulations in Guatemala is the Code of Commerce, which deals with the formation, types, and differences of business associations, shareholder issues, and governance matters. Besides the Commerce Code, some laws, such as the Consumer Protection Law, the Securities and Commodities Market Law, the Banks and Financial Groups Law, and the Competition Law Bill, govern specific corporate governance issues. The following institutions are involved in corporate governance standard setting: the Ministry of Economy, the Commercial Registry, the Consumer Attention and Protection Agency, the Securities and Commodities Market Registry, the Superintendence of Banks, and the Competition Promotion Superintendence. In addition, there are some private sector groups and associations that participate in corporate governance standard setting and enforcement. These institutions include the Guatemalan Bar Association, the Guatemalan arm of the American Chamber of Commerce, and the Agro, Commercial, Industrial and Finance Associations Coordinator Committee (CACIF).

In its 2007 Doing Business Guide, the U.S. Department of Commerce describes the Guatemalan capital markets as weak and inefficient. There are 23 commercial banks with an estimated USD 13.7 billion in assets, 17 non-bank financial institutions that are primarily in the investment banking and medium and long- term lending business, and three exchange houses. The Superintendence of Banks (SdB) is the supervisor of the financial services industry.

In 2005, the National Stock Exchange (Bolsa de Valores Nacional, or BVNSA) reported an increase in transaction volume in securities dealings by 39% compared to 2004, having reached Q 186.59 million ($24.6 million). However, J. Toledo Cruz points out that the securities market "is still in its initial development phase, as is evidenced by the BVN's report that only 0.5% of total transaction volume is represented by private primary market operations, and only 0.6% by the secondary market" (2006).

The Investor Protection Index is a subcomponent of the World Bank's 2007 Doing Business Indicators. The Investment Protection Index consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index) and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indexes vary between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Guatemala scores 3 in the Disclosure Index, against an Organization for Economic Cooperation and Development (OECD) average of 6.3 and a regional average of 4.3. It scores 3 in the Director Liability Index, against an OECD average of 5 and a regional average of 6. Guatemala scores 6 in the Shareholder Suits Index against an OECD average of 6.6 and a regional average of 5.8 (WB 2006).

The Principles

Principle I: Ensuring the Basis for an Effective Corporate Governance Framework

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According to a 2007 publication on corporate governance in Guatemala by Alvarado-Riedel and Cofino, the primary source for corporate governance regulations in Guatemala is the Code of Commerce, which deals with the formation, types, and differences of business associations, shareholder issues, and governance matters. Besides the Commerce Code, some laws, such as the Consumer Protection Law, the Securities and Commodities Market Law, the Banks and Financial Groups Law, and the Competition Law Bill, govern specific corporate governance issues. The following institutions are involved in corporate governance standard setting: the Ministry of Economy, the Commercial Registry, the Consumer Attention and Protection Agency, the Securities and Commodities Market Registry, the Superintendence of Banks, and the Competition Promotion Superintendence. In addition, there are some private sector groups and associations that participate in corporate governance standard setting and enforcement. These institutions include the Guatemalan Bar Association, the Guatemalan arm of the American Chamber of Commerce, and the Agro, Commercial, Industrial and Finance Associations Coordinator Committee (CACIF).

Principle II: The Rights of Shareholders and Key Ownership Function

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In its 2007 publication on corporate governance in Guatemala, Alvarado-Riedel and Cofino state that, generally, the board of directors or a sole administrator manages the company or deals with administrative issues. Shareholders appoint members of the board or a sole administrator at the shareholders meeting. In addition, "[a]ll powers, faculties and authorizations to the board or sole administrator are granted by the shareholders' meeting in the company's articles of incorporation or by-laws. Hence, appointment and removal voting thresholds are normally agreed to by shareholders in the articles of incorporation or by-laws. As a supplementary provision, the Code of Commerce requires a majority decision-making percentage (half plus 1 of the shares present at the shareholders' meeting). The same principle applies for the shareholders' meeting to require the board or sole administrator to pursue a particular course of action" (p. 85). Guatemalan legislation does not incorporate the doctrine of piercing the corporate veil. However, there is insufficient information publicly available as to Guatemala's compliance with this principle.

Principle III: The Equitable Treatment of Shareholders

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According to a 2007 publication on corporate governance in Guatemala by Alvarado-Riedel and Cofino, the "Guatemalan Code of Commerce and other applicable laws previously referred to do not favor minority shareholders. Minority shareholders rights and protections are scarce in Guatemalan regulations" (p. 85). Majority or controlling shareholders do not owe minority or non-controlling shareholders any duty of care. Moreover, Guatemalan legislation does not incorporate the doctrine of piercing the corporate veil.

Principle IV: The Role of Stakeholders in Corporate Governance

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In its 2007 publication on corporate governance in Guatemala, Alvarado-Riedel and Cofino state that, generally, employees do not play any role in corporate governance. Exceptions can be made in the by-laws. However, there is insufficient information publicly available as to Guatemala's compliance with this principle.

Principle V: Disclosure and Transparency

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In its 2007 publication on corporate governance in Guatemala, Alvarado-Riedel and Cofino state that articles of incorporation, corporate charters, and by-laws are publicly available. According to the Deloitte Touche & Tohmatsu IAS Plus website, Guatemala replaced national Generally Accepted Accounting Principles (GAAP) with International Financial Reporting Standards (IFRSs) effective for 2002 financial reports. In a 2007 overview of the use of IFRSs in Guatemala, Deloitte Touche & Tohmatsu reports that IFRSs are required for all domestic listed and unlisted companies. However, since 2002, the International Accounting Standards Board (IASB) has been continuously revising IFRSs, and there is no publicly available information as to Guatemala's compliance with the most recent set of IFRSs.

Principle VI: The Responsibilities of the Board

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According to a 2007 publication on corporate governance in Guatemala by Alvarado-Riedel and Cofino, the predominant board structure in Guatemala is one-tier. However, by-laws may provide for the establishment of committees as long as they do not interfere with the responsibilities of the board of directors. Companies may create a compliance or control committee, which can be formed by shareholders or certified public accountants. The Commerce Code sets forth the responsibilities of the board of directors, i.e., the power to represent the company and execute the acts and agreements within the company's line of business. The board of banks has additional responsibilities with respect to liquidity and solvency, financial and credit policy, as well as evaluation and control of risks. The board of directors owes a duty of care to the shareholders, the company, and its creditors, and is liable to them for any damages or losses it causes. However, there is insufficient information publicly available as to Guatemala's compliance with this principle.