Cartica presses for Mexican corporate governance changes

Washington, DC-based Cartica Management has called on Mexican regulators, the exchange and issuers to ditch what it calls shareholder-unfriendly practices and charter provisions, joining a trend of US asset management firms pressing for corporate governance changes around the world.

Cartica, an asset management firm focused on active ownership in emerging markets equities, this week challenged two practices implemented by many Mexican companies that the firm says ‘seriously undermine the rights of minority shareholders.’

Specifically, Cartica requested that both the Mexican Banking and Securities Commission (CNBV) and the Mexican Stock Exchange (BMV) require all public issuers in the country to:

• Extend the period for advance notice of shareholder meetings to at least 30 days, from the current 15-day minimum
• Rescind charter provisions that require board approval for a shareholder to acquire 10 percent of the voting shares and exercise its statutory right to nominate a director to the board.

In doing so, Cartica says it is seeking to bring Mexican company practices in line with international best practices and investor expectations.

Cartica is a significant shareholder in two Mexican mid-cap companies and has had multiple discussions with representatives from the CNBV over the last several months to propose possible legal and regulatory solutions to practices and charter provisions among many of the country’s largest issuers that ‘undermine the voting rights of minority shareholders and negatively impact investor confidence in Mexico,’ the firm says in a notice announcing its position. Cartica has also voiced its concerns to senior officials at the BMV, it adds.

According to the firm, it has presented evidence to the CNBV and BMV that during the 2016 proxy season roughly 75 Mexican listed companies, including many of the country’s largest, did not provide notice and particulars of their annual general meetings in time for shareholders to make informed voting decisions.

‘The current 15-day notice period means the proxy services, and indeed the shareholders themselves, cannot meaningfully review the meeting materials before the deadline for sending their voting instructions to their custodians,’ says Mike Lubrano, managing director of corporate governance and sustainability at Cartica. ‘By the time most institutional investors receive notice of the agenda and recommendations from their advisers, it is already too late to exercise their rights.’

Provisions added to the bylaws of dozens of Mexican listed companies in recent years that require board approval for any shareholder to hold 10 percent of the voting shares ‘deprive shareholders of rights specifically granted under Mexican law,’ according to Cartica.

Although Mexico’s Securities Markets Law has long given 10 percent minority shareholders the power to nominate a director, many companies have taken away this right by adding provisions in their bylaws that in effect give the majority shareholders and management blocking power over minority shareholder nominations – arguing that these are anti-takeover provisions – the US asset manager says.

Cartica adds that it has advocated several solutions with the CNBV and BMV, including reforms to the Securities Markets Law, amendment of listing rules, changes to the Mexican Code of Best Practices in Corporate Governance and the issuance of regulatory interpretations.

Cartica is not alone in the US asset management industry in urging reforms. BlackRock, Vanguard and State Street have all boosted their corporate governance teams following pressure from policymakers and clients to demonstrate they are policing the companies they invest in (CorporateSecretary.com, 2/2).

BlackRock also recently wrote to the CEOs of more than 300 companies in the UK to warn them it would vote for increases in executive salaries only if they are matched by increases in workers’ pay (CorporateSecretary.com, 1/27).