In November 2003, the Organization for Economic Co-operation and Development (OECD) published a White Paper on Corporate Governance in Latin America in which it provides a summary review of Bolivia's initiatives on corporate governance. According to the paper, the Bolivian government drafted a bill in early 2003 titled the "Law on Governance of Stock Companies" which was presented to the Bolivian congress in November 2003. The White Paper notes that many companies expressed opposition to its content. As of 2008, no further information was available on the status of the above-mentioned bill. Further, the paper points out that in 2002, as an outcome from the privatization process, the government enacted a law specifically for "capitalised" public companies, which covers various aspects of corporate governance. In addition, the banking regulations include various governance requirements for banks and other financial institutions with regards to creation of audit committees, participation of directors on credit committees, regulation of activities of internal supervisors and rotation of external auditors. A Donors Memorandum available on the Inter-American Development Bank website points out that the securities exchange is in an early stage of development in Bolivia. The Memorandum explains that this is not only due to the size of the companies but also because of an "adverse business culture" that lacks transparency and accountability. Overall, there is insufficient publicly available information directly addressing Bolivia's compliance with OECD's principles of corporate governance.

General Overview

According to a Donors Memorandum available on the Inter-American Development Bank (IDB) website, the securities exchange is in an early stage of development in Bolivia and it trades only stocks and bonds. The Memorandum explains that "this is mainly because of the size of the companies, but it also has to do with the existence of an adverse business culture that does not uphold the principles of reliability, transparency, or accountability" (pp. 3-4). In November 2003, the Organization for Economic Co-operation and Development (OECD) published a White Paper on Corporate Governance in Latin America in which it provides a summary review of Bolivia's initiatives on corporate governance. According to the paper, the Bolivian government drafted a bill in early 2003 titled the "Law on Governance of Stock Companies" which was presented to the Bolivian congress in November 2003. The White Paper notes that many companies expressed opposition to its content. As of 2008, no further information was available on the status of the above-mentioned bill. Further, the paper points out that in 2002, as an outcome from the privatization process, the government enacted a law specifically for the "capitalised" public companies which covers various aspects of corporate governance, including supermajority shareholder vote requirements for the sale of assets or realization of major investments. In addition, the banking regulations include various governance requirements for banks and other financial institutions with regards to creation of audit committees, participation of directors on credit committees, regulation of activities of internal supervisors and rotation of external auditors. As of 2003, the White Paper notes, a Centre of Corporate Governance was in the process of being established. Also, a 36-month long IDB project was initiated in 2006 with the objective of harmonizing Bolivian accounting and auditing standards with International Financial Reporting Standards and International Standards on Auditing.

In line with the Bolivian Code of Commerce, legal business can be conducted in the form of corporations, private companies, general partnerships, limited partnerships, limited partnership companies, branch companies of a foreign-owned business, and sole proprietorships. Corporations, private companies and branches are the most common forms of business in Bolivia (Advertising and Marketing n.d.). The Code of Commerce provides the general guidance for commercial activities and requires that all businesses keep accounting records and accounting be conducted by legally authorized accountants. The Superintendency of Pensions, Securities and Insurance (SPVS) is the securities supervisor in Bolivia. Its role as the supervisor is set out in the Securities Market Law. A 2004 report by the U.S. Department of Commerce (U.S. DoC) notes that the securities regulator was in the process of drafting several regulations that will prevent hostile takeovers and protect minority shareholders. Also, the U.S. DoC notes that there is generally positive agreement about the urgency of passing a law on corporate governance.

The Bolivian Stock Exchange (BBV) is the only stock exchange operating in Bolivia and acts as a self-regulatory organization. The BBV is empowered by the Securities Market Law to establish its own internal regulations that govern its activities as well as the activities of its members. It is a corporate entity whose members are the brokerage houses that transact on the exchange and they are also its shareholders. Its main functions, per the 2006 CEMLA/WB report, include registering securities, providing trading facilities to its members, providing accurate and timely information about securities traded and their issuers, supervising brokerage houses that are its members, and solving member disputes. The BBV accepts the registration of securities that are already registered in the Securities Market Registry (RMV) and are publicly offered on the exchange by their issuers.

In its 2009 Doing Business report, the World Bank rates investor protection in Bolivia as being below the regional and the OECD averages. The Investor Protection Index is a subcomponent of the World Bank's 2008 Doing Business Indicators, and consists of three aspects 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 indices range between 0 and 10, with higher values indicating greater disclosure, greater liability of directors, and greater powers of shareholders to challenge the transaction, and therefore, better investor protection. Bolivia scores 1.0 in the disclosure index, against a regional average of 4.1 and an OECD average of 5.9. It scores 5.0 in the Director Liability Index, against a regional average of 5.0 and an OECD average of 5.0; and it scores 6.0 in the Shareholder Suits Index, against a regional average of 6.0 and an OECD average of 6.6.

The Principles

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

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For a corporation to legally exist, it must fulfill all the requirements of the Commercial Code. Further, corporations organized by private subscription must have: at least three shareholders; 50 percent of authorized capital subscribed; and statutes approved by shareholders. Publicly subscribed corporations must submit a report to corporation management identifying the promoters; the number and type of shares; subscription terms; by-laws; and other requirements set forth in article 224 of the Commercial Code (Advertising and Marketing Review n. d.). The SPVS is the securities supervisor of Bolivia. Its role as the supervisor is set out in the Securities Market Law. A 2004 report by the U.S. DoC notes that the securities regulator was in the process of drafting several regulations that will prevent hostile takeovers and protect minority shareholders. Also, the U.S. DoC notes that there is generally positive agreement about the urgency of passing a law on corporate governance. Nonetheless, the publicly available information does not address Bolivia's compliance with this principle.

Principle II: The Rights of Shareholders and Key Ownership Function

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According to a 2003 paper by Capaul, "there is a widespread perception among Bolivians that the controllers of some "capitalized companies" understate profits or transfer them out of the company through related party transactions or other means ("tunneling")" (p. 9). The paper explains that such practices can be detrimental to minority shareholders and has therefore, generated a debate on how the capitalized companies should be governed to ensure that their activities are conducted in the best interest of the company and all shareholders. The paper adds that policymakers across the region recognize the significance of strengthening minority shareholder rights by lowering the percentage of capital or voting rights necessary to initiate corporate actions. However, the publicly available information does not address Bolivia's compliance with this principle.

Principle III: The Equitable Treatment of Shareholders

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A 2004 report from the U.S. Department of Commerce notes that the securities regulator was in the process of drafting several regulations that will prevent hostile takeovers and protect minority shareholders. The 2003 report by Capaul also states that Bolivia allows cumulative voting to strengthen the minority shareholders, instead of the traditional statutory voting.

Principle IV: The Role of Stakeholders in Corporate Governance

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There is insufficient publicly available information as to Bolivia's compliance with this principle.

Principle V: Disclosure and Transparency

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According to the 2009 World Bank Doing Business indicators, Bolivia achieves a score of 1.0 compared to a 4.1 regional average and a 5.9 OECD average for the Disclosure Index, which evaluates the transparency of transactions. The index varies between 0 and 10, with higher values indicating greater disclosure to challenge the transaction, and better investor protection. There is no other assessment publicly available that directly addresses Bolivia's compliance with this principle.

Principle VI: The Responsibilities of the Board

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According to the 2009 World Bank Doing Business indicators, Bolivia achieves a score of 5.0 compared to a 5.0 regional average and OECD average for Director Liability. The indexes vary between 0 and 10, with higher values indicating greater disclosure to challenge the transaction, and better investor protection. There is no other assessment publicly available that directly addresses Bolivia's compliance with this principle.