Oligarchs, Foreign Powers, and the Oppressed Minority: Regulating Corporate Control in Latin America

Corporate law and governance scholarship have traditionally focused on understanding the agency costs that result from unresolved conflicts of interest between shareholders and management. This agency problem becomes trivial when corporate ownership is concentrated, as is the case in many countries outside the United States. In this context, the more pressing agency problem results from conflicts of interest between minority shareholders and controlling shareholders seeking to divert resources at the expense of the former. When ownership is concentrated, legal rules must seek to protect minority shareholders from controlling shareholders, rather than shareholders from managers. In many countries, minority shareholders are afforded this protection via tag-along rights, i.e., the right to be bought out by any person that seeks to acquire a controlling stake in a company. The effectiveness of such a mandatory bid rule has been the subject of vigorous debate. This debate, however, has centered on comparing the approaches followed by the United States and the European Union in regulating sale of control transactions. Latin America offers an unexplored setting in which to address these long-standing issues. The Article starts with an examination of the shareholder structure of Latin American companies, which are characterized by high levels of ownership concentration. Families and foreign entities play a dominant role, a remarkable reflection of the region’s colonial past. Latin American countries have adopted unique approaches in sales of control that attempt to protect minority shareholders without deterring some of the efficient transactions that the traditional mandatory bid rule prevents. A preliminary comparison suggests these local rules outperform the U.S. market rule and the European mandatory bid rule