Saturday, September 09, 2006

Mexican Election Post #26

Last year, as a part of the celebration of the 25th Anniversary of the Universidad Anáhuac del Sur School of Business, the school held a fascinating discussion of the Mexican version of Sarbanes Oxley - which seemed at the time to be much better drawn than its American counterpart. The intent of this kind of law is to improve disclosure standards for publicly traded corporations. In yesterday's WSJ,Anastasia O'Grady, did a story about an effort by Ricardo Salinas Pliego who filed suit against those new laws especially as they relate to treatment of minority shareholders, insider trading, increased financial disclosure, the creation of an all-independent audit committee and efforts to give security and banking regulators the ability to investigate.

O'Grady quotes a Calderon aide who commented that the President elect's policies will try to take some of AMLOs issues, "Without a doubt the next government of Mexico must have a clear social leaning. Without a doubt this must be one of the priorities, if not the priority." O'Grady then suggests that Calderon may be supportive of continuing some of the monopolies that have slowed economic growth in the country, including ones like Carlos Slim who owns almost all of Mexico's telecom industry and has resisted competition.

Salinas Pliego's company, which is in television, moved out of the US when regulators began to look at the businesses' disclosures. And his current attempt to forestall reasonable levels of security regulation is a good example of one of the perils that face the country. If Mexico allows itself to be hidden outside of world class transparency, the chances for the kind of dynamic growth that it needs will be very slim (not to make a pun).

So Calderon needs to steer a very careful course. Slim has made the case that his billions of monopolies somehow protect the poor. An odd argument, but one which has had sway in Mexico for a long time. Mr. Zedillo made some steps to dergulate the economy and to improve reliability of the financial markets. That was continued, albeit a bit more slowly, under Mr. Fox. The securities laws are a lynchpin for the long term health of the economy.

In the 1920s a professor at Columbia, who eventually became a mentor of a whole series of legendary US investors, named Benjamin Graham, began a quest to improve the disclosure standards for US publicly traded companies. His classic text, Security Analysis, was used as a basis for evaluating corporations for investment for decades. The key to Graham's work is the availability of reliable financial information about companies that are traded publicly. Ultimately that also requires some level of regulatory efforts - if for no other reason than to assure that the data which public companies put out is traded.

We always come back to the vochongo (There is a long post on the definition of this term in an earlier post but the short definition is a word which everyone uses but no one really has a clear definition of) of transparency. Clearly, if you want to participate in the global economy, your economic system needs to have some basic information about both itself and the major parts of it (including things like publicly traded companies) available. If the efforts by Salinas Pliego and Slim are successful and if Calderon equates Slim's needs with "clear social leaning" then the last several months of struggle will have been for naught. I believe Mr. Calderon's people understand this very delicate balance.

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