copy the linklink copied!2. Colombia case study


This chapter on Colombia describes the important and growing role that company groups play in the Colombian economy and especially among Colombian listed companies, with particular focus on financial conglomerates. It describes the legal framework, regulations and corporate governance code recommendations relevant to the supervision, governance, board duties and responsibilities in company groups, with particular attention to recent legal reforms, including the Financial Conglomerates Law of 2017. It references significant recent case law developments before concluding by highlighting principal issues and concerns, and challenges for future consideration.


copy the linklink copied!Introduction

Since the 1990s, the Colombian financial system has gradually developed from a model of specialised financial institutions, toward the current system known as "multi-bank" model. The system promotes the provision of financial services through subsidiaries, generating economies of scale and, in turn, a greater concentration of ownership and control in the financial system.

Due to the evolution of the multi-bank model, the figure of “holding company” for financial and non-financial companies has gained greater prominence, and so-called “company groups” have become more present in the economy.

Nowadays, company groups are important participants across many sectors of the Colombian economy, and especially, Financial Conglomerates (FCs) play a large part in the country's economic activity.

Colombian groups are not only important for the domestic economy. They are also important regionally, as many of them have become Multilatina groups. This local and regional expansion of financial groups triggered the need to strengthen the regulatory and supervision framework for FCs.

In recent years, there have been important changes, especially with the issuance of Law 1870 in 20171 and its regulatory decrees, which raises the standards of supervision and regulation of FCs and subjects some financial holdings that were previously unregulated to Superintendencia Financiera de Colombia (SFC) supervision.

copy the linklink copied!National context

Business groups in Colombia are responsible for a large share of the country's economic activity and include a highly significant number of the most important Colombian companies. Colombian company groups are not only important for the domestic economy, but also regionally, as many of them have become Multilatina groups.

The most recent study undertaken by the Superintendency of Companies2 in 2018 gathered the following information regarding parent companies and their subsidiaries registered in Colombia3:

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Figure ‎2.1. Holdings and subsidiaries in Colombia
Figure ‎2.1. Holdings and subsidiaries in Colombia

Company groups are important participants across many sectors of the Colombian economy. There are groups whose securities issuers (holdings and subsidiaries) operate in the same sector, for example, cement and construction, commerce or power generation. In such cases, the holding companies participate in their subsidiaries as investors in shares but may also directly engage in the same line of business as the subsidiary.

Colombian companies have a highly concentrated ownership structure, and most of the FCs have a pyramidal structure, although there are a few cases of cross-shareholding structures.

Company groups in Colombia have consolidated in the last ten years due to the international financial crisis of 2008/2009. Colombian FCs acquired many assets locally and in other countries in the region from international banks who found themselves obliged to retrench. Thus, the number of subsidiaries of Colombian FCs abroad increased dramatically, reaching a figure of 223 in 2019 (compared to 29 in 2006).

FCs4 continue to be the main force behind growth in the Colombian financial system. The three largest conglomerates represent close to 60% of the total assets of the system. Large financial and mixed-activity economic groups play the dominant role among Colombia’s listed companies.

In the Colombian Stock Exchange (hereinafter “BVC”)5, 53 listed companies out of 69 stock issuers (76.8%) are part of a company group; 19 of them are holding companies and 34 are subsidiaries. Among the 53 listed companies that are part of a company group, 20 of them make up 100% of the COLCAP index (which groups together Colombia’s 20 largest and most liquid listed companies).

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Figure ‎2.2. Evolution of subsidiaries abroad
Sum of individual assets (assets in millions of dollars and numbers of entities as of September 2019)
Figure ‎2.2. Evolution of subsidiaries abroad

Source: SFC.

Note: Includes all subsidiaries (financial and non-financial) abroad.

copy the linklink copied!Legal and regulatory developments covering company groups

Legal definitions of a company group in Colombia

In Colombia, there are several legal definitions of a company group, each with different coverage and potential implications for different companies and groups:

Law 222 of 1995 defines a corporate group based on the following three criteria:

  • relationship of subordination

  • unity of purpose

  • management

Unity of purpose and management refer to the objective for all entities of the group gathering together to achieve a specific corporate goal set by the parent or controlling company, according to the direction they exercise on the group, without jeopardising the individual development of each company or any activities carried out by them.

The Superintendency of Companies, or when applicable, the Financial Superintendency, will establish the existence of the corporate group in the case of discrepancies (or ambiguities) regarding the originating assumptions.

Commercial law, control assumptions

The Commercial Code considers branches and subsidiaries as those entities that submit their decision-making power to another entity, which is considered a holding company. If the headquarters exercises its decision-making powers or control directly over the subordinate company, the latter will be considered a branch (filial). If such powers are exercised indirectly over the subordinate, the controlled entity will be considered a subsidiary.

According to the article 261 of the Commercial Code, a company is subordinated if it is in one or more of the following cases:

“When more than fifty percent (50%) of the capital belongs to the holding company, directly or through its subordinates, or the subordinates of such entities. For this purpose, shares with preferential dividend and without voting rights will not be computed.

When the holding company and subordinates have jointly or separately the right to vote by constituting the minimum decision-making majority in the board of directors or in the shareholders’ assembly, or have the number of votes necessary to elect the majority of members of the board of directors.

When the holding company, directly or through its subordinates, by carrying out an act or business with the controlled company or partners, exercises influence on the decisions of the company’s management bodies.

Likewise, for all legal purposes, it is subordinated when the control is exercised by one or more natural or legal persons of a non-corporate nature, either directly or through other entities, in which they own more than fifty percent (50%) of the capital or set the minimum majority for decision making or exert dominant influence in the direction or decision making of the entity".

The definition of subordination is broad, so the fundamental determinant is if the decision-making power of a company is subject to the will of one or more other persons. It is worth mentioning that the control presumptions previously indicated are not intended as exhaustive, but merely illustrative, as there may be other forms of control.

Regarding insolvency of non-financial companies, applicable regulation defines company groups as:

"Group of Companies: Groups consisting of natural persons, legal persons, or independent trusts participating in economic activities, related among themselves due to their condition of parent, controlling or subordinated companies or upon most of their capital belonging to or being under the administration of such natural or legal persons, either acting directly or through other persons or through independent trusts”.

In general, the above definitions are not absolute. In each case, the authorities can review the different circumstances and can declare the existence of a group of companies.

Law 1870 of 2017 – Financial Conglomerates Law

The Law defines an FC as “a group of entities with a common controlling shareholder that includes two or more national or foreign entities that carry out an activity of the entities supervised by the SFC, provided that at least one of them exercises such activities in Colombia.

The holding company and the following subordinated entities make up FCs:

a. Entities subject to the inspection and supervision of the SFC and its national and/or foreign financial subordinates.

b. Entities abroad that exercise an activity of the entities supervised by the SFC, and its national and/or foreign financial subordinates.

c. Legal entities or investment vehicles through which the financial holding company exercises control of the entities referred to in subparagraphs (a) and (b) of this article”.

This regulation also stipulates in Article 3 that a financial holding company (FHC) is “any legal entity or investment vehicle exercising the first level of control or significant influence over the entities that make up a financial conglomerate. The FHC is responsible for the compliance with the provisions of this title.

The control and subordination concepts established in Articles 260 and 261 of the Commercial Code (provisions previously specified) will be applied to the FHC. In addition, in the case of the presumption of Numeral 1 of Article 261 of the Commercial Code, ordinary shares with voting rights of those shareholders who cannot have control in accordance with the rules that govern them, shall not figure in the calculation.

copy the linklink copied!Recent legal and regulatory developments covering company groups

With the issuance of the new Law of FCs, the SFC was endowed with new powers and intervention instruments that may also be exercised with respect to the parent companies (FHCs), which are not required to be financial institutions themselves or exclusively engaged in financial sector businesses.

The SFC may issue orders to an FHC related to risk management, internal control, disclosure of information, conflicts of interest and corporate governance; to be applied by the entities that make up the FC. Likewise, it may request information and make on-site inspections of the subsidiaries and even order the FHC to change the structure of the FC provided since the existing one does not allow an adequate disclosure of information or/and a comprehensive and consolidated supervision.

Among the 52 listed companies that are part of FCs in Colombia, three are companies supervised as FHCs under Law 1870 (Grupo Sura, Grupo Aval and Grupo Bolívar), 13 are supervised as subsidiaries (Banco Davivienda, Banco Coomeva, Banco AV Villas, Banco Popular, Alpopular, Banco de Occidente, Banco de Bogotá, Almaviva, Corficolombiana, Bancolombia, AFP Proteccion, Tuya CFC and Banco Caja Social) and 13 are non-financial controlled issuers related to FCs (Promigas, Surtigas del Caribe, Gases de Occidente, Infrastructure Projects, Grupo Argos, Cementos Argos, Odinsa, Celsia, Empresa Energía del Pacífico, Empresa de Energía de Tulua, Grupo Nutresa, Suramericana and Almacenes Éxito).

Of the COLCAP 20 companies, 11 are part of FCs, as follows:

  • Two are FHCs under the terms of Law 1870 (Grupo Aval and Grupo Sura).

  • Four are under SFC supervision, as part of FCs (Banco de Bogotá, Banco Davivienda, Bancolombia and Corficolombiana).

  • Five non-financial securities issuers are part of FCs (Grupo Nutresa, Cementos Argos, Grupo Argos, Celsia and Almacenes Éxito).

All of the above companies are under SFC supervision.

In general, for all Colombian financial entities, regardless of whether they are part of a group of companies or not, the functions of the boards of directors are those established in the commercial law and other regulations in force. Some of the functions that the SFC considers key and non-delegable are:

  • actively participate in the design and approval of strategic objectives and business plans (including levels of capital and liquidity) and products

  • define the governance structure, supervise its implementation and review it periodically

  • Set the policy of selection, compensation and replacement of the most important positions, and follow up on their compliance

  • determine and implement the risk governance structure, which means to define the strategy and risk appetite, review the policies and procedures of risk management, and verify that they are met

  • supervise the administration of the Senior Management

  • monitor the Internal Control System

Another function of the board that deserves special attention from the SFC is the approval of the policies related to conflicts of interest and related party transactions (RPTs).The SFC especially verifies that the corporate governance framework of the entity or FHC contains policies covering the disclosure, approval and monitoring of operations (active, passive and neutral) in which a related party participates. Said policies must establish, inter alia, that these operations must be carried out at market prices and in the interest of the entity.

According to Decree 1486 of 20186, the board of an FHC must comply with at least the following functions and responsibilities, always respecting the autonomy of the subsidiaries and the management responsibility of their governing bodies:

  1. 1. approve the FHC's business plan and review its compliance

  2. 2. approve the Risk Appetite Framework of the FHC, the policies, the early warning system and the manual of the Risk Management Framework (RMF) and verify compliance

  3. 3. decide on the need to take action, and if applicable, follow up on its application and effectiveness, when it is aware of: (i) material variations in exposures to the risks inherent to the FC and deviations from the thresholds and limits of the RMF and (ii) weaknesses in the RMF to perform risk management in accordance with the economies and markets where the FC operates, its level of capital, regulatory framework, business plan, and appetite and risk profile

  4. 4. evaluate, at least once a year, the effectiveness of the RMF order to adequately manage the risks and adopt the appropriate measures

  5. 5. designate the members of the risk committee and approve its regulations

In the case of FCs, the board of the holding company is responsible for issuing policies in this regard and ensuring that they are complied with throughout the entities of the FC. However, governing bodies of the entities individually considered are still responsible for the supervision of the internal control system in each of them, as well as everything that it incorporates.

In order to implement Law 1870, Circular externa 013 of 2019 requires that FHCs must design, implement and maintain an RMF for managing the risks of the FC (contagion, concentration and strategic). In addition, the RMF lets the FHCs have a general knowledge of the risks of the entities that make up a FC, without prejudice to the responsibility of each of those entities to manage their risks and their own business.

Additionally, there is a second relevant Circular 012 of 2019, which presents instructions related to the appropriate level of capital of the FC.

Thanks to the new law that gives the SFC greater authority to oversee and obtain information from HFC of FCs, the SFC expects to have a clearer spectrum of the performance of those boards of directors and their effectiveness in this specific role over the next years.

Since the new Law of FCs came into effect on 6 February 2019, and its regulatory decrees have only recently come into force, it is too soon to assess its implementation.

copy the linklink copied!Colombian Code of Best Practices of Corporate Governance—Country Code

The Colombian Code of Best Practices of Corporate Governance applies to financial and non-financial securities issuers that operate in the Colombian financial market and establishes the principle of comply or explain. The first edition of this country code was published in 2007.

However, subsequent developments outlined below required revision of the original code:

  • the increasing importance of Multilatinas during Colombia’s entry into the OECD accession process, which was initiated in 2013

  • the need to have a legal framework for complex company groups with subsidiaries abroad

increasing market consciousness about the importance of corporate governance, especially concerning duties of boards of directors7, audit committees and independent directors in holding and subsidiary companiesIn September 2014, the SFC, with the support of several private business associations, issued Circular externa 028 of 2014, which launched the New Code of Best Corporate Practices—Country Code.

In its formal structure, the new Country Code is similar to its 2007 version. Consequently, it still identifies five major corporate governance areas, and within them, thirty-three concrete measures on key governance aspects. To allow for better understanding and facilitate progress, some measures are divided into numbered recommendations (in total, 148 recommendations).

The Country Code includes recommendations on the dynamics and operation of the board of directors and control architecture, which address remuneration of the members of the board of directors and of the senior managers, risk management and internal control matters.

This new Country Code includes 23 recommendations aimed exclusively at FCs with an implementation level of 74.98% according to the report of 2018. Some of those provisions are:

  • Annual corporate governance reports for groups should include a clear and integral view of all the subsidiaries, in order to provide an informed opinion of organisation, complexity, activities, size and the corporate governance model of the group to the public.

  • Boards of holding companies should promote a control environment with a consolidated scope that includes all subsidiaries, defining policies and clear reporting lines to have an integrated risk view of the group.

  • Risk management should be managed in a consolidated manner.

  • For some groups, it is recommended to have a chief risk officer with scope and authority over all subsidiaries.

The new Country Code provides a clearer spectrum than the 2007 edition and recommends the development of several corporate policies to define and disclose governance practices in company groups.

This code takes an overall approach to corporate governance of company groups, recommending that the holding company steer the group, without prejudice to the independence of the subsidiaries, including that:

  • The holding company board should have a decision-making process clearly defined, which includes a comprehensive and consolidated vision of the companies that make up the group. The holding company board should have the authority to define the ownership structure, corporate governance model as well as management of conflicts of interests, financial and investment policies of the group.

  • The board or executive committees of parent companies should coordinate responsibilities with decision-makers of subsidiaries.

  • The subsidiary board may decide not to create board committees to deal with certain matters that may be assumed by the holding company or its board committees. However, this is not intended to imply a transfer of the responsibilities of subordinate boards to the holding company.

  • The holding company should require board evaluations for all boards within a group.

  • The holding company board should create a “related parties map” in which board members and executives report their relationships that may create conflicts of interests.

  • The holding company board should establish a formal Related Party Transactions Policy in which it defines the procedure to evaluate, approve and disclose related party transactions.

Consequently, the new Country Code motivates issuers to delegate the functions of the board in a balanced way, ensuring the fulfilment of all essential and inalienable duties. Among such functions are the so-called general strategic-definition functions, the supervision of key matters and the control of the ordinary course of business and governance.

The board of directors may request the advice or technical support of its specialised committees to perform its functions and to take decisions effectively. The Code has 12 recommendations specifically for boards of FCs or company groups.

In addition, the Country Code establishes as a board function: (R.13.1)

“ii. Defining the corporation’s structure. In the case of a conglomerate, the Board of Directors of the parent company will define the structure and/or governance model for it.

ix. Approving the risk policy, identifying and monitoring periodically the corporation’s main risks, including those assumed in off-balance sheet transactions”.

There is no difference in regulatory approach or framework when some or several of the companies are listed or have minority shareholders.

copy the linklink copied!Main elements and rationale for the current regulatory approach

Intra-group transactions, guarantees and commitments

According to current Colombian laws and regulations, there are prohibitions and/or burdens related to the group relationships, namely:

  • Interlocking. Article 262 of the Commercial Code prohibits subordinated companies from in any manner having an interest, quota or share in the controlling companies (circular ownership). Transactions executed contravening this norm will be void.

  • Verification of the Operations' Existence. Article 265 of the Commercial Code sets forth that the inspection, surveillance and control bodies may verify the existence of operations executed by the parent or controlling company with its subordinated companies to confirm the existence or non-existence of such operations or their execution under conditions significantly different to market conditions and being damaging to the state, the partners or third parties.

    In any of the above cases, the supervisory body will be able to apply fines and, if considered necessary, request that such operations be suspended. The above applies without prejudice to the actions of the partners and third parties to obtain the corresponding indemnifications.

  • Special Report. Article 29 of Law 222 of 1995 indicates that, in cases involving a corporate group as defined by the Commercial Code, the management of the controlled companies and of the controlling company must submit a special report each year to the respective Annual General Meeting (AGM), presenting a summary of the economic relationships between group companies during the previous accounting period.

  • Consolidation of Financial Statements. Article 35 of Law 222 of 1995 includes the obligation to prepare, submit, and disclose consolidated general-purpose financial statements (Article 23 of Decree 2649 of 1993 and IFRS 10—Consolidated Financial Statements).

  • Conflicts of Interest. Article 23 of Law 222 of 1995 requires directors and officers in company groups to refrain from participating by themselves or through third parties in activities that represent a permanent conflict of interest with its company, unless expressly authorised by the AGM.

  • Financial Conglomerates. Regarding FCs, there are thresholds and other rules more specific than the general commercial law.

The role and duties of the board with respect to such transactions, guarantees and commitments is addressed in Article 265 of the Commercial Code and Decree 1486, as described above.

Limitations on Active Credit Operations

Article 122 of the Organic Statute of the Financial System establishes limitations on active credit operations:

  • Operations with partners or administrators and their relatives. The authorised operations determined by the National Government and held by the entities supervised by the SFC, with their shareholders holding 5% or more of the subscribed capital, with their administrators, as well as those that they celebrate with the spouses and relatives of their partners and administrators within the second degree of consanguinity or affinity, or only civil, will require approval of the unanimous vote of the members of the board of directors attending the respective meeting.

    In the minutes of the corresponding meeting of the board of directors, a record shall be kept of the compliance with the rules on limits to the granting of credit or maximum limits of indebtedness or concentration of risks in force on the date of approval of the operation.

    In these operations, conditions different from those generally used by the entity to the public may not be agreed, depending on the type of operation, except for those that are celebrated with the administrators to meet their health, education, housing and transportation needs in accordance with the regulations that for this purpose previously determined by the board of directors in a general manner.

Transparency, disclosure and the right to Information

Ownership disclosure of companies in the real sector depends on the type of company. Stock companies are in general reluctant to identify shareholders. In quota companies, such as limited liability companies and simple limited partnership companies, the names of the partners should be reported to the mercantile registry.

However, according to Article 30 of Law 222 of 1995, commercial companies must register Control and/or Business Group situations and its amendments in the public commercial register kept by the Chambers of Commerce corresponding to the registered office of the parent company and the subsidiaries.

Current accounting norms include the obligation to make significant disclosures. For instance, IFRS 12 and Section 9 require disclosure of information related to the nature of company participation in other entities, the associated risks and the effects they may have on the controlling persons. Other examples include IFRS3 Business Combinations, IFRS10 Consolidated Financial Statements, IAS 1 Presentation of Financial Statements and IAS 24 Related Party Disclosures.

Regarding ownership and control structure, issuers of securities that are part of a group must disclose8 to the Registro Nacional de Valores y Emisores (RNVE) the control situation as part of “relevant information”. In addition, any change in the ownership structure of the issuer that exceeds 5% of its subscribed capital must be immediately reported to the market as relevant information through the RNVE.

Financial institutions must file the Form 529 to the SFC, which lays out shareholding structure, detailing holdings above 1% of capital up to the third level of ownership, and Article 53 of the Organic Statute of the Financial System (EOSF) empowers the SFC to require at any time any information on beneficial owners of their capital.

Overall, listed companies and financial institutions must disclose:

  • Changes in the issuer’s control situation, in accordance with the provisions in Articles 260 and 261 of the Commercial Code, whether the case of exclusive or joint control.

  • Changes in shareholder structure, equal to or greater than 5% of the outstanding shares of the company, either directly or indirectly, through natural or legal persons with which a sole beneficial owner is settled.

  • Capital investments in domestic or foreign companies involving a subsidiary relationship.

In the case of conglomerates, disclosure of information related to the group of companies to third parties is comprehensive and transversal, which allows outside parties to form an opinion based on reality, organisation, complexity, activities, size and the Conglomerate’s governance model. (Recommendation 30.2 Country Code).

Recently, the SFC issued Circular externa 018 of 2018 that regulates the information regarding the share composition reports of entities monitored and/or controlled, shareholders of the first, second, third level and persons who exercise final effective control.9

Disclosure of aspects of ownership and control

In addition to share ownership, supervised entities and issuers must reveal the controller, the beneficial owner10 and the structure by which control is exercised. In the case of issuers of securities, the type of action and whether it confers a vote or not must be disclosed.

In the case of registration and disclosure to the market done through the Chambers of Commerce11, this includes the controller—who determines the decisions in the company or group of companies—and the entire chain of ownership through which such control is exercised, should it be indirect.

As provided in #12, Lit. b) of Article of Decree 2555 of 2010, shareholder agreements must be disclosed immediately as relevant information, once they have been deposited in the registered office of the company12. Additionally, if a person exercises control or joint control occurs because of a shareholder agreement or other type of contract, , there is an obligation to register such a situation before the Chamber of Commerce, indicating the ground that settles it.

Rights to information

In general, minority shareholders have the right to access the information held by any other shareholder in the AGM by exercising the right of inspection.

Subsidiaries abroad have confidentiality limits established in the local law regarding access to information, however Colombian authorities have access to public information such as financial information.

Requirements related to treatment of shareholders

Regarding non-financial companies, Article 24 of Law 1564 of 2012 establishes the General Procedural Code and gives the Superintendency of Companies exclusive jurisdictional powers to review the validity of votes at the AGM in case of a shareholder’s abusive use of the right to vote (for both listed and non-listed companies).

Specifically, this regulation refers to “the total annulment of a decision adopted in abuse of the right on the grounds of illicit purpose and compensation for damages in the case of majority, minority and parity abuse when shareholders do not exercise their right to vote in the interest of the company and for the purpose of causing damage to the company or to the other shareholders or of obtaining unjustified advantage for themselves or a third party as well as when the vote may result in damage to the company or the other shareholders.”

In addition, Colombian legislation establishes special mechanisms for the protection of minority shareholders such as those in Article 141 of Law 446 of 1998, under which any group of shareholders that represent less than a 10% participation in a company and are not represented on its board, can request the intervention of the SFC whenever they consider that a decision by the shareholders’ meeting, the board or an enterprise’s legal representatives is directly or indirectly detrimental to their rights.

Regarding securities issuers, Article 40 of Law 964 of 2005 covers “protection of shareholders. When a plural number of shareholders representing at least five percent (5%) of the subscribed shares submit proposals to the boards of the registered companies, said bodies must consider them and answer them in writing to those who have made them, indicating clearly the reasons that motivated the decisions”.

Other important norms establish exit rights in the event of a merger, spin-off or transformation and high voting quorums for sensitive matters such as profit distribution (78% quorum); the issue of ordinary shares placed without being subject to preferential rights (70% quorum); and payment of dividends in the form of treasury shares (80% quorum).

copy the linklink copied!Recent case law developments

Regarding non-financial company groups, there are two important instances of case law about company groups:

  • Industrial Hullera S.A. was a Colombian company dedicated to the extraction of coal. It had as parent three important Colombian companies which held 96.73% of its capital and at the same time bought 99.20% of its production below market prices. Those three companies exercised joint control over Hullera S.A.

    The coal company had many problems caused by the mismanagement of its parent companies and labour liabilities, and went into bankruptcy. The Supreme Court declared the parent companies responsible for the bankruptcy and in addition ordered them to pay all the debts of its subsidiary. Finally, in 2015, the Superintendency of Companies declared the liquidation of the company.

  • Almacenes Éxito S.A. is the largest retail company in Colombia, and it is a Grupo Exito subsidiary. In July 2015, Almacenes Éxito (AE) announced its intention to expand its operations regionally through the acquisition of 50% of the shares of GPA in Brazil and 100% of the shares of Libertad in Argentina, using both cash and credit from a consortium of domestic and foreign banks. AE is ultimately controlled by Casino (holder of 55% of shares), a French-based company which also fully controlled GPA Brazil (through an intermediary firm, Ségisor) and Libertad Argentina (through a pyramidal structure).

    AE followed several procedures in accordance with Colombian regulations and good corporate governance practices, particularly with respect to RPTs and the management of conflicts of interest.

    First, two external independent advisors were hired to assess the fairness of the transaction; one of them exclusively advised AE, while the other advised both AE and Casino. Second, the nomination, compensation and corporate governance committee acknowledged the transaction as an RPT and analysed the appropriateness, conditions and prices of the transaction to ensure it would be conducted at arm’s length. Also, the conflict of interest committee was convened to issue a few recommendations to be followed in the discussion and approval of the proposed transactions, given the evident conflict of interest for some of the board members.

    Finally, after receiving the external appraisals and recommendations of both committees, the board met and decided (without the participation of interested board members) to submit the proposal for approval of the transaction to an extraordinary shareholders meeting. The transaction was finally approved by a 66% majority vote of shareholders in August 2015, which included the votes of the controller (Casino) and certain minority shareholders.

    Despite following established procedures, a significant portion of minority shareholders openly expressed their refusal to approve the transactions on the grounds that additional information and analysis were needed. Indeed, the market reacted negatively to this transaction, at least in the short-term when the value of the stock dropped more than twice the COLCAP market index between July and August.

    A minority shareholder filed a claim against AE for the inefficacy of the decision taken by the shareholders extraordinary meeting13, because he considered the decision should have been approved by the board of directors rather than by the shareholders meeting. In the first instance the Superintendency of Companies supported the claim of the minority shareholder, but in the second instance the Superior Tribunal of Bogotá granted AE´s appeal and annulled the judgement of the Superintendency.

copy the linklink copied!Principal issues and concerns with respect to corporate governance in company groups

The Financial Superintendency devotes considerable resources to monitoring and reviewing transactions among company groups and FCs. Academic studies of Colombian groups have found that companies affiliated with company groups actually enjoy better market valuation and better performance than non-affiliated entities. However, there are some issues regarding corporate governance in groups that could be considered as concerns, among others:

  • The strong presence of company groups with high ownership concentration, combined with use of preference shares and cross-shareholdings or pyramidal structures could increase the differentiation between cash flow and control rights, and may cause risks to the minority shareholder(s). In addition, they may use intra-group transactions to extract private benefits that are not shared with outside investors in the group.

  • The low trading volumes and a gradually diminishing number of listed companies on the BVC, as well as concentrated ownership in the context of large conglomerates result in the regulatory and supervisory authorities strongly focusing on tracking ownership structures and related party transactions among companies within these groups. In this regard, authorities must ensure adequate disclosure and to require appropriate treatment of conflicts of interest.

  • The expansion of company groups has increased demands on corporate governance systems, including on the composition of boards of directors in subsidiaries, risk management and compliance assurance, the interaction between internal and external audit mechanisms and treatment of foreign minority shareholders.

  • Previous situations exposed the need for new regulatory standards to promote, among other things, the strengthening of the supervision of FCs. The Colombian set of FC regulations represent, on the one hand, a strengthening of the surveillance perspective of the SFC, and on the other hand, requires higher standards from the FCs.

Country code

According to the 2018 Implementation Report, some of the recommendations with lower levels of implementation among issuers which are partially related to FCs were:

  • Recommendation 22.2. (52.32%) The company’s policy on operations with related parties addresses the following aspects: i. Assessment, ii. Approval, iii. Disclosure. Only two of the four biggest FCs in Colombia adopted this Recommendation.

  • Recommendation 19.9. (61.90%) On an annual basis, the board of directors evaluates the effectiveness of its work as a collegiate body, as well as the effectiveness of its Committees and individual members, including evaluation by peers. Only two of the four biggest FCs in Colombia adopted this Recommendation.

  • Recommendation 21.4. (66.67%) Relevant conflicts of interest, understood as those that would force the affected person to refrain from attending a meeting and/or voting, have been included in the public information published on an annual basis by the company on its website. Only three of the four biggest FCs adopted this Recommendation.

Conclusions: Improvements Needed and Corporate Governance Challenges

The Colombian government, regulators and supervisory entities have made efforts to introduce requirements to strengthen the corporate governance of company groups. Law 1870, its decree and the Circulares externas define the scope of the supervision of FCs in Colombia with the purpose of ensuring the stability of the financial system. Among the intervention instruments provided for in the law is to give instructions related to corporate governance, conflicts of interest, disclosure of information and internal control that must be applied by the entities that make up an FC.

The compliance with the new Country Code by company groups has increased considerably year to year. It indicates that companies have seen the positive effects of implementing corporate governance practices in their businesses. The SFC has found higher standards of administration and management, higher levels of transparency, increasing trust on the part of financial consumers and minority shareholders in entities.

Some other important advances seen in companies after implementing corporate governance in company groups are:

  • They established support committees for the board to make their work more effective and take the right decisions in a timely manner.

  • They defined high standards in control environments in order to get a consolidated vision of risks that gathered all the business of its subordinates.

  • They have robust information mechanisms given the complexity of their businesses, which make them be more trusted in the market.

However, there are further implementation efforts that are needed in company groups to improve their corporate governance and the professionalism of all agents:

  • strong improvements in the processes of identification, disclosure and administration of conflicts of interest and RPTs

  • strengthening the independence and professionalism of the boards of directors and their support committees (e.g. investments, risks, auditing and administration of conflicts of interest)

  • adequate board consideration of products and services offered by supervised entities (including governance issues related to advice, transparency, incentive alignment and quality of management vis-à-vis investors)

  • a much more effective control architecture

In addition, considering the dynamism and evolution of the market, Colombian governmental entities have some challenges to make company groups implement into their internal corporate governance the following aspects:

  • continue advancing in the strengthening of corporate governance, in line with the G20/OECD Principles of Corporate Governance

  • achieve greater transparency around the risks associated with the business and its management, including environmental, social and governance factors (ESG)

  • educate all market players about the benefits of implementing good corporate governance practices

  • innovate in mechanisms of relationships with investors


Ministry of Finance and Public Credit of Colombia (2018), Decree 1486 of 6 August,

OECD (2015), G20/OECD Principles of Corporate Governance, OECD Publishing, Paris,

SFC (2019), Corporate Governance Regulations,

SFC (2017), Law 1870 of 2017 on supervision and regulation of FCs,


← 1. Law 1870 of 2017 on supervision and regulation of FCs can be found in Spanish on the SFC website.

← 2. The Superintendency of Companies regulates and supervises commercial companies, branches of foreign companies, sole proprietorships and any other entities determined by Colombian law. However, if any of those companies are issuers of securities, the supervision is shared with the Financial Superintendency (SFC) whose control function is limited to verifying that issuers adjust their operations to the rules that regulate the stock market and to ensure the timeliness and sufficiency of the information that must be reported to the stock market.

Likewise, the Superintendency of Companies shares the supervision function with the SFC regarding financial holding companies. The first organisation supervises the holding companies, while the SFC supervises them only in relation to the topics established in the law 1870 of 2017 and its regulation (risk management, adequate levels of capital and corporate governance).

In addition, the SFC maintains the objective to supervise the Colombian financial system in order to preserve its stability, security and confidence, as well as to promote, organize and develop the Colombian stock market and the protection of investors, savers and policyholders.

This means that the SFC exercises inspection, surveillance and control over people who carry out financial, stock exchange, insurance and any other activities related to the management, use or investment of resources obtained from the public.

← 3. According to the Colombian Commercial register.

← 4. Under supervision of the Financial Superintendency of Colombia (SFC)

← 5. As of 31 December 2018.

← 6. Decree 1486: August 6, 2018 Regulation on related parties, conflicts of interest and limits of exposure and concentration of risks can be found in Spanish on the Colombian government website.

← 7. Colombian Country Code Recommendations regarding boards of directors, specifically for FC or company groups can be found on the Superfinanciera website.

← 8. Lit. b), # 9 of Article 5.2 .4.1.5 of Decree 2555 of 2010.

← 9. The Circular establishes that issuers must disclose their 25 principal direct shareholders, the second and third level shareholders and the final beneficial owner, the latter, regardless of the level where it is located.

← 10. According to Colombian legislation, a beneficial owner is understood as any person or group of persons who, directly or indirectly, by contract, agreement or otherwise, has the right or the power to vote in the election of managers or, to lead, guide and control that vote regarding a share.

← 11. The Chambers of Commerce are private entities (non-profit organizations) with delegated regulatory functions, according to Law 28 of 1931, such as the maintenance of public registries. The Chambers of Commerce are the authorized entities in Colombia to perform the functions as a Public Mercantile Registry. There are 57 Chambers of Commerce and each of them has a territorial scope. The Superintendency of Industry and Commerce has the attribution to supervise and sanction Chambers of Commerce.

← 12. As provided in Article 43 of Law 964 of 2005

← 13. In Colombian law inefficacy means the decision does not produce effects in law, while nullity, means that the decision produces effects until an authority annuls the decision.

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