Public corporate governance and administrative morality

Last week, the Mayor of Medellín and the General Manager of EPM dealt a mortal blow to the Corporate Governance system of the largest utility company in Latin America. They did so by disregarding the Board of Directors as the highest governing body and by adopting transcendental decisions that were within its competence, such as the last-minute decision to submit to conciliation (non-binding), before the Procuraduría, the claim for 9.9 billion pesos against the builders, interveners and designers of the Hidroituango project. This act transgressed its Bylaws, its Code of Good Governance, the Framework Agreement of Relations between EPM and the municipality of Medellín and the Board of Directors' regulations (especially regarding the rights of the members of the Board and the functions of the Mayor as Chairman of the Board).

The effects of this legal and institutional transgression were devastating; its Board of Directors -in full-, for obvious reasons, was forced to resign, the international rating agency Fitch Ratings lowered its international rating in local and foreign currency from BBB to BBB(-) and kept it in negative observation, the Association of Pension Funds (whose investments in EPM securities amount to three trillion pesos) demanded respect for Corporate Governance and transparency in the entity; and the public unions (and the vast majority of employees except for those freely appointed and removed) expressed their dismay and concern about this fact. This unusual management of power, contrary to the institutional framework, has not only put at risk the largest hydroelectric project in Colombia, but will also negatively affect EPM's finances, as the entity is already on the verge of losing its investment grade, which will substantially increase its debt of US$5 billion.

Now, this is not only a local problem of the “paisas” or of the pension fund savers who see their investment affected; this is a problem of Colombia before the international community. When Colombia was accepted into the Organization for Economic Co-operation and Development (OECD), the country assumed multiple commitments related to addressing the recommendations made by the Organization. In 2015, the OECD issued the "Guidelines on Corporate Governance of State-Owned Enterprises", which highlights the obligation of the same to have a high degree of transparency and internal disclosure of relevant information for proper decision making. It also emphasizes the leadership role of the Chairman of the Board of Directors to "promote effectiveness and efficiency" in the management results of the same. Colombia will have to explain to the OECD, in its annual report to the Public Governance Committee, what measures will be taken to ensure that this situation does not happen again.

Administrative morality is a collective right that all Colombians have. Seen from the perspective of this case, it is the right we must have our resources and our patrimony managed with transparency by those who govern us. This right may be affected when there is a deviation of power that transgresses the principle of legality, as happens when the corporate governance system of a public entity is disregarded.