Corporate Governance and Growth Strategy at Capital SAFI

Corporate Governance and Growth Strategy at Capital SAFI

Jorge Quintanilla Nielsen started the independent asset management firm Capital SAFI in 2007. Now a leader in Bolivia’s closed-end funds industry, with a total of $430 million in assets under management, Quintanilla planned to expand into other countries, like Peru and Colombia. He knew that governance would be one of the main aspects potential partners would evaluate.

Capital SAFI’s board had evolved over time with the establishment of a governance committee, an assessment process for the board, professional development offerings for board members, tools to manage governance risk, and succession plans for board members and company executives. Would local and foreign investors be impressed by those measures or were additional improvements needed?

BRIAN KENNY: Hey, Cold Call listeners. If you’re anything like me, you may have daydreamed about what it would be like to step back from your daily grind and ease into semi-retirement by sitting on a few corporate boards. I mean, how hard could it be? You go to a few meetings, ask a couple of questions to show that you read the prep materials, and collect a sizable check for your efforts. Well, I hate to burst your bubble, but corporate governance ain’t what it used to be. According to Fortune magazine, in 2021, board meetings increased by 19% – and tensions are high with 47% of board leaders saying they wish that a fellow director would quit. And they’re expected to know a lot about technology, strategy, finance, operations, and people. As if that weren’t enough board members face growing pressure to act on environmental, social, and governance issues. Gone are the days of shareholder primacy. The fact is that these days, corporate boards are expected to earn their keep. And that can be a good thing for the rest of us. Today on Cold Call we’ve invited Professor V.G. Narayanan to discuss the case entitled, “Building the Governance to Take Capital SAFI to the Next Level.” I’m your host, Brian Kenny, and you’re listening to Cold Call on the HBR Presents Network. V.G. Narayanan studies management accounting with a particular focus on performance evaluation and incentives. He’s a first timer on Cold Call. V.G., thanks for joining me today.

BRIAN KENNY: This is a really interesting case and we were hoping to have the protagonist here with us today, Jorge Quintanilla Nielsen. Unfortunately, he wasn’t able to join us at the last minute, but I know you can tell the story. You wrote the case. You had two co-authors joining you on the case. One is Asis Martínez-Jerez, the other is Mariana Cal. So this is a case that takes place in Bolivia. And we’re going to talk about corporate governance as it applies there, but I think the lessons that come out of the case are broader and can apply to corporate governance anywhere. Let me ask you to start just by telling us what the central theme of the case is. And what’s your cold call when you start the case in class?

V.G. NARAYANAN: So, let me start with the second question – what’s my cold call? I cold call a student and I’d want them to say, “What changes would you make to corporate governance at Capital SAFI?” I like to start with an action-oriented cold call, and so this puts them on the spot. And it’s a little bit of a red herring because I think this is very, very good. So, I’m filled with extreme curiosity to know what my students are going to say on how to improve this, because if I knew what would improve corporate governance here, I would’ve already told Capital SAFI because Jorge was my student in GMP and the AMP. So I wrote this case because I thought they’re doing something terrific and amazing in terms of corporate governance.

BRIAN KENNY: Yeah. And how does this relate to the kind of things that you think about as a scholar?

V.G. NARAYANAN: So, for me, this is a very good lab. Because it’s a private company, it’s not required to do most of the things that it does in the realm of corporate governance. Yet, we see mostly corporate governance and public companies, and we never ask the question, Are those institutions there, are those practices there because they required to have those? You know? Maybe regulatory overreach? Or is this something inherently valuable that even in the absence of regulation, some of these things would be there? So, that’s why this is very interesting for me to see a private company that has sort of gone beyond what they’re required to do because they see inherent value in good corporate governance.

BRIAN KENNY: Yeah. And I think that corporate governance is one of those topics that people don’t necessarily spend a lot of time thinking about. They know there’s a board there. They don’t really know necessarily what the board does. And I was being a little sarcastic in my opening, but I do think people see it as kind of a cushy job. Well, if they read this case, they won’t think that anymore. Right?

V.G. NARAYANAN: Well, particularly if you’re not required to do it, you’re going to be very careful that you get what you pay for. So, you are going to be very demanding of your board. And be careful what you ask for. When the board shows up, they’re going to be demanding of you. It’s like holding each other accountable and to a high standard. And that’s precisely what they’ve done.

BRIAN KENNY: So, let’s talk a little bit about Capital SAFI. What business are they in? Just so our listeners kind of can ground themselves there. And they’re an investment firm, but what do they invest in?

V.G. NARAYANAN: So, they’re an asset management company and they invest a little bit more than half in private debt. They also have some sovereign debt and public debt, but I would primarily say they are in private debt in Bolivia, and they’re the largest such company in their segment. And they have like four funds within Capital SAFI that focus on four different sectors.

BRIAN KENNY: Yeah. And I mentioned Jorge. He is the protagonist in the case. He’s the founder of the firm. Can you tell us a little bit about his background and why he decided to start the firm?

V.G. NARAYANAN: I believe Jorge came to the US from Bolivia when he maybe was 14 years old or something. Completed school right here, and definitely entered his undergrad in Georgia. Then he went to Kellogg where he got his MBA. And he worked, I think, in the US for a while. And then he went back to South America, worked at Citibank. And I think the startup bug caught up with him and he wanted do something on his own. And he saw there were certain practices that he was familiar with, certain institutions that were happening that were not happening in his home country in Bolivia. So, he wanted to be the change that he wanted to see. So, he went back to Bolivia and set up Capital SAFI. There are a lot of things that he was pioneering like even the first commercial paper that was issued, things like that, and certainly setting up this asset management company is another one where he certainly one of the pioneers in Bolivia.

BRIAN KENNY: Yeah. I think the case mentions that his parents thought he was crazy not to stay. He was on a great path, he was with Goldman Sachs. Yeah.

V.G. NARAYANAN: He had excellent jobs. You know? He had a great educational qualification. I think his dad was a physician and mom was an artist. And so, a well-paying salary job was something that they thought, “Why would he walk away from that?” And he wanted to do something different.

BRIAN KENNY: Yeah. So, how is Capital SAFI different than other institutions like it in Bolivia? Are there things that make it sort of distinctive?

V.G. NARAYANAN: So, I would contrast them with other institutions in other developing countries more broadly than just Bolivia. I would say very often asset management companies or most companies tend to be part of a conglomerate, and it’s like so and so business house has this new asset management company. And that’s good for the investors because they know that name, that family name is behind this company. So they can invest more confidently. The regulators sort of know who they’re dealing with. And even the companies where they’re investing in, they know where the money is coming from. Right? So, all around, if you’re coming from a conglomerate, a business house, it’s sort of the known devil. Here’s a situation where Jorge doesn’t come from established family. And he’s sort of a professional manager trying to start something from ground up in a space where reputation is extremely important. You know? When it comes to dealing with other people’s money, everyone worries. The first thing is like, How is my money safe? The investors, the regulators, and even the companies where you’re investing your money, worry about who is this person behind the money. And so, reputation becomes important. So how do you crack this? Where do you start if you don’t have a reputation to build on that for the last several generations, your family’s like a well-known name? I think that’s where he was very clever to sort of use corporate governance, and board members, and professional management, and professional education to sort of make up for that. And in fact, sort of lead with your weakness is to convert that into strength. It’s to say, “We may not have been around for a hundred years, but, boy, everything we do is squeaky clean. And we are going to set the bar for professional management and corporate governance. And that’s what you’re going to trust.”

BRIAN KENNY: Yeah. And squeaky clean matters a lot in this part of the world. We’ll talk about that in a little bit because corruption is a problem, not just there, but in many parts of the world.

V.G. NARAYANAN: Squeaky clean is important all over the world.

BRIAN KENNY: Yeah, yeah, exactly. Well, how would Jorge’s team describe him? What kind of a leader is he?

V.G. NARAYANAN: So, I think they would describe him as very objective and data driven and very democratic. And if we are looking for a third adjective, I would say a big believer in empowerment, decentralization, and educating people that work for him. He is a strong believer in business education.

BRIAN KENNY: So, let’s talk about the board. Let’s talk a little bit about the composition of the board. But I’m wondering how he was able to convince people to join him in this effort and what his expectations are for them when they come onto the board.

V.G. NARAYANAN: I think the way he convinced people to join the board is that he started out small and he would bring in directors to serve on some committees like the audit committee, the HR committee. And then over time, those members would understand his style of functioning and he would understand their style of functioning. And after a few years, they would come onto the main board. That is a very interesting practice. I’ve not seen that in too many other boards. It makes a lot of sense to me because personal chemistry is important. And when you’re invited to join a board or when you’re on the board and inviting someone else to join you, there’s a lot of mutual feeling out of each other like, Do I trust them? Am I going to be on the same wavelength? By serving on some committees beforehand, I think both sides get to see each other sort of; What are their instincts? What are their values? Do they diversify us? Do they bring a different perspective? And the person gets to see, Is my perspective actually valued? Do they follow through? So, it just builds comfort over time. So, that’s an interesting feature of how people were added to their board. And over time, they have had fewer insiders or executives and add more independent directors have been added to the board. Again, I don’t think a lot of this is required by law, but that’s sort of Jorge’s preference.

BRIAN KENNY: So, I don’t know. How comfortable is too comfortable? I guess that’s a weird way to ask the question, but I’m wondering… I mean, shouldn’t you be bringing people onto the board who are going to challenge you and make you uncomfortable?

V.G. NARAYANAN: I think that’s exactly… So I’ve attended the board meetings.

V.G. NARAYANAN: It’s like our classrooms. There is like a real live debate. Right? And people take opposing points of view, and Jorge is often the moderator of the case discussion. So I mean, I don’t speak Spanish, and it was happening in Spanish, but I could watch the emotions and the body language. It was… You know. They challenge each other. And they don’t take it to the extent of like, “I disagree. And I want you to minute that I disagree, I’ll vote against this resolution.” They’re very professional, but they challenge each other. And over time, they reach sort of consensus. The build consensus is the process that sometimes takes like two or three board meetings to get to that consensus. But it’s not like always yes board. So they’re not looking at Jorge and saying, “What does he want me to say?” And they’re not trying to curry favors with the CEO. They speak their mind. And I think that’s what he values. So when he gets people… Part of what he’s looking for is this diversity of opinion. “Are they going to push me? Are they going to challenge me?” And he surrounded himself with people that’ll push him and challenge him. So there’s not a bunch of people that say yes.

BRIAN KENNY: Yeah. Is that different than it was, maybe, I don’t know, 20 years ago with boards? Because I think there is this perception that boards are kind of rubber stamps for the CEO. I mean, is now the expectation that boards are going to do more to hold leadership accountable in firms?

V.G. NARAYANAN: So, that’s certainly the expectation in my experience in public companies. It’s still a bit unusual in private organizations. And that’s remarkable here that they have performance evaluation for everybody. The CEO and every board member. And after each board meeting, they collect feedback on, How did we do today? What did we not discuss? What could we have done better? So, this relentless focus on sort of not having status quo, continuously improving is quite remarkable about this board.

BRIAN KENNY: How many board members are there? I should have asked that at the outset.

V.G. NARAYANAN: I think people say six to nine is sort of the right size. It’s probably in the lower end of that spectrum. And they steadily increased it. They started with two, four, and now it’s like six or seven. They have someone called a trustee. That’s a thing very specific to Bolivia that’s also attends the board meetings. So, with that person, it sort of becomes like seven.

BRIAN KENNY: How do they think about something? I don’t know if you’ve spoke with Jorge about this directly, but going back to the corruption theme, how do you guard against that? Is there a vetting process for board members and an onboarding process that helps to reinforce the values that the firm has?

V.G. NARAYANAN: So, look. Which corruption are we talking about? Right? Are we worried that board members show up and sort of collect their sitting fees and they’re not doing their job and just saying yes to the management, or are we worried that, “Are they monitoring the executives closely enough? Are they setting up good control systems? Do they have good risk management practices?” Right? It kind of goes both ways.

V.G. NARAYANAN: And I think the good thing about this is both sides are doing their job. So they have picked people that are heavy hitters. They are people that are done well in the professional careers. And if things went wrong here, they have something to lose. They have a reputation already. So, in fact, borrowing the reputation of these professionals who are joining your board. And so, they hold themselves to high standards. They have high expectations of the board members. They send all the reading material at least a week in advance and everyone comes prepared. So, they don’t waste time regurgitating case facts. It’s assumed that you’ve read it. It’s assumed you’re done gone through the analysis, you’ve seen the spreadsheets. And you go straight to the discussion. You go straight to where they could be-

V.G. NARAYANAN: Yes. A better way. And my better classes go that way.

V.G. NARAYANAN: Right? Sometimes when we are just leading a case, we are like, I wish I had more information. Here, the board pack is really thick. All the extra information is actually there. And a week before, if you saw something and you wanted them to add more, you could call them and you tell them like, Hey, you need to provide us more, so that before you show up at the meeting there’s a lot of information. So, people are coming prepared. So, right from that, that sets the tone that we are going to hold each other to very high standards of preparation, participation. So, it rubs off on everything else. And it goes the other direction as well. The board members are aware that they have been hired by this board to play a governance role, to play a supervisory role, to check on compliance, to think about risk management. So, they’re asking really tough questions. And it’s not enough to ask those questions. You need to follow through. You say, “I want this data.” In the next board meeting, if you forgot about it, then there’s no accountability. So, at the end of the board meeting, both sides know, What is the extra information I asked for? Who’s responsible for it, when it’ll be provided, and then there’s a follow through on it. And if need be, we’ll bring it up again in the next board meeting.

BRIAN KENNY: Yeah. This sounds like a lot of work. Actually for both sides. Right?

BRIAN KENNY: It’s a lot of work for the firm and it’s a lot of work for these directors. What else is Jorge asking the directors to do?

V.G. NARAYANAN: So, the board itself is looking at strategic things like, Where should we expand? Which countries? Which asset classes should we move into? So, they’re looking at that landscape and figuring out where are the opportunities. They’re also looking at where are the threats. Right? What are the regulatory risk for us? What does the risk management look like? What can go wrong? And you know, you lose your name, your reputation, you lost everything in this industry. So, franchise risk is really big deal. So, they’re worried about what can go wrong and they’re paid to worry about these things. But they’re also holding people accountable. You know? You have targets. You say, “Okay. How are we going to get there? What is that action plan?” So, it gets a little bit more from the big picture strategy to something more medium-term to short-term. So if you’re… You’re not getting into the operations of the company, but you’re holding them accountable for results. And there’s also a sense of like, Are we staying within our lane, in the sense that both from a strategic perspective and sort of from a code of conduct perspective. Are we straying from sort of either our scope or straying from our core values? So, all of this is rolled into the function of the board. So, it’s doing all of these things simultaneously.

BRIAN KENNY: Well, and to your original point, it sounds like they are very involved in a helpful way. I don’t mean like they’re meddling because I think sometimes people worry about the board getting too deep into things, but it sounds like they are working hard alongside the firm’s leadership to help them chart a course. Is this unusual in terms of board engagement with a firm? Are they more engaged than you would normally see?

V.G. NARAYANAN: So, let me just give you a perspective. They’re less than, at the time of the case, less than half a billion dollars assets under management. That’s tiny in the world of finance. The bottom line is $1.3 million. It’s a very small company. This level of professionalism, rigor, effort on governance practices in my experience is quite unusual. Larger companies, of course you’d see this.

BRIAN KENNY: Yeah. Do you think… Is Jorge asking too much of them? I mean, could this have negative consequences at some point down the road?

V.G. NARAYANAN: I think in his mind he’s already a much larger company than is reflected on a balance sheet. Right?

V.G. NARAYANAN: He has hopes and aspirations to expand in other Latin American countries. He’s thinking of Colombia. He is thinking of Peru. “How do I expand? How do I impress the investors in those countries? How do I impress the regulators in those countries? How do I attract multilateral agencies, multinational agencies to invest in my organization?” So his governance is like a few steps ahead of the size of his balance sheet, if you will.

BRIAN KENNY: Which is probably okay for a CEO. He’s aspirational.

V.G. NARAYANAN: So, if they grow the way he’s planning to grow, I don’t think this is asking too much. But if this is how they’re going to be in terms of size, then maybe this is overkill.

BRIAN KENNY: Yeah. And I guess part of what I’m also wondering is if the board feels like he’s not getting it done, like he’s the problem. You know? What does that mean for him?

V.G. NARAYANAN: This is very surprising. He owns the majority of the stock in the company. You wouldn’t get that feeling from attending a board meeting. He’s evaluated. They have succession plans for him. Right? In many organizations, they don’t talk about succession planning. Like, “I’m indispensable and maybe an assumption I’m immortal.”

V.G. NARAYANAN: No. Here, explicitly every person, every person on the board and every executive, including the CEO, they have a succession plan in place. And they have annual performance evaluation for every single person, including the CEO. So the CEO is being held accountable. So far, their performance has been very good and the performance is endogenous. You know? A CEO cares and a board that takes pride in their performance, they tend to do well. So they are doing well so far. So it’s sort of a hypothetical question if they did not do well, would they hold them accountable? I would imagine they would given just the personalities involved.

BRIAN KENNY: Yeah. And we’ve certainly seen that in other situations, of course, where the board has said, “We’ve had enough with the CEO. He’s not getting it done or she’s not getting it done.” And so we know that that can happen.

V.G. NARAYANAN: It can. And in a very bad scenario, that is part of the job description of the board. You know?

V.G. NARAYANAN: You’re watching out for the company and everything else is secondary. You put the company first.

BRIAN KENNY: The case describes the three-step rule, which is one of the ways that I think that they sort through issues and questions that they have. Can you describe that a little bit?

V.G. NARAYANAN: So, when you look at boards and people ask questions like, Is there real debate in your board? People really disagree?”How many times have you voted against a resolution? And do you have your comments that you disagreed minuted? And I find this a very strange question because it’s sort of divorced from sort of the process by which things get done in well-functioning boards. And I would make a distinction between differences in sort of estimates or opinions versus difference in values. You really want diversity of opinions in estimates and perspectives on, I think this is going to be the next big thing. You’re like, I’m not so sure that this is going to be the next best thing. Cryptocurrency. Take your pick. What it is. Right?

V.G. NARAYANAN: You’re going to have different perspectives on it. And in fact, you learn. Right? Each person argues for their perspective. This is very different from having fundamental differences and values on someone views what the regulations are. “That’s all I’m going to do. No more than that,” versus someone says, “No, I’m going to lead with of values that are core and important to me. The environment is so important. Society is important. And so, I’m going to lead with that.” If you have different perspectives on this, on the board, on sort of what is core values of the organization should be, then you’re going to have a very, very difficult time on the board. So now let’s come back to the three-step process. I think they’re aligned on their values and that’s sort of… They do that when they select the people to come on the board. And that’s why it takes a few years to figure out, “Are we aligned on values?” But in terms of estimates, priorities, in terms of like what could happen tomorrow forecast, if differences, I think that’s where in fact the strength of the board comes from, that you have multiple perspectives. So, if there’s an important topic, they broach the topic, give them whatever material they’ve accumulated. People read it and they come back. And they think about like, So where are the sharp divides going to be on the board? Let’s identify those. And where are the places where we don’t have enough information where we’d like you to collect even more information that might help answer those questions where we have some sharp divisions? And then in the second board meeting, they get further resolution. Right? They’re ironing out differences. People saying, “Okay, I can see your point of view,” or they might be like, “I still think this is not such a hot idea, but you guys have convinced me that there’s momentum here and enough of you are impressed. Now let me tell you how we can do this better.” So you close ranks after… You might have played the devil’s advocate or taken the other perspective, but once collectively you decide this is the way we are going, you close ranks.

V.G. NARAYANAN: But it’s not like they’re done there. It’s like they give more time to stew on this and sort of the official resolution is a little bit passed in the third board meeting. But there is more time for people to come together once you are going in a certain direction, it’s clear that’s where the momentum is. And people come together. By the time it’s a third board meeting it’s built consensus. Everyone is on the same page. So, it is very interesting for me to see this process by which it’s sort of like a funnel where there’s so many different opinions and over time they’re narrowing it down on, This is what we are going to do. This is what we are going to push it off to a future date, or this is what we are not going to do at all. And it sort of crystallizes by the time they’re in the third board meeting. I don’t know that three is the magic number, but it’s the process by which you build consensus. That was very interesting for me to see.

BRIAN KENNY: Yeah. How much time is there between meetings?

V.G. NARAYANAN: I believe they might have six meetings a year.

V.G. NARAYANAN: I mean, they meet when they have to meet. When they could call a meeting… You know? This is not like…

BRIAN KENNY: So, if they had a time sensitive thing that they were trying to get to, they could-

V.G. NARAYANAN: Yeah. They’re small. That’s their advantage of being nimble is that you can schedule a meeting in short order. They’re all local. They have previously scheduled meetings, I think like six meetings, and then they do two retreats.

BRIAN KENNY: Yeah. Now all of this, what you just described, would be, I was thinking as you were describing it, more difficult. The bigger the board, the more difficult it is to manage a process like the three-step process.

V.G. NARAYANAN: I think it’s important, even in large organizations to have this. That is where you’re building consensus over time, you’re addressing different perspectives. And if there is difference is so fundamental that it goes to the core values, then the person… Somebody steps aside.

V.G. NARAYANAN: Right? So, that part of it, I feel, is pretty common. The flexibility with which they can call a board meeting is probably taking advantage of their size. But there’s another perspective here. COVID has changed things for so many boards. I’ve seen boards that used to meet only once a quarter. Now they meet every month because people are not traveling as much. They’re just getting on a Zoom call. And so there’s more frequent board meetings. And whatever time they were spending on traveling in the dinner the night before of the board meeting, all that’s gone. It’s a two-hour meeting sometimes every month. So, they’re getting more work done.

BRIAN KENNY: And that might be part of what was in that Fortune survey that I mentioned at the very beginning of the podcast. Meetings have increased on average about 19%. So, that makes perfect sense. This has been a great conversation. Super interesting. I’ve got just two more questions before we let you go. One is you said that everybody’s measured, everybody is evaluated after each meeting. I suppose if a board member’s not holding up there into the bargain, do you fire them? What do you do there?

V.G. NARAYANAN: I think you need to have a conversation. They do have evaluation for every single board member. And if someone is not shaping up, then the head of the governance and nomination committee needs to have a conversation with this person, and it’s not a good fit and we need to part ways. You know? Not many organizations do that, but I think it’s extremely important. If someone is not working out, you’re both better off parting ways.

BRIAN KENNY: Yeah. To your point of mutual accountability, right?

BRIAN KENNY: Yeah. Well, just one last question for you, V.G., and that would be: if you want our listeners to remember one thing about the Capital SAFI case, what would it be?

V.G. NARAYANAN: So, for me, the big takeaway from this was small companies can learn from large companies and large companies can learn from small companies. Right? So, here’s a situation where Capital SAFI is mimicking what large public organizations do, like having formal committees that you don’t see in small boats. A lot of independent directors, a lot of formality deliberately adopting rather than viewing that as bureaucracy or the cost of being public and overregulation. They’re trying to embrace the best aspects of corporate governance and public companies. But I think large companies can also look at this and say, “Why are they doing it?” They’re using their governance to bolster the reputation. They’re using their governance to attract investors. They’re using their governance to attract customers. They’re using the governance practices to raise the caliber of the executives, their board members. I mean, they spend more than $120,000 a year. That’s like 10% of their net income on education and training. So, this is a remarkable organization and I think large organizations can learn some lessons from someone as small as Capital SAFI. Learning is a continuous process and improvement is a continuous process. And it’s probably paced to improve your governance.

BRIAN KENNY: Yeah, really well said. Thank you, V.G., for joining me.

V.G. NARAYANAN: Thank you, Brian. My pleasure.

BRIAN KENNY: If you enjoy Cold Call you might also like our other podcasts: After Hours, Climate Rising, Skydeck, and Managing the Future of Work. Find them on Apple Podcasts or wherever you listen. Be sure to rate and review us on any podcast platform where you listen. If you have any suggestions or just want to say hello, we want to hear from you. Email us at again for joining us. I’m your host, Brian Kenny, and you’ve been listening to Cold Call, an official podcast of Harvard Business School, brought to you by the HBR Presents network.

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