SEC says obstacles to raising corporate governance standards in PHL remain

By Arra B. Francia
25 May 2017  |   BusinessWorld

THE BIGGEST obstacle to raising Philippine corporate governance standards to a level at par with its regional and global counterparts is the listed companies’ failure to adopt regulations under the new Corporate Governance (CG) Code, the country’s corporate regulator said on Wednesday.

“(Adherence to the rules is) for sustainability, investor protection and national economic development, increased share value, and more importantly lasting contribution that the company can make to stakeholders and shareholders to the country as a whole,” Securities and Exchange Commission (SEC) Chairperson Teresita J. Herbosa said during the Good Governance Advocates and Practitioners of the Philippines’ forum in Pasay City.

The new Corporate Governance Code implemented at the start of 2017 contains revised regulations for companies listed in the Philippine Stock Exchange, including enhanced responsibilities for the Board of Directors, suggestions on keeping directors independent for more objective decision making, heightened risk management functions, among others.

“And of course the more important one that seems to be lacking in law is the protection for minority stockholders... there are rules there that would protect their rights, have long term interests that companies can sustain,” Ms. Herbosa said.

The Corporate Governance Code works under the “comply or explain” approach, which combines voluntary compliance with mandatory disclosure.

“Companies do not have to comply with the Code, but they must state in their annual corporate governance reports whether they comply with the Code provisions, identify any areas of noncompliance, and explain the reasons for noncompliance,” the Code read.

“I could foresee that in the beginning they’ll probably be just explaining rather than complying,” Ms. Herbosa said, citing a situation wherein companies would just keep giving explanations as to why they cannot comply with the regulation rather than meeting the requirements.

“I think (in the end) they would know the consequences, hindi naman kami ang mahihirapan (we won’t be the ones experiencing problems),” Ms. Herbosa added.

Shareholders’ Association of the Philippines President Francisco Ed Lim emphasized the need for advocates to urge the top executives of listed companies to participate in what he calls “a new regime of corporate governance.”

“The regulators and shareholders’ groups must convince the owners and prime movers of companies of the value proposition of good corporate governance to help develop and nurture the culture of corporate governance,” Mr. Lim said.

Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo said good governance would help the government focus on creating an enabling environment that would allow businesses and investments to thrive, adding that this is what helped the country become one of the global economy’s “brightest spot.”

“For the (BSP), good governance is necessary to manage the future of the organization and the economy, sustaining its performance in the long term and maintain relevance and effectiveness in the middle of change,” Mr. Guinigundo said in a keynote speech at the forum with the theme “Gaps and Bridges: the Future of Philippine Governance.”

PwC’s Southeast Asian Consulting Chief Executive Officer Sundara Raj said good governance should first of all revolve around a purpose, and target the reason of why an organization exists.

“Right balance comes from the organization’s purpose, not just the vision and mission but the purpose: why are they existing as an organization. You will then have something to measure against. It’s a mantra,” Mr. Raj said.

Former Finance Secretary Roberto F. de Ocampo said both the SEC and companies have to work together to reach higher standards for governance.

“Both corporate world and regulatory world at this stage have to interact with each other and may have to tweak things as appropriate without discarding the basic premise, principle, and mind-set that goes along with advanced corporate governance,” Mr. de Ocampo said.

Other than regulatory prescriptions and good governance principles, Mr. de Ocampo said the country must consider other factors as well.

“We also have to turn our actions into business processes both in the public and the private sector... Graft and corruption comes to the heart of good governance, and it has to be diminished,” Mr. de Ocampo added.

The commissioner’s insights echo the results of the Philippine Corporate Governance Survey Report released during the same forum, which surveyed a total of 51 companies.

“More effort is needed for broader acceptance and adoption across various categories of listed companies,” according to the results of the survey.

“The Philippines is improving in corporate governance but many other countries are improving at a much faster pace. We can do it if we want to,” Mr. Lim said.

The author, formerly president and chief executive officer of the Philippine Stock Exchange, is now a senior partner of the Angara Abello Concepcion & Regala Law Offices and president of the Shareholders’ Association of the Philippines. The views in this column are exclusively his. He can be contacted through

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