Corporate governance in PH improving but…

THE GOOD news is corporate governance practices have improved among Philippines’ top-tier corporations in the last few years as capital market regulators in the region started working more closely to promote best global practices.

The bad news? The reform momentum has not yet reached all publicly listed companies.

Based on the 2014 Asian Development Bank country reports of the Asean Corporate Governance Scorecard (ACGS), the average corporate governance scores of the top 100 publicly listed firms in the Philippines had risen to 67.02 points in 2014 from 58 points in 2013 and 48.91 points in 2012.

“The results demonstrate that our local PLCs (public listed companies) are continuously striving to improve the corporate governance culture of their organizations,” Institute of Corporate Directors (ICD) founder and chair emeritus Jesus Estanislao said in a press statement.

Among the top 100 corporations in the local bourse in terms of market capitalization, the most elite grouping is the roster under the Philippine Stock Exchange index. This list includes 30 of the largest and most liquid companies: Ayala Corp., Aboitiz Equity Ventures, Alliance Global Group Inc., Ayala Land Inc., Aboitiz Power Corp., BDO Unibank Inc., Bloomberry Resorts Corp., Bank of the Philippine Islands, DMCI Holdings, Emperador Inc., First Gen Corp., Globe Telecom, GT Capital Holdings, International Container Terminal Services Inc., Jollibee Foods Corp., JG Summit Holdings, LT Group Inc., Metropolitan Bank and Trust Co., Megaworld Corp., Manila Electric Co., Metro Pacific Investments Corp., Petron Corp., Robinsons Land Corp., Semirara Mining & Power Corp., SM Investments Corp., San Miguel Corp., SM Prime Holdings Inc., Philippine Long Distance Telephone Co. and Universal Robina Corp.

ICD is a non-stock, non-profit organization dedicated to the study and professionalization of Philippine corporate directorship. It is the domestic ranking body for the ACGS under the auspices of the Securities and Exchange Commission (SEC).

Among the five corporate governance categories, the most dramatic improvement in average scores achieved by the country’s top 100 PLCs on a year-on-year basis was in the following: role of the stakeholders, which increased to 5.48 points in 2014 from 4.85 in 2013 and 2.8 in 2012; disclosure and transparency, which was at 16.57 points in 2014 from 16.03 and 13.6; and responsibilities of the board, which went up to 24.41 from 19.71 and 16.4.

Average scores in all corporate governance categories improved. A slight increase was also observed in the following: equitable treatment of shareholders (11.17 points from 11.06 and 10.7) and rights of shareholders (6.79 points 5.5 and 5.6).

Despite the remarkable progress of the top PLCs as a sector, the ICD said there’s still considerable room for improvement in the country’s overall performance.

Lack of disclosure

In terms of the average score for all 252 companies listed on the Philippine Stock Exchange, the country’s overall score has dipped to 51.1 points in 2013 and 2014 from 53.8 points in 2012. The drop in score suggests that despite the higher bar set for publicly listed companies as far as corporate governance standards are concerned, a lot of these companies don’t measure up.

“Part of the reason for the relatively low score of our PLCs is the lack of adequate disclosures compared to our counterparts in the South East Asian region,” explained Estanislao.

The ADB report mentioned that the Philippines had fallen behind due to lack of adequate disclosures, particularly on company websites, as most companies fail to provide key information such as contact details, policies and procedures, to name a few.

“There is a perception that potential investors have difficulty navigating or searching for information on our PLCs mainly due to the variety of formats and content employed from company to company. We hope that these issues will be addressed soon,” said Estanislao.

The decline in the score of publicly listed companies was of “significant concern,” the report said.

“We foresee a challenge in ensuring that the score will improve because the performance of the rest of the population of the companies might pull down the overall average score. This is despite the top 100 PLCs significantly improving their performance by 2015 when they will be ranked with their ASEAN peers,” the ADB said.

The roster of publicly listed companies is just a small percentage of around 870,000 total corporations regulated by the SEC in the Philippines, the ADB noted.

Scorecard

A developmental tool for Asean PLCs, the ACGS may be used by companies and investors to gauge their adherence to governance best practices. To help Philippine PLCs adopt these best practices, the SEC has instituted several measures such as the “Annual Corporate Governance Report” and an aggressive ACGS information campaign with support from local and international institutions.

“Therefore, as more companies gain a greater awareness of the corporate governance scorecard and its process, we hope their scores will improve over time,” Estanislao said.

To maintain the objectivity and independence of the methodology, the ACMF has enlisted corporate governance experts in the region to develop the scorecard and assessment criteria. The experts, approved by ACMF, have no vested interests in PLCs and are not linked to securities regulators.

It was in this light the ICD was appointed as a domestic ranking body. Established in 1999, ICD seeks to raise the level of the country’s corporate governance policy and practice of world-class standards.

The first ACGS regional awards event, organized with the help of ICD, will be held on Nov. 14 this year at the ADB headquarters.

‘High Sincerity’

In a related development, the country’s capital market regulators, SEC and PSE, were two of the institutions deemed most sincere in improving governance in the country.

Both ranked high alongside the Office of the President, Department of Trade and Industry, and the Social Security System in the net sincerity ratings of 36 institutions in fighting corruption, based on the latest 2014-2015 Survey of Enterprises. This was conducted by the Social Weather Stations from Nov. 14, 2014 to May 12, 2015.

From a range of +69 to -69 points, the SEC scored 63 points, while PSE got 55 points.

Random sampling for the said survey was drawn from 966 companies, one-third of which consisted of large enterprises, while the rest consisted of small and medium enterprises.

“Overall, the Philippine economy has improved in fighting corruption, reflecting the Aquino administration’s strong performance and reforms. Our government’s anti-corruption initiatives remain effective under the administration’s culture of integrity, transparency, accountability, and inclusive governance,” the SEC said.