A world-class GOCC system in the making?

On June 6, 2011, President Aquino signed into law Republic Act (RA) No. 10149, otherwise known as the GOCC Governance Act of 2011 (GOCC Act).

The new law was crafted by Sen. Franklin M. Drilon following several hearings conducted by the Senate as a result of the exposé on excessive pays and bonuses of the Metropolitan Waterworks and Sewerage System (MWSS) made by then newly elected President Aquino in his first State of the Nation Address (Sona).

The new law is envisioned not only to help our government-owned and -controlled corporations achieve fiscal responsibility and viability but, more importantly, make them significant tools for economic development.

Coverage

Lest the new law be misunderstood to be limited to GOCCs as the term is ordinarily understood, it must be emphasized that it likewise applies to government financial institutions (GFIs), such as the Government Service Insurance System (GSIS) and the Social Security System (SSS), as well as government instrumentalities with corporate powers (GICPs) or government corporate entities (GCEs), such as the Manila International Airport Authority (Miaa), Philippine Deposit Insurance Corp. (PDIC) and the MWSS.

For purposes of the GOCC Act, the term GOCC includes GICPs and GFIs as defined in the new law, subject to limited exceptions like the Bangko Sentral ng Pilipinas (BSP).

Both supporters and critics of the GOCC Act highlight the limitation on the compensation, per diems, allowances and incentives that may be granted to directors and officers of GOCCs. While these limitations are indeed noteworthy, it must likewise be stressed that RA No. 10149 is more than just a measure to curtail excessive compensation.

An SEC-like commission

A primary feature of the GOCC Act is the creation of the Governance Commission for GOCCs, or the GCG, a five-member commission, which will act as the central advisory, monitoring and oversight body with authority to formulate, implement and coordinate policies affecting GOCCs.

This newly created commission is effectively the Securities and Exchange Commission (SEC) for the GOCCs. But unlike the SEC, the chairman of the GCG will have the rank of Cabinet secretary with no less than the secretary of finance and secretary of budget and management as ex-officio members. The fourth and fifth commissioners of the GCG will have the rank of an undersecretary.

Again, unlike the SEC which has been incessantly tossed back and forth over the years like a ping-pong ball among the Office of the President, Department of Trade and Industry and the Department of Finance, which has adversely affected its ability to perform its mandate, the GOCC Act states in no uncertain terms that the GCG will be attached to the Office of the President.

The mandate of the law to the GCG is loud and clear. The GCG will adopt a government corporate standard for GOCCs, which is similar to the Code of Corporate Governance prescribed by the SEC. Interestingly, when the SEC first adopted the Code in 2002, some legal scholars raised issues on its legality, citing the alleged lack of legal basis for the SEC to promulgate it.

Because of the express grant of power conferred on it by the GOCC Act, however, the same cannot be said of the GCG. Indeed, the new law provides that the corporate governance standards for GOCCs must not be less rigorous than those currently required by the SEC or the Philippine Stock Exchange for listed companies, or those required by the Bangko Sentral ng Pilipinas or the Insurance Commission for banks and insurance companies, respectively.

‘Shape-up’ or ‘ship out’ policy

While the GCG shares similar features with the SEC in respect of its regulatory functions over GOCCs, the law grants certain powers and functions to the GCG that are unique to the GCG. Foremost of these is the power to reorganize, merge or streamline GOCCs and even recommend to the President their abolition or privatization.

The law provides for the standards by which the GCG will be guided in making such determination. In other words, the GOCC Act adopts a “shape up” or “ship out” policy for our GOCCs.

This “shape-up or ship out” policy is not limited to the GOCCs themselves; it applies likewise to the GOCCs’ board of directors. Prior to the passage of the GOCC Act, the term of office of GOCC directors and trustees varied, from one year to as long as seven years.

These directors and trustees clung to their coveted position—often given to them as KKK-type of favor or payback—no matter how undeserving they were. This will change under the new law. The term of office of all appointive directors (i.e., those who are holding office not in an ex-officio capacity) in GOCCs will be one year, similar to the term of office of directors in private corporations.

Only if such appointive director obtains a performance rating of above average (or its equivalent) or higher in the immediately preceding year of his tenure, may such appointive director be nominated by the GCG for reelection to the board.

In short, the law bids good riddance to “nonperforming” and “underperforming” assets in our GOCCs. To use the words of American journalist and member of President Andrew Jackson’s ‘Kitchen Cabinet,’ Francis Preston Blair, “Good riddance to bad rubbish.”

Conclusion

The enactment of RA No. 10149 is indeed a historic achievement envisioned, as it is, to bring about a sea of change in the country’s GOCCs. It is aimed at correcting decades (if not centuries) of corruption and inefficiency in our GOCCs; more importantly, it sets the stage for a world-class GOCC system that may be the envy of our peers in the region.

But the question is whether the new law is a seedling of reality for our GOCC system or just be another law that will hardly make a blip on the GOCC radar screen for failure to properly implement it.

That remains to be seen.

(The author, formerly the president and CEO of the Philippine Stock Exchange, is now the co-managing partner and head of the Corporate and Special Projects Department of ACCRALAW. He may be contacted at [email protected].)