Bernardo M. Villegas
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Good Governance For Higher Growth (Part 4)

 The continuing effort to improve corporate governance in the Philippines is an outstanding example of the institution building that has been going on in the Philippines for the last thirty years or so, which institution building explains to a great extent a major reason the Philippine economy has been able to get rid of its notoriety as the “sick man of Asia.”  As explained in great detail in the book “Why Nations Fail” by James Robinson and Daron Acemuglu, nations fail to develop economically for two main reasons: erroneous economic policies and weak institutions.  With the help of private NGOs like the Institute of Corporate Directors, the Securities and Exchange Commission (SEC) is a prime example of a government economic agency that strengthened its ability to promote good governance, especially among publicly listed companies that are vital to the building of a robust capital market.

More than a decade ago in 2012, the Philippines officially launched its participation in the ASEAN Corporate Governance Score Card.  Since then, the SEC has been working on the improvement of corporate governance practices in the Philippines.  Less than a year after the adoption of the Scorecard, the SEC, along with the Institute of Corporate Directors (ICD) launched an information campaign to familiarize PLCs, other government regulators, and investors on objectives and mechanics of the Scorecard.  The SEC required all PLCs to issue and Annual Corporate Governance Report (ACGR), which is meant to consolidate all governance policies and procedures of each PLC into one report for ease of reference.

Thanks to the widespread digitalization of business processes, the SEC required that all PLCs post their ACGR on their respective corporate websites.  By December 2013, ten years ago, the SEC directed all key officers and members of the board of PLCs to attend a training program on corporate governance at least once a year.  The SEC has recognized the importance of continuously updating the primary codes that comprised the corporate governance framework in the Philippines.  This constant upgrading makes it even more necessary for board directors and key officers of PLCs to never stop learning.  They, too, must join the widespread demand for professionals and workers to upskill, reskill and retool themselves to keep up with the changing times, especially as the business world has no alternative but to be part of the so-called Industrial Revolution 4.0 (Artificial Intelligence, Internet of Things, Robotization and Data Analytics).

In the first half of 2014, the SEC had amended the Code of Corporate Governance to include “other stakeholders” whose welfare a company has to promote.  To attain more uniformity in the reports and to improve the quality of the websites of the PLCs, the SEC recommended a template for PLCs to follow in organizing disclosures made online.  For greater transparency, PLCs were required to post the minutes of all general or special meetings within five days from the actual date of the meeting. Accelerating the speed of reforms, a year later the SEC published the Philippine Corporate Governance Blueprint to serve as a five-year roadmap for building a strong corporate governance framework.  The blueprint was developed through a process that combined the use of OECD principles as the reference point for international best practice and feedback from consultations with local PLCs, governance advocates like the ICD, the academe and other corporate governance stakeholders.  In no time at all, local PLCs such as Ayala Land, Inc., China Banking Corporation, Globe Telecom, Inc. SM Prime Holdings, Inc., Aboitiz Equity Ventures, Inc., BDO Unibank, Inc., Belle Corporation, GT Capital Holdings, Philippine National Bank, Security Bank Corporation and the Philippine Stock Exchange, Inc itself attained world-class standards.

These leading local PLCs, in addition to many others, are exceling not only with mere compliance with the SEC regulations but in delivering performance that contributes to the country’s economic and social progress in line with the ESG framework.  In November 2016, the SEC released the Code of Corporate Governance for PLCs, which was designed to raise the corporate governance standards of Philippine corporations to a level at par with its regional (especially ASEAN) and global counterparts.  The CG Codes was developed using as key reference the Principles of Corporate Governance of the OECD and the ASEAN Governance Scorecard (ACGS) developed by the ASEAN Capital Market Forum (ACMF).

For very close monitoring, the PLCs were required to each submit a new Manual on Corporate Governance.  The code applies the “comply or explain” approach which combines compliance with mandatory disclosure.  Under this approach, each company was required to voluntarily report any area of noncompliance and explain the reasons for it.  As an example of the Legislature playing an important role in institution building, in 2016 a bill was filed in Congress for the revision of the Corporation Code of the Philippines, which had been enacted way back in May 1980.  Predictably, this old law contained many provisions that were already obsolete and no longer compatible with current developments, especially as regards technology of the digital age.  The bill resulted in Republic Act No. 11232, Revised Corporation Code of the Philippines, which as implemented on February 23, 2019.  The new Code significantly improved the legal framework in which private corporations can operated in the Philippines. It simplifies registration, strengthens corporate governance and amends some existing regulations. 

As regards the protection of the Environment, in 2019 the SEC released Memorandum Circular No. 4 which required PLCs to submit regular Sustainability Reports.  This is meant to promote sustainability as a goal of all PLCs,  helping them to assess and manage their non-financial performance and enable them to measure and monitor their contributions towards achieving the universal targets of sustainability.  This report will have to be submitted together with the Annual Report. As reported by Benjamin Villacorte of SGV, this Memo from SEC was a game changer for sustainability reporting in the Philippine business world.  In a review of SGV, the number of sustainability reports increased from 73 in 2019 to 118 in 2020.  Consistent with the 2019 review results, the 2020 review revealed that 66% still applied the SEC’s template, while 52% released stand-alone, glossy sustainability reports and 53 % included sustainability content in their annual reports, which shows that PLCs are gradually adopting more formats than just using the SEC template.  The most widely adopted (79%) standard remained the Global Reporting Initiative (GRI) Standards.  In addition to the leading Accounting firms, there are other private think tanks that have been very active in assisting the leading Philippine conglomerates to prepare increasingly sophisticated Sustainability Reports.  One of them is the Center for Corporate Responsibility of the University of Asia and the Pacific headed by Dr. Colin Hubo.

The Central Bank, another of the strong institutions on which Philippine economic growth is based, is also playing an important role, in improving good governance in the country among financial institutions.  In September 2022, it released the Memorandum Circular No. M-2022-042 to inform all banks of the initial steps or approaches that they may consider for the implementation of the Environmental and Social Risk Management (ESRM) System.  This was released in September 2022.  With all these initiatives, I have no doubt that as in other areas of business reforms, the Philippines will be able to improve its performance in the Corporate Governance index in the biennial report issued by the Asian Corporate Governance Association and CLSA.  Reforms are much easier to attain whenever there is very close cooperation among the State, the business sector, academe, and civil society.  For comments, my email address is