Business must perform, not merely comply

The Institute of Corporate Directors (ICD), chaired by Dr. Jesus P. Estanislao, recently honored 15 companies in the Philippines as 2008’s top-performing organizations based on the 4th Corporate Governance (CG) Scorecard Project. The annual event aims to promote fairness, accountability, and transparency in all publicly listed business operations in the country.

A total of 138 corporations from different sectors were graded based on the rights of shareholders, equitable treatment of shareholders, role of stakeholders, disclosure and transparency, and board responsibilities in the company. ICD conducted the CG Scorecard with the help of the Securities and Exchange Commission, the Philippine Stock Exchange, and the Ateneo School of Law. 

Estanislao praised the top choices for recognizing the importance of good governance in attracting investment and increasing their market value. He emphasized the importance of putting the interests of the shareholders in the heart of every decision made by the company’s board of directors, as done by the world’s globally competitive corporations.

Included on the elite list of honorees are Ayala Corporation, Ayala Land, Inc., Bank of the Philippine Islands, Globe Telecom, Inc., Cebu Property Ventures & Development Corporation, First Philippine Holdings Corporation, Philippine Long Distance Corporation, and Manila Water Company, Inc. in the gold category; and Aboitiz Equity Ventures, Inc., ABS-CBN Broadcasting Corporation & Subsidiaries, Cebu Holdings, Inc., Centro Escolar University, Energy Development Corporation, Petron Corporation, and Semirara Mining Corporation in the silver category.

ABS-CBN, the company that I work for, continues its good showing from the television to the company boardroom. With a grade of 93 percent, ABS-CBN proved once again that it is one of the best-managed companies in the country. It is also the only multimedia company in the top 15 of the scorecard rankings.

The hurried transformations in the present-day economic milieu mirror the need for a purposeful appraisal and upgrade of the rules of basic corporate behavior if acclimatizing, promoting and protecting the basic precepts of business are critical factors in economic growth. The rash of corporate breakdowns and misbehaviors and their reeling economic consequences have reinforced the need to secure stronger businesses and corporate governance reforms. Around the world there’s a growing number of corporate collapses, inevitably raising questions about a company’s responsibilities and duties to its shareholders and the general public.

Corporate governance refers to the set of rules that defines relationships between shareholders, managers, creditors, the government and other stakeholders. It covers the five principles: the rights of shareholders and their protection; the equitable treatment of all categories of shareholders; the role of employees and other stakeholders; timely disclosure and transparency of corporate structures and operations; and the responsibilities of the board towards the company and shareholders.

Corporate governance defines the company’s approach to identifying and managing risks inherent in the business, as it puts in place an effective system of checks and balances, and provides access to management information, particularly in the sensitive area of finance. It also covers the company’s involvement and commitment to the effects of corporate practices rather than just a focus on the process of compliance to existing laws and prescriptive rules. This fundamental concept was adopted for this year’s annual dinner and awarding ceremony, aptly captured in the theme “Moving from compliance to performance in corporate governance,” which, as Estanislao revealed, is the same theme that will be used in the Asian roundtable on corporate governance in Manila in September.

Globally, corporate governance, also labeled “business ethics,” is taking the high ground. There is an increasing number of botched cases that have issues of failed governance, and a range of administrative, civil, and criminal actions have been combined to bring offenders to justice. Many celebrated cases of corporate misbehavior — from dodgy accounting to food fraud to rigged bids to insider trading — are hurting not just shareholders but customers, too.

In order to practice good corporate governance, companies must develop participatory decision-making processes; people-oriented organizational setups; teamwork and good working relationships among its employees with clearly defined and delineated roles. And, judging from the number of this year’s corporate governance scorecard entrants, the unambiguous understanding of and upbeat attitude towards the practice of corporate governance has become open and highly receptive.

Many companies are now embracing the corporate governance principle believing that it leads to better company management, enhanced corporate reputation, and more positive contribution to economic development. Many companies, though, are still hindered by fear or the loss of privacy as they consider moving towards the institutionalization of corporate governance in their organizations. This is the case even when many of them agree that transparency is a key principle of the practice.

Corporate governance must be mandatory, and the extent of government intervention must be made clearer and appropriately evaluated. Self-regulation is still an attractive and preferred option for many firms. The Securities and Exchange Commission has consistently urged companies to define their own code of corporate governance, but the actual rules and mechanisms should be characterized by the companies themselves.

Corporate governance practice in the Philippines is moving up, but there are still a lot of poor practices that need to be improved. This is particularly true for family-run corporations. In such cases, major stockholders are from one family, and are often accused of dictating the direction of the company without consideration for minority shareholders. The factors that have contributed to the poor practice include the political interests that dictate the corporate decisions, the links of the board of directors to majority stockholders, and the lack of truly independent auditing systems.

Corporate governance is good for business. People and organizations must have a fuller appreciation of it. The need for it is evident. A substantive and sustained information and education campaign on the practice is an imperative. The opportunities are available, but the required resources must be at hand. An effective campaign should not be directed mainly as an instrument for information dissemination but also as an instrument for education and agitation. It must encourage corporations and shareholder interests to adopt the fairness, accountability and transparency (FAT) behaviors; and to develop the general public’s active stake claiming in corporate governance that can create the necessary public pressure for its practice and institutionalization.

All corporate stakeholders stand to benefit from the direct and concrete impact of corporate governance. It raises investor confidence; prevents corporate disasters; and the benefits of good corporate governance are concrete and direct. With these, business organizations are advised to go into FAT mode — a “corporate diet” that’s good for the corporate body and soul. –Bong R. Osorio, Philippine Star