Philippine Business Magazine: Volume 9 No. 2 - Policy
Corporate Governance Reform
A sound corporate governance system is essential if the Philippines is to move towards sustainable growth and economic progress
By Pamela M. Sio

Among the lessons highlighted by the 1997 Asian financial crisis is the importance of sound corporate governance practices for sustainable economic development. The Philippines, hopefully, is on the way towards applying this lesson and ensuring the country’s economic strength. In a speech during the Philippine Business Outlook Conference held last February 28, Makati Business Club (MBC) Chairman Ricardo Romulo highlighted the importance of proactively undertaking the necessary corporate governance reforms, particularly for publicly-listed companies, banks and government-owned and controlled corporations. As he notes, doing so is essential for winning investor confidence and gaining credibility for the Philippine economy.

Towards this end, the Philippine government, through the Governance Advisory Council (GAC), has been working out the appropriate policies and reforms to be implemented for good corporate governance. As a member of this Council, Atty. Romulo outlined the main policy directions and some of the more specific reforms that the body recommended to the President.

Romulo highlighted how the Philippine government should clearly manifest its commitment to corporate governance reform by voluntarily adopting the APEC-endorsed “Guidelines for Good Corporate Governance Practices.” This will make the country the first to do so among APEC members. He also noted that the Corporate Governance Reform Agenda should be formally adopted by the country’s Capital Market Development Council, and endorsed for implementation by all government agencies, institutions, and corporations. It highlights policy recommendations that are geared towards, as Romulo notes, “improving the disclosure of non-financial information, strengthening the rights of stockholders, enhancing the role of the board of directors, and ensuring the independence of the audit”.

In order to effectively implement these reforms, the GAC recommended the training of corporate directors, particularly those in listed organizations. Likewise, a performance evaluation system should be put in place to support the training.

Romulo further outlined specific policy reforms and recommendations presented by the GAC which he states are “meant to protect, encourage and enhance a transaction”. Among these more specific recommendations are: the inclusion of provisions to allow minority shareholders to play a more active role in corporate governance, a review of the Corporation Code and Securities Regulation Code to provide for the restriction of the voting rights of majority shareholders; a move to make Philippine accounting practices be in full conformity with International Accounting Standards; the appointment of independent and qualified directors to the Board; and the disclosure of all personal and business relationships between the audit firm, its partners, the company, its directors and all related parties.

These and other recommended reforms all aim to improve the transparency and accountability of listed companies and organizations. Romulo recognizes that such reforms are necessary to ensure the soundness of the country’s economic and financial system, a system that relies on and works to some extent on trust – “trust that the money so lent will not be stolen or misapplied, and trust that the corporation’s accounts will accurately reflect the state of its business.”