Hitting The Target: A Report on the ASEAN Corporate Governance Scorecard Golden Arrow Awards

IIn as much as ICD aspires to represent itself as GOVERNANCE CHAMPIONS, our aspirations will never be achieved without our partnerships with the SEC and other stakeholders such as the PSE, BSP, Insurance Commission, GCG and other key partners in this endeavor to be a key catalyst in the ASEAN region for higher standards in corporate governance. We are proud to be recipients of awards and have been recognized as Good Corporate Governance Champions by the SEC for consecutive years.

Reality, however, is that regulatory practices towards better corporate governance was sparked by poor governance, noted by corporate disasters from the 1980s and leading to an exclamation point in 1997 – the Asian financial crisis – a wakeup call for regulatory bodies and stock exchanges worldwide. The 1997 Asian financial crisis was arguably the single most devastating economic event last century.

Some currencies across the region lost more than 50% of their value in many cases.

Though a long list of factors such as high levels of debt, corrupt lending policies, non-market criteria for credit allocation, distorted incentives for project selection and inadequate monitoring have been identified as causes for the crisis, the crisis would not have been that severe if there was more confidence in corporate governance and financial transparency in these corporations.

According to OECD, weakness in corporate governance was the major contributor in the 2008 Global Financial crisis. These events show the need to adopt good corporate governance practices.

Here are the benefits that go along with the Corporate Governance Practices:

• AT PAR WITH GLOBAL STANDARDS

• IMPROVE INVESTOR PERCEPTION

• More ACCESS TO FINANCING

• STRENGTHEN STAKEHOLDER RELATIONSHIPS

• STIMULATE THE PRIVATE EQUITY MARKET

• IMPROVE OPERATIONAL PERFORMANCE

• ENHANCE SUSTAINABILITY

• ENCOURAGE FOREIGN DIRECT INVESTMENTS

THE ASEAN CORPORATE GOVERNANCE SCORECARD was developed to have a common tool to assess the CG performance of ASEAN PLCs with the objective of raising the CG standards of ASEAN and making good performing companies attractive to investors.

With the support of the Asian Development Bank, the ASEAN Capital Markets Forum with the CG experts from the 6 participating ASEAN members, we developed the ACGS. Here are the categories of the ACGS with its corresponding weights. It is consistent with G20/OECD Principles of CG with a total maximum attainable point of 130.

The ACGS uses publicly available information only in its assessment, i.e. the company’s disclosures in its website and the regulators’.

Last year, a regional assessment was conducted, wherein the Philippine companies particularly the Top 100 PLCs according to market capitalization were also assessed by ICD’s ASEAN counterparts. The Top 100 PLCs according to market capitalization scored 87.55 points in the last regional assessment.

The Overall Scores are improving. Performance of 260 PH PLCs reflect an average score of 73.80 points, a 7.53 point increase from the 2020 ACGS Assessment.

85 companies or 33% of the companies assessed scored at least 80 points, which is improving at a healthy pace but is simply not yet enough to be satisfied.

ICD together with the SEC and other CG institutions are trying our best to enlighten the companies through key recommendations. Some are a just a matter of disclosure of simple matters such as information presented on company’s websites. Others more complicated such as Board consultancies and advisor services. We understand that there still remain some reservations in conforming to a number of recommendations but we want to convince boards that the inevitable is… well, inevitable. The ACGS will remain as a Golden Arrow standards and it is prudent to begin the journey to say the least.

You may want to note that the financial sector composed of the banks and other financial institutions scored the highest with 85.23 while SMEs pale in comparison below 70. All sectors, however, increased their average scores from the previous assessment.

It was observed that the Strengths of 260 Philippine PLCs are the following:

1. The exercise of shareholders right to actively participate in the ASM,

2. Financial disclosures

3. The responsibilities of the board are clearly defined.

For the Areas for Improvement, PH PLCs should be developing and implementing policies related to other stakeholders. Furthermore, here are some observations during the regional assessment:

• PH PLCs strength is on Rights and Equitable Treatment of Shareholders

• Adoption of Sustainability Report helped in the improvement of scores of PH PLCs.

• Some PH PLCs got penalized for having IDs serving for more than 9 years and serving in more than 5 boards in PLCs.

• ASEAN DRBs got confused in our many documents for reporting. They found inconsistent statements.

• Some information or documents were not available anymore because companies updated their websites already.