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Philippine Model of Corporate Governance
Transcript of Philippine Model of Corporate Governance
The Chair and Chief Executive Officer
The roles of Chair and CEO should, as much as practicable, be
separate to foster an appropriate balance of power, increased
accountability and better capacity for independent decision-making by
the Board. A clear delineation of functions should be made between
the Chair and CEO upon their election.
If the positions of Chair and CEO are unified, the proper checks and
balances should be laid down to ensure that the Board gets the benefit
of independent views and perspectives.
Board Meetings and Quorum Requirement
The members of the Board should attend its regular and special
meetings in person or through teleconferencing conducted in
accordance with the rules and regulations of the Commission.
Independent directors should always attend Board meetings. Unless
otherwise provided in the by-laws, their absence shall not affect the
quorum requirement. However, the Board may, to promote
transparency, require the presence of at least one independent director
in all its meetings.
Flow table of the Philippine Corporate Governance
Compensation to Members of the Board and Officers
Table for New Banking Laws and Corporate Governance Issues
Corporate Governance Challenges in the Philippines
3 Regulatory System of this Model
Accountability and Audit
The Board is primarily accountable to the stockholders. It should
provide them with a balanced and comprehensible assessment of the
corporation’s performance, position and prospects on a quarterly basis,
including interim and other reports that could adversely affect its
business, as well as reports to regulators that are required by law.
Thus, it is essential that Management provide all members of the Board
with accurate and timely information that would enable the Board to
comply with its responsibilities to the stockholders.
6. “Additional burden” , “irrelevant”
7. Poor risk management
8. Weak and compromised boards
9. Unorganized and passive minority shareholders
10. Success of “status quo”
WEAKNESSES IN CORPORATE GOVERNANCE MECHANISMS
1. Decision Processes;
2. Violation of Regulations;
3. Weaknesses of Regulatory Agencies;
4. Financial Reporting Standards
1. Public Governance
2. Enforcement issues - “exemptive relief”
3. The CG Equation - Benefits vis-à-vis Costs
4. Ambiguity, uncertainty, skepticism (lack of knowledge)
5. Predominant ownership structure (propensity for abusive related party transactions, insider trading, asset expropriation, etc)
Weaknesses in corporate governance
mechanisms in selected Philippine firms
discussed in this paper have been partly
addressed by regulations issued by government
and other agencies, and by laws recently enacted
by Congress such as banking laws and the
securities regulation code. SEC also issued a
code of corporate governance for publicly-listed
These reforms have focused mainly on the
board structure – the inclusion of independent
directors as well as the choice of directors in the
case of financial services firms supervised by the
BSP. Reforms in the preparation of financial
statements were also prescribed by the Financial
Reporting Standards Council.
These reforms, however, are not sufficient to
protect the “outsiders” for the following reasons:
1. The market share of just one dominant accounting firm still concerns investors and other foreign credit watchdogs because of the possibility of limiting the rotation of the handling partner within the dominant accounting firm every five years as prescribed by the Code of Governance. Furthermore, the independence of FRSC is affected by the dominance of one accounting firm;
2. Enforceability of laws is also weak. Philippine courts take years to resolve cases and violators are aware of this. Thus, some firms prefer the resolution of financial reporting cases by international arbitrators to Philippine courts. However, international arbitration is very expensive and may not be affordable by many;
3. More diversified ownership in banks is also lacking, ownership in banks is concentrated in few individuals and families and the industry is dominated by few banks controlling 71.2% of system-wide assets as of 2005 . In 2005, top 10 commercial banks accounted for 71.21% of the total assets of the commercial banking system. Of these top 10 banks, more than 50% are controlled by families and their affiliates, and two are wholly owned by the government. The concentration of ownership in banks in few individuals or families makes possible the violation of the banking rule which is a common cause of bank failure in the Philippines. This can also lead to decisions that are
centralized at the board level that are not
properly evaluated at various decision
levels in the organization;
4. It seems that the monitoring system by
regulatory/ supervisory bodies should be
strengthened. Regulatory agencies
should have more frequent examinations
of firms that are most likely to violate
rules/regulations due to ownership
5. The regulators (SEC and BSP), the
Philippine Stock Exchange, the Credit
Rating Agencies and the Accounting
Standards Council must play a stronger
role to improve financial reporting
practice for the protection of the