Well-governed firms prized by institutional investors, expert says

Posted on June 25, 2015

PHILIPPINE companies need to shift their approach to corporate governance practices, focusing on attracting investors, boosting capital and taking advantage of opportunities in the impending integration of Southeast Asian economies.

Teresita T. Sy-Coson, a speaker at the SharePHIL forum -- BW File Photo
The national government must also continue to take advantage of regional initiatives to boost the country’s capital markets, participants at a conference organized by the Shareholders Association of the Philippines (SharePHIL) said.

They said prospects are good for local companies as regional economies integrate, noting that the local market will learn best practices elsewhere and tap the impending Association of Southeast Asian Nations (ASEAN) integration to further grow the bourse.

Chris Leahy, Governance Authority at the Asian Corporate Governance Council, said Philippine capital markets remain underdeveloped compared to its regional counterparts and the country needs better corporate governance to attract institutional investors. “The Philippines is at risk of falling behind its peers,” Mr. Leahy said in his speech.

“When economic growth weakens and of course it will, we don’t know but it will, equity markets are going to adjust and that’s where corporate governance becomes critical. That’s the message we’re trying to say,” Mr. Leahy said.

“Better governed companies, irrespective of market, outperform weak companies every time. Over the longer term, they outperform and we can correlate that to almost every market globally... because investors trust the owners of the management of better governed companies to look after their capital,” he added.

Mr. Leahy said institutional investors abroad tend to “name-pick” family-owned companies in the Philippines which have adhered to high corporate governance standards.

“There are clear corporate governance leaders in the Philippines. Because of the strategy... the rest of the market is denied access to this and it’s trillions of dollars,” Mr. Leahy said.

Securities and Exchange Commission (SEC) Commissioner Ephyro Luis B. Amatong said for his part that the country takes part in regional initiatives aimed at growing the capital markets.

Mr. Amatong said the country is part of the ASEAN+3 Bond Issuance Framework (ABIF) which “allows companies to easily raise capital in the local currency of the jurisdiction with operations in other ABIF jurisdictions.”

“[They] should be able to easily raise funds in the local currency through a streamlined process and therefore mitigating exchange risks,” Mr. Amatong said.

“We at the SEC are still campaigning very hard for the Philippines to become the second jurisdiction to issue an ABIF bond within the year,” he added.

Other initiatives, Mr. Amatong said, are the ASEAN Trading Link which allows brokers to access other markets that are part of a common network and the ASEAN corporate governance scorecard, where the average score of the country’s top 94 listed companies rose to 58 points in 2013 from 48.91 points in 2012.

BDO Unibank, Inc. Chairperson Teresita T. Sy-Coson, for her part, said organizations with substantial assets can better weather change in the global market, including market shifts, digital disruption, over-regulation, and social backlash.

“Companies with strong balance sheets can better manage this risk,” she added.

“With so much uncertainty, good corporate governance is important for companies with overseas subsidiaries dealing with internal and external relations,” she said. -- Mikhail Franz E. Flores