Maximizing Shareholder Value

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Cesar L. Villanueva

M. A. P. Insights

Under the GOCC Governance Act, the corporate governance standards for directors/trustees and officers of GOCCs have by expressed statutory imprimatur far exceeded those for the directors/trustees and officers in PHCs under the Corporation Code, the Securities Regulations Code, and the SEC Code of Corporate Governance, as follows:

(a) Where the Corporation Code and the SEC Code of Corporate Governance provide for the “duty of diligence” the standard of “due diligence” and would make directors and officers liable only for “gross negligence,” “malice” or “bad faith,” in turn R.A. 10149 imposes on Directors and Officers of GOCCs the duty to act “with extraordinary diligence,” and with “utmost good faith,” as to amount to “[s]uch degree of diligence requires using the utmost diligence of [a] very cautious person with due regard for all circumstances.”

(b) Where the Corporation Code and the SEC Code of Corporate Governance imposes merely a duty of loyalty on directors and officers, R.A. 10149 in addition characterizes the position of Directors and Officers to be “fiduciaries of the State” in the conduct of the business of the GOCC and declares them as “trustees” with respect to the properties, interests and monies of the GOCC.

(c) Where the Corporation Code and the SEC Code of Corporate Governance merely locates within the “business judgment rule” the power of the Board to appoint corporate officers, R.A. 10149 makes it an integral part of the corporate governance principle for GOCC Governing Boards to be bound by the principle of “command responsibility” for the skills, qualifications and actuations of the Officers and Management of the GOCC.

(d) Where in the private sector the violation of the fiduciary duty of loyalty subjects the culprit director or officer to the civil liability of disgorgement or remitting to the company the profits or property that may have been the object of the breach of duty, in the GOCC Sector, R.A. 10149 in addition makes it a criminal offense for a Director or Officer to fail to make restitution of properties or monies belonging to the GOCC pursuant to a final COA finding.

If corporate governance principles, and fiduciary duties and obligations are highest in the public corporate sector when compared to the private corporate sector, then why is there a public perception that corporate governance practice is much higher in the private sector? Why are directors, trustees, officers and even employees in the public corporate sector not scared to death of committing corporate wrongs?

Perhaps it is because it is a matter of perception, when public officials violate their fiduciary duties, the public is the offended party and they take offense; whereas, in the private sector, it is generally a private wrong that affects a limited number of people. More so, in the private sector such mal-governance provides a private relief of making the culprits civilly liable; whereas, the same act in the public corporate sector would be sensationally a criminal offense that comes under the generally notorious norms of “graft and corruption.”

But going into the substance of the matter, rather than perception, in addition to the avarice of humans as the main culprit (which equally applies anyway in both the public and private sectors), I offer the following reason on why in spite of the high standards of corporate governance in the public corporate sector, there is a propensity to governance malpractice, which I refer to as “Theory of Absence of Direct Proprietary Interest,” which I described in a published work as follows:

“One of the reasons that may be given for such seeming irony is that unlike in the private sector where the main stakeholders are the stockholders who, by reason of certain selfish motives to have the best return for their investments, really monitor the performance of the Board and Management (through the function of the stock market and profit results), corporate governance tends to be more disciplined. In others, it is in consonance with the old adage, that the market is by its very nature an unforgiving and disciplining force. Likewise, as the saying goes, nobody can better protect a property other than the owner himself.

“On the other hand, when it comes to the public sector in general, and the GCs in particular, the direct owner would be the Republic, a juridical entity — a medium, nay a mere concept — which on its own has no power to demand accounting; it operates through its agents, which in the world of GCs would be the public officers who serve as members of the Board and Management — hence, you have a high “agency cost.” This agency cost in GCs is highest in the form of outright graft, or by abuse of the remuneration mechanism provided for GC Boards and Management, because technically speaking, members of the GC Board and Management occupy two hats when they perform their public corporate governance functions: they are agents of the Republic which they represent, but at the same time they know that the Republic merely represents the citizenry, and that members of the GC Boards and Management, are also members of the citizenry. Human nature as it is, given the reins of power in a conflict-of-interest situation, then members of the GC Boards and Management often decide, and exercise their business judgment, serving themselves first as members of the public.

“This perverse way of looking at things, comes in the form of many justifications heard through the media when public officers have been caught with their hands in the cookie jar:

‘There is no such thing as ‘stealing from the government,’ since I cannot be guilty of stealing from myself!’

— or —

‘Since government resources are intended for the public, then members of the public have the right to partake of it, but we must take turns in doing so in an orderly fashion (i.e., it is our turn now because we won the elections).’

“This is certainly not to say that every citizen in public office is of the same mold — for indeed many public officers serve and live heroic public and private lives in consonance with the constitutional precept that “Public office is a public trust.” But the reason why there seems to be so much abuse of governance power in GCs seems to emanate from the situation where appointment to the GC Board and/or Management is based on political considerations; and that there is no real sense of the appointees being accountable to the Owner (the Republic) of the GC, when many of the very representatives of the people — the highest officials in the Government — partake for themselves of the largesse of the public coffers in various forms of justifications, such as “pork barrel funds,” “intelligence funds,” and so on. Ultimately, nobody in authority is left to demand responsibility in the public sector.”

It is ironical therefore to this observer that it is precisely the doctrine of maximization of shareholders’ value that has kept corporate governance at its highest adherence in the private corporate sector.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP)


Cesar L. Villanueva is the Vice Chair of the Corporate Governance Committee of the Management Association of the Philippines (MAP), the Founding Partner of the Villanueva Gabionza & Dy Law Offices, and the former Chair of the Governance Commission for GOCCs.