How PSEi member stocks performed — February 26, 2018
Here’s a quick glance at how PSEi stocks fared on Monday, February 26, 2018.
Philippine Corporate Governance Regimes
THERE is a public perception that the system of corporate governance (CG) in the private sector is of “superior standard” when compared with public CG system; or that at least, there is greater adherence and compliance with CG principles and best-practices in the private sector than in the public corporate sector. In another way at looking at it, our society generally considers public corporate sector to be more prone to corruption than that of the private corporate sector.
This article compares the prevailing CG system for government-owned-or-controlled corporations (GOCCS) with those for publicly-held companies (PHCs) in the private sector, in an attempt to determine the veracity of such perceptions, and in conclusion offer the explanation for such divergence.
The article is written under the presumption that most of the readers are fully aware of the CG principles and best practices prevailing for PHCs which are currently divided into two groups: (a) publicly-listed companies (PLCs), which are governed by the Code of CG for PLCs; and public companies, which are non-listed companies having assets in excess of P50 million, and having two-hundred (200) or more stockholders each holding at least one-hundred (100) shares of a class of its securities, which are still governed by the Revised Code of CG.
Consequently, the article will primarily articulate on the existing CG structure pertaining to GOCCs, and in the process compare them with their counter-part principles and best practices pertaining to PHCs.
THE GOCC GOVERNANCE ACT OF 2011
In July 2011, Congress passed into law Republic Act No. (R.A.) 10149, formally denominated as the “GOCC Governance Act of 2011.”
Apart from the appropriation act, it was the first substantial legislation signed into law by then President Benigno S. Aquino III, which sought to “promote financial viability and fiscal discipline in [the GOCC Sector] and to strengthen the role of the State in its governance and management to make [GOCCs] more responsive to the needs of public interest.”
The GOCC Governance Act unified into the so-called “GOCC Sector” all government corporations, whether chartered (i.e., created by direct act of Congress) and non-chartered (i.e., those organized under the Corporation Code of the Philippines), whether stock or non-stock, and whether performing commercial or proprietary functions, or those having in addition regulatory powers.
The policies sought to be pursued under RA 10149 are based on the State’s recognition of “the potential of [GOCCs] as significant tools for economic development,” requiring “the State to actively exercise its ownership rights in GOCCs and to promote growth by ensuring that [their] operations are consistent with national development policies and programs.” Towards such end, the Act mandates that the State shall ensure pursuit and realization of the following public policies:
(a) Judicious Use of the Corporate Medium: The corporate form of organization through which government carries out activities is utilized judiciously.
(b) Efficient and Monitored Use of Resources: The operations of GOCCs are rationalized and monitored centrally in order that government assets and resources are used efficiently, and that government exposure to all forms of liabilities including subsidies is warranted and incurred through prudent means.
(c) Transparency, Responsibility and Accountability: The governance of GOCCs is carried out in a transparent, responsible and accountable manner, and with the utmost degree of professionalism and effectiveness.
(d) Proper Reporting and Evaluation of Operations and Management: A reporting and evaluation system which will require the periodic disclosure and examination of the operations and management of GOCCs, their assets and finances, revenues and expenditures, is enforced.
(e) Competent Governing Boards: The members of the Governing Board of every GOCC are competent to carry out its functions, fully accountable to the State as its fiduciary, and act in the best interest of the State;
(f) Reasonable, Justifiable and Appropriate Remuneration Scheme: Reasonable, justifiable and appropriate remuneration schemes are adopted for the directors/ trustees, officers and employees of GOCCs and their subsidiaries to prevent or deter the granting of unconscionable and excessive remuneration packages.
(g) Competitive Neutrality: There is a clear separation between the regulatory and proprietary activities of GOCCs, in order to achieve a level playing field with corporations in the private sector performing similar commercial activities for the public.
The GOCC Governance Act does not contain a provision for the issuance of implementing rules, for as in the case of important legislations in the past, such as the Corporation Code, the provisions of RA 10149 are self-executory. Indeed, the Act sees its policies, principles and rules maturing and growing as the Governance Commission for GOCCs (GCG) manages the GOCC Sector, through its memorandum circulars and rulings.
More importantly, the so-called “implementing rules” of the Act shall find themselves expressed in manuals and codes that the GCG is mandated to promulgate, sometimes on its own power, and others with the approval of the President of the Philippines.
THE GOVERNANCE COMMISSION FOR GOCCS (GCG)
As the counter-part of the Securities and Exchange Commission (SEC) for PHCs in the private sector, the GOCC Governance Act constituted the GCG as the “central advisory, monitoring, and oversight body with authority to formulate, implement and coordinate policies” for the GOCC Sector.
Among other things, the GCG is empowered to classify, evaluate the performance, and determine the relevance, of GOCCs, to ascertain whether they should be reorganized, merged, streamlined, abolished or privatized, in consultation with the Department or agency to which they are attached.
The Act mandates that “In addition to the qualifications required under the individual charters of the GOCCs and in the bylaws of GOCCs without original charters, the GCG shall identify necessary skills and qualifications required for Appointive Directors and recommend to the President a shortlist of suitable and qualified candidates for Appointive Directors.”
To maintain the quality of management of the GOCCs, the GCG is mandated to prescribe, pass upon and review the qualifications and disqualifications of individuals appointed as officers, directors or elected CEO of GOCCs, and disqualify those found unfit. In determining whether an individual is fit and proper to hold the position of an officer, director or CEO of the GOCC, due regard shall be given to one’s integrity, experience, education, training and competence.
ORGANIC DOCUMENTS IN THE GOCC SECTOR
The GCG undertook the formal adoption and promulgation of the organic documents mandated under the GOCC Governance Act, thus:
a. Ownership and Operations Manual for Governing the GOCC Sector
The GOCC Ownership/Operations Manual provides for the objectives of State ownership in GOCCs, and provides for the formal structure of the basic relationship between the State and its various agencies with the GOCCs. It is deemed to be the “Magna Carta in the GOCC Sector”, since it—
- Provides for the Governing Principles and Objectives of the State as an “Active Owner” of the GOCCs;
- Defines the Role and Relationship of the State, its agencies and instrumentalities, vis-à-vis the GOCCs as “significant tools for national development”;
- Provides for the roles and responsibilities of GOCCs and the Primacy of the Boards of Directors/Trustees in the governance of the GOCCs;
- Provides Guidelines for the Monitoring and Evaluation of the GOCCs and their Governing Boards and CEOs;
- Provides for the Policy Framework for Tasking GOCCs to Undertake Non-Commercial Activities.
GOCC Governing Boards are encouraged to look at the GOCC Ownership/Operations Manual as a “Bill of Rights and Responsibilities” as they pursue the proper role and responsibilities of the GOCCs in which they serve.
For example, against an overbearing Supervising Agency, the Governing Board of a GOCC may point to the provision of the Manual that explicitly calls for respect of the legal structure and operational autonomy of each GOCC. While supervising agencies of the National Government are mandated to ensure that the corporate plans and programs of GOCCs under their supervision are congruent with the sectoral objectives and priorities of their respective departments, the Manual provides that such Supervising Agencies shall not be involved in the day-to-day management of GOCCs.
Another example would cover GOCCs like SSS and GSIS which really do not hold government funds, but actually have custody and trust obligations of the contributions of employees and pensioners, Such GOCCs may invoke Article 6 of the GOCC Ownership/ Operations Manual to parry the demands of an Administration on off-beat “pet projects”, which clarifies that the role of the State in such GOCCs “is not that of an active owner or investor, but a guardian to promote the best interests of the members of the public whose contributions are to be prudently invested for their benefit, and also as a guarantor for the contingent liabilities.”
b. Code of CG for GOCCs
The GOCC Code of CG contains the mandated governance principles and best-practices applicable to GOCCs, and adopted from the OECD Governance Guidelines for State-Owned Enterprises, as well as from the SEC’s Code of CG. The Code is intended to instill within the GOCC Boards and Management the highest sense of responsibility, transparency and accountability, and covers the following areas:
- Role and Responsibilities of the Governing Boards, and the individual Directors as “fiduciaries of the State”;
- Disclosure and transparency requirements;
- Code of Ethics of Directors and Officers in the GOCC Sector;
- Creation of Board Committees and similar oversight bodies;
- Providing for an Integrated Corporate Reporting System (ICRS);
- CSR Statement and the Role of Stakeholders.
In addition, the GOCC Code of CG contains a provision on the “Obligations of the GOCC to the Members of the Governing Board,” such as the provision of staff support. Another key feature is allowing GOCCs to obtain Directors and Officers Liability Insurance (DOLI) coverage for members of the Board and Officers. The DOLI is intended to insure against contingent claims and liabilities that may arise from the performance of their functions, except in cases when there has been a breach of a fiduciary duty or a commission of fraud. This is of particular importance when viewed in the context of RA 10149 having imposed a lot of responsibilities on the Board and required them to act with extraordinary diligence.
(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 CG Committee of the Management Association of the Philippines (MAP), the former Chair of the Governance Commission for GOCCs and the Founding Partner of the Villanueva Gabionza & Dy Law Offices.
Considering the role of voice and choice in Charter change
It seems the Philippines has reached another juncture in its slow march towards political development, with the most recent debate on Charter change (including a proposed shift in the form of government) as the most prominent hurdle. Political junctures can be reached gradually as part of a political cycle, or a sudden insistent questioning of dominant norms. Whatever the case may be, the change is most compelling when the demand for social and political change is authentic, and not a fabricated version of public opinion.
What seems to be missing from the current debate unfolding in the different halls of power: the House, the Senate, and the newly created Charter change Consultative Committee is a strong multi-sectoral voice clamoring for this debate to prosper.
Perhaps what is underappreciated in the current debate on Charter change is the need to separate an authentic demand for political change from one that is cloaked in consultations, road shows, and other consensus seeking devices. The lack of a definitive demand via public opinion is a telling sign of unpreparedness for what political change is to come.
What constitutes a definitive demand? When the situation requires it. I return to an article I wrote for Blueboard in 2014 (and prior to this, another article written a decade before, in 2004, on electoral reform and Charter change issues). This previous article, written for a previous administration on a previous Charter change try raised Schimitter’s criteria for a “constitutional moment.” It is one that emerges when the political context changes drastically, either by becoming a State or having no prior experience of constitutional governance, or when there are changed boundaries in a State’s territory, or when role that political authority has played changes drastically, or if a new ethnic minority has joined the polity or a new part of the population has been enfranchised.
In other words, the State should have changed so much that it is clear to everyone that the Charter must be changed as it no longer represents who we are as a people.
Granted, there are characteristics of the Philippine State that must be viewed with some consideration such as the Local government code of 1991 or RA 7160 that provides for the role and powers of local government units and has yet to be fully implemented. Migration, of course, has changed the course of the Philippine State and it has accommodated our Filipinos abroad with the Migrants Workers Act of 1995 (or RA 8042 and the subsequent RA 10022) and RA 9189 or the Overseas Absentee Voting Act of 2003. Mindanao’s changing political landscape is currently being considered through the BBL or the Bangsamoro Basic law. Population growth and the debates on the passage and implementation of the Responsible Parenthood and Reproductive Health Act of 2012 or RA 10354 and even the recently passed Train law: these are all indicators that the State continues to address changes in the political, social, and economic landscape. By looking back at the passage of these laws, one sees not just governmental actors but thick networks of civil society organizations: NGOs, POs, internationally based and local groups and other special interest groups alongside concerned citizens that actively pushed for (or against) each of these landmark laws. There was a multiplicity of voices that actively challenged or supported State actors and in doing so produced policy that can by all means be considered public.
I also argue further that aside from ensuring that there is a definitive need for Charter change beyond that which can be responded to by current mechanisms such as the enactment and further implementation of laws, a number of changes must also be made to move beyond the current framework of Philippine Politics that is still hinged on personal (and familial) ties weak representation and limited political participation:
(1) Representation — we must reckon the role that political parties play in political organization. Without clarifying how we want to be organized and represented means that we allow other traditional actors (such as political dynasties) to continue playing an all too central role in the way politics in the Philippines is run and won.
(2) Participation — electoral reform must continue because the context in which we elect our leaders also evolves. This includes ensuring the active participation of groups such as women, the youth, ethnic minorities, Filipinos overseas, persons with disabilities, and the poor in each electoral contest. This can be done via developing new electoral technologies or simply ensuring that electoral violence and intimidation, which seriously should have no place in modern electoral contests, do not limit Filipinos right to vote.
Frankly, as Philippine-based political scientists, it becomes slightly frustrating to keep pointing out the same things. We joke among ourselves that it makes our job easier and our income steadier but at the same time, it leaves us with the feeling that we really aren’t doing our jobs very well. A political event such as the current debate on Charter change and the shift in form of government forces us to reevaluate our political realities and reminds us once again to do our jobs well. It is a challenge not just for academe based citizens but for all members of our political community: it is OUR job and we must ensure that political changes undertaken at important junctures are not made by just those who think and make us believe that they are doing theirs.
I end with a shameless plug: ATENEO EAGLEWATCH, a political and economic briefing will be held on March 7, 10 a.m.-12 noon at the Escaler Hall in the Loyola Height Campus. Speakers are Ciel Habito, Ph.D. on “the Philippine Economic and Performance Outlook” and Melay Abao, Ph.D candidate, on “the Philippine Political Outlook: What to Expect Between Now and May 2019.” For inquiries, please call the Department of Economics at 426-6001 (local 5222/21) or the Department of Political Science (local 5250/5253).
Maria Elissa J. Lao is an Assistant Professor of Political Science at the Ateneo de Manila University where she is currently the Director of the Institute of Philippine Culture.