The COVID-19 pandemic’s effects tolled business enterprises and the overall economy. In addition to the disrupted lives of millions of people, there was a slowdown in the employment rate due to the loss of jobs during the critical period. Add to this the worsening issues of climate change and poverty, which many studies have proven to have been accelerated alongside the said global health crisis.

In light of these issues, businesses face the task of ensuring their operations and practices are meeting their company’s targets and their communities’ needs without compromising the ability of future generations to meet such needs. This is where corporate governance stands as a crucial standard in achieving corporate success, resilience and recovery, as well as relevance to the communities they work with.

One leading corporate governance standard, which many Philippine companies are now adhering to, is the ASEAN Corporate Governance Scorecard (ACGS). This scorecard was conceptualized by the ASEAN Capital Market Forum (ACMF) and the Asian Development Bank (ADB) in 2011. Six member-states of the Association of Southeast Asian Nations (ASEAN) participated in the inception of ACGS, namely Indonesia, Malaysia, the Philippines, Thailand, Vietnam, and Singapore.

As stated in ADB’s recent country reports and assessments on the ACGS, the main objective of the ACGS is to raise the corporate governance standards of publicly-listed companies (PLCs) and give greater international visibility to well-governed companies in members of the ASEAN.

In the report’s foreword, Ramesh Subramaniam, director-general of the Southeast Asia Department at ADB, stressed that as the COVID-19 pandemic further raised the importance of corporate governance, standards like the ACGS are becoming more crucial.

“Recovery requires substantial financial resources especially through the capital markets. It is therefore necessary for corporate governance policies and frameworks to adapt so that existing and new companies can access the capital they need. It is equally important to keep a close eye on various aspects of corporate governance including the duties of the board of directors and disclosure to stakeholders. The ASEAN Corporate Governance Scorecard (ACGS) plays a critical role in addressing this need,” Mr. Subramaniam wrote.

The said report, the director-general added, highlighted that corporate governance standards among ASEAN PLCs have improved over the years. The mean score of PLCs assessed, for instance, improved by 37.4% in 2019 compared to the first assessment in 2012. Compared to 2017 levels, all six participating countries improved in their scores, with Vietnam showing the most improvement with a 32% increase in its score.

In 2012, the Philippines formally began participating in the ACGS. Since then, the Securities and Exchange Commission (SEC) has been strengthening corporate governance practices in the country. In order to educate companies, investors and other government agencies about the goals of the ACGS, the SEC and Institute of Corporate Directors (ICD) began an information campaign that promotes embedding ACGS in business operations.

In addition, to further boost the country’s corporate governance system, the SEC launched a five-year road map called the Philippine Corporate Governance Blueprint in 2015. After being consulted by local companies, governance advocates, academics, and corporate governance stakeholders, the blueprint was established and made use of the Organisation for Economic Co-operation and Development’s (OECD) principles for achieving international corporate governance practices.

Moreover, the blueprint was used to focus on enabling business enterprises in performing exceptional business strategies that helped them to improve the economy and the social well-being of the country.

Also, since November 2015, the SEC have led ACMF Working Group D, the body directly responsible for the ACGS initiative.

Corporate governance is important since it guides businesses on how they should operate. Using the best business practices increases long-term sustainability and resiliency, which can be a key driver in attracting foreign investments. Through ACGS, business leaders and foreign investors can use the obtained information as a tool for making proper investment decision-making processes.

ACGS consists of 184 questions, which are based on the information on publicly available disclosures on the PLCs’ websites. Then, it will assess how well the companies perform in terms of facilitating the shareholders’ rights and equitable treatment, their interaction with stakeholders, ensuring transparency and accountability, and how the board directs and oversees management in the company.

The ACGS evaluation uses two-level scoring among PLCs, showing how fundamental principles of sound corporate governance are put into practice.

The first level is made up of “descriptors or items that are, in essence, indicative of the laws, rules, regulations, and requirements of each ASEAN member state and the basic expectations of the OECD principles.”

The said OECD principles consists of five areas, which the ACGS covers: rights of shareholders, equitable treatment of shareholders, role of stakeholders, disclosure and transparency, and responsibilities of the board.

The second level, meanwhile, includes bonus items reflecting emerging good practices and penalty items when behaviors and occurrences point to inadequate corporate governance.

The evaluation procedure also comprises two rounds of assessment, with the first round consisting of the domestic ranking body (DRB), rating the respective public-listed PLCs; followed by a peer review in the second round.

Following the peer review, conversations are held between the local DRB and peer reviewer DRB in order to resolve any discrepancies in their scores and come to an agreement on the final score of each company.

Lastly, an appointed independent party will validate the companies’ corporate governance practices through a face-to-face interview with the board of directors and other key officials of the companies being evaluated alongside the board of directors and officers of the companies.

Recognizing excellence in corporate governance among Philippine corporations based on the ACGS, the ICD holds the annual ACGS Golden Arrow Awards, the latest of which was held last Jan. 20 at the Sheraton Manila Hotel.

According to the ICD, the Golden Arrow is awarded to PLCs that achieved a score of at least 80 points in the ACGS Assessment. At this point, the company has exhibited observable conformance with the Philippine Code of Corporate Governance and internationally recommended corporate governance practices as espoused by the ACGS.

There are five performance levels in corporate governance, depending on how companies score. Companies that received 80-89 points in the ACGS Assessment are awarded a 1-arrow recognition, those with 90-99 points a 2-arrow recognition, those scoring 100-109 points a 3-arrow recognition, those having garnered 110-119 points a 4-arrow recognition, and those with a score of 120-130 points a 5-arrow recognition.

More than 80 companies received golden arrows this year, which serves as a symbol of the increasing competitiveness of the Philippines. — A. K. S. Brillantes

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