MOST listed Philippine firms strictly comply with mandatory governance rules but remain wanting in discretionary practices like putting audit and risk management systems in place, a professor from the De La Salle University (DLSU) concluded in a study.
In a dissertation for a doctorate in business administration, Claro G. Gañac found that publicly listed companies in the Philippines exhibit high compliance in disclosing information, organizing board committees and appointing two independent directors.
“Conversely, governance compliance is weak in voluntary and discretionary governance mechanisms and practices across the board,” read the presentation of Mr. Gañac during the general membership meeting of the Shareholders Association of the Philippines (SharePhil) on Sept. 2.
Mr. Gañac, an assistant professorial lecturer at the DLSU Ramon del Rosario College of Business, looked into corporate governance practices of 156 or 60% of the 265 companies listed on the Philippine Stock Exchange at end-December 2015 concerning the disclosure of information and distribution of power.
Of the surveyed companies, more than 95% complied with mandatory mechanisms, particularly the appointment of two independent directors, formation of a board oversight and full disclosure.
The study observed a 96% compliance for information statements; 97% for quarterly financial statements, 80% for annual corporate governance reports; 73% for change in beneficial owners and 97% for annual reports.
Mr. Gañac observed a weaker compliance with discretionary standards of good corporate governance. For instance, only 49% post annual reports on their respective investor relations Web pages.
In terms of control mechanisms, the study found that only 59% of surveyed companies appointed their chairmen and chief executive officers separately.
Also, the number of independent board directors averaged 2.45, just above the required number. Non-executive directors occupy 4.12 of board seats totaling 9.32 on average.
Mr. Gañac further noted that only 22% formed governance committees; 53% had risk management and internal audit systems; 7% provided share buyback rights; 47% declared cash dividends; and 10% gave stock dividends.
“The Corporation Code has to be strengthened especially in terms of ownership rights. The provisions are right now open for interpretation,” Mr. Gañac noted during the SharePhil membership meeting.
“The main reason why participation in the stock market is low is because the rewards are probably not as high as or as attractive. That’s why we see a lot of scams promising high returns going on,” Mr. Gañac added.
The regulatory framework should include an incentive mechanism, which may include tax relief for smaller companies, to promote best corporate governance practices in the Philippines, Mr. Gañac said.
In addition, companies should supposedly consider giving institutional investors representation to the board of directors.
