Good corporate governance

Corporate governance became one of my special areas of interest when I joined the group of professional educators at the De La Salle Graduate School of Business Extension Campus at RCBC Plaza in Makati City when Philip Juico was dean of the school. Our group is accredited by the Bangko Sentral ng Pilipinas (BSP), the Insurance Commission (IC) and the Energy Regulatory Commission.

Among the companies served by our group were: SM Investments, San Miguel Corporation, Megaworld Corporation, Gatchalian group of companies, Philippine Stock Exchange and Yuchengco group.

We were a little worried when the late Ambassador Alfonso Yuchengco requested a special session. Standing across from him in his office on the top floor of the iconic RCBC Tower at Ayala-Puyat Corner, which offers a 360-degree view of the entire Metro Manila, we wondered how we could get his full attention. My allotted time was from two to five in the afternoon. He listened intently, sipping four or five cups of coffee.

The Securities and Exchange Commission (SEC) defines Corporate Governance as a system of rules, systems and processes in companies that govern the performance of the Board of Directors and the management of their respective duties and responsibilities to shareholders.

Establishing and implementing good governance practices involves balancing the interests of a company’s many stakeholders, including employees, customers, suppliers, creditors and the government.

Poor corporate governance contributed to the 1997 Asian financial crisis, which started in Thailand and spread across East and Southeast Asia. The crisis has severely affected currency values, stock markets and other asset prices.

History of corporate governance

Although corporate governance began after World War II, it gained importance in the 1990s, in the wake of the scandals at Enron, Worldcom, Xerox, and Arthur Anderson & Co. Arthur Andersen was an American accounting firm based in Chicago that provided audit, tax advisory, consulting, and other professional services to major corporations. By 2001, it had become one of the largest multinational companies in the world and was among the Big Five accounting firms, along with Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.

The company collapsed in mid-2002 due to questionable accounting practices for energy company Enron and telecommunications company WorldCom. Enron was found to have fraudulently reported $100 billion in revenue through institutional and systematic accounting fraud. Andersen’s alleged complicity as an external auditor was intensively investigated. This led to its eventual demise.

The SGV Group, the largest accounting and management consulting network professional with 23 offices in 8 countries in Asia, became a member of Arthur Andersen in 1985. I knew a friend who, when he retired from SGV, chose to receive part of his pension from Arthur. Andersen because it was paid in dollars. He lost that right to dollars when the company went bankrupt.

Good corporate governance practices create a culture of responsibility, transparency and accountability. This helps promote a healthy business environment and contributes to long-term success in today’s competitive and dynamic business landscape. On the other hand, a lack of corporate governance can lead to lost profits, corruption and damaged corporate reputation.

In summary, the long-term benefits of good corporate governance are:

1. Building trust and reputation
2. Attracting investments and talent
3. Limit risks
4. Adapting to regulatory changes
5. Encouraging long-term sustainability
6. Improving performance and efficiency
7. Cultivating an ethical corporate culture

By prioritizing good governance, your company would not only cope with market uncertainties, but also contribute to a sustainable and responsible business environment for the future. Investing in the lasting value of your company by committing to a culture of strong corporate governance is a fundamental requirement today.

Despite heavy efforts, the government still has a long way to go when it comes to building a reputation for good corporate governance. Unfortunately, there is a widespread belief that taxpayers’ money is wasted through bribery and corrupt practices within government. Even the legal system needs a total overhaul of our Public Defender’s Office (DOJ), the Ombudsman and our courts.

Educating our voters to be truly choosy in voting for the right people is one of the first steps toward ensuring higher quality governance that will truly benefit the Filipino people.

(The author is vice president of the Employers’ Federation of the Philippines. He is a former president of the People Management Association of the Philippines.)