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Understanding the ASEAN Corporate Governance Scorecard and the Philippine corporate governance landscape

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Effective and transparent corporate governance is necessary for fostering investor confidence and driving sustainable economic growth. It is the foundation of a strong business climate, promoting ethical practices and upholding accountability across the globe.

The Association of Southeast Asian Nations (ASEAN) recognizes the importance of corporate governance, introducing the ASEAN Corporate Governance Scorecard (ACGS) as a framework to enhance corporate governance practices in its member countries.

Established by the ASEAN Capital Markets Forum (ACMF) and the Asian Development Bank (ADB) in 2011 to raise corporate governance standards, ACGS serves as an instrument for assessing and ranking publicly listed companies (PLCs) in six participating ASEAN countries, namely Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.

The scorecard system is based on international best practices, encouraging publicly listed companies to go beyond national legislative requirements, giving greater global visibility to well-governed ASEAN PLCs and promoting ASEAN as an asset class.

The 2015 revised Principles of Corporate Governance by the Organization of Economic Cooperation and Development (OECD) has brought the ACGS in line with the latest developments and emerging corporate governance standards. Hence, the revised ACGS comprises five parts: rights of shareholders, equitable treatment of shareholders, role of stakeholders, disclosure and transparency, and responsibilities of the board.

Philippine corporate governance at a glance

In the Philippines, the Securities and Exchange Commission (SEC) is the primary regulatory agency responsible for enforcing corporate governance standards. SEC, along with the Philippine Stock Exchange (PSE) and Insurance Commission (IC), has implemented various initiatives to promote good corporate governance standards and practices, including the adoption of the ACGS in 2012.

In the 2022 ACGS assessment published on Institute of Corporate Directors (ICD) Philippines’ website, the ICD reported an average score of 76.64 for 272 publicly listed companies in the Philippines, which is higher than the country’s average score during the 2021 assessment. With this increasing growth, the corporate governance performance of the PLCs in the Philippines has continued to improve steadily.

Moreover, the Top 100 PLCs by Market Capitalization scored an average of 90.68, compared to 2021’s 87.55 points. Most PLCs score above 70 points, with 60 companies rating between 70 and 79.99.

According to the report published by the ASEAN, the Philippines needs to significantly improve its commitment to upholding shareholder and stakeholder rights. The report advises that Philippine PLCs should comply with all mandatory disclosures set by regulators and work towards protecting internal and external stakeholders for sustainable development.

Meanwhile, the 2022 ACGS Assessment on the insurance industry assessed 111 insurance companies in the Philippines, with an overall result of 55.13 points, an increase of 3.57 points from the 2021 assessment.

Among the 111 insurance companies, 22 scored 80 points and above, and 80 companies were able to improve their overall score.

The Golden Arrow Awards

To recognize the outstanding Philippine publicly listed companies in corporate governance based on the ACGS, ICD holds the annual ACGS Golden Arrow Awards.

To be eligible for the award, companies must score a minimum of 80 points in the ACGS Assessment. This indicates that the company has demonstrated adherence to the Philippine Code of Corporate Governance and internationally recognized corporate governance practices endorsed by the ACGS.

Moreover, five levels of performance in corporate governance will be conferred, with each ascending level depicted by an increasing number of golden arrows.

This year, 130 companies were awarded golden arrows at the ACGS and CGS Golden Arrow Recognition, which brought together the corporate governance community and advocacy champions in the regulatory and business sectors.

Four PLCs received the highest award of 5-arrow recognition for achieving a score range of 120 to 130 points. The awardees are Ayala Land, China Banking Corp., Globe Telecom, and SM Prime Holdings.

Meanwhile, two insurance companies bagged the 4-arrow recognition for scoring 110 to 119 points. Included in the awardees are Insular Life Assurance Company, Ltd. and Pru Life Insurance Corp. of UK.

With these initiatives, the ICD actively promotes the adoption of good corporate governance not only to enhance the global competitiveness of the Philippines but also to strengthen the profitability and development of local companies.

Furthermore, the ACGS and the Golden Arrow Awards serve as a benchmark for companies to improve their corporate governance practices and attract investors.

Future of Philippine corporate governance

Corporate governance in ASEAN countries is collectively improving, with international best practices being incorporated into national corporate governance blueprints and strategies.

The implementation of the ACGS provides a rigorous methodology for assessing corporate governance practices, which can help companies identify areas for improvement and attract more investors.

The Asian Development Bank has continued to emphasize the importance of good corporate governance practices since these standards reduce vulnerability to financial crises, reinforce property rights, lower capital costs, and promote greater capital market development. Investors will also have greater confidence in companies with good governance and in markets that are backed by sound legal and regulatory regimes.

The implementation of the ACGS can also help improve the investment climate in the Philippines by promoting transparency, accountability, and good governance among publicly listed companies. This way, the Philippines can attract more investors and increase the visibility of the country as a wise investment destination.

As suggested by the ASEAN in their recent report on corporate governance, Philippine companies can enhance their competitiveness and attract foreign investment to fund their growth, which can help to build a vibrant private sector and lead to sustainable economic development in the Philippines.

Furthermore, the active promotion and adoption of good corporate governance practices in the government and private companies can enhance the country’s competitiveness and attract more foreign investment to fund growth.

For instance, amendments to the Public Services Act and Foreign Investment Act have opened up the market, making foreign direct investment simpler and more rewarding. Foreign investors can now own 100% of their ventures in certain critical industries in the Philippines, including infrastructure such as telecoms, airports, seaports, rail, and renewable energy projects.

In addition to good corporate governance standards and practices, these major changes can help build a strong and sustainable economy in the country. — Mhicole A. Moral

Erika Mioten

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