SEC tackles corporate governance reform measures

Government will put in place a concrete policy to promote measures that would help companies strengthen their management practices and avoid more cases of corporate failures or closures.

Securities and Exchange Commission (SEC) Chairman Lilia Bautista said a proposed Executive Order provides for the formulation and implementation of corporate governance reform measures.

Corporate governance is a system whereby shareholders, creditors and other stakeholders of a corporation ensure that management will be able enhance the value of the corporation as it competes in an increasingly global market place.

Bautista said since the recent Asian financial crisis has highlighted the importance of corporate governance, the current administration has deemed it fit to institutionalize the practice "in order to develop the capital markets, raise investor confidence and protect the rights of small investors who constitute the minority shareholders and ultimate creditors of these companies."

As the primary regulator of the corporate sector, the SEC will assume the lead role in promoting governance reforms, Bautista said.

Among the major reforms being considered are strengthening the enforcement of the Corporation Law on shareholder rights; the amendment of listing rules to promote broader ownership and liquidity of shares; the restructuring of the Philippine Stock Exchange toward demutualization and reforms in trading rules; and the empowerment of SSS and GSIS as defenders of minority shareholders’ rights.

In the area of internal governance systems, the tasks will focus on the formulation and adoption of a Code of Ethics and a Code of Corporate Governance; requirements of independent directors and for minimum qualifications and training of directors to ensure their effectiveness; requirement to form various board of directors committees whose mandates and operations are aligned with international best practices; and monitoring by independent institutions like the Institute of Corporate Directors and the PSE of the quality of corporate governance in the private sector.

The SEC will likewise introduce reforms to improve transparency, disclosure and external audits, particularly in ensuring professional practices in accounting and reporting standards so that investors and creditors are assured of full, fair and timely information; requirement of disclosure of factors that influence investors’ (especially the minority ones) decisions like beneficial owners of a corporation’s shares, trading of shares by directors, managers and controlling shareholders and related party transactions. — Conrado Diaz Jr.