Listed firms’ execs told to take corporate governance lessons

The Securities and Exchange Commission is urging all executives of listed corporations and banks to undergo intensive training to apprise them of their responsibilities to shareholders.

Justina Callangan, head of the SEC’s Corporation Finance Department, is calling upon corporate executives to initiate corporate governance reforms by bringing and observing best practices into their boardrooms. To be able to do this, she said business executives need orientation and training.

Corporate directors, she said, have to consider in depth the role and responsibility that the law and the principles of corporate governance have assigned to them.

She said the Ayala Group of Companies is serious in its efforts to improve governance within its corporations as it has scheduled a two-day seminar for all its business executives.

The Capital Market Development Council, for its part, said directors‚ training for banks, government-owned and controlled corporations and financial institutions, and publicly-listed firms should be given one of the highest priorities in a corporate governance reform program.

"They have to be exposed to best practices in corporate governance already observed elsewhere. They have to be given cases that highlight successes and failures relative to corporate governance standards, and the consequences on the corporations arising from them," the CMDC said.

It noted that Malaysia and a few other East Asian economies hold directors’ training to remind executives of their duties and relationship with shareholders regarding major decisions.

The SEC said the Asian Development Bank has already offered to provide financial assistance for the country’s good governance reform program.

Company directors who are elected by the majority of the shareholders at a general stockholders' meeting must work faithfully for the company in accordance with the law and the decisions of shareholders. As the representative of shareholders in the corporation, the directors perform a crucial role in governance.

CMDC said investors’ confidence that the capital they provide will be protected from misuse or misappropriation by corporate managers, board members of controlling shareholders is an important factor in pumping up the capital markets. Corporate boards, managers and controlling shareholders may have the opportunity to engage in activities that may advance their own interests at the expense of non-controlling shareholders.

Controlling shareholders can expropriate wealth from minority shareholders through risky investing and financing decisions, inadequate disclosures, insider information and self-dealing.

Despite the fact that corporate directors are legally responsible to the shareholders, they are not necessarily motivated to put much importance on maximizing shareholder value.

The CMDC said boards should be able to exercise objective judgement on corporate affairs, independent of management.

To further improve the governance of the corporate sector, the Institute of Corporate Directors has suggested that executives be allowed to sit on a maximum of five boards of listed corporations to make sure that they devote more time to their work. At present, there is no limit as to the number of directorships an executive can accept.

The ICD also proposed to scale down the composition of the boards of listed corporations from 15 to seven.