SEC drafts scorecard to measure good governance practices of firms

Seeking to put the Philippines on track to promoting ethical business conduct among local firms, the Securities and Exchange Commission is working with the Institute of Corporate Directors (ICD) to draft a scorecard to measure good governance practices and reforms for corporations.

An SEC official said the scorecard concept was a braindchild of the ICD, which assists companies increase their adherence to corporate governance principles by providing training.

The proposed scorecard, according to the SEC official, is meant to pressure on companies to comply with the Code Corporate Governance which they have drafted and submitted to the SEC.

"We have to show them that we really mean business and that compliance with the provisions of the Code will in fact be monitored and that if they are not complied with, sanctions will be imposed so that people will begin to realize government is serious in enforcing rules," the SEC official said.

The adoption of a Code of Corporate Governance was required by the SEC of all listed corporations, brokerage and investment houses, pre-need companies, mutual fund firms, financing companies, and other companies with a secondary license from the SEC.

Actual implementation of the corporate governance manuals is required by Jan. 1, 2003. Sanctions shall be imposed for failure to observe corporate governance principles.

The corporate governance manual is aimed at increasing transparency and accountability in a company’s operations and strengthening minority shareholders’ rights.

The SEC official said the scorecard would include items on upholding stockholder rights, board governance, transparency and auditing.

The Commission is still considering whether banks will also be covered by the scorecard.

The SEC said the mere submission by listed corporations of their respective corporate governance manuals does not necessarily mean that they already adhere to sound business principles.

Several companies, however, have asked the SEC to set up an incentives system to encourage them to comply with good corporate governance requirements.

The SEC has yet to decide whether it should give out awards and other incentives for companies that comply with the Code of Corporate Governance.

Accounting errors and the bankruptcy of Texas-based energy trading giant Enron Corp. have revived interest in corporate governance as an important component of business operations.

The code requires SEC-registered and publicly listed companies to create an audit committee, formulate a performance-evaluation system, expand the scope of company y disclosures, and rotate external auditors.

The expanded disclosure requirement will increase transparency and discourage misappropriation of company assets. The code requires a firm’s corporate governance manual to mandate the public disclosure of information that could affect a firm’s share price. Such data include: income figures, acquisition or disposal of assets, changes in the board, related party transactions, shareholdings of directors and changes in ownership, remuneration of directors, senior management corporate strategy and "off book" or off balance sheet transactions.

With the code, the Philippines joins other Southeast Asian nations that have taken formal steps to instill good corporate governance practices in companies.