Corporate governance became one of my special fields of interest when I joined the group of professional lecturers at the extension campus of the De La Salle Graduate School of Business at the RCBC Plaza in Makati City when Philip Juico was the school dean. Our group was 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, the Gatchalian group of companies, the Philippine Stock Exchange, and the Yuchengco group.
We were a bit worried when the late Ambassador Alfonso Yuchengco asked for a dedicated session. Facing him in his office on the top floor of the iconic RCBC tower in Ayala-Puyat corner, where one has a 360-degree view of the whole of Metro Manila, we wondered how we could command his full attention. My assigned time was from two to five p.m. He was an attentive listener, while sipping with four or five cups of coffee.
The Securities and Exchange Commission (SEC) defines Corporate Governance as a system of rules, systems, and processes in corporations that govern the performance of the Board of Directors and management of their respective duties and responsibilities to the stockholders.
Establishing and implementing good governance practices involves balancing the interests of a company's many stakeholders, including employees, customers, suppliers, creditors, and government.
Poor corporate governance contributed to the Asian financial crisis of 1997 which It began in Thailand and swept over East and Southeast Asia. The crisis heavily impaired currency values, stock markets, and other asset prices.
History of Corporate Governance
While Corporate Governance began after World War ll, it gained its importance in the 1990s in the aftermath of the Enron, Worldcom, Xerox, and Arthur Anderson & Co. scandals. Arthur Andersen was an American accounting firm based in Chicago that provided auditing, tax advising, consulting, and other professional services to large corporations. By 2001, it had become one of the world's largest multinational corporations and was one of the Big Five accounting firms, along with Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers.
The firm collapsed by mid-2002, as details of its questionable accounting practices for energy company Enron and telecommunications company WorldCom. Enron was found to have fraudulently reported $100 billion in revenues through institutional and systematic accounting fraud. Andersen's alleged complicity as an external auditor came under intense scrutiny. This led to its eventual downfall.
The SGV Group, the largest auditing and management consultancy network professional with 23 offices in 8 countries in Asia, became a member of Arthur Andersen in 1985. I knew of a friend who, retiring from SGV, opted to get part of his retirement from Arthur Andersen as it was paid in dollars. He lost that dollar entitlement when the company folded up.
Good corporate governance practices instill a culture of responsibility, transparency, and accountability. This helps to foster a healthy business environment and contribute to long-term success in today’s competitive and dynamic business landscape. On the other hand, a lack of corporate governance can result in a loss in profits, corruption, and a damaged company reputation.
In summary, the long-term benefits of Good Corporate Governance are:
- Building trust and reputation
- Attracting investment and talent
- Mitigating risks
- Adapting to regulatory changes
- Driving long-term sustainability
- Enhancing performance and efficiency
- Cultivating an ethical corporate culture
By prioritizing good governance, your company would not only withstand market uncertainties, but also contribute to a sustainable and responsible business environment for the future. Investing in your business’s enduring value by committing to a culture of strong corporate Governance today is a primordial requisite.
Despite strenuous efforts, government has a long way to go in terms of establishing a reputation for good corporate governance. Regrettably, there is widespread belief that taxpayers’ money is wasted through graft and corrupt practices in government. Even the justice system is in needs of a total revamp of our prosecutorial arm (DOJ), the Ombudsman, and our courts.
Educating our voters to be really choosy in voting the right people is one of the first steps toward ensuring a higher quality of governance that will truly benefit the Filipino people.
(The author is Vice President of the Employers Confederation of the Philippines. He is a former President of the People Management Association of the Philippines.)