One of the most important pieces of legislation to come out of Congress in recent years is the “GOCC Governance Act of 2011.” As I mentioned in an earlier column, during previous administrations, officials of government-owned or -controlled corporations (GOCCs) were raking in fabulous sums in the form of various compensation packages approved by their respective boards of trustees/directors. In some cases, benefits or profits derived from the use of GOCC properties or from GOCCs’ corporate entitlements, or from officially representing GOCCs were treated as personal gains due the individuals concerned.
Data from a recent seminar conducted by the Institute of Corporate Directors (ICD) showed that the Philippines ranked No. 11 behind Asean member-countries Singapore, Thailand, Malaysia, and Indonesia in corporate governance market scores in Asia. In fact from 2007 to 2010, our score declined from 41 down to 37, with the greatest deficiency noted in the area of enforcement. (Source: Asian Corporate Governance Association)
The World Bank/IMF recommended that Philippine business must reform itself. The key: corporate governance.
In pursuit of this objective of a better corporate governance culture in the country, ICD suggested a number of reforms aimed at improving the existing business environment.
Let me just dwell on two items that ICD characterized as game changers:
A GOCC Corporate Governance Act and A Maharlika Board
First, with the signing into law last June of Republic Act 10149, also known as the “GOCC Governance Act of 2011,” we now have in place a mechanism to promote financial stability and fiscal discipline among GOCCs and to strengthen the role of government in the management of these institutions.
One of the more important provisions of the new law has to do with the creation of a Governance Commission for GOCCs (GCG), an oversight body with authority to formulate, implement and coordinate GOCC policies. This powerful body will have five members. The chairman with the rank of Cabinet secretary and two members with the rank of undersecretary, will be appointed by the president. The budget and finance secretaries will sit as ex-officio members.
The GCG can reorganize, streamline, abolish or privatize any GOCC. It shall classify GOCCs into: (1) developmental/social corporations; (2) proprietary commercial corporations; (3) government financial, investment and trust institutions; (4) corporations with regulatory functions; and (5) others.
In consultation with other government agencies, the GCG must adopt, within 180 days from its constitution, an ownership and operations manual and corporate standards governing GOCCs. These standards shall be no less rigorous than those required by the Philippine Stock Exchange or the Securities and Exchange Commission for listed companies, or those required by the Bangko Sentral ng Pilipinas or the Insurance Commission for banking institutions and insurance companies.
The operations manual shall be consistent with the Medium-Term Philippine Development Plan issued by the National Economic and Development Authority and shall include among other matters, disclosure and transparency requirements, a Code of Ethics for directors and officers, and oversight bodies.
Some of its other functions have to do with the compensation and classification of positions in GOCCs. The GCG shall develop a Compensation and Position Classification System which shall apply to all officers and employees of GOCCs, whether they are covered by the Salary Standardization Law or exempt therefrom. Also, the GCG may recommend to the president incentives for certain position titles in consideration of the good performance of the GOCC. It may also recommend the suspension of any director or trustee who participates in the approval of an act that gives rise to a violation of or non-compliance with the ownership manual.
Another important provision of the new law has to do with Trustee Relation to the Properties, Interests, and Monies of the GOCC. Except for the per diem received for actual attendance in board meetings and the reimbursement for actual and reasonable expenses and incentives, as authorized by the GCG, any and all realized and unrealized profits and/or benefits, including, but not limited to, the share in the profits or incentives of members of the board or officers in excess of that authorized by the GCG, stock options, dividends, and similar offers or grants from corporations where the GOCC is a stockholder or investor . . . are to be held in trust by such member of the board or officer for the exclusive benefit of the GOCC represented.
Appointment to GOCC boards shall be made by the president of the Philippines from a shortlist prepared by the GCG. The term of office of each appointive director shall be for one year unless sooner removed for cause. An appointive director may be nominated by the GCG for reappointment only if he obtains a performance score of above average or higher, based on the performance criteria laid down for the GOCC.
One can see that the GCG will be a strong and decisive factor in the operations and management of our GOCCs. As with all endeavors, much will depend on the caliber of the individuals appointed to this vital office.
The second game changer, a Maharlika Board, has not yet established a strong foothold in Philippine business practice. The Maharlika Board is an elite group of publicly listed companies committed to much higher standards of corporate governance aligned with the best practices in the region.
Under this concept, the functions of the board include promoting greater transparency and disclosures of board and executive compensations, full enforcement of rules and regulations governing listed companies, and a more effective participation of directors in company affairs.