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Corporate Governance: Trust that lasts

By Leonardo J . Matignas, Jr.


First Published in Business World (2/17/2014)
In the corporate world, it is often said that TRUST is the key to any successful organization.
However, records from the past show that there are also organizations that are in difficult
situations because of trust, more particularly unfounded trust.

This brings us to the current business environment in which we find ourselves. The questions
arise: Can trust be the sole engine to run a business? Why is there a need to regulate it? Why is
corporate governance high on the radar of regulators and other cr itical stakeholders of public
companies?

Trust is from the Latin word FIDes; the root word is FID, meaning faith. Accordingly, corporate
governance starts with the Board of Directors, as elected by the shareholders, to effectively carry
out a FIDuciary rol e. Another word that can be associated with the role of governance is
conFIDence.

Since 2002, the Securities and Exchange Commission (SEC) has advocated corporate governance
practices for covered companies, with particular emphasis on companies dealing w ith capital or
funds from the public.

The SEC first released the Code of Corporate Governance in 2002 through SEC Memorandum
Circular (MC) No. 2, series of 2002, which required corporations, among others, to form audit
committees. The Code was subsequently refined with the promulgation of the Revised Code of
Corporate Governance under SEC MC No. 6, series of 2009. The Revised Code enhanced the
provisions on strengthening compliance, particularly the requirement of a compliance officer in
covered institutions. In March last year, the Commission mandated the submission of the Annual
Corporate Governance Report requiring companies to disclose information ranging from its code of
conduct and business; remuneration; internal audit and control; board, director, co mmittee and
CEO appraisal; to internal breaches and sanctions. All listed companies are also required to submit
a compliance report to the Philippine Stock Exchange (PSE). The SECs Revised Code of Corporate
Governance is again being revisited to further s trengthen the practices espoused in the Association
of Southeast Asian Nations (ASEAN) Corporate Governance Scorecard, in preparation for the
ASEAN 2015 integration.

These SEC and PSE Circulars, which all advocate the core principles of corporate governanc e,
which are fairness, accountability and transparency, introduced changes in the practices observed
by the Board of Directors (and its committees), management and audit mechanisms.

There have been several definitions of corporate governance, one of which is that found in the
SECs Revised Code of Corporate Governance. Simply put, though, corporate governance is when
the company does the right thing, at the right time, at the right place, using the right resources,
implementing the right processes, and mos t importantly for the right purpose. This definition may
be long but the language is plain and simple.

Corporate governance is not premised on a lack of trust. It simply ensures that trust is
accompanied by practices and principles that will further stren gthen it. The Board, who is given
this trust by the shareholders, is tasked to perform a very critical oversight role over management
to ensure that key principles and core values of the organization are being adhered to by the latter
in achieving the comp anys business objectives. To management, trust is given that it will run the
business within the purview of effective strategies, risk management, financial and operational
controls. Finally, trust is given to the audit mechanisms (both internal and exter nal) that they will
ensure the continuing effectiveness of management in implementing the right strategies and
practices to achieve the companys goals and in accordance with acceptable standards.

The SEC provides opportunities for all the above positions of trust to continuously enhance their
corporate governance practices in performing their respective roles. In SEC MC No. 20, Series of
2013, members of the board of directors and key officers of publicly listed companies are required
to attend (at least o nce a year), a program on corporate governance conducted by accredited
training providers. The training does not only cover the key principles of governance but it also
includes mandatory topics that are very critical given the current developments in doin g business.
Hopefully, directors and management will welcome this as an opportunity to further sharpen their
ability to govern and continuously nurture the trust inherent in their positions.

With all these, there is no doubt that if properly embraced, good corporate governance is the
practice that ensures a company does what is right. Trust is now further supplemented by
effective corporate governance practices to ensure that it will last.

Leonardo J. Matignas Jr. is the head of Risk and Governance practices and the Chief Risk Officer of
SGV & Co. He also leads the pool of SGV partners who comprise SGVs SEC accreditation as an
Institutional Training Provider on Corporate Governance.

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