AT a time when bad news and unhappy perceptions about Philippine governance is rife and, in particular, when the Asian Corporate Governance Association (Acga) has put us at the bottom of its CG Watch Market List, the formal launch of the Maharlika Board of the Philippine Stock Exchange (PSE) this coming September brings us a ray of light.
In 2009, at the 10th anniversary meeting of the Asian Roundtable on Corporate Governance, the theme explored was “Corporate Governance in Asia: 10 Years from Now.” An identified priority for reform toward this objective was the need to continue raising awareness of the value of good corporate governance among directors, shareholders and other parties, in particular, among listed companies.
The PSE in the last few years had been working on such an initiative when it invited former ICD (Institute of Corporate Directors) executive director J.J. Moreno to assist in that endeavor. The intention was to raise the bar for listed companies, enjoining them to move beyond mere compliance with current Securities and Exchange Commission (SEC) rules, in essence to become the very best among the best. Such an idea found completion in the working out of a new “elite” board in the PSE, which after much brainstorming would be called the Maharlika Board. This board was inspired and took for its pattern the Novo Mercado of Brazil.
As background, Novo Mercado (New Market) is a listing segment of BM&F Bovespa for the trading of shares issued by companies that commit themselves voluntarily to adopt corporate governance practices in addition to those that are required by law. To enter the “New Market” place, a company must sign a contract that requires adherence to a set of corporate rules, i.e., “good corporate governance practices, more stringent than those present in the Brazilian legislation.”
During the consultation process, a number of issues were identified by stakeholders which formed the basis for the raft of requirements that the conceptualized Maharlika Board would insist on so that companies that would be listed on this third board would really be the “elite.” Among these stringent requirements were (1) a minimum public float of all voting shares and 30 percent of total outstanding shares (in contrast to the current requirement of 10 percent for PSE listing, and 12 percent for inclusion in the PS index); (2) a minimum of 1,000 shareholders (breaches of these could be “cured” in no more than six months, except that falling below 25 percent was “incurable” and the company would revert to the regular board); (3) at least 3 or 40 percent of the board directors, whichever is higher, was to compose the independent directors, who would chair the three important board committees (Audit, Governance, and Nomination and Election); (4) separation of the chairman and the CEO, i.e., not the same person and not to be held by related individuals; (5) limitation on directorships (independent directors with full-time employment, maximum of two directorships; independent directors with no full-time employment, no more than four); (5) all shares with voting rights shall have one vote each, and no voting preferred shares shall be issued, and the company may not deprive shareholders of their preemptive rights; (6) on related party transactions (RPT), approval by the majority of the directors, including the majority of independent directors is required, as well as the full, accurate and timely disclosure of RPT; (7) the investor-relations function shall include responsibility for the protection of minority shareholders, as well as, in regard to full transparency, for the company web site and annual report; and finally, (8) as regard enforcement, disputes relating to Maharlika Board and PSE listing are to be handled by PDRCI and for intracorporate disputes by the SEC or courts; moreover, it was stressed that there are to be no waivers or exceptions to Maharlika Board rules.
The foregoing stringent rules were exposed by PSE president and CEO Hans Sicat at the ICD Investors Forum held on May 25. Of course, some questions were raised, among which was the rule regarding separation of the chairman and the CEO, which large companies (family-owned, in particular), would find difficult, even if the companies have actually landed in the “gold category” of the ICD scorecard.
Another issue had to do with preferred shares being banned. It was pointed out Maharlika brand listing was not necessarily fool-proof, and caveat emptor must still prevail. A concern was also raised about whether the Maharlika Board, because of its strictures, might not end up a “white board” with no one daring to list. All these issues were taken into consideration, and would be addressed according to Sicat, who said the Maharlika Board would be formally launched in September this year.
I would venture to say that the Maharlika Board, the first of its kind in Asia, is indeed proof that serious efforts have begun in the direction of a true appreciation of good governance, and might be considered part of the government’s program to promote the Philippines as a prime investment destination. It will help us to live down the dung heap ranking given us by the Acga/CLSA. It is imperative that we help the Maharlika Board work so that we may get closer to 10-year objective raised in 2009, and dare we say, we hope “to be the best?”
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