(Article published in the May 20, 2002 issue of TODAY, Business Section)The idea that the affairs of men are ruled by the movement in the heavens is no longer in fashion. Not since Shakespeare had Cassius say "The fault, dear Brutus, is not in our stars, but in ourselves, ". But still, it is difficult not to compare what is happening in this our piece of the earth with the alignment of the planets above. For the first time, perhaps not since the revolt of 1898, major players in our national life are aligning themselves towards a common objective, far beyond their narrow interests and perhaps even contrary to their interests in the short term, deliberately creating an environment conducive to good governance in business. That undoubtedly augurs well for estate owners.
The lead development
comes from an agency as heavy as Jupiter, the Securities and Exchange Commission which
issued Memorandum Circular No. 2 on April 5, 2002 promulgating the Code of Corporate
Governance. The Code applies to (a) all corporations whose securities are registered or
listed, (b) all corporations which are grantees of permits and licenses and secondary
franchises from the Securities and Exchange Commission, and (c) all public companies.
These corporations are all required to formulate and adopt their own corporate governance
rules and principles, in manual form available to directors and subject to inspection by
stockholders, in accordance in accordance with the Code -- and adhere to them under
penalty of law. Other corporations, though not mandated, are likewise encouraged to
observe the Code.
The Code makes governance the responsibility of the Board of Directors and specifically tasks the chairman to ensure adherence to the corporate governance code and practices. Boards are required to have at least two, or 20 percent of its members (whichever is lesser), independent directors. Multiple board memberships are discouraged so as not to compromise the ability of the directors to serve the companies with diligence. Qualifications, related to the personal qualities of the directors, and disqualifications based on past derogatory record, are prescribed.
Processes are required to be set up to make sure that directors are fully appraised of their duties and responsibilities, particularly of the fiduciary character of their position; checks and balances are mandated in order to set up a control environment that will minimize, if not eliminate, abuse and misuse; complete, adequate and timely information flow to the directors is to be provided for; the investing public must be assured of full disclosure of material facts and transparency in corporate transactions and, audit and accountability are to be taken very very seriously. For instance, external auditors are to be changed every five years or earlier, or, at least, the handling partner is to be changed as often.
The thrust of the voluminous Code is illustrated, in a microcosm, in what is expected of the Corporate Secretary, a position heretofore commonly considered to be no more than secretarial, as in, clerical.
First, as to his person. He must, in addition to the statutory requirement that he be Filipino, be perfect in his performance, "no surprises are expected of him", and he must be loyal to the mission, vision and specific objectives of the corporation. He should work and deal fairly with the Board, management, stockholders and other stakeholders of the enterprise. His colleagues and constituencies must be able to turn to him in trust and confidence regularly. He must have the administrative skills of the chief administrative officer and the interpersonal skills of the chief human resource officer. Even if he is not the general counsel, he must have the legal skills of a chief legal officer. At the same time, he must have the financial and accounting skills of a chief financial officer and the vision and decisiveness of the chief executive officer.
Then, his duties. Besides keeping the corporate books, the Corporate Secretary is required to be fully informed and be part of the scheduling process of the different corporate activities. As to the board agendas, he must have a schedule at least for the current year and should put the board on notice before every meeting. He must get the board to think ahead and must make sure that the members have before them everything needed to make an informed decision. He should serve as adviser to the directors on their responsibilities and obligations and must assist them in arriving at their business judgments in good faith.
That makes the man fully eligible to be a corporate secretary to be a rare bird, and finding one just might require [looking for one] with a lighted lamp in broad daylight.
Soon to follow the SEC, like Saturn and its many moons aligning itself with Jupiter, is the Bangko Sentral ng Pilipinas which through its previous circulars had already started, even before SEC Memorandum Circular No. 2, to get the banks and financial institutions under its supervision in a regime of good governance. In a letter to SEC chairman Lilia Baustista, BSP Governor Rafael B. Buenaventura said that "to standardize our approach to corporate governance, I have asked our people to adopt your Code as our initial base, but adding additional requirements as needed by the BSP".
This is not the first time that the BSP and SEC have aligned their policies in what the SEC chairman calls "cooperative regulation". In the aftermath of the Urban Bank and Urbancorp Investments, Inc. debacles, the two agencies entered into a memorandum of agreement delineating their respective roles in the supervision and regulation of entities under their common authority. More recently, they, together with the Insurance Commission, were made into a team to combat money laundering, a formidable task given the tenuous provisions of the anti-money laundering law.
All these initiatives from above will, of course, be for naught if they are resisted by the corporate entities themselves. Fortunately, this is not the case. In fact, captains of industry are presently planning a major gathering to be held in the middle of next week for the purpose of rallying the business community to good corporate governance. With the Philippine Business Sector Advisory Group and the Institute of Corporate Directors as convenors, the conference will make commit themselves to the principles of good governance, and, putting their money where their mouths are, will pledge substantial amounts to the promotion and furtherance of as well as training and education on the rules and principles of good governance.
One can only imagine the impetus such a conference could give to the cause, if the major players in the financial markets were, in addition, to announce inclusion of good governance as a criteria in dealing their counterparties. Say, for instance, the Bankers Association of the Philippines saying that corporations with high marks in the good governance score cards will have easier and cheaper access to credit that those with low marks. And, the Trust Officers of the Philippines, announcing that their members will consider it imprudent to invest their clients trust funds in shares of companies not adhering to the principles of good governance.
All these convergence of efforts towards good corporate governance obviously are welcome developments to the estate planner. In the final analysis, planning ones estate is a beneficial exercise only to the extent that one can have reasonable assurance that the rules are fair and constant and the players are honest and truthful.