MANILA, Philippines - The Securities and Exchange Commission (SEC) says it’s preparing to propose amendments to the Securities Regulation Code, particularly regarding independent directors, to improve protection for minority shareholders.
The SEC will likely propose a maximum number of years a person may serve as an independent director of a company, chairwoman Teresita Herbosa said at the launch of a corporate governance report issued by the Hills Program on Governance and the Ramon V. del Rosario Sr. – C.V. Starr Center for Corporate Governance, both based at the Asian Institute of Management.
Herbosa said the SEC is also studying how many independent directors companies should have, how many independent directorships one person can hold and other issues.
"In the Philippines, the choice of directors, even more so independent directors is done more on a personal selection basis," Herbosa said. "Here in the Philippines you cannot avoid the situation of choosing your business colleagues on the basis of closeness, a former classmates or even a co-member of an organization."
The SEC, Philippine Stock Exchange and publicly traded companies need to improve corporate governance to attract investors needed to expand one of Asia’s smallest equity markets.
The Philippines ranked last in Asia in CLSA’s CG Watch 2010. The PSE plans to form a Maharlika board, patterned after Brazil’s Novo Mercado, which will have higher standards than its main board. It plans to spin off oversight of brokers to a Capital Markets Integrity Corp., after other attempts stalled or were criticized for succumbing to pressure from brokers.
Herbosa said the SEC would approve the CIMC within two months.
"The top 100 companies have made significant progress since we started the survey three years ago," Angela Garcia, executive director of the Hills program and the Del Rosario-Starr Center said. "They now need to focus on internalizing the values underlying good corporate governance."
One of the areas companies have improved the most is in disclosing the number of board meetings held, she said. The weakest area is in the selection of directors.
Among the report’s findings were that 30% of independent directors had served six years or more and that the number of persons with multiple independent directorships climbed to 24 from nine. The number of independent directors who had previously served as a company director or officer rose to 21 from 15.
"Seven seats have been held for more than 20 years," SEC Chairwoman Herbosa said. "In that case I wouldn’t be surprised if the independent director already knows the names of each and every child of the waiter serving ensaymada during board meetings. But I wouldn’t assume he knows whether or not the internal controls are in order."
For a maximum, six years may be the "magic number," she said.
The corporate governance report released yesterday, which covered the top 100 public companies by sales, included a survey of independent directors conducted by Social Weather Stations. There were 173 persons occupying 226 independent directorships in the top 100 companies in 2009 (the year covered by the report). Only 53 responded, submitting 65 surveys (some submitted more than one due to multiple directorships).
Among the survey’s findings were that 16% didn’t answer whether it’s rare for management to charge personal expenses to the company.