‘The fierce urgency of now’

It’s not only the government trying to make an uphill climb in the perception surveys. The private sector is doing so as well.

Case in point, fair or not: a survey says that the Philippine performance in governance for listed companies among 12 markets in the Asia Pacific region is not stellar. In fact, we only avoided being the cellar dweller by beating Indonesia based on 2018 CG Watch, a report of the Asian Corporate Governance Association (the next one to be issued in 2020).

I said “fair or not” because based on local data analytics (and not merely on a survey) culled from annual reports filed by listed companies, the compliance with the Code of Corporate Governance is generally good. The data study done by PwC for the Good Governance Advocates and Practitioners of the Philippines (GGAPP), in fact, even shows improved compliance from previous year (per reports filed in 2019).

High compliance scores come from board competency, directors’ commitment, and focus towards social responsibility. On the other hand, the exceptions or lower scores come from: about 35 percent of listed companies having the chairman of the board and CEO of the company residing in one person; about 51 percent of the boards that do not have the minimum required number of independent directors; and 44 percent that do not have a dedicated chief risk officer. And compliance with sustainability reports, which becomes mandatory in 2020, is still in its infancy stage.

The generally good compliance of listed companies in the Philippines, however, did not seem to persuade the Asia Pacific survey results that had the Philippines ranked low and not competitive in comparison with its peers.

In the eyes of the investor, building confidence begins with perception. They don’t dive in and throw caution to the wind to learn from experience. Real, impartial surveys are still imperfect, but they can speak the truth. Thus they also help decision makers. On the other hand, survey results do not necessarily produce the urgency or compulsion to act for someone without the burning desire to improve.

In good faith, I cite as an example the biggest organization in the country that should be most concerned about good governance the Philippine government. It had a dismal performance globally in the corruption index but such survey reports never sprung the government into changing dramatically. Awareness does not result to positive change when awareness is not the issue.

In the book “The (Honest) Truth about Dishonesty” by Dan Ariely cited by journalists and ethics professors, there is an interesting finding that the prospect of getting caught does not stop the commission of the crime. I will add a perspective that here – the prospect of getting caught does not stop the commission of a crime, or corruption, because there could be no consequence anyway. Examples? Cabinet officials embroiled in corruption scandals, instead of getting prosecuted, get circulated to hold other government positions; a senator involved in popular scam gets exonerated criminally and even refuses to return the money he pocketed; and the biggest crook in all of Philippine history remains scot-free still, with billions of dollars stashed in bank accounts in the name of their nominees. These precedents embolden follow-on violators.

Fear of consequence works. Take the early implementation of the ease of doing business law,  where the director general (DG) of the Anti-Red Tape Commission (ARTA) can move a government agency to act on pending matter by a phone call. It’s a new law, carrying the novelty that the delaying officer can be removed if he does not act within the timeline of the law, and the DG of the ARTA seems to be an incorruptible guy. So there is fear, and they comply, especially if the DG calls. The law and its early implementation probably helped the Philippines improve in rank in the area of ease of doing business. If after sometime, no one is sacked, or jailed, the lack of consequence will embolden government personnel to go back to their old habits.

I picked the worst example to make a point that there is hope for the private sector because I do not believe listed companies is of the same sinew. In private organizations, there can be genuine sincerity about wanting to do the right thing. The listed companies are not expected to ignore the mirror provided by the survey because owners and leaders truly care about brand reputation and sustainability, and how they perform versus their peers.

I believe the Code of Corporate Governance should be treated as a friend that makes companies put safeguards before the harsh consequence of conflict of interest, or lack of independence, or underestimated risks make them act as if their house is on fire.

Government would not want to invest in technology or new systems that would make everything transparent because they do not want to be found out. But publicly listed companies can and should act on transparency and compliance with the “fierce urgency of now” because there is no other way to build trust. It is time to aspire to be the stars in corporate governance in the Asia Pacific. The Philippine Stock Exchange is one of the oldest stock exchanges in the region. It can also be one of the most competitive.

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Alexander Cabrera is the chairman of Integrity Initiative Inc., a non-profit organization that promotes common ethical and acceptable integrity standards. He is also the chairman and senior partner of Isla Lipana & Co./PwC Philippines. Email your comments and questions to [email protected]. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.