Long before the collapse of Enron and WorldCom, the Philippines had its own share of corporate scandals like BW Resources Corporation, whose share prices hit record highs and then collapsed in 1999. These scandals brought down the stock market’s image and weakened private investor confidence. The scandals have their roots in management’s desire to project a false picture of performance, with the aim of driving up the value of the corporation in a competitive global market.
Corporate governance is needed to make corporate managements more accountable, and their auditors more rigorous. But good governance requires fair legal frameworks that should be enforced impartially. In this country, the Philippine Securities and Exchange Commission (SEC), a principal player in matters of corporate governance, recently issued Memorandum Circular 2, Series of 2002, otherwise known as the Code of Corporate Governance, under resolution no. 135 dated April 4, 2002.
The Code aims to promote corporate governance reforms that will raise investor confidence, develop the capital market and help achieve high sustained growth for the corporate sector and the economy.
The code applies to:
- Corporations whose securities are registered or listed.
- Corporations who are grantees of permits/licenses and secondary franchises from the Commission.
- Public companies and
- Branches or subsidiaries of foreign corporations operating in the Philippines whose securities are registered or listed.
Report on the Observance of Standards and Codes (ROSC) assessment of corporate governance in Philippines benchmarks legal and regulatory framework and practice against the OECD Principles of Corporate Governance, and focuses on listed companies. It is an update of the assessment that was carried out in 2001.
The regulators have undertaken significant reforms with a view to institutionalizing good corporate governance in the Philippines. Reform began in 2000 with the passage of Securities Regulation Code (SRC) or Republic Act (RA) No. 8799, which superseded the Revised Securities Act of 1982. Among its important new provisions were:
- The institutional strengthening of the SEC.
- The strengthening of its prosecution and enforcement powers.
- The clarification of the scope of insider trading and market manipulation, protection of minority investors through the requirement of a mandatory tender offer and
- Delegation of certain regulatory powers to self-regulatory organizations (SROs) such as the Philippines Stock Exchange (PSE).
The Anti-Money Laundering Act (AMLA) of 2001 was another reform that was enacted to establish and strengthen an anti- money laundering regime in the country. Also affecting the capital market and the practice of corporate governance is the Revised Accountancy Law, which regulates the practice of accountancy in the Philippines.