How does the Philippines fare against the five other ASEAN countries committed to promoting international corporate governance best practice standards in the region?
But before we get into the country rankings, first just a brief explanation on the methodology employed in arriving at a rating for a publicly listed corporation.
Recall that the governance framework is based on the OECD's five principles. Each principle is given a weight that adds up to a maximum of 100 points. Board Responsibility carries the biggest weight with 40, followed by Disclosure and Transparency with 25 points, 15 for Role of Stakeholders, and 20 points each for Rights of Shareholders and Equal Treatment of Shareholders. The points of the different PLCs in a participating country are then ranked to arrive at the Top 50. The points of each country's top 50 PLCs are then compared with each country to arrive at the region's top 50.
In 2015, when each participating country's Domestic Rating Bodies first evaluated their respective top PLCs based on market capitalization to determine each country's cream of the crop, the Top 50 that hewed closely to the ASEAN Corporate Governance Scorecard, the Philippines came in second with 11 PLCs compared to Thailand's 23 PLCs, the topnotcher on the scoreboard. Singapore trailed us with eight PLCs, followed closely by Malaysia with six. Indonesia was the tailender with only two PLCs. During the next ACGS rating period in 2017, the rankings shifted significantly, with Malaysia surging to lead the region with 14 PLCs, followed closely by Singapore, which also moved up impressively with 12 PLCs. Both Thailand and the Philippines, on the other hand, lost ground with the number of PLCs in the Top 50 down to 11 and nine, respectively. Indonesia continued to be the tailender with only four PLCs making the cut of the Top 50 PLCs in the region.
You might wonder what happened to the Philippines in 2017. Did we slip because of a deterioration in the corporate governance environment in our country? Not really, according to ICD's director Cathryn Perez, who is in charge of shepherding our ACGS participation. We actually had more PLCs moving up the scale. It is just that Malaysia and Singapore ratcheted up more dramatically their PLCs adherence to ACGS, comparatively thus easing out some of our top PLCs from the magic circle of ASEAN's Top 50 in corporate governance.
In the last published biennial ranking in 2019, however, more changes took place. Cognizant of the inevitability of countries competing to be in the top 50 in the region, the approach was tweaked to instead recognize all PLCs who have achieved a rating of at least 97.5 out of a maximum of an enlarged 130 points due to bonus points for going beyond the regulatory minimum requirements while also allowing for penalty points for poor practices. With these changes, again some shifts took place in the 2019 rankings. Thailand recaptured its premier position as the leading ASEAN country with the greatest number of outstanding PLCs with 43 followed by Malaysia with 39 and Singapore with 29. The Philippines came in 4th with only 19 PLCs followed lastly by Indonesia with 10.
The 2021 ASEAN-wide ratings are still not yet published as of this writing so we don't know how the Philippines will fare. What is apparent though is that we are lagging behind compared to the other ASEAN countries who are moving quite aggressively to ramp up their corporate governance standards. If we hope to capture a greater share of the international investors' attention span, we need to accelerate our progress in some key governance areas that have been identified particularly regarding Board Responsibility which has the biggest weight. As an example, the top PLCs in the leading countries have a board composition of at least 50 percent independent directors compared to our 30 percent. Another is in their detailed annual reports which already have both their sustainability and governance reports integrated and clearly articulated.
The competition for international investors is keen and an enlightened corporate governance culture among our PCs should be the order of the day lest we be left behind, again.
Until next week… OBF!
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