More than ever, investors are paying attention to the board makeup of corporations and how they reflect sound practices.
Think tank Black Rock said in a 2023 report entitled, Board Independence in Asia Pacific, “identified board independence as a major corporate governance issue that may have an impact on the ability of local companies to create long-term financial value for shareholders including minority shareholders.”
The report further stated, “Independent non-executive directors play a key role in ensuring objectivity in the decision-making of a company board and provide a balance by ensuring appropriate management of potential conflicts of interest.”
An independent view and the professionalization of the board are gaining importance, which also helps in managing the equitable treatment of all stakeholders and providing the necessary checks and balances.
In SM’s case, recent governance moves have stood out among peers in Asia that were underlined in the appointment of independent director and two-term Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. as chairperson of the board of SM Investments Corp. in 2023.
It was a first in the company’s history, upholding the highest standards of corporate governance by going beyond mere compliance.
Top-rank banker
Tetangco is internationally recognized and multi-awarded for leading the BSP, during his term as Governor, in delivering sustained price stability and a sound and stable banking system through appropriate monetary policy and effective banking supervision.
The BSP instituted bank regulatory reforms that bolstered bank capitalization and enhanced risk management and financial reporting and transparency to name a few.
“The mantra of good corporate governance must consider fair and acceptable behavior, among others, to those who are more vulnerable, even if it means accruing less to the bottom line. What we want to achieve is having the comfort that values, principles and practices are fully in place, reviewed and updated even when no one is looking and even if it does not always pay off, particularly in the short-run,” Tetangco said.
Focusing on professionalization, accountability, sustainability and transparency, SM has been raising the bar on good corporate governance while promoting independent judgment and independent leadership.
Recently, SM moved to increase the size of its board to give more than the majority, five out of nine seats, to independent directors.
Powerhouse board
SM’s distinguished roster of independent directors includes Tomasa Lipana, former chairperson and senior partner of Isla Lipana and Co., the Philippine member firm of PricewaterhouseCoopers; Ramon Lopez, former secretary of the Department of Trade and Industry (DTI); Robert Vergara who served as president and general manager and vice-chairman of the Board of Trustees of pension fund Government Service Insurance System (GSIS), and Lily Gruba, a Professor on Taxation Law, Mergers & Acquisitions and Local Government Finance and former Director of the Philippine Economic Zone Authority, Overseas Workers Welfare Administration, and Undersecretary of the Department of Finance.
Collectively they exercise strong oversight and advisory capabilities. This board composition goes beyond current corporate governance standards, which prescribe at least 20 percent to 30 percent of boards be comprised of independent directors.
Notably, out of the five independent directors, two are female. Including SM Investments Vice Chairperson Teresita Sy-Coson, female representation in the board consists of a third of the total board members.
A diverse board further complements the thrust towards independent leadership and judgment, transparency, accountability, fairness and professionalism ensuring interests of various stakeholders are considered in board decisions and strategies.
On top of this, SM’s Related Party Transactions Committee is composed entirely of independent directors with the right to review any transaction or related relationship in the group. Deals are reviewed by this committee and recent deals have had both auditors review alongside independent fairness opinions by third-party firms recommended by the Securities and Exchange Commission or the Philippine Stock Exchange. SM’s Audit, Corporate Governance and Risk Management Committees are also composed entirely of independent directors.
Investor confidence
Governance efforts are also increasing investor confidence in the company as demonstrated in the recent pricing of its $500 million drawdown last July from its $3 billion multi-issuer Euro Medium-Term Notes program. The issuance, which was 3.2 times oversubscribed, with final demand reaching $1.6 billion, marked the company’s largest offshore bond issuance in a decade.