Investors are stepping up the pressure on listed companies in the Philippines to improve their corporate governance, but some feel proposals to raise standards are not rigorous enough.

The Philippine Stock Exchange (PSE) plans to launch its ‘Maharlika Board’ – which proposes tighter rules on areas such as auditing, financial reporting and board structure – in September, with a view to boosting equity investment by both local and foreign investors.

However, more needs to be done given that the Philippines is the “doormat” of the region in corporate governance terms, says Rex Drilon, the new president of the Manila-based Institute of Corporate Directors (ICD).

He was referring to the findings of the ‘CG Watch’ report published in September by the Asian Corporate Governance Association and brokerage CLSA Asia-Pacific Markets. The research scored 11 Asian markets based on the quality of their corporate governance, ranking the Philippines bottom, below China, Korea and Indonesia, which came eighth, ninth and 10th, respectively.

Drilon was speaking on a panel at an event on Friday (April 29) set up by the PSE and the Fund Managers Association of the Philippines (FMAP) to promote the Maharlika Board ('maharlika' meaning 'noblemen' in Tagalog).

“If our ambitions are not set high enough and we just aim for the median, we will fail,” says Drilon. “We have a serious problem, so we need to be serious about any solution. We need to make a quantum leap.” A bolder approach is needed, even if it might scare some companies, he adds.

The board sets a raft of listing requirements such as: a minimum public float of 30% of all voting shares and 30% of total outstanding shares; at least three members or 30% of the board (whichever is higher) must be independent directors; and at least 50% of the members of the audit, governance, nomination and election committees should be independent directors, including the chairman.

There was strong support among the audience of fund managers and institutional investors for the move to improve standards.

It shouldn’t be too difficult for companies to go beyond the three or 30% requirement for independent board directors, says JJ Moreno, Manila-based practice leader for corporate governance at US consulting firm Palladium Group Asia Pacific, who was also on the panel.

An informal poll found that more than a third of the audience (35.8%) agreed with this point. A quarter (25.54%) said that at least 50% of the board should be independent to ensure a high level of independent judgment on corporate transactions, and a further 10.26% felt that the independent-director ratio should in fact be two-thirds of the board. Close to half (44%) of respondents said the 30% ratio is sufficient.

Still, some investors pointed out to AsianInvestor that, in practical terms, the Philippines has to start somewhere and the Maharlika Board sets a realistic standard for listed companies to achieve at this point.

Whatever the case, domestic and offshore investors will be hoping that improvements take place. The Philippine stock market is among the smallest in the region by market capitalisation and needs to grow in size and liquidity, says another panellist, Argel Astudillo, head of the corporate governance office at the PSE.

While it’s true that companies with low standards of corporate governance can make money, they tend to lose a lot more for their shareholders when something goes wrong, points out April Lynn Tan, president of the Chartered Financial Analyst Society of the Philippines and another of the panellists.

The audience included several senior executives from the fund management industry, including the heads of BPI Asset Management and BDO Asset Management – Theresa Javier and Marvin Fausto, respectively – and the chief investment officer of the Government Service Insurance System in Manila.

Mike Ferrer, head of Manila-based ATR KimEng Asset Management and the newly appointed president of FMAP, was also present as chair of the panel and one of the organisers, as was Hans Sicat, president of the PSE, who gave the keynote speech.