Scorecard for publicly listed firms (1)

Investing in the stock market, particularly for the ordinary Juan, is to a great extent akin to a leap of blind faith in the prospects of a publicly listed corporation. With limited information to rely on, you part with your hard earned money, expecting that the company you bet on has controlling shareholders and management who will always have your best interests at heart, even if you are merely a miniscule shareholder. And you pin your hopes on their integrity and expertise that every corporate decision made will redound to the benefit of all stakeholders and not just for a limited few.

History, unfortunately, is replete with failures of publicly listed businesses that have cost investors plenty, caused by a myriad of factors. These include an incompetent management, lack of transparency, self-serving decisions, or just plain inability to promptly respond to adverse industry developments.

Consequently, for most investors, stock market investing is tantamount to taking your chances at the casino. And yet, Capital Markets 101 teaches us how crucial the development of the stock market is to businesses, which need not debt but equity to fund growth in order to deliver attractive returns for the shareholders, to employ more people and to fuel the economic and social well-being of a country.

Government regulators, multilateral organizations and institutional investors have long recognized this dilemma and have jointly encouraged the development of corporate governance tools to address these concerns. One such initiative is the ASEAN Corporate Governance Scorecard, a joint project of the Asian Development Bank and the ASEAN Capital Markets Forum. This provides guidance to PLCs across the region on international corporate governance best practices, and publicizes the metrics of these corporations’ adherence to such practices.

The ACGS was formulated based on the Organization for Economic Cooperation and Development’s Five Principles of the hallmarks of good corporate governance. These are: Rights of shareholders; equitable treatment of shareholders; role of stakeholders; disclosure and transparency; and, board responsibility.

For the Philippines, these OECD governance principles are integrated with our country’s unique circumstances and articulated in detail in the Security and Exchange Commission’s Code of Corporate Governance, which mandates compliance (or an explanation, if not compliant) and annual reporting of PLCs and public companies (unlisted firms with assets of P50 million, but with 200 shareholders owning at least 100 equity securities). These submissions are publicly available, but I would imagine hardly any investor, much less an ordinary Juan, would bother wading into the websites of these PLCs or the SEC to check to what extent are the compliances.

A much more convenient reference for investors would be a scorecard that rates the different PLCs based on publicly available data, such as annual reports and corporate websites, announcements and minutes of shareholders’ meetings. In this regard, since 2015, six participating countries, namely the Philippines, Malaysia, Singapore, Thailand, Indonesia and Vietnam, have been biennially assessed, compared with its regional peers, and publicized the scorecards of the top 50 PLCs in the region.

Based on market capitalization, the largest 100 PLCs of each country are initially selected for assessments by the respective domestic ranking bodies of the six participating countries. For the Philippines, this is the Institute of Corporate Directors, the country’s pioneer non-profit organization advocating good corporate governance by raising the standards of Philippine corporates to conform with international best practices and to enhance the level of good governance expertise of board directors and senior management. The results of the DRBs assessments are then validated by regional peers to ensure objectivity and faithful conformance to the ACGS scoring matrix.

How did the Philippines fare compared to our neighbors?

(To be continued)

Until next week, OBF!

*** For comments, email bing_matoto@yahoo.com.

Published on 13 September 2022 10:00 PM via https://tribune.net.ph/2022/09/13/scorecard-for-publicly-listed-firms-1/?amp=1 By Bing Matoto