PH’s old boards come under scrutiny
Credit to Author: BEN KRITZ, TMT| Date: Mon, 29 Apr 2019 16:16:23 +0000
THE Philippines has a new claim to fame—corporate directors here are apparently the longest-serving in Asia-Pacific, and possibly the world, and have a higher average age than board members elsewhere in Southeast Asia.
According to research by Bloomberg, the average board tenure in Philippine corporations is 10.6 years, compared with an average of 6.5 years in the rest of Asia-Pacific, and the average age of board members is 65.4 years, compared with the regional average of 58.7 years.
Moreover, six out of 10 Philippine corporations do not meet the Securities and Exchange Commission (SEC)-mandated minimum of having at least one-third of board seats filled by independent directors, the Bloomberg report said, pointing out that the regulatory prescription is even below the 50-percent level considered best practice.
All of this is considered a bad thing, but in a vague sort of way. Quoting the head of research at Singapore’s Institutional Shareholder Services Inc., the Bloomberg report explains, “Board independence is even more important in markets dominated by families in order to strengthen oversight, risk control and company performance in the long run.”
Oversight, risk control and company performance are vital to any business, whether in a family-dominated market or not, so evidently the real problem is not the lack of mutability of Philippine boards, but the oligarchical nature of the Philippines’ business landscape. Starting that conversation, however, leads to standing the entire Philippine economy on its figurative head, so the safer and more polite approach is to nip around the edges.
It seems to be a Western habit to champion diversity for diversity’s sake. For example, California passed a law last year that any corporation registered in the state must appoint at least one woman to its board of directors by the end of this year, and must have between one and three women directors, depending on the size of the company, by 2021. Corporations that fail to meet the standard can be hit with a $100,000 fine.
These kinds of arbitrary prescriptions – X number of independent directors or women on the board, such-and-so percentage of executive positions reserved for minorities — are of limited value, particularly here. Business growth here is very organic; something more than 99.9 percent of Philippine companies are classified as small or medium enterprises, and the tiny fraction of a percent that are not used to be. They are still run as family businesses, and their stock is closely controlled by family members and connections to keep it that way.
Is that the way things ought to be, and if not, according to what standard should they be modified? There is certainly not a business case for specifying a certain composition of boards based on very general characteristics such as gender, ethnicity or independence; the robust health of most large Philippine companies does not suggest there is a significant lack of ability to succeed in the present business environment. There is nothing about any single demographic generality that is a clear positive indicator for business. While a social utility debate – although not a very good one – may be made in the context of “equality” or “diversity” when it comes to women and minorities, there is no identifiable public good or detriment that stems from the presence or absence of independent directors. The only way possible is if those directors represent specific interests or advocacies outside the company, in which case they are not really independent after all.
The notion that Philippine corporations need more independent directors is another example of the application, or at least suggestion, of social engineering in business in lieu of structural reform in the business environment. The Philippines is already conducive to business growth, but needs reform in terms of competition, corporate finance and regulatory effectiveness – quality, not quantity. Focusing on those things will open the opportunities the subtext of the Bloomberg report says are lacking here.
If more independent directors are desired, then the best way to ensure that businesses will appoint more is to create an environment in which that is the most sensible business decision for them. Any other artificial initiative will simply go the route of most other “mandates,” and become another unenforced and unenforceable idea.
ben.kritz@manilatimes.net
The post PH’s old boards come under scrutiny appeared first on The Manila Times Online.