Protecting state-owned enterprises
Credit to Author: KELVIN LESTER LEE | Date: Tue, 24 Sep 2019 16:21:58 +0000
I am reproducing below edited excerpts of SEC Chairman Emilio B. Aquino’s short presentation as panelist on the anti-corruption and integrity guidelines for state-owned enterprises (SOEs) during the recent 12th Meeting of the Asia Network on Corporate Governance of State-owned Enterprises, headed by the Governance Commission for Government-Owned or Controlled Corporations (GOCCs), on behalf of the Organization for Economic Cooperation and Development (OECD) and in coordination with the Asian Development Bank (ADB).
I also attended the meeting together with other representatives of governments, state-ownership entities, international organizations, corporate practitioners and industry experts. It was with such honor and privilege for us to have been in this special event wherein I was able to learn more about the local and international experiences in SOE governance reform.
For context, however, we first ask: “What do the OECD guidelines on corporate governance of SOEs provide?” The OECD’s official website provides for the functions of these guidelines: “The OECD Guidelines provide an internationally agreed benchmark to help governments assess and improve the way they exercise their ownership functions in state-owned enterprises. Good corporate governance of state-owned enterprises is a key reform priority in many countries hence, improved efficiency and better transparency in the state owned sector will result in considerable economic gains plus a sound and competitive business sector, especially in countries where state ownership is important.”
Chairman Aquino’s presentation touched on the Securities and Exchange Commission’s (SEC) mandate as an anti-money laundering and counter-terrorist financing enforcer and corporate governance champion. I hope you will allow me to use this column to elaborate.
Preventing money laundering, other corrupt practices in SOEs
Chairman Aquino discussed SEC Memorandum Circular 15 series of 2018 or the guidelines for the protection of SEC-registered non-profit organizations from money laundering and terrorist financing abuse (NPO Guidelines).
The circular was adopted by the commission to enhance its registration and monitoring system to obtain the necessary information on NPOs in relation to Anti-Money Laundering/Combating the Financing of Terrorism (AMLCFT) for regulatory and risk assessment purposes, and to provide additional measures to the pertinent laws administered by SEC.
Section 2.2 of the NPO Guidelines provides that the risk-based approach for the protection of NPOs shall include the following: 1) Identifying threats of terrorist financing abuse based on the results of the national risk assessment of the Anti-Money Laundering Council; 2) Identifying vulnerabilities among NPOs based on the types and characteristic features of such NPOs; and 3) Identifying the consequences of such threats and vulnerabilities on NPOs.
Corporate governance in Revised Corporation Code
The commission’s push for good corporate governance is anchored on and bolstered by Republic Act 11232, or the Revised Corporation Code of the Philippines (RCC).
Section 179 of the RCC provides for the powers, functions and jurisdiction of the SEC, one of which is to promote good governance and the protection of minority investors, through, among others, the issuance of rules and regulations consistent with international best practices.
In line with good corporate governance, Section 22 of the RCC also provides that corporations engaged in businesses vested with public interest, as may be determined by the commission, shall have independent directors constituting at least 20 percent of their respective boards: 1) Publicly listed companies and Public companies; 2) Banks and quasi-banks, NSSLAs (non-stock savings and loan associations), pawnshops, corporations engaged in money service business, pre-need, trust and insurance companies, and other financial intermediaries; and 3) Other corporations engaged in business vested with public interest similar to the above, as may be determined by the commission.
Are GOCCs corporations vested with public interest?
On the issue of independent members of the GOCCs, the OECD guidelines on anti-corruption and integrity in SOEs state: “Many governments include ‘independent’ members in the boards of SOEs, but the scope and definition of independence vary considerably according to national legal context and codes of corporate governance. Broadly speaking, an independent board member is taken to mean independent from both the enterprise (non-executive board member) and from the state (neither civil servant, public official nor elected official). Independent board members, where applicable, are understood to mean individuals free of any material interests or relationships with the enterprise, its management, other major shareholders and the ownership entity that could jeopardize their exercise of objective judgment.”
In addition, Atty. Cesar L. Villanueva, former dean of the Ateneo Law School, stated that the GOCC Governance Act recognizes that all GOCCs, whether chartered or non-chartered, are imbued with “public interest” as it declares the State policy under Section 2 thereof: “The State recognizes the potential of [GOCCs] as significant tools for economic development. It is thus the policy of the State to actively exercise its ownership rights in GOCCs and to promote growth by ensuring that operations consistent with national development policies and programs.”
In that light, the question of whether a GOCC, a corporation vested with public interest, should appoint independent members remains an unanswered question to be tackled by the SEC and legal experts.
Kelvin Lester K. Lee is a commissioner of the Securities and Exchange Commission (SEC). He is the co-chairman of the SEC Committee on Memorandum Circulars to Operationalize Revised Corporation Code Provisions. The views and opinions stated herein are his own. You may email your comments and questions to oclee@sec.gov.ph.