Good corporate governance: The secret to success

Good corporate governance may sound new to many but in truth, it is the secret to the success of
most bluechip companies.
For those who may be reading about this for the first time, good corporate governance refers to
the manner by which corporations are managed and the systems they subscribe to. It necessitates
doing things by the book, not only in terms of the law but also in terms of the structure of its
management, its policies and practices. It keeps an eye on the bottom line whilst looking out for
the interests of its stakeholders. Stakeholders in good governance parlance, refers not only to
the owners, but also its customers, suppliers and the community in which it operates.

Subscribing to the principles of good corporate governance may not be expedient nor convenient.
Its upshot, however, is that it promotes accountability, transparency, fairness and professionalism
within an organization. All these redound to a stronger organization capable of withstanding the
peaks and troughs of business life. This is why professionally run companies have longevity.
Nowadays, there is such a thing as being certified as a company that practices good corporate
governance. Companies with this certification enjoy instant confidence among creditors and
investors alike. For lending institutions, it is a guarantee that risks are minimal, thus, opening the
way for lower interest rates and relaxed credit terms. For investors, it is an assurance that: (1) the
companys books are not cooked; (2) that conflicts of interests within the management do not

exist; (3) that business risks are carefully vetted; and (4) that unlawful or unethical acts are not
practiced within the organization. All these confirm that it is safe to invest in the company. A
certification of good corporate governance is what distinguishes professionally managed
companies from the rest of the pack.
Companies who are not certified, or worse, known to have expedient managements are looked
upon with trepidation. These are companies usually guilty of DOSRI loans (financial
accommodations granted its own directors, owners, stockholders and other related interests);
companies whose owners are paid scandalous salaries; who may engage in extrajudicial
activities; and who have imprudent tolerances for risk. Companies of this sort do not think twice
about entering transactions that benefit the owners but compromise the interest of other
stakeholders.

COMPLIANCE WITH GOOD CORPORATE GOVERNANCE

Good corporate governance starts in the boardroom. In a compliant company, the chairman
presides over his board solely to define the companys goals, policies and strategic directions.
The members of the board, on the other hand, think and act independently, driven by a sense of
responsibility towards the stakeholders.

In other words, board members are not yes-men of the Chairman. If anything , they are his
fiscalizers. Independence among board members is especially crucial in the committees
overseeing internal audit, risk management and compensation.

In compliant companies, the members of the board do not get involved in day to day operations.
That is the job of the Chief Executive Officer (CEO) and his army of executives. On their
shoulders lie the responsibility of executing the Boards directions and meeting its targets. The
CEO is accountable to the board of directors.

Trouble begins when the Chairman, owner, or certain parties of interest wield unmitigated power
over the operations of a company. This is where conflict of interest begins.
Conflicts of interest is the breeding ground of corruption in the ranks. It is akin to a cancer that
infects all that is good and professional within the organization.

Making the shift to a good governance paradigm can be a challenge for most local firms given
the hurdles they must overcome. The biggest hurdle is the chairmans willingness to cede his
despotic powers.
The second hurdle is making the financial investment to engage (or train) professional board
members. This could be expensive, especially for fledgling firms.

The third hurdle is to resist the temptation of expediency and instead, do things according to the
fine provisions of the law. Naturally, it calls for a zero tolerance for tax evasion and/or maintain a
second set of books.

THE CHAMPION OF GOOD CORPORATE GOVERNANCE

The Institute of Corporate Directors (ICD) is the champion of good corporate governance in the
Philippines. ICD was founded in 1999 by former National Economic and Development Authority
(NEDA) and Finance Secretary, Dr. Jesus Estansilao, who today sits as ICDs Chairman
Emeritus. Francis Estrada of Odyssey Capital fame sits as its chairman.
Over a delicious lunch of pinoy food at XO46 in Estancia Mall, Dr. Estansilao shared how the
damage wrought by the Asian Financial crisis 1997 compelled him to establish ICD in the first
place. It will be recalled that it was the mismanagement of banks first in Thailand, and then
the rest of Asia, that caused a domino effect of financial catastrophes across the region. None of
it would have happened if they were more transparent and professional, says the formal NEDA
chief. So in the spirit of patriotism, Dr. Estanislao vowed to do his part to insulate Philippine
companies from a repeat of that disastrous event.

ICD is dedicated to the pursuit of professionalization in corporate directorship and leadership. It

seeks to raise the level of corporate practices to world class standards. This is why most of the
training modules, products and seminars offered by the ICD are based on practices of
Organization of Economic Co-Operation and Development (OECD) nations is a grouping of 34
of the worlds most developed economies). In other words, the ICD way conforms to first-world
standards.
ICD is not for profit, it is done out of patriotism, declared Dr. Estansilao. Which is why support
from the general public through donations or the use of its services is vital.

The ICD has several training products for firms at varying levels of transition towards good
corporate governance. It has the Corporate Governance Orientation Program (CGOP) as an entry
level course. The Professional Directors Program (PDP) to train board members to
professionally and responsibly assume their roles.
For companies who are ready to implement the tenets of good corporate governance, ICD also
organizes Board Retreat where road-mapping and implementation planning is the main agenda.
These, among other products, can be found on ICDs website : www.icdcenter.org

ICD is also empowered to certify good governance compliance. Its seal of approval weighs
heavy, here and abroad.
Lest you think that the principles of good corporate governance are applicable only to large
corporations, studies show that medium sized companies, especially those looking to raise capital
or list in the stock exchange have much to benefit from it.

Even public institutions like the Philippine Army, the DPWH, Supreme Court (SC) and some
local governments (Iloilo, La Union and San Fernando Pamapanga ) have joined the good
governance bandwagon and have reaped benefits in spades.
Good corporate governance translates to stronger institutions, which, in turn, translates to a
stronger nation. Dr. Estansilao has the gratitude of the nation for championing the good
governance movement.