Corporate governance revisited
By Greg Navarro, Contributor
Those of us who have been pushing for stronger corporate governance principles have recently been presented with a dilemma by the current global financial crisis and, in the local scene, by the Legacy Group brouhaha.
The failures in governance in the Legacy Group case have emphasized the urgency for all stakeholders to understand and adopt proven and well-thought-out governance policies and practices.
On the other hand, we have Lehman Brothers, AIG, and other financial icons, whose failures occurred despite the good-to-excellent governance, risk management and compliance policies they were reputed to have.
Long way to go
These events show that although good governance principles have indeed taken root and have produced exemplary benchmark practices, there is still a long way to go and a wide room for improvement.
During the past several weeks, the entire nation has watched the story of the failed Legacy Group unfold.
The Group, with interests in the pre-need and banking industries, has been accused of duping its clients of millions of pesos just at a time when the country was beginning to feel the impact of the global financial turmoil.
The timing could not have been worse—especially for the pre-need industry, which has been trying to rise from the difficulties of the past few years.
Various cases have been, or will be, filed against Legacy.
Lawmakers have already had the opportunity to grill businessman-turned-politician Celso de los Angeles, Jr., owner of Legacy Group, after whistleblowers—his former employees—had come forward to expose his dubious transactions.
Sadly, testimonies have also implicated Jesus Martinez, the recently retired commissioner of the Securities and Exchange Commission (SEC).
Witnesses said that Martinez allegedly received lavish gifts from the Legacy owner in exchange for protection of De los Angeles’ businesses.
Before his retirement last March 14, Martinez headed the oversight of the pre-need industry, which is regulated by the SEC.
It is both ironic and sad that the corporate watchdog is under fire for not protecting investors’ interest.
But is the SEC really at fault here? Or is there something inherently wrong in the way preneed companies operate? To whom can investors turn at a time like this?
In its attempts to defend itself, Legacy has been casting a wide net. Its banking arm has dragged the names of a number of Bangko Sentral officials into the scandal, insinuating wrongdoing.
Some politicians are also being implicated and drawn into the quagmire. And it does not help that so-called presidentiables are availing themselves of the spotlight as the press feasts on the sordid details of the scandal.
Many believe that this is not a financial crisis but a moral crisis. Questions on unethical behavior, unprincipled performance, regulatory capture, and investor greed abound.
These are serious questions that need serious answers. Times are tough and people everywhere are struggling to stay afloat.
It is not fair for the retiree, the housewife, the OFW, or the everyday salaryman, who thought they were doing the wise and prudent thing by investing in a preneed plan or in a high-yield deposit, to be left holding the proverbial empty bag.
Someone should be answerable. Period.
In the book "The Power to Govern," a P&A Foundation publication that presents six local case studies on corporate governance, one of the writers tackled the story of a thrift bank that was forced to undergo rehabilitation after losing P27.9 million.
An audit showed suspicious transactions that were all traced back to three of the bank’s top officers. As in the case of the Legacy Group, many de
positors lost their hard-earned savings because of the bank’s failure to practice good governance and the regulators’ failure to detect the shenanigans.
Perhaps one good thing that has come out of these experiences is a better appreciation, among a wider audience, of the importance of good corporate governance.
It has also become that much clearer, in the minds of many, that corporate governance will benefit all stakeholders only if this is a result of a well-thought-out process, if it is suited to the organization’s needs and if its principles and practices are thoroughly understood by management, employees, regulators, and investors.
Only then will “good corporate governance” cease to be just another buzz phrase, an inchoate concept.
Only then can following principles of good corporate governance become a way of life rather than a grudging compliance with regulations.
The author is managing partner and CEO of Punongbayan & Araullo, a member firm within Grant Thornton International Ltd.
(As published in the Philippine Daily Inquirer, 27 April 2009.)