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The Bell Awards: Giving value to excellent corporate governance

THE success and sustainability of a corporation truly involves a lot of facets. But the most fundamental of these is simply having a structure that keeps all levels of constituents interrelated. This structure is only obtained through sound corporate governance.

Corporate governance isn’t just one structure, though. It consists of the various duties, obligations and rights that control and direct a corporation. The essence of this governance is to properly dispense the responsibilities to all participants of a corporation. In addition to explicating responsibilities, corporate governance also lays down the workers’ rights within the company.

Good corporate governance ensures that the business environment is fair and transparent and that companies can be held accountable for their actions. Conversely, weak corporate governance leads to wastes, mismanagement and corruption.

Moreover, with globalization vastly increasing the scale of trade and the size and complexity of corporations, the importance of corporate governance has been amplified as it becomes increasingly difficult to regulate companies’ internal and external relations.

Meanwhile, investors have also been putting a lot of emphasis on corporate governance as they want to put their money in a company or a market where they can be sure that their rights and interests as shareholders will be looked after and will grow together with the company. The trust that good corporate governance brings for investors reciprocally creates long-term value for a company.

The Philippine Stock Exchange (PSE), the national stock exchange of the Philippines and one of the oldest stock exchanges in Southeast Asia, is one body that continually puts emphasis on corporate governance for its listed companies.

The PSE commissioned a study a few years ago that shows a positive correlation between a firm’s valuation and its corporate-governance practices. According to the study, companies with excellent corporate governance attract long-term capital more easily, reduce their cost of capital and have more stable sources of financing, develop enhanced relationships with regulators, the investing public, the community and other stakeholders. In times of financial crises, companies with good corporate governance were found to be more resilient.

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