Corporate Governance Quotes

“The King Commission describes Corporate Governance simply as “ the system by which companies are
directed and controlled.” (King 1994)

“Corporate governance is concerned with holding the balance between economic and social goals and
between individual and communal goals. The governance framework is there to encourage the efficient
use of resources and equally to require accountability for the stewardship of those resources. The aim is
to align as nearly as possible the interests of individuals, corporations and society.” (Sir Adrian Cadbury,
UK, Commission Report: Corporate Governance 1992)

“Business must harness the power of ethics which is assuming a new level of importance and power.“
(James Joseph - former US ambassador to SA)

“Good corporate governance is about 'intellectual honesty' and not just sticking to rules and regulations,
capital flowed towards companies that practiced this type of good governance.“ - Mervyn King
(Chairman: King Report)
“Whilst the scope of King II is broader than its 1994 predecessor, reform in this area, to be meaningful,
cannot be confined to the top 10 % of companies in this country.” - Advocate Selby Baqwa, SC

“King 2 emphasizes that the most powerful enforcement body in the corporate system is the
shareholder body. Via pension funds, provident funds, insurance products and other group investments,
the public makes up the largest owner of many publicly listed companies.” - (King Report)

“It is clear that good corporate governance makes good sense. The name of the game for a company in
the 21st Century will be conform while it performs.“ - Mervyn King (Chairman: King Report)

“It is essential that the activities of corporate executives are under constant, vigorous and public
scrutiny, because those activities are crucial to the economic well-being of society.If anything,
developments both locally and internationally during 2001 have emphasised the need to continuously
update and upgrade corporate governance standards.“ - Ann Crotty (Business Day)

“The cost of complying with corporate governance is becoming prohibitively high for the smaller banks
& this may become even more onerous once the second Basel Accord (Basel 2), the international
agreement on risk management & banking standards, becomes a worldwide regulatory standard in
2006.” - Errol Kruger (Deputy Registrar of Banks)

“What would happen if certain systems were hit.A networking service used by 7, 000 financial
institutions carries 1.5 billion messages per year with a daily value estimated at $6 trillion.” - Leonard
Schrank (CEO: SWIFT - Brussels)
“Despite questions being raised about the standard of corporate governance in South Africa, 85% of
respondents believed that it significantly influenced investor confidence towards a company and 68%
believed it was an important contributor to an organisation's performance.“ - Leon Padayachy (Sunday
Times)

“Over the next couple of decades, inequality will probably rise as AIDS lowers growth and slices its way
through the poor and disadvantaged in South Africa.” - Nicoli Nattrass (CSSR)

“The AIDS challenge is to move from rhetoric to action - action at an unprecedented intensity and scale.
For there is a need for us to be focused, to be strategic, and to mobilize all of our resources and
alliances, and to sustain the effort until the war is won.” - Nelson Mandela (Ex President: South Africa)

“Apply yourself. Get all the education you can, but then, by God, do something.Don’t just stand there,
make it happen.“ - Lee Iacocca (Legendary President of the Chrysler Corporation)

“We should all be concerned about the future because we will have to spend the rest of our lives there.”
- Charles F Kettering

“Corporate governance is not a matter or right or wrong -'it is more nuanced than that.” - Advocate
Johan Myburgh

The AIDS challenge is to move from rhetoric to action – action at an unprecedented intensity and scale.
For there is a need for us to be focused, to be strategic, and to mobilize all of our resources and
alliances, and to sustain the effort until the war is won.” - Nelson Mandela (Ex President: South Africa)
“Ethics in business is extremely important; your reputation is all you have in life.“ - Sir Freddie Laker

“The special measures that we envisage to overcome the legacy of past discrimination are not intended
to ensure the advancement of unqualified persons, but to see to it that those who have been denied
access to qualifications in the past can become qualified now, and that those who have been qualified
all along, but overlooked because of past discrimination, are at last given their due.” - Nelson Mandela
(1991) (Ex President: South Africa)

“Affirmative action must be rooted in the principles of justice and equality.” - Nelson Mandela (October
1991)(Ex President: South Africa)

“The JSE Securities Exchange is moving towards alignment with international best practice. These
important changes are intended to improve international sentiment and greater disclosure, both of
which are aimed at improving foreign investor confidence in the South African Equities Market.” -
Russell Loubser (The Johannesburg Stock Exchange)

“To set aside one’s prejudices, one’s present needs, and one’s own self interest in making a decision as a
director for a company is an intellectual exercise that takes constant practice. In short, intellectual
honesty is a journey and not a destination.” - Mervyn King (Chairman: King Report)

“In today’s climate of current disclosure and fairness, there's no room for executives to cut corners . . .
executives must ‘certify that (the) information is correct’ when ‘they sign their company’s (SEC) filings . .
. if their statements contain material misstatements or omissions, they can be exposed not only to civil
penalties and lawsuits, but also to criminal prosecution and prison.” - Honorable Alfred J. Lechner Jr.
(USA)

“IT Governance is no longer some stand-alone function, but is an integral part of any organisation’s
overall corporate governance. If an (your) organisation cannot survive as a competitive player without
IT, then the (your) Board cannot apply acceptable corporate governance without overt IT Governance.” -
Deloitte & Touche - 2003

“… at the heart of the system, we often make wholly unrealistic demands on pension fund trustees. Our
legal structures put them firmly centre-stage. They are being asked to take crucial decisions - yet many
lack either the resources or the expertise. They are often unsupported by in-house staff, and are rarely
paid.” - Paul Myners - UK (2001)

“It is not simply a case of having a set of procedures and processes, nor is it just about having controls in
place. Reliance on a poor control is often worse than having no control at all. [The trustees must have] …
a clear understanding of the business and what can go wrong.” - Tony Rawlins - (2001)

“A director is “bound to take such precautions and show such diligence in their office as a prudent man
of business would exercise in the management of his own affairs.” - Trustees of the Orange River Land &
Asbestos Company vs King (1892)

“If we do not tackle the issue of HIV/AIDS effectively, we will be failing our duty as citizens of this world.
HIV/AIDS will pose a considerable economic impact if left unchecked. The cost of doing nothing is high -
both in human & economic terms.” - Gaby Magomola (Chairman: SABCOHA)
“For historical reasons (though), the emphasis has to be on black people – a term which the Broad-
Based Black Empowerment Act makes clear refers not only to Africans, but Coloureds and Indians too.” -
Dr Hasmukh Gajjar (Faritec Holdings: Deputy CEO)

“Business continuity and planning is just as important for small companies as it is for large corporations.
Plans need to be simple but effective, comprehensive but tailored to the needs of the organisation.
Employers have a responsibility to their staff for their safety and security, and we all share the desire to
ensure that any disaster or incident - whether natural or otherwise - has a minimal effect on the
economic well-being of the country.” - The Rt Hon David Blunkett, Home Secretary, London

“In today’s increasingly competitive environment, businesses are more dependent than ever upon the
smooth running of the critical business and IT processes with only 8% of businesses (will survive)
surviving in the long term if they suffer a severe disaster without contingency measures in place.” -
Bernard Vertenten (SafeGuard iT)

“Only 15% of the market value of an enterprise resides in tangible assets, while 85% rests in intangible
assets - the largest part of those intangibles being information” - The Brooking Institute 1992 & Lev
Analysis of S&P500 companies (1998)

“A firm is inherently fragile if its value added emanates more from conceptual as distinct from physical
assets. Trust and reputation can vanish overnight, a factory cannot.” - Alan Greenspan (Chairman: US
federal reserve - March 2002)

“Business continuity is becoming a major issue for companies of all sizes. The message is finally getting
through; any company that is prepared to risk letting their customers down or gamble with the needs of
their employees is going to pay a heavy penalty at some time - we need a comprehensive platform
where we can learn about solutions in this vitally important area.” - John Sharp (CEO: Business
Continuity Institute)

“Umuntu ngumuntu ngabantu“ - “I am because you are, you are because we are.” - Unknown

“In the age of globalisation, any investor can choose where they want to trade and invest. That is why
South Africa has to fight for every cent of the investment dollar. All SA businesses need to embrace
global standards if they want to benefit from increased investment and that includes reporting on
sustainability.” - Nicky Newton-King (Deputy CEO: JSE)

“There is evidence of a steady erosion in trust for established authorities. As trust diminishes, so
increases the demand for transparency.” - Tom Delfgaauw (Shell)

“If the business community does not come together to define its social and environmental responsibility
and then act on that definition, I fear we will not achieve a (that) better society.” - Courtney Pratt
(President: Noranda Inc.)

“Fraud and deceit abound in these days more than in former times!” - Sir Edward Cole (1602)

“The quality of the company’s board has now become an important evaluation factor for institutional
investors.” - Russel Reynolds Association Survey (1997)
“If a country does not have a reputation for strong corporate governance practices, capital will flow
elsewhere. If investors are not confident with the level of disclosure, capital will flow elsewhere. If a
country opts for lax accounting and reporting standards, capital will flow elsewhere.” - Arthur Levitt
(Former Chairperson: US Securities Exchange Commission)

“The lack of corporate governance practice in the private sector is appalling.“ - Judge Denis Davis (Cape
High Court - 2001)

“The former CEO’s contract broke every corporate governance rule in the book.” - Business Day - 31
May 2001 (Referring to former CEO, Coleman Andrews’s contract with SAA)

“Global market forces will sort out those companies that do not have sound corporate governance.” -
Mervyn King S.C. (Chairman: King Report)

“Sunlight is justly commended as the best disinfectant, electric light as the best policeman.” - Justice
Louis Brandeis (1916)

“The shareholders at a meeting duly convened for the purpose, can, if they think proper, remunerate
directors for their trouble or make presents to them for the services out of assets properly divisible
amongst the shareholders themselves.” - George Newman Co (1895)

“We often think of change coming from the outside in rather from the inside out . . . even if we
recognise the need for change we usually think in terms of learning new skills, rather than showing more
integrity to basic principles.” - Stephen R. Covey Ph.D.
“The problems we have today, cannot be solved by thinking the way we thought when we created
them.” - Albert Einstein

Corporate governance issues haunt PSE

By Judith Balea, abs-cbnNEWS.com

Posted at Oct 29 2009 04:09 PM | Updated as of Jan 26 2010 04:06 AM

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MANILA – While the Philippine Stock Exchange (PSE) has grand visions of playing a role in guiding listed
firms into corporate governance stature and aims to pioneer in Asia a listings board that highlights the
"blue chips of blue chips," recent incidents at the bourse show it is having trouble keeping its own house
in order.

PSE readies 'Maharlika' board

If efforts to reform the Philippine Stock Exchange (PSE)—including legislated reforms and products to
entice investor interest—have been barely enough to create a deeper and richer equity capital market in
the country, perhaps the better approach is for external forces to jolt the local exchange. This was the
theory that led PSE corporate governance head Jonathan Juan Moreno to pursue a project that involved
an ostentatious goal of putting the Philippines in global investors' map. Read more

Key management officials have left the exchange almost one after the other in the past 8 months.
Coffee shop talks have been rife that even PSE president and chief executive officer Francis Lim’s
supposedly secured tenure is on the line—a persistent rumor that has gone through the cycles and has
been growing louder in recent weeks.
It didn’t help that in July, an encounter between a board director and a mid-level executive in a public
place fueled an already gloomy disposition of some staff.

Meantime, the Securities and Exchange Commission (SEC), the corporate regulator that oversees the
PSE, has not been consistent. It stayed back when PSE elevated some exchange- and investor-related
concerns, but intervened when there were listed companies that defied PSE’s rules.

While some issues besetting the exchange involve personality differences, some are symptoms that the
same problems that led to the infamous BW Resources scandal almost a decade ago have not been
completely addressed despite the passing of the Revised Securities Regulation Code (SRC) in 2000.

The recent goings-on at PSE show how its dual and conflicting roles—as a self-regulatory organization
(SRO) and a revenue-generating corporation—have dragged the exchange from fulfilling efforts to live
by strict corporate governance standards.

Board-management face-off

So far, 4 officials have left the exchange in a span of 8 months.

Last month, Joseph San Pedro, vice president and head of the Market Regulation Division (MRD),
agreed to have his working contract bought out after a disagreement with some brokers. Prior to his
departure was the sudden resignation of Conchita Manabat, a stalwart in the local auditing industry,
who cut short her stint as head of the bourse's Market Integrity Board (MIB).

The MIB, an autonomous regulatory body under the PSE board, was created as the semi-cure of the
post-BW scandal lesson that there should at least be a filter between the PSE board, where some
directors are also brokers, and the MRD, which has the line function of policing the activities of brokers
and listed companies.

The MIB affirms and could reverse or modify decisions made by the MRD. The MIB's decisions, in turn,
can be overturned by majority of the PSE board and be appealed before the SEC.
 Sources said results of a recent MRD-led audit—which found 55 of all 66 brokerage firms in violation of
the SRC and PSE rules and regulations, and was published online—caught the ire of some board
directors who held key positions in some of these firms. One of them was Ismael Cruz, PSE director and
president of IGC Securities Inc., a brokerage firm.

The audit results became the backdrop of an incident at the PSE Makati branch’s Brokers’ Lounge in July.
Cruz reportedly berated PSE assistant vice president Jinky Alora, head of the Trading Participants
Regulation Department, a division under the MRD. The incident reportedly occurred in full view of the
restaurant’s patrons. (READ: PSE board member, officer face off)

Then 82 PSE employees who sided with Alora wrote a manifesto to the board denouncing Cruz's
"unbecoming conduct" as a broker-director. In turn, Cruz reportedly wrote the PSE's Human Resource
Department, asking for the names of the signatories and threatening to file libel charges against them.

In a phone interview with abs-cbnNEWS.com, Cruz said "This manifesto is a form of mob rule. It's very
unprofessional.” Cruz is appealing the MRD’s and MIB’s decisions before the SEC, which is expected to
come up with its own ruling in 2 weeks.

Disclosure rules

It was not the first time that the PSE board and management got tangled in a dispute that reportedly
led to the departure of some officials.

Last March, Pete Malabanan, who headed the PSE’s Disclosure Department, retired. Roy Joseph Rafols,
PSE’s chief operating officer and concurrent head of the Issuer Regulation Division, also left when the
board decided not to renew his contract in September.

Rafols and Malabanan headed units responsible for going after listed companies violating disclosure
rules—a key regulatory function of the exchange considering that it aims to ensure that investors have a
fair and equal access to market-moving information from the listed companies.
Disclosure rules are quite straightforward. Listed firms are compelled to inform the exchange—
sometimes as fast as 10 minutes after an event or decision—details as simple as who are the key
officials a firm hired, to more complicated ones like plans and execution of mergers and acquisitions.
The exchange would then promptly post the correspondences on its website so investors and analysts
can factor these in their pencil pushing, which could then result in decisions to buy, sell or hold on to the
firms' stocks.

Malabanan and Rafols had brushes with PSE directors last January when they threatened to sanction
diversified conglomerate San Miguel Corp. for failing to disclose more information about a deal involving
its purchase of an indirect majority stake in Petron Corp.

The disclosure and the issuer regulation units wrote a show-cause letter to San Miguel, asking for a
copy of its contract with Petron, which in turn insisted it was bound by a confidentiality agreement. The
following day, however, PSE President and CEO Francis Lim told reporters that the exchange had
abandoned its demand for a copy of the agreement, and that the show-cause letter was overridden by
the PSE’s board of directors.

Weeks before, Lim was rumored to be facing the possibility of being axed for failing to keep his
lieutenants in tow with the leanings of majority of the board members in the case of San Miguel. Lim
had denied this. The rumors died after Lim was re-elected to another 2-year term during the PSE’s
stockholders meeting last May.

Recently, talks have been rife again that Lim may go the way of San Pedro, whose contract was bought
out, in the aftermath of the Cruz-Alora episode at the Brokers’ Lounge. Lim has yet to confirm this.

Conflicts of interest

These board-management disputes reflect the exchange’s struggle for enhanced corporate governance,
and raise the question as to whether previous reforms have been able to fully address conflict-of-
interest concerns that threaten the exchange’s ability to self-police.
Conflict of interest occurs when an individual or organization is involved in multiple interests, one of
which could possibly corrupt the motivation to fulfill the other.

In the case of San Miguel, what appeared to be PSE’s leniency in imposing rules, sanctions and penalties
illustrates how it is caught in an inherent dilemma of balancing promoting investments and maximizing
profits, and protecting investors by imposing high regulatory standards on listed companies. For
example, a trading suspension on actively traded shares of big companies like San Miguel would mean
less revenue for PSE since it earns huge fees from trading activities, apart from listings and public
offerings.

The case of Cruz as a broker-director, meanwhile, is a more complicated one.

As a broker, when his company was found to be in violation of certain rules, he said he had the right to
file an appeal, and argue his case to the fullest extent under the law. He added that talking to an officer
of the MRD to air out his side could pass up as doing such.

However, as a director, he is subject to higher standards enshrined in the exchange’s Code of Ethical
Behavior for Directors. His encounter with the MRD officer, add to that the written letter to the HR
Department about the employees’ manifesto, were intimidating and have caused fear among
employees, one source intimately familiar with the goings-on at PSE said.

Furthermore, taking into account Cruz’s claim that the manifesto was a “mob rule” and “very
unprofessional”, the normal course of business was to bring the matter to the board, which in turn will
decide as a collegial body with oversight duties over management on what actions to take. Such actions
are normally coursed through the president or CEO. Thus, for Cruz to go directly to HR in his own
capacity was “crossing-the-line," the source noted.

The corporate regulator

Where is the SEC in all these?

Specifically for disclosure-related issues, the corporate regulator had intervened in at least 2 cases
involving listed firms, San Miguel and Benguet Corporation. They failed to meet disclosure rules.

Last August, San Miguel failed to meet a deadline in submitting its quarterly financial status report that,
according to PSE’s disclosure rules, should have merited a trading suspension. However, SEC instructed
the exchange to delay the deadline, in effect sparing the rod on San Miguel. (READ: PSE, SEC spare rod
for San Miguel)

In the case of Benguet Corp, the SEC again intervened. Last October 27, trading of Benguet shares was
supposed to be suspended for a month since the mining firm failed to disclose notices of default from its
creditors—a material information since the firm’s key mining properties, which were used as collateral
for the P1.2 billion loan balance, could likely be foreclosed.

On the eleventh hour—in the afternoon of October 26—the SEC, which received a letter from Benguet,
instructed the exchange not to proceed with the trading halt. (READ: SEC bars PSE from halting trade of
Benguet shares and SEC’s reply: SEC defends putting off Benguet suspension)

In 2000, the Revised SRC, which was passed after the BW scandal, granted the PSE a Self-Regulatory
Organization (SRO) status. This allows the exchange to rule on issues related to brokers and listed
companies on its own.

But while the SEC intervened in matters that the PSE could decide on its own, it also cited the
exchange's SRO status when it took a hands-off position on some issues.

For example, when Alora wrote the SEC about Cruz’s actions at the Brokers Lounge, the SEC tossed back
the complaint to the exchange, citing that the case is under the purview of the MIB.

BW Resources

Various conflict-of-interest concerns crop up, time and again, and cast doubt about the ability of the PSE
to police its own ranks as part of its highest mandate to protect public investors.
These were what the SRC was seeking to address when it was passed after the BW Resources case,
probably the worst of all corporate governance scandals and the most devastating scam that left the PSE
on the brink of collapse.

An exhaustive investigation into the scandal back then concluded that owners of BW Resources and
some brokers were manipulating the gaming company’s stock price, which skyrocketed to over P100 per
share from just less than P1 over a one-year period. Investigation showed fraudulent matched orders
and wash sales in which the seller and buyer were one and the same person.

Brokers back then owned 100% of the stock exchange. After the passing of the SRC—which required
that the PSE be made public, that brokers’ ownership be diluted, and majority of its board of directors
and management be non-brokers—brokers' ownership of the exchange has been reduced to about 38%.

This is still a long way from the 20% broker ownership that the SRC mandated. The SEC has been
granting the exchange "exemptive relief," a legal lingo for allowing PSE to be exempted from the SRC
provision on broker ownership. The SEC also slaps the exchange a P500 a-day fine.

Brokers currently have 6 of the 15 seats in the PSE board. Some brokers have also clinched several
official positions in the exchange, including the posts for corporate secretary and treasurer. While the
SRC bans brokers from holding management positions, the SEC has again provided exemptive relief on
this SRC provision to the PSE. (READ: PSE appointments raise conflict-of-interest concerns)

What to do?

Since controversies continue to hound the exchange, what other reforms could possibly be done?

Conflict-of-interest inherent in bourses

The inherent dilemma of the Philippine Stock Exchange (PSE) to strike a balance between promoting
investments and imposing strict regulation is something that is common to all stock exchanges, based on
a study by the Organization of Economic Cooperation and Development (OECD).

The OECD study underlined that exchanges face potential conflicts of interest in “the maintenance of a
proper balance between an exchange’s public interest obligations and its commercial interests, and the
potential misuse of regulatory powers for commercial purposes.”

Read more

A long-term solution to the conflict of interest issues at the exchange is the eventual separation of the
PSE’s regulatory role over the brokers (currently handled by the MRD and MIB) and its profit-making
function (READ: Conflict of interest inherent in bourses), a well-placed and progressive-thinking official
of the local bourse told abs-cbnNEWS.com. The official requested not to be named.

A proposed initial step was the creation of a third party—the Council of Elders—that was initially
intended to deliberate and make recommendations to the board on the complaint against Cruz. (Cruz’s
behavior as a broker is under the purview of the MIB. But as a director, it’s under the board.)

The exchange was planning to tap retired Senior Associate Supreme Court Justice Jose Vitug, former PSE
president Ernest Leung, and former SEC commissioner Monico Jacob as members of the Council.

The Council was designed to eventually propose that the regulatory role of the PSE be spun off into
another organization, itself with an SRO status.

As of writing, this plan has not gained ground.

Meantime, another official is leaving the PSE early next year. PSE corporate governance head Jonathan
Juan Moreno will no longer be renewing his contract. - Text and graphics by Judith Balea, abs-
cbnNEWS.com