The Corporate Governance System for the GOCC sector compared with that for PHCs
The system of Ex-Officio Directors in the GOCC sector may represent the weakest link in public corporate governance in areas of responsibility and accountability.
The GOCC ( governmentowned and controlled corporation) Governance Act formally defines “Board of Directors/Trustees” as “the governing body that exercises the corporate powers of a GOCC.” Meanwhile, the GOCC Code of Corporate Governance (CG) formally distinguishes between the Board of Directors/Trustees and Management thus:
“Board of Directors/Trustees” or “Board” or “Governing Board” ( Board) refers to the collegial body that exercises the corporate powers, conducts all business, and controls or holds all properties of a GOCC, whether it be formally referred to as the “Board of Directors” or “Board of Trustees” or some other term in its Charter, Articles of Incorporation or bylaws.
“Management” refers to the body given the authority to implement the policies determined by the Board in directing the course and business activities of the GOCC.
The following discussions will compare Board structures in the GOCC sector with those existing in the PHCs ( publicly held companies), and discuss the impact they have on corporate governance.
BOARD COMPOSITION: APPOINTIVE AND EX-OFFICIO DIRECTORS
The most ubiquitous feature in the composition of GOCC Governing Boards is the presence of “Ex- Officio Directors” who are designated government officials who sit or act as members of the GOCC Boards of Directors/ Trustees by virtue of their title in another public office, and without further warrant or appointment, as distinguished from “Appointive Directors” who are appointed to the Board under the process mandated under the GOCC Governance Act.
More often than not, the charters of GOCCs provide that the Ex- Officio Directors would be the cabinet secretaries whose department exercises supervision over the GOCCs. Ex- Officio Directors therefore often would have to sit on several GOCC Boards; they simply do not have the time to attend all the Board meetings, and often send their undersecretaries or directors as their alternates to attend to their duties in the GOCCs to which they have been designated as directors. The designation of alternates is specifically allowed under the Act, which is, by itself, a practice that is not allowed for PHCs under the Corporation Code, which does not allow directors or trustees to designate a proxy for Board meetings or in the exercise of voting power.
The system of alternates is a recognition that the designated Ex- Officio Directors are often high public officials whose main responsibilities do not allow them the opportunity to devote sufficient time to their ancillary responsibilities as directors of GOCCs. Their alternates are often themselves too occupied with their own tasks and responsibilities in the department or agencies where they serve and often attend Board meetings as merely passive members. In GOCC Boards where the majority of the members of the Governing Board are Ex- Officio Directors — such as the Manila International Airport Authority — it really takes some effort for the Board to arrive at important decisions, since the alternates cannot really make decisions on issues presented before them without formal authority from the principals they represent.
The system of Ex- Officio Directors in the GOCC sector may represent the weakest link in
public corporate governance in areas of responsibility and accountability in that Ex- Officio Directors assume their positions on GOCC Governing Boards merely as an adjunct to their primary obligations to the agency or department to which they have been appointed; they are able to pass on their directorship responsibilities to alternates who serve under them who are not really in a position to exercise the business judgment required of directors, and who are themselves are often saddled with primary tasks and programs in the government agencies or departments to which they have been appointed; and that since such directors remain on the Board by reason of their primary public office, there are not bound by the “merit system” required of Appointive Directors to be re-appointed or to remain on the Board.
On the other hand, since most of the Ex- Officio Directors in the GOCC sector are Department Secretaries, they would often represent the “political side” in GOCC Governing Boards. This is understandable since department secretaries are the alter ego of the President of the Republic, who is inherently the “No. 1 politician” of the land — it is politics or the management of political affairs of the country that primarily got the President elected to head the Executive Department of the Government, and GOCCs fall within the executive branch of the Government. Therefore, all GOCCs, including the purely commercial ones, do not have the maximization of profits as their primary objective, but rather how their commercial nature can be pursued to serve the particular public interests they were organized to achieve — which is the very end that politics seeks to achieve.
The system of Ex- Officio Directors in the GOCC sector therefore seeks to assure that the GOCCs are operated in accordance with the President’s agenda which is often expressed in the Philippine Development Plan ( PDP) approved on a five-year basis by the National Economic Development Authority (NEDA), which is headed by no less than the President himself.
It is for the foregoing reasons (as well as the discussions of the merits of the Appointive Directors system which follows below) that in order to improve the governance structure in the GOCC sector, the Ex- Officio Directors should always be a minority on the GOCC Governing Board — say, at most 30% of the entire Board, an optimal size that allows the National Government’s priority programs to be considered in board meetings, but not too large as to prevent quorums from being achieved due to the inability of such directors to be present when pressed by other national concerns, or to undermine the required votes necessary for the pursuit of corporate plans and programs evolved by a Governing Board the majority of whom are Appointive Directors.
On the other hand, by reason of the constitutional rules against multiple positions in government, all Appointive Directors in the GOCC sector must come from the private sector. Nonetheless, these Appointive Directors are different from directors in PHCs in that they are appointed to the Governing Boards by the President of the Philippines from a shortlist submitted by the GCG ( Governance Commission for GOCCs), unlike in PHCs where the directors are elected at stockholders’ meeting called for the purpose. This singular process alone makes all Appointive Directors assume the role of “public officials,” in much the same manner as Ex- Officio Directors are first and foremost public officials designated to sit on the Governing Boards of GOCCs.
Although they assume their positions as public officials, Appointive Directors as mandated to represent “private sector CG values,” and are expected to serve with a deep sense of “professionalism” rather than considering themselves as “political appointees.” The entire system of public CG mandated under the GOCC Governance Act is meant to ensure that the members of GOCC Governing Boards are able to achieve such dual roles.
The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.