Conflict of interest and governance
The recent and still burning issue of Solicitor General Calida's security agency getting contracts with 14 government offices and corporations amounting to hundreds of millions of pesos a year, and the resignation of former DOT secretary Teo due to the P60 million ad placements in her brothers' TV programs have brought to the fore the issue of "conflict of interest" in government and business. This is a very valid concern not just because of the amounts involved, but also because the ethical and moral standards of the government affect its popularity and its continuing ability to govern. The government spokesperson's and the Secretary of Justice's shifting pronouncements have not been well-received by the public and will be a factor in the government's satisfaction rating.
The Securities and Exchange Commission and the Banko Sentral ng Pilipinas which are government commissions/corporations have established "conflict of interest" guidelines for public corporations and BSP-regulated institutions more than 50 years ago, and have enhanced them over the years, especially when good governance proved to be relevant to the success of private and public organizations. The rules start with the definitions of what are considered related parties. These are all relatives within the third degree of consanguinity, including your parents, parents-in-law, children, and siblings. For legal personalities, it includes all those where you have significant holdings and influence, which is the minimum threshold to be able to elect a member of the board, or where you hold an executive position. There are specific rules for these Directors, Officers, Stockholders, and Related Interests (DOSRI) and other rules for related party transactions which have to be followed or face sanctions by the SEC or BSP.
Disclosure is the primary step in these regulations. Information about who your relatives are, their holdings or ownerships in other corporations, their positions in other organizations/corporations have to be disclosed in writing every year in the format prescribed. Then, there is the approval procedure that has to be followed in dealing with DOSRI accounts, which requires the affected director or officer cannot be part of and cannot vote in the involved transaction and are even asked to step out of the room during deliberation of the transaction. Then, there are the prohibited acts which are not allowed due to the substantial and significant effect on the regulated and beneficiary entity. I remember sitting in the board of a corporation which was prohibited from lending to an investee corporation in a very profitable transaction as the company had a 25-percent interest in the investee corporation.
After the 1997 Asian economic crisis and the 2008 Wall St. meltdown, "good governance" in both the government and the corporate world gained momentum. In the corporate world it was established and proven that the corporation that practiced good governance was more successful and survived better and longer than those that didn't. Among governments, this was also listed as a major factor in the success and failure of nations in the book, "Why Nations Fail," These good governance ideals are accountability, avoidance of conflict of interest, and transparency. The case of the recently deposed Malaysian prime minister Najib Razak would be a good example of violating all of these ideals in the handling of the 1MBD transactions and funds. And this led to his downfall.
The Calida and Teo transactions can be legally argued and defended from many directions, but there are also ethical and moral dimensions that have to be considered. Eventually, leaders need ethical and moral high ground to continue to govern. The Marcos government would be the good example here.
‘Avoidance of conflict of interest is listed as a major factor in the success
and failure of nations.’