PASAY CITY, PHILIPPINES Oct. 3, 2024 — Investors are now paying more attention to the board make-up of corporates and how this will further ensure sound practices to support sustainable growth. BlackRock, in a report published in 2023 entitled Board Independence in Asia Pacific, identified board independence as a major corporate governance issue that may have an impact on the ability of local companies to create long-term financial value for shareholders, including minority shareholders. The investor report further stated that independent non-executive directors play a key role in ensuring objectivity in the decision-making of a company board and provide a balance by ensuring appropriate management of potential conflicts of interest.
An independent view and the professionalization of the board are gaining importance, which also helps in managing the equitable treatment of all stakeholders and providing the necessary checks and balances. In SM’s case, recent governance moves have stood out among peers in Asia.
The appointment of independent director and two-term Bangko Sentral ng Pilipinas Governor Amando M. Tetangco, Jr. as Chairman of the Board of SM Investments Corporation in 2023 was a first in the company’s history, upholding the highest standards of corporate governance by going beyond mere compliance. Mr. Tetangco is internationally recognized and multi-awarded for leading the BSP during his term as Governor, in delivering sustained price stability and a sound and stable banking system through appropriate monetary policy and effective banking supervision. The BSP instituted bank regulatory reforms that bolstered bank capitalization and enhanced risk management and financial reporting and transparency, to name a few.
“The mantra of good corporate governance must consider fair and acceptable behavior, among others, to those who are more vulnerable, even if it means accruing less to the bottom-line. What we want to achieve is having the comfort that values, principles, and practices are fully in place, reviewed and updated even when no one is looking and even if it does not always pay off, particularly in the short-run,” SM Investments Chairman Tetangco said.
Focusing on professionalization, accountability, sustainability, and transparency, SM has been raising the bar on good corporate governance whilst promoting independent judgment and independent leadership. Recently, SM moved to increase the size of its Board to give more than a majority—five out of nine seats—to Independent Directors.
Aside from its Chairman, SM’s roster of independent directors includes Tomasa Lipana, former Chairperson and Senior Partner of Isla Lipana & Co., the Philippines member firm of PricewaterhouseCoopers; Ramon Lopez, former Secretary of the Philippine Department of Trade and Industry (DTI); Robert Vergara who served as President, General Manager and Vice-Chairman of the Board of Trustees of pension fund Government Service Insurance System, and Lily Gruba, a Professor on Taxation Law, Mergers and Acquisitions and Local Government Finance and former Director of the Philippine Economic Zone Authority, Overseas Workers Welfare Administration, and Undersecretary of the Department of Finance.
Collectively, they exercise strong oversight and advisory capabilities. This board composition goes beyond current corporate governance standards, which prescribe at least 20% to 30% of boards be comprised of independent directors. Notably, out of the five independent directors, two are female. Including SM Investments Vice Chairperson Teresita Sy-Coson, female representation on the board consists of a third of the total board members. A diverse board further complements the thrust towards independent leadership and judgment, transparency, accountability, fairness, and professionalism, ensuring the interests of various stakeholders are considered in board decisions and strategies.
On top of this, SM’s Related Party Transactions Committee is composed entirely of independent directors with the right to review any transaction or related relationship in the group. Deals are reviewed by this committee, and recent deals have had both auditors review alongside independent fairness opinions by third-party firms recommended by the Securities and Exchange Commission or the Philippine Stock Exchange. SM’s Audit, Corporate Governance, and Risk Management Committees are also composed entirely of independent directors.
Investor confidence
Governance efforts are also increasing investor confidence in the company, as demonstrated in the recent pricing of its USD 500 million drawdown last July from its USD 3 billion multi-issuer Euro Medium-Term Notes (EMTN) program. The issuance, which was 3.2 times oversubscribed, with final demand reaching USD 1.6 billion, marked the company’s largest offshore bond issuance in a decade. “We believe that the positive reception of this maiden issuance is a testament to the investability of quality Philippine corporates,” said Mr. Tetangco.
Shared responsibility
Mr. Tetangco also emphasized that good corporate governance becomes a more effective tool when it is a shared responsibility and when members of the whole organization mutually uphold the values of fairness, accountability, integrity, transparency, and engagement with stakeholders. A corporate governance-proactive culture within the organization builds long-term trust and business value among all stakeholders.
“While the tone is set from the top, it is crucial that everyone in the organization should be involved not as mere participants but as stakeholders,” Mr. Tetangco said. SM directors, key officers, and leaders attend corporate governance training at least annually pursuant to regulatory requirements. Such a venue is used to keep leaders and management abreast of corporate governance and environmental, social, and governance (ESG) framework developments that affect business performance and strategies. Other than during SM’s annual stockholders’ meetings, the company communicates and engages with its key stakeholders through various communication channels such as briefings, traditional and social media, and the company website.
SM employees are educated on corporate governance and ESG through the employee onboarding, training program, and awareness campaigns. Through the Orientation for New Employees of SM (ONE SM), new employees are given an overview of SM’s corporate governance framework, including the different corporate policies and its various components. A substantial portion of the orientation is devoted to discussing SM’s core values and the Code of Ethics, and highlights the roles that each can play in the development of the organization’s corporate governance culture. The Governance, Risk, and Compliance Group collaborates with the Human Resources Group, Internal Audit Group, and other teams to continue improving this program for all employees.
SM’s teams exemplify its founder Henry “Tatang” Sy, Sr.’s entrepreneurship, drive, teamwork, leadership, and most of all, business integrity. What Tatang proved is that acting on one’s good corporate governance values can be a very good business strategy. And in this case, it was the philosophy that business growth and social growth go hand in hand. “SM recognizes that the business becomes more meaningful to its customers, shareholders, and all other stakeholders when they can take part in the growth journey,” Mr. Tetangco said.
The company is also recognized for practicing good corporate governance through the ASEAN Corporate Scorecard alongside various awards and recognition. “SM Investments practices good corporate governance in all its dealings with all stakeholders, investors, business partners, creditors, customers, and employees because it believes that good corporate governance will provide long-term growth, sustainability, and success,” Mr. Tetangco said.