The Philippines has made significant improvements in corporate governance quality (CGQ), among the economies of Southeast Asia, based on market data reported by non-financial firms from the mid-1990s up to the early 2000s, ranking third behind Hong Kong and Singapore.

This is one of the key findings of a recent study released by the International Monetary Fund (IMF) in July 2007. Among the countries covered by the study are China, Hong Kong, Indonesia, Malaysia, Philippines, Singapore, South Korea, and Thailand. The report, written by IMF economists Gianni di Nicolo, Luc Laeven, and Kenichi Ueda, covered CGQ data in these countries between 1994 and 2003.

The study found that "corporate governance in most countries has improved overall, with varying degrees and notable exceptions, cross-country convergence quality with countries that score poorly initially catching up with countries with high governance scores, and the impact of improvements in corporate governance quality on traditional measures of real economic activity--GDP growth and the ratio of investment to GDP, is positive, significant, and quantitatively relevant, and the growth effect is particularly pronounced for industries that are most dependent on external finance."

Dr. Jesus P. Estanislao, chairman of the Institute of Corporate Directors, observed that the study is based on accounting and market data, and not on what regulators have been imposing and trying to enforce. In this regard, they consider the measure as “de facto”, i.e. based on performance or outcomes that can be read out of actual market data. The measure is not based on “de jure” requirements from regulators."

Unlike measures based on perceptions, e.g. of investment fund managers, this measure is based on accounting data that are put together on the basis of current finance literature, Estanislao added.

The IMF study noted that the CGQ index is a simple average of three indicators, called Accounting Standards (AS); Earning Smoothing (ES), and Stock Price Synchronicity (SPS).

These indicators are constructed from accounting and market data for samples of non-financial companies listed in stock markets taken from the Worldscope and Datastream databases.

National Competitiveness Council (NCC) co-chair, private sector, Ambassador Cesar B. Bautista said "the IMF report is a major indication that the corporate governance campaign of the private sector has now begun to bear fruit and that our country's competitiveness standing will be enhanced, especially if Philippine corporations will accelerate their initiatives in such areas as transparency, directors' training, and the integrity of their financial reporting."

For his part, Dr. Estanislao proposed a Road Map that the country should use in traveling on a pathway to even more significant improvements in corporate governance quality.

With this Road Map, individual corporations should use the bases already laid out by the current regulatory regime, which have implemented significant changes in view of the additional requirements for corporate governance practice our regulatory authorities have already mandated.

In this regard, a corporate retreat, involving the Board of Directors, can be used as an occasion for formulating and clarifying a corporate strategy map, Estanislao added. Also of critical importance is an active corporate governance improvement agenda.

This is to be gleaned from the results of the corporate governance scorecard, already undertaken for all publicly listed corporations in the Philippines, which identifies the areas in which a corporation’s corporate governance practice is already strong, and the areas where it remains weak.

Dr. Estanislao also said that the Philippines "should also moderate its tendency to bash itself in the head."

"There is no way the Philippines can score high on a scale determined by perceptions: we manage to present a bad image of ourselves by the notoriously straightforward and negative comments we make about the Philippines. But even the IMF economists in their econometric analysis of corporate governance quality measures put the Philippines in the top three for East Asia, although it must be admitted that our over-all score is only marginally better than the corresponding scores for our immediate neighbors in Southeast Asia and thus can stand improvement," Dr. Estanislao added.