A Critique of Recent Governance Reforms of State-Owned Enterprises in the Philippines and Their Proposed Improvements

The passage of the GOCC Governance Reform Act of 2011 in the Philippines marks the beginning of the government’s long overdue response to the “neglected” governance structures and practices of GOCCs. President Benigno S. Aquino’s administration has attempted to reform the governance structure and procedures of GOCCs to mitigate the impact of their dismal performance to the country’s fiscal deficits.This paper identifies two broad categories of governance issues in SOEs. First, the inconsistent policy objectives of government for GOCCs, which arise due to their conflicting mandates as provided in their governing charters. This problem, in turn, causes anti-competitive practices by the GOCCs to the prejudice of the private sector. Second is the lack of sound and principled corporate governance policies. This is demonstrated in the following: (1) political interference into the decision-making of the Board of Directors as a result of the appointment of Cabinet Secretaries as ex-officio members or ex-officio chairmen/chairpersons of the Board; (2) lack of transparency and uniform rules in the selection of Board members of GOCCs; and (3) lack of integrity and transparency in the monitoring mechanisms of the financial conditions of GOCCs.The GOCC Governance Reform Act of 2011 has attempted to address and resolve these issues. However, a closer look at its provisions would reveal that the ownership structure still reinforces the central role that the government plays as the owner of the GOCCs rather than identifying the citizens as the real shareholders thereof. The values of transparency, independence and accountability in the conduct of GOCC affairs by the board would be promoted and safeguarded if there would be a shift into this paradigm.The law likewise does not provide for a mechanism that would completely eliminate or at least reduce the potential for political interference in the decision making of the board of directors.The OECD Guidelines on Corporate Governance for State-Owned Enterprises can provide a conceptual framework against which the effectiveness of the governance reforms introduced in the GOCC Governance Reform Act of 2011 may be measured. Thus, using the OECD Guidelines as benchmark, certain governance reforms emerged as necessary to address the weaknesses of certain provisions in the law.The article also cites major challenges to the implementation of governance reforms, namely, the patrimonial character of the country’s political economy and the political influence and spoils system that characterize the system of appointment to governmental positions.