Posted on June 12, 2017
Business World Introspective
Romeo L. Bernardo
Thursday,
June 8.
As I write this column, the dust has yet to fully settle on perhaps the most challenging 24-hour day for the management of the Bank of Philippine Islands (BPI) in its over 165 years of existence. I hope to write a future column on lessons from this when all is done.
Still, it is not too early to congratulate its management and staff for how they have pulled together to resolve this in record time. And preserve the trust and confidence of its stakeholders, most importantly depositors and the regulators.
In today’s
digital age where data information base and service delivery are predominantly
electronic, banks and similar institutions and their regulators should assume
that debilitating computer system glitches, cyber attacks, and natural
disasters will happen.
We thus need to ensure we have robust IT systems and take all protective and preemptive measures including a providing for redundancy and quick recovery.
Equally important in this age of social media and instant connectivity is keeping stakeholders informed on a round the clock basis using all forms of communication. (And protecting them from predators; an SMS received -- “Does BPI have a branch in Lagos?”)
And not the least, a crisis management structure and plan that can be triggered swiftly.
“Any system in which humans are involved will at some point be disrupted by human error. Organizations distinguish themselves not by stamping out the possibility of error, but by handling the inevitable mistake well.” (As quoted in my Foundation for Economic Freedom Viber group.)
At this time, I will just note that BPI President Cezar Consing at the first hour yesterday reached out to the leadership of the Bangko Sentral ng Pilipinas (BSP) and the public. Both he and Acting Governor [Nestor] Espenilla sought to assure via early morning television interviews that this was: 1) a computer glitch and no hacking was involved; 2) being addressed and that the system should be back up within the day; and 3) that no one will lose money.
There were subsequent round the clock updates ending in one late last night, in both traditional and social media, that the problem was fully addressed and all electronic channels will soon be accessible. (And apologizing once again for the inconvenience and thanking clients for their patience.).
I dare say, BPI is passing the test. Though I should quickly add that I am an independent director at the Board, and unashamedly have my biases.
As I am along this road, you will forgive me for flying the colors some more by excerpting remarks at a forum on corporate governance last month organized by the BSP and the International Finance Corp. I will make the self serving assumption that BSP asked BPI to precisely present because we are among the best pupils in class. (For my full presentation, please refer to my blog entry, which can be read by visiting this link http://bit.ly/RBblogentry.)
1. We join the applause of the financial community and the broader Filipino public, on the recognition of a job superbly done by Governor Say [Amando M. Tetangco, Jr.] And the jubilation on the appointment of Deputy Governor Nesting [Nestor A. Espenilla, Jr.] a vote for continuity and an affirmation of the quality of monetary policy and banking supervision of the BSP and all its dedicated men and women over the years.
2. At BPI, when we speak of “corporate governance,” we go beyond the formal rules that sets out the Board’s oversight and its policy setting responsibilities. For us, it is all about imbibing and nurturing a culture of integrity, fairness, accountability and transparency cascaded from the Board, its management, and to all our employees.
3. In line with this, the Board ensures, first and foremost, that BPI’s corporate governance practices are consistent with the guidance of the BSP, Securities and Exchange Commission, and the Philippine Stock Exchange in strengthening corporate governance. And in October 2016, BPI was recognized as one of the awardees of the inaugural Institutional Investors’ Award for Corporate Governance.
4. We recognize that good corporate governance is ultimately, the responsibility of the Board. As is often rightly said: “Companies do not fail, boards do,” an observation I may have first heard from SEC Chair Herbosa.
5. The presence of Independent Directors on the Board helps ensure the exercise of impartial judgment on corporate affairs and proper oversight of managerial performance, related party transactions, and potential conflicts of interest.
Today, in our 2017 Board, seven (7) out of 15 directors are classified as independent, exceeding the minimum regulatory requirement to have at least 20% of board membership and the recommendation for publicly listed companies to have at least 33%.
6. We bank with all of the country’s major conglomerates and while Ayala is the bank’s single largest shareholder, they are not our largest client. There are a number of conglomerates with whom we have more substantial dealings.
7. The Nomination Committee ensures that there is diversity in the board -- in terms of gender, age, cultural background, education, professional experience, skills, knowledge, length of service. Our 2017 board is made up of three former bank presidents, a former member of the Monetary Board, a former assistant governor of the BSP, the representative of the Roman Catholic Archdiocese of Manila, a top regional officer of a global IT company, a retired founder/CEO of a top securities brokerage firm, a top CFO of major Philippine corporations, a topnotch corporate lawyer and a former Finance undersecretary, to name a few.
8. Equally important in our diversity policy is the representation of women. To date, we have four women directors, comprising 27% of our board membership, the highest among our peer banks. In 2016, we had 5 women directors. (In our management of 3000 plus managers, 67% are women.)
9. We take risk management and internal audit and control very seriously. Indeed as Governor Tetangco said in his keynote remarks, risk management is at the heart of corporate governance of a bank. Both our risk management committee and our audit committee are chaired by independent directors who have had distinguished banking careers culminating in being CEO’s in their respective banks.
10. The Board and its committees are regularly and actively involved in providing strategic guidance, risk appetite and risk metrics (operational, market, liquidity, regulatory, reputational, etc.) regular audits, capital adequacy reviews as well as oversight over pressing and urgent “issues of the day,” e.g., anti-money laundering, IT, cyber risk, consumer protection, etc.
11. In all cases, the oversight by the Board go well beyond the letter of the regulations in order to uphold depositors’ and other stakeholders’ interests, and protect the Bank’s reputation. Just to cite an example for our zero-tolerance policy for fraud and financial crime, whether external or in-house. Recently, we worked with government agencies in the first successful prosecution of international criminals involved in ATM skimming and card fraud. We do this beyond the value of the losses of the bank from specific instances, as a matter of principle and for deterrence.
12. Another example of this high level of diligence and risk management mind-set that has saved the bank from losses, where others have been blindsided. It is a matter of record at the BSP that in the global financial crisis a decade ago, BPI was the only big local bank that had zero holdings of international subprime securities. A quote from that period from a key board director on a proposal to purchase Lehman securities -- “I don’t care if it is triple A rated, if we don’t understand it, we are not buying it.”
13. The Bank has a Code of Conduct derived from the BPI Credo and Core Values. These are aligned with key global initiatives that promote responsible business practices. We have detailed rules on conflict of interest, insider trading whistle-blower policy, and related party transactions. (We were among the first banks to set up a related-party transactions committee, before a formal circular by BSP on it was issued.) While these codes are important, what is critical are internalizing these as values and culture.
14. I view my presence as a presentor here as BSP’s recognition of BPI’s efforts in promoting effective corporate governance. The high quality and professionalism of management and staff and the corporate culture that has been nurtured through the decades make the job of the Board members relatively easy.
15. As observed by the previous speaker from IFC, good corporate governance also provide bottom line yields. For BPI, it has contributed to a price to book valuation and an ROE that has consistently led the industry.
16. Finally, thank you to the BSP and SEC for all the work and effort done to build world-class financial institutions capable of meeting the challenges posed by the other FI’s in the region. We at BPI will continue our governance commitment for the long haul.
Romeo L. Bernardo is a board director of the Institute for Development and Econometric Analysis. He was undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com
We thus need to ensure we have robust IT systems and take all protective and preemptive measures including a providing for redundancy and quick recovery.
Equally important in this age of social media and instant connectivity is keeping stakeholders informed on a round the clock basis using all forms of communication. (And protecting them from predators; an SMS received -- “Does BPI have a branch in Lagos?”)
And not the least, a crisis management structure and plan that can be triggered swiftly.
“Any system in which humans are involved will at some point be disrupted by human error. Organizations distinguish themselves not by stamping out the possibility of error, but by handling the inevitable mistake well.” (As quoted in my Foundation for Economic Freedom Viber group.)
At this time, I will just note that BPI President Cezar Consing at the first hour yesterday reached out to the leadership of the Bangko Sentral ng Pilipinas (BSP) and the public. Both he and Acting Governor [Nestor] Espenilla sought to assure via early morning television interviews that this was: 1) a computer glitch and no hacking was involved; 2) being addressed and that the system should be back up within the day; and 3) that no one will lose money.
There were subsequent round the clock updates ending in one late last night, in both traditional and social media, that the problem was fully addressed and all electronic channels will soon be accessible. (And apologizing once again for the inconvenience and thanking clients for their patience.).
I dare say, BPI is passing the test. Though I should quickly add that I am an independent director at the Board, and unashamedly have my biases.
As I am along this road, you will forgive me for flying the colors some more by excerpting remarks at a forum on corporate governance last month organized by the BSP and the International Finance Corp. I will make the self serving assumption that BSP asked BPI to precisely present because we are among the best pupils in class. (For my full presentation, please refer to my blog entry, which can be read by visiting this link http://bit.ly/RBblogentry.)
1. We join the applause of the financial community and the broader Filipino public, on the recognition of a job superbly done by Governor Say [Amando M. Tetangco, Jr.] And the jubilation on the appointment of Deputy Governor Nesting [Nestor A. Espenilla, Jr.] a vote for continuity and an affirmation of the quality of monetary policy and banking supervision of the BSP and all its dedicated men and women over the years.
2. At BPI, when we speak of “corporate governance,” we go beyond the formal rules that sets out the Board’s oversight and its policy setting responsibilities. For us, it is all about imbibing and nurturing a culture of integrity, fairness, accountability and transparency cascaded from the Board, its management, and to all our employees.
3. In line with this, the Board ensures, first and foremost, that BPI’s corporate governance practices are consistent with the guidance of the BSP, Securities and Exchange Commission, and the Philippine Stock Exchange in strengthening corporate governance. And in October 2016, BPI was recognized as one of the awardees of the inaugural Institutional Investors’ Award for Corporate Governance.
4. We recognize that good corporate governance is ultimately, the responsibility of the Board. As is often rightly said: “Companies do not fail, boards do,” an observation I may have first heard from SEC Chair Herbosa.
5. The presence of Independent Directors on the Board helps ensure the exercise of impartial judgment on corporate affairs and proper oversight of managerial performance, related party transactions, and potential conflicts of interest.
Today, in our 2017 Board, seven (7) out of 15 directors are classified as independent, exceeding the minimum regulatory requirement to have at least 20% of board membership and the recommendation for publicly listed companies to have at least 33%.
6. We bank with all of the country’s major conglomerates and while Ayala is the bank’s single largest shareholder, they are not our largest client. There are a number of conglomerates with whom we have more substantial dealings.
7. The Nomination Committee ensures that there is diversity in the board -- in terms of gender, age, cultural background, education, professional experience, skills, knowledge, length of service. Our 2017 board is made up of three former bank presidents, a former member of the Monetary Board, a former assistant governor of the BSP, the representative of the Roman Catholic Archdiocese of Manila, a top regional officer of a global IT company, a retired founder/CEO of a top securities brokerage firm, a top CFO of major Philippine corporations, a topnotch corporate lawyer and a former Finance undersecretary, to name a few.
8. Equally important in our diversity policy is the representation of women. To date, we have four women directors, comprising 27% of our board membership, the highest among our peer banks. In 2016, we had 5 women directors. (In our management of 3000 plus managers, 67% are women.)
9. We take risk management and internal audit and control very seriously. Indeed as Governor Tetangco said in his keynote remarks, risk management is at the heart of corporate governance of a bank. Both our risk management committee and our audit committee are chaired by independent directors who have had distinguished banking careers culminating in being CEO’s in their respective banks.
10. The Board and its committees are regularly and actively involved in providing strategic guidance, risk appetite and risk metrics (operational, market, liquidity, regulatory, reputational, etc.) regular audits, capital adequacy reviews as well as oversight over pressing and urgent “issues of the day,” e.g., anti-money laundering, IT, cyber risk, consumer protection, etc.
11. In all cases, the oversight by the Board go well beyond the letter of the regulations in order to uphold depositors’ and other stakeholders’ interests, and protect the Bank’s reputation. Just to cite an example for our zero-tolerance policy for fraud and financial crime, whether external or in-house. Recently, we worked with government agencies in the first successful prosecution of international criminals involved in ATM skimming and card fraud. We do this beyond the value of the losses of the bank from specific instances, as a matter of principle and for deterrence.
12. Another example of this high level of diligence and risk management mind-set that has saved the bank from losses, where others have been blindsided. It is a matter of record at the BSP that in the global financial crisis a decade ago, BPI was the only big local bank that had zero holdings of international subprime securities. A quote from that period from a key board director on a proposal to purchase Lehman securities -- “I don’t care if it is triple A rated, if we don’t understand it, we are not buying it.”
13. The Bank has a Code of Conduct derived from the BPI Credo and Core Values. These are aligned with key global initiatives that promote responsible business practices. We have detailed rules on conflict of interest, insider trading whistle-blower policy, and related party transactions. (We were among the first banks to set up a related-party transactions committee, before a formal circular by BSP on it was issued.) While these codes are important, what is critical are internalizing these as values and culture.
14. I view my presence as a presentor here as BSP’s recognition of BPI’s efforts in promoting effective corporate governance. The high quality and professionalism of management and staff and the corporate culture that has been nurtured through the decades make the job of the Board members relatively easy.
15. As observed by the previous speaker from IFC, good corporate governance also provide bottom line yields. For BPI, it has contributed to a price to book valuation and an ROE that has consistently led the industry.
16. Finally, thank you to the BSP and SEC for all the work and effort done to build world-class financial institutions capable of meeting the challenges posed by the other FI’s in the region. We at BPI will continue our governance commitment for the long haul.
Romeo L. Bernardo is a board director of the Institute for Development and Econometric Analysis. He was undersecretary of Finance during Corazon Aquino and Fidel Ramos administrations.
romeo.lopez.bernardo@gmail.com
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