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    The Fourth Asian Roundtable On Corporate Governance: Moving Towards Transparency of Ownership and Control: A Case Study

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    Rachel Leachon
    This document discusses transparency of ownership and control in corporate governance. It presents two case studies: [1] Ayala Corporation, a Philippine conglomerate that serves as a role model through its high levels of transparency, public listings, and professional management; and [2] an unnamed Asian IT company with overlapping businesses and opaque ownership structure that was punished by markets. The document argues that transparency of markets and management teams, not just ownership, is important for preventing insider abuse and creating shareholder value, and transparent companies are rewarded with higher valuations globally, including in Asia.

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    The Fourth Asian Roundtable On Corporate Governance: Moving Towards Transparency of Ownership and Control: A Case Study

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    Rachel Leachon
    40 views15 pages
    This document discusses transparency of ownership and control in corporate governance. It presents two case studies: [1] Ayala Corporation, a Philippine conglomerate that serves as a role model through its high levels of transparency, public listings, and professional management; and [2] an unnamed Asian IT company with overlapping businesses and opaque ownership structure that was punished by markets. The document argues that transparency of markets and management teams, not just ownership, is important for preventing insider abuse and creating shareholder value, and transparent companies are rewarded with higher valuations globally, including in Asia.

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    This document discusses transparency of ownership and control in corporate governance. It presents two case studies: [1] Ayala Corporation, a Philippine conglomerate that serves as a role model through its high levels of transparency, public listings, and professional management; and [2] an unnamed Asian IT company with overlapping businesses and opaque ownership structure that was punished by markets. The document argues that transparency of markets and management teams, not just ownership, is important for preventing insider abuse and creating shareholder value, and transparent companies are rewarded with higher valuations globally, including in Asia.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    40 views15 pages

    The Fourth Asian Roundtable On Corporate Governance: Moving Towards Transparency of Ownership and Control: A Case Study

    Uploaded by

    Rachel Leachon
    This document discusses transparency of ownership and control in corporate governance. It presents two case studies: [1] Ayala Corporation, a Philippine conglomerate that serves as a role model through its high levels of transparency, public listings, and professional management; and [2] an unnamed Asian IT company with overlapping businesses and opaque ownership structure that was punished by markets. The document argues that transparency of markets and management teams, not just ownership, is important for preventing insider abuse and creating shareholder value, and transparent companies are rewarded with higher valuations globally, including in Asia.

    Copyright:

    © All Rights Reserved
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 15

    The Fourth Asian Roundtable on

    Corporate Governance

    Moving Towards Transparency of


    Ownership and Control : A Case
    Study
    Presentation by Pulak Prasad, Managing Director, Warburg Pincus
    Global Corporate Governance Forum, Singapore

    Mumbai (India), 11-12 November 2002


    Agenda for today’s discussion

     Does transparency of ownership and control prevent


    insider abuse?
     2 cases : A study of contrasts
     Key takeaways

    2
    Does transparency of ownership and control
    prevent insider abuse?

     Tells me who runs the company,


    not what their intent is
     Insider abuse can be perpetrated
    by those who are neither owners
    nor in control
    No  If it did, we would not have had
    disasters like Andersen, Enron,
    Worldcom, Adelphia ……….
     Companies that are not transparent
    about ownership and control do
    not necessarily “abuse” (e.g. AIG,
    Hutchison)

    3
    So what prevents insider abuse?

    It is not only transparency of ownership and control

    But

    Transparency of
    - markets
    - management teams

    4
    Meaning of transparency of “markets” …..
    Aspect US / UK Asian
    Boards Non-executive majority Insider
    Disclosure High Limited
    Minority protection High Low
    Takeover market Active Limited
    Fund sources Sophisticated institutions Family, banks
    New issue market Active Underdeveloped

    Lower transparency

    5
    ... and management teams
    Key tests

    Does it share information

    Does it have high integrity

    Can it be fired

    Does it have adequate controls

    6
    Case 1: Ayala Corporation – Transparency
    Matters
    Shoemart Publicly listed
    (4.4%) (18.5%)

    Mitsubishi Ayala family


    (19.1%) Ayala (58%)
    Corporation

    100% 70% 35% 32% Division


    Ayala Ayala Bank of the Globe
    International Land Philippine Telecom AC Capital
    Private Islands

    7
    Why are Ayalas a role model?
     Holding company is public
    Make companies
     So are all the 3 major subsidiaries
    public
     Held to higher governance standards

     Migrating to higher levels of disclosure


    Better accounting
    practices  Ahead of Philippines SEC requirement

    Partner with  Working with Mitsubishi for 28 years


    Companies With  Working with Singtel or 10 years
    exacting standards

    8
    Why are Ayalas a role model?
    (continued)

     Single family holding structure

    No parallel  Direct ownership in Ayala Corp (no


    layering or opacity)
    networks
     All family members receive dividend
    income
     Family does not invest in ventures that
    compete with Ayala Corp

     Only 3 family members involved (all at


    Professional the top)
    management
     All CEOs are professionals rewarded on
    merit

    9
    Ayalas have created much more wealth than
    competitors
    Market Capitalization Revenues, 2001
    ($ million) ($ million)
    Bank of the
    Philippine Islands $1,446 $795
    Metropolitan $923 $895
    Bank & Trust

    Globe Telecom $1,144 $695


    Philippines Long $711 $1,436
    Distance Telephone

    Ayala Corporation $1,283 $527


    JG Summit Holdings $169 $777

    Ayala Land $1,002 $205

    SM Prime Holdings $965 $133

    10
    Ayalas have outperformed other conglomerates
    Performance relative to Local Index 1/1/95-24/10/02

    SK Corp -
    27.7%

    First Pacific -87.8%

    Hutchison 44.5%

    Keppel -
    32.8%

    Jardine 6.9%

    Ayala 78.7%

    -100.0% -80.0% -60.0% -40.0% -20.0% 0.0% 20.0% 40.0% 60.0% 80.0% 100.0%

    11
    Case 2: Asian IT Company – Transparency still
    matters!
    Mr A

    <30% >50% >50%


    >40%
    Company 1 Company 2 Company 3 Company 4

    >50%
    >50%
    >50%
    Company 4 Company 5
    Business A 
    overlaps
    B 
    C   
    D   
    E

    F 
    G 
    12
    H 
    Trailing P/E (x)

    10.0 x
    20.0 x
    30.0 x
    40.0 x
    50.0 x
    60.0 x
    70.0 x

    0.0 x
    Mar-01

    Apr-01

    May-01

    Jun-01

    Jul-01

    Aug-01

    Sep-01

    Oct-01

    Nov-01

    Dec-01

    Jan-02

    Feb-02

    Mar-02

    Apr-02
    Market reaction has been vicious

    May-02

    Jun-02

    Jul-02

    Aug-02

    Sep-02
    Mr A’s company
    Transparent Company

    13
    Markets reward high transparency across
    countries
    Premium for good governance (%)

    Indonesia 27
    Thailand 26
    M alaysia 25
    South Korea 24
    Taiwan 20
    Japan 20
    US 18

    Source : The McKinsey Quarterly


    14
    Key takeaways

     Market and management transparency is key to


    preventing insider abuse/ creating value

     Transparent companies get rewarded by the market

     Transparency is very relevant to Asia and arguments of


    “unique Asian model” are without basis

    15

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