Dissemination and development of global corporate governance standards: comparing approaches to ‘comply or explain’ in Philippines and Malaysia

ABSTRACT This article contributes to understanding how global standards are disseminated, adopted and modified in specific contexts. It does so with attention to two factors: economic logics and socio-cultural logics. These factors are explored in the context of the distribution of corporate governance standards in two developing countries in Southeast Asia, namely, the Philippines and Malaysia. The article examines part of a UK-based corporate governance code, a ‘comply or explain’ regulatory compliance approach, that has been adopted by many countries around the world. While some jurisdictions have maintained the standard unadulterated, others have opted to innovate. Both the Philippines and Malaysia have adopted comply or explain; however, while the Philippines has continued with the adopted approach, Malaysia has shifted to an apply or explain an alternative approach. The article argues that countries adopt and modify corporate governance standards to align with the norms of dominant providers of foreign investment rather than economic logics.


I. Introduction
All but a few economies today rely on markets for everything from food to finance.Wellfunctioning financial markets rely on a number of institutions, from stable, central banks, to reliable retail banking, trustworthy brokerage services and clearing houses but all of these institutions ultimately rest on institutional legal foundations.Countries around the world have sought to participate in these increasingly globalized markets.In order to do so, they must adopt and comply with the standards set by leading global institutions.These standards include corporate governance codes for publicly listed companiesthe main focus of this paper.Corporate governance standards are important as they address the myriad of ways that culture informs how business is conducted.As Oliver Hart has it 'the[se] governance structures can be seen as a mechanism for making decisions that have not been specified by contract'. 1ONTACT Benedict Sheehy benedict.sheehy@canberra.edu.au 1 Oliver Hart, 'Corporate Governance: Some Theory and Implications ' (1995)  105 The Economic Journal 678.
The research on corporate governance, driven by a combination of local businesses seeking capital, legitimacy and prestige, investors seeking profits and international institutions and governments aiming to promote economic development, has produced what Puchniak identifies as three grand theories: (1) a common law superiority theory, (2) a convergence theory, and (3) an economically motivated and rational shareholder theory. 2 These theories persist as dominant ways for thinking about, evaluating and reforming corporate governance.They are not, however, without contest and given both their reach and influence, it is critical that they be examined and tested.
To state the obvious, countries do not all have the same cultures and institutions, and further, the particular issues addressed by standards vary from country to country.In particular, the patterns of shareholdings and paths of exploitation vary greatly between the standard-setting countries of the developed countries and the countries of the developing world.This difference between standard-setting and standard-receiving countries leads to odd, incoherent and even inappropriate responses.The issues of regulatory concern as well as the matter of apparent compliance in the absence of fundamental institutional reform necessary to address the matters of ultimate concern leave parties with inadequate responses, and incomplete regulatory infrastructure.Although Malaysia and the Philippines may appear to be similar in that they are both lesser powers, in the same region and classified as developing countries, Malaysia being an upper-middle income country versus the Philippines as a lower-middle income, 3 and both adopting the same general standard, it does not mean that the countries' corporate governance regimes will develop in the same way. 4They remain distinct jurisdictions, pursuing their own interests as they see fit, both 'partners and competitors'5 in the region.This phenomenon provides opportunities for the exploration of important legal theories about dissemination, convergence and economic versus social rationality of law generally and corporate governance standards in particular.
Corporate governance mechanisms in both the Philippines and Malaysia are derived from the UK-based framework and both have been further developed with reference to the principles specified by the Organization for Economic Cooperation and Development (OECD). 6Their geographical locations, history, culture, legal, and governance frameworks have significant similarities.Initially, both the Philippines and Malaysia adopted the same approachthe comply or explainin developing their codes of corporate governance.Recently, however, Malaysia adopted a different approach, an apply or explain an alternative approach rejecting the more common comply or explain.Although easily misunderstood as a mere semantic sleight of hand,7 the Malaysian requirement is in fact a distinct obligation.It is an implementation of a strategy introduced in 2017 described a 'new approach to promote greater internalisation of corporate governance culture'. 8he strategy was given a distinct name and acronym CAREan acronym which stands for 'Comprehend, Apply and Report approach'. 9his phenomenon provides an opportunity to investigate a long-standing concern of corporate governance, namely, that jurisdictions around the world are converging on a single end of history, 'best practice'.Further, it allows investigation into comparative law and into law in context concerns about differences within regions, differences which reflect history and culture, and particularly differences which diverge from economic rationality.
The article aims to make two main contributions.First, it aims to contribute to the corporate governance research agenda on the issue of convergence of norms and practices.It will provide evidence for convergence theory broadly conceived and comparative law by examining changes to codes as more than mere expressions of economic logic but also historical, cultural artefacts and by investigating southeast Asia.To contribute to these debates, this article examines the origins of comply or explain, in addition to the particular contexts of both countries and the evolution of their respective codes of corporate governance.It argues that despite initial transplant, divergence is the norm as it reflects the complexity of the environments.
The paper is divided into seven parts: following a brief note on theory and method, Part II sets out the theoretical foundations, and Part III examines the socio-historical origins and development of corporate law in the two jurisdictions.
Part IV provides a detailed study of the comply or explain approach from the historical foundations in the UK to its inclusion in the codes of corporate governance of the Philippines and Malaysia; Part V offers explanations for the divergence which is followed by Part VI which considers the implications.The final section, Part VII is the conclusion.

II. Theory and method
Financial markets have a long history in the West which can be traced back to the bond market in the City of London in the sixteenth century. 10Over time, the stock market has come to the fore and is the critical source of corporate funds outstripping the bond market.The stock market provides capital for the growth of businesses and in that role contributes to a country's economic power.
A core function of financial markets is the efficient allocation of capital. 11Such allocation occurs when investors have sufficient confidence in markets to invest capital into businesses that place the highest value on the capital and provide an appropriate risk-to-return or reward ratiorisk being a function of confidence plus business risk.This risk-reward ratio is reflected in the price of the security under consideration.Investors, however, can only properly evaluate the security if they have confidence that the price accurately reflects the risk-reward ratio.
The accuracy of pricing is a result of appropriate rules and effective execution of those rules.These market rules are created by two distinct but related authorities: a government agency charged with regulating the market such as, for example, a Securities Exchange Commission, and a market operator, such as the NYSE, that creates and administers market listing rules.The combined function of these regulators is to create and maintain trust and confidence in the markets. 12his regulation achieves the trust and confidence objectives by mandating information disclosure among other means. 13The markets' operators usually provide rules for market participants requiring the participants to disclose information that will include the nature of the business, the parties involved and their trading activities, the assets, financial position, characteristics of the securities on offer, and crucially, the prospects for the business. 14With this information, prospective buyers and sellers are able to evaluate the securities of the business to determine the extent to which the price reflects, and those securities align with, the risk-reward ratios desired, regulating executives' behaviour. 15arkets, however, are not of a single type.As institutions, they reflect the socially constructed inputs by which they are constructed. 16Markets do not merely reflect the rationality of economic logicrather, they reflect everything from Keynes' 'animal spirits' 17 and 'investor sentiment', 18 to consumer confidence, national cultures, 19 and the personal competitions that drive them. 20Regional markets express regional concerns and interests as opposed to merely following internationally popular standards.They behave differently from one another just as commodity markets behave differently from financial and real estate markets.Each market regulator and market operator develops rules in a way that responds to their unique socioeconomic context. 21As a result, market convergence on a model may not be of the type or to the extent predicted by some. 22As Puchinak et al theorize, the grand narratives of convergence and economic rationality do not rule globally and certainly not in some imagined homogenous region called 'Asia'. 23hat Puchniak et al. observes instead is a tripartite complexitya complexity of regulation, a complexity of shareholders and a complexity of norms. 24They argue that rather than finding convergence towards a single point, diversity is to be expected.As Siems notes, even the concept of convergence itself is unclear, describing it as 'a process … [that] does not imply that they are identical or will become so'. 25Siems goes on to make the following interesting observation: one can also imagine a situation where a transplant makes the legal systems of the world more dissimilar: say, if initially all countries but one have similar laws on a particular topic, but then half of the countries decide to transplant the laws of the outlier, this will lead to the global divergence of legal systems. 26 explore these ideas, this article examines the development and application of market rules in the context of two countries in an under-researched part of the ASEAN region, namely, the Philippines and Malaysia.Given the paucity of research on these countries, in addition to the importance of institutional logics and context, it is necessary to canvass in some detail the historical, cultural and socio-legal contexts as this context provides insight into the confidence issues, adoption of global standards and approaches to the reform of those standards.

A. Theorizing law and legal method
When it comes to legal theory and method, law itself tends to be theorized in two distinct manners: as the text of cases and legislation, or as a social institution. 27Each of these theories has commensurate methods, being either doctrinal or social scientific. 28This article uses both theories and related methods but at different points.
In the first instance, the article theorizes law as an embedded social institution 29in this case, as an institution that interacts with the financial system generally and the institution of the market in particular in two distinct jurisdictional contexts.Specifically, it conceptualizes corporate reporting as a functional action to maintain confidence in markets.Accordingly, the method needs to take into consideration the institutional characteristics of markets that allow them to function and how those interests and values that are addressed by law. 30To understand and investigate this context, the article needs to provide an overview of the relevant institutions and then to turn attention to the social contexts of the law in the two jurisdictions under consideration as preliminary to consideration of the text.Although the evaluation of the effectiveness of these rules as market interventions, is a matter for financial economists, a matter well beyond the scope of this article, some preliminary financial evidence is provided.
Secondly, where the article focuses on text, such as comparing the two phrases of this article, it takes a theoretical stance of legal positivism and utilizes doctrinal method's linguistic tools.Ibid. 29Ibid. 30Ibid.

B. Theorizing ownership and control: a problem for dispersed and concentrated holdings
A basic problem addressed by stock market rules goes back to lessons learned from market manipulations and insider trading exposed by the 1929 stock market collapse which triggered the Great Depression.31Among the research coming from that collapse was the ground-breaking work of Berle and Means.Berle and Means described it as an issue of the 'separation of ownership and control'. 32Their study exposed the separation of the board of directors controlling and operating the corporation largely beyond the scrutiny of the shareholding investors. 33This separation allows the powerful contingent, the directors, to exploit corporate resources for their own ends.
The situation Berle and Means identified, however, is not universal.In other contexts, there is little separation between shareholders and the power to control the corporation, and as a result different issue arises.In these contexts, powerful shareholder owners34 become controlling shareholders who exercise power by determining board composition.In doing so, they have an inordinate influence on corporate decision-making tilting in their own favour and exploiting corporate resources for themselves.This latter problem is the problem of concentrated holdings, a situation more common in European and Asian markets.
In other words, the degree of shareholder concentration determines the nature of the problem.The lesser the concentration, the less shareholders are able to exploit the corporation, creating greater opportunity for directors to do so.When the situation is reversed, by a greater the shareholder concentration, the problem too reverses: the problem shifts to being one where powerful shareholders with concentrated holdings have a greater ability to exploit organizational resources (including the investments of minority shareholders) for their own benefit and dictate decisions to the directors.In both situations, however, information disclosure remains a critical regulatory tool for regulators 35 and investors alike, around the globe, as evidenced in the ubiquitous global corporate governance codes.

C. Origins of self-regulation and corporate governance codes
Although traditionally the powers and responsibilities of both the board of directors and the meeting of the shareholders were established by the corporate constitution under the domestic hard law, as a result of the combination of corporate scandals in the 1980s, a frenzy of merger and acquisition activity and political strategy of deregulation, calls for reform mounted. 36Among the reform solutions was a shift from relying on rigid and difficult-to-reform hard law to the adoption of soft law regulation in the form of codes of corporate governance. 37These codes aimed to establish non-binding sets of principles, standards and best practices, usually issued by a collective of stakeholders, and focused on the internal governance of corporations. 38ifferent approaches emerged in the United Kingdom (UK) and in the United States (US).While the UK adopted a looser, more principles-based approach, relying more on market mechanisms to regulate, the USA developed a highly detailed approach adopting the recommendations of the American Law Institute, which while expecting markets to be applying some pressure, believed that more was needed. 39he UK took the decision to develop a code and in May 1991.Jointly, the London Stock Exchange and the UK Financial Reporting Council established The Committee on the Financial Aspects of Corporate Governance (or the Cadbury Committee).The Cadbury Committee was tasked with responding to the financial reporting and accounting issues of the publicly-listed companies. 40The Cadbury Committee pioneered the first code of corporate governance found in the 'Cadbury Report'a report which provided a set of rules for the board of directors of listed companies in the UK. 41That code was issued primarily to specify measures 'to enhance corporate reliability based on improved information, continued self-regulation, more independent boards and greater auditor independence'. 42his self-regulatory approach was markedly different from the traditional, Austinian, hard-law, command-and-control approach.Whereas command-and-control relies on the inspectorates of traditional regulatory regimes, self-regulatory approaches rely on internal policies and procedure. 43In these regimes, self-regulating enterprises identify the challenges and risks of their own operations, develop appropriate policies, implement, monitor and report on those policies and procedures.Self-regulation thus has the benefit of allowing a more nuanced approach to problems at an organizational level and does so without the costs, burden and intrusion of a public inspectorate.
Over time, various countries developed their own codes of corporate governance.These codes, for the most part modelled on the Cadbury Code, stemmed from initiatives by local stock exchanges, supervisory and regulatory agencies and governments and more broadly, from business organizations and public interest groups.While national codes focus on corporations listed on stock exchanges within their own jurisdictions, the leading members of the international community collaborated on developing their own standard.The G20/OECD Principles of Corporate Governance were developed and aimed at: (i) ensuring the basis for an effective corporate governance framework; (ii) the right and equitable treatment of shareholders and key ownership functions; (iii) institutional investors, stock markets, and other intermediaries; (iv) the role of stakeholders in corporate governance; (v) disclosure and transparency; and (vi) the responsibilities of the board. 44The increased importance placed by the OECD on stakeholders over time is echoed, as will be noted, in the codes of both the Philippines and Malaysia.
D. Understanding 'comply or explain' Among the innovations of the Cadbury Code is the 'comply or explain' approach. 45This approach explicitly rejects the superiority of a single, hard, legislated rule set.As Cadbury stated: 'We believe that our approach, based on compliance with a voluntary code coupled with disclosure, will prove more effective than a statutory code.' 46 Comply or explain implements a rejection of law's one-size-fits-all approach and offers companies the flexibility to develop and implement appropriate policies and procedures for their specific organizational context and to respond to market pressures enabling them to implement policies in a way that achieve desired regulatory objectives in the most efficient manner. 47As law and economics scholars Arcot and Faure-Grimaud explain: The 'Comply or Explain' approach is characterized by voluntary compliance with the recommended provisions, and mandatory disclosure: companies have to state in their annual reports whether they comply with the Code provisions, identify any areas of non-compliance, and explain the reasons in light of their own particular circumstances … .the companies through the explanation make clear why one-size-fits-all is not best for them. 48 terms of implementation, the initial comply or explain framework required UK-listed companies to state in their reports whether they were complying with the Cadbury Code and to identify and give reasons for any areas of non-compliance. 49This method of reporting allowed not only the noted flexibility in the application of the Code but also provided opportunity for the report's readers to assess compliance bearing in mind that justifiable deviations may take place under certain circumstances. 50Where the readers adjudged the deviations unjustified, it was left to the market to regulate with stock prices informing management with information about the non-compliance.At a theoretical level, as Keay explains, the idea is that 'markets generally and the company's shareholders specifically … determine whether the response of the company to code provisions does enough, and then to take some action if they do not'. 51Thus, explanations for non-compliance are to be evaluated and judged by shareholders, financial markets and subsequently, if necessary, regulators.Thus, it is left to three stakeholders (shareholders, markets, and regulators) to determine whether the explanations advanced by the directors are sufficient to excuse non-compliance.These judgments are significant 44 OECD (n 6). 45MacNeil and Esser (n 36). 46Committee on the Financial Aspects of Corporate Governance. 47 for they impact not only internal decision-making but also provide a basis for imposing external penalties whether in the market or by regulatory sanction. 52eyond the UK, there has been widespread adoption of the comply or explain approach. 53The nature and extent of the disclosure of a corporation's compliance or explanation for non-compliance varies from country to country.Some jurisdictions simply require notice of non-compliance, others require an explanation of non-compliance, still others require an alternative be provided while yet others attach legal responsibility and legal consequences for false or failure disclosures. 54Despite some successes in corporate governance compliance, attributable at least in part to the comply or explain approach, different jurisdictions have had a variety of experiences and have responded by modifying the general approach.These modifications 55 may serve a variety of reasons, from general compliance with international norms, a type of isomorphism, 56 to improvement of market performance, 57 increasing confidence in markets, to efforts to avoid scrutiny and reform on other issues among other things including concentrated holdings.
We turn next to consider the Philippines and Malaysia.

III. The context of Philippines and Malaysia
The laws of a country are an implementation and reflection of a domestic political order, which in turn is a reflection of the distribution of power in a society.The legal systems of both the Philippines and Malaysia arise from historical traditions, reflecting colonial backgrounds, historical power struggles and efforts to adapt to an increasingly globalized economy.

A. Effects of culture and historical legacy
It is widely acknowledged that corporate governance is not only a product of law; rather, history, culture and the political economy shape business and the corporate structures and processes beyond law, to impact the behaviour and decision-making of participants of corporate governance systems. 58As Puchniak and Varottil point out in their study of related party transactions in Commonwealth Asia: 'inter-jurisdictional differences in corporate culture and rule of law norms provide a compelling explanation for their different levels of success'. 59They argue that a combination of factors, namely, '(1) regulatory complexity; (2) shareholder complexity; and, (3) normative complexity' limit the power of formal rules in the context. 60All of these factors and particularly the latter two, it will be argued, are in operation in the present study.Rooted in the colonial past of both countries are an interesting regional shareholder and normative complexity.In terms of shareholders, a few, well-established families dominate the large private sector business groups of both the Philippines and Malaysia. 61For the Philippines, this private sector profile finds its origins in the Roman Catholic church and Spanish and American colonial powers.The church along with a small number of powerful families collaborated with colonial authorities and in return were given opportunities to acquire land and develop significant business interests. 62n Malaysia, the form of colonial control mirrored that found in the Philippines: a few powerful, compliant families were rewarded with lucrative business opportunities.In Malaysia, a long history of UK colonization saw an extended period in which 'discriminatory policies in favour of British plantation interests severely limited the potential development of indigenous capital and shackled Malays to low-income economic activities'. 63This approach restricting the local populations allowed ethnic Chinese and other non-Malays, again relying on family solidarity, to gain power.This accumulation of economic power among elites creates a type of shareholder that is discrete from the standard, institutional, anonymous shareholder of dispersed marketsa type of shareholder complexity.
Similarly, the predominant family-based businesses of the countries generate Puchniak et al's 'normative complexity'. 64Family businesses follow different, non-economic norms.These norms include maintaining the family dynasty, decision-making on non-business norms such as succession on the basis of the eldest son, acquisitions and spinoffs to benefit other family members and the like. 65None of these norms are likely to be acceptable to minority shareholders.Furthermore, it is unlikely that these business leaders feel much of a need to comply with corporate legal obligations or norms as they pursue their family priorities.
Both Philippine and Malaysian industry and commerce are significantly influenced by ethnic Chinese business networks. 66Ethnic Chinese in SE Asia, like migrants of all types, sought support from one another in familial and financial affairs in their new environments.In the Philippines, there are a number of family-based Chinese business networks corporations such as the Gokongwei, Henry Sy and Lucio Tan groups. 67In Malaysia as well, ethnic Chinese people form a well-defined economic group that contributes to the high level of concentrated shareholdings found in Malaysian conglomerates. 68Although such familial concentrations of power are regularly expressed in corporate governance in a variety of ways, 69 perhaps the most significant in terms of the current study is the idea that family matters are private and not to be opened up for scrutiny. 70ll of these cultural and contextual factors, of course, have significant bearings on the development and implementation of corporate governance mechanisms including 'comply or explain'.In a phrase, where personal connections and trust concerns are accorded primary considerations, the more formal, impersonal, and professional corporate governance systems are less effective in producing the results for which they were designed, namely: confidence in markets.That is, they are less likely to produce confidence in the security and return of money invested through the professional management of companies.In sum, both Philippine and Malaysian practices reserve the most significant decision-making for the controlling family and 'outsiders' are only given limited access to the powerful, influential corporate networks that operate in each of the jurisdictions.That said, however, corporations in each jurisdiction to rely on investors to some extent.

B. Development of corporate law
Corporations are the actors subjected to regulation by the 'comply or explain' methods of corporate governance codes.The corporate law that creates the corporate actors of the two jurisdictions under consideration is not the same and hence needs some introduction.
As will be seen in the discussion below, the development of the corporate governance regimes of the Philippines and Malaysia were iterative, interrupted processes.They stopped, started and were revised as governments changed, the financial environment developed and pressures from investors and advisory bodies waxed and waned.

Philippines corporate regulatory system
The current Philippine legal system is a hybrid of Spanish and American legal systems 71a system described as 'polyjural'.In terms of Philippine corporate law, the American model The Corporation Law of 1906 is still the dominant legacy. 72Significantly reformed in 1980, the Revised Corporation Code of Philippines creates two categories of corporations, stock and non-stock (in addition to statutory corporations). 73Most recently revised in 2018, the legislation provides considerable detail about the constitution, the type and characteristics of shares, directors terms, and many other aspects of the corporation unfamiliar to those of most common law jurisdictions.
The Philippines corporate governance system stems from the following statutes: the primary statutes are the Revised Corporations Code 74 (as noted above), the Securities Regulation Code, 75 the General Banking Act and the Central Bank Act.Interpretations and 69 Zhuang and others provide a detailed explanation with graphics in Vol II, 193. 70 violations of these laws are addressed by the Philippines judicial system which may be initiated in the second-level Regional Trial Courts specially designated as commercial courts, all the way up to the Supreme Court.The executive arm of Philippines corporate governance is composed of the Securities and Exchange Commission, 76 (SEC), the Bangko Sentral ng Pilipinas 77 (BSP) and the Philippine Stock Exchange (PSE).
The current regulatory configuration 78 of Philippine corporate governance starts with the leading code, the Securities Regulation Code (SRC) of 2001.This code had important new provisions namely: the institutional strengthening of the SEC, the strengthening of its prosecution and enforcement powers, the clarification of the scope of insider trading and market manipulation, the protection of minority investors through the requirement of a mandatory tender offer, and the delegation of certain regulatory powers to self-regulatory organizations (SROs) such as the PSE.

Malaysia's corporate regulatory system
As one would expect, Malaysia has its own distinct system.In Malaysia, after independence, the Civil Law Act 1956 the courts applied the English common law and rules of equity modified to suit local circumstances. 79These British-inherited laws, particularly corporate laws, were further influenced by Australian and Indian legal systemsboth systems themselves derivative of the UK 80 and supplemented by Islamic law and local customary law. 81Malaysia today has a pluralist legal system.
The Malaysian Companies Act 2016, which repealed the Malaysian Companies Act 1965, now governs.Malaysian corporations may be registered as one of three types: a company limited by shares, limited by guarantee or an unlimited company. 82A company limited by shares or an unlimited company may be either a public or a private company, while a company limited by guarantee may only be a public company. 83he Malaysian act follows the UK model.It provides considerable latitude to the incorporators to create and distribute rights and duties, including rights and duties with respect to reporting.In this area of governance, Malaysian legislators have continued to follow the UK model, relying on subsequent corporate governance codes and listing rules to constrain executive behaviour.
In comparing the two statutes, one notes that the 2018 Revised statute of the Philippines continues to follow its traditional model.It is a mere 188 sections and is contained on 73 printed pages (from title page to and including executive signature pages at the end of the statute).By way of contrast, the Malaysian Companies Act 2016, contains 620 sections, is 577 pages long, and includes 13 Schedules.These markedly different statutes reflect different cultures, concerns, and audiencessomething that will be seen repeated in their respective approaches to 'comply or explain '   84 These acts are interpreted by the courts, appealable to the two High Courts of Malaysiaone in each of Peninsular Malaysia and East Malaysia.Corporate governance in Malaysia is the work of the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia), the Bursa Malaysia (stock exchange), and Bank Negara of Malaysia (central bank) combined.
Beyond the regular courts, like the Philippines, Malaysia also has a special commercial court called the New Commercial Court.Presently there are two instances of the court in operation, each presided over by a justice of the Malaysian High Court. 85Malaysia's judicial system also plays a significant role in the corporate sector by virtue of the court-based corporate rescue procedure under Companies Rules 2018. 86Pursuant to the Companies Act of 2016, 87 financially distressed companies may consider the option of judicial management to drive the restructuring and rehabilitation process, which among other things effectively removes management powers from the directorssimilar to the Philippines. 88

IV. The Asian financial crisis, codes and comply or explain
Studies following the 1997 Asian financial crisis show that poor corporate governance contributed to the collapse of stock and financial markets. 89In particular, the studies 90 found that weaknesses in corporate governance in some East Asian countries, including the Philippines and Malaysia, were largely due to among other things, 'very concentrated ownership structure, excessive government interventions, under-developed capital markets, and weak legal and regulatory framework for investor protection'. 91Among this group, Malaysia and the Philippines had concentrations much higher than the rest.Indeed, the top five shareholders in both countries own between 33.5% and 58.8% of total outstanding shares. 92evertheless, compared to neighbouring countries, the Philippines was less vulnerable to the worst effects of the Asian financial crisis as it had already started a reform process in response to its own internal financial crisis. 93As economist Nolan put it: 'Philippines has long been regarded as the weak sister of Asia, but in the Asian financial crisis it performed relatively well.This is not simply a matter of not being able to fall out of the basement.'Rather, in terms of its internal reform process, the Philippines had already made some real progress.Accordingly, it needed less regulatory response. 94n contrast to the Philippines, however, the financial crisis took a marked toll on Malaysia.Various factors including, as noted, poor and ineffective corporate governance practices, combined with ineffective enforcement and public institutions contributed to the collapse of the Malaysian economy. 95n response, Malaysia promptly set out to address the collapse and its underlying causes.It immediately constituted the High Level Finance Committee in 1998 under the Ministry of Finance which among other things took on the development of a new corporate governance framework to set the benchmark for industry. 96Thus, the two jurisdictions demonstrated a different response to the crisisone moved more slowly and to a lesser degree while the other was more timely and in tune with global pressure and trends.
Further, in response to the Asian financial crisis, both governments took initiatives to establish good corporate governance systems to stabilize their financial and capital markets.They did so, however, in different manners.Malaysia moved ahead of the Philippines in publishing its corporate governance framework.The Malaysian Code on Corporate Governance was issued in March 2000, a year before the Philippines, and it did so as a form of self-regulation not carrying penalties for non-compliance. 97A significant difference, however, has developed in terms of underlying philosophies.As discussed in Part II, both the Philippines and Malaysia initially adopted the comply or explain approach.Malaysia, however, recently shifted to a different approachthe apply or explain an alternative.We turn next to examine these developments in the respective jurisdictions.

A. UK comply or explain standard
The comply or explain approach of the Cadbury Report has had a major impact on corporate governance codes globally.To reiterate, this UK-based principle of accountability requires listed companies to either comply or explain their reasons for not complying with the recommended standards for corporate governance.A company that departs from the code is required to do two things: (1) disclose that it has departed from the recommendations in the code and (2) explain the reasons for doing so.A company's failure to comply with the recommendations in the code is not construed a violation but merely implies that 'the board of directors of the company has chosen an alternative approach, that is more sustainable over the longer term'.The basic issue as described by Keay is that 'There is no provision in the UK for any statements by companies to be assessed by any regulatory body.' 99 That state of affairs means that it must be another body or party which scrutinizes the reports of a company.The comply or explain approach places the obligation on investors to address the issue.Again, as Keay observed, the obligation was on markets and shareholders to hold corporate executives to account. 100Thus, there is an assumption that informed shareholders will take action to prevent the mis-governance of a corporation.
This approach to comply and explain was implemented for more than a decade in the UK and elsewhere before its limitations became evident.Acknowledging short-comings, a meeting was convened by the UK Financial Reporting Council in 2012 ('UK 2012').At the meeting, six criteria were set out 101 to assist companies in preparing explanations for noncompliance with the code of corporate governance.These six are: 1. Company-specific context and historical backgroundincludes business model, strategy or ownership structure; historical developments such as corporate government changes or milestones; 2. Convincing and understandable rationaleincludes a cogent description of the link between the business-specific context and the governance model employed to persuade investors that it has reached a proportionate outcome.3. Mitigating action to address any additional riskto present a process of contemplating whether mitigation measures are appropriate and, if not considered necessary, to explain why; 4. Time-boundincludes company considerations whether certain Code departures should only be in place for a limited period of time and periodic review for these departures; 5. Specify deviations from the provisions as well as from main principlescompanies should give an explanation of how the alternative remains consistent with the main principle and contributes to the fundamental objective of good governance.6. Explain how the alternative is consistent with the Code principles and contributes to the objective of good governancecompanies should provide a convincing explanation whether the alternative arrangements remain aligned with the main principles and fulfil the underlying objective of good governance.
Similarly, more recent experience in Europe has raised further doubts about the suitability of the comply or explain approach for two reasons: (1) the level of monitoring of compliance and (2) the quality of explanations for non-compliance.The European experience has challenged the underlying assumptions of the comply or explain approach.The approach relies on the assumption of a fully engaged shareholder base that will challenge the companies effectively.This assumption has proven not to be the case.
Additionally, the quality of explanations may be lacking.As MacNeil and Esser observe: 99 Keay (n 51) 279. 100  compliance is left to the discretion of the companies.There is no common ground on who and when the 'comply or explain' principles is actually satisfied.Some companies indicated that they comply with the Code, even though in reality they did not … .In cases of non-compliance explanations are often inaccurate, very brief, generic and based on the use of boilerplate statements. 102us, this approach may not work as intended failing to bring added transparency and information to the market.Companies that fail to provide clear, accurate, and complete explanations, create the risk for investors with the result that their securities mis-priced.Thus, although the comply or explain approach, remains an important tool for corporate governance placing responsibility on companies, investors, and professional advisors, it is far from a complete solution. 103Nevertheless, this regulatory approach and the comply or explain formula have become the international standards.They play a significant role in shaping national frameworks for corporate governance; however, there remain significant differences in their implementations and evolution. 104

B. Philippines code development
The Philippines developed and revised a set of corporate codes which created a mix of mandatory 105 and recommended compliance regimes.These codes afford corporate organizations a level of flexibility to develop their own corporate governance policies and practices.The Philippines was a bit of a late comer only adopting comply or explain in the 2017 iteration of its code.In that final step, I the reform process only followed a lengthy period of development in which leading international bodies and investors exerted influence.
In 2002, the SEC issued the Code of Corporate Governance 'to raise investor confidence, develop the capital market and help achieve high sustained growth for the corporate sector and the economy'. 106The Code of Corporate Governance was made applicable to (i) corporations whose securities are registered or listed, (ii) corporations which are grantees of permits/licenses and secondary franchise from the SEC, (iii) public companies, and (iv) branches or subsidiaries of foreign corporations operating in the Philippines whose securities are registered or listed. 107Clearly, the Philippine government recognized the importance of assuring investors of the trustworthiness of the market.It explicitly noted the objective 'to raise investor confidence'an objective achieved at least in part by rules requiring listed companies to disclose insider information.
The Philippine Code of Corporate Governance was patterned after the then OECD Principles of Corporate Governance.In both cases, the majority of the provisions deal with the responsibility of the board of directors for the governance of the corporation. 108 was to apply to all registered corporations and to all branches or subsidiaries of foreign corporations operating in the Philippines within certain limitations. 109That code was further revised in 2014 to mirror the OECD decision to expand director's responsibilities beyond stockholders to stakeholders. 110 further revised Code of Corporate Governance issued on 22 November 2016, and effective 1 January 2017 for publicly-listed companies, superseded all previous codes. 111It aimed to raise the corporate governance standards of the Philippines to a level at par with its regional and global counterparts and to that end, the G20/OECD Principles of Corporate Governance and the Association of Southeast Asian Nations Corporate Governance Scorecard were used as foundational reference materials. 112

C. Philippines comply or explain
In its 2017 iteration, the Philippines code adopted 'comply or explain' as noted, and explained its position stating that: This approach combines voluntary compliance with mandatory disclosure.Companies do not have to comply with the Code, but they must state in their annual corporate governance reports whether they comply with the Code provisions, identify any areas of noncompliance, and explain the reasons for non-compliance. 113amining comply or explain approach in the context of the Philippines, one notes further developments.When originally introduced in the Cadbury Report, the comply or explain obligation merely required companies to provide an explanation for non-compliance.The model carries the implication that where there is non-compliance, a company's board of directors has adopted an alternative but equally appropriate practice.In its adoption of the idea, the Philippines' comply or explain approach went further.It mandates an express explanation of the alternative practice adopted.The Philippine code requires that: When a Recommendation is not complied with, the company must disclose and describe this non-compliance, and explain how the overall Principle is being achieved.The alternative should be consistent with the overall Principle.Descriptions and explanations should be written in plain language and in a clear, complete, objective and precise manner, so that shareholders and other stakeholders can assess the company's governance framework. 114evised Code of Corporate Governance with essentially the same provisions was issued on 19 December 2019, becoming effective 12 January 2020.
As a result, it is clear that the Philippines' comply or explain approach has in fact embodied the fifth and sixth criteria noted in the UK 2012 analysis -Principles 5 and 6, Specify and Explain, respectivelyin order to improve the quality of explanations and suitability of the alternative approaches taken.

D. Malaysia code development
Turning to consider the situation in Malaysia, we note that the first Malaysian Code on Corporate Governance, largely derived from the initial recommendations of the Cadbury Report, was regulatory-driven and consisted of principles, best practices, exhortations to other participants and explanatory notes. 116ollowing from the Asian financial crisis, the High-Level Finance Committee realized that, [T]here is a need to create a new generation of directors who are knowledgeable in their duties towards the companies' affairs.Further, there is a need to educate directors to be more proactive in the decision making process of the company, supervising management and directors who will strive to ensure the success of their company within the purview of legal frameworks. 117e Committee realized that there needed to be a system change to avoid a repeat of the crisis.In response to the Committee's recommendations, several reforms ensued including the rapidly developed Directors Code of Ethics in 1996. 118With the implementation of Malaysian Code of Corporate Governance ('MCCG') in 2002, directors were to be educated concerning their roles and responsibilities, and their performance in the management of companies to be monitored by an audit committee composed of auditors and independent directors. 119The appointment of directors was to be primarily based on professional expertise with the size of a director's shareholdings being a secondary consideration. 120n the same period, the Kuala Lumpur Stock Exchange (as it was named at the time) ('KLSE') listing rules were also significantly amended to require every company to have at least two independent directors who were not related to its officers, and who did not represent concentrated or family shareholdings. 121The Malaysian government institutionalized these changes through legislation: the Malaysian Code on Corporate Governance which requires companies vested with public interest to have independent directors constituting 20% of the Board of Directors. 122Further and among other things, it supported the formation of the Malaysian Institute of Directors to promote education and training of directors on directors' responsibilities and independence. 123

E. Malaysia comply or explain
Perhaps because of the difficulties arising from the Asian financial crisis, Malaysia adopted the comply or explain approach well before the Philippines through its KLSE Listing Requirements in 2001. 124The aim was to ensure that the board of directors of listed issuers made statements in annual reports in relation to its compliance with the Code on Corporate Governance. 125The annual reports were, thus, to contain a narrative of how corporations had applied the principles and best practices set out in the Code on Corporate Governance, and identify reasons for non-compliance with explanations where alternative practices were adopted. 126The KLSE under its new name, Bursa Malaysia, publishes Listing Requirements which are periodically amended to improve the standards of reporting and disclosure and have the stated objectives of maintaining transparency, market integrity, and promoting investor protection. 127nitially listed companies in Malaysia needed only to explain reasons for any departure from or non-observance of the recommended corporate governance practices.They were not required to create or provide any information about alternatives they may have adopted.Thus, corporations were allowed to provide limited information.To understand Malaysia's approach, it is helpful to quote: Compliance is voluntary but firms are required to state in their annual reports the extent of their compliance, with an explanation for any departure.… .explanatory notes provide further explanation … .However, unlike [some provisions] guidelines on explanatory notes do not require firms to justify departures from best practices. 128e MCCG 2002 was first revised in 2007 and then again in 2012. 129The comply or explain approach survived both of these reforms.The MCCG 2017, the third edition, however, explicitly drawing 'inputs from local and international stakeholders, lessons from corporate governance failures and changes in market structures and business needs' 130 initiated changes to the approach.It adopted a new approach which it dubbed a 'CARE'an acronym for Comprehend, Apply, and Report.
The Code describes this as an approach that 'encourages companies to clearly identify the thought processes involved in practising good corporate governance, including providing fair and meaningful explanation of how the company has applied the practices'. 131t is more akin to a director's duty.It requires directors to apply their minds to the issue, as found in South African regulation. 132As a subjective standard, it aims to ensure directors understand, explain their understanding and their response to the issues.
Further, it requires an alternative measure to be developed and adopted to address the concern rather than a mere explanation of why there is non-compliance.What would amount to an alternative is unclear, as one would expect given the extremely wide array of potential non-compliance and an even wider array of potential solutionsin addition to the general issues noted by MacNeil and Esser above. 133For example, an appropriate alternative to a woman on a board would be very different than say an alternative to an independent auditor.Corporate governance standards are designed to be flexible right down to this grant of discretion to the company to adjust the standards to address the needs of the specific organization in its particular industry and context.That flexibility is a basic reason for the codes in the first instance.
Among the innovations of the CARE approach for Malaysia is the inclusion of the OECD's concern for stakeholdersan inclusion worth noting, as it is clear evidence of the influence of international standards via some sort of dissemination.Significantly in this regard, the MCCG rejected the comply or explain approach and adopted a new perspective, a 'comprehend, apply and report'-a view which was implemented by a new 'apply or explain an alternative'. 134Apparently, the Malaysian code drafters believed that the issue was a matter of comprehension of issues by the directorsa matter somewhat similar to the South African 'applying of the mind' requirement. 135It set a subjectively focused standard aiming to ensure directors understand what the issues are and explain both their understanding and how they have responded to those issues.
This shift was made with the aim of adopting global principles, internationally recognized standards and best practices into the local context of Malaysia.Initially, like the Philippines, Malaysia required directors to move beyond simple statements to explain why there has been non-compliance.It moved further, however, in that it requires directors to demonstrate their understanding and to explain what alternatives have been adopted in order to address the concern raised by the initial standard.
Thus, the reforms of the MCCG 2017, included a new approach 'Apply or explain an alternative' is a marked change from the old code.The new approach is an effort to move away from the old 'box-ticking' approach and aims to promote more meaningful application of corporate governance practices and disclosures.Under this new approach, listed issuers must not only explain why they have deviated but they must also explain how they have addressed the issue by an alternative means.In other words, they must provide clear and meaningful disclosure on why the practice was not applied and how the alternative practice achieves the Code's Intended Outcome.The Intended Outcome is meant to provide listed issuers with the line of sight and requires clear intention of the outcomes of the practices.
Further explanation of the new approach is set out in the MCCG 2017.
In order for the 'apply or explain an alternative' approach to work and be sustainable, listed issuers need to demonstrate a genuine commitment to good governance and give proper consideration to the explanations.Stakeholders, on the other hand, should engage listed issuers and scrutinize the disclosures made by them so as to ascertain if the explanations provide a meaningful representation of the listed issuers' corporate governance practices.Communication by listed issuers on plans to adapt and improve corporate governance practices can serve to assure stakeholders that the business is being run for the long-term and in the interests of the stakeholders.Simply put, when there is a mutually reinforcing effort between listed issuers and stakeholders, particularly shareholders, the 'apply or explain an alternative' model can be an effective tool in driving continuous improvement on corporate governance practices and disclosures. 136hus, despite the apparent similarity between the Philippines and Malaysia, there is a different, more onerous requirement on companies listed on the Bursa.

F. Doctrinal analysis of comply or explain
At first blush, it would appear that Malaysia's apply or explain an alternative, is similar in practice with the Philippines' comply or explain.Both require the disclosure of non-compliance and the provision of an explanation for the non-compliance.Further, both must in some way address the non-compliance: the Philippines requires corporations to explain how they will achieve the objectives of the Principle, while Malaysia requires an explanation of what is being done in lieu or replacing the required standard of behaviour.
What sets apart Malaysia's apply or explain an alternative from the Philippines' comply or explainand even from UK's traditional comply or explainis in this regard, its emphasis on the quality of the disclosure.The Malaysian code requires companies go above and beyond the UK and Philippine requirement that companies explain the departure from the code and how alternatives attain the Intended Outcomes.The Malaysian code accords additional weight to the reliability and value of the information given such that it must be balanced, meaningful, and comparable.137This higher standard is met when the informative disclosure is rendered to both the listed issuer's state of corporate governance and to the stakeholders (shareholders and potential investors) for them to assess the stewardship of management, valuation of the company, ownership structure and the ability to attract capital and maintain confidence in the capital market. 138hus, in comparing the jurisdictions, it is evident that while the Philippines' comply or explain approach has incorporated Principles 5 and 6 of the UK 2012 Code, Malaysia's apply or explain an alternative approach further integrates Principle 2that is providing a convincing and understandable rationale describing the nexus between the business context and the alternative practice employed in order to persuade stakeholders that the corporation has achieved the desired outcome.Beyond this difference, reporting requirements for Malaysia's large companies moves further than the Philippines meeting the time-bound Principle 4 because the supplemental disclosure they must make on (a) the actions which they have taken or intend to take and (b) the timeframe required, to achieve application of the Principle. 139lthough the difference in wording initially appears to be slight, there are potentially significant differences.Both Philippine and Malaysian approaches require disclosure of a corporation's compliance with the principles of corporate governance or an explanation for non-compliance.Further, both require some explanation of how the outcome is being achieved.In the Philippines, the language is 'explain how the overall Principle is being achieved'140 ; in Malaysia, the language is simply 'explain an alternative'. 141 clearer difference, however, becomes evident when one considers the standard.According to the Philippine code, the explanation must be written 'in plain language and in a clear, complete, objective and precise manner, so that shareholders and other stakeholders can assess the company's governance framework'. 142It creates a standard for the quality of writingan obligation on the writers to consider the readers' interests, concerns, and abilities.The Malaysian code, by way of contrast, ignores the language standard but requires 'proper consideration to the explanations … .[so that] explanations provide a meaningful representation of the listed issuers' corporate governance'. 143his latter standard is focused on a representation of the issuer's practicesi.e. a position akin to prospectus disclosures which are focused at least as much on compliance and avoiding liability as they are on communicating with investors.
Finally, but perhaps most importantly, the two standards create different legal tests: the Philippine standard is an objective one.It requires the reader to be able to readily understand what the risks are and what has been done.The Malaysian standard, by contrast, is a subjective onei.e. it is focused on the director's subjective understanding of the issues.The code explicitly states that it: 'encourages companies to clearly identify the thought processes involved in practising good corporate governance, including providing fair and meaningful explanation of how the company has applied the practices'. 144o date, there has been no litigation in which of either of these comply or explain provisions have been considered, an unlikely event given their status as codes, leaving us without judicial clarification and interpretation.Further, a review of reports by listed companies on both bourses, finds evidence of MacNeil and Esser's previously mentioned poor quality. 145Accordingly, it is unclear as to how the standards will be interpreted by courts and what, if any, difference these standards have made in practice.Extrapolating from the research, it is like that they have made no discernible difference on corporate practices. 146 Explaining the difference: legal convergence or complexity?
A range of explanations can be put forward to account for these developments.Such explanations could include economic, social, and historical accounts, and each of these could be further divided and developed.Studies of outward bound FDI, for example, list as causes institutional similarities, risk aversion, business strategic decisions among others. 147None is likely to be satisfactory on its own given the complexity of human societies.
At a cursory level, we note that Philippines and Malaysia are rather similar: they both have high levels of concentrated family holdings, have suffered Asian financial crises, have implemented reforms to corporate governance and have corporate governance systems founded on positive laws of company and company regulators who work in concert with the local stock exchanges and central banks.Even technical trading rules perform equally well between them but differentiate them from neighbouring, more developed Singapore. 148These similarities, however, obscure as much as they reveal.At a foundational level markets are financial institutions and examining how similar or divergent the markets are in financial terms is a sound starting point.

A. Market structure and performance of PSE and burse
Despite these post-crisis reforms, there appears to be little change in either jurisdiction's market when examined in terms of structure and performance.In terms of the structure of their markets, both the Philippines and Malaysia have large conglomerates with significant cross-shareholdings and parent-subsidiary relationships. 149Family dominance persists.As of 2017, the OECD reported that in the Philippines Conglomerates held by families represent approximately around 75% of effective market capitalisation in Philippines.Often families circulate minimal blocks of stock and publicly listed corporations may trade only 10-20% of their stocks.There are currently 264 listed companies on the Philippine Stock Exchange with a total market capitalisation of USD281 billion. 150 nearly 90% of companies listed on the Philippine stock exchange, the three largest shareholders combined hold 50% or more of the shares.
Similarly, the OECD reported its analysis of Malaysia's public corporate shareholdings: 'Approximately 10-12 family groups control a range of companies … Families hold around 44.7% of shares in Malaysian companies.The Bursa Malaysia has 904 listed companies with a total market capitalisation of USD 399 billion.' 151 On the Malaysian bourse, the largest three shareholders combined own less than 60% of the shares.
Interestingly, analysis of capital structurei.e. the 'way a firm finances its assets, daily operations, and future growth by some combination of equity, debt, or hybrid securities'was found not to differ between the Philippines and Malaysia. 152n terms of market performance, the years between the market collapse of 1997 and 2023, the market capitalization of listed domestic stocks in Malaysia grew from US$93 bn in 1997 to US$437 bn in 2020.For the Philippines, the increase was from US$31 bn to US$273 bn. 153Malaysia grew by a factor of 4.69% while the Philippines grew by 7.64%.Further, the P/E ratios are around 23 for Malaysia and 14 for the Philippines. 154aking this financial perspective and using related metrics, the Philippine market outperformed the Malaysian market and offers a better investment.A wide range explanations beyond investor confidence could explain this difference. 155Accordingly, examining other measures more representative of investor confidence, such as Foreign Direct Investment (FDI), provides more promise.
Examining the stock of FDI, in 2022 there were US$199 bn of foreign funds were invested in Malaysia while only US$113 bn foreign funds were invested in the Philippines during that same year. 156Thus, despite the Philippines offering a much better market return along with better P/E ratios, there appears to be less confidence in the Philippine market among foreign investors than in Malaysia.While there is certainly a range of reasons for these differences in confidence, 157 there is reason to hypothesize that more than a merely economic rationale or logic is driving investment decisions.Accordingly, considering who the investors are in these markets may provide specific insights into who the audience for reporting standards such as 'comply and explain' are.For this information, we turn to analyse the sources of FDI.
The main foreign investors in Malaysia are Singapore, HK, Japan, and the US.By way of contrast, the main foreign investors in the Philippines are Japan, the Netherlands, the US, and Singapore. 158Although both Singapore and the US appear in the top sources of FDI, they are in a different order.In Malaysia, Singapore is the top source.In the Philippines, it is the US.

B. Geography and norms of FDI providers, concentrated holding norms and the monitoring problem
Returning to the two theories informing this article, a macro level theory that complexity in drivers rather than mere market logics drive regulation, and a micro level theory that market regulation aims to increase investor confidence, we note that the basic investment formula is risk versus reward.Where there is greater familiarity, there is less perceived risk. 159The corollary is equally truegreater divergence implies greater risk.Accordingly, we may infer that FDI will flow to countries where there is greater familiarity with the norms, reducing Puchniak et al's normative complexity.At the same time, we note that Puchniak et al's shareholder complexity may also be in operation.Shareholders following UK norms will be more interested in investing in Malaysian companies.Similarly, shareholders familiar with US norms may be less concerned about UK codes and more interested in rights and powers familiar to them.
Geographically, Singapore is next to Malaysia.The two countries are separated by a causeway a mere 1.0 km in length.It is easy for Singaporean investors to monitor corporate behaviour and attend meetings in person.In fact, there are certainly family relations across the borders.As a result, concentrated holdings are much less of an issue.Further, Singapore too has a business sector dominated by family businesses.Accordingly, concentrated holdings are less of a concern.Finally, Singapore strongly influenced by the UK.
Given these social and geographic factors, it is unsurprising that Malaysia is a target for Singapore's outbound FDI.More importantly for purposes of this article, both Singapore and Malaysia follow UK corporate regulatory norms.Accordingly, it should be expected that UK norms would gain precedence over other norms.
By way of contrast, the Philippines relies more on the US for its FDI.Geographically, the US is on the other side of the planet, some 12-13 hours of time difference between NYC and Manila.To monitor and participate in investment oversight is simply a logistical problem for American investors.Further, the US does not follow a 'comply or explain' model.Rather, through the Sarbanes-Oxley Act 160 and other legislation it empowers regulators by granting them increased powers of investigation and prosecution and shareholders through increased shareholder rights particularly in litigation. 161egulators in the US are less concerned with the discretion of companies and noncompliance than political matters.Indeed, Karmel observes: Frequently the SEC is more interested in protecting its jurisdiction and procedures for regulated entities and transactions than in adopting alternative regulations for companies that cannot or will not comply with the SEC's rules, even if this results in an enormous unregulated market. 162cordingly, it may be appropriate to infer that American-based FDI investors are not looking for the latest and more challenging compliance statements.In sum, the two countries rely on different sources of FDI.Each of these sources has different norms.The Philippines follows the US model.Malaysia follows the UK, via Singapore.
These differences are also reflected in the corporate law and regulatory frameworks of the two jurisdictions.The Philippines relies more on statute and administrative agencies for certain matters which the Malaysian legislation leaves in its code.For example, the Revised Corporation Code of Philippines does not leave board membership and tenure exclusively in the hands of the shareholders.The SEC may exercise its power upon its own initiative or upon the receipt of a verified complaint and after due notice and hearing, remove members of the board of directors or trustees who are determined to be disqualified to be elected to or to hold such position. 163By way of contrast, in Malaysia, matters such as director relationships and tenure are considered private affairs of the company and left to the terms of the constituting documents of those companies.

VI. Evaluation and theoretical implications: convergence versus divergence and economic rationality versus complexity
Recalling the fundamental assumptions of corporate governance, namely, (1) that shareholders and stakeholders can and will monitor directors and (2) that they have power to act to control the directors that Keay identified, the evidence is quite clearly to the contrary.This implies, among other things, that the codes serving a different purpose they are signalling to markets, and specifically to normatively complex and diverse shareholdersthe providers of FDI.
The major corporate governance problem from an OECD perspective in both the Philippines and Malaysia is one of concentrated shareholdings 164and specifically, the exploitation of corporate resources by dominant shareholders.This issue, in which a majority shareholder can dominate a corporation, precludes the possibility of the minority power necessary to hold the majority to account.In concentrated holdings, the majority is well-placed to put its interests ahead of those of the corporation and to exploit both the corporation and in doing so, the minority.
The hope that soft law Codes with calls for various forms of 'comply or explain' can address this concentrated holding problem is ill-founded.Not only do such hopes fail to take proper account of Puchniak et al's complexity, 165 but at a more fundamental level, they fail to address the underlying political and economic rationales of concentrations power and financethose benefiting from the status quo are most unlikely to advocate for its reform.
None of the Asian financial collapse of 1997, nor the pain which ensued, nor yet the recommended reforms and provisions in model codes, have persuaded regulators to modify codes to address this issue.The aversion to addressing the problem is evident: neither Philippine nor Malaysian codes provide principles, recommendations or explanations nor any greater detail to create obligations on majorities nor to create rights for minorities to challenge the majority shareholders.And in the absence of such, the Malaysian direction to have 'meaningful relationships with stakeholders' 166 or as in the Philippines: 'treat all shareholders fairly and equitably, and also recognize, protect and facilitate the exercise of their rights', 167 it is hard to take seriously.
Such issues reflect a broader concern with corporate governance in the region, namely, a preference to rely on family and informal norms.While such informal norms serve to solve the agency problem for the powerful majorities, they do little to strengthen the formal, impersonal institutions that inform the best practice models that both governments and investors, noting Puchniak et al's shareholder complexity, 168 seekgovernments pursuing the confidence necessary to develop deep, liquid capital markets and investor searching for locales that provide a basis for the confidence necessary to invest.
In terms of global finance, there is little to provide substantive legal assurance that powerful majorities will not exploit their power and that the investment money will be returned with a fair return.In terms of convergence of international corporate law, there appears to be as much convergence on a norm as there is a step away, a divergence.Countries play to their FDI providers, just as one should expect. 164Zhuang and others (n 67). 165Puchniak and Varottil (n 24) 4. 166 Malaysian Code on Corporate Governance (2018), Principle C, s. 55 <https://www.sc.com.my/api/documentms/download.ashx?id=239e5ea1-a258-4db8-a9e2-41c215bdb776> accessed 24 May 2022. 167SEC Code of Corporate Governance for Publicly-Listed Companies 1 December 2016, Principle 13, s.3. 168Puchniak and Varottil (n 24) 4.

VII. Conclusions
This paper contributes to our understanding of the spread of norms, how they are adopted and modified.It examined both economic logics and socio-cultural logics finding that the latter was at least as influential as the former.Following Puchniak et al's theories, that far from being a monolith, Asia has marked diversity and that within that diversity there is significant regulatory, normative, and shareholder complexity in its corporations, our research found further confirmatory evidence.
These factors are explored in the context of two developing countries in South-East Asia, Malaysia, and the Philippines.It does so by examining part of a used UK-based corporate governance framework a comply or explain as a regulatory compliance approach that has been adopted by many countries around the world.Some jurisdictions have maintained the standard unadulterated or updated, while others have opted to innovate.Both the Philippines and Malaysia both employed comply or explain.While the Philippines has continued with this adopted approach, recently Malaysia has shifted to an apply or explain an alternative approach.This article examines the development and implementation of the UK practice in these two South-East Asian countries and assesses the difference between their approaches.
Despite their rather similar colonial economic histories, subsequent development and shareholding patterns, and despite the fact that they are addressing very similar issues, the Philippines and Malaysia have developed their respective corporate governance systems and codes, differently.For example, Malaysia has a more highly regulated framework for its corporations' boards of directors.The article investigated the difference by focusing on a particular point of difference to their respective approaches to comply or explain, or in the Malaysian context the apply or explain an alternative approach.
As noted, although the Philippines and Malaysia have adopted reforms and global standards, they have addressed high concentrations of ownership.It may be argued that the advances in disclosure examined in this article are steps in this direction.Further, it may be argued that these steps are not designed to address directly the issue of concentrated shareholdings.Both of these arguments are potentially correct; however, by failing to address the issue directly, they undermine confidence and the fundamental problem remains The comply or explain soft law obligation, in either iteration, fails to impose a significant obstacle for directors and majority shareholders who seek to avoid meaningful engagement and do not wish to treat all shareholders fairly and equitably, and who ignore obligations to refrain from exploiting minority shareholders.
As with any research, there are limitations and cautions that must be noted.Other points of the codes could have been chosen and these might have provided different insights.In addition, there remains a lack of clarity and indeed, sometimes a clear overlap in the functions or powers between or among regulatory and judicial systems that cause confusion and delay in the implementation of laws and policies in the two countries.No empirical evidence was developed to answer the questions from those lenses.
This article has aimed to contribute to a greater understanding of the issues of international standards in the contexts of developing countries of Southeast Asia, and in particular, Malaysia and the Philippines.
Miroslav Nedelchev, 'Good Practices in Corporate Governance: One-Size-Fits-All vs. Comply-or-Explain' (2013) 4 International Journal of Business Administration 75, 77. 48Sridhar Arcot, Valentina Bruno and Antoine Faure-Grimaud, 'Corporate Governance in the UK: Is the Comply or Explain Approach Working?' (2010) 30 International Review of Law and Economics 193, 195. 49Committee on the Financial Aspects of Corporate Governance, The Financial Aspects of Corporate Governance (1992) (Cadbury Report). 50Ibid. 51Andrew Keay, 'Comply or Explain in Corporate Governance Codes: in Need of Greater Regulatory Oversight?' (2014) 34 Legal Studies 278, 279.
as part of their corporate governance regimes.Malaysia's corporate governance stems from the: Companies Commission of Malaysia Act 2001, Companies Act 2016 (Act 777), Interest Schemes Act 2016 (Act 778), Registration of Businesses Act 1956 (Act 197), Limited Liability Partnerships Act 2012, Trust Companies Act 1949 (Act 100), Kootu Funds (Prohibition) Act 1971 (Act 28), and their subsidiary regulations.
The initial 2002 code was subsequently updated.The Revised Code of Corporate Governance of 2009 See discussion in Sheehy, 'Does Law Matter'. 105Republic Act No. 11232, Revised Corporation Code of Philippines s. 179.'Powers, Functions, and Jurisdiction of the 104Commission.The Commission shall have the power and authority to: (d) Promote corporate governance and the protection of minority investors, through, among others, the issuance of rules and regulations consistent with international best practices.' 106Memorandum Circular No. 2, 2002.107Ibid.108Ibid,35.