Presentation by Pulak Prasad, Managing Director, Warburg Pincus

The Fourth Asian Roundtable on Corporate GovernanceMoving 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

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 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) Does transparency of ownership and control prevent insider abuse? No

So what prevents insider abuse?It is not only transparency of ownership and control But Transparency of - markets - management teams

Aspect Asian US / UK Lower transparency Meaning of transparency of “markets” ….. 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

... and management teams Key tests Does it share information Does it have high integrity Can it be fired Does it have adequate controls

70% Ayala Land 35% Bank of the Philippine Islands 32% Globe Telecom Case 1: Ayala Corporation – Transparency Matters Publicly listed (18.5%) Shoemart (4.4%) Ayala Corporation Ayala family (58%) Mitsubishi (19.1%) 100% Ayala International Private Division AC Capital

Holding company is public So are all the 3 major subsidiaries Held to higher governance standards Why are Ayalas a role model? Make companies public Better accounting practices • Migrating to higher levels of disclosure • Ahead of Philippines SEC requirement Partner with Companies With exacting standards • Working with Mitsubishi for 28 years • Working with Singtel or 10 years

Single family holding structure Direct ownership in Ayala Corp (no layering or opacity) All family members receive dividend income Family does not invest in ventures that compete with Ayala Corp Why are Ayalas a role model? (continued) No parallel networks Professional management • Only 3 family members involved (all at the top) • All CEOs are professionals rewarded on merit

$1,446 $923 $1,144 $711 $1,283 $169 $1,002 $965 Ayalas have created much more wealth than competitors Market Capitalization ($ million) Revenues, 2001 ($ million) Bank of the Philippine Islands $795 Metropolitan Bank & Trust $895 Globe Telecom $695 $1,436 Philippines Long Distance Telephone Ayala Corporation $527 JG Summit Holdings $777 $205 Ayala Land $133 SM Prime Holdings

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%

Mr A >50% <30% >50% Company 1 >40% >50% >50% >50% Company 4 overlaps Company 4 Company 5 Company 2 Company 3 Case 2: Asian IT Company – Transparency still matters! Business A  B  C  D    E F  G  H 

Market reaction has been vicious Transparent Company Mr A’s company

Markets reward high transparency across countries Premium for good governance (%) Source : The McKinsey Quarterly

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

Presentation by Pulak Prasad, Managing Director, Warburg Pincus