the company, ss is being ran 's do not play a e and executive. \d playan active vce as well as in 2scisions. ice, the most at of oversight. aw and scrutiny’ id management cher or not the ders. If not, the 'ses of the poor sand strategies tal expenditure sroject viable?” AR), net present y management, verate sufficient oval. dor irregularity ance, the board vrate executives nan officer of afit his/her own board has other wernance, Corporate Governance-related Provisions of the Revised Corporation Code Section 22 of Republic Act 11232, otherwise known asthe Revised Corporation Code of the Philippines provides: Section 22. The Board of Directors or Trustees of a Corporation; Qualification and Term. ~ Unless otherwise provided in this Code, the board of directors or trustees shall exercise the corporate powers, conduct ail business, and control all properties ofthe corporation. The board of the following corporations vested with public interest shall have independent directors constituting at least twenty percent (20%) of such board: 2. Corporations whose securities (debt securities or equity securities) are registered with the SEC, corporations listed with an exchange or with assets of at least Fifty Million Pesos (P50,000,000.00) and having two hundred (200) or more holders of shares, each holding at least one hundred (100) shares ofa class of its equity shares; . Banks, pawnshops, and corporations engaged in money service business, pre-need, ‘trust and insurance companies, and other financial intermediaries; and ©.” Other corporations engaged in business vested with public interest similar to the above, as may be determined by the Commission, For instance, if a bank has 15 members in the board, then, it should have at least three independent directors, AAs defined in the law, an “independent director” is a person who, apart from shareholdings and fees received from the corporation, is independent of management and free from any business or other relationship which could, or could reasonably be Perceived to materially interfere with the exercise of independent judgment in carrying out the responsibilities as a director, Independent directors must be elected by the shareholders present or entitled to vote in absentia during the election of directors. Independent directors shall be subject to rules and regulations governing their qualifications, disqualifications, voting requirements, duration of term and term limit, maximum number of board memberships and other requirements that the SEC prescribes te strengthen their independence. Section 24 provides that after their election, the directors of a corporation must formally organize and elect: (a) a president, who must be a director; (b) a treasurer, who must be a resident; (c)a corporate secretary, who must be a citizen and resident of the Philippines; and (d) such other officers as may be provided in the bylaws. !f the corporationis vested with publicinterest, the board shallalso elect compliance officer. The same person may hold two (2) or more positions concurrently, except that no ‘one shall act. as president and secretary or as president and treasurer at the same time, ‘CHAPTER 2 Ccrporae Goverance: What Wel- governed Orgaizaton? 25The officers shall manage the corporation and perform such duties;[Link] be provided in the bylaws and/or as resolved by the board of directors. Section 26 provides for the disqualification of corporate directors, trustees, or officers, listed as follows: Section 26. - Within five (5) years prior to the election or appointment as such, the person was: (0) Convicted by final judgment: (1). Of an offense punishable by imprisonment for a period exceeding six (6) years; (2), Forviolating the Corporation Code; and (3) For violating Republic Act No. 8799, otherwise known as “The Securities Regulation Code”; (b) Found administratively lable for any offense involving fraudulent acts; and (0) 8/9 foreign court or equivalent foreign regulatory authority for acts, violations, or ‘misconduct similar to those enumerated in paragraphs (a) and (b) above. The foregoing is without prejudice to qualifications or other disqualfications, which the SEC, the primary regulatory agency, or the Philippine Competition Commission, may impose inits promotion of good corporate governance or asa sanction ints administrative proceedings. Source: Pilppin Securities and Exchange Commision. 2018. Republe Act 11232. Revised Corporation Code. Accessed February 5, 2021. [Link] A-11252-REVISED-CORPORATION-CODE-2018 pdf Revised SEC Code of Corporate Governance for Publicly- Listed Companies:.A “Comply or Explain” Approach SEC Memorandum Circular 19, Series of 2016 provides guidelines on the Corporate Governance of Publicly-Listed Companies. The circular i officially titled Revised SEC Code of Corporate Governance for Publicly-Listed Companies (Code). Publcly-listed companies, as the term implies, are companies whose shares of stock are traded on the Philippine Stock Exchange. The Code adopts a “comply or explain approach” rather than the rules-based mechanism of the SOX Act. A “comply or explain” approach combines voluntary compliance with mandatory disclosure. Proponents of the “comply or explain” approach are of the opinion that there is no “one-size-fits-all” kind of corporate governance for all companies because they differ in size, nature of operations, location, and operating environment among other factors. Therefore, itis virtually impossible to require companies in different industries to follow a single and rigid set of rules. 26 GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL The’€ode ft has its recommend high-level stateme: recommendations : of corporate gover! according to the Co To reiterate, tt need to comply wit! explain by way of fe in case of noncomp reports and explain The following Code: Principle 1 - Establi The company term success of the a manner consisterr shareholders and ot Recommendation 1 working knowledge, sector. The Board st expertise. ‘Recommendation 1 directors who possi secure objective, inc checks and balances ‘As defined in responsibilty of day other hand, a nonex not perform any wor Recommendation 1. Compliance Officer, Position with adequi should not be a men on corporate govern: The Complianct company’s degree of | | | | |[Link] be 's, trustees, or ent as such, the 1g six (6) years; “The Securities ‘sand ts, violations, or ove. ifications, which ammission, may administrative 2d Corporation {/2019Legislation_ *ublicly- ich nthe Corporate evised SEC Code ‘sted companies, n the Philippine the rules-based itary compliance “oath are of the orall companies 1g environment anies in different 1 The’€ode is broken into 16 principles of corporate governance. Every “principle’ has its recommendations regarding corporate governance practices. The “principles” are high-level statements of corporate governance good practice. On the other hand, the recommendations are objective criteria that are intended to identify the specific features of corporate governance good practice that are recommended for companies operating according to the Code. Toreiterate, the “comply or explain” approach means that covered companies do not ‘need to comply with all of the recommendations inthe Code for as long as they are able to explain by way of formulating alternative ways for achieving the principles. Furthermore, incase of noncompliance, they will need to disclose such in annual corporate governance reports and explain the reasons for the noncompliance, The following is a summary of the principles and selected recommendations of the Code: Principle 1 — Establishing a Competent Board The company should be led by a competent, working board to foster the long- ‘term success of the corporation, and to sustain its competitiveness and profitability in ‘@ manner consistent with its corporate objectives and the long-term best interests of its shareholders and other stakeholders. Recommendation 1.1 - The Board should be composed of directors with a collective working knowledge, experience or expertise that is relevant to the company’s industry/ sector. The Board should always ensure that it has an appropriate mix of competence and expertise. ‘Recommendation 1.2 - The Board should be composed of a majority of nonexecutive rectors who possess the necessary qualifications to effectively participate and help secure objective, independent judgment on corporate affairs and to substantiate proper checks and balances. ‘As defined in the Code, an executive director is a director who has executive responsibilty of day-to-day operations of a part or the whole ofthe organization. On the other hand, a nonexecutive director is one who has no executive responsibilty and does not perform any work related to the operations of the corporation, Recommendation 1.6 - The Board should ensure that it is assisted in its duties by a Compliance Officer, who should have a rank of Senior Vice President or an equivalent Position with adequate stature and authority in the corporation. The Compliance Officer should not be a member of the Board of Directors and should annually attend a training on corporate governance. The Compliance Officer, as the term implies, is tasked to oversee and monitor the company’s degree of adherence to applicable laws and regulations. CHAPTER 2 Corporate Governance: Whats a Wel-governed Ciganzation? 7Principle 2 ~ Establishing Clear Roles and Responsibilities of the Board st The fiduciary roles, responsibilities and accountabilities of the Board as provided under the law, the company’s articles and by-laws, and other legal pronouncements and Guidelines should be clearly made known to all directors as well as to stockholders and other stakeholders. Recommendation 2.2 - The Board should oversee the development of and approve the company’s business objectives and strategy, and monitor their implementation, in order to sustain the company’s long-term viability and strength. Senior management, through the leadership of the CEO, prepares the company’s business strategy. The Board, on the other hand, evaluates said business strategy in light of the prevailing economic, market, and business conditions. Principle 3 — Establishing Board Committees Board committees should be set up to the extent possible to support the effective performance of the Board's functions, particularly with respect to audit, risk management, and other key corporate governance concerns, such as nomination and remuneration, Recommendation 3.2 - The Board should establish an Audit Committee to enhance its oversight capability over the company’s financial reporting, internal control system, internal and external audit processes, and compliance with appiicable laws and regulations. Recommendation 3.4 — Subject to a corporation's size, risk profile and complexity of operations, the Board should establish a separate Board Risk Oversight Committee (BROC) that should be responsible for the oversight of a company’s Enterprise Risk Management. Principle 4 Fostering Board Commitment To show full commitment to the company, the directors should devote the time and attention necessary to properly and effectively perform their duties and responsibilities, including sufficient time to be familiar with the corporation's business. Recommendation 4,2 ~ The nonexecutive directors of the Board should concurrently serve as directors to a maximum of five publicly listed companies to ensure that they have sufficient time to fully prepare for meetings, challenge Management's proposals/views, and oversee the long-term strategy of the company. Principle 5 ~ Reinforcing Board Independence The Board should endeavor to exercise objective and independent judgment in all corporate affairs. Recommendation 5.1 — The Board should have at least three independent directors, or such number as to constitute at least one-third of the members of the Board, whichever is higher. 28 _ GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL As defined tn of management an relationship which his/her éxercise of director, Underthe Revi (eg, banks, pre-n directors constitutir Principle 6 - Assess The best meas Board should regul: assess whether it pc Recommendation ¢ performance, inclu committees. Principle 7 -Streng Members of tt account the interest Recommendation 7. which would provid acceptable and unac Principle 8 - Enhanc The company s practical and in acco Recommendation i and procedures to shareholders and ot! financial condition, + Principle 9 Streng Quality The company s! auditor, and exercise independence and eVisb 4 as provided ‘cements and ckholders and J approve the ation, in order he company’s rategy in light :the effective management, uneration. e to enhance ontrol system, \dregulations. complexity of mittee (BROC) Management. 2 the time and ssponsibilities, | concurrently that they have »posals/views, sdgment in all t directors, or urd, whichever As defined in the Code, an independent director is a person who is independent ‘of management and the controlling shareholder, and is free from any business or other ‘elationship which could, or could reasonably be perceived to, materially interfere with his/her éxercise of independent judgment in carrying out his/her responsibilities as a director. Under the Revised Corporate Code, the board of companies vested with publicinterest {eg,, banks, pre-need companies, and insurance companies) shall have independent directors constituting at least twenty percent (20%) of such board. Principle 6 ~ Assessing Board Performance The best measure of the Board's effectiveness is through an assessment process. The Board should regularly carry out evaluations to appraise its performance as a body, and assess whether it possesses the right mix of backgrounds and competencies. Recommendation 6.1 - The Board should conduct an ahnual self-assessment of its performance, including the performance of the Chairman, individual members, and committees. Principle 7 — Strengthening Board Ethics Members of the Board are duty-bound to apply high ethical standards, taking into account the interests of all stakeholders. Recommendation 7.1 - The Board should adopt a Code of Business Conduct and Ethics, which would provide standards for professional and ethical behavior, as well as articulate acceptable and unacceptable conduct and practices in internal and external dealings. Principle 8 — Enhancing Company Disclosures ‘The company should establish corporate disclosure policies and procedures that are practical and in accordance with best practices and regulatory expectations. Recommendation 8.1 - The Board should establish corporate’ disclosure policies and procedures to ensure a comprehensive, accurate, reliable, and timely report to shareholders and other stakeholders that gives a fair and complete picture of a company’s financial condition, results, and business operations. Principle 9 ~ Strengthening the External Auditor's Independent and Improving Audit Quality ‘The company should establish standards for the appropriate selection of an external auditor, and exercise effective oversight of the same to strengthen the external auditor's independence and enhance audit quality. CHAPTER 2 Corporate Gevernanc: What i a Wal-govemad Orgaizaton? 29Principle 10 - Increasing Focus on Nonfinancial and Sustainability Reporting 99" The company should ensure that material and reportable nonfinancial and sustainability issues are disclosed, Companies should adopt.a globally recognized standard/ framework in reporting sustainability and nonfinancial issues. A sustainability report is a report prepared by an organization about its economic, social, and environmental impacts and its sustainability performance. Principle 11 - Promoting Access to Relevant information The company should maintain 2 comprehensive and cost-efficient communication channel for disseminating relevant information. This channel is crucial for informed decision-making by investors, stakeholders, and other interested users. Principle 12 — Strengthening the Internal Control and Risk Management Systems To ensure the integrity, transparency, and proper governance in the conduct of its affairs, the company should have a strong and effective internal control system and enterprise risk management framework. Recommendation 12.2 The company should have in place an independent internal audit function that provides an independent and objective assurance, and consulting services designed to add value and improve the company's operations. ‘Recommendation 12.5 — In managing the company’s Risk’Management System, the company should have a Chief Risk Officer (CRO), who isthe ultimate champion of Enterprise Risk Management (ERM) and has adequate authority, stature, resources and support to fulfill his/her responsibilities, subject to a company's size, risk profile, and complexity of operations. Principle 13 ~ Promoting Shareholder Rights ‘The company should treat all shareholders fairly and equitably, and also recognize, protect, and facilitate the exercise of their rights. Principle 14 — Respecting Shareholder Rights and Redress of Violations of those Rights The rights of stakeholders established by law, by contractual relations, and through voluntary commitments rust be respected. Where stakeholders’ rights and/or interests are at stake, stakeholders should have the opportunity to obtain prompt effective redress for the violation of their rights. Principle 15 - Encouraging Employees’ Participation ‘A mechanism for employee participation should be developed to create a symbiotic environment, realize the company’s goals and participate in its corporate governance processes. 30 GOVERNANCE, BUSINESS ETHICS, RISK MANAGEMENT, AND INTERNAL CONTROL Recommendation blowing that allow unethical practices, member of the Boa Many compar whistle-blower can specific appropriate Principle 16 - Enco The company where it operates. stakeholders in a comprehensive and Source: Philippine Sect Corporate Governance) wp-content/uploads/2C Governance ¢ Related party resources, services, ‘company and a rel key management 5 CFO). A subsidiary controlled by its pat XYZ Company is ¢ ‘ABC Corporation, transaction betwee Corporations arela While RPTS ar per se, the board because they can pr effects to sharehole of XYZ Co, the subs of XYZ Co,, the forn ata very low price. position for there wi Measures to govern * ensuring that ti or reasonable f * determination| tihg ners afinancial and rized standard/ tits economic, sommunication | for informed iystems he conduct of ‘ol system and tinternal audit aulting services It System, the sof Enterprise and support to | complexity of also recognize, Fthose Rights s, and through nd/or interests fective redress ate a symbiotic te governance Recommendation 15.3 ~ The Board should establish a suitable framework for whistle- blowing that allows employees to freely communicate their concerns about legal or Unethical practices, without fear of retaliation and to have direct access to an independent ‘member of the Board or aunt created to handle whistle-blowing concerns Many companies now implement a whistle-blower hotline sytem, Through this, a whistle-blower can report any regularity, fraud, or corruption to the higher-ups or to a specific appropriate committee, Principle 16 - Encouraging Sustainability and Social Responsibility The company should be socially responsible in all ts dealings with the communities where it operates. t should ensure that its interactions serve its environment and Stakeholders in a positive and progressive manner that is fully supportive of its ‘comprehensive and balanced development, SSUCE Pilopne Secures and Exchange Commision. 2018. Memorandum Cheulr No. 19, Code of Corporate Governance for Pubkiyfsted Companies. Accessed November 52020, httos//wwwsec-goxph/ ‘we-content/uploads/2019/11/2016_memo_crcular_no.[Link]