(FULL VERSION) REPORTERS COPY

CORPORATE GOVERNANCE- REVISED SEC Code of corporate

RELATED PROVISIONS OF THE Governance for Publicly Listed
REVISED CORPORATION CODE Companies: A “Comply or Explain
Approach”
 SECTION 22 THE BOARD OF
DIRECTIORS OR TRUSTEES OF A > PUBLICLY LISTED COMPANIES
CORPORATION; QUALIFICATION OF  Companies whose shares of stock are
TERM. traded on the Philippine Stock exchange

> INDEPENDENT DIRECTORS > Comply or Explain Approach

 Independent of management and free  An approach that combines voluntary
from any business or other relationship compliance with mandatory disclosure.
which could or could reasonably be  Proponent of this approach are of the
perceived to materially interfere with the opinion that NO “one-size-fits-all” (for all
exercise of independent judgement in companies differ in size, nature of
carrying out the responsibilities as a operations, location etc… therefor it is
director virtually impossible to require companies
 Constitute at least 20% of the board of the in different industries to follow a single
following corporation vested with public and rigid set of rules.
interest  Meaning: Companies do not need to
 Must be elected by the shareholders comply with all of the recommendations in
present or entitled to vote in absentia the Code for as long as they are able to
during the election of directors. (1) explain by way of formulating alternative
ways for achieving the principles. In case of
 SECTION 24 (AFTER ELECTION) noncompliance, they will need to disclose
> Directors of a corporation must formally such in annual corporate governance
organize and elect. reports and explain the reasons for the
(A) President, who must be a director noncompliance
(B) Treasurer, must be a resident
(C) Corporate Secretary, must be citizen and PRINCIPLE 1 - ESTABLISHING A
resident of the Philippines. COMPETENT BOARD
(D) Other officers as may be provided by laws Company should be led by a competenet,
working board to foster the long term
> If corporation is vested with Public interest, success of the corporatio, and to sustain it’s
board shall elect a compliance officer.
competitiveness and profitability.
-Compliance Officer, A person may hold (2) or
more positions concurrently
REC 1.1
> Exceptions The Board should be composed of directors
- No one shall act as President & secretary or with a collective working knowledge, experience
President and treasurer at the same time. or expertise that is relevant to company’s
industry/sector.
 SECTION 25
> Provides disqualification of Corporation
REC 1.2
directors, trustees, or officers (as follows) The board should be composed of a majority of
non-executive directors who possess the
 SECTION 26
necessary qualification to effectively participate
>Within (5) years prior to election or
and help the secure objective, independent
appointment as such, the person was
judgement on corporate affairs and to
(A) Convicted by final judgement
substantiate proper check balance
(B) Found administratively liable for offense
> EXECUTIVE DIRECTOR
involving fraudulent acts
 Is a director with executive responsibility
(C) By a foreign court for acts of violations
>NON EXECUTIVE DIRECTOR
misconduct -> A and B
 No executive responsibility and does not
perform any work related to the
operations of the corporations
(FULL VERSION) REPORTERS COPY

PRINCIPLE 4 - FOSTERING BOARD

REC 1.6 COMMITTEES
The board should ensure that it is assisted in its To show full commitment to the company, the
duties by a Compliance Officer, who should directors should devote the time and attention
have a rank of senior Vice President or an necessary to properly and effectively perform
equivalent position with adequate stature and their duties and responsibilities including
authority in the corporation. sufficient time to be familiar with the
corporation business.
>COMPLIANCE OFFICER
 Is tasked to oversee and monitor the REC 4.2
company’s degree of adherence to The non-executive directors of the board should
applicable laws and regulation serve as directors to a maximum of five publicly
listed companies to ensure that they have
PRINCIPLE 2 - ESTABLISHING CLEAR ROLES sufficient time to fully prepare for meetings,
AND RESPONSIBILITIES OF THE BOARD challenge management’s proposal/views, and
The fiduciary roles, responsibilities and oversee the long-term strategy of the company.
accountability of the board as provided under
the law, the company’s articles and by-laws, and PRINCIPLE 5 - REINFORCING BOARD
other legal pronouncements and guidelines INDEPENDENCE
should be made clear and known to all The Board should endeavor to exercise
directors,stockholders and other stakeholders. objective and independent judgement in all
REC 2.2
corporate affairs.
The Board should oversee the development of
and approve business objectives and strategy,
and monitor their implementation, in order to REC 5.1
sustain the company’s long term viability and The board should have at-least three
strength. independent directors or such number as to
constitute at least one-third of the members of
the board, whichever is higher.
PRINCIPLE 3 - ESTABLISHING BOARD
COMMITTEES
PRINCIPLE 6 - ASSESSING BOARD
Board committees should be set up to the
PERFORMANCE
extent possible to support the effective
The Best measure of the Board’s
performance of the Boar’s functions,
effectiveness is through an assessment
particularly with respect to audit, risk
process. The Board should regularly carry
management, and other key corporate
out evaluations to appraise its performance
governance concerns, such as nomination
as a body, and assess whether it possesses
and remuneration.
the right mix of background and
competencies
REC 3.2
The Board should establish an Audit committee REC 6.1
to enhance its oversight abilities over The board should conduct an annual self-
company’s financial reporting, internal control assessment of its performance, including the
system, internal and external audit process, and performance of the chairman, individual
compliance with applicable laws and members and committees
regulations.
PRINCIPLE 7 - STRENGTHENING BOARD
REC3.4
ETHICS
Subject to a corporation’s size, risk profile and
Members of the Board are duty-bound to apply
complexity of corporations, the board should
in high ethical standards, taking into account
establish a separate Board Risk Oversight
the interest of all stakeholders
Committee (BROC) that should be responsible
for oversight of a company’s Enterprise Risk
Management
(FULL VERSION) REPORTERS COPY

REC 7.1 PRINCIPLE 12 - STRENGTHENING THE INTERNAL

The Board should adopt a Code of Business CONTROL AND RISK MANAGEMENT SYSTEMS
Conduct and Ethics, which would provide
standards for professional and ethical behavior, REC 12.2
as well as articulate acceptable and The Company should have in place an
unacceptable conduct and practices in internal independent internal audit function that
and external dealings provides an independent and objective
assurance, and consulting services designed to
PRINCIPLE 8 - ENHANCING COMPANY add value and improve the company’s
DISCLOSURES operations
The company should establish corporate
disclosure policies and procedures that are REC12.5
practical and in accordance with best practices In managing the company’s Risk Management
and regulatory expectations. System, the company should have a Chief Risk
Officer (CRO), who is the ultimate champion of
REC 8.1 Enterprise Risk Management (ERM) and has
The Board should establish corporate disclosure adequate authority, stature, resources and
policies to ensure a comprehensive, accurate support to fulfil his/her responsibilities, subject
reliable and timely report to shareholders and to a company’s size, risk profile, and complexity
other stakeholders that gives a fair and of operations
complete picture of a company’s financial
conditions, results, and business operations. PRINCIPLE 13 - PROMOTING SHAREHOLDER
RIGHTS
PRINCIPLE 9 - STRENGTHENING THE The Company should treat all shareholders fairly
and equitably, and also recognize, protect and
EXTERNAL AUDITOR’S INDEPENDENT AND
facilitate the exercise of their rights
IMPROVING AUDIT QUALITY
The company should establish standards for the PRINCIPLE 14 - RESPECTING SHAREHOLDER
appropriate selection of an external auditor, RIGHTS AND REDRESS OF VIOLATION OF THOSE
and exercise effective oversight of the same to RIGHTS
strengthen the external auditor’s independence The rights of stakeholders established by law, by
and enhance audit quality contractual relations, and through voluntary
commitments must be respected. Where
PRINCIPLE 10 - INCREASING FOCUS ON stakeholders’ right and/or interests are at stake,
NONFINANCIAL AND SUSTAINABLITY stakeholders should have the opportunity to
REPORTING obtain prompt effective redress for the violation
The company should ensure that material and of their rights.
reportable non-financial and sustainability
issues are disclosed. Companies should adopt a PRINCIPLE 15 - ENCOURAGING EMPLOYEES’
globally recognized standard/framework in PARTICIPATION
reporting sustainability and non-finicial issues. A mechanism for employee participation should
be developed to create a symbiotic
A sustainability report is a report prepared by environment, realize the company’s goals and
an organization about its economic, social, and participate in its corporate governance
environmental impacts and its sustainability processes.
performance.
REC 15.3
PRINCIPLE 11 - PROMOTING ACCESS TO The board should be establish a suitable
RELEVANT INFORMATION framework for whistle blowing that allows
- The Company should maintain a employees to freely communicate their
comprehensive and cost-efficient concerns about illegal or unethical practices,
communication channel for disseminating without fear or retaliation and to have direct
relevant information. access to an independent member of the Board
- Crucial for informed decision-making by or a unit to create to handle whistle-blowing
investors, stockholders, and other interested concerns
users.
(FULL VERSION) REPORTERS COPY

PRINCIPLE 16 - ENCOURAGING SUSTAINABILITY

AND SOCIAL RESPONSIBILITY
More EXPLANATIONS (JUST
The company should be socially responsible in IN CASE)
all its dealings with the communities where it - Independent directors: provide an
operates. It should be ensure that its objective perspective to ensure good corporate
interactions serve its environment and governance, protect shareholder interests, and
shareholders in a positive and progressive provide expertise in strategy and leadership.
manner that is fully supportive of its Their independence is crucial because they are
comprehensive and balanced development. free from conflicts of interest that might arise
from financial or business ties to the company
GOVERNANCE OF RELATED or its executives.
PARTY TRANSACTIONS
Related party transactions are transfers of - Public Interest: Entities whose operations
resources, services, or obligations between the or impact affect not just their owners but the
company and a related party general public. Because of this, they are held to
stricter accountability and transparency
To further explain. A subsidiary is a company standards. (business typically crucial for public)
that is being controlled by its parent company. Banks, insurance companies, other corp
A subsidiary is a company that’s under the designated by sec.
power and control of another company, called
the parent. The parent is like the boss that Convicted by final judgement: Convicted by
makes the major decisions. final judgment" means a court has found a
person guilty of a crime, and that decision is no
Controlled → usually means the parent owns longer subject to appeal or further modification,
more than 50% of the voting shares, giving it making it the definitive resolution of the case
the power to decide on the subsidiary’s policies,
strategies, and management. -By laws: Bylaws are the internal rules that
guide how a company or organization is run
While RPTs are not prohibited nor illegal per se
(by itself), the board should review such RPTs (1) Entitled to vote in ABSENTIA
because they can potentially result to negative Absentia means in absence, Shareholders who
effects to shareholders of either company. are not physically present but are allowed to
vote though other means (mail, electronic)
Measures to govern RPTs include ensuring the
following: EXECUTIVE DIRECTORS: Are part of the
 Ensuing that transactions between management team of the company
related parties are at arm’s-length basis,
market, or reasonable price
 Determination of the purpose of the
Non-Executive directors: Are not involved
RPTs; in daily management. Mainly to give oversight,
advice, and independent judgement.
----------------------END------------------------------------