Chapter SECURITIES AND EXCHANGE COMMISSION (SEC) CODE OF CORPORATE GOVERNANCE ‘Expected Leaming Outcomes ‘Aer studying te chapter, you shouldbe able to 1. Understand the need for the Code of Govemance for publicly-listed ‘compares. 2 Know the sixteen (16) governance responsibilties of the Board of Directors of publicly-isted companies. Explain the meaning of ‘comply and explain approach. Describe the three aspects ofthe Code, namely Explanations Know what constitutes a competent board and how can i Sey ie ipetent board and how can it be Urerstnd the campostion,fncions and rs . boardeonmtees ta canbe exabished suchas et + Austcanmaee + Copeste Covance Conmitee + Bowe tek Ovmeg coca 5 lated Pay arson Cites now how the directors can show full commitmer he company Understand how inde an tenforced and entanced.""* 2% icy of te Board can be 8. Describe how the pertormans assessed, YM Performance and ettectveness ofthe board can be CHAPTER 3 SEC CODE OF CORPORATE GOVERNANCE FOR PUBLICLY-LISTED COMPANIES (“CG Code for PLCs”) Securities and Exchange Commission SEC MC No. 19, Series of 2016 * sted companies to establish a code ‘a ney manual on Corporate Governance that lards for professional and ethical behavior as well as ‘unacceptable conduct. and prac fe and make sure that management and eady developed their Code of Business Conduct mmtation and monitoring (Source: www.see.gonph) Scanned with CamScanner28 Chapter3 PUBLICLY-LISTED COMPANIES CODE OF CORPORATE GOVERNANCE FOR Principle 2: Principle 3: Principle 4: Principle 5: Principle 6: Principle 7: The company should be headed by a competent, working board corporation, and to sustain term success its corporate objectives shareholders and other stakeholders. laws, and other legal clearly made known to all directors as well as to stockholders and other stakeholders, Menbers of te Boa joard are duty-bound to af i Sats aking it aecun heiress of SEC Code of Corporate Governance 29 Principle 8: The company should establish corporate disclosure polic ’ procedures that are practical and in accordance with best practices and regulatory expect Principle 9: Principlel0: The company should ensure that m: sare disclosed. the company should have a st ‘control system and" enterprise risk Scanned with CamScannerus of stakeholders established by sand through voluntary commit Tespected. Where, stakeholders’ rights and/or stake, stakeholders should have’ the opportunity to obtain prompt effective redress forthe violation of their rights. ee participation shotild be developed to ronment, realize the company’s goals ‘corporate governance processes. Principle 15: Principle 16: fully supportive of its ‘comprehensive and balanced development. r ar ts regional and global counterparts." The latest G20/OECDI Principles of Corporate Governance and the Association of Southeast Asian Nations Corporate Governance Scorecard were used as key reference materials The Code will adopt the “comply or o Anprch comines voluntary compli Aisclosue. Companies do nat Rave iran they comply wth the Code provins, ‘compliance, and explain the reasons for non- ‘mandatory the Code, but reports whether any areas of non- 3. The Code is arranged as Explanations. The Pris 'S_of corporate govemance ‘ letoall companies. B04 Practice, 4. The Recommendati ‘SEC Code of Corporate Governance _31 15 are objective criteria that are : features of corporate governance good practice 0 identify the speci that are recommended for companies operating accord Code, Altematives to a Recommendation may be ji ie ircumstances if good govemance can be acl . When a Recommendation is not compli company must disclose and deseribe thi explain how the overall Principle is should be consistent with the overal ions should be written in ‘complete, objective and precise manner, so that shareholders and “other stakeholders ean assess the company's governance framework, mance arrangements. iy be expected to ‘companies may 1e provisions outweigh the ely listed companies is types of Corporate governance is a system of direc ns, performance standards Scanned with CamScanner: ee Ss 3_Chopte 3 ___— ae 88 code of Corporate Governance 33 Enterprise Risk Management ~ a proces, effected by an spose is to maximize the organization's long-term ae ieertainable value for its shareholders, stakeholders and the Board of Directors, management and other person creating sustainabl nation. Board of Directors - the governing body elected by the “stockholders that exercises the corporate powers of a corporation, ‘conducts all its business and controls its properties. e authority by the as laid down in the Management sp of exect Board of Directors to implement ‘conduct of the business ofthe corpo Independent director - a person who is independent of ‘management and the controlling shareholder, and is free from any business or other ip which could, or could reasonably be i is exercise of independent 2 potential conflict, ‘as corresponding perso include such other person or juridical entity whose interest may pose ith the interest of the company. jons — a transfer of resources, services or Related-Party Trans: ting entity and a related party, regardless obligations between a day-to-day operations ofa part or the whole ofthe organi Non-executive director — a director who has no executive rganization or society at large be affected by the company’s les, among other westors, a5 well as the government and community in control ~a process designed and effected by the board of directors, senior management, and all levels of perso applicable laws, regi 1's policies and procedures. 7 Committee of Sponsoring Organizations ofthe Tread way Commission (COSO Framework) ion for Economie Co-operation and Development Scanned with CamScannerPrinciple “The company should be headed by a competent, working board to foster the Tong-tern success of the corporation, and {0 sustain competitiveness and profitability in a manner consistent corporate objectives and the long-term best interests of its share! and other stakeholders. working company’s strategie direction, Explanation Competence can be daemined fiom the colestie_ know extn and epee of ach dear that is. relevant to el Gel the a, is in. A Board with the necessary easrience and expertise coh propery perform its task of a and governance of the corporation, formt ing the prope md oes plementation fy walification standards for its ial nominees for board seats, tion of its performance. —— SEC Code of Corporate Governance _35 Recommendation 1.2 help secure objective, independe substantiate proper checks and balances. right ‘combination of non-executive directors (NEDs), which include independent directors (IDs) and executive directors (EDs), censures that no director or small group of directors can dominate the decision-making process. Further, a board composed of a majority of of the company's interest over the interest of Recommendation 13° Board Charter and Manual on raining of directors, including an irectors and relevant annual ‘The Company should provide wing training for al Explanation ‘The program for first-time directors and relevant annual co performance and continuing « their duties and respo program for fi hours, while the annual co governance a ticles of Incorporation, and Scanned with CamScanner‘company and the r effectively performing his or her functions. “The annval continuing training program, on the other hand, makes Ne dtectors are continuously informed of the developments ‘environments, including emerging risks matters relevant to the company, management, sustit and Recommendation 14 “The Board should have a policy on board diversity. Explanation id groupthi A board di to gender dives competence and knowledge. On gender Secretary, who should be a separate Officer. The Corporate Secretary should not be a member of the Board of Directors and should annually atten pcb ly attend a training on corporate Explanation ‘The Corporate Secretary is pri its shareholders, and not to and has, among others, the responsible to the corporation and (or Presid Compan; lowing duties and respor gi 4. Assists the Board and the board committees in the conduct of their ‘meetings, including preparing an annual schedule of Board and bb, Safekeeps and preserves SEC Code of Corporate Governance _37 ‘committee meetings and the annual board calendar, and assisting the chairs of the Board and its committees to set agendas for those meetings; inutes of the meetings (of the Board and its eo ficial records of the corporation; ‘4. Works fairly and objectively with the Board, Management and Stockholders and contributes tothe flow of information between the Board and joard and its committees, and the Board and its: jing shareholders; ce. Advises on the establishment of board committees and their terms of reference: Informs members of the Board, in accordance with the by-laws, of meetings at least five working days in advance, the members have before them accurate igent decisions on le causes, such as accidents, prevent he Oversees the dafing of the by-laws and ensures that they conform ‘with regulatory requirements; and other duties and responsibilities as may be provided Scanned with CamScannerould er that it is assisted in its duties by. a Compliance with adequate stature and authority in the ‘ompliance Officer should not ‘be a member of the rectors and should annually attend a training on corporate ‘The Compliance Officer is a member of the company's management charge of the compliance function, Similar to the Corporate Secretary, helshe is primarily liable to the corporation and its shareholders, and not to the Chairman or President of the company. Helshe has, among others, the following duties and respon: ‘a. Ensures proper onboarding of new directors tion on the ompany’s business, charter, aces of incorporation and bylaws, among others); 'b. Monitors, reviews, evaluates and ensures the compliance by the corporation, its officers and directors with the relevant laws, this Code, rules and regulations and all governance issuances of regulatory agencies; - Reports the ions are found and Teconimends ‘of appropriate disiptinary action: 4. Ensures a 3 i teragaltes ent and acuracy of all documentary submissions before the SEC when sum i li = before the SEC when summoned in relation to compliance ther departments to issues, which may be suber a eet adress compliance igation; SEC Code of Corporate Governance _39 hh. Ensures the attendance of board members and key officers to relevant trainings; and i. Performs such other duties and responsibilities as may be provided by the SEC, 2. ESTABLISHING CLEAR ROLES THE BOARD Principle “The fiduciary roles, responsibiit provided under the law, the company’s articles and Tegal pronouncements and guidelines sho early made known to all directors as well as to shareholders and ot! Recommendation 2.1 smbers should act on a fully informed basis, in good faith, ‘and in the best interest of the company and Explanation “There are two key elements of the fiduciary duty of board members: the the duty of loyalty. The duty of care requires board formed basis, in good faith, with due id member sho ders, ane! not those of the controlling company of the group or er stakeholder. Recommendation 2.2 1 should vere the deelgmest of and approve ti cf Sl Gjeives_and segs. anon a ain te compay's ere viliy The Be Scanned with CamScannerSp o 2 SEC Code of Corporate Governance 41 40__Chapter Explanati Recommendation 2.4 planation ling 1c the Board should review and guide corporate The Board should be respor procedures, annual budgets and business plans; set performance monitor impl ‘and corporate performance; and tcievethen Tis sets opin valu the earporation Recommendation 23 “The Board should be headed by a competent and qualified Chairperson, Explanation ‘The roles and responsi the following: the Chairman include, among others, Makes certain that on cy sis by festering an environment re debate and leveraging on the ski fares. ging on the skills and Ensures that the Board sufficiently challeng reports submitted and representati : one directors; and Makes sur that perfomance ofthe Baad ise @ year and discussed/followed up on. a Explanation “The transfer of company leadership to highly con ‘of succession planning. prot add value to the company. ‘A. good succession plan ss for cad lopment plan is def measures to prevent cor fb sound risk culture in whic! ig to be taken and cross experience age for directors and to promote and qualified the Board's impartial manner an -muneration policies promote 1g behavior is appropriate. They Scanned with CamScanner42 Chapter 3 loyees to act in the long-term ther than for themselves oF ‘Board to formule also encourage empl performance, which to measure perfarmance ad set specific ‘Significant influence onthe overall risk profile f the corporation. Key considerations in determining proper compensation include the : (1) the level of remuneration is commensurate responsibilities ofthe role; (2) on his remuneration; and (3) remuneration pay-out schedules should be sensitive to risk outcomes over a multi-year horizon, For employees in control functions (e.g, risk, compliance and internal line being overseen, and performance measures are based prin the achiew Esker th chlvenent of te cess 50 as not to compromie te Recommendation 2.6 The Board should have and disclose in jovernance a formal and transparent boar tion and election that should include how it a it accepts nominations from minority sharcholders and reviews nominated candidates. The policy should also Manual on Corporate quality of directors shoul ion of the company. waren lity to develop a policy 5 licy on board nomination, company's Manual on Corporate Governance. ion by including is from minority SEC Code of Corporate Governance _43 ‘The nomination and election process also includes the review and ‘persons nominated to the Board, }) possess, the knowledge, skill 1¢ case of non-executive di ities to the Board and in profile; (2) have a record of sufficient time to carry out their spor and (4) have the: between board members. A good practice is the use of search firms or extemal sources when searching for candidates to the Board. ion, the process also includes monitoring the quali ectors. The qualifica in the company’s Manual on Corporate Governance. jing’ may be considered as grounds for the permanent ion of a director: by final judgment or order by a competent istrative body of any crime that: (a) involves le of securities, as defined in the Securities Regul underw ‘a, Any person cor judicial or ad Code; (b) dealer, futures commission mer floor broker; of (¢) arises out of his fiduciary rel ‘bank, quasi-bank, trust company, investment house or as an a person of any of them; be. Any person who, by reason of misconduct, after hearing. is permanently enjoined by a final judgment or order of the SEC, Bangko Sentral ng Pilipinas (BSP) oF any court or adminis ‘a5 underwriter, ion 1s director oF officer of a bank, qua wvestment company; (6) ay conduct oF practice in any of the ‘mentioned in sub-paragraphs (a) and (b) above, or ‘violating the laws that govern securities and banking activities. Scanned with CamScannerlation Code or any other law administered by the ‘or under any rule or regulation issued by the BSP; (b) such person has otherwise been restrained involving securities and banking; or (c) such person is the organization suspending or of association with a member or participant of th 4. Any person mo has been adjudged SEC, BSP, lated, © Any person judicially declared as insolvent; f ‘Any person found guilty by final judgment or order of woe wu fecal ely any af, vans a ofthe acts ‘enumerat sy, ‘cts, violations or misconduct ee Coleone aan Cote amined within re ears par ‘h. Other grounds as the SEC may provide. SEC Code of Corporate Governance _45 lowing may be grounds for temporary disqualification of the Board during ring id incumbency, Recommendation 2.7 “The Board should have the overall responsibility in ensuring that there is 1 group-wide policy and system governing related party transactions (RPTs) and other unusual or tra particularly those which pass ude the app gua hould encompass ne, structure, risk profile and complexity of Explanation ‘Ensuring the integrity of related party transactions is an important fiduciary duty of the director. [tis the Board's role to initiate policies tion of abuse and promotion of ‘and measures geared toward: Scanned with CamScannerith applicable laws and regulations to “One such measure isthe required fcant RPTs approved by weasures include "sclength basis, iance wi Bune cndos at potest “The following ar suggestions forthe content of the RPT Policy: Definition of related part Coverage of RPT pol ing mechanisms, and ‘+ Restitution of losses and other remedies for abusive RPT. threshold or exclusion is inappropriate consi risk profile, and risk management systems, Depending onthe materi threshold, approval of RPT Comite, the Board orth shareholders ity ofthe minority shareholders decide. Recommendation 2.8 ‘The Board should be ig the performance of the Mi s led by their respective ‘ef Compliance Officer, and Chief Audit primarily responsible for approving the selection — Explanation sibility of the Board to »ppoint a competent management s, monitor and assess the performance of the performance standards that are objectives, and conduct a the management standards are to be applied on key integrity, technical expertise Recommendation 2.9 The Board should establish an- effective performance management framework that will ensure that the Management, including the Chief Executive Officer, and personnel’s performance is at par with the standards set by the Board and Senior Management. Explai Results of performance evaluation should be linked to other human and Recommendation 2.10 ‘The Board should oversee Scanned with CamScanner$8_Chaper3 confit of interes stations compensation program for employees and ‘management succession plan. Recommendation 2.11 a side Ul Fisk exposures, as well a5 the effectiveness of risk management sates Explanation ‘Recommendation 2.12 The Board should have states its roles, responsi fiduciary duties. The Explanation fee, ,Bostd Charter guides the directors on how to discharge their the bans, ovis the standards for evaluat Board. The Board Charter in hie et Boerd Charter alo contains SEC Code of Corporate Governance _49 Principle Board committets should be set up to the ext effective performance of the to audit, risk management, ‘elated party possible to support the ‘The composition, functions and_respo ‘established should be contained in a publ Charter. Recommendation 3.1 ympany deems nec better management of the Board's ‘committee. Recommendation 3.2 ‘The Board should establish an Audit Co jority of whom, includi fof the members of the committee must have relevant background, Scanned with CamScannerExplanation for overseeing the senior The Audit Commi ig'an adequate, effective and ‘management in est efficient internal cont processes are designed to provide assurance in areas ‘monitoring compliance with laws, regulations a efficiency and effectiveness of operations, and safeguarding of assets. The Audit Committee has the following duties and respon others: ‘a. Recommends the approval the Internal Audit Charter (IA. Charter), as well as oversees the implementation of the IA Charter ‘Through the Internal Audit (1A) Departm accuracy and reliability of the ial data, and (d) ensure compliance with applicable o approve the terms and co 4. Establishes and idem SEC Code of Corporate Governance 51 © Reviews and monitors Management’s responsiveness to the Internal ‘Auditor’ findings and recommendations; {Price tothe commencement of the audit proper coordination if more than one audit firm to secure proper coverage and non-audit work, ifany, ofthe External Aud ows the non-audit fees Exter total fees paid t0 corporat Ihaney expenses. The committee should disal i duties as an External ‘may pose spendence3. The non lowed, should be disclosed in the corporation's ‘Annual Report and Annual Corporate Governance Reports th. Reviews and approves the Interim and Annual Financial Statements before their submission to the Board, with particular focus on the following matters: ‘© Any changels in accounting policies and practices ‘© Areas where a significant amount of judgment has been ing from the audit ing standards Compliance with accot ‘Compliance with tax, legal and regulatory requirements Reviews the disposition of the recommendations in the External ‘Auditor's management letter; ji Performs oversight fonctions over the corporation's Internal ang Extemal Aue ‘ensures the independence of Internal and Enteral Auditors, and that both auditors are given unrestricted ftceess 10 all records, properties and personnel to enable them to perform their respective audit functions; -k. Coordinates, monitors and facilitates compliance with laws, rules and reg Safina dr Te Code of Ethics for Professional Accountants Scanned with CamScanneriment sends 10 the Board the, appoint ' a ‘and fees of the, External ‘Auditor, duly Shounen aint at ofthe onion ees an ejetive assrance onthe manner by corpora Ei atonets shouldbe prepared and presented to testoeodes im, In case the company docs not have a Board Risk Oversight ‘Committee and/or Related Party Transactions Committee, performs the functions of ~stid committees as provided under Recommendations 3.4 and 3.5. ‘The Audit Committee meets with the Board at. least every quarter without the presence of the CEO or other management team members, and periodically meets with the head of the internal audit. ‘Recommendation 33, ‘The Board should establish a Corporate Governance Committee that Explanation ‘The Corporate Governance Committee (CG Committee) is tasked with ‘ensuring com with and proper observance of corporate ind practices. It has the following duties and he corporate governance 's the said framework to ensure ight of material changes to the *» complexity and business strate; it ind regulatory environments; ne b. Overses the periodic performance eval committees as well as executive ma annual self-evaluation of its performance; fe. Ensures that the results of the Board eval discussed, and that concrete action plans implemented to address the identified areas for improvement; 4. Recommends continuing education/raining programs for directors, assignment of tasks/projects to board committees, succession plan for the board members and senior officers, and remuneration packages for corporate and ink e. Adopts corporate governance reviewed and updated regula form and substance; Proposes and plans relevant trainings for the members ofthe Board; 1nd election process for the company’s duty of defining the general profile of need and ensuring appropriate knowledge, and. expertise that ‘complement the existing skills ofthe Board; and ‘The establishment of a Corporate Governance Committee does. not ympanies from establishing separate Remuneration or if they deem necessary. Recommendation 34 Subject to a corporation's size, risk profile and complexity of the Board should establish a separate Board Risk Oversight Enterprise Risk Management system to ensure its 1¢ BROC should be composed of at ‘of whom should be independent ‘Chairman of the Board or of any other committee. At least one member ‘of the committee must have relevant thorough knowledge and ‘experience on risk and risk management. Scanned with CamScannerBoe ee Explanation sshment of a Board Risk Oversight Committee (BROC) is fa ss pfomerats and Comp ha high risk profile. je risk management i Enter nd the achievement of 'b. Oversees the implementation of the enterprise risk management plan through a Management Risk Oversight Committee. The BROC conducts regular discussions on the company’s prioritized and residual risk exposures based on regular risk management reports and assesses how the concemed units or offices are addressing and ‘managing these risks; Evaluates the risk management pl relevance, comprehensiveness and ef defined risk management strategies material exposures, and sta that seriously impact the ing or changing, abreast of significant developments 100d of harm oF loss, SEC Code of Corporate Governance $5 ‘c. Reviews atleast annually the company’s risk appetite levels and risk lerance limits based on changes and developments in the business, the regulatory framework, the extemal economic and business ‘environment, and when major events occur that are considered 10 hhave major impacts on the company; £. Assesses the probability of each identified risk becoming a reality and estimates its possible significant financial impact and i ‘Management; and Reports to the Board on a regular basis, risk exposures, the a Explanation. Examples of companies that may have conglomerates and universal/commere! potential magnitude of RPTS in these kinds of corporations. Scanned with CamScannergar te funtion ofthe RPT Commitee, among others: ing relations between and among, aon 7 swith counterparties (from non-related to chanets ‘ice vera) are captured. Related parties, RPTS and “anges in eltionshis shouldbe reflected in the relevant reports to the Board and regulatrs/supervisors, Evaluates all material RPTs to ensure 1. The benefits to the corpor of other sources of comparable products oF 4d. Reports to the Board of Directors on a regular ‘exposures are subject process; and information. the performance of the Com the company’s website. Explanation Oversees the implementation of the system for id SEC Code of Corporate Governance $7 ng, and reporting RPTS, i. Scanned with CamScannerS3_Cheagter $= Recommendation 4.1 ly participate in all meetings of ‘and Shareholders in person or through tele- 1g conducted the .rules and n, except when justifiable causes, such as, family and serious accidents, prevent meetings, the director for, ask the necessary ‘The directors’ should attend and act questions or seek Explanation A director's commitment 10 Recommendation 4.2 The non-excatve directors of the Board should concurrently serve as Gireciors to 8 maxinum of five publicly listed companies to ensure that rey have sifici © fully prepare for meetings, challenge Management's vi Haagemensproposalviews and overse the longterm strategy of Explanation Being a director necessitates a commi there is a need to set ‘members of the board are able to perform their roles and _responsit knowledge and enhance their ski ularly update their 8 on the board of too performance of board SEC Code of Corporate Governance _$9 se cade of Corporate Govermance $9. abreast of the corporation's operations and to attend and actively ate during. meetings. maximum board seat limit of five rectorships is recommended. the Board where he/she is an incumbent n another company. A. director should director before accepting Explanation rent from a director to devote sufficient time and responsibilities. Hence, itis important Ther incumbent Board before accepting a ‘The Board expects com will be affected and if the director can still adequate expected of him/her. “The board should endeavor to exercise an objective and independent judgment om all corporate aff Recommendation 5.1 ‘The Board should have at least three indepéndent directors, or such ‘number as to constitute atleast one-third of the members of the Board, ‘whichever is higher. Explanation The presence of independent directors in the Board is to ensure the exercise of independent judgment on corporate affairs and proper decision-making, part interest situations. In addition, experts have recsgnized that there are Scanned with CamScannerSage ee sons onthe optimal number of independent directors in ‘apying opinions on scat imber| ranges from one-third to a substar board, However, majesty ‘Recommendation $2 ‘The Board should ensure that its independent directors possess the necessary qulifiations and none of the disqualifications. for an independent director to hold the position. Explanation Independent directors need to possess a good general understanding of the industry they are in, Further, itis worthy to note that independence and competence should go wand. It is therefore important that independent directors, possess the nable them to effectively and rations of the Board. ‘An Independent Director refers to a person who, ideally: nt, or has not been a senior officer or employee of the covered company unless thee has heen a change the ‘onli ownership of the com . rca ae os bers of any Advisory assist the Board in he es within tee years SEC Code of Corporate Governance 61 4. Is not an owner of more thi shares of the covered cor ‘or related companies; two percent (2%) of the outstanding its subsidiaries, associates, affiliates 1t a relative of a director, ‘eovered company or any of stantial shareholders. Fo parent, child, brother, sister and the spouse of st sister, £. $s not acting as a nominee or representative of any director of the covered company or any of its related companies; roker-dealer of listed companies and registered “Securities broker-dealer” refers to any person stockholder, nominee of 1 ‘person or salesman, and an is personal capacity or through a firm, as a itor, consultant, agent or counsel of the ‘companies or subst that are conduct k Is not employed as an executive officer of another company where any of the covered company’s executives serve as directors. Scanned with CamScanner= @_ hype - ‘used in this section, refer to (a) the coverec mis, wd cnr an) suis Recommendation 53 Board's independent directors should serve for a maximum com rm of nine years, After which, the independent director y barred from re-lection as such in the same 1s served for nine years, the Board shoul ion/s and seek shareholders’ approval Independent directors continue as a non- iector of the company. Reckoning of the cumulative nine~ year term is from 2012, in connection with SEC Memorandum Circular exceptional eases, independent director who” has who has served for nine years. In such cena te Board most provide a meritorious justification for the re= Recommendation 5.4 ian of the Board and Chief Executive Officer ate individuals and each should have clearly Explanation 1, Determines the corporation’s strategic direction and formulates and implements its strategic plan on the direction of the business; ‘e. Oversees the operations of the corpo financial resources in accordance 4. Has a good working kno market and keeps up-to-date purpose; ‘e. Directs, evaluates and guides the work of the key officers of the corporation; Manages the corporation’s resources prudently and ensures a proper balance of the same; ‘g Provides the Board wit the Board and the employee: ly information and interfaces between hh. Builds the corporate culture and motivates the employees of the corporat i, Serves as stakeholders. ink between internal operations and external “The roles and responsibilities of the Chairman are provided under Recommendation 2.3. Scanned with CamScanneree Recommendation 55 Explanation In cases where the Chairman is not independent and where t ‘The functions of the lead director include, amongothers, the following: a. Serves as an intermediary between the Chairman and the other directors when necessary; 'b. Convenes and chairs meetings ofthe non-executive directors; and Contributes to the performance evaluation of.the Chi required, Recommendation 5.6 A director with a material interest in any transaction affecting the 5 , nsaction affecting corporation should abstain from taking part in the deliberations for the Explanation 8 director does not ‘some benefit or advantage for his SEC Code of Corporate Governance _ 65 Recommendation 5.7 ‘compliance: and i to ensure that proper checks and corporation. The meetings should be chaired by the lead, independent director. Explanation well as to other key rectors present. The lead independent director should lead 6. ASSESSING BOARD PERFORMAI Principle ‘The best measure of the Board's effectiveness is through an assessment ‘evaluations to appraise its possesses the right mix of performance as a body, and assess wheth backgrounds and competencies. Recommendation 6.1 ard should conduct an ann Scanned with CamScanner——— _ 6 cee) SEC Code of Corporate Governance _61 Explanation 7. STRENGTHENING BOARD ETHI directors to thoroughly review their jr roles and responsibilities. The Principle the Board's performance as a body, Members of the Board are duty-bound to apply high ethical standards, taking into account the interests ofall stakeholders, how’ the aforementioned should perform effcetvely. In at provides a means attendance at board and com discussions and manner of voting on mat tr inthe assessment process in facilitator can be any independent 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 land external dealings. The Code should be proper nated t0 the Board, senior management and employees. It should al ‘and made available tothe public through the company website professional organi Recommendation 6.2 Explanation ‘The Boat shold have in ple aye hat provides, the crs tnd pecs to determin the performace of ‘ individual directors, committees and such system should allow for a hesalre ee to inst it Ecrpnoes : fedtuck mechanism fiom the shreole veut te company. Thema ean 3 aie Code of Condu the needs of the company and the Esplanton cate oes exh he Bor. To ensue proper compliance wi vanes ‘the Code, appropriate orientati 1d training of the Board, senior oe eect ns emploensen he sae nee ‘A Code of Business Conduct and Ethics formalizing Disclosure of the process and collective results of the assessment ensures wency and allows shareholders and at stakeholders. to determine if the directors are performing their ee ies to the company. Companies are given the diseretion t0 “The Board should e and process, which should be based on monitoring of comp tes provided in the Board Ethics and internal p attention is given to company. The erance Commie oversees the evshation proces and efficient implementation and ‘Code of Business Conduct and “The Board has the primary duty to make su ‘company’s 60 Scanned with CamScannerPrinciple 8 ‘The company should establish corporate procedutes that are regulatory expectations. Recommendation 8.1 The Board should establish corporate disclosure poli {0 ensure a comprehensive, accurate, sharcholders and other stakeholders Picture of a company's financial con: ‘operations. Explanation Setting up clear policies and comply Securit we Bangko Sentral ng timely reponing. Recommendation 8.2 ‘The Company should have close/report to the com, n three business days, 4 policy req = SEC Code of Corporate Governance 69 Explanation terial inside information on the ik that the directors might take is crucial for companies to have a Directors often have access to company. Hence, to reduce advantage of | policy requi ‘with the company shares disclosure to the compa ents the requirement of Rules Explanation {A disclosure on the board members and hey exe f preseribed under Rule 12 Annex C of the SRC. According to best ards, proper disclosure includes directors and key Explanation Disclosure of remuneration policies and procedure enables investors to ‘understand the link between the remuneration paid to directors and key ‘management personnel and the company’s performance. Scanned with CamScannerCore ires only a rate Governance requires only ie compensation that may be paid, i i top four management officers during the ‘on board and executive ‘now mandated in many countries. Recommendation 8.5 The company should disclose its policies governing Related Party ‘Transactions (RPTs) and other unusual or infrequently occurring wal on Corporate Governance. The material or jgnifiant RPTs reviewed and approved during the year disclosed ints Annual Corporate Governance Report. Explanation AA fill, accurate and timely disclosure of the company’s. policy governing RPTS and other unusual or infrequently occurring tansactions, as well as the review and approval of material and regarded as good corporate governance practice Js the prevention of abusi transactions and . ensuring that includes directors and key : ing t0 the Board wh ave RPTS tha « influence ther judgment. ren they have RPTs that could Recommendation 8.6 Accurate and timely disclosure to or event that occurs, particularly on the assets, which could adversely affect ts shareholders and other stakeholders. offered company should appoint an faimess ofthe transaction price on the ty oF the interest Moreover, the Board of independent party to evaluate Acquisition or disposal of assets, SEC Code of Corporate Governance _71 oF disposal of significant assets male, effect on operations and approval dependent directors present to establish lependence on the transaction. The independent 5s ofthe transparent price ensures the protection ‘The company’s corporate governance policies, programs and procedures should be contained in its Manual on Corporate Governance, which should be submitted to the regulators and. posted on the company's website Explanation ‘Transparency is one of the core principles of corporate governance. To ensure the protection of shareholders and other stakeholders’ rights, full disclosure of the company’s corporate governance 7 ims and procedures is imperative. This is better done if the said Principle 9 ‘The company should estabi fan extemal auditor, and exe ce Scanned with CamScannerSEC Code of Corporate Governance _73 Beet = the Audit C wor shoud be recommended by the Audit Commies, commendation ee ae to rte by the shareholders For removal of Récosmmenteien 22) 2 e Temoval or change should be ee Mad the esos fr renova o the extra ud She public Uwough the company website Saeed dlosues Explanation “The appointment, reappointment and removal of the extemal auditor by the Board's approval, through the Audit Committee's recommendation, ‘and shareholders" regarded as good pra 7 ‘emphasizes thatthe extemal auditor is account for to the company as a whole, rather than to the management whom he may interact with in the conduct of his audit. Recommendation 92 ‘The Audit Committee Charter should include the Audit Committee's and regulatory requirements pendence ofthe extra a polices and. procedures 4 separate memorandum or document. Nationally and ly recognized best practices and standards of external auiiting guide the committee in formulating these polic eo in formulating these policies and hing. effective communication with the extemal auditor and requiring them to report all relevant matter Committee to efficiently carry out its oversight respons ‘The company should di by its external audi terest, The A\ duty, oversees the evaluates and ed to promote a 1g these policies and procedures, the Committee is guided by nat ‘and internationally recognized best practices and regulatory requirements or issuances. Scanned with CamScanner=== BOs —— rio 8S ‘AND EXERCISES REVIEW ple Choice Questions . Mutiiple include which of the and determining compensation. 4. None of the above. C corporate governance requirements of stock exchange. For each requirement, tt€ help to address the risk of fraud in publicly traded Boards need 10 consist of board which is higher. . Boards need to hold regular executi 4 without manages rey SAV sesions of independent direst least 3 independent directors or 1/3 of the ©. Boards must have a / corporate governance committee composed at least 3 of independent f. The audit committee must have aw committee's purpose and responsi produce an a se Feport; there’ must also be an annual performance e1 Exercise 2 ig each year a report by the external auditor that addresses the ‘company’s internal control procedures, any quality control or regulatory nd any relationships that might threaten the independence of ‘the company’s financial statements with management and the external auditor external auditor any audit problems or difficulties sanagement policies for employees or former employees of the board of directors Scanned with CamScanner