GOVERNANCE
- Establishment of policies and continuous
monitoring of the proper implementation, by the
members of the governing body of an
organization.
- It includes the mechanisms required to balance
the powers of the members (associated
accountability) and their primary duty of
enhancing the prosperity and viability of the
organization.
- It involves interaction between the formal
institution and those in civil society.
- It refers to a process where by elements in society
wield power, authority and influence and enact
policies and decisions concerning public life and
social upliftment.
- Governance, therefore, not only encompasses
but transcends the collective meaning of related
concepts like the state, government, regime and
good government.
- Many of the elements and principles underlying
“good government” have become integral part of
the meaning of governance.
- It is the allocation of power among the board,
management and shareholders. (Simplified
meaning of governance)
GOOD GOVERNMENT
- It implies a high level of organizational
effectiveness in relation to policy-formulation and
the policies actually pursued, especially in the
conduct of economic policy and its contribution to
growth, stability and popular welfare.
- It also implies accountability, transparency,
participation, openness and the rule of law. It
does not necessarily presuppose a value
judgement, for example, a healthy respect for civil
and political liberties, although good government
tends to be prerequisite for political legitimacy.
RISK MANAGEMENT
- It is how do we manage or deal with uncertain
events (risks).
- It is a process of identifying, assessing and
controlling threats to an organization’s capital and
earnings. These threats, or risks, could stem from
wide variety of sources, including financial
uncertainty, legal liabilities, strategic
management errors, accidents and natural
disasters.
COMPLIANCE
- Adherence to applicable laws and regulations
- The acts or process of complying to a desire,
demand, proposal or regimen or to coercion.
ETHICS
- Involves systematizing, defending and
recommending concepts of right and wrong
behavior.
- THREE DIVISIONS OF ETHICS
o METAETHICS
 investigates where our ethical
principles come from and what
they mean.
 It answers to the questions focus
on the issues of universal truths,
the will of God, the role of reason
in ethical judgments and the
meaning of ethical terms
themselves
o NORMATIVE ETHICS
 It takes on a more practical
tasks, which is to arrive at moral
standards that regulate right and
wrong conduct.
o APPLIED ETHICS
 It involves examining special
controversial issues, such as
abortion, infanticide, animal
rights, environmental concerns,
homosexuality, capital
punishment or nuclear war.
IMPORTANCE
- A critical element of Governance, Risk
Management and Compliance is a company’s
culture, including the oft-use term tone at the top.
Inherent in culture is the extent to which company
and its people embrace integrity and ethical
values.
- It is important because companies operating from
a base integrity and ethics not only stay out of
trouble, they build on that foundation to drive
success. Such companies attract the best people
to their organizations, as well as the most
desirable customers, suppliers, financers and
business partners.
OECD
- It involves relationship between a company’s
management, its board, its shareholders and
other stakeholders.
- It also provides structure, through which the
objectives of the company are set, and the means
of attaining those objectives and monitoring
performance are determined.
- Good corporate governance should provide
incentives for the board and management to
pursue objectives that are in the interests of the
company and shareholders and should facilitate
effective monitoring.
KEY ELEMENTS OF ORGANIZATIONAL
GOVERNANCE
1. Monitoring
2. Risk Management
3. Assurance
4. Control
5. Goals
6. Accountability
7. Recognition of Stakeholders
8. Stewardship
BOARD’S ROLE IN CORPORATE GOVERNANCE
BOARD OF DIRECTORS QUALIFICATION
- Must be an owner of at least one share.
- Must not be convicted by final judgement of any
of the following:
o An offense punishable by imprisonment
for a period exceeding 6 years.
o Violating corporation code
o Violating the Securities and Regulation
Code
o Found administratively liable for any
offense involving fraudulent acts
 o By a foreign court or equivalent foreign - Innovation
regulatory authority for acts, violations or - Skepticism
misconduct similar to those enumerated - Independence
above - Probity/Honesty
- Any other qualifications that the incorporators - Responsibility
may include in the By-laws - Accountability
- Reputation
INDEPENDENT DIRECTOR - Judgement
- A person, who apart from shareholdings and fees - Integrity
received from the corporation, is independent of
management and free from any business or other
relationship which could, or could reasonably be CODE OF CORPORATE GOVERNANCE FOR
perceived to materially interfere with the exercise PUBLICLY-LISTED COMPANIES (SEC
of independent judgement in carrying out their MEMORANDUM CIRCULAR NUMBER 19 SERIES OF
responsibilities as a director. 2016)
- Necessary when the corporation is any of the
following: - It is intended to raise the corporate standards of
o Publicly-listed corporation Philippine corporations to a level at par with
 Listed in an exchange regional and global counterparts.
 Assets of 50 million or more - The code will adopt the “comply or explain”
 200 shareholders and each approach, which combines voluntary compliance
owns 100 shares with mandatory disclosure.
o Banks and quasi-banks, NSSLAs, - Companies do not have to comply with the Code,
pawnshops, corporations engaged in but they must state in their annual corporate
money service business, pre-need trust governance reports whether they comply with the
and insurance companies and other Code provisions, identify any areas of non-
financial intermediaries. compliance, and explain the reasons for non-
o Other corporations engaged in business compliance.
vested with public interest similar to the - The code is arranged as follows: Principles,
above, as may be determined by the Recommendations and Explanations.
commission o Principles- can be considered as a high-
level statements of corporate
INDEPENDENT DIRECTOR QUALIFICATION governance good practice and are
- Have at least 1 share of stock of the corporation applicable to all companies.
- At least college graduate or he shall have been o Recommendations- objective criteria that
engaged or exposed to the business of the are intended to identify the specific
corporation for at least 5 years features of corporate governance good
- Shall possess integrity and probity practice that are recommended for
- Shall be assiduous companies operating according to the
Code.
TERM  When not complied, the
- DIRECTORS shall be elected for a term of one companies must disclose and
year from among the holders of the stocks describe this non-compliance
registered in the corporation books and explain how the overall
- TRUSTEES shall be elected for a term not Principle is being achieved.
exceeding three years from among the members  The alternative must be
of the corporation consistent with the overall
Principle.
COMPENSATION  Description and explanations
- If given to the directors, must not exceed 10% of should be written in plain
the Net Income before income tax (yearly). language and in clear, complete,
objective and precise manner
BOARD’S RESPONSIBILITIES o Explanations- strive to provide
1. Provide oversight companies with additional information on
2. Establish an appropriate corporate culture the recommended best practice.
3. Comply with fiduciary duties and the law  Does not, in any way, prescribe
4. Select, retain and oversee management a “one size fits all” framework.
5. Maintain appropriate affiliate and holding  Designed to allow boards some
company relationships flexibility in establishing their
6. Establish and maintain an appropriate board corporate governance
structure arrangements
7. Perform board self-assessments  Larger companies and financial
8. Oversee financial performance and risk reporting institutions would generally be
9. Support efforts to serve community credit needs expected to follow most of the
Code’s provisions.
UNDERLYING CONCEPTS OF CORPORATE  Smaller companies may decide
GOVERNANCE that the costs of some of the
- Fairness provisions outweigh the benefits,
- Openness/Transparency or are less relevant in their case.
  The Principle of
Proportionality is considered in
the application of its provisions.
- Definition of Terms:
o Corporate Governance- the system of
stewardship and control to guide
organizations in fulfilling their long-term
economic, moral, legal and social
obligations towards their stakeholders.
 It is a system of direction,
feedback and control using
regulations, performance
standards and ethical guidelines
to hold the Board and senior
management accountable for
ensuring ethical behavior –
reconciling long-term customer
satisfaction with shareholder
value – to the benefit of all
stakeholders and society.
 Its purpose is to maximize the
organization’s long-term
success, creating sustainable
value for its shareholders,
stakeholders and the nation.
o 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.
o Management- a group of executives
given the authority by the Board of
Directors to implement the policies it has
laid down in the conduct of the business
of the corporation.
o Independent Director- a person who is
independent of management and the
controlling shareholder, and is free from
any business or other relationship which
could, or could reasonably be perceived
to, materially interfere with his exercise of
independent judgment in carrying out his
responsibilities as a director.
o Executive Director- a director who has
executive responsibility of day-to-day
operations of a part or the whole of the
organization.
o Non executive Director- a director who
has no executive responsibility and does
not perform any work related to the
operations of the corporation.
o Conglomerate- a group of corporations
that has diversified business activities in
varied industries, whereby the operations
of such businesses are controlled and
managed by a parent corporate entity.
o Internal Control- a process designed
and effected by the board of directors,
senior management, and all levels of
personnel to provide reasonable
assurance on the achievement of
objectives through efficient and effective
operations; reliable, complete and timely
financial and management information;
and compliance with applicable laws,
regulations, and the organization’s
policies and procedures.
o Enterprise Risk Management- a
process, effected by an entity’s Board of
Directors, management and other
personnel, applied in strategy setting and
across the enterprise that is designed to
identify potential events that may affect
the entity, manage risks to be within its
risk appetite, and provide reasonable
assurance regarding the achievement of
entity objectives.
o Related Party- shall cover the
company’s subsidiaries, as well as
affiliates and any party (including their
subsidiaries, affiliates and special
purpose entities), that the company
exerts direct or indirect control over or
that exerts direct or indirect control over
the company; the company’s directors;
officers; shareholders and related
interests (DOSRI), and their close family
members, as well as corresponding
persons in affiliated companies. This
shall also include such other person or
juridical entity whose interest may pose a
potential conflict with the interest of the
company.
o Related Party Transactions- a transfer
of resources, services or obligations
between a reporting entity and a related
party, regardless of whether a price is
charged. It should be interpreted broadly
to include not only transactions that are
entered into with related parties, but also
outstanding transactions that are entered
into with an unrelated party that
subsequently becomes a related party.
o Stakeholders- any individual,
organization or society at large who can
either affect and/or be affected by the
company’s strategies, policies, business
decisions and operations, in general.
This includes, among others, customers,
creditors, employees, suppliers,
investors, as well as the government and
community in which it operates.
THE BOARD GOVERNANCE RESPONSIBILITIES
1. ESTABLISHING A COMPETENT BOARD
a. The company should be headed by a
competent, working board to foster
the long-term success of the
corporation, and to sustain its
competitiveness and profitability in a
manner consistent with its corporate
objectives and the long-term best
interests of its shareholders and other
stakeholders.
 Should be composed of directors
with a collective working
knowledge, experience or
expertise that is relevant to the
company’s industry/sector;
should always ensure that it has
an appropriate mix of
competence and expertise.
o Competence can be
determined from the
collective knowledge,
experience and
expertise of each
director that is relevant
 to the industry/sector any company, be for at
that the company is in. least eight hours, while
o can properly perform its the annual continuing
task of overseeing training be for at least
management and four hours.
governance of the o ensures that new
corporation, formulating members are
the corporation’s vision, appropriately apprised
mission, strategic of their duties and
objectives, policies and responsibilities, before
procedures that would beginning their
guide its activities, directorships.
effectively monitoring o makes certain that the
management’s directors are
performance and continuously informed of
supervising the proper the developments in the
implementation of the business and regulatory
same. environments, including
o Sets qualification emerging risks relevant
standards for its to the company.
members to facilitate the  The Board should have a policy
selection of potential on board diversity.
nominees for board o Having a board diversity
seats and to serve as a policy is a move to avoid
benchmark for the groupthink and ensure
evaluation of its that optimal decision-
performance making is achieved.
 The Board should be composed o It is not limited to gender
of a majority of non-executive diversity. It also includes
directors who possess the diversity in age,
necessary qualifications to ethnicity, culture, skills,
effectively participate and help competence and
secure objective, independent knowledge
judgment on corporate affairs  The Board should ensure that it
and to substantiate proper is assisted in its duties by a
checks and balances. Corporate Secretary, who should
o right combination of non- be a separate individual from the
executive directors Compliance Officer. The
(NEDs), which include Corporate Secretary should not
independent directors be a member of the Board of
(IDs) and executive Directors and should annually
directors (EDs), ensures attend a training on corporate
that no director or small governance.
group of directors can o Primarily responsible to
dominate the decision- the corporation and its
making process. shareholders and not to
o a board composed of a the Chairman or
majority of NEDs President of the
assures protection of the Company
company’s interest over o Assists the Board and
the interest of the the board committees in
individual shareholders the conduct of their
 The Company should provide in meetings
its Board Charter and Manual on o Safe keeps and
Corporate Governance a policy preserves the integrity of
on the training of directors, the minutes of meetings
including an orientation program of the board
for first-time directors and o Keep abreast on
relevant annual continuing relevant laws,
training for all directors. regulations, all
o aim to promote effective governance issues,
board performance and relevant industry
continuing qualification developments and
of the directors in operations of the
carrying-out their duties corporation
and responsibilities. o Works fairly and
o It is suggested that the objectively with the
orientation program for Board
first-time directors, in
 o Advises on the
establishment of board
committees and their
terms of reference
o Informs members of the
board, in accordance
with the by-laws, of the
agenda of their meetings
at least five working
days in advance
o Attends all board
meetings
o Performs required
administrative functions
o Oversees the drafting of
the by-laws and ensures
that they conform with
regulatory requirements
 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.
o The Compliance Officer
is a member of the
company’s management
team in charge of the
compliance function.
o Ensures proper
onboarding of new
directors
o 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.
o Reports the matter to the
Board if violations are
found and recommends
the imposition of
appropriate disciplinary
actions.
o Ensures the integrity
and accuracy of all
documentary
submissions to
regulators.
o Appears before the SEC
when summoned in
relation to the
compliance of the Code
o Collaborates with other
departments to properly
address compliance
issues
o Identifies possible areas
of compliance issues
and works towards the
resolution of the same
o Ensures the attendance
of board members and
key officers to relevant
meetings
2. ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
a. 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
shareholders and other stakeholders.
 The Board members should act
on a fully informed basis, in good
faith, with due diligence and
care, and in the best interest of
the company and all
shareholders.
o Two key elements of the
fiduciary duty of the
board members: duty to
care and duty of loyalty.
o DUTY TO CARE-
requires board members
to act on a fully informed
basis, in good faith, with
due diligence and care.
o DUTY OF LOYALTY-
board member should
act in the interest of the
company and all of its
shareholders and not
those of the controlling
company of the group or
any other stakeholders.
 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.
o The Board should
review and guide
corporate strategy,
major plans of action,
risk management
policies and procedures,
annual budgets and
business plans; set
performance objectives;
monitor implementation
and corporate
performance; and
oversee major capital
expenditures,
acquisitions and
divestitures.
 The Board should be headed by
a competent and qualified
Chairperson.
o Makes certain that the
meeting agenda focuses
on strategic matters,
including the overall risk
 appetite of the position, and should
corporation, considering start in objectively
the developments in the identifying the key
business and regulatory knowledge, skills, and
environments, key abilities required for the
governance concerns, position.
and contentious issues  The Board should align the
that will significantly remuneration of key officers and
affect operations board members with the long-
o Guarantees that the term interests of the company. In
Board receives doing so, it should formulate and
accurate, timely, adopt a policy specifying the
relevant, insightful, relationship between
concise, and clear remuneration and performance.
information to enable it Further, no director should
to make sound decisions participate in discussions or
o Facilitates discussions deliberations involving his own
on key issues by remuneration.
fostering an o Companies are able to
environment conducive attract and retain the
for constructive debate services of qualified and
and leveraging on the competent individuals if
skills and expertise of the level of remuneration
individual directors is sufficient, in line with
o Ensures that the Board the business and risk
sufficiently challenges strategy, objectives,
and inquires on reports values and incorporate
submitted and measures to prevent
representations made conflicts of interest.
by Management o Remuneration policies
o Assures the availability promote a sound risk
of proper orientation for culture in which risk-
first-time directors and taking behavior is
continuing training appropriate.
opportunities for all o It also encourages
directors employees to act in the
o Makes sure that long-term interest of the
performance of the company as a whole,
Board is evaluated at rather than for
least once a year and themselves or their
discussed/followed up business lines only.
on. o It is good practice for the
 The Board should be responsible Board to formulate and
for ensuring and adopting an adopt a policy specifying
effective succession planning the relationship between
program for directors, key remuneration and
officers and management to performance.
ensure growth and a continued o Key considerations:
increase in the shareholders’ a. The level of
value. This should include Remuneration is
adopting a policy on the commensurate to
retirement age for directors and the
key officers as part of responsibilities of
management succession and to the role
promote dynamism in the b. No director should
corporation. participate in
o It is the Board’s deciding on his
responsibility to remuneration
implement a process to c. Remuneration
appoint competent, pay-out schedules
professional, honest and should be
highly motivated sensitive to risk
management officers outcomes over a
who can add value to the multi-year
company. horizon.
o A good succession plan  The Board should have and
is linked to the disclose in its Manual on
documented roles and Corporate Governance a formal
responsibilities for each and transparent board
nomination and election policy c. Any person
that should include how it convicted by final
accepts nominations from judgment or order by
minority shareholders and a court, or
reviews nominated candidates. competent
The policy should also include an administrative body
assessment of the effectiveness of an offense
of the Board’s processes and involving moral
procedures in the nomination, turpitude, fraud,
election, or replacement of a embezzlement,
director. In addition, its process theft, estafa,
of identifying the quality of counterfeiting,
directors should be aligned with misappropriation,
the strategic direction of the forgery, bribery,
company. false affirmation,
o The nomination and perjury or other
election process also fraudulent acts
include the review and d. have willfully
evaluation of the violated, or willfully
qualifications of all aided, abetted,
persons nominated to counseled, induced
the Board, including or procured the
whether candidates: violation of any
a. Possess the provision of the
knowledge, skills, Corporation Code,
experience and Securities
particularly in the Regulation Code or
case of non- any other law, rule,
executive directors, regulation or order
independence of administered by the
mind given their SEC or BSP
responsibilities to the e. Any person judicially
Board and in light of declared as
the entity’s business insolvent
and risk profile f. Any person found
b. have a record of guilty by final
integrity and good judgment or order of
repute a foreign court or
c. have sufficient time to equivalent financial
carry out their regulatory authority
responsibilities of acts, violations or
d. have the ability to misconduct similar
promote a smooth to any of the acts,
interaction between violations or
board members misconduct
o Permanent enumerated
Disqualification of a previously
Director g. Conviction by final
a. Any person judgment of an
convicted by final offense punishable
judgement or order by imprisonment for
by a competent more than six years,
judicial or or a violation of the
administrative body Corporation Code
of any crime committed within
b. Any person who, by five years prior to
reason of the date of his
misconduct, after election or
hearing, is appointment
permanently o Temporary
enjoined by a final Disqualification of a
judgment or order of Director
the SEC, Bangko a. Absence in more
Sentral ng Pilipinas than fifty percent
(BSP) or any court (50%) of all regular
or administrative and special
body of competent meetings of the
jurisdiction Board during his
incumbency, or any
 12-month period into account their size, structure,
during the said risk profile and complexity of
incumbency, unless operations.
the absence is due o It is the Board’s role to
to illness, death in initiate policies and
the immediate measures geared
family or serious towards prevention of
accident. The abuse and promotion of
disqualification transparency, and in
should apply for compliance with
purposes of the applicable laws and
succeeding election regulations to protect the
b. Dismissal or interest of all
termination for shareholders.
cause as director of  The Board should be primarily
any publicly-listed responsible for approving the
company, public selection and assessing the
company, registered performance of the Management
issuer of securities led by the Chief Executive
and holder of a Officer (CEO), and control
secondary license functions led by their respective
from the heads (Chief Risk Officer, Chief
Commission. The Compliance Officer, and Chief
disqualification Audit Executive).
should be in effect o 15
until he has cleared o It is the responsibility of
himself from any the Board to appoint a
involvement in the competent management
cause that gave rise team at all times,
to his dismissal or monitor and assess the
termination performance of the
c. If the beneficial management team
equity ownership of based on established
an independent performance standards
director in the that are consistent with
corporation or its the company’s strategic
subsidiaries and objectives, and conduct
affiliates exceed two a regular review of the
percent (2%) of its company’s policies with
subscribed capital the management team.
stock. The  The Board should establish an
disqualification from effective performance
being elected as an management framework that will
independent ensure that the Management,
director is lifted if the including the Chief Executive
limit is later Officer, and personnel’s
complied with performance is at par with the
d. If any of the standards set by the Board and
judgments or orders Senior Management.
cited in the grounds  The Board should oversee that
for permanent an appropriate internal control
disqualification has system is in place, including
not yet become final. setting up a mechanism for
 The Board should have the monitoring and managing
overall responsibility in ensuring potential conflicts of interest of
that there is a group-wide policy Management, board members,
and system governing related and shareholders. The Board
party transactions (RPTs) and should also approve the Internal
other unusual or infrequently Audit Charter.
occurring transactions,  The Board should oversee that a
particularly those which pass sound enterprise risk
certain thresholds of materiality. management (ERM) framework
The policy should include the is in place to effectively identify,
appropriate review and approval monitor, assess and manage key
of material or significant RPTs, business risks. The risk
which guarantee fairness and management framework should
transparency of the transactions. guide the Board in identifying
The policy should encompass all units/business lines and
entities within the group, taking enterprise-level risk exposures,
 as well as the effectiveness of
risk management strategies.
 The Board should have a Board
Charter that formalizes and
clearly states its roles,
responsibilities and
accountabilities in carrying out its
fiduciary duties. The Board
Charter should serve as a guide
to the directors in the
performance of their functions
and should be publicly available
and posted on the company’s
website.
3. ESTABLISHING BOARD COMMITTEES
a. 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, related party
transactions, and other key corporate
governance concerns, such as
nomination and remuneration. The
composition, functions and
responsibilities of all committees
established should be contained in a
publicly available Committee Charter.
 The Board should establish
board committees that focus on
specific board functions to aid in
the optimal performance of its
roles and responsibilities.
o allows for specialization
in issues and leads to a
better management of
the Board’s workload
o depend on its size, risk
profile and complexity of
operations
 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 applicable
laws and regulations. The
committee should be composed
of at least three appropriately
qualified non-executive
directors, the majority of whom,
including the Chairman, should
be independent. All of the
members of the committee must
have relevant background,
knowledge, skills, and/or
experience in the areas of
accounting, auditing and finance.
The Chairman of the Audit
Committee should not be the
chairman of the Board or of any
other committees.
o The Audit Committee is
responsible for
overseeing the senior
management in
establishing and
maintaining an
adequate, effective and
efficient internal control
framework. It ensures
that systems and
processes are designed
to provide assurance in
areas including
reporting, monitoring
compliance with laws,
regulations and internal
policies, efficiency and
effectiveness of
operations, and
safeguarding of assets
 The Board should establish a
Corporate Governance
Committee that should be tasked
to assist the Board in the
performance of its corporate
governance responsibilities,
including the functions that were
formerly assigned to a
Nomination and Remuneration
Committee. It should be
composed of at least three
members, all of whom should be
independent directors, including
the Chairman.
o The Corporate
Governance Committee
(CG Committee) is
tasked with ensuring
compliance with and
proper observance of
corporate governance
principles and practices.
 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
system to ensure its functionality
and effectiveness. The BROC
should be composed of at least
three members, the majority of
whom should be independent
directors, including the
Chairman. The Chairman should
not be the 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.
o assist the Board in
ensuring that there is an
effective and integrated
risk management
process in place
 Subject to a corporation’s size,
risk profile and complexity of
operations, the Board should
establish a Related Party
Transaction (RPT) Committee,
which should be tasked with
reviewing all material related
 party transactions of the
company and should be
composed of at least three non-
executive directors, two of whom
should be independent, including
the Chairman.
 All established committees
should be required to have
Committee Charters stating in
plain terms their respective
purposes, memberships,
structures, operations, reporting
processes, resources and other
relevant information. The
Charters should provide the
standards for evaluating the
performance of the Committees.
It should also be fully disclosed
on the company’s website.
o The Committee Charter
clearly defines the roles
and accountabilities of
each committee to avoid
any overlapping
functions, which aims at
having a more effective
board for the company.
This can also be used as
basis for the
assessment of
committee performance.
4. FOSTERING COMMITMENT
a. 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.
 The directors should attend and
actively participate in all
meetings of the Board,
Committees, and Shareholders
in person or through tele-
/videoconferencing conducted in
accordance with the rules and
regulations of the Commission,
except when justifiable causes,
such as, illness, death in the
immediate family and serious
accidents, prevent them from
doing so. In Board and
Committee meetings, the
director should review meeting
materials and if called for, ask
the necessary questions or seek
clarifications and explanations.
o A director’s commitment
to the company is
evident in the amount of
time he dedicates to
performing his duties
and responsibilities,
which includes his
presence in all meetings
of the Board,
Committees and
Shareholders.
 The non-executive 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.
o ensures that the
members of the board
are able to effectively
commit themselves to
perform their roles and
responsibilities,
regularly update their
knowledge and enhance
their skills.
 A director should notify the
Board where he/she is an
incumbent director before
accepting a directorship in
another company.
o The Board expects
commitment from a
director to devote
sufficient time and
attention to his/her
duties and
responsibilities.
5. REINFORCING BOARD INDEPENDENCE
a. The board should endeavor to
exercise an objective and
independent judgment on all
corporate affairs.
 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.
o ensure the exercise of
independent judgment
on corporate affairs and
proper oversight of
managerial
performance, including
prevention of conflict of
interests and balancing
of competing demands
of the corporation
 The Board should ensure that its
independent directors possess
the necessary qualifications and
none of the disqualifications for
an independent director to hold
the position.
o possess a good general
understanding of the
industry they are in
 The Board’s independent
directors should serve for a
maximum cumulative term of
nine years. After which, the
independent director should be
perpetually barred from re-
election as such in the same
company, but may continue to
qualify for nomination and
 election as a non-independent
director. In the instance that a
company wants to retain an
independent director who has
served for nine years, the Board
should provide meritorious
justification/s and seek
shareholders’ approval during
the annual shareholders’
meeting.
o Service in a board for a
long duration may impair
a director’s ability to act
independently and
objectively.
o Hence, the tenure of an
independent director is
set to a cumulative term
of nine years.
 The positions of Chairman of the
Board and Chief Executive
Officer should be held by
separate individuals and each
should have clearly defined
responsibilities.
o To avoid conflict or a
split board and to foster
an appropriate balance
of power, increased
accountability and better
capacity for independent
decision-making
 The Board should designate a
lead director among the
independent directors if the
Chairman of the Board is not
independent, including if the
positions of the Chairman of the
Board and Chief Executive
Officer are held by one person.
o putting in place proper
mechanisms ensures
independent views and
perspectives
o it avoids the abuse of
power and authority, and
potential conflict of
interest
o lead director has
sufficient authority to
lead the Board in cases
where management has
clear conflicts of interest
 A director with a material interest
in any transaction affecting the
corporation should abstain from
taking part in the deliberations
for the same.
o ensures that he has no
influence over the
outcome of the
deliberations
o fundamental principle to
be observed is that a
director does not use his
position to profit or gain
some benefit or
advantage for his
himself and/or his/her
related interests
 The non-executive directors
(NEDs) should have separate
periodic meetings with the
external auditor and heads of the
internal audit, compliance and
risk functions, without any
executive directors present to
ensure that proper checks and
balances are in place within the
corporation. The meetings
should be chaired by the lead
independent director.
o NEDs are expected to
scrutinize
Management’s
performance,
particularly in meeting
the companies’ goals
and objectives
o it is their role to satisfy
themselves on the
integrity of the
corporation’s internal
control and
effectiveness of the risk
management systems
6. ASSESSING BOARD PERFORMANCE
a. 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.
 The Board should conduct an
annual self-assessment of its
performance, including the
performance of the Chairman,
individual members and
committees. Every three years,
the assessment should be
supported by an external
facilitator.
o helps the directors to
thoroughly review their
performance and
understand their roles
and responsibilities
o it provides a means to
assess a director’s
attendance at board and
committee meetings,
participation in
boardroom discussions
and manner of voting on
material issues
o the use of an external
facilitator in the
assessment process
increases the objectivity
of the same.
 The Board should have in place
a system that provides, at the
minimum, criteria and process to
determine the performance of
the Board, the individual
 directors, committees and such
system should allow for a
feedback mechanism from the
shareholders.
o Disclosure of the criteria,
process and collective
results of the
assessment ensures
transparency and allows
shareholders and
stakeholders to
determine if the directors
are performing their
responsibilities to the
company
7. STRENGTHENING THE BOARD ETHICS
a. Members of the Board are duty-bound
to apply high ethical standards, taking
into account the interests of all
stakeholders.
 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. The Code
should be properly disseminated
to the Board, senior
management and employees. It
should also be disclosed and
made available to the public
through the company website.
 The Board should ensure the
proper and efficient
implementation and monitoring
of compliance with the Code of
Business Conduct and Ethics
and internal policies.
DISCLOSURE AND TRANSPARENCY
8. ENHANCING COMPANY DISCLOSURE
POLICIES AND PROCEDURES
a. The company should establish
corporate disclosure policies and
procedures that are practical and in
accordance with best practices and
regulatory expectations.
 The Board should establish
corporate disclosure policies and
procedures to ensure a governance policies, programs
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.
 The Company should have a
policy requiring all directors and
officers to disclose/report to the
company any dealings in the
company’s shares within three
business days.
 The Board should fully disclose
all relevant and material
information on individual board
members and key executives to
evaluate their experience and
qualifications, and assess any
potential conflicts of interest that
might affect their judgment.
 The company should provide a
clear disclosure of its policies
and procedure for setting Board
and executive remuneration, as
well as the level and mix of the
same in the Annual Corporate
Governance Report. Also,
companies should disclose the
remuneration on an individual
basis, including termination and
retirement provisions.
 The company should disclose its
policies governing Related Party
Transactions (RPTs) and other
unusual or infrequently occurring
transactions in their Manual on
Corporate Governance. The
material or significant RPTs
reviewed and approved during
the year should be disclosed in
its Annual Corporate
Governance Report.
o regarded as good
corporate governance
practice geared towards
the prevention of
abusive dealings and
transactions and the
promotion of
transparency
 The company should make a full,
fair, accurate and timely
disclosure to the public of every
material fact or event that
occurs, particularly on the
acquisition or disposal of
significant assets, which could
adversely affect the viability or
the interest of its shareholders
and other stakeholders.
Moreover, the Board of the
offeree company should appoint
an independent party to evaluate
the fairness of the transaction
price on the acquisition or
disposal of assets.
 The company’s corporate
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.
o To ensure the better
protection of
shareholders and other
stakeholders’ rights, full
disclosure of the
company’s corporate
governance policies,
programs and
procedures is imperative
9. STRENGTHENING THE EXTERNAL
AUDITOR’S INDEPENDENCE AND
IMPROVING AUDIT QUALITY
a. 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.
 The Audit Committee should
have a robust process for
approving and recommending
the appointment, reappointment,
removal, and fees of the external
auditor. The appointment,
reappointment, removal, and
fees of the external auditor
should be recommended by the
Audit Committee, approved by
the Board and ratified by the
shareholders. For removal of the
external auditor, the reasons for
removal or change should be
disclosed to the regulators and
the public through the company
website and required
disclosures.
 The Audit Committee Charter
should include the Audit
Committee’s responsibility on
assessing the integrity and
independence of external
auditors and exercising effective
oversight to review and monitor
the external auditor’s
independence and objectivity
and the effectiveness of the audit
process, taking into
consideration relevant Philippine
professional and regulatory
requirements. The Charter
should also contain the Audit
Committee’s responsibility on
reviewing and monitoring the
external auditor’s suitability and
effectiveness on an annual
basis.
 The company should disclose
the nature of non-audit services
performed by its external auditor
in the Annual Report to deal with
the potential conflict of interest.
The Audit Committee should be
alert for any potential conflict of
interest situations, given the
guidelines or policies on non-
audit services, which could be
viewed as impairing the external
auditor's objectivity.
o The Audit Committee
oversees the overall
relationship with the
external auditor and it
evaluates and
determines the nature of
non-audit services, if
any, of the external
auditor.
10. INCREASING FOCUS ON NON-FINANCIAL
AND SUSTAINABILITY REPORTING
a. The company should ensure that the
material and reportable non-financial
and sustainability issues are
disclosed.
 The Board should have a clear
and focused policy on the
disclosure of non-financial
information, with emphasis on
the management of economic,
environmental, social and
governance (EESG) issues of its
business, which underpin
sustainability. Companies should
adopt a globally recognized
standard/framework in reporting
sustainability and non-financial
issues.
o One way to respond to
sustainability challenges
is disclosure to all
shareholders and other
stakeholders of the
company’s strategic
(long-term goals) and
operational objectives
(short-term goals), as
well as the impact of a
wide range of
sustainability issues.
11. PROMOTING A COMPREHENSIVE AND
COST-EFFICIENT ACCESS TO RELEVANT
INFORMATION
a. The company should maintain a
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.
 The company should include
media and analysts’ briefings as
channels of communication to
ensure the timely and accurate
dissemination of public, material
and relevant information to its
shareholders and other
investors.
o it is essential for the
company to have a
strategic and well-
organized channel for
reporting
INTERNAL CONTROL SYSTEM AND RISK
MANAGEMENT FRAMEWORK
12. STRENGTHENING THE INTERNAL CONTROL
SYSTEM AND ENTERPRISE RISK
MANAGEMENT FRAMEWORK
a. 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.
 The Company should have an
adequate and effective internal
 control system and an enterprise
risk management framework in
the conduct of its business,
taking into account its size, risk
profile and complexity of
operations.
o help sustain safe and
sound operations as well
as implement
management policies to
attain corporate goals
 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.
o essential to monitor and
guide the
implementation of
company policies
o It helps the company
accomplish its
objectives by bringing a
systematic, disciplined
approach to evaluating
and improving the
effectiveness of the
company’s governance,
risk management and
control functions.
 Subject to a company’s size, risk
profile and complexity of
operations, it should have a
qualified Chief Audit Executive
(CAE) appointed by the Board.
The CAE shall oversee and be
responsible for the internal audit
activity of the organization,
including that portion that is
outsourced to a third-party
service provider. In case of a fully
outsourced internal audit activity,
qualified independent executive
or senior management
personnel should be assigned
the responsibility for managing
the fully outsourced internal audit
activity.
 Subject to its size, risk profile and
complexity of operations, the
company should have a and posted on the
separate risk management
function to identify, assess and
monitor key risk exposures.
 In managing the company’s Risk
Management System, the
company should have a Chief
Risk Officer (CRO), who is the
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.
CULTIVATING A SYNERGIC RELATIONSHIP WITH
SHAREHOLDERS
13. PROMOTING SHAREHOLDER RIGHTS
a. The company should treat all
shareholders fairly and equitably, and
also recognize, protect and facilitate
the exercise of their rights.
 The Board should ensure that
basic shareholder rights are
disclosed in the Manual on
Corporate Governance and on
the company’s website.
o Pre-emptive rights
o Dividend Rights
o Right to propose the
holding of meetings and
to include agenda items
ahead of the scheduled
Annual and Special
Shareholders’ Meeting
o Right to nominate
candidates to the Board
of Directors
o Nomination process
o Voting procedures that
would govern the Annual
and Special
Shareholders’ Meeting
 The Board should encourage
active shareholder participation
by sending the Notice of Annual
and Special Shareholders’
Meeting with sufficient and
relevant information at least 28
days before the meeting.
o Required information in
the Notice include,
among others, the date,
location, meeting
agenda and its rationale
and explanation, and
details of issues to be
deliberated on and
approved or ratified at
the meeting
o allows shareholders to
plan their participation in
the meetings. It is good
practice to have the
Notice sent to all
shareholders at least 28
days before the meeting
company website
 The Board should encourage
active shareholder participation
by making the result of the votes
taken during the most recent
Annual or Special Shareholders’
Meeting publicly available the
next working day. In addition, the
Minutes of the Annual and
Special Shareholders’ Meeting
should be available on the
company website within five
business days from the end of
the meeting.
  The Board should make realize the company’s goals and
available, at the option of a participate in its corporate
shareholder, an alternative governance processes.
dispute mechanism to resolve  The Board should establish
intra-corporate disputes in an policies, programs and
amicable and effective manner. procedures that encourage
This should be included in the employees to actively participate
company’s Manual on Corporate in the realization of the
Governance. company’s goals and in its
 The Board should establish an governance.
Investor Relations Office (IRO) o Health, safety and
to ensure constant engagement welfare
with its shareholders. The IRO o Training and
should be present at every development
shareholders’ meeting. o Reward/compensation
DUTIES TO STAKEHOLDERS for employees
 The Board should set the tone
14. RESPECTING RIGHTS OF STAKEHOLDERS and make a stand against
AND EFFECTIVE REDRESS FOR VIOLATION corrupt practices by adopting an
OF STAKEHOLDERS’ RIGHTS anti-corruption policy and
a. The rights of stakeholders established program in its Code of Conduct.
by law, by contractual relations and Further, the Board should
through voluntary commitments must disseminate the policy and
be respected. Where stakeholders’ program to employees across
rights and/or interests are at stake, the organization through
stakeholders should have the trainings to embed them in the
opportunity to obtain prompt effective company’s culture.
redress for the violation of their rights. o endeavors to mitigate
 The Board should identify the corrupt practices such
company’s various stakeholders as, but not limited to,
and promote cooperation bribery, fraud, extortion,
between them and the company collusion, conflict of
in creating wealth, growth and interest and money
sustainability. laundering
o Stakeholders in o encourages employees
corporate governance to report corrupt
include, but are not practices and outlines
limited to, customers, procedures on how to
employees, suppliers, combat, resist and stop
shareholders, investors, these corrupt practices
creditors, the community  The Board should establish a
the company operates suitable framework for
in, society, the whistleblowing that allows
government, regulators, employees to freely
competitors, external communicate their concerns
auditors, etc. about illegal or unethical
 The Board should establish clear practices, without fear of
policies and programs to provide retaliation and to have direct
a mechanism on the fair access to an independent
treatment and protection of member of the Board or a unit
stakeholders. created to handle whistleblowing
o The company’s Code of concerns. The Board should be
Conduct ideally includes conscientious in establishing the
provisions on the framework, as well as in
company’s policies and supervising and ensuring its
procedures on dealing enforcement.
with various 16. ENCOURAGING SUSTAINABILITY AND
stakeholders. SOCIAL RESPONSIBILITY
 The Board should adopt a a. The company should be socially
transparent framework and responsible in all its dealings with the
process that allow stakeholders communities where it operates. It
to communicate with the should ensure that its interactions
company and to obtain redress serve its environment and
for the violation of their rights. stakeholders in a positive and
15. ENCOURAGING EMPLOYEE’S progressive manner that is fully
PARTICIPATION supportive of its comprehensive and
a. A mechanism for employee balanced development.
participation should be developed to  The company should recognize
create a symbiotic environment, and place an importance on the
 interdependence between participants, board members and company
business and society, and officials.
promote a mutually beneficial - It recognizes the interests of employees and
relationship that allows the other stakeholders and their important role in
company to grow its business, contributing to the long-term success and
while contributing to the performance of the company.
advancement of the society - Are developed with an understanding that
where it operates. corporate governance policies have an important
o The company’s value role of play in achieving broader economic
chain consists of inputs objectives with respect to investor confidence,
to the production capital formation and allocation.
process, the production - Good corporate governance will reassure
process itself and the shareholders and other stakeholders that their
resulting output rights are protected and make it possible for
o Sustainable corporations to decrease the cost of capital and
development means that to facilitate their access to the capital market
the company not only - International flows of capital enable companies to
complies with existing access financing from much larger pool of
regulations, but also investors.
voluntarily employs - A credible corporate governance framework,
value chain processes supported by effective supervision and
that takes into enforcement mechanisms, will help improve the
consideration economic, confidence of domestic investors, reduce the cost
environmental, social of capital, underpin the good functioning of
and governance issues financial markets, and ultimately induce more
and concerns. stable sources of financing.
- The term “board” as used in the Principles is
G20/OECD PRINCIPLES OF CORPORATE meant to embrace the difference national models
GOVERNANCE of board structures.
- The Principles are non-binding and do not aim at
- The purpose of corporate governance is to help detailed prescriptions for national legislation.
build an environment of trust, transparency and Rather, they seek to identify objectives and
accountability necessary for fostering a long-term suggest various means for achieving them.
investment, financial stability and business - The Principles are widely used as a benchmark
integrity, thereby supporting stronger growth and by individual jurisdictions around the world.
more inclusive societies.
- Identify the key building blocks for a sound ENSURING THE BASIS FOR AN EFFECTIVE
corporate governance framework and offer CORPORATE GOVERNANCE FRAMEWORK
practical guidance for implementation at a
national level. The corporate governance framework should
promote transparent and fair markets, and the
ABOUT THE PRINCIPLES efficient allocation of resources. It should be
- Intended to help policymakers evaluate and consistent with the rule of law and support effective
improve the legal, regulatory and institutional supervision and enforcement.
framework for corporate governance, with a view - Effective corporate governance requires a sound
to support economic efficiency, sustainable legal, regulatory and institutional framework that
growth and financial stability. market participants can rely on when they
o Providing shareholders, board members establish their private contractual relations.
and executives as well as financial - Typically comprises elements of legislation,
intermediaries and service providers with regulation, self-regulatory arrangements,
the right incentives to perform their roles voluntary commitments and business practices
within framework of checks and that are the result of a country’s specific
balances. circumstances, history and tradition.
- Intended to be concise, understandable and - The legislative and regulatory elements of the
accessible to the international community. corporate governance framework can usefully be
- Focus on publicly traded companies, both complemented by soft law elements based on the
financial and non-financial “comply or explain” principle such as corporate
- Corporate Governance governance codes in order to allow for flexibility
o involves set of relationships between a and address specificities of individual companies.
company’s management, its board, its - What works well in one company, for one investor
shareholders and other stakeholders. or a particular stakeholder may not necessarily be
o It also provides the structure through generally applicable to corporations, investors
which the objectives of the company are and stakeholders that operate in another context
set, and the means of attaining those and under different circumstances.
objectives and monitoring performance - Countries seeking to implement the Principles
are determined. should monitor their corporate governance
- Do not intend to prejudice or second-guess the framework, including regulatory and listing
business judgement of individual market requirements and business practices, with the
objective of maintaining and strengthening its
 contribution to market integrity and economic
performance.
- in developing a corporate governance framework
in each jurisdiction, national legislators and
regulators should duly consider the need for, and
the results from, effective international dialogue
and co-operation

a. The corporate governance framework should

be developed with a view to its impact on overall
economic performance, market integrity and the
incentives it creates for market participants and
the promotion of transparent and well