December 19, 2019

SEC MEMORANDUM CIRCULAR NO. 24-19

TO : Public Companies and Registered Issuers

SUBJECT : Code of Corporate Governance for Public Companies and

Registered Issuers

To promote the development of a strong corporate governance culture and keep

abreast with recent developments in corporate governance best practices, the
Commission, pursuant to its regulatory power under Section 179 (d) of Republic Act
No. 11232 otherwise known as the Revised Corporation Code of the Philippines,
resolved to adopt the Code of Corporate Governance for Public Companies and
Registered Issuers ("CG Code for PCs and RIs").
(1) The CG Code for PCs and RIs supersedes the following SEC
Memorandum Circulars:
a) SEC Memorandum Circular No. 6, Series of 2009 (Revised Code of
Corporate Governance);
b) SEC Memorandum Circular No. 9, Series of 2014 (Amendment to the
Revised Code of Corporate Governance); and
c) SEC Memorandum Circular No. 4, Series of 2017 (Term Limits of
Independent Directors).
The aforementioned Memorandum Circulars shall remain in effect for other
covered companies, when applicable.
(2) All other relevant Memorandum Circulars on corporate governance shall
remain in force and effect until further notice.
(3) All public companies and registered issuers shall submit a new Manual on
Corporate Governance within six (6) months from the effectivity of this Memorandum
Circular.
(4) Notwithstanding the issuance of the CG Code for PCs and RIs, public
companies and registered issuers shall submit a Compliance O cer Certi cation on
the extent of the company's compliance with Revised Code of Corporate Governance
and Corporate Secretary Certi cation on record of attendance in board meetings for
the covered year 2019 on or before 30 January 2020.
This Memorandum Circular shall take effect fteen (15) days after its publication
in two (2) newspapers of general circulation in the Philippines.
Pasay City, Philippines, December 19, 2019.

For the Commission:

(SGD.) EMILIO B. AQUINO

Chairperson

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 ATTACHMENT
Code of Corporate Governance for Public Companies and Registered Issuers
INTRODUCTION

1. The Code of Corporate Governance for Public Companies and Registered

Issuers is the next in the series of Corporate Governance Codes for different types of
corporations under the supervision of the Securities and Exchange Commission. It is
rooted in the same Corporate Governance principles provided in the Code of Corporate
Governance for Publicly-Listed Companies with the same intention of raising the
corporate governance standards of Philippine corporations consistent with the
G20/OECD 1 Principles of Corporate Governance and other internationally recognized
corporate governance principles.
2. The Code will adopt the "comply or explain" approach. This approach
combines voluntary compliance with mandatory disclosure. Companies do not have to
comply with the Code, but they must state in their annual corporate governance reports
whether they comply with the Code provisions, identify any areas of non-compliance,
and explain the reasons for non-compliance.
3. The Code is arranged as follows: Principles, Recommendations and
Explanations.
T h e Principles can be considered as high-level statements of corporate
governance good practice and are applicable to all companies.
The Recommendations are the objective criteria that are intended to identify
the speci c features of corporate governance good practices that are recommended
for companies covered by this Code.
The Explanations strive to provide companies with additional information on
the recommended best practice.
4. This Code does not, in any way, prescribe a "one size ts all" framework. It
is designed to allow companies some exibility in establishing their corporate
governance practices. Larger companies would generally be expected to follow most
of the Code's provisions. Smaller companies may decide that the costs of some of the
provisions outweigh the bene ts, or are less relevant in their case. Hence, the Principle
of Proportionality is considered in the application of the provisions of this Code.
5. Definition of Terms:
Board of Directors — the governing body elected by the
shareholders/members that exercises the corporate powers of a corporation,
conducts all its business and controls its properties. For purposes of this Code,
reference to Board of Directors and/or Directors shall also include reference to Board
of Trustees and/or Trustees, respectively, in applicable cases.
Corporate Governance — the system of stewardship and control to guide
organizations in ful lling their long-term economic, moral, legal and social obligations
towards their shareholders/members and other stakeholders.
Corporate governance is a system of direction, feedback and control using
regulations, performance standards and ethical guidelines to hold the board of
directors and Senior Management accountable for ensuring ethical behavior and
reconciling long-term customer satisfaction with shareholder/member value to the
benefit of all stakeholders and society.
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 Its purpose is to maximize the organization's long-term success, thereby
creating sustainable value for its shareholders/members, other stakeholders and the
nation.
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. 2
Executive director — a director who has executive responsibility of day-to-day
operations of a part or the whole of the corporation.
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.
Internal control — a process designed and effected by the entity's Board of
Directors/Trustees, Senior Management, and all levels of personnel to provide
reasonable assurance on the achievement of objectives through e cient and effective
operations; reliable, complete and timely nancial and management of corporate
information; and compliance with applicable laws, regulations, and the organization's
policies and procedures.
Management — a group of executives given the authority by the Board of
Directors/Board of Trustees to implement the policies it has laid down in the conduct
of the business of the corporation.
Members — the members of non-stock corporations.
Non-executive director — a director who has no executive responsibility and
does not perform any work related to the day-to-day operations of the corporation.
Non-Proprietary Right — an interest, participation or privilege over a speci c
property of a corporation that allows the holder to use such property under certain
terms and conditions. The holder, however, shall not be entitled to dividends from the
corporation or to its assets upon its liquidation.
Proprietary Right — an interest, participation or privilege in a corporation which
gives the holder the right to use the facilities and to receive dividends or earnings from
the corporation. Upon the liquidation of the corporation, the holder shall have
proportionate ownership rights over its assets.
Public Company — a company with assets of at least Fifty Million Pesos
(Php50,000,000.00) and having two hundred (200) or more shareholders holding at
least one hundred (100) shares each of equity securities.
Registered Issuer — a company that: (1) issues proprietary and/or non-
proprietary shares/certi cates; (2) issues equity securities to the public that are not
listed in an Exchange; or (3) issues debt securities to the public that are required to be
registered to the SEC whether or not listed in an Exchange.
Related parties — covers the covered entity's directors, o cers, substantial
shareholders and their spouses and relatives within the fourth civil degree of
consanguinity or a nity, legitimate or common-law, and other persons if these persons
have control, joint control or signi cant in uence over the covered entity. It also covers
the covered entity's parent, subsidiary, fellow subsidiary, associate, a liate, joint
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 venture or an entity that is controlled, jointly controlled or signi cantly in uenced or
managed by a person who is a related party.
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.
Significant Influence — The power to participate in the nancial and operating
policy decisions of the company but has no control or joint control of those policies.
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, non-proprietary certi cate holders,
customers, creditors, employees, suppliers, investors, as well as the government and
the community in which the company operates.
THE BOARD'S GOVERNANCE RESPONSIBILITIES

1. ESTABLISHING A COMPETENT BOARD

Principle
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 growth in
a manner consistent with its corporate objectives and the long-term best interests of
its shareholders/members and other stakeholders.
Recommendation 1.1
The Board should be composed of directors with a collective working
knowledge, experience or expertise that is relevant to the company's industry/sector.
The Board should always ensure that it has an appropriate mix of competence and
expertise and that its members remain quali ed for their positions individually and
collectively, to enable it to ful ll its roles and responsibilities and respond to the needs
of the organization based on the evolving business environment and strategic direction.
Explanation
Competence can be determined from the collective knowledge, experience and
expertise of each director that is relevant to the industry/sector that the company is in.
A Board with the necessary knowledge, experience and expertise can properly perform
its tasks and functions. In this regard, the Board sets quali cation standards for its
members to facilitate the selection of potential nominees for board seats, and to serve
as a benchmark for the evaluation of its performance.
Recommendation 1.2
The Board should be headed by a competent and qualified Chairperson.
Explanation
The roles and responsibilities of the Chairperson should be contained in the
Board Charter. These include, among others, the following:
a. Makes certain that the meeting's agenda focuses on strategic matters,
including the overall risk appetite of the corporation, taking into account
the developments in the business and regulatory environments, key
governance concerns, and contentious issues that will signi cantly affect
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 operations;
b. Guarantees that the Board receives accurate, timely, relevant, insightful,
concise, and clear information to enable it to make sound decisions;
c. Facilitates discussions on key issues by fostering an environment
conducive for constructive debate and leveraging on the skills and
expertise of individual directors;
d. Ensures that the Board su ciently challenges and inquires on reports
submitted and representations made by Management;
e. Assures the conduct of proper orientation for rst-time directors and
continuing training opportunities for all directors; and
f. Makes sure that performance of the Board is evaluated at least once a year
and discussed or followed up on if necessary.
Recommendation 1.3
The Company should have a policy on the training of directors, including an
orientation program for rst-time directors and relevant annual continuing training for
all directors.
Explanation
The orientation program for rst-time directors and relevant annual continuing
training for all directors aim to promote effective board performance and continuing
qualification of the directors in carrying out their duties and responsibilities.
The orientation program ensures that new members are appropriately apprised
of their duties and responsibilities, before beginning their directorships, and throughout
their tenure. The orientation program covers SEC-mandated topics on corporate
governance and includes an introduction to the company's business, Articles of
Incorporation and By-laws, and Code of Business Conduct and Ethics.
The annual continuing training program, on the other hand, makes certain that the
directors are continuously informed of the developments in the business and regulatory
environments, including emerging risks relevant to the company. The training can be on
any matter relevant to the company, which could include training on audit, internal
controls, risk management, sustainability and strategy. It is encouraged that companies
assess their own training and development needs in determining the coverage of their
continuing training program. For corporate governance trainings, the trainings can be
conducted by SEC Accredited Institutional Training Providers.
It is suggested that the orientation program for rst-time directors, in any
company, be for at least eight (8) hours, while the annual continuing training be for at
least four (4) hours.
Recommendation 1.4
The Board should have a policy on board diversity.
Explanation
Having a board diversity policy is a move to avoid groupthink and ensure that
optimal decision-making is achieved. Groupthink is a mode of thinking in which
individual members of small cohesive groups tend to accept a viewpoint or conclusion
that represents a perceived group consensus, whether or not the group members
believe it to be valid, correct, or optimal. Groupthink reduces the e ciency of collective
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 problem solving within such groups. 3
A board diversity policy is not limited to gender diversity. It also includes
diversity in age, ethnicity, culture, skills, competence and knowledge. On gender
diversity policy, a good example is to increase the number of female directors, including
female independent directors (IDs).
Recommendation 1.5
The Board should ensure that it is assisted in its duties by a Corporate Secretary,
who should be a separate individual from the Compliance O cer. The Corporate
Secretary should not be a member of the Board of Directors and should annually attend
a training on corporate governance.
Explanation
The Corporate Secretary is primarily responsible to the corporation and its
shareholders/members, and not to the Chairperson or President of the Company and
has, among others, the following duties and responsibilities:
a. Assists the Board and the Board committees in the conduct of their
meetings (i.e., agenda setting, preparation of annual schedule of meetings
and board calendar);
b. Safekeeps and preserves the integrity of the minutes of the meetings of
the Board, Board committees and shareholders/members, as well as other
official records of the corporation;
c. Keeps abreast of relevant laws, regulations, all governance issuances,
industry developments and operations of the corporation, and advises the
Board and the Chairperson on all relevant issues as they arise;
d. Works fairly and objectively with the Board, Management and
shareholders/members and contributes to the ow of information
between the Board and Management, the Board and its committees, and
the Board and its shareholders/members as well as other stakeholders;
e. Advises on the establishment of board committees and their terms of
reference;
f. Informs members of the Board, in accordance with the by-laws, of the
agenda of their meetings at least ve (5) working days before the date of
the meeting, and ensures that the members have before them accurate
information that will enable them to arrive at intelligent decisions on
matters that require their approval;
g. Attends all Board meetings, except when justifiable causes, such as illness,
death in the immediate family and serious accidents, prevent him from
doing so;
h. Performs all required administrative functions;
i. Oversees the drafting of the by-laws and ensures that they conform with
regulatory requirements; and
j. Performs such other duties and responsibilities as may be provided by the
Board and the Commission.
Recommendation 1.6
The Board should ensure that it is assisted in its duties by a Compliance O cer,
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 who should have a rank of Senior Vice President or an equivalent position with
adequate stature and authority in the corporation. The Compliance O cer should not
be a member of the Board of Directors and should annually attend a training on
corporate governance.
Explanation
The Compliance O cer is a member of the company's Management team in
charge of the compliance function. Similar to the Corporate Secretary, he is primarily
liable to the corporation and its shareholders/members, and not to the Chairperson or
President of the company. He has, among others, the following duties and
responsibilities:
a. Ensures proper onboarding of new directors (i.e., orientation on the
company's business, charter, articles of incorporation and by-laws, among
others);
b. Monitors, reviews, evaluates and ensures the compliance by the
corporation, its o cers and directors with the relevant laws, this Code,
rules and regulations and all governance issuances of regulatory agencies;
c. Reports to the Board if violations are found and recommends the
imposition of appropriate disciplinary action;
d. Ensures the integrity and accuracy of all documentary and electronic
submissions as may be allowed under SEC rules and regulations;
e. Appears before the SEC when summoned in relation to compliance with
this Code and other relevant rules and regulations;
f. Collaborates with other departments within the company to properly
address compliance issues, which may be subject to investigation;
g. Identi es possible areas of compliance issues and works towards the
resolution of the same;
h. Ensures the attendance of board members and key o cers to relevant
trainings; and
i. Performs such other duties and responsibilities as may be provided by the
Board and SEC.
2. ESTABLISHING CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD
Principle
The duciary roles, responsibilities and accountabilities of the Board as provided
under the law, the company's articles of incorporation and by-laws, and other legal
pronouncements and guidelines should be clearly made known to all directors as well
as to shareholders/members and other stakeholders.
Recommendation 2.1
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/members and all other stakeholders.
Explanation
There are two key elements of the duciary duty of board members: the duty of
care and the duty of loyalty. The duty of care requires board members to act on a fully
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 informed basis, in good faith, and with due diligence and care. The duty of loyalty is also
of central importance; the board member should act in the interest of the company and
all its shareholders/members, and not those of the controlling group or any other
stakeholder. The duciary duty of the board is to promote the value of the corporation.
The board must exercise their business judgment in considering and reconciling the
interests of various stakeholders — including shareholders.
Recommendation 2.2
The Board should oversee the development of and approve the company's
business and strategy, and monitor its implementation, in order to sustain the
company's long-term viability and strength.
Explanation
Sound strategic policies and objectives translate to the company's proper
identi cation and prioritization of its goals and guidance on how best to achieve them.
This creates optimal value to the corporation.
Recommendation 2.3
The Board should be responsible for ensuring and adopting an effective
succession planning program for directors, key o cers and Management to ensure the
continuous and consistent growth of the company. This should include adopting a
retirement policy for directors and key officers.
Explanation
The smooth and e cient transition of company leadership to highly competent
and quali ed individuals is the goal of succession planning. It is the Board's
responsibility to implement a process of appointing competent, professional, honest
and highly motivated Management o cers who can add value to the company. A good
succession plan is linked to the documented roles and responsibilities for each
position, and should start in objectively identifying the key knowledge, skills, and
abilities required for the position.
Recommendation 2.4
The Board should align the remuneration of key o cers and board members
with the long-term interests of the company/organization. In doing so, it should
formulate and adopt a policy specifying the relationship between remuneration and
performance. In this regard, no director or trustee should participate in the
determination of his own per diem or compensation.
Explanation
Companies are able to attract and retain the services of quali ed and competent
individuals if the level of remuneration is su cient, in line with the business and risk
strategy, objectives, values and measures are incorporated to prevent con icts of
interest. Remuneration policies promote a sound risk culture and encourage employees
to act in the long-term interest of the company as a whole, rather than for themselves
or their business lines only. Moreover, it is good practice for the Board to formulate and
adopt a policy specifying the relationship between remuneration and performance,
which includes specific financial and non-financial metrics to measure performance.
Key considerations in determining proper compensation include the following:
(1) the level of remuneration is commensurate to the responsibilities of the role; (2) no
director or trustee should participate in the determination of his own per diem or
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 compensation; 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 audit), their
remuneration is determined independently from any business line being overseen, and
their performance measures are based principally on the achievement of their
objectives.
Recommendation 2.5
The Board should have a formal and transparent board nomination and election
policy that should include how it accepts nominations from its shareholders/members
and reviews the quali cations of nominated candidates. The policy should also include
an assessment of the effectiveness of the Board's processes and procedures in the
nomination, election, or replacement/removal of a director/trustee. In addition, its
process of identifying the quality of directors should be aligned with the strategic
direction of the company.
Explanation
It is the Board's responsibility to develop a policy on board nomination and
election. A formal and transparent nomination and election policy clearly provides for
the procedures on how the Board accepts nominations and encourages
shareholders'/members' participation.
The nomination and election process also includes the review and evaluation of
the quali cations of all persons nominated to the Board, including whether candidates:
(1) possess the knowledge, skills, experience, and particularly in the case of non-
executive directors (NEDs), the independence of mind given their responsibilities to the
Board and in light of the entity's business and risk pro le; (2) have a record of integrity
and good repute; (3) have su cient time to carry out their responsibilities; and (4) have
the ability to promote a smooth interaction between board members. The process
includes monitoring of the qualifications of the directors.
The following may be considered as grounds for the permanent disquali cation
of a director:
a. Any person convicted by nal judgment or order by a competent judicial or
administrative body of any crime that: (a) involves the purchase or sale of
securities, as de ned in the Securities Regulation Code; (b) arises out of
the person's conduct as an underwriter, broker, dealer, investment adviser,
principal distributor, mutual fund dealer, futures commission merchant,
commodity trading advisor, or oor broker; or (c) arises out of his
duciary relationship with a bank, quasi-bank, trust company, investment
house or as an affiliated person of any of them;
b. Any person who, by reason of misconduct, after hearing, is permanently
enjoined by a nal judgment or order of the SEC, Bangko Sentral ng
Pilipinas (BSP) or any court or administrative body of competent
jurisdiction from: (a) acting as underwriter, broker, dealer, investment
adviser, principal distributor, mutual fund dealer, futures commission
merchant, commodity trading advisor, or oor broker; (b) acting as
director or o cer of a bank, quasi-bank, trust company, investment house,
or investment company or as an a liated person of any of them; (c)
engaging in or continuing any conduct or practice in any of the capacities
mentioned in sub-paragraphs (a) and (b) above, or willfully violating the
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 laws that govern securities and banking activities.
The disquali cation should also apply if (a) such person is the subject of an
order of the SEC, BSP or any court or administrative body denying,
revoking or suspending any registration, license or permit issued to him
under the Revised Corporation Code of the Philippines, Securities
Regulation Code or any other law administered by the SEC or BSP, or under
any rule or regulation issued by the Commission or BSP; (b) such person
has otherwise been restrained to engage in any activity involving securities
and banking; or (c) such person is the subject of an effective order of a
self-regulatory organization suspending or expelling him from
membership, participation or association with a member or participant of
the organization;
c. Any person convicted by nal judgment or order by a court, or competent
administrative body of an offense involving moral turpitude, fraud,
embezzlement, theft, estafa, counterfeiting, misappropriation, forgery,
bribery, false affirmation, perjury or other fraudulent acts;
d. Any person who has been adjudged by nal judgment or order of the SEC,
BSP, court, or competent administrative body to have willfully violated,
willfully aided, abetted, counseled, induced or procured the violation of any
provision of the Corporation Code, Securities Regulation Code or any other
law, rule, regulation or order administered by the SEC or BSP;
e. Any person judicially declared as insolvent;
f. Any person found guilty by nal judgment or order of a foreign court or
equivalent nancial regulatory authority for acts, violations or misconduct
similar to any of the acts, violations or misconduct enumerated above;
g. Conviction by nal judgement of an offense punishable by imprisonment
for more than six years, or a violation of the Revised Corporation Code of
the Philippines and Securities Regulation Code committed within ve years
prior to the date of his election or appointment; and
h. Other grounds as the SEC may provide pursuant to the provisions of the
Revised Corporation Code of the Philippines, Securities Regulation Code
and other related laws.
In addition, the following may be grounds for temporary disquali cation of a
director:
a. Absence in more than fty percent (50%) of all regular and special
meetings of the Board during his incumbency, or any 12-month period
during the said incumbency, unless the absence is due to illness, death in
the immediate family or serious accident. The disqualification should apply
for purposes of the succeeding election;
b. Dismissal, termination or removal for cause as director of any publicly-
listed company, public company, registered issuer of securities and holder
of a secondary license from the Commission. The disquali cation should
be in effect until he has cleared himself from any involvement in the cause
that gave rise to his dismissal, termination or removal;
c. If the bene cial equity ownership of an independent director (ID) in the
corporation or its subsidiaries and a liates exceeds two percent (2%) of
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 its subscribed capital stock. The disquali cation from being elected as an
ID is lifted if the limit is later complied with; and
d. If any of the judgments or orders cited in the grounds for permanent
disqualification has not yet become final.
Recommendation 2.6
The Board should have the overall responsibility in ensuring that there is a policy
and system governing related party transactions (RPTs) and other unusual or
infrequently occurring transactions, particularly those which pass certain thresholds of
materiality. The policy should include the appropriate review and approval of material
RPTs, which guarantee fairness and transparency of the transactions.
Explanation
Ensuring the integrity of related party transactions (RPTs) is an important
duciary duty of the director. It is the Board's role to initiate policies and measures
geared towards promotion of transparency, prevention of abuse, and protection of the
interest of all shareholders/members. One such measure is requiring material RPTs to
be approved by at least two-thirds (2/3) of the Board, with majority of the independent
directors approving the transaction, in accordance with the provisions of the Revised
Corporation Code of the Philippines, SEC issuances and other related laws. Other
measures include ensuring that transactions occur at market prices, at arm's-length
basis and under conditions that protect the rights of all shareholders/members.
The following are suggestions for the content of the RPT Policy:
• Identification of related parties;
• Coverage of RPT policy;
• Guidelines in ensuring arm's-length terms;
• Identi cation and prevention or management of potential or actual con icts
of interest which may arise;
• Adoption of materiality thresholds, as well as internal limits for individual
and aggregate exposures;
• Approval of material RPTs based on the company's materiality threshold;
• Disclosure requirement of material RPTs;
• Self-assessment and periodic review of policy;
• Whistle-blowing mechanisms; and
• Restitution of losses and other remedies for abusive RPTs.
In addition, the company is given the discretion to set their materiality threshold
at a level where omission or misstatement of the transaction could pose a signi cant
risk to the company and in uence its economic decision. The SEC may direct a
company to reduce its materiality threshold or amend excluded transactions if the SEC
deems that the threshold or exclusion is inappropriate considering the company's size,
risk profile, and risk management systems.
Depending on the materiality threshold, approval of Management, the Board or
the shareholders may be required. In cases where the Board and/or
shareholders'/members' approval is required, it is good practice for interested
directors and/or shareholders/members, respectively, to abstain and let the
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 disinterested parties decide.
Recommendation 2.7
The Board should be primarily responsible for approving the selection and
assessing the performance of the Management led by the Chief Executive Officer (CEO)
or his equivalent, and control functions led by their respective heads (Chief Risk O cer,
Chief Compliance Officer, and Chief Audit Executive, as may be applicable).
Explanation
It is the responsibility of the Board to appoint a competent Management team at
all times, monitor and assess the performance of the Management team based on
established performance standards that are consistent with the company's strategic
objectives, and conduct a regular review of the company's policies with the
management team. In the selection process, t and proper standards are to be applied
on key personnel and due consideration is given to integrity, technical expertise and
experience in the company's business, either current or planned.
Recommendation 2.8
The Board should establish an effective performance evaluation framework,
which includes the standard or criteria for assessment, that will ensure that the
Management, including the Chief Executive O cer or his equivalent, and personnel's
performance is at par with the standards set by the Board and Senior Management.
Explanation
Results of performance evaluation is oftentimes linked to other human resource
activities such as training and development, remuneration, and succession planning.
These form part of the assessment of the continuing quali cation, tness, and
propriety of the Management, and personnel in carrying out their respective duties and
responsibilities.
Recommendation 2.9
The Board should oversee that an appropriate internal control system is in place,
including setting up a mechanism for monitoring and managing potential/actual
con icts of interest of board members, management, and shareholders/members. The
Board should also adopt an Internal Audit Charter.
Explanation
In the performance of the Board's oversight responsibility, the minimum internal
control mechanisms include overseeing the implementation of the key control
functions, such as risk management, compliance and internal audit, and reviewing the
corporation's human resource policies, con ict of interest situations, compensation
program for employees and Management succession plan.
Recommendation 2.10
The Board should oversee that a sound Enterprise Risk Management framework
is in place to effectively identify, monitor, assess and manage key business risks. The
risk management framework should guide the Board in identifying units/business lines
and enterprise-level risk exposures, as well as the effectiveness of risk management
strategies.
Explanation
Risk management policy is part and parcel of a corporation's business strategy.
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 The Board is responsible for de ning the company's level of risk tolerance and
providing oversight over its risk management policies and procedures.
Recommendation 2.11
The Board should have a Board Charter that formalizes and clearly states its
roles, responsibilities and accountabilities in carrying out its duciary duties. The Board
Charter should serve as a guide to the directors in the performance of their functions
and should be made publicly available.
Explanation
The Board Charter guides the directors on how to discharge their functions. It
provides the standards for evaluating the performance of the Board. The Board Charter
also contains the roles and responsibilities of the Chairperson.
3. ESTABLISHING BOARD COMMITTEES
Principle
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, compliance and other key corporate governance concerns, such as
nomination and remuneration. The composition, functions and responsibilities of all the
board committees should be contained in their respective board committee charters.
Recommendation 3.1
The Board should establish board committees that focus on speci c board
functions to aid in the optimal performance of its roles and responsibilities. The Board
committees should be composed only of board members.
Explanation
Board committees such as the Audit Committee, Corporate Governance
Committee, and Board Risk Oversight Committee are necessary to support the Board in
the effective performance of its functions. The establishment of the same, or any other
committees that the company deems necessary, allows for concentration of focus in
speci c issues and leads to a better management of the Board's workload. The type of
board committees to be established by a company would depend on its size, risk
pro le, nature and complexity of operations. However, if the committees are not
established, the functions of these committees may be carried out by the whole board
or by any other committee.
Recommendation 3.2
The Board should establish an Audit Committee to enhance its oversight
capability over the company's nancial 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 (3) appropriately quali ed non-
executive directors, the majority of whom, including the Chairperson, should be
independent directors. All of the members of the committee must have relevant
background, knowledge, skills, and/or experience in the areas of accounting, auditing
and nance. The Chairperson of the Audit Committee should not be the Chairperson of
the Board or of any other committees.
Explanation
The Audit Committee is responsible for overseeing the Senior Management in
establishing and maintaining an adequate, effective and e cient internal control
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 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 Audit Committee has the following duties and responsibilities, among
others:
a. Recommends the approval of the Internal Audit (IA) Charter, which formally
defines the responsibilities, powers and authority of the IA Department, the
audit plan of the IA Department, as well as oversees the implementation of
the IA Charter;
b. Through the IA Department, monitors and evaluates the adequacy and
effectiveness of the corporation's internal control system, integrity of
nancial reporting, and security of physical and information assets. Well-
designed internal control procedures and processes that will provide a
system of checks and balances should be in place in order to: (a)
safeguard the company's resources and ensure their effective utilization,
(b) prevent occurrence of fraud and other irregularities, (c) protect the
accuracy and reliability of the company's nancial data, and (d) ensure
compliance with applicable laws and regulations;
c. Oversees the IA Department, and recommends the appointment and
removal of an IA head as well as his quali cations, and grounds for
appointment and removal. The Audit Committee should also approve the
terms and conditions for outsourcing internal audit services, if applicable;
d. Establishes and identi es the reporting line of the Internal Auditor to
enable him to properly ful ll his duties and responsibilities. For this
purpose, he should directly report to the Audit Committee;
e. Monitors the Management's responsiveness to the Internal Auditor's
findings and recommendations;
f. Prior to the commencement of the audit, discusses with the External
Auditor the nature, scope and expenses of the audit, and ensures the
proper coordination if more than one audit rm is involved in the activity to
identify proper coverage and minimize duplication of efforts;
g. Evaluates and determines the non-audit work, if any, of the External
Auditor, and periodically reviews the non-audit fees paid to the External
Auditor in relation to the total fees paid and the corporation's overall
consultancy expenses. The Audit Committee should disallow any non-audit
work that will con ict with the duties of an External Auditor or may pose a
threat to his independence. 4 The non-audit work, if allowed, should be
disclosed in the corporation's Annual Report and Annual Corporate
Governance Report;
h. Reviews and approves the Interim and Annual Financial Statements before
their submission to the Board, with particular focus on the following
matters:
• Any change/s in accounting policies and practices
• Areas where a significant amount of judgment has been exercised
• Significant adjustments resulting from the audit

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 • Going concern assumptions
• Compliance with accounting standards
• Compliance with tax, legal and regulatory requirements
i. Reviews the recommendations in the External Auditor's management letter;
j. Performs oversight functions over the corporation's Internal and External
Auditors and ensures their independence and unrestricted access to all
records, properties and personnel to enable them to perform their
respective audit functions taking into consideration relevant Philippine
professional and regulatory requirements;
k. Coordinates, monitors and facilitates compliance with laws, rules and
regulations;
l. Recommends to the Board the appointment, reappointment, removal and
fees of the External Auditor, duly accredited by the Commission, who
undertakes an independent audit of the corporation, and provides an
objective assurance on the manner by which the nancial statements
should be prepared and presented to the shareholders;
m. Evaluates on an ongoing basis existing relations between and among
businesses and counterparties to ensure that all related parties are
continuously identi ed, RPTS are monitored, the Related Party Registry is
updated to capture subsequent changes in relationships with
counterparties (from non-related to related and vice versa);
n. In case of the absence of a Related Party Transactions (RPTs) Committee,
evaluates all RPTs to ensure that these are not undertaken on more
favorable economic terms (e.g., price, commissions, interest rates, fees,
tenor, collateral requirement) to such related parties than similar
transactions with non-related parties under similar circumstances and that
no corporate or business resources of the company are misappropriated
or misapplied;
o. In case of the absence of an RPT Committee:
• Determines any potential reputational risk issues that may arise as a
result of or in connection with RPTs. In evaluating RPTs, the
Committee takes into account, among others, the following:
1. The related party's relationship to the company and
interest in the transaction;
2. The material facts of the proposed RPT, including the
proposed aggregate value of such transaction;
3. The benefits to the corporation of the proposed RPT;
4. The availability of other sources of comparable products
or services; and
5. An assessment of whether the proposed RPT is
undertaken on terms and conditions that are comparable
to the terms generally available to an unrelated party
under similar circumstances. The company should have
an effective price discovery system in place and exercise
due diligence in determining a fair price for RPTs.
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 • Ensures that appropriate disclosure is made, and/or information is
provided to regulating and supervising authorities relating to the
company's RPT exposures, and policies on potential and/or actual
con icts of interest. The disclosure should include information on
the approach to managing material con icts of interest that are
inconsistent with such policies, and con icts that could arise as a
result of the company's a liation or transactions with other related
parties;
• Reports to the Board of Directors on a regular basis, the status and
aggregate exposures to each related party, as well as the total
amount of exposures to all related parties;
• Ensures that transactions with related parties, including write-off of
exposures are subject to a periodic independent review or audit
process;
• Oversees the implementation of the system for identifying,
monitoring, measuring controlling, and reporting RPTs, including a
periodic review of RPT policies and procedures; and
p. Performs the functions of the Board Risk Oversight Committee, as
provided under Recommendations 3.4, in the absence thereof.
q. Meets internally and with the Board at least once every quarter without the
presence of the CEO or other Management team members, and
periodically meets with the head of the IA.
Recommendation 3.3
The Board should establish a Corporate Governance Committee tasked to assist
the Board in the performance of its corporate governance responsibilities, including the
functions that were formerly assigned to the Nomination and Remuneration
Committee. It should be composed of at least three (3) directors, majority of whom
should be independent directors, including the Chairperson.
Explanation
The Corporate Governance Committee (CG Committee) is tasked with ensuring
compliance with and proper observance of corporate governance principles and
practices. It has the following duties and functions, among others:
a. Oversees the implementation of the corporate governance framework and
periodically reviews the said framework to ensure that it remains
appropriate in light of material changes to the corporation's size,
complexity of operations and business strategy, as well as its business
and regulatory environments;
b. Oversees the periodic performance evaluation of the Board and its
committees as well as the executive management, and conducts an annual
evaluation of the said performance;
c. Ensures that the results of the Board evaluation are discussed, and that
concrete action plans are developed and implemented to address the
identified areas for improvement;
d. Recommends the continuing education/training programs for directors,
assignment of tasks/projects to board committees, succession plan for
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 the board members and senior o cers, and remuneration packages for
corporate and individual performance;
e. Adopts corporate governance policies and ensures that these are
reviewed and updated regularly, and consistently implemented in form and
substance;
f. Proposes and plans relevant trainings for the members of the Board;
g. Determines the nomination and election process for the company's
directors and de nes the general pro le of board members that the
company may need, and ensures that appropriate knowledge,
competencies and expertise that complement the existing skills of the
Board are adopted as standards and criteria for nomination and election;
and
h. Establishes a formal and transparent procedure for determining the
remuneration of directors and o cers that is consistent with the
corporation's culture and business strategy as well as the business
environment in which it operates.
The establishment of a Corporate Governance Committee does not preclude
companies from establishing separate Remuneration or Nomination Committees, if
they deem desirable or necessary.
Recommendation 3.4
Subject to a corporation's size, risk pro le, nature 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 (3) directors, the majority of whom should be independent directors,
including the Chairperson. At least one member of the committee must have relevant
thorough knowledge and experience on risk and risk management.
Explanation
The establishment of a Board Risk Oversight Committee (BROC) is particularly
recommended for issuers of debt securities and for companies with a high risk profile.
Enterprise Risk Management (ERM) is integral to an effective corporate
governance process and the achievement of a company's value creation objectives.
Thus, the BROC has the responsibility to assist the Board in ensuring that there is an
effective and integrated risk management process in place. With an integrated
approach, the Board and top management will be in a position to make well-informed
decisions, having taken into consideration risks related to signi cant business
activities, plans and opportunities.
The BROC has the following duties and responsibilities, among others:
a. Develops a formal ERM plan which contains the following elements: (a)
common language or register of risks, (b) well-de ned risk management
goals and objectives, (c) uniform processes of assessing risks and
developing strategies to manage prioritized risks, (d) designing and
implementing risk management strategies, and (e) continuing
assessments to improve risk strategies, processes and measures;
b. Oversees the implementation of the ERM plan through a Management Risk
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 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 concerned units or o ces are
addressing and managing these risks;
c. Evaluates the risk management plan to ensure its continued relevance,
comprehensiveness and effectiveness. The BROC revisits de ned risk
management strategies, looks for emerging or changing material
exposures, and keeps abreast of signi cant developments that seriously
impact the likelihood of harm or loss;
d. Advises the Board on its risk appetite levels and risk tolerance limits;
e. Reviews at least annually the company's risk appetite levels and risk
tolerance limits based on changes and developments in the business, the
regulatory framework, the external economic and business environment,
and major events which may have occurred in the company;
f. Assesses the probability of each identi ed risk becoming a reality and
estimates its possible signi cant nancial impact and likelihood of
occurrence. Priority areas of concern are those risks that are the most
likely to occur and to impact the performance and stability of the
corporation and its stakeholders;
g. Oversees the Management's activities in managing credit, market, liquidity,
operational, legal and other risk exposures of the corporation. This
function includes regularly receiving information on risk exposures and risk
management activities from Management; and
h. Reports to the Board on a regular basis, or as deemed necessary, the
company's material risk exposures, the actions taken to reduce the risks,
and recommends further action or plans, as necessary.
Recommendation 3.5
All established committees should 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 and its members.
Explanation
The Committee Charter clearly de nes the roles, accountabilities, powers and
authority 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
Principle
To show full commitment to the company, the directors should devote the time
and attention necessary to properly and effectively perform their duties and
responsibilities, including sufficient time to be familiar with the corporation's business.
Recommendation 4.1
The directors should attend and actively participate in all meetings of the Board,
Committees, and shareholders/members in person or through tele-/videoconferencing
conducted in accordance with the rules and regulations of the Commission, except
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 when justi able causes, such as, illness, death in the immediate family and serious
accidents, prevent them from doing so. In Board and Committee meetings, the
directors should review meeting materials and if called for, ask the necessary
questions or seek clarifications and explanations.
Explanation
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/members. In this way, the
director is able to effectively perform his duty to the company and its
shareholders/members.
The absence of a director in more than fty percent (50%) of all regular and
special meetings of the Board during his incumbency is a ground for disquali cation in
the succeeding election, unless the absence is due to illness, death in the immediate
family, serious accident or other unforeseen or fortuitous events.
Recommendation 4.2
The non-executive directors of the Board should not concurrently serve as
directors to more than ten (10) public companies and/or registered issuers. However,
the maximum concurrent directorships shall be ve (5) public companies and/or
registered issuers if the director also sits in at least three (3) publicly-listed companies.
Explanation
Being a director necessitates a commitment to the corporation. Hence, there is a
need to set a limit on board directorships. This ensures that the members of the board
are able to su ciently prepare for meetings, effectively commit themselves to perform
their roles and responsibilities, and regularly update their knowledge and enhance their
skills. A maximum number of board directorships is recommended since sitting on the
board of too many companies may interfere with the optimal performance of board
members, in that they may not be able to contribute enough time to keep abreast of the
corporation's operations and to attend and actively participate during meetings.
Recommendation 4.3
A director should notify the Board where he is an incumbent director before
accepting a directorship in another company.
Explanation
The Board expects a director to devote su cient time and attention to his duties
and responsibilities. Hence, it is important that a director noti es his incumbent Board
before accepting a directorship in another company. This is for the company to be able
to assess if his present responsibilities and commitment to the company will be
affected and if the director can still adequately provide what is expected of him.
5. REINFORCING BOARD INDEPENDENCE
Principle
The Board should endeavor to exercise an objective and independent judgment
on all corporate affairs.
Recommendation 5.1
The Board should be composed of a majority of non-executive directors who
possess the necessary quali cations to effectively participate and help secure
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 objective, independent judgment on corporate affairs and to carry out proper checks
and balances.
Explanation
The right combination of non-executive directors (NEDs), which include
independent directors, and executive directors, ensures that no director or small group
of directors can dominate the decision-making process. Further, a board composed of
a majority of NEDs assures protection of the company's interest over the interest of the
individual shareholders.
Recommendation 5.2
The Board should have at least two (2) independent directors, or such number as
to constitute at least one-third of the members of the Board, whichever is higher.
Explanation
The presence of independent directors (IDs) in the Board ensures the exercise of
independent judgment on corporate affairs and proper oversight of managerial
performance, including prevention of con ict of interests and balancing of competing
demands of the corporation. There is increasing global recognition that more IDs in the
Board lead to more objective decision-making, particularly in con ict of interest
situations. In addition, experts have recognized that there are varying opinions on the
optimal number of IDs in the board. However, the ideal number ranges from one-third to
a substantial majority.
Recommendation 5.3
The Board should ensure that its independent directors possess the necessary
quali cations and none of the disquali cations for an independent director to hold the
position.
Explanation
The independent directors (IDs) need to possess a good general understanding
of the industry that the company engages in. Further, it is worthy to note that
independence and competence should go hand-in-hand. It is therefore important that
the non-executive directors, including IDs, possess the quali cations and stature that
would enable them to effectively and objectively participate in the deliberations of the
Board.
An ID refers to a person who, ideally:
a. Is not, or has not been a senior o cer or employee of the covered
company unless here has been a change in the controlling ownership of
the company;
b. Is not, and has not been in the two (2) years immediately preceding the
election, a director of the covered company; a director, o cer, employee
of the covered company's subsidiaries, associates, a liates or related
companies; or a director, o cer, employee of the covered company's
substantial shareholders and its related companies;
c. Has not been appointed in the covered company, its subsidiaries,
associates, a liates or related companies as Chairperson "Emeritus," "Ex-
Officio" Directors/O cers or Members of any Advisory Board, or
otherwise appointed in a capacity to assist the Board in the performance
of its duties and responsibilities within two (2) years immediately
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 preceding his election;
d. Is not an owner of more than two percent (2%) of the outstanding shares
of the covered company, its subsidiaries, associates, a liates or related
companies;
e. Is not a relative of a director, o cer, or substantial shareholder of the
covered company or any of its related companies or of any of its
substantial shareholders. For this purpose, relatives include spouse,
parent, child, brother, sister and the spouse of such child, brother or sister;
f. Is not acting as a nominee or representative of any director of the covered
company or any of its related companies;
g. Is not a securities broker-dealer of listed companies and registered
issuers of securities. "Securities broker-dealer" refers to any person
holding any o ce of trust and responsibility in a broker-dealer rm, which
includes, among others, a director, o cer, principal shareholder, nominee
of the rm to the Exchange, an associated person or salesman, and an
authorized clerk of the broker or dealer;
h. Is not retained, either in his personal capacity or through a rm, as a
professional adviser, auditor, consultant, agent or counsel of the covered
company, any of its related companies or substantial shareholder, or is
otherwise independent of Management and free from any business or
other relationship within the two (2) years immediately preceding the date
of his election;
i. Does not engage or has not engaged, whether by himself or with other
persons or through a rm of which he is a partner, director or substantial
shareholder, in any transaction with the covered company or any of its
related companies or substantial shareholders, other than such
transactions that are conducted at arm's length and could not materially
interfere with or in uence the exercise of his independent judgment within
the two (2) years immediately preceding the date of his election;
j. Is not a liated with any non-pro t organization that receives signi cant
funding from the covered company or any of its related companies or
substantial shareholders; and
k. Is not employed as an executive o cer of another company where any of
the covered company's executives serve as directors.
Related companies, as used in this section, refer to (a) the covered entity's
holding/parent company; (b) its subsidiaries; and (c) subsidiaries of its holding/parent
company.
Recommendation 5.4
The Board's independent directors should serve for a maximum cumulative term
of nine (9) 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 (9) years, the Board
should provide meritorious justi cation/s and seek shareholders'/members' approval
during the annual shareholders'/members' meeting.
Explanation
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 Service in a board for a long duration may impair a director's ability to act
independently and objectively. Hence, the tenure of an Independent Director (ID) is set
to cumulative term of nine (9) years. The IDs who have served for nine (9) years may
continue as a non-independent director of the company. Reckoning of the cumulative
nine-year term is from 2012.
Any term beyond nine (9) years for an ID is subjected to particularly rigorous
review, taking into account the need for progressive change in the Board to ensure an
appropriate balance of skills and experience. However, the shareholders/members
may, in exceptional cases, choose to re-elect an ID who has served for nine (9) years. In
such instances, the Board must provide a meritorious justi cation for the re-election
and seek shareholders'/members' approval during the annual shareholders'/members'
meeting.
Recommendation 5.5
The positions of Chairperson of the Board and Chief Executive O cer or its
equivalent position, should be held by separate individuals and each should have clearly
defined responsibilities.
Explanation
To avoid con ict or a split board and to foster an appropriate balance of power,
increased accountability and better capacity for independent decision-making, it is
recommended that the positions of Chairperson and Chief Executive O cer (CEO) be
held by different individuals. This type of organizational structure facilitates effective
decision making and good governance. In addition, the division of responsibilities and
accountabilities between the Chairperson and CEO is clearly defined and delineated and
disclosed in the Board Charter.
The CEO has the following roles and responsibilities, among others:
a. Implements the corporation's strategic plan on the direction of the
business;
b. Communicates and implements the corporation's vision, mission, values
and overall strategy as formulated by the board and promotes any
organization or stakeholder change in accordance with the same;
c. Oversees the operations of the corporation and manages human and
financial resources in accordance with the strategic plan;
d. Has a good working knowledge of the corporation's industry and market
and keeps up-to-date with its core business purpose;
e. Directs, evaluates and guides the work of the key o cers of the
corporation;
f. Manages the corporation's resources prudently and ensures a proper
balance of the same;
g. Provides the Board with timely information and interfaces between the
Board and the employees;
h. Builds the corporate culture and motivates the employees of the
corporation; and
i. Serves as the link between internal operations and external stakeholders.
The roles and responsibilities of the Chairperson are provided under
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 Recommendation 1.2.
Recommendation 5.6
The Board should designate a lead director among the independent directors if
the Chairperson of the Board is not independent, including if the positions of the
Chairperson of the Board and Chief Executive O cer or its equivalent are held by one
person.
Explanation
In cases where the Chairperson is not independent and where the roles of Chair
and CEO are combined, putting in place proper mechanisms ensures independent
views and perspectives. More importantly, it prevents abuse of power and authority,
and potential and/or actual con ict of interest. A suggested mechanism is the
appointment of strong "lead director" among the independent directors. This lead
director has su cient authority to lead the Board in cases where management has
clear conflicts of interest.
The functions of the lead director include, among others, the following:
a. Serves as an intermediary between the Chairperson and the other directors
when necessary;
b. Convenes and chairs meetings of the NEDs; and
c. Contributes to the performance evaluation of the Chairperson, as required.
Recommendation 5.7
A director with a material or potential interest in any transaction affecting the
corporation should fully disclose his adverse interest, abstain from taking part in the
deliberations for the same and recuse from voting on the approval of the transaction.
Explanation
The abstention of a director from participating in a meeting when related party
transactions, self-dealings or any transactions or matters on which he has a material
interest are taken up ensures that he has no in uence over the outcome of the
deliberations. The fundamental principle to be observed is that a director does not use
his position to pro t or gain some bene t or advantage for himself and/or his related
interests.
Recommendation 5.8
The non-executive directors 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, if applicable.
Explanation
The non-executive directors (NEDs) are expected to constructively scrutinize the
Management's performance, particularly in meeting the company's goals and
objectives. Further, it is their role to satisfy themselves on the integrity of the
corporation's internal control and effectiveness of the risk management systems. This
role can be better performed by the NEDs if they are provided access to the external
auditor and heads of the IA, compliance and risk functions, as well as to other key
o cers of the company without any executive directors present. If the company has a
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 lead independent director, he should lead and preside over the meeting.
6. ASSESSING BOARD PERFORMANCE
Principle
The best measure of the Board's effectiveness is through an assessment
process. The Board should regularly carry out evaluations to appraise its performance
as a body, and assess whether it possesses the right mix of backgrounds and
competencies.
Recommendation 6.1
The Board should conduct an annual self-assessment of its performance,
including the performance of the Chairperson, individual members and committees.
Explanation
Board assessment helps the directors to thoroughly review their performance
and understand their roles and responsibilities. The periodic review and assessment of
the Board's performance as a body, the board committees, the individual directors, and
the Chairperson show how the aforementioned should perform their responsibilities
effectively. In addition, 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.
Recommendation 6.2
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/members.
Explanation
Disclosure of the criteria, process and individual and collective results of the
assessment ensures transparency and allows shareholders and other stakeholders to
determine if the directors are performing their responsibilities to the company.
Companies are given the discretion to determine the assessment criteria and process,
which should be based on the mandates, functions, roles and responsibilities provided
in the Board and Committee Charters. In establishing the criteria, attention is given to
the values, principles and skills required by the company. The Corporate Governance
Committee oversees the evaluation process.
7. STRENGTHENING BOARD ETHICS
Principle
Board directors are duty-bound to apply high ethical standards, taking into
account the interests of all stakeholders.
Recommendation 7.1
The Board should adopt a Code of Business Conduct and Ethics, which would
provide standards for professional and ethical behavior, as well as articulate
acceptable and unacceptable conduct and practices in internal and external dealings of
board members.
The Code should be properly disseminated to all the members of the Board. It
should also be disclosed and made available to the public through the company
website.
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 Explanation
A Code of Business Conduct and Ethics formalizing ethical values is an important
tool to instill an ethical corporate culture that pervades throughout the company,
especially on the board level. The main responsibility to create and design a Code of
Business Conduct and Ethics suitable to the needs of the company and the culture by
which it operates lies with the Board.
Recommendation 7.2
The Board should ensure the proper and e cient implementation and monitoring
of compliance with the Code of Business Conduct and Ethics.
Explanation
The Board has the primary duty to make sure that the internal controls are in
place to ensure each board member's compliance with the Code of Business Conduct
and Ethics. This includes the creation of e cient communication channels, which aid
and encourage employees, customers, suppliers and creditors to raise concerns on
potential unethical/unlawful behavior of board members without fear of retribution.
DISCLOSURE AND TRANSPARENCY

8. ENHANCING COMPANY DISCLOSURE POLICIES AND PROCEDURES

Principle 8
The Board should establish corporate disclosure policies and procedures that
are practical and in accordance with generally accepted best practices and regulatory
expectations.
Recommendation 8.1
The Board should establish corporate disclosure policies and procedures to
ensure a comprehensive, accurate, reliable and timely report to shareholders/members
and other stakeholders that gives a fair and complete picture of a company's nancial
condition, results and business operations.
Explanation
Setting up clear policies and procedures on corporate disclosure that comply
with the disclosure requirement as provided in Rule 68 of the Securities Regulation
Code (SRC) and other regulations such as those required by the Bangko Sentral ng
Pilipinas (BSP), Insurance Commission (IC), if applicable, is essential for
comprehensive and timely reporting.
Recommendation 8.2
The Company should have a policy requiring all directors and o cers to
disclose/report to the company any dealings in the company's shares by the said
directors and officers within five (5) business days.
Explanation
Directors and o cers often have access to material inside information on the
company. Hence, to reduce the risk that the directors might take advantage of this
information, it is crucial for companies to have a policy requiring directors and o cers
to timely disclose to the company any dealings with the company shares. It is
emphasized that the policy is on internal disclosure to the company of any dealings by
the director or o cer in company shares. This supplements the requirement of Rules
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 18 and 23 of the Securities Regulation Code.
Recommendation 8.3
The company's corporate governance policies, programs and procedures should
be contained in its Manual on Corporate Governance, which should be submitted to the
Commission and posted on the company's website.
Explanation
Transparency is one of the core principles of corporate governance. To ensure
better protection of shareholders and other stakeholders' rights, the full disclosure of
the company's corporate governance policies, programs and procedures is imperative.
This is more e ciently done if the said policies, programs and procedures are
contained in one reference document, which is the Manual on Corporate Governance
(MCG). The submission of the MCG to the Commission and its posting in company's
website ensure easier access by any interested party.
The MCG should contain the following, among others:
a) A policy on the training of directors, including an orientation program for
first-time directors and relevant annual continuing training for all directors;
b) Policies and procedure for setting Board and executive remuneration, as
well as the level and mix of the same;
c) Policies governing RPTs and other unusual or infrequently occurring
transactions, as well as the review and approval of material and signi cant
RPTs, geared towards the prevention of abusive dealings and transactions
and the promotion of transparency. These policies include ensuring that
transactions occur at market prices and under conditions that protect the
rights of all shareholders;
d) Policies on full, fair, accurate and timely disclosure to the public of every
material fact or event that occurs in the company, particularly on the
acquisition or disposal of signi cant assets, which could adversely affect
the viability or the interest of its shareholders/members and other
stakeholders, which includes policy on the appointment an independent
party to evaluate the fairness of the transaction price on the acquisition or
disposal of assets;
e) Alternative dispute mechanism(s) to resolve intra-corporate disputes in an
amicable and effective manner;
f) Policies on formal and transparent board nomination and election policy;
g) Basic shareholder/member rights; and
h) Qualifications and grounds for disqualification of directors.
Recommendation 8.4
The company should disclose all relevant information on its corporate
governance policies and practices in the Annual Corporate Governance Report, which
should be submitted to the Commission, and continuously updated and posted on the
company's website.
Explanation
The Annual Corporate Governance Report (ACGR) is intended to be a
comprehensive report containing all of the company's pertinent corporate governance
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 information. The company is expected to provide regular updates on all the information
required in the ACGR.
The ACGR should contain the following disclosures, among others:
a) A policy on disclosure of all relevant and material information on individual
board directors and key executives to evaluate their experience and
quali cations, and assess any potential and/or actual con icts of interest
that might affect their judgment as prescribed under Rule 12, Annex C of
the SRC;
b) Board and executive remuneration, as well as the level and mix of the
same;
c) Accurate disclosure to the public of every material fact or event that
occurs in the company, particularly on the acquisition or disposal of
signi cant assets, which could adversely affect the viability or the interest
of its shareholders/members and other stakeholders, which includes
policy on the appointment of an independent party to evaluate the fairness
of the transaction price on the acquisition or disposal of assets;
d) The non-audit work, if any, of the External Auditor, the non-audit fees paid
to the External Auditor in relation to the total fees paid to him and to the
corporation's overall consultancy expenses;
e) The attendance record of the company's directors for the previous year;
and
f) Other information that the Commission or other regulatory agencies, may,
from time to time require disclosure of.
9. STRENGTHENING EXTERNAL AUDITOR'S INDEPENDENCE AND
IMPROVING AUDIT QUALITY
Principle 9
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.
Recommendation 9.1
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 and approved by the Board of
Directors and the shareholders. For the removal or change in the external auditor, the
reasons for removal or change should be disclosed to the Commission, the
shareholders, and the public through the company website and other required
disclosures.
Explanation
The appointment, reappointment and removal of the external auditor by the
Board's approval, through the Audit Committee's recommendation, and shareholders'
approval at shareholders' meetings are actions regarded as good practices.
Shareholders' approval clari es or emphasizes that the external auditor is accountable
to the shareholders or to the company as a whole, rather than to the Management
whom he may interact with in the conduct of his audit.
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 Recommendation 9.2
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.
Explanation
The Audit Committee Charter includes a disclosure of its responsibility on
assessing the integrity and independence of the external auditor. It establishes detailed
guidelines, policies and procedures that may be contained in a separate memorandum
or document. Nationally and internationally recognized best practices and standards of
external auditing should guide the committee in formulating these policies and
procedures.
Moreover, establishing effective communication with the external auditor and
requiring them to report all relevant matters aid the Audit Committee in e ciently
carrying out its oversight responsibilities.
Recommendation 9.3
The company should disclose the nature of non-audit services performed by its
external auditor in the Annual Report in the interest of managing potential con ict of
interest cases. The Audit Committee should be alert for any potential con ict of
interest situations, given the guidelines or policies on non-audit services, which could
be viewed as impairing the external auditor's objectivity.
Explanation
The company's Audit Committee, in the performance of its duty, oversees the
overall relationship of the company with its external auditor. It evaluates and
determines the nature of non-audit services, if any, of the external auditor and reviews
periodically the proportion of non-audit fees paid to the external auditor in relation to
the corporation's overall consultancy expenses.
Allowing the same auditor to perform non-audit services to the company may
create a potential con ict of interest. In order to mitigate the risk of possible con ict
between the auditor and the company, the company's Audit Committee puts in place
robust policies and procedures designed to promote auditor independence in the long
run. In formulating these policies and procedures, the committee is guided by nationally
and internationally-recognized best practices and regulatory requirements or
issuances.
10. INCREASING FOCUS ON NON-FINANCIAL AND SUSTAINABILITY
REPORTING
Principle 10
The Board should ensure that the company discloses material and reportable
non-financial and sustainability issues.
Recommendation 10.1
The company should have a clear and focused strategy on the disclosure of non-
nancial information. It should disclose to all shareholders/members and other
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 stakeholders the company's strategic (long-term goals) and operational objectives
(short-term goals) as well as impacts of a wide range of sustainability issues, with
emphasis on the management of environmental, economic, social and governance
(EESG) issues of its business which underpin sustainability.
Explanation
As external pressures including resource scarcity, globalization, and access to
information continue to increase, the way corporations respond to sustainability
challenges, in addition to nancial challenges, determines their long-term viability and
competitiveness. One way to respond to sustainability challenges is disclosure to all
shareholders/members and other stakeholders of the company's strategic (long-term
goals) and operational objectives (short-term goals) as well as the impacts of a wide
range of sustainability issues.
11. PROMOTING A COMPREHENSIVE AND COST-EFFICIENT ACCESS TO
RELEVANT INFORMATION
Principle 11
The company should maintain a comprehensive and cost-e cient
communication channel for disseminating relevant information. This channel is crucial
for an informed decision-making by investors, stakeholders and other interested users.
Recommendation 11.1
The company should have a website to ensure a comprehensive, cost-e cient,
transparent and timely manner of disseminating relevant information to the public.
Explanation
The manner of disseminating relevant information to its intended users is as
important as the content of information itself. Hence, it is essential for the company to
have a strategic and well-organized channel for reporting. A company website that is
easily accessible and user-friendly with a dedicated section for corporate governance
is considered a practical and cost-e cient way of communication. It can provide timely
and up-to-date information relevant to investors and other interested stakeholders.
The company website should contain, among others, the Manual on Corporate
Governance, Annual Corporate Governance Report, Board Charter, Committee Charters,
the company's Code of Business Conduct and Ethics.
INTERNAL CONTROL AND RISK MANAGEMENT FRAMEWORKS

12. STRENGTHENING INTERNAL CONTROL AND RISK MANAGEMENT

SYSTEMS
Principle
To ensure the integrity, transparency and proper governance in the conduct of its
affairs, the company should have strong and effective internal control system and
enterprise risk management system.
Recommendation 12.1
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, nature and complexity of operations.
Explanation
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 An adequate and effective internal control system and an Enterprise Risk
Management (ERM) framework help sustain safe and sound operations as well as
implement management policies to attain corporate goals. An effective internal control
system embodies the Management's oversight and control culture, risk recognition and
assessment, control activities, information and communication, monitoring activities
and correcting de ciencies. An effective ERM framework typically includes activities
such as, identi cation, sourcing, measurement, evaluation, mitigation and monitoring of
risk.
Recommendation 12.2
The Company should have in place an independent internal audit function that
provides an independent and objective assurance, and consulting services designed to
add value and improve the company's operations.
Explanation
A separate Internal Audit (IA) function is essential to monitor and guide the
implementation of company policies. It helps the company accomplish its objectives
by bringing a systematic and disciplined approach to evaluating and improving the
effectiveness of the company's governance, risk management and control functions.
The following are the functions of the IA, among others:
a. Provides an independent risk-based assurance service to the Board, Audit
Committee and Management, focusing on reviewing the effectiveness of
the governance and control processes in (1) promoting the right values
and ethics, (2) ensuring effective performance management and
accounting in the organization, (3) communicating risk and control
information, and (4) coordinating the activities and information among the
Board, external and internal auditors, and Management;
b. Performs regular and special audit as contained in the annual audit plan
and/or based on the company's risk assessment;
c. Performs consulting and advisory services related to governance and
control as appropriate for the organization;
d. Performs compliance audit of relevant laws, rules and regulations,
contractual obligations and other commitments, which could have a
significant impact on the organization;
e. Reviews, audits and assesses the e ciency and effectiveness of the
internal control system of all areas of the company;
f. Evaluates operations or programs to ascertain whether results are
consistent with established objectives and goals, and whether the
operations or programs are being carried out as planned;
g. Evaluates speci c operations at the request of the Board or Management,
as appropriate; and
h. Monitors and evaluates governance processes.
A company's IA activity may be a fully resourced activity housed within the
organization or may be outsourced to quali ed independent third party service
providers.
CULTIVATING A SYNERGIC RELATIONSHIP WITH SHAREHOLDERS/MEMBERS

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 13. PROMOTING SHAREHOLDER/MEMBER RIGHTS
Principle
The company should treat all shareholders/members fairly and equitably, and
also recognize, protect and facilitate the exercise of their rights.
Recommendation 13.1
The Board should ensure that basic shareholder/member rights are disclosed in
the Manual on Corporate Governance.
Explanation
It is the responsibility of the Board to adopt a policy informing the
shareholders/members of all their rights. Shareholders/members are encouraged to
exercise their rights when provided clear-cut processes and procedures for them to
follow.
Shareholders and members generally have the following rights, among others:
i. Right to participate in the approval of material corporate acts;
ii. Right to propose the holding of meetings and to include agenda items
ahead of the scheduled Annual and Special Shareholders'/Members'
Meeting;
iii. Right to nominate candidates to the Board of Directors/Board of Trustees;
iv. Right to be informed of the nomination and removal process; and
v. Right to be informed of the voting procedures that would govern the
Annual and Special Shareholders'/Members' Meeting.
Moreover, shareholders have the following additional rights:
i. Pre-emptive right;
ii. Right to dividends; and
iii. Appraisal right.
Shareholders/members are encouraged to participate when given su cient
information prior to voting on fundamental corporate changes such as: (1)
amendments to the Articles of Incorporation and By-Laws of the company; and (2)
extraordinary transactions, including the transfer of all or substantially all assets that, in
effect, results in the sale of the company. Shareholders/members should also be
informed before major changes in the business operation of the company happens. In
addition, the disclosure and clear explanation of voting procedures, as well as the
removal of excessive or unnecessary costs and other administrative impediments,
allow for the effective exercise of shareholders'/members' voting rights. Poll voting is
highly encouraged as opposed to the show of hands. Proxy voting is also a good
practice, including the electronic distribution of proxy materials.
The right to propose the holding of meetings and items for inclusion in the
agenda is given to all shareholders and members. However, to prevent the abuse of this
right, companies may require that the proposal be made by shareholders or members
holding a speci ed percentage of shares or voting rights. On the other hand, to ensure
that minority shareholders are not effectively prevented from exercising this right, the
degree of ownership concentration is considered in determining the threshold.
Lastly, all shareholders and members must be given the opportunity to nominate
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 candidates to the Board of Directors or Trustees, and/or cause the removal of any
member thereof in accordance with the existing laws. The procedures of the
nomination and removal process are expected to be discussed clearly by the Board.
The company is encouraged to fully and promptly disclose all information regarding the
expertise, experience and background of the candidates to enable the shareholders and
members to study and conduct their own background check as to the candidates'
qualification and credibility.
Recommendation 13.2
The Board should encourage active shareholder participation by sending the
Notice of Annual and Special Shareholders'/Members' Meeting with su cient and
relevant information at least 21 days before the meeting.
Explanation
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 upon and approved or rati ed at the meeting. Sending the notice in a timely
manner allows shareholders/members to plan their participation in the meetings. It is
good practice to have the notice posted on the company website.
Recommendation 13.3
The Board should encourage active shareholder/member participation by
making the result of the votes on matters taken during the most recent Annual or
Special Shareholders'/Members' Meeting publicly available the next working day. In
addition, the Minutes of the Annual and Special Shareholders'/Members' Meeting
should be available on the company website within ve (5) business days from the date
of the meeting.
Explanation
Voting results include a breakdown of the approving and dissenting votes on the
matters raised during the Annual or Special Shareholders'/Members' Meeting. When a
substantial number of votes have been cast against a proposal made by the company,
it may make an analysis of the reasons for the same and consider having a dialogue
with its shareholders/members.
The minutes of the meeting includes the following matters: (1) A description of
the voting and vote tabulation procedures used; (2) the opportunity given to
shareholders/members to ask questions, as well as a record of the questions asked
and the answers received; (3) the matters discussed and the resolutions reached; (4) a
record of the voting results for each agenda item; (5) a list of the directors, o cers and
shareholders/members who attended the meeting; and (6) dissenting opinion on any
agenda item that is considered significant in the discussion process.
Recommendation 13.4
The Board should make available, at the option of a shareholder/member, an
alternative dispute mechanism to resolve intra-corporate disputes in an amicable and
effective manner.
Explanation
It is important for the shareholders/members to be well-informed of the
company's processes and procedures when seeking redress for the violation of their
rights. Putting in place proper safeguards ensures suitable remedies for the
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 infringement of shareholders'/members' rights and prevents excessive litigation. The
company may also consider adopting in its Manual on Corporate Governance the
established and generally accepted Alternative Dispute Resolution procedures.
Recommendation 13.5
The Board should establish an Investor Relations O ce (IRO) or Customer
Relations O ce (CRO) or its equivalent to ensure constant engagement and
communication with its shareholders/members. The IRO or CRO or its equivalent
should be present at every shareholders'/members' meeting.
Explanation
Setting up an avenue to receive feedback, complaints and queries from
shareholders/members assures their active participation with regard to activities and
policies of the company. The IRO/CRO shall have a designated investor/customer
relations o cer, email address and telephone number. Further, creating an
Investor/Customer Relations Program ensures that all information regarding the
activities of the company are properly and promptly communicated to
shareholders/members.
DUTIES TO STAKEHOLDERS

14. RESPECTING RIGHTS OF STAKEHOLDERS AND EFFECTIVE REDRESS

FOR VIOLATION OF STAKEHOLDER'S RIGHTS
Principle
The rights of stakeholders established by law, by contractual relations and
through voluntary commitments must be respected. Where stakeholders' rights and/or
interests are at stake, stakeholders should have the opportunity to obtain prompt
effective redress for the violation of their rights.
Recommendation 14.1
The Board should identify the company's various stakeholders and promote
cooperation between them and the company in creating wealth, growth and
sustainability.
Explanation
Stakeholders in corporate governance include, but are not limited to the,
customers, employees, suppliers, shareholders, members, non-proprietary rights
holders, investors, creditors, the community the company operates in, society,
government, regulators, competitors, external auditors, etc. In formulating the
company's strategic and operational decisions affecting its wealth, growth and
sustainability, due consideration is given to those who have an interest in the company
and are directly or indirectly affected by its operations.
Recommendation 14.2
The Board should establish clear policies and programs to provide a mechanism
on the fair treatment, protection and enforcement of the rights of stakeholders.
Explanation
In instances where stakeholders' interests are not legislated, the company's
voluntary commitments ensure the protection of the stakeholders' rights. The
company's business conduct policies ideally include provisions on the company's
procedures on dealing with various stakeholders. The company's stakeholders include
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 its customers, resource providers, creditors and the community in which it operates.
Fair, professional and objective dealings, as well as clear, timely and regular
communication with the various stakeholders ensure fair treatment and better
protection of their rights.
Included in the stakeholders are the holders of non-proprietary right. These
holders have no participation in the management of the affairs and assets of the
corporation, but they have rights over the use and enjoyment of the property of the
company subject to the agreed terms and conditions. As such, non-proprietary right
holders enjoy contractual rights which must be respected and upheld by the Board and
the Management.
Non-proprietary right holders enjoy the following rights:
i. Rights over the use and enjoyment of the corporate property subject to
terms and conditions as may be provided in the articles of incorporation,
by-laws and membership certificates;
ii. The right to be informed of any material transaction or undertaking by the
company, which may substantially affect the use and enjoyment of the
corporate property over which the member holds non-proprietary rights;
and
iii. The right to seek redress for any violation of the aforementioned rights.
15. ENCOURAGING EMPLOYEES' PARTICIPATION
Principle
A mechanism for employee participation should be developed to create a
symbiotic working environment consistent with the realization of the company's
objectives and good corporate governance goals.
Recommendation 15.1
The Board should establish policies, programs and procedures that encourage
employees to actively participate in the realization of the company's goals and in its
governance.
Explanation
The establishment of policies and programs covering, among others, the
following: (1) health, safety and welfare of employees; (2) manpower training and
development; and (3) employee reward/compensation, encourages employees to
perform better and motivates them to take a more dynamic role in the corporation.
Active participation is further fostered when the company recognizes the rm-speci c
skills of its employees and their potential contribution in the company's corporate
governance. The employees' viewpoint in certain key decisions may also be considered
in governance processes through work councils or employee representation in the
board.
Recommendation 15.2
The Board should set the tone and make a stand against corrupt practices by
adopting an anti-corruption policy and program in its Code of Business Conduct and
Ethics. Further, the Board should disseminate the policy and program to employees
across the organization through orientations and continuous trainings to embed them
in the company's culture.
Explanation
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 The adoption of an anti-corruption policy and program endeavors to mitigate
corrupt practices such as, but not limited to, bribery, fraud, extortion, collusion, and
money laundering. This encourages employees to report corrupt practices and outlines
the procedures on how to combat, resist and stop these corrupt practices. Anti-
corruption programs are more effective when the Board sets the tone and leads the
company in their execution.
Recommendation 15.3
The Board should establish a suitable framework for whistleblowing that allows
employees to freely communicate their concerns about illegal or unethical practices,
without fear of retaliation and to have direct access to an independent member of the
Board or a unit created to handle whistleblowing concerns. The Board should be
conscientious in establishing the framework, as well as in supervising and ensuring its
enforcement.
Explanation
A suitable whistleblowing framework sets up the procedures and safe-harbors
for complaints of employees, either personally or through their representative bodies,
concerning illegal and unethical behavior in the company. One essential aspect of the
framework is the inclusion of safeguards to secure the con dentiality of the informer
and to ensure protection from retaliation. Further, part of the framework is granting
individuals or representative bodies con dential direct access to either an independent
director or a unit designed to deal with whistleblowing concerns. Companies may opt
to establish an ombudsman to deal with complaints and/or con dential phone and e-
mail facilities to receive allegations of illegal and unethical behavior.
16. ENCOURAGING SUSTAINABILITY AND SOCIAL RESPONSIBILITY
Principle
The company should be socially responsible in all its dealings with the
communities in which it operates. It should ensure that its interactions serve its
environment and stakeholders in a positive and progressive manner that is fully
supportive of its comprehensive and balanced development.
Recommendation 16.1
The company should recognize and place an importance on the interdependence
between business and society, and promote a mutually bene cial relationship that
allows the company to grow its business, while contributing to the advancement of the
society where it operates.
Explanation
The company's value chain consists of inputs to the production process, the
production process itself and the resulting output. Sustainable development means
that the company not only complies with existing regulations, but also voluntarily
employs value chain processes which take into consideration economic, environmental,
social and governance issues and concerns. In considering sustainability concerns, the
company plays an indispensable role alongside the government and civil society in
contributing solutions to complex global challenges like poverty, inequality,
unemployment and climate change.

Footnotes
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 1. Organisation for Economic Co-operation and Development.
2. Committee of Sponsoring Organizations of the Treadway Commission (COSO Framework).
3. Schmidt, Anna (2016), Encyclopædia Britannica, Inc. Groupthink. Retrieved from
Encyclopædia Britannica Website, https://www.britannica.com/science/groupthink, last
accessed 27 August 2019.

4. As defined under the Code of Ethics for Professional Accountants.

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