2/2/20
2016 Code of Corporate Governance for PLCs
SEC Code of
Corporate
Governance
2016 Code of Corporate Governance for PLCs
• Incorporates the principle of proportionality wherein the
SEC provides flexibility to covered companies in
implementing the Code taking into account their size,
structure, risk profile and complexity of operations.
• Expansion of the definition of corporate governance to
further emphasize the responsibility of the board. The
new definition centers on the “system of stewardship in
fulfilling the company’s obligations.”
• Increased balance of executive and non-executive
directors. From 2 to 1/3
• The new Code of Corporate Governance for PLCs that
introduced changes to further strengthen the core
principles of fairness, accountability and transparency
• The development of the new code was also guided by
the recent changes in the Organization for Economic
Cooperation and Development (OECD) principles of
corporate governance
• Adopts a “comply or explain” approach which combines
voluntary compliance with mandatory disclosure.
2016 Code of Corporate Governance for PLCs
• The creation of additional required committees to
improve the Board’s accountability and responsibility.
From Audit Committee, SEC now cites three additional
committees: the Corporate Governance Committee, the
Business Risk Oversight Committee and the Related
Party Transactions Committee.
• The provision on the need for listed companies to focus
on non-financial and sustainability reporting
1

CORPORATE GOVERNANCE DEFINITION
Corporate Governance – the system of stewardship and
control to guide organizations in fulfilling their long-term
economic, moral, legal and social obligations towards
their stakeholders.
Phil. SEC Code of Corporate Governance
There are sixteen (16) principles that are distributed
among five (5) main sections, namely:
v Board’s Governance Responsibilities – Principles 1 – 7
v Disclosure and Transparency – Principles 8 – 11
v Internal Control and Risk Management Framework –
Principle 12
v Cultivating a Synergic Relationship with Shareholders –
Principle 13
v Duties to Stakeholders – Principles 14 -16
2/2/20
Phil. SEC Code of Corporate Governance
The Code is arranged as follows: Principle, Recommendations and
Explanations.
Principles - can be considered to be high-level statements of
corporate governance good practices, and are applicable to all
companies.
Recommendations - objective criteria that are intended to
identify the specific features of corporate governance good practice
that are recommended for companies operating according to the
Code.
Explanations - strive to provide companies with additional
information on the recommended best practice.
BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 1: ESTABLISHING A COMPETENT BOARD
The company should be headed by a competent,
working board to foster the long-term success of the
corporation, and to sustain its competitiveness and
profitability in a manner consistent with its corporate
objectives and the long-term best interests of its
shareholders and other stakeholders.
2

BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 1: ESTABLISHING A COMPETENT BOARD
Recommendations:
v Competent Directors
v Right Combination of NEDs
v Provision of Board Charter and Manual on Corporate
Governance
v Board Diversity Policy
v Board Secretary (not member of BOD)
v Compliance Officer
BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 2: ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
Recommendations:
v Fiduciary Duty: Care and Loyalty
v Oversee Development, Approve Objectives and
Monitor Implementation
v Headed by Chairperson (Chairman of the Board)
v Effective Succession Planning
v Align Remuneration
2/2/20
BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 2: ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
The fiduciary roles, responsibilities and accountabilities
of the Board as provided under the law, the company’s
articles and by-laws, and other legal pronouncements
and guidelines should be clearly made known to all
directors as well as to shareholders and other
stakeholders.
BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 2: ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
Recommendations: cont…
v Policy on Nomination and Election
v Policy on Related Party Transactions
v Appointment of Management
v Effective Performance Management Framework
v Internal Control Systems
3

BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 2: ESTABLISHING CLEAR ROLES AND
RESPONSIBILITIES OF THE BOARD
Recommendations: cont…
v Risk Management Policy
v Board Charter (provides for functions)
BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 3: ESTABLISHING BOARD COMMITTEES
Recommendations:
v Establishment of different Committee
v Audit Committee
v Corporate Governance Committee
v Board Risk Oversight Committee (High Risk Profile
Companies)
v Related Party Transaction Committee
v Committee Charters
2/2/20
BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 3: ESTABLISHING BOARD COMMITTEES
Board committees should be set up to the extent
possible to support the effective performance of the
Board’s functions, particularly with respect to audit, risk
management, related party transactions, and other key
corporate governance concerns, such as nomination
and remuneration. The composition, functions and
responsibilities of all committees established should be
contained in a publicly available Committee Charter.
BOARD GOVERNANCE RESPONSIBILITIES
PRINCIPLE 4: FOSTERING COMMITMENT
To show full commitment to the company, the directors
should devote the time and attention necessary to
properly and effectively perform their duties and
responsibilities, including sufficient time to be familiar
with the corporation’s business
4
 2/2/20

BOARD GOVERNANCE RESPONSIBILITIES BOARD GOVERNANCE RESPONSIBILITIES

PRINCIPLE 4: FOSTERING COMMITMENT PRINCIPLE 5: REINFORCING BOARD INDEPENDENCE

Recommendations: The board should endeavor to exercise an objective and

v Attendance in all meetings independent judgment on all corporate affairs.
v Limit of 5 directorship for non-executive director
v Notification to the board before accepting a
directorship in another company

BOARD GOVERNANCE RESPONSIBILITIES BOARD GOVERNANCE RESPONSIBILITIES

PRINCIPLE 5: REINFORCING BOARD INDEPENDENCE PRINCIPLE 5: REINFORCING BOARD INDEPENDENCE

Recommendations: Recommendations: cont…

v NEDs atleast 3 or 1/3 whichever is higher v Abstention of a director with material interest in any
v Qualification of NEDs transaction
v Independent Directors maximum term is 9 years v NEDs should have separate periodic meeting
v Chairman and CEO should be held by separate
individuals
v Lead Director on Independent Directors

5
 2/2/20

BOARD GOVERNANCE RESPONSIBILITIES BOARD GOVERNANCE RESPONSIBILITIES

PRINCIPLE 6: ASSESSING BOARD PERFORMANCE PRINCIPLE 6: ASSESSING BOARD PERFORMANCE

The best measure of the Board’s effectiveness is Recommendations:

through an assessment process. The Board should v Board Annual Self Assessment
regularly carry out evaluations to appraise its v System and Process for Assessment and Feedback
performance as a body, and assess whether it Mechanism
possesses the right mix of backgrounds and
competencies.

BOARD GOVERNANCE RESPONSIBILITIES BOARD GOVERNANCE RESPONSIBILITIES

PRINCIPLE 7: STRENGTHENING BOARD ETHICS PRINCIPLE 7: STRENGTHENING BOARD ETHICS

Members of the Board are duty-bound to apply high Recommendations:

ethical standards, taking into account the interests of all v Adoption of Code of Business Conduct and Ethics
stakeholders. v Proper and efficient implementation and monitoring
of compliance with the Code of Business Conduct
and Ethics

6

DISCLOSURE AND TRANSPARENCY
PRINCIPLE 8: ENHANCING COMPANY DISCLOSURE
POLICIES AND PROCEDURES
The company should establish corporate disclosure
policies and procedures that are practical and in
accordance with best practices and regulatory
expectations.
DISCLOSURE AND TRANSPARENCY
PRINCIPLE 8: ENHANCING COMPANY DISCLOSURE
POLICIES AND PROCEDURES
Recommendations: cont..
v Disclosure on Policy of Board Remuneration
v Disclosure on RPT Policies
v Disclosure on the acquisition or disposal of
significant assets
v Corporate governance policies should be contained
in its Manual on Corporate Governance
2/2/20
DISCLOSURE AND TRANSPARENCY
PRINCIPLE 8: ENHANCING COMPANY DISCLOSURE
POLICIES AND PROCEDURES
Recommendations:
v Policies and Procedures on Corporate Disclosure
v 3 Day disclosure of any dealing by the Director in the
company’s shares
v Disclosure on Board’s qualification, membership of
other boards, positions, trainings
DISCLOSURE AND TRANSPARENCY
PRINCIPLE 9: STRENGTHENING THE EXTERNAL
AUDITOR’S INDEPENDENCE AND IMPROVING AUDIT
QUALITY
The company should establish standards for the
appropriate selection of an external auditor, and
exercise effective oversight of the same to strengthen
the external auditor’s independence and enhance audit
quality.
7
 2/2/20

DISCLOSURE AND TRANSPARENCY DISCLOSURE AND TRANSPARENCY

PRINCIPLE 9: STRENGTHENING THE EXTERNAL PRINCIPLE 9: STRENGTHENING THE EXTERNAL
AUDITOR’S INDEPENDENCE AND IMPROVING AUDIT AUDITOR’S INDEPENDENCE AND IMPROVING AUDIT
QUALITY QUALITY

Recommendations: Recommendations: cont...

v Process of appointment, reappointment, removal, v Disclosure of non-audit services performed by its
and fees of the external auditor by the Audit Comm external auditor
v Audit Committee Charter includes a disclosure of its
responsibility on assessing the integrity and
independence of the external auditor

DISCLOSURE AND TRANSPARENCY DISCLOSURE AND TRANSPARENCY

PRINCIPLE 10: INCREASING FOCUS ON NON-FINANCIAL PRINCIPLE 10: INCREASING FOCUS ON NON-FINANCIAL
AND SUSTAINABILITY REPORTING AND SUSTAINABILITY REPORTING

The company should ensure that the material and Recommendations:

reportable non-financial and sustainability issues are v Disclosure of non-financial information, with
disclosed. emphasis on the management of economic,
environmental, social and governance (EESG)

8

DISCLOSURE AND TRANSPARENCY
PRINCIPLE 11: PROMOTING A COMPREHENSIVE AND
COST-EFFICIENT ACCESS TO RELEVANT INFORMATION
The company should maintain a comprehensive and
cost-efficient communication channel for disseminating
relevant information. This channel is crucial for informed
decision-making by investors, stakeholders and other
interested users.
DISCLOSURE AND TRANSPARENCY
PRINCIPLE 11: PROMOTING A COMPREHENSIVE AND
COST-EFFICIENT ACCESS TO RELEVANT INFORMATION
Recommendation:
v Role of Media in dissemination of information
2/2/20
DISCLOSURE AND TRANSPARENCY
PRINCIPLE 11: PROMOTING A COMPREHENSIVE AND
COST-EFFICIENT ACCESS TO RELEVANT INFORMATION
The company should maintain a comprehensive and
cost-efficient communication channel for disseminating
relevant information. This channel is crucial for informed
decision-making by investors, stakeholders and other
interested users.
INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT
FRAMEWORK
PRINCIPLE 12: STRENGTHENING THE INTERNAL
CONTROL SYSTEM AND ENTERPRISE RISK
MANAGEMENT FRAMEWORK
To ensure the integrity, transparency and proper
governance in the conduct of its affairs, the company
should have a strong and effective internal control
system and enterprise risk management framework.
9
 2/2/20

INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT
FRAMEWORK FRAMEWORK
PRINCIPLE 12: STRENGTHENING THE INTERNAL PRINCIPLE 12: STRENGTHENING THE INTERNAL
CONTROL SYSTEM AND ENTERPRISE RISK CONTROL SYSTEM AND ENTERPRISE RISK
MANAGEMENT FRAMEWORK MANAGEMENT FRAMEWORK

Recommendations: Recommendations: cont…

v Adequate and effective internal control system and v Separate Risk Management Function
an enterprise risk management framework v Chief Risk Officer
v Independent Internal Audit Function
v Chief Audit Executive

CULTIVATING A SYNERGIC RELATIONSHIP WITH CULTIVATING A SYNERGIC RELATIONSHIP WITH

SHAREHOLDERS SHAREHOLDERS
PRINCIPLE 13: PROMOTING SHAREHOLDER RIGHTS PRINCIPLE 13: PROMOTING SHAREHOLDER RIGHTS

The company should treat all shareholders fairly and Recommendations:

equitably, and also recognize, protect and facilitate the
exercise of their rights.
v Disclosure in the Manual basic shareholder rights
v Notice of Annual and Special Shareholders’ Meeting
(28 days before the meeting)
v Disclosure of Voting Results on the matters raised
during the Annual or Special Stockholders’ Meeting
v Alternative Dispute Mechanism
v Investor Relations Officer

10
 2/2/20

DUTIES TO STAKEHOLDERS DUTIES TO STAKEHOLDERS

PRINCIPLE 14: RESPECTING RIGHTS OF PRINCIPLE 14: RESPECTING RIGHTS OF
STAKEHOLDERS AND EFFECTIVE REDRESS FOR STAKEHOLDERS AND EFFECTIVE REDRESS FOR
VIOLATION OF STAKEHOLDER’S RIGHTS VIOLATION OF STAKEHOLDER’S RIGHTS

The rights of stakeholders established by law, by Recommendations:

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.
v Identify various stakeholders
v Policies and Programs on fair treatment and
protection of stakeholders
v Maintenance of communication with stakeholders

DUTIES TO STAKEHOLDERS DUTIES TO STAKEHOLDERS

PRINCIPLE 15: ENCOURAGING EMPLOYEES’ PRINCIPLE 15: ENCOURAGING EMPLOYEES’
PARTICIPATION PARTICIPATION

A mechanism for employee participation should be Recommendations:

developed to create a symbiotic environment, realize v Policies and Programs on Employee Participation
the company’s goals and participate in its corporate v Anti-Corruption Policy in its Code of Conduct
governance processes. v Framework for Whistleblowing

11
 2/2/20

DUTIES TO STAKEHOLDERS DUTIES TO STAKEHOLDERS

PRINCIPLE 16: ENCOURAGING SUSTAINABILITY AND PRINCIPLE 16: ENCOURAGING SUSTAINABILITY AND
SOCIAL RESPONSIBILITY SOCIAL RESPONSIBILITY

The company should be socially responsible in all its Recommendations:

dealings with the communities where it operates. It v Recognition of interdependence between business
should ensure that its interactions serve its environment and society
and stakeholders in a positive and progressive manner
that is fully supportive of its comprehensive and
balanced development.

COMPARISON OF CODES COMPARISON OF CODES

12
 2/2/20

INSIDER TRADING INSIDER TRADING

Prohibited acts in an insider trading Prohibited acts in an insider trading

2. When a tender offer has commenced or is about to commence, it

1. For an insider to communicate material non-public
information about the issuer or the security to any
person who by virtue of the communication thereby
becomes an insider, where the original insider
communicating the information knows or has reason to
believe that such person will likely buy or sell a security
of the issuer while in possession of such information;
is unlawful for any person, other than the tender offeror, who is in
possession of material non-public information relating to such tender
offer to buy or sell the securities of the issuer that are sought or to be
sought by such tender offer, if such person knows or has reason to
believe that the information is non-public and has been acquired directly
or indirectly from the tender offer, or those acting on its behalf, the
issuer of the securities sought or to be sought by such tender offer, or
any insider of such issuer;

INSIDER TRADING
Prohibited acts in an insider trading

3. When a tender offer has commenced or is about to

commence, it is also unlawful for any tender offeror, or
those acting on its behalf, the issuer of securities
covered by such tender offer, and any insider, to
communicate material non-public information to any
person relating to the tender offer which would likely
result in violation of prohibition of the insider from
trading.

13