Published and draft legislation - Philippines

New code for listed companies

Securities Exchange Commission of Philippines, International Finance Corporation

On 1st January 2017 the code for listed companies was published as part of the collaborative agreement between the Philippine Securities Exchange Commission (SEC) and the International Finance Corporation (IFC).

It contains 16 principles of corporate governance, supported by recommendations and explanations with additional material on how to apply them and based on the principle of proportionality, so that each institution can apply them according to its size, activity, etc.

The principles are organised in five sections, as follows: i) the Board of Directors’ responsibilities; ii) disclosure of information and transparency; iii) internal control and risk management; iv) shareholder relations, and v) duties towards other stakeholders.

Board of Directors

The code recommends that the board of directors should be made up of members who are qualified and experienced, that there should be a non-executive majority and that at least a third of members should be independent; all should act in good faith and exercise their functions with proper diligence and care.

It lays down a number of limitations on the exercise of board member positions: non-executives may sit on the board of 5 listed companies at most, to ensure that they have enough time to fulfil their role. Independent members may serve the company for a maximum period of 9 years, after which time they may be re-elected as dependent board directors.

The code also backs the separation between the Chairman of the Board and the Chief Executive Officer of the company, as well as the existence of the lead director should these two positions be held by one person.

The Board will be responsible, among other duties, for supervising the development and approval of the firm’s corporate policy and strategy; for the remuneration policy of board members and senior management being in line with the company’s long-term goals; for the existence of training and induction policies for its members; for annually carrying out a self-assessment of its activity, of its committees and of its senior management; and of defining succession planning for board members and senior management. It may receive help from the General Secretary and the Compliance Officer, who may not be members of the board and who must receive annual corporate governance training.

Similarly, it may set up those committees it considers necessary to help it perform its duties, and specifically: an audit committee, a risk management committee, a corporate governance committee, a committee on related-party transactions and others, such as the appointments and remunerations committee.

  • Audit: composed of at least three non-executive members, chaired by an independent board member and with a majority of independent members.
  • Related-party transactions: composed of at least three non-executive members, two of whom should be independent, and chaired by an independent board member.
  • Risk management: composed of at least three members, chaired by an independent board member and with a majority of independent members.
  • Corporate governance: composed of at least three independent members and chaired by an independent board member.

Information and transparency

The company must set out policies and procedures for disclosing financial, non-financial and information about sustainability, in compliance with applicable legislation and regulation. Specifically, it must report on:

  • The remuneration of board members and senior management
  • Related-party transactions
  • Corporate governance policies contained in its Corporate Governance Manual
  • The procedure for selecting external auditors

For this purpose it will have to keep open a communications channel that allows it to publish company information that might be of interest to the market.

Internal control and risk management

In order to ensure integrity, transparency and good governance, companies must have an effective internal control and risk management system.

The officers in charge of these functions will be appointed by the board and granted enough authority, resources and support to fulfil their responsibilities. They will have to be in permanent contact with the audit and risk committees.

Shareholders and other stakeholders

The company must ensure that its shareholders are treated fairly and equally, and that their rights are respected; these rights should be laid out in the Corporate Governance Manual and the company website.

The company must make available to them at least 28 days beforehand, such information as is relevant so that they can make informed decisions at the Annual General Meeting.

It will also make available a channel for solving internal controversies that may arise and create an investors’ relations office, to ensure smooth and fluid communication with shareholders, whose officer will be present at all shareholder meetings.  

Finally, the Board must identify its stakeholder groups and promote cooperation between them. It will establish policies and programmes that guarantee the fair treatment and protection of the same and will define a transparent framework of communication between them and the company.

With regard to company employees, the code considers that their involvement in company targets and in corporate governance processes is essential. To this end, the board will set out policies, programmes and procedures to make sure they take part, as well as a route for whistle-blowers so that they can express their concerns.

Corporate Governance Manual

The code follows the comply or explain principle, so companies will have to state in their annual corporate governance report their degree of compliance with the code’s recommendations, indicating those areas  where there is non-compliance and explaining the reasons for the same.

Institutions must send a Corporate Governance Manual that has been adapted to conform to the code’s provisions and recommendations to the supervisory body by 31st May 2017.




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