Duty of loyalty for officials of GOCCs and listed companies

The GOCC Governance Act requires of directors, trustees, and officers in the GOCC Sector to “[a]ct with utmost and undivided loyalty to the GOCC,” and to “[a]void conflicts of interests and declare any interests they may have in any particular matter before the Board.”

In particular, it provides that “Where a member of the Board or an Officer, by virtue of the office, acquires or receives for oneself a benefit or profit, of whatever kind or nature including, but not limited to, the acquisition of shares in corporations where the GOCC has an interest, using the properties of the GOCC for their own benefit, receiving commission on contracts from the GOCC’s assets, or taking advantage of corporate opportunities of the GOCC, all such profits or benefits shall be subject to restitution under Section 24 of this Act, without prejudice to any administrative, civil or criminal action against members of the

Board of Directors/Trustees or Officers. This provision shall be applicable notwithstanding the fact that such member of the Board or Officer risked one’s own funds in the venture.”

The Act imposes the character of being “trustee” on directors/trustees and officers when it comes to the properties, interests and monies of the GOCC, thus: “Except for the per diem received for actual attendance in board meetings and the reimbursement for actual and reasonable expenses and incentives as authorized by the GCG, any and all realized and unrealized profits and/or benefits including, but not limited to, the share in the profits, incentives of members of the Board or Officers in excess of that authorized by the GCG, stock options, dividends and other similar offers or grants from corporations where the GOCC is a stockholder or investor, and any benefit from the performance of members of the Board or Officers of the Corporation acting for and in behalf of the GOCC in dealing with its properties, investments in other corporations, management of subsidiaries and other interest, are to be held in trust by such member of the Board or Officer for the exclusive benefit of the GOCC represented.”

As an ancillary duty to the duty of utmost loyalty, the Act specifically imposes the “obligation to restitute”, the violation of which constitutes an administrative and criminal offense, thus:

SEC. 24. Restitution. — Upon the determination and report of the Commission on Audit (COA) that properties or monies belonging to the GOCC are in the possession of a member of the Board or Officer without authority, or that profits are earned by the member of the Board or Officer in violation of the fiduciary duty, or the aggregate per diems, allowances and incentives received in a particular year are in excess of the limits provided under this Act, the member of the Board or Officer receiving such properties or monies shall return the same to the GOCC.

Failure to make the restitution within thirty (30) days after a written demand has been served shall, after trial and final judgment, be punished by an imprisonment of one (1) year and a fine equivalent to twice the amount to be restituted, and in the discretion of the court of competent

jurisdiction, disqualification to hold public office.

In the case of breach of duty of loyalty by directors, trustees and officers in the private corporate sector, Section 31 and 34 of the Corporation Code mandates only that the culprit shall be obliged to reimburse the corporation all the profits he earned from the transaction, even though he may have used his own resources.

Under both the Anti-Graft and Corrupt Practices Act and the Code of Conduct and Ethical Standards for Public Officers, the same selfserving transactions would constitute criminal offenses.

Under Section 32 of the Corporation Code, the general rule is that any contract entered into by a director, trustee or officer with the corporation would be considered as “self-dealing” and would generally be annullable at the option of the corporation unless the voting requirements at met, and that in all instances the contract is fair and reasonable to the corporation. Under both the Anti-Graft and Corrupt Practices Act, and the Code of Conduct for Public Officers and Employees, the same acts are not ratifiable, and constitute a criminal offense.

Directors, trustees, officers and employees in the GOCC Sector are mandated to the highest standard of loyalty to the interests of the GOCC they serve in that they become criminally liable for soliciting, accepting, directly or indirectly, any gift, gratuity, favor, entertainment, loan or anything of monetary value from any person in the course of their official duties or in connection with any operation being regulated by, or any transaction which may be affected by the functions of their office.

DUTY TO APPOINT COMPETENT OFFICERS

The GOCC Governance Act makes it a formal duty on the part of the members of the GOCC Governing Boards to “Elect and/ or employ only Officers who are fit and proper to hold such office with due regard to the qualifications, competence, experience and integrity.”

During his term, President Fidel V. Ramos promulgated Executive Order No. (E.O.) 226, s. 1995, institutionalizing the doctrine of “command responsibility” in the government service, which provided that any government official or supervisor “shall be held accountable for ‘Neglect of Duty’ under the doctrine of ‘command responsibility’ if he has knowledge that a crime or offense shall be committed, is being committed, or has been committed by his subordinates, or by others within his area of responsibility, and despite such knowledge, he did not take preventive or corrective action either before, during or immediately after its commission.” Among others, the E.O. makes a presumption that a government official or supervisor has knowledge of the commission of irregularities or criminal offenses “When members of his immediate staff or office personnel are involved.”

E.O. 226 remains effective under the statute books.

The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP CESAR L. VILLANUEVA is the Vice Chair of the Corporate Governance Committee of the Management Association of the Philippines (MAP), the Founding Partner of the Villanueva Gabionza & Dy Law Offices, and the former Chair of the Governance Commission for GOCCs. cvillanueva@vgslaw.com map@map.org.ph http://map.org.ph