Safeguards against corporate opportunism remains squarely with the independent directors

As shown hereunder, it seems clear that ultimately the Corporate Governance (CG) Code for Publicly-Listed Companies (PLCs) places the ability to prevent corporate opportunism squarely on the shoulders of the independent directors (IDs), whether such attempts at corporate opportunism be on the part of the controlling stockholders acting through a majority of the members of the Board, or through Management.

1. Lead Director Must Be an

ID. — CG Code for PLCs recommends that “The

Board should designate a lead director among the IDs if the

Chair of the

Board is not independent, including if the positions of the Chair of the Board and CEO are held by one person.”

The CG Code recommends that in cases where the Chair is not independent, or where the roles of Chair and CEO are combined — which engender the abuse of power and authority, and potential conflict of interest — there should be appointed a strong “lead director” among the IDs, who should have sufficient authority to lead the Board in cases where management has clear conflicts of interest, and sets out the functions of this lead director to include, among others, the following: (a) Serve as an intermediary between the Chair and the other directors when necessary; (b) Convene and chair meetings of the non-executive directors; and (c) Contribute to

the performance evaluation of the Chair, as required.

2. Key Board Committees Must Be Chaired and Majority Composed of IDs. — The CG Code recommends that “The Board should establish board committees that focus on specific board functions to aid in the optimal performance of its roles and responsibilities.” It explains that “Board committees such as the Audit Committee, CG Committee, Board Risk Oversight Committee and Related Party Transaction 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 specialization in issues and leads to a better management of the Board’s workload.”

The CG Code then recommends that in the key committees, namely, the Audit Committee, CG Committee, Nomination and Remuneration Committee, Board Risks Oversight Committee, and the Related Party Transaction Committee, there should be at least three non-executive/IDs, and that the Committee Chair should be an ID.

It is through the IDs’ chairmanship and majority membership in key Board Committees that the problems of asymmetry of information and high transaction cost are overcome on behalf of the public investors whose interest in PHCs is primarily represented by IDs against corporate opportunism on the part of the controlling stockholders.

3. Material Company Transactions Overseen by IDs. — The CG Code recommends that “The company should make a full, fair, accurate and timely disclosure to the public of every material fact or event that occurs, particularly on the acquisition or disposal of significant assets, which could adversely affect the viability or the interest of its shareholders and other stakeholders. Moreover, the Board of the offeree company should appoint an independent party to evaluate the fairness of the transaction price on the acquisition or disposal of assets.”

It explains that “The disclosure on the acquisition or disposal of significant assets includes, among others, the rationale, effect on operations and approval at board meetings with independent directors present to establish transparency and independence on the transaction. The independent evaluation of the fairness of the transparent price ensures the protection of the rights of shareholders.”

4. Whistleblowing System Should Allow Direct Access to the IDs. — The CG Code supports the proposition that “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.”

It explains that “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. One essential aspect of the framework is the inclusion of safeguards to secure the confidentiality of the informer and to ensure protection from retaliation. Further, part of the framework is granting individuals or representative bodies confidential 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 established confidential phone and e-mail facilities to receive allegations.”

SAFEGUARDS AGAINST

THE COOPTING OF

THE INDEPENDENCE OF IDS

In addition to strict rules on qualifications and disqualifications pertaining to IDs to ensure utter lack of professional, contractual or filial connections with the company, its management and the controlling stockholders, the CG Code for PLCs has adopted certain safeguards that would preserve the ability of IDs to exercise independent judgment in corporate affairs. We shall evaluate the effectiveness of such safeguards in preserving the ability of IDs to exercise independent judgment.

a. IDs Must Have Business Acumen Necessary for the Industry in Which the PLC Operates

Against the criticism that IDs do not possess the personal or professional gravitas to be able act