Draft Code of Corporate Governance released
The Securities and Exchange Commission (SEC) has issued a draft Code of Corporate Governance for public companies and registered issuers.
The code will cover companies that are not listed in the stock market but are public companies. The SEC defines a public company as that with assets of at least P50 million and having two hundred or more shareholders holding at least one hundred shares each of equity securities.
It also covers registered issuers which the SEC defines as a company that issues proprietary and non-proprietary shares, sells equity securities to the public that
From C1 are not listed and sells debt securities to the public that are required to be registered with the SEC.
According to the Code, public companies should create a Corporate Governance Committee, which is tasked to ensure compliance to corporate governance practices.
The move is part of the corporate regulator’s efforts to police Philippine corporations.
“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 Principles of Corporate Governance and other internationally recognised corporate governance principles,” the SEC said.
Compliance to the code will be voluntary but companies which will opt not to comply will need to give their reasons.
“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,” the SEC said in the draft code.
The code is divided into principles, recommendations and explanations.
The principles can be considered as high-level statements of corporate governance good practice and are applicable to all companies while the recommendations are the objective criteria that are intended to identify the specific features of corporate governance good practices that are recommended for companies covered by this code.
The explanations, on the other hand, strive to provide companies with additional information on the recommended best practice.
The committee will oversee the implementation of the corporate governance framework and periodically review the 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.
It will also oversees the periodic performance evaluation of the Board of Directors and its committees as well as the executive management.
Another provision is on independent directors (IDs).
According to the code, independent directors of public companies 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 independent directors possess the qualifications and stature that would enable them to effectively and objectively participate in the deliberations of the Board.
“An independent director refers to a person who, ideally is not or has not been a senior officer or employee of the covered company unless there has been a change in the controlling ownership of the company,” the SEC said.
The SEC said the board of directors 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,” the SEC said.