The Philippine Star

Draft Code of Cor­po­rate Gov­er­nance re­leased

- By IRIS GONZALES Business · White-collar Crime · Corporate Governance · Crime · Business Law · G20 · Organization for Economic Cooperation and Development · U.S. Securities and Exchange Commission

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.

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