Revised Corporate Governance Code Pressures Boards in Philippines

Chris Lawley | May 15, 2019

Corporate Governance Code is ushered in in 2019. On 20 February  2019 , Philippine President

Rodrigo Duterte signed into law the revised Code which imposes strict requirements on listed
companies.

“The new code has tremendous impact on all corporations in the Philippines. This new legal
framework Introduces fresh concepts aligned with international best practices Aimed at
Improving ease of doing business in the country, will Provide more protection to corporations
and stockholders, and promote good corporate governance,” comments the Center for Global
Best Practices.

If the directors adopt high quality board management software, the new code puts much more
pressure on boards of directors and complying with its requirements.

Philippines’ Corporate Governance from Overregulation to Comply or

Explain
Corporate governance in the Philippines “to simplify corporate governance and entice new
investors to do business in the Philippines,” the KPMG points out in a note.

Formal corporate governance in the Philippines dates back to 2002 with the passage of the
Sarbanes-Oxley Act. A number of Asian authorities took steps to publish corporate governance
codes, and the central bank of the Philippines was among them.

The Philippines Securities and Exchange Commission (SEC) came out with its first corporate
governance code in 2002, and has been amended in 2009, 2016 and 2018. Then the Insurance
Commission, the Energy Regulatory Commission, and the Governance Commission for
Government-Owned or Controlled Corporations (GOCC) each came out with a code that is
intended for the respective sectors.

These codes can be quite different: For Example, the GOCC Corporate Governance Code
interprets the ‘business judgment’ rule-defining duty of care for directors quite differently from
did of the SEC code, according to Explains Cesar L. Villanueva, Chairman of the MAP
Corporate Governance Committee.

Corporate governance always provokes controversy, and the SEC founds itself accused of
“overregulation.” To refute this charge, the agency published a “Blueprint for Corporate
Governance” in 2015, which adopted the “comply or explain” principle, “how to find companies
to explain why they did not comply with the code.

“This perception of overregulation is a big challenge for the SEC,” complaining then SEC Chair
Teresita J. Herbosa, introducing the Blueprint. “This matter is hopefully addressed by shifting to
a ‘comply or explain’ approach to the 2016 Code of Corporate Governance.

The 2016 revision of the Code is a major step forward, as it aligns with the ASEAN Corporate
Governance Initiatives and Best Practice from the OECD and G20 countries, as a report from
PwC Philippines. The latest G-20 / Organization for Economic Co-operation and Development
Principles of Corporate Governance and the Asean Corporate Governance Scorecard were used
as key reference materials in the drafting of the code.

The comply-or-explain approach already complicates the reporting work of boards. There has
been a good reason in the explanation, and researching and validating that is greatly facilitated
by the support of a high-quality board portal. Board management software brings together a
library of governance materials, and updates them in real time, so that they find the references
they need to “explain” when they do not “comply.”

New Corporate Governance Code puts more pressure on boards

The new code finishes the ‘catch up’ evolution, adding elements that are new even in the
corporate governance of G20 countries.

An important change is the determination that listed companies “exist in perpetuity.” Previously,
a corporation set its own date of expiry. But now there is no endpoint, and the board of directors
must plan on that basis.
The new Code requires a corporation to hold independent directors occupying at least 20 per cent
of its board seats, and a compliance officer. This means that the Executive Director will make his
/ her presence felt.

And there will be additional reporting required, as the Philippine office of Baker & Mackenzie
point out. “Apart from the annual financial statements and general information sheets required
for all corporations, a corporation must also submit (i) a director compensation report; and (ii) a
director appraisal or performance report, which should include the standards or criteria used to
assess each director. “

This new report on executive compensation will no doubt have shareholders in arms.

A change in the law that boards is welcome to the establishment of electronic filing with the
SEC, and the right for directors to participate in meetings via electronic communication, as well
as the sending of notices by electronic means.

This paves the way to the paperless boardroom, as a board portal can now manage every aspect
of a director’s job. High-quality board management software can therefore provide all the
governance material that director needs, and allow them to communicate about these issues in a
secure environment.

Diligent keeps boards up-to-date in corporate governance

This is the best way to achieve best-in-class governance. Stringent, the scope of governance
evolves. Governance Cloud allows boards of directors to meet the demands in the boardroom
and beyond with the ability to select the products they need.

Diligent Governance Cloud fulfills many governance requirements. For example, the
identification and management of risk can be handled with board portal applications. Regulatory
and compliance requirements are updated automatically on the Diligent board portal, so that they
are up to date and ready to take action.

The resulting advantages, for the organization, include:

 Reduced costs
 Reduced duplication of activities
 Reduced impact on operations
 Achieved greater information quality
 Achieved greater ability to gather information quickly and efficiently.