Taking responsibility
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Taking responsibility

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Albert Vincent Yu Chang and Camille Maria Castolo of Gatmaytan Yap Patacsil Gutierrez & Protacio (C&G Law) outline how boards in publicly-listed companies are faced with a growing number of responsibilities and duties

Albert Vincent Yu Chang and Camille Maria Castolo of Gatmaytan Yap Patacsil Gutierrez & Protacio (C&G Law) outline how boards in publicly-listed companies are faced with a growing number of responsibilities and duties



The new Corporate Governance Code for Publicly-Listed Companies (PLC Code), which was approved by the Philippine Securities and Exchange Commission (SEC) in November 2016, took effect on January 1 2017. Under the memorandum circular in which the approval of the PLC Code was announced, the SEC requires all PLCs to submit a new manual of corporate governance on or before May 31 2017.

The PLC Code is a product of the collaboration between the SEC and the International Finance Corporation (IFC) towards raising Philippine corporate governance standards to a level on par with its regional and global counterparts, and increasing the confidence of foreign investors in the country.

It builds on previous codes of corporate governance, such as the Revised Code of Corporate Governance adopted in 2009, which is still effective for covered companies not listed on an exchange. The PLC Code is the first in a series of amended corporate governance codes for different types of Philippine corporations under the supervision of the SEC.

Global standards

With the G20/OECD Principles of Corporate Governance and Association of Southeast Asian Nations (Asean) Corporate Governance Scorecard as reference, the PLC Code adopts the principle of proportionality and the 'comply or explain' approach used in the UK, Germany, the Netherlands and other countries.

Under the principle of proportionality, a company establishes its corporate governance arrangements depending on its size and resources, such that larger companies and financial institutions may follow most of the PLC Code's provisions, and smaller companies may decide that the costs of some of the provisions outweigh the benefits. Under the 'comply or explain' approach, governance norms are tailored to the specific characteristics of individual companies, and this is believed to lead to more efficient governance outcomes compared to the one-size-fits-all approach that is often argued to be inherent in the 'comply-or-else' approach.

These standards allow greater flexibility for companies, which may choose between compliance and explaining non-compliance, thereby encouraging companies to adopt the spirit of the PLC Code, as opposed to imposing mandatory rules that would fail to allow sound deviations from the rule. Stated differently, it only requires companies to state whether they comply with the PLC Code, areas of non-compliance and the reasons for non-compliance.

SEC Chairperson Teresita Herbosa explains that the PLC Code's approach seeks to address 'the perceived overregulation of the SEC'.


While previous iterations of the PLC Code generally refer to corporate governance as the rules on the duties and responsibilities of the board of directors to the shareholders, the latest version specifies the aspects it is meant to govern by including the companies' economic, moral, legal and social obligations towards the stakeholders. Its definition centres on the system of stewardship in fulfilling the company's obligations.

The PLC Code is arranged as follows: principle, recommendations and explanations. Principles are accepted or professed rules of action or conduct that may be applied to different types of corporations. Recommendations are those best corporate governance practices that are specifically recommended for PLCs. Explanations strive to provide additional information to the companies on the recommended best practice.

Salient provisions

The PLC Code articulates principles that are distributed in five main sections.

Board governance responsibilities

The PLC Code provides for board diversity, additional board committees, limits on multiple board seats, and term limits for independent directors. It seeks to, among other things: increase the number of non-executive directors to at least a majority of the members of the board of directors; diversify its members in terms of gender, age, ethnicity, culture, skills, competence and knowledge in order to avoid group thinking; limit the number of concurrent board memberships of non-executive directors to a maximum of five companies to ensure that directors are able to dedicate sufficient time and attention to the company's business; increase the number of independent directors to three, or to such number as to constitute one-third of the board of directors, whichever is higher; and impose a new nine-year maximum cumulative term, beginning 2012, for independent directors, who will be perpetually barred from re-election in the same company but may only be elected as non-independent directors after meeting this threshold unless meritorious justifications are provided subject to the approval of shareholders.

It also seeks to create additional committees, aside from the audit committee, the nomination committee and the compensation or remuneration committee, which were contemplated in previous corporate governance codes. These additional committees are a board risk oversight committee, which is generally required for conglomerates and companies with high risk profiles to monitor the company's enterprise risk management system, and a related party transactions (RPTs) committee, which is tasked to review all material RPTs. In the PLC Code, related parties include a company's subsidiaries, affiliates and any party (including their subsidiaries, affiliates and special purpose entities) over which the company exerts direct or indirect control over or that exerts direct or indirect control over the company, the company's directors, officers, shareholders and related interests, and their close family members, corresponding persons in affiliated companies, and such other person or juridical entity whose interest may pose a potential conflict with the interest of the company.

Disclosure and transparency

The PLC Code seeks to expand disclosure obligations to go beyond financial aspects, to include non-financial information such as the management of economic, environmental, social and governance (EESG) issues which underpin sustainability. The G4 Framework by the Global Reporting Initiative, the Integrated Reporting Framework by the International Integrated Reporting Council and the Sustainability Accounting Standards Board's Conceptual Framework are suggested standards.

Internal control and risk management framework

The PLC Code recommends the appointment of a chief audit executive, who is in charge of the internal audit of the company and reports to the audit committee, and a chief risk officer, who oversees the company's enterprise risk management system and coordinates with the board risk oversight committee.

Synergic relationship with shareholders

Under the PLC Code, the board of directors is responsible for adopting a policy informing shareholders of their rights as shareholders, and of their right to propose the holding of meetings and to include additional agenda items ahead of the scheduled annual and special shareholders' meeting, the voting procedures at such meetings, the nomination process, and at the next working day, the result of the votes taken during the meeting. In addition, the PLC Code provides that rules and procedures governing RPTs and other unusual or infrequently occurring transactions should be clearly articulated and disclosed to shareholders. The PLC Code also provides that the board of directors should establish an investor relations office and investor relations program to ensure constant engagement with its shareholders.

Duties to stakeholders

The PLC Code seeks to protect not only shareholders but also stakeholders – ie those affected by the company's strategies, policies and business decisions such as customers, creditors, employees, suppliers, investors, the government and community in which the company operates. This is achieved by way of the creation of certain offices to serve as channels for communication and redress for violations of shareholders' rights, such as an investor relations office, office of the corporate secretary, customer relations office, and corporate communications group, and laying out alternative dispute resolution procedures for the resolution of intra-corporate disputes. The PLC Code also contains new provisions on the establishment of anti-corrupt practices and whistleblowing policies.

Corporate sustainability

A recurring theme across the principles, corporate sustainability is measured not only in terms of legal compliance or financial indicators, but also in terms of responsiveness to EESG issues. For example, the PLC Code recommends having a strategy on the disclosure of sustainability issues, the identification and analysis of key risks exposure relating to EESG factors as part of its risk management, and that companies measure sustainability not just in terms of legal compliance but also through its contributions to providing solutions to the problems of society at large.


The PLC Code is the SEC's response to calls for the Philippines to align more closely with peer countries in the region and other parts of the world, to raise investor confidence in listed companies in the Philippines and to increase foreign investments. Beyond boosting investor confidence, it seeks to create a structure for a more effective management of corporate resources and enhance the ability of corporations to contribute to the national, regional and global economies.

About the author



Albert Vincent Y Yu Chang

Partner, Gatmaytan Yap Patacsil Gutierrez & Protacio (C&G Law)

T: (632) 894 0377 to 79

F: (632) 552 1978

E: albert.yuchang@cagatlaw.com

W: www.cagatlaw.com

Albert Vincent Y. Yu Chang is an experienced business attorney focused on M&A, domestic and cross-border transactions, inbound and outbound foreign direct investments, and general corporate services.

He holds a Juris Doctor degree and a Master of Laws degree (with honours) from Northwestern University School of Law in Chicago, Illinois, a Juris Doctor degree (second honours) from Ateneo de Manila University School of Law, and a Bachelor of Arts degree and a Bachelor of Science in Commerce degree from De La Salle University – Manila. Prior to joining C&G Law, Albert practiced with Warner Norcross & Judd in Grand Rapids, Michigan from 2005 to 2012, and with SyCip Salazar Hernandez & Gatmaitan from 2014 to 2017.

He was co-editor of A Legal Guide to Doing Business in the Asia-Pacific (ABA Publishing 2010).

About the author



Camille Maria L Castolo

Associate, Gatmaytan Yap Patacsil Gutierrez & Protacio (C&G Law)

T: (632) 894 0377 to 79

F: (632) 552 1978

E: camille.castolo@cagatlaw.com

W: www.cagatlaw.com

Camille Maria L. Castolo specialises in commercial transactions, corporate services and banking. She has assisted several domestic and foreign companies in their investments and capital restructuring matters in the Philippines.

She has also rendered advice on compliance requirements for corporations in highly regulated industries in the country.

She obtained her degree in Legal Management from the Ateneo de Manila University in 2009. She graduated from the Ateneo de Manila University School of Law in 2013 as the class valedictorian. Prior to joining C&G Law in 2016, Camille was an associate at SyCip Salazar Hernandez & Gatmaitan.

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