SEC Memo 19 s. 2016: Corporate Governance

• SEC Memorandum Circular No. 19, Series of 2016 addresses corporate governance for publicly-listed companies.
• It's addressed to Pubclicly Listed Companies
• The subject is about the Code of Corporate Governance for Publicly-Listed Companies

Purpose

• To promote strong corporate governance and align with recent developments.
• The Commission approved the Code of Corporate Governance for Publicly-Listed Companies ("CG Code for PLCs")
• Approved during an en banc meeting on November 10, 2016.

Superseded Circulars

• This CG Code replaces several prior SEC Memorandum Circulars:
  • No. 6, series of 2009 (Revised Code of Corporate Governance)
  • No. 9, Series of 2011 (Term Limits for Independent Directors)
  • No. 20, Series of 2013 (Training for Directors/Officers)
  • No. 9, Series of 2014 (Amendment to the Revised Code)
  • Parts VI & VII of No. 2, Series of 2015 (Additional Training Guidelines)

Applicability

• The superseded Memorandum Circulars stay in effect for other covered companies.
• Relevant Memorandum Circulars on corporate governance remain in force until further notice.
• Publicly-listed companies must submit a new Corporate Governance Manual by May 31, 2017.
• The Code of Corporate Governance for PLCs took effect on January 1, 2017.

Key Governance Principles

• Principle 1: A competent board leads the company, ensuring long-term success and competitiveness.
• Principle 2: Board responsibilities are clearly defined and disclosed.
• Principle 3: Board committees support effective board function, especially in audit and risk management.
• Principle 4: Directors commit sufficient time and attention to their duties.
• Principle 5: The Board exercises objective and independent judgment.
• Principle 6: Board effectiveness is measured through regular assessments.
• Principle 7: Board members uphold high ethical standards.
• Principle 8: Companies establish corporate disclosure policies.

Internal Control and Risk Management

• Principle 12: Companies maintain a strong internal control system.

Shareholder Relations

• Principle 13: All shareholders are treated fairly, and their rights are protected.

Stakeholder Duties

• Principle 14: Stakeholder rights are respected, with redress for violations.
• Principle 15: Employee participation is encouraged.
• Principle 16: Companies are socially responsible in their communities.

Code Development

• The Code aligns with international standards like G20/OECD principles.
• It adopts a "comply or explain" approach, requiring companies to report compliance or non-compliance.

Code Structure

• It comprises Principles, Recommendations, and Explanations.
• Principles are high-level statements applicable to all companies.
• Recommendations identify specific good practices.
• Explanations provide additional clarifying information.
• The Code promotes flexibility, considering company size and relevance of provisions.

Definition of Corporate Governance

• Corporate Governance is defined as the system of stewardship and control guiding organizations towards fulfilling long-term obligations to stakeholders. Corporate governance guides sustainable value creation for shareholders, stakeholders, and the nation.

Key Terms

• Board of Directors: Exercises corporate powers.
• Management: Executes policies set by the Board.
• Independent Director: Free from conflicts of interest.
• Executive Director: Has executive responsibility.
• Non-Executive Director: Lacks executive responsibility.
• Conglomerate: Diversified group under a parent entity.
• Internal Control: Ensures efficient operations and compliance.
• Enterprise Risk Management: Identifies and manages potential risks.
• Related Party: Includes subsidiaries, affiliates, and those with control over the company.
• Related Party Transactions: Resource transfers between related entities.
• Stakeholders: Any group who can affect/be affected by the company, including customers, creditors, employees etc

Competent Board

• Principle 1 emphasizes a competent board for long-term success.
• Recommendation 1.1: The board should collectively possess working knowledge of the industry/sector.
• Explanation: Competence ensures good management and governance.

Non-Executive Directors

• Recommendation 1.2: A majority of non-executive directors is needed for objective judgment.
• The right combination of non-EDs and EDs prevents domination.

Training and Orientation

• Recommendation 1.3: Provide training for directors, including orientation for new directors.
• The program aims to promote effective board performance.
• New directors need to be appropriately informed of duties and responsibilities

Board Diversity

• Recommendation 1.4: The Board needs a diversity policy.
• It avoids groupthink by including diversity in age, ethnicity, skills, and gender.
• A good example of gender diversity policy is increasing female directors.

Assistance

• Recommendation 1.5: The Board should be assisted by a Corporate Secretary, a separate individual from the Compliance Officer
• The Corporate Secretary should receive training on corporate governance.
• Recommendation 1.6: The Compliance Officer should be a Senior Vice President or equivalent.

Responsibilities

• 2. Establishing Clear Roles and Responsibilities of the Board
• The Board members should act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and all shareholders.
• The two key elements of a board member's fiduciary duty of care and the duty of loyalty
• The Board oversees/approves company objectives, strategy, and monitors implementation.
• Strategic policies translate to proper identification and prioritization of goals.
• The Board should be headed by a competent and qualified Chairperson.
• The Chairperson makes sure that what is discussed in the meeting is of a strategic matter.
• The Chairperson guarantees the board receives accurate and timely information to enable sound decisions, and proper training.
• The Board ensures effective succession planning for directors and key officers.
• The best plan is linked to the documented roles and responsibilities. -It is necessary for this plan to be linked to the roles and responsibilities for the purpose of objectively identifying skills and abilities for the position.
• The board should align key officers and board members remuneration with the company's long-term interests.
• They must formulate and adopt a policy specifying the relationship between remuneration and performance.
• The board should have and disclose in its Manual on Corporate Governance a formal and transparent board nomination and election policy that should include how it accepts nominations from minority shareholders and reviews nominated candidates.
• The policy should encourage shareholders’ participation and transparency of the policy.
• The nomination and elections process must look into candidates knowledge , skills, experience, ethical standing and time obligations, they must also be able to promote an interaction between board members.
• It is good to higher professionals to source candidates to the board.
• The qualification and grounds for disqualification are contained in the company's manual , the reasons for permanent disqualification and reasons for temporary disqualification
• The board should also be responsible for ensuring there is a group wide policy governing related party transactions and the process followed and should guarantee the process provides fairness and transparency and should encompass all entitles.
• Ensuring the integrity of related party transactions is an fiduciary duty of the director.
• The board is also primarily responsible for approving the selection and assessing the performance of the Management lead by the Chief Executive Officer.
• The Board should establish an effective performance management framework that will ensure that the Management, including the Chief Executive Officer, and personnel’s performance is at part.
• Results of performance evaluation should be linked to other humans.
• The Board should oversee and ensure there are measures in place to deal with internal controls like setting up a mechanism for board of management member or shareholder conflicts

Sound risk assesment

• The board should oversee that a sound enterprise risk management framework is in place to effectivley identify risks.

Board Charter

• States that the roles and responsibility are clearly set out by the board in carrying out its fiduciary duties

Board Committee

• Board Committes such as the Audit COmmittee, Corporate Governance Committee are necessacry to help aid board in function

The Audit Committee

• The board should have and establish an audit committee to enhance its oversight capability over the company’s financial reporting, internal control system, internal and external audit processes, and compliance with applicable laws and regulations.

Corporate Governance Community

• Must be established to help with tasks to assist the Board in the performance of its corporate governance responsibilities.
• Oversees the implementation of the corporate governance framework
• Oversees the periodic performance evaluation of the Board and the committees as well as executive management.

Broc

• If the corporation is of a certain risk profile they may establish a seperate Board Risk Oversight Committee.
• that should be responsible for the oversight of a company’s enterprise risk management system to ensure its functionality and effectiveness.

RPT Committee

• Subject to a corporation’s size, risk profile and complexity of operations, the Board should establish a Related Party Transaction (RPT) Committee, which should be tasked with reviewing all material related party transactions of the company and should be composed of at least three non
• executive directors, two of whom should be independent, including the Chairman.

Show full commitment

• The best way for directors to conduct themsleves is to show up to all meetings of the Board to properly and effectively perform their duties and responsibilities.
• The directors should attend and actively participate in all meetings of the Board, such as committees and shareholders in person if not the director may be excused due to being in a circumstance.

Be avaliable

• Non members of the board should concurrently serve as directors in no more than 5 publicly listed compnaies as it is necessary to see them prepare, challenge management views, and oversee the long term strategy.

Notify before Directorships

• A director should notify the Board where he/she is an incumbent director before accepting a directorship in another company.
• Board members expect comittment and have the authority to say no if it seems like time is a factor for duties.

Exercising judgement

• This is down to the boar members objectivity and doing it dependently and without causing a conflict

Not holding positions

• It is stated that independent directors should not previously hold senior officer positions.
• They should be familiar with the industry.

Having Directors on committees

• It should be determined here whether the director can be nominated whether they may of committed a financial disqualification.

5.3

• Independent Directors should not be on the board longer than 9 years, and not be perpetually barred from re-election to the same body.

Positions

• The chairman of the board and CEO should be different people.

CEO

• The CEO must also look into the stategic direction, and values of the company, must be knowledgable in the core buisness

Lead director

• In cases where the Chairman is not independent and where the roles of Chair and CEO are combined, putting in place proper mechanisms ensures independent views and perspectives.
• More importantly, it avoids any abuse of power and potential conflict of interest, a good mechanism is appoining of a strong lead director

Meeting abstainment

• A director with a material interest in any transaction should abstain from their own board meeting

Separate Meeting

• A separate meeting happens with the Non executive directors so the internal members may review and approve them before entering it into the corp

Assessing board performance

• Helps understand the roles and responsioibiolites in the board and comittees
• In the external board meeting there is a facilitator whom is a neutral third party

Board Criteria

• The boar should have in place a system that meets the bar for board operations and communications

Ethics and conduct

• All members of the board should be adhering to ethical standarts, taking to the acount of stakeholders

Adopting Conduct

The Board should adopt a Code of Business Conduct and Ethics, which would provide standards for professional and ethical behavior, as well as articulate acceptable and unacceptable conduct and practices in internal and external dealings, senior management, and employees

Policy

Implement internal controls and ethics for communication.

Enhancing Company disclosure

• Compliance of disclousre that is per rules

Company shares

Must be disclosed within business day

Reporting

• Must be well disclosed to be available about the information on board members and keys executives

Manual

• Must be posted and transparent.

9: Audic

• Committee approve auditing

10 Suatiabiltiy

• Focus and transparency for disclosure

Information

• channel to give relevant informations

Strengthening internal control

• Strong and effective systems

Internal Audit

• Help moniter and guide companies policies

Commerial

• The CEO must approve his and or hers staff

Strategy

• A plan that must be used

Stake holder Rights

• It must be protected when they have it

Help

• This should be assisted by the

Participation

• Staff

Corupt

• Corruption is bad, and it has to go

Communication

• Must speak , must show a safe spot to talk

Employees

Make goals and do whatever to get employees in corporate governance

Sustainability

• How and where and what helps