SEC aligns Code of Corporate Governance to global standards

MANILA, Philippines — The Securities and Exchange Commission (SEC) is coming out with a new Code of Corporate Governance that is intended to raise the corporate governance standards of Philippine corporations to a level at par with its global counterparts.

The latest G20 Principles of Corporate Governance and the Association of Southeast Asian Nations Corporate Governance Scorecard were used as key reference materials in the drafting of the new code, which intends to replace the 2016 manual.

According to the SEC, 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.

One provision in the new code is the call for stricter standards for the board of directors of listed companies and registered corporations.

In particular, the SEC is putting emphasis on the qualifications of its members.

“The board should be composed of directors with a collective working knowledge, experience or expertise that is relevant to the company’s industry or sector. The board should always ensure that it has an appropriate mix of competence and expertise and that its members remain qualified for their positions individually and collectively, to enable it to fulfill its roles and responsibilities and respond to the needs of the organization based on the evolving business environment and strategic direction,” the SEC said.

Furthermore, the SEC said the board should be composed of a majority of non-executive directors who possess the necessary qualifications to effectively participate and help secure objective, independent judgment on corporate/organization affairs and to substantiate proper checks and balances.

There is also emphasis on its Manual on Corporate Governance and that a formal and transparent board nomination and election policy that should include how it accepts nominations from its shareholders and reviews nominated candidates.

“The policy should also include an assessment of the effectiveness of the board’s processes and procedures in the nomination, election, or replacement of a director. In addition, its process of identifying the quality of directors should be aligned with the strategic direction of the company,” the SEC said.

Absentee members should also be disqualified such as those absent in more than 50 percent of all regular and special meetings of the board during his incumbency or any 12-month period during the said incumbency.

For related party transactions, the company should disclose its policies governing these transactions and other unusual or infrequently occurring transactions.

“The company should have an adequate and effective internal control system and an enterprise risk management framework in the conduct of its business, taking into account its size, risk profile and complexity of operations,” the SEC said.