SEC tightens corporate governance standards

MANILA, Philippines — The Securities and Exchange Commission (SEC) has tightened its corporate governance standards, widening its net to cover public companies and registered users.

Public companies are those with assets of at least P50 million and having 200 or more shareholders holding at least 100 shares each of equity securities. 

A registered user is a company that issues proprietary or non-proprietary shares or certificates, issues equity securities to the public that are not listed in an exchange, or issues debt securities to the public that are required to be registered with the SEC, whether or not listed in an exchange.

The code, issued through SEC Memorandum Circular 24 last month, is part of a series of Corporate Governance Codes that the SEC issues for different types of corporations. 

The aim is to raise the corporate governance standards of Philippine corporations consistent with internationally recognized corporate governance principles, SEC chairman Emilio Aquino said. 

The code for public companies and registered users is rooted in the same corporate governance principles provided in the Code of Corporate Governance for publicly listed companies, Aquino also said.

Specifically, the code promotes different corporate governance subjects such as the board’s governance responsibilities, disclosure and transparency, internal control and risk management frameworks, cultivating a synergic relationship with shareholders and duties to stakeholders.

The code also recommends companies’ board of directors to be diverse to ensure that optimal decision-making is achieved. 

“To reinforce its independence, the board should also be composed of a majority of non-executive directors and have at least two independent directors, or such number as to constitute at least one-third of the members of the board, whichever is higher,” the SEC said.

Companies do not have to comply with the code, but they must state the reasons for non compliance.

This is a reflection of the SEC’s comply-or-explain approach which allows companies some flexibility in establishing their corporate governance practices, taking into consideration the principle of proportionality.

“Compliance with the higher standards of corporate governance should translate to better value propositions for shareholders and customers, minimized risks, growth and sustainability,” Aquino said.

The code also encourages covered companies to have a strong and effective internal control system and enterprise risk management system and an independent internal audit function.