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Flashcards in RFBT - REVISED CODE OF CORPORATE GOVERNANCE Deck (15)
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1
Q

What corporations are covered by the Revised Code of Corporate Governance?

A

It shall apply to registered corporations and to branches or subsidiaries of foreign corporations operating in the Philippines that:

(a) sell equity and/or debt securities to the public that are required to be registered with the Commission, or
(b) have assets in excess of Fifty Million Pesos and at least two hundred (200) stockholders who own at least one hundred (100) shares each of equity securities, or
(c) whose equity securities are listed on an Exchange;
(d) are grantees of secondary licenses from the Commission.

2
Q

What is an independent director?

A

An independent director is a person, who apart from his fees and shareholdings, is INDEPENDENT OF MANAGEMENT AND FREE FROM ANY BUSINESS OR OTHER RELATIONSHIP WHICH COULD REASONABLY OR PERCEIVED TO MATERIALLY INTERFERE WITH HIS EXERCISE OF INDEPENDENT JUDGMENT IN CARRYING OUT HIS RESPONSIBILITIES AS A DIRECTOR.

All companies covered by this Code shall have at least two (2) independent directors or such number of independent directors that constitutes twenty percent (20%) of the members of the Board, whichever is lesser, but in no case less than two (2). All other companies are encouraged to have independent directors in their
boards.

3
Q

What is an executive director?

A

One who is also the head of a department or unit of the corporation or performs any work related to its operations.

4
Q

What is a non-executive director?

A

One who is a director who is not the head of a department unit of the corporation nor performs any work related to its operations.

5
Q

Discuss the Permanent Disqualification of a director.

A

The following shall be grounds for the permanent disqualification of a director:

(i) Any person convicted by final judgment or order by a competent judicial or administrative body of any crime that:

(a) involves the purchase or sale of securities, as 
defined in the Securities Regulation Code; 

(b) arises out of the person’s conduct as an
underwriter, broker, dealer, investment adviser, 
principal, distributor, mutual fund dealer, futures 
commission merchant, commodity trading advisor, or 
floor broker; or 

(c) arises out of his fiduciary relationship with a bank, 
 quasi-bank, trust company, investment house or as 
 an affiliated person of any of them;

(ii) Any person who, by reason of misconduct, after hearing, is permanently enjoined by a final judgment or order of the Commission or any court or administrative body of competent jurisdiction from:
(a) acting as underwriter, broker, dealer, investment adviser, principal distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker;

(b) acting as director or officer of a bank, quasi-
bank, trust company, investment house, or investment company;
(c) engaging in or continuing any conduct or practice in any of
the capacities mentioned in sub-paragraphs (a) and (b) above, or willfully violating the laws that govern securities and banking activities.

The disqualification shall also apply if such person is currently the subject of an order of the Commission or any court or administrative body denying, revoking or suspending any registration, license or permit issued to him under the Corporation Code, Securities Regulation Code or any other law administered by the Commission or Bangko Sentral ng Pilipinas (BSP), or under any rule or regulation issued by the Commission or BSP, or has otherwise been restrained to engage in any activity involving securities and banking; or such person is
currently the subject of an effective order of a self-regulatory organization suspending or expelling him from membership, participation or association with a member or participant of the organization;
(iii) Any person convicted by final judgment or order by a court or competent administrative body of an offense involving moral turpitude, fraud, embezzlement, theft, estafa, counterfeiting, misappropriation, forgery, bribery, false affirmation, perjury or other fraudulent acts;
(iv) Any person who has been adjudged by final judgment or order of the Commission, court, or competent administrative body to have willfully violated, or willfully aided, abetted, counseled,
induced or procured the violation of any provision of the Corporation Code, Securities Regulation Code or any other law administered by the Commission or BSP, or any of its rule, regulation or order;
(v) Any person earlier elected as independent director who becomes an officer, employee or consultant of the same corporation;
(vi) Any person judicially declared as insolvent;
(vii) Any person found guilty by final judgment or order of a foreign court or equivalent financial regulatory authority of acts, violations or misconduct similar to any of the acts, violations or misconduct enumerated in sub-paragraphs (i) to (v) above;
(viii) Conviction by final judgment of an offense punishable by imprisonment for more than six (6) years, or a violation of the Corporation Code committed within five (5) years prior to the date of his election or
appointment.

6
Q

Discuss the Temporary Disqualification of a director.

A

The Board may provide for the temporary disqualification of a director for any of the following reasons:
(i) Refusal to comply with the disclosure requirements of the Securities Regulation Code and its Implementing Rules and Regulations. The disqualification shall be in effect as long as the refusal persists.

(ii) Absence in more than fifty (50) percent of all regular and special meetings of the Board during his incumbency, or any twelve (12) month period during the said incumbency, unless the absence is due to illness, death in the immediate family or serious accident. The disqualification shall apply for purposes of the succeeding election.

(iii) Dismissal or termination for cause as director of any
corporation covered by this Code. The disqualification shall be in effect until he has cleared himself from any involvement in the cause that gave rise to his dismissal or termination.

(iv) If the beneficial equity ownership of an independent director in the corporation or its subsidiaries and affiliates exceeds two percent of its subscribed capital stock. The disqualification shall be lifted if the limit is later complied with.
(v) If any of the judgments or orders cited in the grounds for permanent disqualification has not yet become final.

A TEMPORARILY DISQUALIFIED DIRECTOR SHALL WITHIN 60 DAYS FROM SUCH DISQUALIFICATION TAKE THE APPROPRIATE ACTION TO REMEDY OR CORRECT THE DISQUALIFICATION. FAILURE TO DO SO FOR UNJUSTIFIED REASONS SHALL MEAN HIS PERMANENT DISQUALIFICATION.

7
Q

What are the specific duties and responsibilities of a director?

A
  1. Conduct fair business transactions with the corporation and ensure that his personal interest does not conflict with the interests of the corporation
  2. Devote time and attention as necessary to properly and effectively perform his duties and responsibilities
  3. Act judiciously
  4. Exercise independent judgment
  5. Have a working knowledge of the statutory and regulatory requirements that affect the corporation including its AoI and bylaws
  6. Observe confidentiality.
8
Q

Discuss the Audit Committee of a corporation.

A

The Audit Committee shall consist of at least three (3) directors, who shall preferably have accounting and finance backgrounds, one of whom shall be an independent director and another with audit experience.

The CHAIR OF AN AUDIT COMMITTEE SHALL BE AN INDEPENDENT DIRECTOR. The committee shall have the following functions:

a) Assist the Board in the performance of its oversight
responsibility for the financial reporting process, system of internal control, audit process, and monitoring of compliance with applicable laws, rules and regulations;

b) Provide oversight over Management’s activities in managing credit, market, liquidity, operational, legal and other risks of the corporation. This function shall include regular receipt from Management of information on risk exposures and risk management activities;
c) Perform oversight functions over the corporation’s internal and external auditors. It should ensure that the internal and external auditors act independently from each other, and that both auditors are given unrestricted access to all records, properties and personnel to enable them to perform their respective audit functions;

d) Review the annual internal audit plan to ensure its
conformity with the objectives of the corporation. The plan shall include the audit scope, resources and budget necessary to implement it;

e) Prior to the commencement of the audit, discuss with the external auditor the nature, scope and expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts;
f) Organize an internal audit department, and consider the appointment of an independent internal auditor and the terms and conditions of its engagement and removal;
g) Monitor and evaluate the adequacy and effectiveness of the corporation’s internal control system, including financial reporting control and information technology security;
h) Review the reports submitted by the internal and external auditors;

i) Review the quarterly, half-year and annual financial
statements before their submission to the Board, with
particular focus on the following matters:
• Any change/s in accounting policies and practices
• Major judgmental areas
• Significant adjustments resulting from the audit
• Going concern assumptions
• Compliance with accounting standards
• Compliance with tax, legal and regulatory
requirements.

j) Coordinate, monitor and facilitate compliance with laws, rules and regulations;
k) Evaluate and determine the non-audit work, if any, of the external auditor, and review periodically the non-audit fees paid to the external auditor in relation to their significance to the total annual income of the external auditor and to the corporation’s overall consultancy expenses. The committee shall disallow any non-audit work that will conflict with his duties as an external auditor or may pose a threat to his independence. The non-audit work, if allowed, should be disclosed in the corporation’s annual report;

l) Establish and identify the reporting line of the Internal
Auditor to enable him to properly fulfill his duties and
responsibilities. He shall functionally report directly to the Audit Committee.

The Audit Committee shall ensure that, in the performance of the work of the Internal Auditor, he shall be free from interference by outside parties. For Philippine branches or subsidiaries of foreign
corporations covered by this Code, their Internal Auditor should be independent of the Philippine operations and should report to the regional or corporate headquarters.

9
Q

Discuss the Nomination Committee of a corporation.

A

A Nomination Committee shall be composed of AT LEAST THREE MEMBERS one of whom is an independent director, to review and evaluate the qualifications of all persons nominated to the Board.

10
Q

Discuss the Compensation and Remuneration Committee of a corporation.

A

A Compensation and Remuneration Committee shall be composed of AT LEAST THREE MEMBERS one of whom must be an independent director. It shall establish a FORMAL AND TRANSPARENT PROCEDURE FOR DEVELOPING POLICIES ON REMUNERATION OF DIRECTORS AND OFFICERS.

11
Q

Discuss the Corporate Secretary and his duties.

A

The Corporate Secretary must be a RESIDENT AND CITIZEN OF THE PHILIPPINES and should:

(i) Be responsible for the safekeeping and preservation of the integrity of the minutes of the meetings of the Board and its committees, as well as the other official records of the corporation;

(ii) Be loyal to the mission, vision and objectives of the
corporation;

(iii) Work fairly and objectively with the Board, Management and stockholders;
(iv) Have appropriate administrative and interpersonal skills;
(v) If he is not at the same time the corporation’s legal counsel, be aware of the laws, rules and regulations necessary in the performance of his duties and responsibilities;

(vi) Have a working knowledge of the operations of the
corporation;

(vii) Inform the members of the Board, in accordance with the bylaws, of the agenda of their meetings and ensure that the members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval;
(viii) Attend all Board meetings, except when justifiable causes, such as, illness, death in the immediate family and serious accidents, prevent him from doing so;
(ix) Ensure that all Board procedures, rules and regulations are strictly followed by the members; and
(x) If he is also the Compliance Officer, perform all the duties and responsibilities of the said officer as provided for in this Code.

12
Q

Discuss the Compliance Officer and his duties.

A

The Board shall appoint a Compliance Officer who shall report directly to the Chair of the Board. He shall perform the following duties:

(i) Monitor compliance by the corporation with this Code and the rules and regulations of regulatory agencies and, if any violations are found, report the matter to the Board and recommend the imposition of appropriate disciplinary action on the responsible parties and the adoption of measures to prevent
a repetition of the violation;

(ii) Appear before the Commission when summoned in relation to compliance with this Code; and
(iii) Issue a certification every January 30th of the year on the extent of the corporation’s compliance with this Code for the completed year and, if there are any deviations, explain the reason for such deviation.

13
Q

What are the stockholders’ rights?

A
  1. Right to vote on all matters that require their consent or approval
  2. Pre-emptive right to all stock issuance of the corporation
  3. Right to inspect corporate books and records
  4. Right to information
  5. Right to Dividends
  6. Appraisal right
14
Q

Covered corporations shall establish and implement their rules in accordance with the Code of Corporate Governance which shall be EMBODIED IN A MANUAL THAT MUST BE SUBMITTED TO THE SEC WITHIN?

A

180 DAYS FROM THE DATE THE CODE BECOMES EFFECTIVE.

15
Q

What is the fine for violation of the Code of Corporate Governance?

A

Fine of NOT MORE THAN PHP 200,000 FOR EVERY YEAR THAT A COVERED CORPORATION VIOLATES THE PROVISION OF THE CODE.