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Republic of the Philippines
SECURITIES AND EXCHANGE COMMISSION
SEC Building, EDSA, Greenhills
Mandaluyong City
SEC Memorandum Circular No. 6
Series of 2009
REVISED CODE OF CORPORATE GOVERNANCE
Pursuant to its mandate under the Securities Regulation Code and the Corporation
Code, the Securities and Exchange Commission (the “Commission”), in a meeting
held on June 18, 2009, approved the promulgation of this Revised Code of
Corporate Governance (the “Code”) which 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; or (d) are
grantees of secondary licenses from the Commission.
Article 1: Definition of Terms
a) Corporate Governance – the framework of rules, systems and processes in
the corporation that governs the performance by the Board of Directors and
Management of their respective duties and responsibilities to the
stockholders;
b) Board of Directors – the governing body elected by the stockholders that
exercises the corporate powers of a corporation, conducts all its business and
controls its properties;
c) Exchange – an organized market place or facility that brings together buyers
and sellers, and executes trades of securities and/or commodities;
d) Management – the body given the authority by the Board of Directors to
implement the policies it has laid down in the conduct of the business of the
corporation;
e) Independent director – a person who, apart from his fees and
shareholdings, is independent of management and free from any business or
other relationship which could, or could reasonably be perceived to, materially
interfere with his exercise of independent judgment in carrying out his
responsibilities as a director;
f) Executive director – a director who is also the head of a department or unit
of the corporation or performs any work related to its operation;
g) Non-executive director – a director who is not the head of a department or
unit of the corporation nor performs any work related to its operation;
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h) Non-audit work – the other services offered by an external auditor to a
corporation that are not directly related and relevant to its statutory audit
functions, such as, accounting, payroll, bookkeeping, reconciliation, computer
project management, data processing, or information technology outsourcing
services, internal audit, and other services that may compromise the
independence and objectivity of an external auditor;
i) Internal control – the system established by the Board of Directors and
Management for the accomplishment of the corporation’s objectives, the
efficient operation of its business, the reliability of its financial reporting, and
faithful compliance with applicable laws, regulations and internal rules;
j) Internal control system – the framework under which internal controls are
developed and implemented (alone or in concert with other policies or
procedures) to manage and control a particular risk or business activity, or
combination of risks or business activities, to which the corporation is
exposed;
k) Internal audit – an independent and objective assurance activity designed to
add value to and improve the corporation’s operations, and help it accomplish
its objectives by providing a systematic and disciplined approach in the
evaluation and improvement of the effectiveness of risk management, control
and governance processes;
l) Internal audit department – a department or unit of the corporation and its
consultants, if any, that provide independent and objective assurance services
in order to add value to and improve the corporation’s operations;
m) Internal Auditor – the highest position in the corporation responsible for
internal audit activities. If internal audit activities are performed by outside
service providers, he is the person responsible for overseeing the service
contract, the overall quality of these activities, and follow-up of engagement
results.
Article 2: Rules of Interpretation
A) All references to the masculine gender in the salient provisions of this
Code shall likewise cover the feminine gender.
B) All doubts or questions that may arise in the interpretation or
application of this Code shall be resolved in favor of promoting
transparency, accountability and fairness to the stockholders and
investors of the corporation.
Article 3: Board Governance
The Board of Directors (the “Board”) is primarily responsible for the
governance of the corporation. Corollary to setting the policies for the
accomplishment of the corporate objectives, it shall provide an independent
check on Management.
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A) Composition of the Board
The Board shall be composed of at least five (5), but not more than
fifteen (15), members who are elected by the stockholders.
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.
The membership of the Board may be a combination of executive and
non-executive directors (which include independent directors) in order
that no director or small group of directors can dominate the decision-
making process.
The non-executive directors should possess such qualifications and
stature that would enable them to effectively participate in the
deliberations of the Board.
B) Multiple Board Seats
The Board may consider the adoption of guidelines on the number of
directorships that its members can hold in stock and non-stock
corporations. The optimum number should take into consideration the
capacity of a director to diligently and efficiently perform his duties and
responsibilities.
The Chief Executive Officer (“CEO”) and other executive directors may
be covered by a lower indicative limit for membership in other boards.
A similar limit may apply to independent or non-executive directors
who, at the same time, serve as full-time executives in other
corporations. In any case, the capacity of the directors to diligently and
efficiently perform their duties and responsibilities to the boards they
serve should not be compromised.
C) The Chair and Chief Executive Officer
The roles of Chair and CEO should, as much as practicable, be
separate to foster an appropriate balance of power, increased
accountability and better capacity for independent decision-making by
the Board. A clear delineation of functions should be made between
the Chair and CEO upon their election.
If the positions of Chair and CEO are unified, the proper checks and
balances should be laid down to ensure that the Board gets the benefit
of independent views and perspectives.
The duties and responsibilities of the Chair in relation to the Board may
include, among others, the following:
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(i) Ensure that the meetings of the Board are held in accordance
with the by-laws or as the Chair may deem necessary;
(ii) Supervise the preparation of the agenda of the meeting in
coordination with the Corporate Secretary, taking into
consideration the suggestions of the CEO, Management
and the directors; and
(iii) Maintain qualitative and timely lines of communication
and information between the Board and Management.
D) Qualifications of Directors
In addition to the qualifications for membership in the Board provided
for in the Corporation Code, Securities Regulation Code and other
relevant laws, the Board may provide for additional qualifications which
include, among others, the following:
(i) College education or equivalent academic degree;
(ii) Practical understanding of the business of the corporation;
(iii) Membership in good standing in relevant industry, business or
professional organizations; and
(iv) Previous business experience.
E) Disqualification of Directors
1. Permanent Disqualification
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
