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Tag: Cesar L. Villanueva
MANY of the corporate governance (CG) reforms pursued by the Securities and Exchange Commission (SEC) through its CG Codes seek to usher a system of professional directorship into the publicly held companies (PHCs) and publicly listed companies (PLCs). This includes a system of professional directorship, such as granting more supervisory power to the Boards over its composition, and integrity (i.e., qualifications and disqualifications), as well as the competence and diversity of talents and skills of their members, effecting a system of discipline over their members, and providing for competitive levels of remuneration.
Recommendation 2.5 of the CG Code for Publicly-Listed Companies (PLCs) covers the issue of proper remuneration for the Board, thus.
The CG Code for Publicly-Listed Companies (PLCs) through its “adopt or explain approach,” is able to avoid all the legal obstacles that may be found in the Board-enabling clauses of the original and Revised CG Codes, by adopting a formal Principle 1 for “Establishing a Competent Board,” thus.
Section II(1)(A) of the Original CG Code has essentially been carried forward into the Revised CG Code which basically empowers the Board to reconstitute the “Composition of the Board” between executive and non-executive directors, thus.
The CG Code for Publicly Listed Companies (PLCs) formally adopts the “comply or explain approach,” which combines voluntary compliance with mandatory disclosure, and which it defines as “Companies do not have to comply with the Code, but they must state in their annual corporate governance (CG) reports whether they comply with the Code provisions, identify any areas of non-compliance, and explain the reasons for non-compliance.” The Code therefore does not contain any penalty clause at all, and through its “comply or explain approach” relies upon the “pressure of the market” to goad PLCs to adopt its governance principles and recommended best practices. One of the outstanding features therefore of the CG Code for PLCs is its underlying belief that in the “disciplining power of the market,” thus.
It would be helpful to discuss briefly the hierarchical value of the SEC Corporate Governance (CG) Codes in relation to the provisions of the Corporation Code (CC) and the Securities Regulation Code (SRC) that actually have within their frameworks systems of CG.
Power to discipline and to remove directors is vested, not with the board, but with the stockholders
The Corporation Code contains its own set of “corporate governance (CG) principles,” which can be summarized into the following general statements:
In a previous article entitled “Fiduciary Duties of the Board of Directors and Management under SEC’s Codes of Corporate Governance,” we discussed how the corporate governance reforms undertaken by the Securities and Exchange Commission (SEC) in the sector of publicly held and publicly listed companies have expanded the duties and obligations placed upon the Board of Directors and Management and formally increased the constituencies they serve, beyond just the stockholders, thereby subjecting directors and senior officers to greater personal liabilities for misfeasance and nonfeasance in relation to such fiduciary duties and obligations. It is fitting, therefore, that in the face of such increased professional and personal responsibilities, SEC has, in tandem, increased the powers of administrative supervision of the Boards over their members to ensure that directors act with full transparency, responsibility and accountability, with the utmost degree of professionalism and effectiveness.
As shown hereunder, it seems clear that ultimately the Corporate Governance (CG) Code for Publicly-Listed Companies (PLCs) places the ability to prevent corporate opportunism squarely on the shoulders of the independent directors (IDs), whether such attempts at corporate opportunism be on the part of the controlling stockholders acting through a majority of the members of the Board, or through Management.
In contrast to the Revised Corporate Governance (CG) Code for Public Companies (PCs) which refers only to the role of independent directors in exercising independent judgment as against “management,” the CG Code for Publicly Listed Companies (PLCs), in defining an independent director clearly delineates between “management” and “controlling shareholder,” thus.
It is worth pointing out that the Securities and Exchange Commission (SEC), in formally adopting the Corporate Governance (CG) Code for Publicly Listed Companies (PLCs), effectively provides that the Revised Code of CG, “shall remain in effect for other covered companies, when applicable.” There currently exists, therefore, two separate and distinct CG regimes in the Publicly Held Companies (PHC) sector, namely.
Since the Securities Regulation Code’s (SRC) promulgation, there have arisen many issues regarding the rationale or efficacy of the system of independent directors (IDs), with passionate advocates on both sides of the debate.
THE corporate system of “Independent Directors” does not exist under the current version of the Corporation Code of the Philippines, where the aspect of “minority representation” is covered by the requirement of cumulative voting, which makes it mathematically possible for minority shareholders to pursue minority representation in the Board of Directors. This is understandable since the primary role of the Corporation Code (CC) since its enactment in 1980 is to be the “general enabling law” referred to in our Constitution by which private corporations of all types may be organized for private interests, covering all types of corporations, stock and nonstock, close or family-owned, and not merely limited to “publicly-held corporations” (PHCs).
Under the GOCC Governance Act, the corporate governance standards for directors/trustees and officers of GOCCs have by expressed statutory imprimatur far exceeded those for the directors/trustees and officers in PHCs under the Corporation Code, the Securities Regulations Code, and the SEC Code of Corporate Governance, as follows.
The GOCC Governance Act requires of directors, trustees, and officers in the GOCC Sector to “[a]ct with utmost and undivided loyalty to the GOCC,” and to “[a]void conflicts of interests and declare any interests they may have in any particular matter before the Board.”
In the private corporate sector as currently governed by common law developments under the Corporation Code, the “business judgment rule” pervades in defining the duties, responsibilities, and liability of directors, trustees and officers. The rule proceeds from the corporate set-up of Centralized Management which grants to the Board the sole authority to determine policy and conduct the ordinary business of the corporation within the scope of its charter. As long as the Board acts honestly and in good faith, the courts will not interfere in their judgments and transactions; and that minority members of the Board and the stockholders cannot come to the courts to change the course of the administration of the corporate affairs.
The GOCC Governance Act formally characterizes the members of the Governing Boards and Officers of GOCCs as “fiduciaries of the State” with “the legal obligation and duty to always act in the best interests of the GOCC, with utmost good faith in all its dealings with the property and monies of the GOCC.”
PRINCIPLES OF PUBLIC CORPORATE GOVERNANCE 1. Full Implementation of the Stakeholder Theory in the GOCC Sector The GOCC Governance Act recognizes that all GOCCs, whether chartered...
The GOCC Governance Act mandates that the Governance Commission for GOCCs (GCG) shall formally issue a “Fit and Proper Rule” as “the standards for...
While I was the incumbent Chair of the Governance Commission for GOCCs (GCG), I had a short conversation with Securities and Exchange Commission (SEC)...
The GOCC (government-owned and controlled corporation) Governance Act formally defines “Board of Directors/Trustees” as “the governing body that exercises the corporate powers of a...
Part III Prior to the promulgation by the SEC of the original Code of Corporate Governance, corporate governance literature abounded with championing the “Maximization of...
(Second of two parts) THE very essence of what constitutes “good corporate governance” for stock for-profit corporations depends largely on properly delineating the constituencies to...
Among the essential features of an effective corporate governance (CG) regime would be the proper designation of the agency in the corporate setting that...