Corporate Governance reforms under the Revised Corporation Code

The promulgation into law of the Revised Corporation Code of the Philippines saw the placing into statutory language, and therefore into a more permanent framework, many of the corporate governance principles and best-practices adopted by the Securities and Exchange Commission (SEC) in the area of publicly listed corporations (PLCs).

It should be noted that although the Revised Corporation Code (RCC) has provisions referring to “good corporate governance,” it has not taken a step towards providing for a statutory definition of the term. Consequently, the coverage of the term “corporate governance” under the Revised Corporation Code remains to be that defined under the Corporate Governance (CG) Code for PLCs, thus:

Corporate Governance — the system of stewardship and control to guide organizations in fulfilling their long-term economic, moral, legal and social obligations towards their stakeholders.

CG is a system of direction, feedback and control using regulations, performance standards and ethical guidelines to hold the Board and Senior Management accountable for ensuring ethical behavior — reconciling long-term customer satisfaction with shareholder value — to the benefit of all stakeholders and society.

Its purpose is to maximize the organization’s long-term success, creating sustainable value for its shareholders, stakeholders and the nation.

Unless the SEC in the exercise of its quasi-legislative powers, changes the concept of coverage of “corporate governance,” reference by the Revised Corporation Code to the obligation of the Board of Directors to pursue “good corporate governance” refers to the same concept, coverage and policy considerations as those contained in the CG Codes promulgated by the SEC.

Within Philippine jurisdiction, CG reforms essentially seek to achieve three objectives:

Firstly, to reiterate and place special emphasis on the doctrinal value of the corporate feature of “Centralized Management,” which, under what is now Section 22 of the Revised Corporation Code, provides that outside of specified instances enumerated in the law where shareholders’ ratification vote is required, all corporate powers, all corporate property, and thereby, the management and control of all the corporate business, is granted by law, as an exercise by the state of its police power, to the Board of Directors, for the benefit of the shareholders. Necessarily, the proprietary and management relationship established under the corporate centralized management set-up brings about a fiduciary relationship between the Board of Directors on one hand, and the shareholders and other investors on the other hand, and creates a set of duties and responsibilities on the members of the Board and Management.

Secondly, there is a strong adherence to the principle that corporations whose business enterprise affects public interests, public safety and welfare must behave in a socially acceptable way — to be a good corporate citizen. Consequently, CG reforms in the Philippines seek to expand the coverage of the duties and responsibilities of the Boards of Directors of corporations vested with public interest, to apply beyond their shareholders, and to include all parties who are affected by their operations — termed as the “stakeholders.”

Thirdly, CG principles operate under the credo that Boards of Directors of corporations whose business enterprise are deemed to be vested with public interests have a heightened set of duties and responsibilities to society, and in turn vigilant stakeholders in such companies would constitute the strongest incentive for their Boards to adhere to good governance principles. CG principles seek to promote the corporate virtues of “competency,” “transparency,” “accountability,” “responsibility,” and “independence,” as well as to operationalize such CG principles through a “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.”

This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or the MAP.

Attorney Cesar L. Villanueva is Chair of MAP Corporate Governance Committee, trustee of the Institute of Corporate Directors, former Chair of Governance Commission for GOCCs (August 2011 to June 2016), Dean of the Ateneo Law School (April 2004 to September 2011), author of the book The Law and Practice in Philippine Corporate Governance and the National Book Board Award-winning Profession, and founding partner of the Villanueva Gabionza & Dy Law Offices.