Denise Ilyanna V.

Javier
BSA 2
THE BOARD'S GOVERNANCE RESPONSIBILITIES
1. ESTABLISHING A COMPETENT BOARD
Principle
The company should be headed by a competent, working board to foster the long-term success of
the corporation, and to sustain its competitiveness and profitability in a manner consistent with
its corporate objectives and the long-term best interests of its shareholders and other
stakeholders.
1.1

 Collective working knowledge, experience or expertise that is relevant to the

company's industry/sector.
 The Board should always ensure that it has an appropriate mix of competence
and expertise and that its members remain qualified for their positions
individually and collectively.
Explanation
It determined from the collective knowledge experience and expertise of each director that is
relevant to the industry/sector that the company is in. In this regard, the Board sets qualification
standards for its members to facilitate the selection of potential nominees for board seats. and to
serve as a benchmark for the evaluation of its performance.

Recommendation 1.2
The Board should be composed of a majority of non-executive directors who possess the
necessary qualifications to effectively participate and help secure objective, independent
judgment on corporate affairs and to substantiate proper checks and balances.
Explanation
The right combination of non-executive directors (NEDs), which include independent directors
(IDs) and executive directors (EDs), ensures that no director or small group of directors can
dominate the decision-making process. Further, a board composed of a majority of NEDs assures
protection of the company's interest over the interest of the individual shareholders. The
company determines the qualifications of the NEDs that enable them to effectively participate in
the deliberations of the Board and carry out their roles and responsibilities.
Recommendation 1.3
The Company should provide in its Board Charter and Manual on Corporate Governance a
policy on the training of directors, including an orientation program for first-time directors and
relevant annual continuing training for all directors.
Explanation
The orientation program for first-time directors and relevant annual continuing training for all
directors aim to promote effective board performance and continuing qualification of the
directors in carrying-out their duties and responsibilities. It is suggested that the orientation
program for first-time directors, in any company, be for at least eight hours, while the annual
continuing training be for at least four hours.
All directors should be properly oriented upon joining the board. This ensures that new members
are appropriately apprised of their duties and responsibilities, before beginning their
directorships.
The annual continuing training program, on the other hand, makes certain that the directors are
continuously informed of the developments in the business and regulatory environments,
including emerging risks relevant to the company.

Recommendation 1.4
The Board should have a policy on board diversity.
Explanation
Having a board diversity policy is a move to avoid groupthink and ensure that optimal decision-
making is achieved. A board diversity policy is not limited to gender diversity. It also includes
diversity in age, ethnicity, culture, skills, competence and knowledge. On gender diversity policy,
a good example is to increase the number of female directors, including female independent
directors.

Recommendation 1.5
The Board should ensure that it is assisted in its duties by a Corporate Secretary, who should be a
separate individual from the Compliance Officer. The Corporate Secretary should not be a
member of the Board of Directors and should annually attend a training on corporate
governance.
Explanation
The Corporate Secretary is primarily responsible to the corporation and its shareholders, and not
to the Chairman or President of the Company and has, among others, the following duties and
responsibilities:
a. Assists the Board and the board committees in the conduct of their meetings, including
preparing an annual schedule of Board and committee meetings and the annual board calendar,
and assisting the chairs of the Board and its committees to set agendas for those meetings.
b. Safe keeps and preserves the integrity of the minutes of the meetings of the Board and its
committees, as well as other official records of the corporation;
c. Keeps abreast on relevant laws, regulations, all governance issuances, relevant industry
developments and operations of the corporation, and advises the Board and the Chairman on all
relevant issues as they arise;
d. Works fairly and objectively with the Board, Management and stockholders and contributes to
the flow of information between the Board and management, the Board and its committees, and
the Board and its stakeholders, including shareholders;
e. Advises on the establishment of board committees and their terms of reference;
f. Informs members of the Board, in accordance with the by-laws, of the agenda of their
meetings at least five working days in advance, and ensures that the members have before them
accurate information that will enable them to arrive at intelligent decisions on matters that
require their approval;
g. Attends all Board meetings, except when justifiable causes, such as illness, death in the
immediate family and serious accidents, prevent him/her from doing so;
h. Performs required administrative functions;
i. Oversees the drafting of the by-laws and ensures that they conform with regulatory
requirements; and
j. Performs such other duties and responsibilities as may be provided by the SEC.

Recommendation 1.6
The Board should ensure that it is assisted in its duties by a Compliance Officer, who should
have a rank of Senior Vice President or an equivalent position with adequate stature and
authority in the corporation. The Compliance Officer should not be a member of the Board of
Directors and should annually attend a training on corporate governance.
Explanation
The Compliance Officer is a member of the company's management team in charge of the
compliance function. Similar to the Corporate Secretary, he/she is primarily liable to the
corporation and its shareholders, and not to the Chairman or President of the company. He/she
has, among others, the following duties and responsibilities:
a. Ensures proper onboarding of new directors (i.e., orientation on the company's business,
charter, articles of incorporation and by-laws, among others);
b. Monitors, reviews, evaluates and ensures the compliance by the corporation, its officers and
directors with the relevant laws, this Code, rules and regulations and all governance issuances of
regulatory agencies;
c. Reports the matter to the Board if violations are found and recommends the imposition of
appropriate disciplinary action;
d. Ensures the integrity and accuracy of all documentary submissions to regulators;
e. Appears before the SEC when summoned in relation to compliance with this Code;
f. Collaborates with other departments to properly address compliance issues, which may be
subject to investigation;
g. Identifies possible areas of compliance issues and works towards the resolution of the same;
h. Ensures the attendance of board members and key officers to relevant trainings; and
i. Performs such other duties and responsibilities as may be provided by the SEC.

2. ESTABLISHING CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD

Principle
The fiduciary roles, responsibilities and accountabilities of the Board as provided under the law,
the company's articles and by-laws, and other legal pronouncements and guidelines should be
clearly made known to all directors as well as to shareholders and other stakeholders.

Recommendation 2.1
The Board members should act on a fully informed basis, in good faith, with due diligence and
care, and in the best interest of the company and all shareholders.
Explanation
There are two key elements of the fiduciary duty of board members: the duty of care and the
duty of loyalty. The duty of care requires board members to act on a fully informed basis, in good
faith, with due diligence and care. The duty of loyalty is also of central importance; the board
member should act in the interest of the company and all its shareholders, and not those of the
controlling company of the group or any other stakeholder.

Recommendation 2.2
The Board should oversee the development of and approve the company's business objectives
and strategy, and monitor their implementation, in order to sustain the company's long-term
viability and strength.
Explanation
According to the OECD, the Board should review and guide corporate strategy, major plans of
action, risk management policies and procedures, annual budgets and business plans; set
performance objectives; monitor implementation and corporate performance; and oversee major
capital expenditures, acquisitions and divestitures.

Recommendation 2.3
The Board should be headed by a competent and qualified Chairperson.
Explanation
The roles and responsibilities of the Chairman include, among others, the following:
a. makes meeting agenda focuses on strategic matters, including the overall risk appetite of the
corporation, considering the developments in the business and regulatory environments, key
governance concerns, and contentious issues that will significantly affect operations;
b. Guarantees that the Board receives accurate, timely, relevant, insightful, concise, and clear
information to enable it to make sound decisions;
c. Facilitates discussions on key issues by fostering an environment conducive for constructive
debate and leveraging on the skills and expertise of individual directors;
d. Ensures that the Board sufficiently challenges and inquires on reports submitted and
representations made by Management;
e. Assures the availability of proper orientation for first-time directors and continuing training
opportunities for all directors; and
f. Makes sure that performance of the Board is evaluated at least once a year and
discussed/followed up on.
Recommendation 2.4
The Board should be responsible for ensuring and adopting an effective succession planning
program for directors, key officers and management to ensure growth and a continued increase in
the shareholders' value. This should include adopting a policy on the retirement age for directors
and key officers as part of management succession and to promote dynamism in the corporation.
Explanation
The transfer of company leadership to highly competent and qualified individuals is the goal of
succession planning. It is the Board's responsibility to implement a process to appoint competent,
professional, honest and highly motivated management officers who can add value to the
company.
A good succession plan is linked to the documented roles and responsibilities for each position,
and should start in objectively identifying the key knowledge, skills, and abilities required for the
position.

Recommendation 2.5
The Board should align the remuneration of key officers and board members with the long-term
interests of the company. In doing so, it should formulate and adopt a policy specifying the
relationship between remuneration and performance. Further, no director should participate in
discussions or deliberations involving his own remuneration.
Explanation
Companies are able to attract and retain the services of qualified and competent individuals if the
level of remuneration is sufficient, in line with the business and risk strategy, objectives, values
and incorporate measures to prevent conflicts of interest. Remuneration policies promote a sound
risk culture in which risk-taking behavior is appropriate. They also encourage employees to act
in the long-term interest of the company as a whole, rather than for themselves or their business
lines only.
Key considerations in determining proper compensation include the following: (1) the level of
remuneration is commensurate to the responsibilities of the role; (2) no director should
participate in deciding on his remuneration; and (3) remuneration pay-out schedules should be
sensitive to risk outcomes over a multi-year horizon.

For employees in control functions (e.g., risk, compliance and internal audit), their remuneration
is determined independent of any business line being overseen, and performance measures are
based principally on the achievement of their objectives so as not to compromise their
independence.

Recommendation 2.6
The Board should have and disclose in its Manual on Corporate Governance a formal and
transparent board nomination and election policy that should include how it accepts nominations
from minority shareholders and reviews nominated candidates.
Explanation
It is the Board's responsibility to develop a policy on board nomination, which is contained in the
company's Manual on Corporate Governance. The policy should encourage shareholders'
participation by including procedures on how the Board accepts nominations from minority
shareholders. The policy should also promote transparency of the Board's nomination and
election process, The nomination and election process also includes the review and evaluation of
the qualifications of all persons nominated to the Board, including whether candidates: (1)
possess the knowledge, skills, experience, and particularly in the case of non-executive directors,
independence of mind given their responsibilities to the Board and in light of the entity's
business and risk profile; (2) have a record of integrity and good repute; (3) have sufficient time
to carry out their responsibilities; and (4) have the ability to promote a smooth interaction
between board members. A good practice is the use of professional search firms or external
sources when searching for candidates to the Board.
In addition, the process also includes monitoring the qualifications of the directors. The
qualifications and grounds for disqualification are contained in the company's Manual on
Corporate Governance.
The following may be considered as grounds for the permanent disqualification of a director:
a. 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;
b. Any person who, by reason of misconduct, after hearing, is permanently enjoined by a final
judgment or order of the SEC, Bangko Sentral ng Pilipinas (BSP) 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 should also apply if (a) such person is the subject of an order of the SEC,
BSP 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 SEC or BSP, or under any rule
or regulation issued by the Commission or BSP; (b) such person has otherwise been restrained to
engage in any activity involving securities and banking; or (c) such person is 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;
c. 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;
d. Any person who has been adjudged by final judgment or order of the SEC, BSP, 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, rule, regulation or order administered by the SEC or BSP;
e. Any person judicially declared as insolvent;
f. 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 previously;
g. Conviction by final judgment of an offense punishable by imprisonment for more than six
years, or a violation of the Corporation Code committed within five years prior to the date of his
election or appointment; and

h. Other grounds as the SEC may provide.

In addition, the following may be grounds for temporary disqualification of a director:
a. Absence in more than fifty percent (50%) of all regular and special meetings of the Board
during his incumbency, or any 12-month period during the said incumbency, unless the absence
is due to illness, death in the immediate family or serious accident. The disqualification should
apply for purposes of the succeeding election;
b. Dismissal or termination for cause as director of any publicly-listed company, public company,
registered issuer of securities and holder of a secondary license from the Commission. The
disqualification should be in effect until he has cleared himself from any involvement in the
cause that gave rise to his dismissal or termination;
c. If the beneficial equity ownership of an independent director in the corporation or its
subsidiaries and affiliates exceeds two percent (2%) of its subscribed capital stock. The
disqualification from being elected as an independent director is lifted if the limit is later
complied with; and
d. If any of the judgments or orders cited in the grounds for permanent disqualification has not
yet become final.

Recommendation 2.7
The Board should have the overall responsibility in ensuring that there is a group-wide policy
and system governing related party transactions (RPTs) and other unusual or infrequently
occurring transactions, particularly those which pass certain thresholds of materiality. The policy
should include the appropriate review and approval of material or significant RPTs, which
guarantee fairness and transparency of the transactions. The policy should encompass all entities
within the group, taking into account their size, structure, risk profile and complexity of
operations.
Explanation
Ensuring the integrity of related party transactions is an important fiduciary duty of the director.
It is the Board's role to initiate policies and measures geared towards prevention of abuse and
promotion.