CHAPTER 3

SEC CODE OF CORPORATE GOVERNANCE FOR PUBLICLY-LISTED COMPANIES ("CG Code for PLCs")

Securities and Exchange Commission SEC MC No. 19, Series of 2016

On November 10, 2016, the Securities and Exchange Commission approved the Code of Corporate
Governance for publicly-listed companies. Its goal is to help companies develop and sustain an ethical
corporate culture and keep abreast with recent developments in corporate governance.

One of its salient provisions is for publicly-listed companies to establish a code of business conduct and
submit a new manual on Corporate Governance that would "provide standards for professional and
ethical behavior as well as articulate acceptable and unacceptable conduct and practices".

CODE OF CORPORATE GOVERNANCE PUBLICLY-LISTED COMPANIES FOR

THE BOARD'S GOVERNANCE RESPONSIBILITIES

Principle 1:

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 manner consistent with its corporate
objectives and the long-term best interests of its shareholders and other stakeholders.

Principle 2:

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 stakeholders and other stakeholders.

Principle 3:

Board Committees should be set up to the extent possible to support the effective performance of the
Board’s functions, particularly with respect to audit, risk management, related party transactions, and
other key corporate governance concerns, such as nomination and remuneration. The composition,
functions and responsibilities of all committees established should be contained in a publicly available
Committee Charter.

Principle 4:

To show full commitment to the company, the directors should devote the time and attention necessary
to properly and effectively perform their duties and responsibilities, including sufficient time to be
familiar with the corporation’s business.

Principle 5:

The Board should endeavor to exercise objective and independent judgment to all corporate affairs.

Principe 6:
The best measure of the Board’s effectiveness is through an assessment process. The Board should
regularly carry out evaluations to appraise its performance as a body, and assess whether it possesses
the right mix of backgrounds and competencies.

Principle 7:

Member of the Board are duty-bound to apply high ethical standards, taking into account the interests of
all stakeholders.

DISCLOSURE AND TRANSPARENCY

Principle 8:

The company should establish corporate disclosure policies and procedures that are practical and in
accordance with best practices and regulatory expectations.

Principle 9:

The company should establish standards for the appropriate selection of an external auditors, and
exercise effective oversight of the same to strengthen the external auditors independence and enhance
audit quality.

Principle 10:

The company should ensue that material and reportable non-financial and sustainability issues are
disclosed.

Principle 11:

The company should maintain a comprehensive and cost-effecient communication channel for
disseminating relevant information. This channel is crucial for informed decision-making by investors,
stakeholders and other interested users.

INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT FRAMEWORK

Principle 12:

To ensure integrity, transparency and proper governance in the conduct of its affairs, the company
should have a strong and effective internal control system and enterprise risk management framework.

CULTUVATING A SYNERGIC RELATIONSHIP WITH SHAREHOLDERS

Principle 13:

The company should treat all shareholders fairly and equitably, and also recognize, protect and facilitate
the exercise of their rights.

DUTIES TO STAKEHOLDERS

Principle 14:
The rights of stakeholders established by law, by contractual relations and through voluntary
commitments must be respected. Where stakeholders' rights and/or interests are at stake, stakeholders
should have the opportunity to obtain prompt effective redress for the violation of their rights.

Principle 15:

A mechanism for employee participation should be developed to create a symbolic environment, realize
the company's goals and participate in its corporate governance processes.

Principle 16:

The company should be socially responsible in its all dealings with the communities where it operates. It
should ensure that its interaction serve its environment and stakeholders in a positive and progressive
manner that is fully supportive of its comprehensive and balanced development.

INTRODUCTION

1. The Code of Corporate Governance is intended to raise the corporate governance standards of
Philippine corporations to a level at par with its regional and global counterparts. The latesr
G20/OECD1 Principles of Corporate Governance and the Association of Southeast Asian Nations
Corporate Governance Scorecard where used as key reference materials in the drafting of this
Code.
2. The Code will adopt the "comply or explain" approach. This approach combines voluntary
compliance with mandatory disclosure. Companies do not have to comply with the Code, but
they must state in their annual corporate governance reports whether they comoly with the
Code provisions, identify any areas of non-compliance, and explain the reasons for their non-
compliance.
3. The Code is arranged as follows: Principles, Recomendations and Explanations. The Principles
can be considered as high-level statements of corporate governance good practice, and are
applicable to all companies.
4. The Recommendations are objective criteria that are intended to indetify the specific features of
corporate governance good practice that are recommended for companies operating according
to the Code. Alternatives to a Recommendation may be justified in particular circumstances if
good governance can be achieved by other means. When a recommendation is not complied
with, the company must disclose and describe this non-compliance, and should explain all how
the overall Principle is being achieved. The alternative should be consistent with the overall
Principle. Descriptions and explanations should be written in plain language and in a clear,
complete, objective and precise manner, so that shareholders and other stskehilders can assess
the company's governandr framework.
5. The Explanations strive to provide companies with addidtional information on the recommended
best practice
.This Code does not, in any way, prescribes a "one size fits it all" framework. It is designed to
allow some boards flexibility in establishing their corporate governance arrangements. Larger
companies and financial institutions would generally be expected to follow most of the Code
provisions. Smaller companies may decide that the cost of some of the provisions outweigh the
benefits, or are less relevant in their case. Hence, the Principle of Proportionality is considered in
the application of its provisions.
6. The Code of Governance for publicly listed companies is the first of a series of Codes that is
intendes to cover all types of corporations in the Philippines under supervision of the Securities
and Exchange Commission (SEC).
7. Definition of Terms:
Corporate Governance- the system of stewardship and control to guide corporation in fulfilling
their long term economic, moral, legal and social obligations towards their stakeholders.
Board of Directors- the governing body elected by the stockholders that exercises the corporate
powers of a corporation, conducts all its business and control properties.
Management- a group of executives 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.
Independent director- a person who is independent of management and the controlling
shareholder, and is 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.
Executive director- a director who has exectuive responsibility of day-to-day operations of a part
or the whole of the organization.
Non-executive director- a director who has no executive responsibility and does not perform any
work related to the operations of the corporation.
Conglomerate- a group of corporations that has no diversified business activities in varied
industries, whereby the operations of such businesses are controlled and managed by a parent
corporate entity.
Internal Control- a process designed and effected by the board of directors, senior management,
and all levels of personnel to provide reasonable assurance on the achievement of objectives.
Enterprise Risk Management- a process, effected by an entity's Board of Directors, management
and other personnel, applied in strategy setting and across the enterprise that is designed to
identify potential events that may affect the entity, manage risks to be within its risk appetite,
and provide reasonable assurance regarding the achievement of entity objectives.
Related Party- shall cover the company's subsidiaries, as well as affiliates and any partt
(including their subsidiaries, affiliates and special purpose entities), that the company exerts
direct or indirect control over or that exerts direct or indirect control over the company.
Related Party Transactions- a transfer of resources, services or obligations between a reporting
entity and a related party, regardless of whether a price is charged.
Stakeholders- any individual, organization or society at large who can either affect and/or be
affected by the company's strategies, policies, business decisions and operations.
THE BOARD'S GOVERNANCE RESPONSIBILITIES
1. ESTABLISHING A COMPETENT BOARD
Principle
The company should be headed by a compentent, 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.
Recommendation 1.1
The Board should be composed of directors with a 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
A Board with the necessary knowledge, experience and expertise can properly perform its
task of overseeing management and governance of the corporation, formulating the
corporation's vision, missiom, strategic objectives, policies and procedures that would guide
its activities.
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.
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. It includes diversity in gender, age, ethnicity, culture, skills,
competence and knowledge.
Recommendation 1.5
The Board should ensure that it is assisted in its duties by a Corporate Secretary, who would
be a separate individual from the Compliance officer and should anually attend a training on
corporate governance.
Explanation
The Corporate Secretary is primarily responsible to the corporation and its shareholders, and
not 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 and its committees to set agendas for those meetings;
b. Safekeeps 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 Similar to the team in
charge of the primarily liable to the corporation and its shareholders, and not to the
Chairman or President of the companys 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.

1. 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. Sound strategic policies and objectives
translate to the company's proper identification and prioritization of its goals and guidance on
how best to achieve them. This creates optimal value to the corporation.
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 certain that the 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; andMakes 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.
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 thetheelves of their
business lines only. Moreover, it is good practice for the Board to formulate and adop a policy
specifying good practiceship between remuneratiometrics performance, which includes specific
financial and non-financial metrics to measure performance and see sifecific provisions for
employees with significant influence on the overall risk profile of the corporation.
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. The policy should
also include an assessment of the effectiveness of the Board's processes and procedures in the
nomination, election, or replacement of a director. In addition, its process of identifying the
quality of directors should be aligned with the strategic direction of the company.
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 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
.Securities Regulation Code or any other law administered by the Securities Regulation der
dany rule or regulation issued by the self-regulatory Commission or BSP; (b) such person has
otherwise been restrained Commission or BSPivity involving securities and banking; or (c)
such person is the subject of an effective order of a organization suspending or expelling him
from membership, participation of 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:

 i. 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;
j. 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;
k. 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
l. 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 of
transparency, and in compliance with applicable laws and regulations to protect the interest of all
shareholders. One such measure is the required ratification by shareholders of material or significant
RPTs approved by the Board, in accordance with existing laws. Other measures include ensuring that
transactions occur at market prices, at and under conditions that protect the rights of all shareholders.
arm's-length basis and under conditions that protect the rights of all shareholders.

The following are suggestions for the content of the RPT Policy:

 Definition of related parties;

 Coverage of RPT policy;
 Guidelines in ensuring arm's-length terms;
 Identification and prevention or management of potential or actual conflicts of interest which
arise;
 Adoption of materiality thresholds;
 Internal limits for individual and aggregate exposures;
 Whistle-blowing mechanisms, and
 Restitution of losses and other remedies for abusive RPTs.

Recommendation 2.8
The Board should be primarily responsible for approving the selection and assessing the performance of
the Management led by the Chief Executive Officer (CEO), and control functions led by their respective
heads (Chief Risk Officer, Chief Compliance Officer, and Chief Audit Executive).

Explanation

It is the responsibility of the Board to appoint a competent management team at all times, monitor and
assess the performance of the management team based on established performance standards that are
consistent with the company's strategic objectives, and conduct a regular review of the company's
policies with the management team. In the selection process, fit and proper standards are to be applied
on key personnel and due consideration is given to integrity, technical expertise and experience in the
institution's business, either current or planned.

Recommendation 2.9

The Board should establish an effective performance management framework that will ensure that the
Management, including the Chief Executive Officer, and personnel's performance is at par with the
standards set by the Board and Senior Management.

Explanation

Results of performance evaluation should be linked to other human resource activities such as training
and development, remuneration, and succession planning. These should likewise form part of the
assessment of the continuing fitness and propriety of management, including the Chief Executive Officer,
and personnel in carrying out their respective duties and responsibilities.

Recommendation 2.10

The Board should oversee that an appropriate internal control system is in place, including setting up a
mechanism for monitoring and managing potential conflicts of interest of Management, board members,
and shareholders. The Board should also approve the Internal Audit Charter.

Explanation

In the performance of the Board's oversight responsibility, the minimum internal control mechanisms
may include overseeing the implementation of the key control functions, such as risk management,
compliance and internal audit, and reviewing the corporation's human resource policies, conflict of
interest situations, compensation program for employees and management succession plan.

Recommendation 2.11

The Board should oversee that a sound enterprise risk management (ERM) framework is in place to
effectively identify, monitor, assess and guide the Board in management essentifying units/business lines
and risk exposures, as well as the effectiveness of risk strategies.

Explanation

Risk management policy is part and parcel of a corporation's corporate strategy. The Board is responsible
for defining the company's level of risk tolerance and providing oversight over its risk management
policies and procedures.
Recommendation 2.12

The Board should have a Board Charter that formalizes and clearly states its roles, responsibilities and
accountabilities in carrying out its fiduciary duties. The Board Charter should serve as a guide to the
directors in the performance of their functions and should be publicly available and posted on the
company's website.

Explanation

The Board Charter guides the directors on how to discharge their functions. It provides the standards for
evaluating the performance of the Board. The Board Charter also contains the roles and responsibilities
of the Chairman.

3. ESTABLISHING BOARD COMMITTEES

Principle

Board committees should be set up to the extent possible to support the effective performance of the
Board's functions, particularly with respect to audit, risk management, related party transactions, and
other key corporate governance concerns, such as nomination and remuneration. The composition,
functions and responsibilities of all committees established should be contained in a publicly available
Committee Charter.

Recommendation 3.1

The Board should establish board committees that focus on specific board functions to aid in the optimal
performance of its roles and responsibilities.

Explanation

Board committees such as the Audit Committee, Corporate Governance Committee, Board Risk
Oversight Committee and Related Party Transaction Committee are necessary to support the Board in
the effective performance of its functions. The establishment of the same, or any other committees that
the company deems necessary, allows for specialization in issues and leads to a better management of
the Board's workload. The type of board committees to be established by a company would depend on
its size, risk profile and complexity of operations. However, if the committees are not established, the
functions of these committees may be carried out by the whole board or by any other committee.

Recommendation 3.2

The Board should establish an Audit Committee to enhance its oversight capability over the company's
financial reporting, internal control system, internal and external audit processes, and compliance with
applicable laws and regulations. The committee should be composed of at least three appropriately
qualified non-executive directors, the majority of whom, including the Chairman, should be
independent.

Explanation
The Audit Committee is responsible for overseeing the senior management in establishing and
maintaining an adequate, effective and efficient internal control framework. It ensures that systems and
processes are designed to provide assurance in areas including reporting, monitoring compliance with
laws, regulations and internal policies, efficiency and effectiveness of operations, and safeguarding of
assets.

The Audit Committee has the following duties and responsibilities, among others:

a. Recommends the approval the Internal Audit Charter (IA Charter), which formally defines the
role of Internal Audit and the audit plan as well as oversees the implementation of the IA
Charter;
b. Through the Internal Audit (IA) Department, monitors and evaluates the adequacy and
effectiveness of the corporation's internal control system, integrity of financial reporting, and
security of physical and information assets. Well-designed internal control procedures and
processes that will provide a system of checks and balances should be in place in order to (a)
safeguard the company's resources and ensure their effective utilization, (b) prevent occurrence
of fraud and other irregularities, (c) protect the accuracy and reliability of the company's
financial data, and (d) ensure compliance with applicable laws and regulations;
c. Oversees the Internal Audit Department, and recommends the appointment and/or grounds for
approval of an internal audit head or Chief Audit Executive (CAE). The Audit Committee should
also approve the terms and conditions for outsourcing internal audit services;
d. Establishes and identifies the reporting line of the Internal Auditor to enable him to properly
fulfill his duties and responsibilities. For this purpose, he should directly report to the Audit
Committee;
e. Reviews and monitors Management's responsiveness to the Internal Auditor's findings and
recommendations;
f. Prior to the commencement of the audit, discusses with the External Auditor the nature, scope
and expenses of the audit, and ensures the proper coordination if more than one audit firm is
involved in the activity to secure proper coverage and minimize duplication of efforts;
g. Evaluates and determines the non-audit work, if any, of the External Auditor, and periodically
reviews the non-audit fees paid to the External Auditor in relation to the total fees paid to him
and to the corporation's overall consultancy expenses. The committee should disallow any non-
audit work that will conflict with his duties as an External Auditor or may pose a threat to his
independence3. The non-audit work, if allowed, should be disclosed in the corporation's Annual
Report and Annual Corporate Governance Report;
h. Reviews and approves the Interim 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
 Areas where a significant amount of judgment has been exercised
 Significant adjustments resulting from the audit
 Going concern assumptions
 Compliance with accounting standards
 Compliance with tax, legal and regulatory requirements
i. Reviews the disposition of the recommendations in the External Auditor's management letter;
 j. Performs oversight functions over the corporation's Internal and External Auditors. It ensures
the independence of Internal and External Auditors, and that both auditors are given
unrestricted access to all records, properties and personnel to enable them to perform their
respective audit functions;
k. Coordinates, monitors and facilitates compliance with laws, rules and regulations;
l. Recommends to the Board the appointment, reappointment, removal and fees of the External
Auditor.
m. In case the company does not have a Board Risk Committee and/or Related Party Transactions
Committee

Recommendation 3.3

The Board should establish a Corporate Governance Committee that should be tasked to assist the Board
in the performance of its corporate governance responsibilities, including the functions that were
formerly assigned to a Nomination and Remuneration Committee. It should be composed of at least
three members, all of whom should be independent directors, including the Chairman.

Explanation

The Corporate Governance Committee (CG Committee) is tasked with ensuring compliance with and
proper observance of corporate governance principles and practices. It has the following duties and
functions, among others:

a. Oversees the implementation of the corporate governance framework and periodically reviews
the said framework to ensure that it remains appropriate in light of material changes to the
corporation's size, complexity and business strategy, as well as its business and regulatory
environments;
b. Oversees the periodic performance evaluation of the Board and its committees as well as
executive management, and conducts an annual self-evaluation of its performance;
c. Ensures that the results of the Board evaluation are shared, discussed, and that concrete action
plans are developed and implemented to address the identified areas for improvement;
d. Recommends continuing education/training programs for directors, assignment of tasks/projects
to board committees, succession plan for the board members and senior officers, and
remuneration packages for corporate and individual performance;
e. Adopts corporate governance policies and ensures that these are reviewed and updated
regularly, and consistently implemented in form and substance;
f. Proposes and plans relevant trainings for the members of the Board;
g. Determines the nomination and election process for the company's directors and has the
special duty of defining the general profile of board members that the company may need and
ensuring appropriate knowledge, competencies and expertise that complement the existing
skills of the Board; and
h. Establishes a formal and transparent procedure to develop a policy for determining the
remuneration of directors and officers that is consistent with the corporation's culture and
strategy as well as the business environment in which it operates.

Recommendation 3.4
Subject to a corporation's size, risk profile and complexity of operations, the Board should establish a
separate Board Risk Oversight Committee (BROC) that should be responsible for the oversight of a
company's Enterprise Risk Management system to ensure its functionality and effectiveness. The BROC
should be composed of at least three members, the majority of whom should be independent directors,
including the Chairman. The Chairman should not be the Chairman of the Board or of any other
committee. At least one member of the committee must have relevant thorough knowledge and
experience on risk and risk management.

Explanation

Enterprise risk management is integral to an effective corporate governance process and the
achievement of a company's value creation objectives. Thus, the BROC has the responsibility to assist the
Board in ensuring that there is an effective and integrated risk management process in place. With an
integrated approach, the Board and top management will be in a confident position to make well-
informed decisions, having taken into consideration risks related to significant business activities, plans
and opportunities.

The BROC has the following duties and responsibilities, among others:

a. Develops a formal enterprise risk management plan which contains the following elements: (a)
common language or register of risks, (b) well-defined risk management goals, objectives and
oversight, uniform processes of assessing risks and developing strategies to manage prioritized
risks, (d) designing and implementing risk management strategies, and (e) continuing
assessments to improve risk strategies, processes and measures;
b. Oversees the implementation of the enterprise risk management plan through a Management
Risk Oversight Committee. The BROC conducts regular discussions on the company's prioritized
and residual risk exposures based on regular risk management reports and assesses how the
concerned units or offices are addressing and managing these risks;
c. Evaluates the risk management plan to ensure its continued relevance, comprehensiveness and
effectiveness. The BROC revisits defined risk management strategies, looks for emerging or
changing material exposures, and stays abreast of significant developments that seriously impact
the likelihood of harm or loss;
d. Advises the Board on its risk appetite levels and risk tolerance
e. Reviews at least annually the company's risk appetite levels and risk tolerance limits based on
changes and developments in the business, the regulatory framework, the external economic
and business environment, and when major events occur that are considered to have major
impacts on the company;
f. Assesses the probability of each identified risk becoming a reality and estimates its possible
significant financial impact and likelihood of occurrence. Priority areas of concern are those risks
that are the most likely to occur and to impact the performance and stability of the corporation
and its stakeholders;
g. Provides oversight over Management's activities in managing credit, market, liquidity,
operational, legal and other risk exposures of the corporation. This function includes regularly
receiving information on risk exposures and risk management activities from Management; and
 h. Reports to the Board on a regular basis, or as deemed necessary, the company's material risk
exposures, the actions taken to reduce the risks, and recommends further action or plans, as
necessary.

Recommendation 3.5

Subject to a corporation's size, risk profile and complexity of operations, the Board should establish a
Related Party Transaction (RPT) Committee, which should be tasked with reviewing all material related
party transactions of the company and should be composed of at least three non-executive directors,
two of whom should be independent, including the Chairman.

Explanation

Examples of companies that may have a separate RPT Committee are conglomerates and
universal/commercial banks in recognition of the potential magnitude of RPTs in these kinds of
corporations.

The following are the functions of the RPT Committee, among others:

a. Evaluates on an ongoing non-related businesses and counterparties to ensure that all related
parties are monitored, identifiends with counterparties (from to changes in relationships are
captured. Related parties, RPTs and related and viconships should be reflected in the relevant
reports to the Board and regulators/supervisors;
b. Evaluates all material RPTs to ensure that these are not undertaken favorable economic terms
(e.g., price, interest rates, fees, tenor, collateral requirement) to such related on more parties
than similar transactions with non-related parties under similar circumstances and that no
corporate or business resources of the company are misappropriated or misapplied, and to
determine any potential reputational risk issues that may arise as a result of or in connection
with the transactions. In evaluating RPTs, the Committee takes into account, among others, the
following:
1. The related party's relationship to the company and interest in the transaction;
2. The material facts of the proposed RPT, including the proposed aggregate value lf such
transaction.
3. The benefits to the corporation of the proposed RPT;
4. The availability of other sources of comparable products or services; and
5. An assessment of whether the proposed RPT is on terms and conditions that are comparable
to the terms generally available to an unrelated party under similar circumstances. The
company should have an effective price discovery system in place and exercise due diligence
in determining a fair price for RPTs;
c. Ensures that appropriate disclosure is made, and/or information is provided to regulating and
supervising authorities relating to the company's RPT exposures, and policies on conflicts of
interest or potential conflicts of interest. The disclosure should include information on the
approach to managing material conflicts of interest that are inconsistent with such policies, and
conflicts that could arise as a result of the company's affiliation or transactions with other
related parties;
d. Reports to the Board of Directors on a regular basis, the status and aggregate exposures to each
related party, as well as the total amount of exposures to all related parties.
 e. Ensures that transactions with related parties, including write-off of exposures are subject to a
periodic independent review or audit process; and
f. Oversees the implementation of the system for identifying, monitoring, measuring, controlling,
and reporting RPTs, including a periodic review of RPT policies and procedures.

Recommendation 3.6

All established committees should be required to have Committee Charters stating in plain terms their
respective purposes, memberships, structures, operations, reporting processes, resources and other
relevant information. The Charters should provide the standards for evaluating the performance of the
Committees. It should also be fully disclosed on the company's website.

Explanation

The Committee Charter clearly defines the roles and accountabilities of each committee to avoid any
overlapping functions, which aims at having a more effective board for the company. This can also be
used as basis for the assessment of committee performance.

4. FOSTERING COMMITMENT

Principle

To show full commitment to the company, the directors should devote the time and attention necessary
to properly and effectively perform their duties and responsibilities, including sufficient time to be
familiar with the corporation's business.

Recommendation 4.1

The directors should attends Shareholders in person on through tele the Board, Commiteesnducted in
accordancstifiable thuserules and Videoconferencing conssion, except when justifiable causes, such a
illness, death in the immediate family and serious accidents, preve them from doing so. In Board and
Committee meetings, the director should review meeting materials and if called for, ask the necessary
questions or seek clarifications and explanations.

Explanation

A director's commitment to the company is evident in the amount of time he dedicates to performing
his duties and responsibilities, which includes his presence in all meetings of the Board, Committees and
Shareholders. In this way, the director is able to effectively perform his/her duty to the company and its
shareholders.

The absence of a director in more than fifty percent (50%) of all regular and special meetings of the
Board during his/her incumbency is a ground for disqualification in the succeeding election, unless the
absence is due to illness, death in the immediate family, serious accident or other unforeseen or
fortuitous events.

Recommendation 4.2
The non-executive directors of the Board should concurrently serve as directors to a maximum of five
publicly listed companies to ensure that they have sufficient time to fully prepare for meetings, challenge
Management's proposals/views, and oversee the long-term strategy of the company.

Explanation

Being a director necessitates a commitment to the corporation. Hence, there is a need to set a limit on
board directorships. This ensures that the members of the board are able to effectively commit
themselves to perform their roles and responsibilities, regularly update their knowledge and enhance
their skills. Since sitting on the board of too many companies may interfere with the optimal
performance of board members, in that they may not be able to contribute enough time to keep abreast
of the corporation's operations and to attend and actively participate during meetings, operations and to
attend limit of five directorships is recommended.

Recommendation 4.3

A director should notify the Board where he/she is an incumbent director before accepting a directorship
in another company.

Explanation

The Board expects commitment from a director to devote sufficient time and attention to his/her duties
and responsibilities. Hence, it is important that a director notifies his/her incumbent Board before
accepting a directorship in another company. This is for the company to be able to assess if his/her
present responsibilities and commitment to the company will be affected and if the director can still
adequately provide what is expected of him/her.

5. REINFORCING BOARD INDEPENDENCE

Principle

The board should endeavor to exercise an objective and independent judgment on all corporate affairs.

Recommendation 5.1

The Board should have at least three independent directors, or such number as to constitute at least
one-third of the members of the Board, whichever is higher.

Explanation

The presence of independent directors in the Board is to ensure the exercise of independent judgment
on corporate affairs and proper oversight of managerial performance, including prevention of conflict of
interests and balancing of competing demands of the corporation. There is increasing global recognition
that more independent directors in the Board lead to more objective decision-making, particularly in
conflict of interest situations. In addition, experts have recognized that there are banying opinions the
ideal number ranges from one-third to a substantial majority.

Recommendation 5.2
The Board should ensure that its independent directors possess the necessary qualifications and none of
the disqualifications for an independent director to hold the position.

Explanation

Independent directors need to possess a good general understanding of the industry they are in. Further,
it is worthy to note that independence and competence should go hand-in-hand. It is therefore
important that the non-executive directors, including independent directors, possess the qualifications
and stature that would enable them to effectively and objectively participate in the deliberations of the
Board.

An Independent Director refers to a person who, ideally.

a. Is not, or has not been a senior officer or employee of the covered company unless there has
been a change in the controlling ownership of the company;
b. Is not, and has not been in the three years immediately preceding the election, a director of the
covered company; a director, officer, employee of the covered company's subsidiaries,
associates, affiliates or related companies; or a director, officer, employee of the covered
company's substantial shareholders and its related companies;
c. Has not been appointed in the covered company, its subsidiaries, associates, affiliates or related
companies as Chairman "Emeritus," "Ex-Officio" Directors/Officers or Members of any Advisory
Board, or otherwise appointed in a capacity to assist the Board in the performance of its duties
and responsibilities within three years immediately preceding his election;
d. Is not an owner of not more than two percent (2%) of the outstanding share of the covered
company, its subsidiaries, associates, affiliates and other related company.
e. Is not a relative of a director, officer or substantial shareholders of the covered company or any
of its related companies or of any of its substantial shareholders. For this purpose, relatives
include spouse, parent, child, brother, sister and the spouse of such child, brother or sister,
f. Is not acting as a nominee or representative of any director of the covered company or any of its
related companies,
g. Is not a securities broker-dealer of listed companies and registered issuers of securities.
"Securities broker-dealer" refers to any person holding any office of trust and responsibility in a
broker-dealer firm, which includes, among others, a director, officer, principal stockholder,
nominee of the firm to the Exchange, an associated person or salesman, and an authorized clerk
of the broker or dealer,
h. Is not retained, either in his personal capacity or through a firm, as a professional adviser,
auditor, consultant, agent or counsel of the covered company, any of its related companies or
substantial shareholder, or is otherwise independent of Management and free from any business
or other relationship within the three years immediately preceding the date of his election;
i. Does not engage or has not engaged, whether by himself or with other persons or through a
firm of which he is a partner, director or substantial shareholder, in any transaction with the
covered company or any of its related companies or substantial shareholders, other than such
transactions that are conducted at arm's length and could not materially interfere with or
influence the exercise of his independent judgment;
j. Is not affiliated with any non-profit organization that receives significant funding from the
covered company or any of its related companies or substantial shareholders; and
 k. Is not employed as an executive officer of another company where any of the covered
company's executives serve as directors.
Related companies, as used in this section, refer to (a) the covered entity's holding/parent
company; (b) its subsidiaries; and (c) s of its holding/parent company.

Recommendation 5.3

The Board's independent directors should serve for a cumulative term of nine years. After which, the
independent director should be perpetually barred from re-election as such in the same company, but
may continue to qualify for nomination and election as a non-independent director. In the instance that
a company wants to retain for nine years, the provide meritorious justification/s and seek shareholders'
approval during the annual shareholders' meeting.

Explanation

Service in a board for a long duration may impair a director's ability to act independently and objectively.
Hence, the tenure of an independent director is set to a cumulative term of nine years. Independent
directors (IDs) who have served for nine years may continue as a non- independent director of the
company. Reckoning of the cumulative nine- year term is from 2012, in connection with SEC
Memorandum Circular No. 9, Series of 2011. Any term beyond nine years for an ID is subjected to
particularly rigorous review, taking into account the need for progressive change in the Board to ensure
an appropriate balance of skills and experience. However, the shareholders may, in exceptional cases,
choose to re-elect an independent director who has served for nine years. In such instances, the Board
must provide a meritorious justification for the re- election.

Recommendation 5.4

The positions of Chairman of the Board and Chief Executive Officer should be held by separate
individuals and each should have clearly defined responsibilities.

Explanation

To avoid conflict or a split board and to foster an appropriate balance of power, increased accountability
and better capacity for independent decision-making, it is recommended that the positions of Chairman
and Chief Executive Officer (CEO) be held by different individuals. This type of organizational structure
facilitates effective decision making and good governance. In addition, the division of responsibilities and
accountabilities between the Chairman and CEO is clearly defined and delineated and disclosed in the
Board Charter.

The CEO has the following roles and responsibilities, among others:

a. Determines the corporation's strategic direction and formulates and implements its strategic
plan on the direction of the business;
b. Communicates and implements the corporation's vision, mission, values and overall strategy and
promotes any organization or stakeholder change in relation to the same;
c. Oversees the operations of the corporation and manages human and financial resources in
accordance with the strategic plan;
d. Has a good working knowledge of the corporation's industry and market and keeps up-to-date
with its core business purpose;
 e. Directs, evaluates and guides the work of the key officers of the corporation;
f. Manages the corporation's resources prudently and ensures a proper balance of the same;
g. Provides the Board with timely information and interfaces between the Board and the
employees;
h. Builds the corporate culture and motivates the employees of the corporation; and
i. Serves as the link between internal operations and external stakeholders.

The roles and responsibilities of the Chairman are provided under Recommendation 2.3.

Recommendation 5.5

The Board should designate a lead director among the not independent, the positions of the Chairman
of the Board and Chief Executive Officer directors if the Chairman of the Board is are held by one person.
independem including gif Recommenda The meetin comp to er corpo direc Explanation NE part is t int ro
the fu ex ar 6. ASS Principle Recom

Explanation

In cases where the Chairman is not independent and where the roles of Chair and CEO are combined,
putting in place proper Chair independent views and perspectives. More importantly, it ensures
independent and authority, and potential conflict of interest. A suggested mechanism is the
appointment of a strong "lead director among the independent directors. This lead director has
sufficient authority to lead the Board in cases where management has clear conflicts of interest. The
functions of the lead director include, among others, the following:

a. Serves as an intermediary between the Chairman and the other directors when necessary:
b. Convenes and chairs meetings of the non-executive directors; and
c. Contributes to the performance evaluation of the Chairman, as required.

Recommendation 5.6

A director with a material interest in any transaction affecting the corporation should abstain from taking
part in the deliberations for the same.

Explanation

The abstention of a director from participating in a meeting when related party transactions, self-
dealings or any transactions or matters on which he/she has a material interest are taken up ensures that
he has no influence over the outcome of the deliberations. The fundamental principle to be observed is
that a director does not use his position to profit or gain some benefit or advantage for his himself
and/or his/her related interests.

Recommendation 5.7

The non-executive directors (NEDs) should have separate periodic meetings with the external auditor
and heads of the internal audit, compliance and risk functions, without any executive directors present
to ensure that proper checks and balances are in place within the corporation. The meetings should be
chaired by the lead independent director.

Explanation
NEDS are expected to scrutinize Management's performance, particularly in meeting the companies'
goals and objectives. Further, it is their role to satisfy themselves on the integrity of the corporation's
internal control and effectiveness of the risk management systems. This role can be better performed by
the NEDs if they are provided access to the external auditor and heads of the internal audit, compliance
and risk functions, as well as to other key officers of the company without any executive directors
present. The lead independent director should lead and preside over the meeting.

6. ASSESSING BOARD PERFORMANCE

The best measure of the Board's effectiveness is through an assessment process. The Board should
regularly carry out evaluations to appraise its performance as a body, and assess whether it possesses
the right mix of backgrounds and competencies.

Recommendation 6.1

The Board should conduct an annual self-assessment of its performance, including the performance of
the Chairman, individual members and committees. Every three years, the assessment should be
supported by an external facilitator.

Explanation

Board assessments helps the directors to thoroughly review their performance and understand their
roles and responsibilities. The review and assessment of the Board's performance as a body, the board
committees, the individual directors and the Chairman show how the aforementioned should perform
their responsibilities effectively.

Recommendation 6.2

The Board should have in place a system that provides, at the minimum, criteria and process to
determine the performance of the Board, the individual directors, committees and such system should
allow for a feedback mechanism from the shareholders.

Explanation

Disclosure of the criteria, process and collective results of the assessment ensures transparency and
allows shareholders and stakeholders to determine if the directors are performing their responsibilities
to the company. Companies are given the discretion to determine the assessment criteria and process,
which should be based on the mandates, functions, roles and responsibilities provided in the Board and
Committee Charters. In establishing the criteria, attention is given to the values, principles and skills
required for the company. The Corporate Governance Committee oversees the evaluation process.

7. STRENGTHENING BOARD ETHICS

Principle

Members of the Board are duty-bound to apply high ethical standards, taking into account the interests
of all stakeholders.

Recommendation 7.1
The Board should adopt a Code of Business Conduct and Ethics, which would provide standards for
professional and ethical behavior, as well as articulate acceptable and unacceptable conduct and
practices in internal and external dealings. The Code should be properly disseminated to the Board,
senior management and employees. It should also be disclosed and made available to the public through
the company website.

Explanation

A Code of Business Conduct and Ethics formalizing ethical values is an important tool to instill an ethical
corporate culture that pervades throughout the company. The main responsibility to create and design a
Code of Conduct suitable to the needs of the company and the culture by which it operates lies with the
Board. To ensure proper compliance with the Code, appropriate orientation and training of the Board,
senior management and employees on the same are necessary.

Recommendation 7.2

The Board should ensure the proper and efficient implementation and monitoring of compliance with
the Code of Business Conduct and Ethics and internal policies.

Explanation

The Board has the primary duty to make sure that the internal controls are in place to ensure the
company's compliance with the Code of Business Conduct and Ethics and its internal policies and
procedures. Hence, it needs to ensure the implementation of said internal controls to support, promote
and guarantee compliance. This includes efficient communication channels, which aid and encourage
employees, customers, suppliers and creditors to raise concerns on potential unethical/unlawful
behavior without fear of retribution. A company's ethics policy can be made effective and inculcated in
the company culture through a through a come unde, strict training ess campaign, communication and
awareness setting in place proper avenues where issues may be raised and addressed without fear of
retribution. continuous implementation

DISCLOSURE AND TRANSPARENCY

8. ENHANCING COMPANY DISCLOSURE POLICIES AND PROCEDURES

Principle 8

The company should establish corporate disclosure policies and procedures that are practical and in
accordance with best practices and regulatory expectations.

Recommendation 8.1

The Board should establish corporate disclosure policies and procedures to ensure a comprehensive,
accurate, reliable and timely report to shareholders and other stakeholders that gives a fair and
complete picture of a company's financial condition, results and business operations.

Explanation

Setting up clear policies and procedures on corporate disclosure that comply with the disclosure
requirement as provided in Rule 68 of the Securities Regulation Code (SRC), Philippine Stock Exchange
Listing and Disclosure Rules, and other regulations such as those required by the Bangko Sentral ng
Pilipinas, is essential for comprehensive, and timely reporting.

Recommendation 8.2

The Company should have a policy requiring all directors and officers to disclose/report to the company
any dealings in the company's shares within three business days.

Explanation

Directors often have access to material inside information on the company. Hence, to reduce the risk
that the directors might take advantage of this information, it is that for companies to have a policy
requiring directors to timely disclose to the company any dealings with the company shares. It is
emphasized that the policy is on internal disclosure to the company of any dealings by the director in
company shares. This supplements the requirement of Rules 18 and 23 of the Securities Regulation
Code.

Recommendation 8.3

The Board should fully disclose all relevant and material information on individual board members and
key executives to evaluate their experience and qualifications, and assess any potential conflicts of
interest that might affect their judgment.

Explanation

A disclosure on the board members and key executives' information is prescribed under Rule 12 Annex C
of the SRC. According to best practices and standards, proper disclosure includes directors and key
officers' qualifications, share ownership in the company, membership of other boards, other executive
positions, continuous trainings attended and identification of independent directors.

Recommendation 8.4

The company should provide a clear disclosure of its policies and procedure for setting Board and
executive remuneration, as well as the level and mix of the same in the Annual Corporate Governance
Report. Also, companies should disclose the remuneration on an individual basis, including termination
and retirement provisions.

Explanation

Disclosure of remuneration policies and procedure enables investors to understand the link between the
remuneration paid to directors and key management personnel and the company's performance.

The Revised Code of Corporate Governance requires only a disclosure of all fixed and variable
compensation that may be paid, directly or indirectly, to its directors and top four managerment officers
during the preeding cludingard and arded as good practice and is preceding, fiscal an individual basis
(including termination the retirement provisions) is increasingly regarded now mandated in many
countries.

Recommendation 8.5
The company should disclose its policies governing Related Party Transactions (RPTs) and other unusual
or infrequently occurring Tansactions in their Manual on Corporate Governance. The material of
significant RPTs reviewed and approved during the year should be disclosed in its Annual Corporate
Governance Report.

Explanation

A full, accurate and timely disclosure of the company's policy governing RPTs and other unusual or
infrequently occurring transactions, as well as the review and approval of material and significant RPTs, is
regarded as good corporate governance practice geared towards the prevention of abusive dealings and
transactions and the promotion of transparency. These policies include ensuring that transactions occur
at market prices and under conditions that protect the rights of all shareholders. The said disclosure
includes directors and key executives reporting to the Board when they have RPTs that could influence
their judgment.

Recommendation 8.6

The company should make a full, fair, accurate and timely disclosure to the public of every material fact
or event that occurs, particularly on the acquisition or disposal of significant assets, which could
adversely affect the viability or the interest of its shareholders and other stakeholders. Moreover, the
Board of the offered company should appoint an independent party to evaluate the fairness of the
transaction price on the acquisition or disposal of assets.

Explanation

The disclosure on the acquisition or disposal of significant assets includes, among others, the rationale,
effect on operations and approval at board meetings with independent directors present to establish
transparency and independence on the transaction. The independent evaluation of the fairness of the
transparent price ensures the protection of the rights of shareholders.

Recommendation 8.7

The company's corporate governance policies, programs and procedures should be contained in its
Manual on Corporate Governance, which should be submitted to the regulators and posted on the
company's website.

Explanation

Transparency is one of the core principles of corporate governance. To ensure the better protection of
shareholders and other stakeholders' rights, full disclosure of the company's corporate governance
policies, programs and procedures is imperative. This is better done if the said policies, programs and
procedures are contained in one reference document, which is the Manual on Corporate Governance.
The submission of the Manual to regulators and posting it in companies' websites ensure easier access
by any interested party.

9. STRENGTHENING THE EXTERNAL AUDITOR'S INDEPENDENCE AND IMPROVING AUDIT QUALITY

Principle 9
The company should establish standards for the appropriate selection of an external auditor, and
exercise effective oversight of the same to strengthen the external auditor's independence and enhance
audit quality.

Recommendation 9.1

The Audit Committee should have a robust process for approving and recommending the appointment,
reappointment, removal, and fees of the external auditor. The appointment, reappointment, removal,
and fees of the external auditor should be recommended by the Audit Committee approved by the
Board and ratified by the shareholders. For removal of remove the one disclosed to the regulators and
the public through the company website and required disclosures.

Explanation

The appointment, reappointment and removal of the the Board's approval, through the Audit
Committee's by recommendation, the Boarders ratification at shareholders' meetings are actions and
sharehold good practices. Shareholders' ratification clarifies or emphasizes that the external auditor is
accountable to the shareholders or to the company as a whole, rather than to the management whom
he may interact with in the conduct of his audit.

Recommendation 9.2

The Audit Committee Charter should include the Audit Committee's responsibility on assessing the
integrity and independence of external auditors and exercising effective oversight to review and monitor
the external auditor's independence and objectivity and the effectiveness of the audit process, taking
into consideration relevant Philippine professional and regulatory requirements. The Charter should also
contain the Audit Committee's responsibility on reviewing and monitoring the external auditor's
suitability and effectiveness on an annual basis.

Explanation

The Audit Committee Charter includes a disclosure of its responsibility on assessing the integrity and
independence of the external auditor. It establishes detailed guidelines, policies and procedures that are
contained in a separate memorandum or document. Nationally and internationally recognized best
practices and standards of external auditing guide the committee in formulating these policies and
procedures.

Moreover, establishing effective communication with the external auditor and requiring them to report
all relevant matters help the Audit Committee to efficiently carry out its oversight responsibilities.

Recommendation 9.3

The company should disclose the nature of non-audit services performed by its external auditor in the
Annual Report to deal with the potential conflict of interest. The Audit Committee should be alert for any
potential conflict of interest situations, given the guidelines or policies on non-audit services, which
could be viewed as impairing the external auditor's objectivity.

Explanation
The Audit Committee, in the performance of its duty, oversees the overall relationship with the external
auditor. It evaluates and determines the nature of non-audit services, if any, of the external auditor.
Further, the Committee periodically reviews the proportion of non-audit fees paid to the external auditor
in relation to the corporation's overall consultancy expenses. Allowing the same auditor to perform non-
audit services for the company may create a potential conflict of interest. In order to mitigate the risk of
possible conflict between the auditor and the company, the Audit Committee puts in place robust
policies and procedures designed to promote auditor independence in the long run. In formulating these
policies and procedures, the Committee is guided by nationally and internationally recognized best
practices and regulatory requirements or issuances.