CORPORATE GOVERNANCE IN THE PHILIPPINE SETTING the International Professional Practices Framework

Governance (IPPF).
- the combination of processes and structures - To ensure effective organizational independence, the
implemented by the board to inform, direct, manage CAE functionally reports to the board.
and monitor the activities of the organization toward - Generally, the CAE also has an administrative, or
the achievement of its objectives. (ISPPIA) “dotted,” reporting line to a member of senior
management.
Corporate Governance
- involves a set of relationships among a company’s Board of Directors
management, its board, its shareholders, and other - The highest-level governing body
stakeholders. It also provides the structure through - Responsible to direct and/or oversee the
which the objectives of the company are set, and a organization’s activities and hold senior management
means of attaining those objectives and monitoring accountable.
performance are determined. (OECD) - Typically includes members who are not part of
management.
Corporate Governance Framework
The Role of the Board of Directors
1. To 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.
2. To 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.
3. To ensure and adopt an effective succession
planning program for directors, key officers, and
management
4. To align the remuneration of key officers and
Corporate Governance in PH Setting directors with the long-term interests of the
a. Regulated by SEC thru the Corporate Governance organization.
Code for PLCs 5. To develop a policy on board nomination and
b. SEC Form I-ACGR (Integrated Annual Corporate election.
Governance Report) submitted to SEC; follows 6. To ensure proper implementation of the policy and
“Comply or Explain” approach system governing related party transactions and
other unusual or infrequently occurring
“Comply or Explain” Approach transactions.
a. This approach combines voluntary compliance with 7. Responsible for approving the selection and
mandatory disclosure. assessing the performance of Management and
b. Covered companies are not required to comply control functions.
with all the recommendations of the applicable 8. Ro establish an effective performance management
corporate governance codes framework.
9. To oversee that an appropriate internal control
“Principle of Proportionality” system is in place.
a. In applying this principle, boards or companies are 10. To oversee that a sound enterprise risk
allowed flexibility in establishing their CG policies. management (ERM) framework is in place.
b. The policies should take into consideration the size 11. Selection and removal of officers
and risk profile of the listed company, among 12. Decisions about capital structure
others, and ensure proportionality. 13. Add to, amend, or repeal by-laws
14. Initiate fundamental changes
Chief Audit Executive (CAE) 15. Decisions to declare and distribute dividends
- The CAE describes the role of a person in a 16. Coordinate audit activities
senior position responsible for effectively managing 17. Evaluate and manage risks
the internal audit activity in accordance with the 18. Approving the internal audit charter
internal audit charter & the mandatory elements of 19. Approving the risk-based IA plan
 20. Approving the IA budget and resource plan 4. Competency
21. Receiving communications from the CAE on the IA - Internal auditors apply the knowledge, skills, and
activity’s performance relative to its plan and other experience needed in the performance of internal
matters. audit services.
22. Approving decisions regarding the appointment
and removal of CAE, including remuneration Rules of Conduct
23. Making inquiries of management and the CAE to
determine whether there are inappropriate scope
or resource limitations.

Code of Professional Ethics for Internal Auditors

- States the principles and expectations governing
behavior of individuals and organizations in the
conduct of internal auditing.
- Describes the minimum requirements for conduct, and
behavioral expectations rather than specific activities.

- Purpose: To promote an ethical culture in the

profession of internal auditing.
- A code of ethics is necessary and appropriate
for the profession of internal auditing, founded as it is
on the trust placed in its objective assurance about
governance, risk management and control.

The Code of Ethics include two essential components:

1. Principles that are relevant to the profession and
practice of internal auditing; and
2. Rules of Conduct that describe behavior norms
expected of internal auditors.

Code of Professional Ethics for IA

Principles
1. Integrity
- The integrity of internal auditors establishes trust
and thus provides the basis for reliance on their
judgment.

2. Objectivity
- Internal auditors exhibit the highest level of
professional objectivity in gathering, evaluating, and
communicating information about the activity or
process being examined. Internal auditors make a
balanced assessment of all the relevant circumstances
and are not unduly influenced by their own interests or A Model of Business
by others in forming judgments. - Business organizations exist to create value for their
stockholders.
3. Confidentiality - To form business enterprise, entrepreneurs decide on
- Internal auditors respect the value and ownership the appropriate organizational form (e.g. corporation
of information they receive and do not disclose or partnership) and hire managers to manage the
information without appropriate authority unless there resources that have been made available to the
is a legal or professional obligation to do so. enterprise thru investment or lending.
- Due to the way resources are invested and managed in
the modern business world; a system of corporate
 governance is necessary, thru which managers are duties and responsibilities, including sufficient time
overseen & supervised. to be familiar with the corporation’s business.
- Simply defined, corporate governance consists of all 2. Directors should attend and actively participate in
people, processes, and activities in place to help all board meetings, Committee meetings and
ensure proper stewardship over an entity’s assets. shareholders’ meeting, except for justifiable causes
- Good corporate governance ensures that those Reinforcing Board Independence
managing an entity properly utilize their time, talents, - The Board should endeavor to exercise an objective
and the entity’s resources in the best interest of and independent judgment on all corporate affairs.
absentee owners. Assessing Board Performance
- The Corporation Code requires that at each regular
4 Core Principles of Corporate Governance meeting of shareholders or members, the board of
Principles directors or trustees shall present to shareholders or
1. Fairness members the appraisal and performance reports for
2. Responsibility the board and the criteria and procedure for
3. Accountability assessment.
4. Transparency - It also requires every corporation vested with public
interest, domestic or foreign, doing business in the
- These core principles serve as guidance for Philippine to submit to SEC a director or trustee
corporations in the formulation of its policies and appraisal or performance report and the criteria used
reforms relating to increased investor confidence, to assess each director or trustee.
development of capital market and sustainable
growth. Strengthening Board Ethics
Board Charter - Directors are duty-bound to apply high ethical
- A document which clearly defines the power, standards, taking into account the interests of all
authority, roles, and accountabilities of the directors in stakeholders.
carrying out their fiduciary duties. - Thus, it is imperative that the board adopts a Code of
- It serves as guide to directors in performing their Business Conduct and Ethics, which would provide
functions and should be publicly available and posted standards for professional and ethical behavior for the
on the company’s website. board, as well as articulate acceptable and
unacceptable conduct and practices in internal and
Principal-Agent Relationship external dealings.
- The BODs shall exercise the corporate powers, conduct
all business, and control all properties of the Ethics Intelligence
corporation. As such, a director of a corporation holds - Internal Auditors are challenged to recognize and
a position of trust and owes loyalty to the corporation. evaluate ethical and unethical situations often
encountered in practice and it is important to be alert
- This fiduciary duty of a director to the corporation to situations that may threaten these fundamental
creates a principal-agent relationship between them. principles.
Trust Fund Doctrine - Ethics Intelligence is the ability to discern when their a
- This provides for the rule that the property of a re ethical implications in an issue and being able to
corporation is considered as a fund held in trust for respond appropriately from an ethical perspective
the creditors. What to do when facing ethical dilemma?
- Seek advice from your superior, professional body or
Types of Board Committees obtain independent legal advice.
1. Audit Committee - Consider whether your actions in response to the
2. Nomination Committee situation and the advice obtained are sufficiently well
3. Compensation Committee documented, either by way of minutes or your own
4. Corporate Governance Committee records.
5. Board Risk Oversight Committee Ethical Threats to Independence
6. Related Party Transactions Committee 1. Familiarity
2. Intimidation
Fostering Board Commitment 3. Self-interest
1. Directors should devote the time and attention 4. Self-review
necessary to properly and effectively perform their 5. Advocacy