The CGI system consists of coherent structures, processes ND communication requirements that determine the broad powers and responsibilities of the Board of Directors (BODY) and its members in setting directions for the corporation; protecting shareholder rights; ensuring proper compliance of the corporate organization to the principles of accountability, transparency and fairness; and ensuring the installation of proper internal controls and risk management practices.
By virtue of the legal and regulatory framework provided to promote CGI in listed corporations, safeguards and best practices have been put in place that have dramatically improved adherence and compliance to modern and proper governance processes. These have institutionalized the broad role of the BODY in the strategy formulation systems and enhanced policy-making decision-making and review and control mechanisms in the corporation. A small survey of listed corporations revealed the tendency for larger-capitalized and higher-valued corporations to exceed compliance standards and performance over the smaller-capitalized corporations.
Further future research in this direction is recommended. The Role of the Board of Directors in Corporate I. Introduction: All of business literature and corporate practice recognizes the supreme authority and overall accountability of the Board of Directors (also known as Governing Body, Board of Trustees and related names that essentially mean the same) in the governance and administration of a corporation Or business organization.
Corporate Governance(CGI) has evolved over the years as the broad encompassing concept relating to the overall framework of rules, systems and processes relating to the enforcement of administrative, decision-making and oversight powers and performance of the Board of Directors and Management in the conduct of their fiduciary responsibility to the owners of the firm as provided for by law (Corporation Code of the Philippines; Securities & Exchange Commission, Code of Corporate Governance 2002).
This paper aims to discuss the legal frameworks and the state of current corporate practice in corporate governance and policy making by the Governing Body or Board of Directors of private (I. E. Non- government) stock corporations in the Philippines. CGI implementation Of SEC and Philippine Stock Exchange governance statutes of a small sample of publicly listed corporations were explored in this paper. This is to objectively assess CGI performance and compliance in the country using preliminary empirical indicators, instead of the self-rated CGI Scorecard template forms submitted by listed corporations to the SEC.
II. Research Methodology A small sample survey of publicly listed corporations using secondary literature was conducted by the author to establish a profile of corporate governance practices and processes followed by the private sector in the country. This is to better understand current level and scope of CGI policy making at the highest level of the corporate organization in these more visible private corporations. Corporate disclosures, including shareholder annual reports, CGI Scorecard reports and websites were examined for relevant CGI policies and implementation information.
In addition, an in-depth interview (DID) of a panel of high-ranking corporate officials of publicly listed construction company EYE Corporation was conducted to gather information about policy formulation, implementation and monitoring and compliance standards and practices on the corporate and functional level. The combined findings of the secondary research and DID have provided indicative descriptive conclusions about CGI and policy-making at the Board level.
A word of caution: because of the limited size and coverage of respondents, the findings and conclusions are not generalized to the universe of Philippine publicly listed corporations. They however provide preliminary indicators about the implementation of SEC and SSE-prescribed governance provisions. Ill. Corporate Governance in the Philippines A. Policy Issues Pertinent to Governance The Board is the highest policy-making body in a corporation.
The purview of this power, however, does not cover all company policies that are in force across the organization which may number in the hundreds. The following re the accepted mission-critical policy areas that the Board exercises and discharges its responsibility of policy formulation, monitoring and evaluation, and control: 1 . Fiduciary duty to protect the interests of all shareholders, particularly minority share owners-Specifically, this policy dimension Covers the following elements: a. Insuring the long-term viable¶,. ‘ and sustainability of the corporation; b. Safeguarding of company assets and resources from expropriation and improper use; c. Ensuring that the ownership rights of shareholders are properly accorded them and exercised, inclusive of the right o vote and be elected as board and the exercise of pre-emotive rights over key decisions about the company as expressed in the Corporation Code and the Articles of Incorporation and By-Laws; 2. Ethical management and operations of the firm.
Accountability, transparency and fairness are enshrined as core principles in all dealings of the Company, its Board, Management officers and employees with all stakeholders. These principles are formulated, documented and disseminated to all officers and employees as the Code of Corporate Governance (ICC) and Code of Ethics and Business Conduct (XEBEC). All listed corporations are mandated to submit their own ICC and XEBEC to the SEC. 3. Monitoring and control function. The BODY possesses oversight powers over the monitoring and control of the company’s overall and financial performance of the company.
In compliance with the SEC and the Philippine Stock Exchange directive, preparation of financial statements are in accord with the Philippine Financial Reporting System and the International Auditing Standards and are reported on an annual and quarterly basis. In addition, the internal and external auditing processes and structures put in place to ensure policy compliance. This includes the adoption of control mechanisms that are used to “govern” and check-and-balance managers and to ensure that the actions taken are consistent with the interests Of all shareholders and key stakeholder groups, consistent with the agency theory. . Management of relationship between shareholder (I. E. The principals of the firm) and corporate Management (acting as agents for the principals), as well as with key stakeholders (partners, creditors, suppliers, community, the general public). The relationships may cover the ethical, information and disclosures and social responsibility issues: a. Policies on disclosures of related party transactions, purchase and trading by directors and Management officers of the corporation’s shares of stock trading, and other disclosures that may lead to suspicion of conflicts of interest b.
Equal access or symmetry of information – the company is mandated to communicate and inform all shareholders about all material developments about the performance and developments concerning the company, including its quarterly and annual performance, stock and cash dividend declaration and similar corporate actions. C. Social responsibility and sustainability policies and programs affecting a company’s leanings with the communities where it operates and with the environment and general society. D.
Vendor policies and relationships with external stakeholders with business interests B. Corporate Governance Practice The scope and boundaries of how corporations are governed in the Philippines have dramatically changed and expanded in the wake of stock market scandals such as the BE Resources and the corporate failures of listed corporations (such as Untwined Holdings), as well as the Asian Financial Crisis of 1 997 and the Enron collapse and Anderson accounting malpractices n the LISA in early 2000.
An Organization for Economic Cooperation and Development study (Salad, Cesar; 1999) noted that Philippine corporate sector suffered from key structural weaknesses notably the concentration of shareholder, family-based ownership of corporate groups to few families, weak governance structure that dependent poor internal and skewed control systems and procedures, and financial policies that were based on a trading-on-equity strategy.
As a result of the weak corporate structures and control mechanisms, corporations were very much vulnerable to conflict of interests between the minority shareholders and the controlling shareholders and Management groups that have tended to lead to financial abuses and corporate malpractices. The weak governance structures were manifested in concentrated ownership structure (Moreno, J. J. 2009) which exhibits a propensity abrasive related party transactions, insider trading,asset expropriation, and insidious practices that were detrimental to minority shareholders and to a healthy capital market. C. Definition and Scope of Corporate Governance Corporate governance covers a large number of distinct concepts and hometown as we can see from the definition adopted by Organization for Economic Cooperation and Development (COED) – “Corporate governance is the system by which business corporations are directed and controlled.
The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders and spells out the rules and procedures for making decisions in corporate affairs. By doing this, it also provides the structure through which the company objectives are set ND the means of attaining those objectives and monitoring performance. ” Generally, corporate governance refers to the host of legal and non-legal principles and practices affecting control of publicly held business corporations.
Most broadly, corporate governance affects not only who controls publicly traded corporations and for what purpose but also the allocation of risks and returns from the firm’s activities among the various participants in the firm, including stockholders and managers as well as creditors, employees, customers, and even communities. (J. Robert Brown, Jar. And Lisa L. Casey; 2012) IV. Policy-Making and the Board of Directors Chester Bernard, in his book The Functions of the Executive, used the term “decision making” and policy making from the lexicon of public administration into the business world.
The author (I. E. This student) postulates that the Board of Director is the highest policy making body in the corporation. A policy is often defined as a principle or protocol to guide decisions and achieve desired outcomes within and without the business organization. Policies are therefore promulgated statements of intent, and are implemented to guide procedures (Anderson, Chris. 005) for the conduct of business practices. In modern practice, general company policies are adopted by the Board of Directors or senior governance body within an organization.
A key part of this responsibility involves oversight over the formulation of the vision, mission, objectives, strategies and broad policies of the corporation in the overall conduct and operations of its business. Therefore, corporate policies have a specific hierarchy. Vision/Mission to a large extent is the highest and broadest form of business policy because once set it guides and specifies what specific business activities a corporation can undertake, and what specific behavior and actions the Management and employees must take and accomplish in their efforts towards the accomplishment of the company’s vision.
Down the chain of command, specific policies that involve procedures or protocols are developed and adopted by senior executive officers and managers (representing Management) to guide decision making, collective and individualistically and practices on a day-to-day basis across various function areas of the business. A. The Board Of Directors A Board of Directors (BODY) is a body of elected or appointed members who re elected by the general shareholder membership to oversee the activities of a company or organization.
In non-profit, non-stock corporations, it may be named as board of governors,board of regents, or board of trustees. Theoretically, the control of a company is divided between two bodies: the board of directors, and the shareholders in general meeting. In practice, the amount of power exercised by the board varies with the type of company. In small private companies, the directors and the shareholders are normally the same people, and thus there is no real division of power.
In large public impasses, the board tends to exercise more of a supervisory role, and individual responsibility and management tends to be delegated downward to individual professional executives (such as a finance director or a marketing director) who deal with particular areas of the company’s affairs (carver, john, 2002). In the country, the BODY, according to Section 23 Title 3 of the Corporation Code of the Philippines (B. P. 8), is vested with the final authority to discharge and approve all the corporate powers of a corporation, including the administration of the conduct of all businesses and activities and all property wend by it. The Corporation Code entrusts the board of directors with the general control and management of the business of the corporation with authority to transact businesses within the scope of its powers in its corporate charter.
The Board, subject to restrictions in the corporate charter or by-laws, also possesses the power to bind the corporation and its stockholders by any contract, which in their judgment is necessary in order to carry out the objectives of the corporation. In short, as declared by Philippine laws, the BODY as the official representative of all owners (called shareholders) as absolute and final fiduciary control and responsibility over the corporation.
As such it is empowered to set the business directions of the company and direct its business operations, as well as to promulgate strategies and policies to accomplish its goals and objectives. B. BODY Composition: The Board of Directors shall be composed of individual directors who are elected by shareholders of record annually during the Annual Meeting of the corporation, as set forth in its Articles of Incorporation and By-laws that are filed with the Securities and Exchange Commission before incorporation.
All elected directors must own at least one (1 ) share of stock of the corporation before he is qualified for election and to hold office as member of the BODY. The members of the Board of Directors are elected annually by the general members or shareholders of the corporation. The number of Directors is determined in the company’s articles of incorporation and by-laws, in accordance with the Philippine Corporation Code. The minimum number of BODY members is five (5) and the maximum is 15 members.
As defined by the Code of Corporate Governance, the member directors may be classified as allows: Independent director – a person who, apart from his fees and shareholdings, is independent of Management and 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 is also the head of a department or unit of the corporation or performs any work related to its operation; Non-executive director – a director who is not the head off department or unit of the corporation nor performs any work related to its operation; The Securities Regulation Code (“ISRC”) requires that listed companies have at least downtrodden directors. Similarly, the General Banking Law of 2000 also requires at least downtrodden directors for banks.
Both define an independent director as a person other than inferior or employee of the corporation or bank, its parent or subsidiaries, or any other individualizing a relationship with the corporation or bank that would interfere with the exercise of hisindependentjudgment in carrying out his responsibilities as a director. C. Responsibilities, Duties and Functions of the Board A Body’s powers, duties and responsibilities are determined by appropriate provisions set forth in the Corporation Code and on the Code of Corporate Governance (SEC Memorandum Circular No. 6 Series of 2009)delegated to it or conferred on it by an authority of law, as well as specific provisions of the company’s Articles of Incorporation and By-Laws.
In line with its mandate, the Securities & Exchange Commission has enshrined the concept, definition and standards of corporate behavior in the area of management and oversight, as well as implementing rules, in the Code of Corporate Governance which was first passed in 2002. It has determined and established the following as the general and specific responsibilities of the BODY (cited verbatim from the Code of Governance to wit): “1 . General Responsibility It is the Board’s responsibility to foster the long-term success of the corporation, and to sustain its competitiveness interoperability in a manner consistent with its corporate objectiveness the best interests of its stockholders.
The Board should formulate the corporation’s vision, mission,strategic objectives, policies and procedures that shall guide deactivates, including the means to effectively monitor Management’s performance. 2. Duties and Functions To ensure a high standard of best practice for the corporation its stockholders, the Board should conduct itself withholders and integrity in the performance of, among others, defoliating duties and functions: a) Implement a process for the selection of directors who Canada value and contribute independent judgment to deformational Of sound corporate strategies and policies. Appoint competent, professional, honest and highlymotivatedmanagement officers.
Adopt an vociferousness’s planning program for Management. B) Provide sound strategic policies and guidelines to decorations on major capital expenditures. Establishments that can sustain its long-term viability and strength. Periodically evaluate and monitor the implementation of supplicates and strategies, including the business plans,operating budgets and Managements overall performance. C) Ensure the corporation’s faithful compliance with elliptically laws, regulations and best business practices. D) Establish and maintain an investor relations program that Wilkes the stockholders informed of important developments in the corporation.
If feasible, the corporation’s CEO or chieftainship officer shall exercise oversight responsibility overshot program. E) Identify the sectors n the community in which the surreptitiousness or are directly affected by its operations, undergraduate a clear policy of accurate, timely and effectivecommunication with them. F) Adopt a system of check and balance within the Board. Regular review of the effectiveness of such system should fecundated to ensure the integrity of the decision-making and reporting processes at all times. There should be continuing review of the corporation’s internal control systemic order to maintain its adequacy and effectiveness. ) Identify key risk areas and performance indicators monitor these factors with due diligence to enable decorations to anticipate and prepare for possible threats sits operational and financial viability. H) Formulate and implement policies and procedures that would’ve the integrity and transparency of related procrastinations between and among the corporation and its parent company, joint ventures, subsidiaries, associates, affiliates, major stockholders, officers and directors, incongruities spouses, children and dependent siblings and parents,and of interlocking director relationships by members of outboard. I) Constitute an Audit Committee and such other committees items necessary to assist the Board in the performance of its duties and responsibilities. ) Establish and maintain an alternative dispute resoluteness’s in the corporation that can amicably settle conflicts ordinances between the corporation and stockholders,and the corporation and third parties, including the argumentativeness’s. K) Meet at such times or frequency as may be needed. Thinness of such meetings should be duly recorded. Lengthened views during Board meetings should boomeranged and given due consideration. L) Keep the activities and decisions of the Board within dissimilarity under the articles of incorporation and by-laws, Indian accordance with existing laws, rules and regulations. M) Appoint a Compliance Officer who shall have the rank of tallest vice president. In the absence of such appointment, discorporate Secretary, preferably a lawyer, shall act compliance Officer. ” V.
Corporate Governance and Strategy Formulation and Execution A. Decision-Making and Strategy Formulation Apart from these legally defined BODY powers and responsibilities, modern management practice also ascribes powers over the over-all direction and supervision of the corporate organization by the corporate board(COED Principles of Corporate Governance, 2004). The structure and process of the Body’s role in the corporate hierarchy and its influence and impact on policy making and strategy formulation and execution is shown in Chart 2. As seen in the proposed framework, the BODY has oversight and approval authority over key areas of corporate management.
The SEC and the SSE has ensured, through specific governance structures and processes, the BODY has sufficient powers and strength of exercise such powers to impact business management and operations of the corporation. As explained in a previous section, the company’s Vision-Mission statement an be considered as the highest-level policy because it guides Management’s directions and actions in directing the business. Thus it sits as the top of the hierarchy, and is further elaborated through more specific policy guidelines as one goes down the hierarchical chain of command. At the lowest-level, the policies can take the form of specific rules of conduct that defines prescribed behavior and decision making at various departments of the organization. The BODY is the final and ultimate authority in policy-making and governance.