What is governance?

Generally, governance refers to a process whereby elements in society wield power, authority and influence and
enact policies and decisions concerning public life and social upliftment.

It comprises all the processes of governing- whether undertaken by the government of a country, by market or
by a network- over a social system and whether through the laws, norms, power or language of an organized
society.

Governance therefore means the process of decision-making and the process by which decisions are
implemented (or not implemented) through the exercise of power or authority by leaders of the country and /
or organizations

Governance can be used in several contexts such as corporate governance, international governance, national
governance, and local governance.

CHARACTERISTICS OF GOOD GOVERNANCE

Whatever context good governance is used, the following major characteristics should be present:

These characteristics are briely described as follows:

PARTICIPATION- participation by both men and women is a key cornerstone of good governance. Participation
could be either direct or through legitimate institutions or representatives. It is important to point out that
representative democracy does not necessarily mean that the concern of the most vulnerable in society would
not be taken into consideration in decision making. Participation need to be informed and organized. This means
freedom of association and expression on one hand an organized civil society on the other hand.

RULE OF LAW- Good governance requires fair legal frameworks that are enforced impartially. It also requires full
protection of human rights, particularly those of minorities. Impartial enforcement of law requires an
independent judiciary and an impartial and incorruptible police force.

TRANSPARENCY- Transparency means that decisions taken, and their enforcement are done in a manner that
follow rules and regulations. It means that information is freely available and directly accessible to those who
will be affected by such decisions and their enforcement. It also means that enough information is provided and
that it is provided in easily understandable forms and media.

RESPONSIVNESS- Good governance requires that institutions and processes try to serve the needs all
stakeholders within a reasonable time frame.

Consensus Oriented- Good governance requires mediation of the different interest in society to reach a broad
consensus on what is in the best interest of the whole community and how this can be achieved. It also requires
a broad and long-term perspective on what is needed for sustainable human development and how to achieve
the goals of such development. This can only result from an understanding of the historical, cultural, and social
context of a given society or community.
EQUITY AND INCLUSIVENESS- Ensures that all its members feel that they have a stake in it and do not feel
excluded from the mainstream of society. This requires all groups, but particularly the most vulnerable, have
opportunities to improve or maintain their well-being.

EFFECTIVENESS AND EFFICIENCY- Good governance means that processes and institutions produce results that
meet the need of society while making the best use of resources at their disposal. The concept of efficiency in
the context of good governance also covers the sustainable use of natural resources and the protection of the
government.

ACCOUNTABILITY- Accountability is the key requirement of good governance. Not only governmental institutions
but also the private sector and civil society organizations must be accountable to the public and to their
institutional stake holders. Who is accountable to whom varies depending on whether decisions or actions taken
are internal or external to an organization or institution. In general, organization or an institution is accountable
tot hose who will be affected by its decisions or actions. Accountability cannot be enforced without transparency
and the rule of law.

CORPORATE GOVERNANCE: OVERVIEW

Corporate governance is defined as the system of rules, practices and processes by which business corporations
are directed and controlled. It basically involves balancing the interest of a company’s many stakeholders, such
as shareholders, management, customers, suppliers, financiers, government and the community.

Corporate governance is a topic that has received growing attention in the public in recent years as policy makers
and others become more aware of the contribution good corporate governance makes to financial market
stability and economic growth. Good corporate governance is all about controlling one’s business and so is
relevant, and indeed vital, for all organizations, whatever size or structure.

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 keyholdersers, and spells
out the rules and procedures for making decision on corporate affairs. By doing this, it also provides the
structure through which the objectives are set and the mean of attaining those objectives and monitoring
performance.

PURPOSE OF CORPORATE GOVERNANCE

The purpose of corporate governance is to facilitate effective, entrepreneurial nd prudent management that can
deliver long-term success of the company. In simple terms, the fundamental aim of corporate governance is to
enhance shareholders’ value and protect the interest of other stakeholders by improving the corporate
performance and accountability. It is also about what the board of directors of a company does, how it sets the
values of the business firm.

OBJECTIVE OF CORPORATE GOVERNANCE

The following are the basic objectives of corporate governance

1. Fair and Equitable Treatment of shareholders

A corporate governance structure ensures equitable and fair treatment of all shareholders of the
company. In some organizations, a group of high-net-worth individual and institutions who have a
substantial proportion of their portfolios invested in the company, remain active through occupation of
top-level positions that enable them to guard their interest. However, all shareholders deserve equitable
treatment, and this equity is safeguarded by a good governance structure in any organization.

2. Self-assessment
Corporate governance enables firms to assess their behaviors and actions before they are scrutinized by
regulatory agencies. Business establishments with a strong corporate governance system are better able
to limit exposure to regulatory risks and fines. An active and independent board can successfully point
out deficiencies or loopholes in the company operations and help solve issues internally on a timely
basis.

3. Increase shareholders’ wealth

 Another corporate governance's main objective is to protect the long- term interests of the shareholders.
Firms with strong corporate governance structure are seen to have higher valuation attached to their shares
by businessmen. This only reflects the positive perception that good corporate governance induces potential
investors to decide to invest in a company.

4. Transparency and full disclosure

Good corporate governance aims at ensuring a higher degree of transparency in an organization by

encouraging full disclosure of transactions in the company accounts

Basic principle of effective corporate governance

Effective corporate governance is transparent, protects the rights of shareholders and includes both strategic
and operational risk management. It is concerned in both the long-term earning potential as well as actual short-
term earnings and holds directors accountable for their stewardship of the business

A. Transparency and Full Disclosure

- Does the board meet the information needs of investment communities?

- Does it safeguard integrity in financial reporting?

- Does the board have sound disclosure policies and practices?

o Does it make timely and balanced disclosure?
o Can an outsider meaningfully analyze the organization's actions and performance?
B. Accountability

- Does the board clarify its role and that of management?

o Does it promote objective, ethical, and responsible decision making?

o Does it lay solid foundations for management oversight?
o Does composition mix of board membership ensure an appropriate range and mix of expertise,
diversity, knowledge and added value?
o Is the organization's senior official committed to widely accepted standards of correct and proper
behavior
C. Corporate Control

- Has the board built long-term sustainable growth in shareholders' value for the corporation?

- Does it create an environment to take risk?

o Does it encourage enhanced performance?
o Does it recognized and manage risk?
o Does it remunerate fairly and responsibly?
o Does it recognize legitimate interests of stakeholders?
o Are conflicts of interest avoiding such that the organization's best interests prevail at all time
 ILLUSTRATIVE APPLICATION OF THE BASIC
PRINCIPLES OF CORPORATE GOVERNANCE AND BEST
PRACTICE RECOMMENDATIONS

Principles of good Corporate Governance Best Practice

1. A company should lay solid foundation 1-a. Formalize and disclose the functions
for management and oversight. It should reserved to the board and those delegated
recognize and publish the respective roles management.
and responsibilities of board and
management

2. Structure the board to add value. Have a

2.-a. A boardshould have independent
board of an effective composition, size
directors
and commitment to adequately discharge
2-b. The roles of chairperson and chief executive
its responsibilities and duties officer should not be exercised by the same
individual
2-c. The board should establish a nomination
committee

3. Promote ethical and responsible decision- 3-a. Establish a code of conduct to guide the
making. Actively promote ethical and responsible directors, the chief executive officer (or
decision-making equivalent), the chief officer (or equivalent) and
any other key executives as to:
 The practices necessary to maintain
confidence in the company's integrity;
and
 The responsibility and accountability
of individuals for reporting and
investigating reports of unethical
practices.

3-b. Disclose the policy concerning trading

incompany securities by directors, officers and
employees

Recommendations
4. Safeguard integrity in financial reporting. Have 4-a. Require the chief executive of (or equivalent)
a structure to independently verify and safeguard and the chief financial officer (or equivalent) to
and integrity of the company's financial reporting state in writing to the board that the company's
financial reports present a true and fair view, in all
material respects, of the company's financial
condition and operational results and are in
accordance with relevant accounting standards.
4-b. The board should establish an audit
committee.
4-c. Structure the audit committee an audit so that
it consists of:

- Only non-executive or independent

directors;

- At least three (3)

members

5. Establish
5-a. Make timely and policies
written balancedand
disclosure.
proceduresPromote
timelytoand
desined balanced
ensure disclosure
compliance withofIFRS.
all material
matters
5-b. concerning
Listing the company.
Rule disclosure requirements and to
ensure accountability at a senior management level
for compliance,

6-a. Design and disclose a communications

6. Respect
strategy the rights
to promote of shareholders
effective and facilitate
communication
the effective exercise of those rights.
with shareholders and encourage effective
participation at general meetings.
6-b. Request the external auditor to attend the
annual general meeting and be available to answer
shareholder questions about the audit.
7. Recognize and manage risk. Establish a sound 7-a. The board or appropriate board committee
system of risk oversight and management and should establish policies on risk oversight and
internal control. management.
7-b. The chief executive officer (or equivalent) and
the chief financial officer (or equivalent) should
state to the board I writing that:

- The statement given in accordance with

best practice recommendation 4-a is
founded on a sound system of risk
management and internal compliance and
control which implements the policies
adopted by the board and

- The company's risk management and

internal compliance and control system is
operating efficiently in all material respects.

8. Encourage enhanced performance. Fairly review 8-a. Disclose the process for performance evaluation
and actively encourage enhanced board and of the board, its committees and individual directors,
management effectiveness. and key executives.

9. Remunerate fairly and responsibly. Ensure that 9-a. Provide disclosure in relation to the company's
the level and composition of remuneration is remuneration policies to enable investors to
sufficient and reasonable and that its relationship to understand:
corporate and individual performance is defined
- The costs andbenefits
of those policies; and
- link between remuneration paid to directors
and key executives and corporate
performance
9-b. The board should establish a remuneration
committee
9-c. Clearly distinguish the structure of non-executive
director's remuneration from that of executives
9-d. Ensure that payment of equity-based executive
remuneration is made in accordance with threshold
set in plans approved by shareholders.
10. Recognize the legitimate interests of 10-a. Establish and disclose a code of conduct to
stakeholders. Recognize legal and other obligations guide compliance with legal and other obligation to
to all legitimate stakeholders. legitimate stakeholders.
Governance starts with shareholders/owners delegating responsibilities through an elected board of
directors to management and in, in turn, to operating units with oversight and assistance from internal
auditors. The board of directors and its audit committee oversee management and in that role are
expected to protect the shareholder’s right. However, it is important to recognize that management is
part of the governance framework: management can influence who sits on the board and the audit
committee as well as other governance controls that might be put in place.

In return for the responsibilities (and power) given to management and the board, governance demands
accountability back through the system to the shareholders. However, the accountabilities do not
extend only to the stakeholders. Companies also have responsibilities to other stakeholders. Stakeholder
can be anyone who is influenced, whether directly or indirectly, by the actions of a company.
Management and the board have responsibilities to act within the law of society and to meet various
requirements of creditors, employees and the stakeholders.

A board group of stakeholders has an interest in the quality of corporate governance because it has a
relationship to economic performance and the quality of financial reporting. For example, it is likely that
many employees have significant funds invested in pension plans. Those pension plans are designed to
protect the financial interest of those employees in their retirement. We us the word society in the
diagram to indicate those board interest. In a similar fashion, employees and creditors have a vested
interest in the organization and how it is governed. Regulators are a response to society’s wishes to
ensure that organizations, in their pursuit of return for their owners, act responsibly and operate in
compliance with relevant laws.

While shareholders/owners delegate responsibilities to various parties within the corporation, they also
require accountability as to how well the resources that have been entrusted to management and the
board have been used. For example, the owners want accountability on such things as:

 FINANCIAL PERFORMANCE,
  FINANCIAL TRANSPARENCY- financial statements that are clear with full disclosure and that
reflect the underlying economics of the company.
 STEWARDSHIP, including how well the company protects and manages the resources entrusted
to it.
 QUALITY OF INTERNAL CONTROL
 COMPOSITION OF THE BOARD OF DIRECTORS AND THE NATURE OF ITS ACTIVITIES, including
information on how well management incentive system are aligned with the shareholders’ best
interest.

The owners want disclosures from management that are accurate and objectively verifiable. For
instances, management has a responsibility to provide financial reports, and in some cases, reports on
internal control effectiveness. Management has always and completeness of an organization’s financial
statements. From a financial reporting perspective, it is management’s responsibility to:

 Choose which accounting principles best portray the economic substance of company
transactions.
 Implement a system of internal control that assures completeness and accuracy in financial
reporting.
 Ensure that the financial statement contain accurate and complete disclosure

PARTIES INVOLVED IN CORPORATE GOVERNANCE: THEIR RESPECTIVE BROAD ROLE AND SPECIFIC
RESPONSIBILITIES

PARTIES INVOLVED:

1. Shareholders
2. Board of Directors
3. Non-Executives or Independent Directors
4. Management
5. Audit Committees of the Board Directors
6. Regulators
a) Board of Accountancy
b) Securities and Exchange Commission
7. External Auditors
8. Internal Auditors

1. SHAREHOLDERS

BROAD ROLE:

- Provide effective oversight through election of board members, approval of major initiatives
such as buying or selling stock, annual reports on management compensation, from the board.

2. BOARD OF DIRECTORS

BROAD ROLE
 - The major representative of stockholders to ensure that the organization is run according to the
organization's charter and that there is proper accountability.

SPECIFIC ACTIVITIES:

Overall Operations

- Establishing the organization's vision, mission, values and ethical standards.

- Delegating an appropriate level of authority to management.
- Demonstrating leadership.
- Assuming responsibility for the business relationship with CEO including his or her
appointment, succession, performance remuneration and dismissal.
- Overseeing aspects of the employment of the management team including management
remuneration, performance, and succession planning.
- Recommending auditors and new directors to shareholders.
- Ensuring effective communication with shareholders other stakeholders.
- Crisis management.
- Appointment of the CFO and corporate secretary.

SPECIFIC ACTIVITIES:

- Performance
- Ensuring the organization's long term viability and enhancing the financial position.
- Formulating and overseeing implementation of corporate strategy.
- Approving the plan, budget and corporate policies.
- Agreeing key performance indicators (KPls)
- Monitoring/assessing assessment, performance of the organization, the board itself,
management and major projects.
- Overseeing the risk management framework and monitoring business risks.
- Monitoring developments in the industry and the operating environment.
- Oversight of the and organization, including its control and accountability systems.
- Approving and monitoring the progress of major capital expenditure, capital management
and acquisitions and divestitures.

Compliance/Legal Conformance

- Understanding and protecting the organization's financial position.

- Requiring and monitoring legal and regulatory compliance including compliance with
accounting standards, unfair trading legislations, occupational health and safety and
environmental standards.
- Approving annual financial reports, annual reports and other public documents/sensitive
reports.
- Ensuring an effective system of internal controls exists and is operating as expected.

3. NON-EXECUTIVES OR INDEPENDENT DIRECTORS

BROAD ROLE

- The same as the broad role of the entire board of directors.

 SPECIFIC ACTIVITIES:

- To understand the organization, its business, its operating environment and its financial
position.
- To apply expertise and skills in the organization's best interests.
- To assist management to keep performance objectives at the top of its agenda.
- To understand that his/her role is not to act as auditor, nor to act as a member of the
management team.
- To respect the collective, cabinet nature of the board's decisions.
- To prepare for and attend board meetings.
- To seek information on a timely basis to ensure that he/she is in a position to contribute
to the discussion when a matter comes before the board, or alert the chairman in
advance to the need for further information in relation to a particular matter, and
- To ask appropriate questions relative to operations.

4. MANAGEMENT

BROAD ROLE

- Operations and accountability. Manage the organization effectively; provide accurate and

timely reports to shareholders and other stakeholders.

SPECIFIC ACTIVITIES:

- Recommend the strategic direction and translate the strategic plan into the operations of
the business.
- Manage the company's human, physical and financial resources to achieve the
organization's objectives — run the business.
- Assume day to day responsibility for the organization's conformance with relevant laws and
regulations and its compliance framework.
- Develop, implement, and manage the organization's risk management and internal control
frameworks.
- Develop, implement, and update policies and procedures.
- Be alert to relevant trends in the industry and the organization's operating
- environment.
- Provide information to the board.
- Act as conduit between the board and the organization.
- Developing financial and other reports that meet public, stakeholder, and regulatory
requirements.

5. AUDIT COMMITTEES OF THE BOARD DIRECTORS.

BROAD ROLE

- Provide oversight of the internal and external audit function and the process of preparing the
annual financial statements as well as public reports on internal control
SPECIFIC ACTIVITIES

- Approving any non-audit work performed by the audit firm.

- Selecting and/or approving the appointment of the Chief Audit Executive
- Selecting the external audit firm
- Reviewing and approving the scope and budget of the internal audit function
- Discussing audit findings with internal auditor and external auditor and advising the board (and
management) on specific actions that should be taken

6. REGULATORS

A. BOARD OF ACCOUNTANCY

BROAD ROLE

Set accounting and auditing standards dictating underlying financial reporting and
auditing concepts; set the expectations of audit quality and accounting quality.

SPECIFIC ACTIVITIES:

- Conducting CPALicensure Board Examinations.

- Approving accounting principles.
- Approving auditing standards
- Interpreting previously issued standards implementing quality control processes
to ensure audit quality.
- Educating members on audit and accounting requirements.

B. Securities and exchange commission

BROAD ROLE

Ensure the accuracy, timeliness, and fairness of public reporting of financial and other
information for public companies.

SPECIFIC ACTIVITIES:

- Reviewing fillings with the SEC.

- Interacting with the financial reporting standard council in setting accounting
standards.
- Specifying independence standards required of auditors that reports on public
financial statements.
- Identify corporate frauds, investigate causes, and suggest remedial actions.

7. EXTERNAL AUDITORS

BROAD ROLE

- Perform audits of company financial statements to ensure that the statements are free of
material misstatements including misstatements that may be due to fraud.

SPECIFIC ACTIVITIES:
 - Audit of public company financial statements.
- Audits of nonpublic company financial statements.
- Other services such as tax or consulting

8.INTERNAL AUDITORS.

BROAD ROLE

Perform audits of companies for compliance with company policies and laws, audits to evaluate the
efficiency of operations, and periodic evaluation and tests of controls.

SPECIFIC ACTIVITIES:

- Reporting results and analyses to management (including operational management) and

audit committees.
- Evaluating internal controls.

Chapter 3:

Securities and Exchange Commission Code of Corporate Governance

CODE OF CORPORATE GOVERNANCE FOR PUBLICLY LISTED COMPANIES

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 a 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 article and by-laws, and other legal pronouncements and guidelines should be
clearly made known to all directors as well as to stockholders 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 committee 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 perform their duties and responsibilities properly and effectively, including
sufficient time to be familiar with the corporation’s business

PRINCIPLE 5: The board should endeavor to exercise objective and independent judgement on all
corporate affairs.

PRINCIPLE 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: Members of the Board are duty-bound to apply high ethical standards, taking into account
the interest 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
auditor, and exercise effective oversight of the same to strengthen the external auditor’s independence
and enhance audit quality

PRINCIPLE 10: The company should ensure that material and reportable non-financial and sustainability
issues are disclosed.

PRINCIPLE 11: The company should maintain a comprehensive and cost-efficient 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 the 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.

CULTIVATING 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 employees’ participation should be developed to create a symbiotic
environment, realize the company’s goals and participate in its corporate governance processes.

PRINCIPLE 16: The company should be socially responsible in all its dealing with the communities where
it operates. It should ensure that its interactions serve its environment and stakeholders in a positive
and progressive manner that is fully supportive of tis comprehensive and balanced development.

INTRODUCTION

1. The code of corporate governance is intended to raise the corporate governance standards of
the Philippine corporations to a level at par with its regional and global counterparts. The latest
G20/OECD1 Principles of Corporate Governance and the association of Southeast Asian nations
corporate governance scorecard were used as key reference materials in the grafting of this
code.
 2. The code will adopt “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 comply with the
Code provisions, identify any areas of non-compliance, and explain the reasons for non-
compliance.
3. The code is arranged as follows: Principles, Recommendations, and Explanations. The Principles
can be considered as high-level statement of corporate governance good practice, and are
applicable to all companies.
4. The recommendations are objective criteria that are intended to identify 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 explain how the overall
principle is being achieved. Descriptions and explanations should be written in plain language
and in a clear, complete, objective, and precise manner, so that shareholders and other
stakeholders can assess the company’s governance framework.
5. The explanation strives to provide companies with additional information on the recommended
best practice.
This code does not, in any way, prescribe a “one size fits all” framework. It is designed to allow
boards some flexibility in establishing their corporate governance arrangements. Larger
companies and financial institutions would generally be expected to follower most of the Code’s
provisions. Smaller companies may decide that the cost of some of the provisions out benefits
or are less relevant in their case. Hence, the Principle of Proportionality is considered in the
application of its privisions.
6. The Code of Corporate Governance for publicly listed companies is the first of a series of Codes
that is intended to cover all types of corporations in the Philippines under supervision of the
SECURITIES AND EXCHANGE COMMISSION (SEC)

DEFINITION OF TERMS

CORPORATE GOVERNANCE- System of stewardship and control to guide organizations in fulfilling their
long-term economic, moral, legal, and social obligations towards their stakeholders.

- Is a system of direction, feedback and control using regulations, performance standards and
ethical guidelines to hold the BOARD and senior management accountable for ensuring ethical
behavior-reconciling long-term customer satisfaction with shareholder value- to the benefit of
all stakeholders and society.
- Its purpose is to maximize the organization’s long-term success, creating sustainable value for its
shareholders, stakeholders, and the nation

BOARD OF DIRECTORS

The governing elected by the stockholders that exercises the corporate powers of a
corporation, conducts all of its business and control its properties.

MANAGEMENT
Group of executives given the authority by the BOD 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 shareholders, 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 executive 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 corporations.

CONGLOMERATE- a group of corporations that has 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 through efficient and effective operations; reliable,
complete and timely financial and management information; and compliance with
applicable laws, regulations, and the organization’s policies and procedures.

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
party (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; the company’s directors; officers; shareholders and
related interest (DOSRI), and their close family members, as well as corresponding
persons in affiliated companies. This shall also include such other person or juridical
entity whose interest may pose a potential conflict with the interest of the
company.

RELATED PARTY TRANSCATION- a transfer of resources, services or obligations

between a reporting entity and a related party, regardless of whether a price is
charged. It should be interpreted broadly to include not only transaction that are
entered into with related parties, but also outstanding transaction that are entered
into with unrelated party that subsequently becomes a related party.

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, in general. This includes, among others, customers, creditors,
employees, suppliers, investors, as well as the government and community in which
it operates.

THE BOARD'S GOVERNANCE RESPONSIBILITIES

PRINCIPLE 1: ESTABLISHING A COMPETENT BOARD

The company should be headed by a competent, working board to foster the long-
term success of the corporation, and to sustain its competitiveness and profitability
in a manner consistent with its corporate objectives and the long-term best
interests of its shareholders and other stakeholders

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, to enable it to fulfill its roles and responsibilities and respond to the
needs of the organization based on the evolving business environment and strategic
direction.

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.

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.

RECOMMENDATION 1.4

The Board should have a policy on board diversity

RECOMMENDATION 1.5

The Board should ensure that it is assisted in its duties by a Corporate Secretary,
who should be a separate individual from the Compliance Officer. The Corporate
Secretary should not be a member of the Board of Directors and should annually
attend a training on corporate governance

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

PRINCIPLE 2: ESTABLISHING CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD

The fiduciary roles, responsibilities and accountabilities of the Board as provide under the law, the
company’s article and by-laws, and other legal pronouncements and guidelines should be clearly make
known to all, directors as well as to shareholder and other stakeholders.
RECOMMENDATION 1:

The board member should 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 elements of the fiduciary duty of board members: Duty of Care and Duty of Loyalty

RECOMMENDATION 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.

RECOMMENDATION 3: Competent and Qualified

The board should be headed by a competent and qualified chairperson.

Roles and responsibilities of the chairperson include:

 Makes certain that the meeting agenda focuses on strategic matters.

 Guarantees that the board receives accurate, timely, relevant, insightful, concise, and clear
information.
 Facilitates discussion
 Ensures that the board sufficiently challenges and inquires on reports.
 Assures the availability of proper orientation.
 Make sure that performance of the board is evaluated.

RECOMMENDATION 4:

The board should be responsible for ensuring and adopting an effective succession planning program.
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: A good succession plan is linked to the documented roles and responsibilities for each
position and should start in objectively identifying the key knowledge, skills, and abilities required for
the position.

RECOMMENDATION 5:
The board should align the remuneration of key officers and board members with the long term interest
of the company. In doing so, it should formulate and adopt a policy specifying the relationship between
remuneration and performance.

Explanation:

Key considerations in determining proper compensation:

1. The level of remuneration is commensurate to the responsibilities of the role.

2. No director should participate in deciding on his remuneration
3. Remuneration pay-out schedules should be sensitive to risk outcomes over a multi-year
horizon

RECOMMENDATION 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

Qualifications:

1. Possess the knowledge, skills, and experience

2. Integrity and repute
3. Have sufficient time to carry out their responsibilities
4. Ability to promote a smooth interaction between board members

The following may be considered as grounds for the permanent disqualification of a director:

1. Convicted by final judgement of any crime that:

- involves the purchase or sale of securities
- arises out of the fiduciary relationship with a bank
2. Any person convicted by final judgement of an offense involving fraud, theft and estafa
3. Any person who has been adjudged by final judgement to have willfully violated the violation of
any provisions of the Corporation Code, Securities Regulation Code or any other law, rule,
regulation.
4. Any person judicially declared insolvent
5. Any person found guilty by final judgement of violations or misconduct similar to any of the acts,
violations or misconduct enumerated previously
6. Convictions by final judgement of an offense punishable by imprisonment for more than six
years
7. Other grounds as the SEC may provide

Recommendation 7:

The Board should have the overall responsibility in ensuring that there is a group-wide policy and system
governing related party transactions and other unusual or infrequently occurring transactions,
particularly those which pass certain thresholds of materiality

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
 Restitution of losses and other remedies for abusive RPT's

Recommendation 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).

Fit and proper standards:

 Integrity
 Probity
 Physical and mental fitness
 Competence
 Relevant education or training
 Possession of competencies
 relevant to the job
Recommendation 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

Recommendation 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

Recommendation 11:

Risk management policy is part and parcel of 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.
The Board should oversee that a sound enterprise risk management (ERM) framework is in place to
effectively identify, monitor, assess, and manage key business risks. The risk management framework
should guide the Board in identifying units/business lines and enterprise-level risk exposures, as well as
the effectiveness of risk management strategies.

Recommendation 12: The Board should have a Board Charter that formalizes and clearly states its roles,
responsibilities and accountabilities in carrying out its fiduciary duties.

PRINCIPLE 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 part
transactions and other key corporate governance concerns, such as nomination and remuneration. The
composition, functions and responsibilities of all commitiees established should be contained in a
publicly available committee charter.

RECOMMENDATION 3. 1

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

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 law 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. all the members of the committee must have relevant background, knowledge, skills,
and/or experience in the areas of accounting, auditing, and finance. The chairman of the audit
committee should not be the chairman of the board or of any other committees.

Explanation: The audit committee is responsible for overseeing the senior management in establishing
and maintaining an adequate, 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.

RECOMMENDATION 3.3

The board should establish a corporate governance committee that should be tasked to assit the board
in the performance of its corporate governance responsibilities, including the functions that were
formerly assigned to a nomination and renumeration committee. It should be composed of a least three
members, all of whom should be independent directors, including the chairman

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 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

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 transaction committee, which should be tasked with reviewing all material related party
transaction of the company and should be composed of at least three non-executive directors, two of
whom should be independent, including the chairman.

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 charter should provide the standards for evaluating the performance of the
committees. It should also be fully disclosed on the company’s website.

4.FOSTERING COMMITMENT

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.

RECOMMENDATION 4.1

The Directors should attend and actively participate in all meetings of the Board, Committees, and
Shareholders in person or Through tele/videoconferencing.

EXPLANATION:

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

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.

Multiple Board Seats

 Five publicly listed companies

 Ten public companies, and/or registered users, or
 Five public companies and/or registered users if the director also sits in at least three publicly
listed companies

RECOMMENDATION 4.3
A Director should notify the Board where he/she is an incumbent Director before accepting directorship
in another company

5. REINFORCING BOARD INDEPENDENCE

The board should endeavor to exercise and objective and independent judgement to all corporation
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.

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.

RECOMMENDATION 5.3

The Board’s independent directors should serve for a maximum cumulative term of nine (9) 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 an independent director who has served for nine
years, the Board should provide meritorious justification/s and seek shareholders’ approval
during the annual shareholders’ meeting.

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.

RECOMMENDATION 5.5

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

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.

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
6. ASSESING BOARD PERFORMANCE

PRINCIPLE:

The best measure of the board’s effectiveness is through an assessment process. The board should
regularly carry out evaluation to appraise its performance as a body, and assess whether it possess
the right mix of background 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 committee. Every three years, the assessment should be
supported by an external facilitator.

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.

7. STRENGTHENING BOARD ETHICS

Principle:

Members of the board are duty-bound to apply high ethical standards, taking into account the
interest 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 properly disseminated to be board,
senior management and employees. It should also be disclosed and made available to the public
through the company website.

RECOMMENDATION 7.2

The board should ensure the proper and efficient implementation and monitoring of compliance
with code of business conduct and ethics and internal policies

DISCLOSURE AND TRANSPARENCY

8. ENHANCING COMPANY DISCLOSURE POLICIES AND PROCEDURES

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

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

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.

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.

RECOMMENDATION 8.5

THE COMPANY SHOULD DISCLOSE ITS POLICIES GOVERNING RELATED PARTY TRANSACTIONS (RPTS)
AND OTHER UNUSUAL OR INFREQUENTLY OCCURRING TRANSACTIONS IN THEIR MANUAL ON
CORPORATE GOVERNANCE. THE MATERIAL OR SIGNIFICANT RPTS REVIEWED AND APPROVED DURING
THE YEAR SHOULD BE DISCLOSED IN ITS ANNUAL CORPORATE GOVERNANCE REPORT.

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 OFFEREE COMPANY
SHOULD APPOINT AN INDEPENDENT PARTY TO EVALUATE THE FAIRNESS OF THE TRANSACTION PRICE
ON THE ACQUISITION OR DISPOSAL OF ASSETS.

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

9. STRENGTHENING THE EXTERNAL AUDITOR’S INDEPENDENCE AND IMPROVING AUDIT

QUALITY

The company should establish standards for 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.

For removal of the external auditor, the reasons for removal or change should be disclosed to the
regulators and the public through the company website and required disclosures.

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.

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

Disclosure and transparency

Principle 10

Increasing focus on non-financial and sustainability reporting

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

Principle 11

Promoting a comprehensive and cost-efficient access to relevant information

- The company should maintain a comprehensive and cost-efficient 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

Strengthening the internal control system and enterprise risk management framework

- To ensure the 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.
Recommendation 12. 1

- The company should have an adequate and effective internal control system framework in the
conduct of its business, taking into account its size, risk profile and complexity of operations.

Recommendation 12.2

- The company should have in place an independent internal audit function that provides an
independent and objective assurance, and consulting services designed to add value and
improve the company’s operations

Recommendation 12. 3

- Subject to a company’s size, risk profile and complexity of operations, it should have an
qualified Chief Audit Executive (CAE) appointed by the Board. The CAE shall oversee and be
responsible for the internal audit activity of the organization, including that portion that is
outsourced to a third party service provider. In case of a fully outsourced internal audit activity,
a qualified independent executive or senior management independent executive or senior
management personnel should be assigned the responsibility for managing the fully outsourced
internal audit activity.

Recommendation 12. 4

- Subject to its size, risk profile and complexity of operations, the company should have a
separate risk management functions to identify, asses and monitor key risk exposures.

Recommendations 12. 5

- In managing the company’s Risk Management System, the company should have a Chief Risk
Officer (CRO), who is the ultimate champion of Enterprise Risk Management (ERM) and has
adequate authority, stature, resources and support to fulfill his/her responsibilities, subject to a
company’s size, risk profile and complexity of operations.

Cultivating a synergic relationship with shareholders

Principle 13

Promoting shareholders rights

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

RECOMMENDATION 13.1

- The Board should ensure that basic shareholders rights are disclosed in
the Manual on Corporate Governance and on the company's website.

RECOMMENDATION 13.2

- The Board should encourage active shareholder participation by sending the notice of
Annual and Special Shareholders' Meeting with sufficient and relevant information at
least 28 days before the meeting.
 RECOMMENDATION 13.3

- The Board should encourage active shareholder participation by making the result of
the votes taken during the most recent Annual or Special Shareholders' Meeting
publicly available the next working day. In addition, the Minutes of the Annual and
Special Shareholders' Meeting should be available on the company website within five
business days from the end of the meeting.

RECOMMENDATION 13.4
- The Board should make available, at the option of a shareholder, an alternative dispute
mechanism to resolve intra-corporate disputes in an amicable and effective manner.
This should be included in the company's Manual on Corporate Governance
RECOMMENDATION 13.5
- The Board should establish an Investor Relations Office (IRO) to ensure constant engagement
with its shareholders. The IRO should be present at every shareholders' meeting
DUTIES TO STAKEHOLDER

PRINCIPLE 14

RESPECTING RIGHTS OF STAKEHOLDERS AND EFFECTIVE REDRESS FOR VIOLATION OF STAKEHOLDER'S

RIGHTS

- 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

RECOMMENDATION 14.1

- The Board should identify the company's various stakeholders and promote cooperation
between them and the company in creating wealth, growth, and sustainability.

RECOMMENDATION 14.2

- The Board should establish clear policies and programs to provide a mechanism on the fair
treatment and protection of stakeholders

RECOMMENDATION 14.3

- The Board should adopt a transparent framework and process that allow stakeholders to
communicate with the company and to obtain redress for the violation of their rights.

PRINCIPLE 15

ENCOURAGING EMPLOYEES' PARTICIPATION

 - A MECHANISM FOR EMPLOYEE PARTICIPATION SHOULD BE DEVELOPED TO CREATE A
SYMBIOTIC ENVIRONMENT, REALIZE THE COMPANY'S GOALS AND PARTICIPATE IN ITS
CORPORATE GOVERNANCE PROCESSES

Recommendation 15.1

- The board should establish policies, programs and procedures that encourage employees to
actively participate in the realization of the company’s goals and in its governance

Recommendation 15.2

- The board should set the tone and make a stand against corrupt practices by adopting an anti-
corrupting policy and programs in its code of conduct, Further, the board should dessiminate
the policy and programs to employees across the organization through trainings to embed them
in the company’s culture.

Recommendation 15.3

- The board should establish a suitable framework for whistle-blowing about illegal or unethical
practices, without fear of retaliation and to have direct access to an independent member of the
board or a unit created to handle whistleblowing concerns. The board should be conscientious
in establishing the framework, as well as in supervising and ensuring its enforcement.

PRINCIPLE 16

ENCOURAGING SUSTAINABILITY AND SOCIAL RESPONSIBILITY

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

Recommendation 16.1

- The company should recognize and place an importance on the interdependence between
business and society, and promote a mutually beneficial relationship that allows the company
to grow its business, while contributing to the advancement of the society where it operates.

INTRODUCTION TO ETHICS

Ethics can be defined broadly as a set of moral principles or values that govern the actions and decisions
of an individual or group. While personal ethics vary from individual to individual at any point in time,
most people within a society are able to agree about what is considered ethical and unethical behavior.
In fact, a society passes laws that define what its citizens consider to be the more extreme forms of
unethical behavior.

Each of us has such a set of values, although we may or may not have considered them explicitly.
Philosophers, religious organizations, and other groups have defined in various ways ideal sets of moral
principles or values.

Ethics is a topic that is receiving a great deal of attention throughout our society today.
CHARACTERISTICS AND VALUES ASSOCIATED WITH ETHICAL BEHAVIOR

The following list of ethical principles incorporates the characteristics and values that most people
associate with ethical behavior.

1.Integrity

- Be principled, honorable, upright, courageous, and act on convictions: do not be twofaced or

unscrupulous, or adopt and end-justices-the means philosophy that ignores principle

2.Honesty

- Be truthful, sincere, forthright, straightforward, frank, candid; do not cheat, steal, lie, deceive or act
deviously.

3.Trustworthiness and Promise Keeping

- be worthy of trust, keep promises, full commitments, abide by the spirit as weel as the letter of an
agreement; do not interpret agreements in in an unreasonably technical or legalistic manner in order to
rationalize noncompliance or create excuses and justification for breaking commitments.

4.Loyalty (Fidelity) and Confidentiality

- Be faithful and loyal to family, friends, employers, client and country; do not use or disclose
information learned in confidence; in a professional context; safeguard the influences and conflict of
interest

5.Fairness and Openness

- Be fair and open-minded, be willing to admit error and, where appropriate, change positions and
beliefs, demonstrate a commitment to justice, the equal treatment of individuals, and tolerance for
acceptance of diversity; do not overreach or take advantage of another’s mistakes or diversities.

6.Caring for Others

- Be caring, kind and compassionate; share, be giving, be of service to other; help those in need and
avoid harming others.

7.Respect for Others

- Demonstrate respect for human dignity, privacy and the right to self-determination of all people; be
courteous, prompt, and decent; provide others with the information they need to make informed
decisions about their own lives; do not patronize, embarrass, or demean.

8.Responsible Citizenship

- Obey just laws; if all unjust, openly protest it; exercise all democratic rights and privileged responsibly
by participation (voting and expressing informed views), social consciousness, and public service; when
in a position of leadership or authority, open respect and honor democratic processes of decision
making, avoid unnecessary secrecy or concealment of information, and assure that others have all the
information they need to make intelligent choices and exercise their rights.
9.Pursuit of Excellence

- Pursue excellence in all matters; in meeting your personal and professional responsibilities, be diligent,
reliable, industrious, and committed; perform all tasks to be best of your ability, develop and maintain a
high degree of competence, be well informed and well prepared; do not be content with mediocrity; do
not “win at any cost”.

10.Accountability

- Be accountable, accept responsibility for decisions, for the foreseeable consequences of actions and
inactions, and for setting an example of others. Parents, teachers, employers, many professional and
public officials have a special obligation to lead by example, to safeguard and advance the integrity and
reputation of their families, companies, professions and the government itself; an ethically sensitive
individual avoids even the appearance of impropriety, and takes whatever actions are necessary to
correct or prevent inappropriate conduct of others.

WHY IS ETHICAL BEHAVIOR NECESSARY?

 Ethical behavior is necessary for a society to function in an orderly manner. It can be argued that
ethics is the glue that holds a society together.
 The need for ethics in society is sufficiently important that many commonly held ethical values
are incorporated into laws.
 A considerable portion of the ethical values of a society cannot be incorporated into laws
because of the judgmental nature of certain values.
 Business decisions influence employees, customers, suppliers, and competitors, while company
operations affect communities, governments, and the environment.

WHY DO PEOPLE ACT UNETHICALLY?

There are two primary reasons why people act unethically:

1. Person's Ethical Standards differ from General Society

These things happen when people's behavior violates almost everyone's ethical standards. It's examples
are robbers, drug dealers, and larcenists who feels no remorse when they are apprehended for their
actions, as their ethical standards differ from those society as a whole.

2. The Person Chooses to Act Selfishly

A considerable portion of unethical behavior results from selfish behavior. Cheating on tax returns and
expense report motivated by financial greed: and performing below one's competence and cheating on
tests which is done by students due to laziness are typical example of selfish behavior.

CATEGORIES OF ETHICAL PRINCIPLES

Principles of Personal Ethics include among others:

 Basic justice, fairness

 Respect for the right of others
 Concern for the right of others
  Concern for the well-being on welfare of others
 Benevolence, trustworthiness, honesty
 Compliance with the law

Professional Ethics include among others:

 Integrity, impartiality, objectivity

 Professional competence
 Confidentiality
 Professional behavior
 Avoidance of potential or apparent conflict of interest

Business Ethics include among others:

 Fair competition
 Global as well as domestic justice
 Social responsibility
 Concern for environment

THE NEED FOR PROFESSIONAL ETHICS

All recognized professions have several common characteristics:

a) responsibility to serve the public

b) a complex body of knowledge
c) standards of admission to the profession
d) a need for public confidence

CODE OF GOOD GOVERNANCE FOR THE PROFESSION IN THE PHILIPPINES (E.O.NP.220, JUNE 23,2003)

This CODE IS ADOPTED BY THE PROFESSIONAL REGULATION COMMISION (PRC) and the 42 professional
regulatory board to cover an environment of good governance in which all Filipino professionals shall
perform their tasks. While each profession may adopt and enforce its own code of good governance and
code of ethics, it is generally recognized that there is a general commonality among the various codes.
This code which covers the common principles underlying the codes of various professions could be
used by all professionals who face critical ethical questions in their work.

GENERAL PRINCIPLE OF PROFESSIONAL CONDUCT

Professionals are required not only to have an ethical commitment, a personal resolve to act ethically,
but also have both ethical awareness and ethical competency. Ethical awareness refers to the ability to
discern between right and wrong, while ethical competency pertains to the ability to engage in sound
moral reasoning and carefully consider the implication of alternative actions.

Specific Principle of Professional Conduct

1. service to others
2. Integrity and Objectivity
3. Professional Competence
4. Solidarity and Teamwork
 5. Social and Civic Responsibility
6. Global Competitiveness
7. Equality of All Professions

SERVICE TO OTHERSres

- Professional are committed to a life of service to others. They protect life, property and public
welfare. To serve other, they shall be prepared for heroic sacrifice and genuine selflessness in
carrying out their professional duties even at the expense of personal gain.

INTEGRITY AND OBJECTIVITY

- To maintain and broaden public confidence, professional shall perform their responsibility with
the highest sense of integrity and imbued with nationalism and spiritual values. In the
performance of any professional service, they shall at all times, main objectivity, be free of
conflict of interest, and refrain from engaging in any activity that would prejudice their abilities
to carry out their duties ethically. They shall avoid making any representation that would likely
cause a reasonable person to misunderstand or to be deceived.

PROFESSIONAL COMPETENCE

- In providing professional services, a certain level of competence is necessary. i.e. knowledge,

technical skills, attitudes and experiences. Professional shall, therefore, undertake only those
professional services that they can reasonably deliver with professional competence. Corollary
to this, it is their express obligation to keep up with new knowledge and technique in their field,
continually improve their skills and upgrade their level of competence and take part in a life long
continuing education program.

SOLIDARITY AND TEAMWORK

- Each profession shall nurture and support one organization for all its members. Though a deep
spirit of solidarity, each member should put the broader interest of the profession above one’s
personal ambition and preference. Through teamwork with a cohesive professional
organization, each member shall effectively observe ethical practices and pursue continuing
professional development as well as deepen one’s social and civic responsibility,

SOCIAL AND CIVIC RESPONSIBILITY

- Professional shall always carry out their professional duties with due consideration of the
broader interest of the public . They shall, therefore, serve their clients/employers and the
publics with professional concern and in a manner consistent with their responsibilities to
society. As responsible Filipino citizens, they shall actively contribute to the attainment of the
country’s national objectives.

GLOBAL COMPETITIVENESS

- Every professional shall remain open to challenges of a more dynamic interconnected world. He or
she shall rise to global standard and maintain levels of professional practices full aligned with global
best practices.
EQUALITY OF ALL PROFESSIONS

- All professionals shall treat their colleagues with respect and shall strive to be fair in their
dealing with one another. No one group with professionals is superior or above others. All
professionals perform an equally important, yet distinct, service to society. In the eyes of the
PRC, all professions are equal and, therefore, everyone shall treat other professional with
respect and fairness.