Legal Aspects of Corporate Governance for Publicly Listed Companies

Corporate governance refers to the systems, principles, and processes by which companies are directed and controlled. In the Philippines, corporate governance for publicly listed companies is regulated by various laws, rules, and guidelines to ensure accountability, transparency, and fairness in business operations. Here’s a comprehensive guide on the legal aspects of corporate governance for publicly listed companies in the Philippines.

Key Legal Framework

  1. Revised Corporation Code of the Philippines (Republic Act No. 11232)

    • The primary law governing the formation, management, and dissolution of corporations in the Philippines.
  2. Securities Regulation Code (Republic Act No. 8799)

    • Regulates the securities market and protects investors through comprehensive disclosure requirements.
  3. Code of Corporate Governance for Publicly Listed Companies

    • Issued by the Securities and Exchange Commission (SEC) to establish the principles and best practices of corporate governance for publicly listed companies.
  4. Philippine Stock Exchange (PSE) Listing Rules

    • Provides additional requirements and guidelines for companies listed on the Philippine Stock Exchange.

Key Principles and Requirements

  1. Board of Directors

1.1 Composition and Structure

  • Independent Directors: At least one-third of the board must be independent directors to ensure objectivity.
  • Qualifications: Directors must have the necessary skills, competence, and integrity.

1.2 Duties and Responsibilities

  • Fiduciary Duties: Directors must act in the best interests of the company and its shareholders.
  • Oversight: The board oversees the management, financial reporting, internal controls, and risk management processes.

1.3 Board Committees

  • Audit Committee: Ensures the integrity of financial reports, compliance with legal and regulatory requirements, and the effectiveness of internal controls.
  • Corporate Governance Committee: Oversees corporate governance practices and ensures compliance with governance policies.
  • Risk Management Committee: Identifies and manages risks affecting the company.
  1. Shareholder Rights and Protection

2.1 Shareholder Meetings

  • Annual General Meeting (AGM): Must be held annually to discuss company performance, elect directors, and address shareholder concerns.
  • Notice and Agenda: Shareholders must receive timely notice of meetings and a clear agenda.

2.2 Voting Rights

  • Proxy Voting: Shareholders can vote by proxy if they cannot attend meetings in person.
  • Cumulative Voting: Allows minority shareholders to elect directors by cumulating their votes.

2.3 Dividend Policy

  • Transparency: Clear policies on dividend distribution must be disclosed to shareholders.
  1. Disclosure and Transparency

3.1 Financial Reporting

  • Annual Report: Companies must publish an annual report with audited financial statements and a comprehensive review of operations.
  • Quarterly Reports: Timely disclosure of financial performance on a quarterly basis.

3.2 Material Information Disclosure

  • Timely Disclosure: Any material events or changes that could affect the company’s stock price must be disclosed promptly.
  • Insider Trading: Prohibition on insider trading and strict rules on disclosure of insider transactions.
  1. Risk Management and Internal Controls

4.1 Risk Management Framework

  • Identification and Assessment: Regular identification and assessment of risks affecting the company.
  • Mitigation Strategies: Implementation of strategies to mitigate identified risks.

4.2 Internal Audit

  • Independence: The internal audit function must be independent and report directly to the Audit Committee.
  • Effectiveness: Regular reviews of internal controls and processes to ensure effectiveness.
  1. Ethics and Corporate Responsibility

5.1 Code of Ethics

  • Adoption: Companies must adopt a code of ethics outlining the standards of conduct for directors, officers, and employees.
  • Implementation: Ensure the code of ethics is communicated and enforced throughout the organization.

5.2 Corporate Social Responsibility (CSR)

  • Programs and Initiatives: Companies should engage in CSR activities that contribute to societal goals and community development.

Compliance and Best Practices

  1. Regular Training and Development

    • Board Training: Provide continuous training for board members on corporate governance, risk management, and industry trends.
    • Employee Training: Regular training for employees on ethics, compliance, and internal controls.
  2. Performance Evaluation

    • Board Evaluation: Conduct regular evaluations of the board’s performance and effectiveness.
    • Executive Compensation: Link executive compensation to performance and long-term company goals.
  3. Stakeholder Engagement

    • Communication: Maintain open lines of communication with shareholders, employees, customers, and other stakeholders.
    • Feedback Mechanisms: Implement mechanisms to gather and address stakeholder feedback.
  4. Audit and Compliance

    • External Audit: Engage independent external auditors to review financial statements and compliance with accounting standards.
    • Compliance Programs: Develop and implement compliance programs to ensure adherence to legal and regulatory requirements.
  5. Continuous Improvement

    • Benchmarking: Benchmark corporate governance practices against industry standards and best practices.
    • Review and Update Policies: Regularly review and update governance policies to reflect changes in laws, regulations, and industry practices.

Conclusion

Effective corporate governance is essential for the sustainability and success of publicly listed companies in the Philippines. By adhering to legal requirements, fostering transparency, protecting shareholder rights, and implementing best practices, companies can enhance their governance framework and build trust with stakeholders.

Navigating the business landscape in the Philippines can be both rewarding and intricate. Whether you’re embarking on a new venture or scaling up, ensuring that your corporate endeavors are in line with local regulations is paramount.

At CBOS Business Solutions Inc., we pride ourselves on simplifying these processes for our clients. As a seasoned professional services company, we offer comprehensive assistance with SEC Registration, Visa processing, and a myriad of other essential business requirements. Our team of experts is dedicated to ensuring that your business is compliant, well-established, and ready to thrive in the Philippine market.

Why venture into the complexities of business registration and compliance alone? Allow our team to guide you every step of the way. After all, your success is our commitment.

Get in touch today and let us be your partner in achieving your business goals in the Philippines.

Email Address: gerald.bernardo@cbos.com.ph

Mobile No.: +639270032851

You can also click this link to schedule a meeting.


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