Corporate

Governance
Board’s Role
in Corporate
Governance
 Board’s Composition and
Qualification
• Must be an owner of at least one share.
• Convicted by final judgment of any of the following:
A. An offense punishable by imprisonment for a period
exceeding six years.
B. Violating the corporation code.
C. Violating the Securities and Regulation Code
D. Found administratively liable for any offense involving
fraudulent acts; and
E. By a foreign court or equivalent foreign regulatory
authority for acts, violations or misconduct similar to
those enumerated above.
• Any other qualifications that the incorporators may include
in the By-laws.
 Independent Director
• An independent director is a person who, apart from
shareholdings and fees received from the corporation, is
independent of management and free from any business or
other relationship which could, or could reasonably be perceived
to materially interfere with the exercise of independent judgment
in carrying out the responsibilities as a director.
• Necessary when the corporation is any of the following:
• Publicly listed corporation
• Banks and quasi-banks, NSSLAs, pawnshops, corporations
engaged in money service business, pre-need, trust and
insurance companies, and other financial intermediaries
• Other corporations engaged in business vested with public
interest similar to the above, as may be determined by the
Commission.
 Independent Director
• Qualification:
• He shall have at least one (1) share of stock of the
corporation;
• He shall be at least a college graduate or he shall have
been engaged or exposed to the business of the
corporation for at least five (5) years;
• He shall possess integrity/probity; and
• He shall be assiduous.
 Term
• Directors shall be elected for a term of one (1) year from
among the holders of stocks registered in the
corporation’s books, while trustees shall be elected for a
term not exceeding three (3) years from among the
members of the corporation.
• Each director and trustee shall hold office until the
successor is elected and qualified.
• A director who ceases to own at least one (1) share of
stock or a trustee who ceases to be a member of the
corporation shall cease to be such.
 Compensation
• In the absence of any provision in the bylaws fixing their
compensation, the directors or trustees shall not receive
any compensation in their capacity as such, except for
reasonable per diems.

• However, the stockholders representing at least a

majority of the outstanding capital stock or majority of the
members may grant directors or trustees with
compensation and approve the amount thereof at a
regular or special meeting.
 Board Responsibilities
• Provide Oversight • Establish and Maintain
• Establish an Appropriate an Appropriate Board
Corporate Culture Structure
• Comply With Fiduciary • Perform Board Self-
Duties and the Law Assessments
• Select, Retain, and • Oversee Financial
Oversee Management Performance and Risk-
• Oversee Compensation Reporting
and Benefits • Support Efforts to Serve
Arrangements Community Credit
• Maintain Appropriate Needs
Affiliate and Holding
Company Relationships
 Underlying Concepts of
Corporate Governance
• Fairness • Reputation
• Openness/transpar • Judgment
ency • Integrity
• Innovation
• Skepticism
• Independence
• Probity/honesty
• Responsibility
• Accountability
 Committees
• Audit Committees - are responsible for monitoring the
financial policies and procedures of the organization.
• Compensation committees - are responsible for setting
the compensation for the CEO and other senior
executives.
• Corporate Governance Committee - Monitors the ethical
performance of the corporation. Oversees compliance
with the company’s internal code of ethics as well as any
regulations on corporate conduct.
The AUDIT COMMITTEE
• An audit committee is one of the major operating
committees of a company's board of directors that is in
charge of overseeing financial reporting and disclosure.
• The primary purpose of a company’s audit committee is
to provide oversight of the financial reporting process,
the audit process, the company’s system of internal
controls and compliance with laws and regulations.
The AUDIT COMMITTEE
• The audit committee can expect to review significant
accounting and reporting issues and recent professional
and regulatory pronouncements to understand the
potential impact on financial statements. An
understanding of how management develops internal interim
financial information is necessary to assess whether reports
are complete and accurate.
• The committee reviews the results of an audit with
management and external auditors, including matters
required to be communicated to the committee under
generally accepted auditing standards. Controls over
financial reporting, information technology security and
operational matters fall under the purview of the committee.
Core Elements of the OECD Principles
n Chapter I: Ensuring the basis for an effective corporate
governance framework
– The corporate governance framework should promote transparent and
efficient markets, be consistent with the rule of law and clearly articulate the
division of responsibilities among different supervisory, regulatory and
enforcement authorities
n Chapter II: Basic rights of shareholders and key ownership
functions
– The corporate governance framework should protect and facilitate the
exercise of shareholders’ rights
n Chapter III: Equitable treatment of shareholders
– The corporate governance framework should ensure the equitable treatment
of all shareholders, including minority and foreign shareholders. All
shareholders should have the opportunity to obtain effective redress for
violation of their rights.

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 The OECD Principles (continued)
n Chapter IV: Role of stakeholders in corporate governance
– The corporate governance framework should recognise the rights of
stakeholders established by law or through mutual agreements and
encourage active co-operation between corporations and stakeholders in
creating wealth, jobs, and the sustainability of financially sound enterprises.
n Chapter V: Disclosure and transparency
– The corporate governance framework should ensure that timely and
accurate disclosure is made on all material matters regarding the
corporation, including the financial situation, performance, ownership, and
governance of the company.
n Chapter VI: Board responsibilities
– The corporate governance framework should ensure the strategic guidance
of the company, the effective monitoring of management by the board, and
the board’s accountability to the company and the shareholders.

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 What is special about the OECD
Principles and Methodology?
n Emphasise “functional equivalence” - the means used to achieve
the desired outcomes might vary, depending on:
– Legal and institutional frameworks
– Economic conditions & market structures
– Political and socio-cultural environment
n Therefore, the Principles can be applied in any jurisdiction
n Effect on overall economic performance, market integrity and
incentives for market participants to be considered
n Assessments require an evaluation of:
– Scope and content of laws, regulations & voluntary codes
– Company practices – how widespread is adherence to Principles?
– Accessibility and effectiveness of remedies
– Efficiency & effectiveness of regulatory supervision & enforcement

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