Internal Audit

Case Study: Victorias Milling Company, Inc. Part 3 of 3

1. What elements in the scope and limits of good corporate governance

is are shown in the VMCI case as exemplary or wanting?

The VMC Board of Directors, Management, staff and shareholders believe that good
corporate governance is an integral part of what constitutes sound strategic
management. They shall undertake every effort necessary to create awareness and
compliance with the same.

Accountability
VMCI is accountable to those who will be affected by its decisions or actions as well
as the applicable rules of law. When VMCI are failing to perform their obligations to
creditors, they seek support from the SEC to undergone rehabilitation to rebuild
their reputation and stability.

Responsiveness
Good governance requires that organizations and their processes are designed to
serve the best interests of stakeholders within a reasonable timeframe. As an
organization, VMCI also remains mindful of key risk areas and performance
indicators to anticipate and prepare for possible threats to its stability and success.

Consensus Oriented
Good governance requires consultation to understand the different interests of
stakeholders in order to reach a broad consensus of what is in the best interest of
the entire stakeholder and how this can be achieved in a sustainable and prudent
manner. After mulling over the request of VMCI for the creation of a provisional
management body, the SEC approved the creation of MANCOM that would tasked to
pull VMCI out of its financial woes.

Effectiveness and Efficiency

VMCI Good governance implemented by the organization to produce favorable
results meet the needs of its stakeholders, while making the best use of resources –
human, technological, financial, natural and environmental. VMCI still continued to
improve even with the sharp cut in its workforce. Labor force was pruned to 1637
from 1700, This only represents 38% of the original 51% retrenchment program in
the first rehabilitation plan

Transparency

The VMCI Director’s office is built upon trust and confidence—as such, his actions
are guided by transparency, accountability, and fairness. The Board, on the other
hand, is committed to fully disclose material information at all times, including any
information that could potentially affect share prices, financial viability, or the
interest of the company stockholders. The Board likewise affirms its commitment to
conduct itself with honesty and integrity to ensure consistent best practice in all its
undertakings on behalf of the Company.
A big part of this effort involves keeping its stockholders and stakeholders informed
of important developments to empower them to make sound decisions on matters
that require their attention. As an organization, VMC also remains mindful of key
risk areas and performance indicators to anticipate and prepare for possible threats
to its stability and success.

Equity and Inclusiveness

The organization that provides the opportunity for its stakeholders to maintain,
enhance, or generally improve their well-being provides the most compelling
message regarding its reason for existence and value to society. The board of
directors of Victorias Milling Corp. has conferred upon bilyonaryo Lucio Tan Sr. the
role of chairman emiritus in recognition of his invaluable contribution to the
country’s leading sugar producer. As an expression of gratitude and appreciation,
VMC deemed it appropriate to acknowledge his invaluable and enduring assistance
during a critical period in VMC’s history by conferring upon him the said title

Participation
Continuing a responsible relationship with investors. As a company committed to
sustaining profitability, focus, and a healthy level of competitiveness, VMC is
determined to push its objectives in a manner consistent with its corporate codes
and policies.

2. What are the checks to strengthen internal system of control?

When it comes to complying with principles of good corporate governance, the

responsibility begins with and primarily rests in the hands of the Board of Directors
and Management of Victorias Milling Company, Inc. (VMC)

Compliance with the principles of good corporate governance shall start with, and is
primarily the responsibility of the Board. It shall be the Board’s responsibility to
foster the long-term success of the Corporation and secure its sustained
competitiveness in a manner consistent with its fiduciary responsibility, which it
shall exercise in the best interest of the Corporation, its shareholders and other
stakeholders. The Board shall conduct itself with utmost honesty and integrity in the
discharge of its duties, functions and responsibilities

 Establish a formal and transparent board nomination and election

policy that includes the manner of accepting nominations from minority
shareholders
and of reviewing nominated candidates. It should also include an assessment of the
effectiveness of the Board’s processes and procedures in the nomination, election,
or replacement of a director;
  Oversee the development of, and approve, the Corporation’s business
objectives and strategy, and monitor their implementation, in order to sustain the
Corporation’s long-term viability and strength. The Board should review and guide
corporate strategy, major plans of action, risk management policies and
procedures,
annual budgets and business plans; set performance objectives; monitor
implementation and corporate performance; and oversee major capital
expenditures,
acquisitions and divestitures;

 Ensure the Corporation’s faithful compliance with all applicable

laws, regulations and best business practices;

 Establish an IRO to ensure constant engagement with its shareholders,

and designate an Investor Relations Officer;

 Establish corporate disclosure policies and procedures to ensure a

comprehensive, accurate, reliable and timely report to shareholders and other
stakeholders that comply with the disclosure requirement in Rule 68 of the SRC,
Philippines Stock Exchange Listing and Disclosure Rules, and other regulations such
as those required by the BSP;

 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;

 Identify the Corporation’s stakeholders in the community in which it

operates or is directly affected by its operations, and promote cooperation between
them and the Corporation in creating wealth, growth and sustainability;

 Orientation and Training

To promote effective Board performance and continuing qualification of directors in
carrying out their duties and responsibilities, an orientation program for first-time
directors, and an annual continuing training for all directors, are hereby established.
To assist the directors in this regard, a copy of the Corporation’s corporate
documents and manuals shall be distributed; this includes, but is not limited to, the
Corporation’s Articles of Incorporation, By-Laws, Code of Business and Ethics, and
this Manual.
Orientation Program for first-time Directors First-time
directors are required to complete the mandatory eight (8)-hour orientation
program.
Training Program for all Directors
All other directors are required to undergo the mandatory four (4)-hour training
program, except when such director is a former director and/or officer of the
Corporation. It covers the developments in the business and regulatory
environments, including emerging risks relevant to the Corporation; and corporate
governance matters likewise relevant to the Corporation, including audit, internal
controls, risk management, sustainability and strategy.
  Duties and Functions
To ensure a high standard of best practice for the Corporation and its stockholders
and other stakeholders, the Board should show full commitment, and conduct itself
with honesty and integrity in the performance of, among others, the following duties
and functions

What OECD principles can concretely guide such strengthening?

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.
The rights of shareholders and key ownership functions
The corporate governance framework should protect and facilitate the exercise of
shareholders’ rights.

The responsibilities of the board

It shall be the Board’s responsibility to foster the long-term success of the
Corporation and secure its sustained competitiveness in a manner consistent with
its fiduciary responsibility, which it shall exercise in the best interest of the
Corporation, its shareholders and other stakeholders. The Board shall conduct itself
with utmost honesty and integrity in the discharge of its duties, functions and
responsibilities.