Draft Corporate Governance (CG) Module for the SEC Certification Examination

January 31, 2019 ECONOMIC RESEARCH AND TRAINING DEPARTMENT TO : All Capital Market Participants/Professionals and Other Interested Parties SUBJECT : Draft Corporate Governance (CG) Module for the SEC Certification Examination NOTICE The Commission invites the stakeholders and interested parties to provide comments on the attached draft Corporate Governance (CG) Module for the SEC Certification Examination. This will serve as a study material for prospective capital market professionals who will take Phase 1 of the SEC Certification Examination. Comments on the said draft may be submitted through email to Ms. Rosemarie O. Aguilar ( [emailprotected] ) of the Economic Research and Training Department until 22 February 2019 . Issued on January 31, 2019. ATTACHMENT Corporate Governance Course Syllabus I. INTRODUCTION Definition of Corporate Governance What is corporate governance? The system of stewardship and control to guide organizations in fulfilling their long-term economic, moral, legal and social obligations towards their stakeholders. Corporate governance 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. AaCTcI Why is corporate governance important? Past global financial crises can be attributed to weak corporate governance, particularly the lack of transparency in corporate dealings and the lack of accountability of directors and key officers. As such, putting in place a strong corporate governance culture in companies would help to create an environment of trust, transparency, accountability and inclusiveness that is necessary for the long-term success and sustainability of the corporation. Four Core Principles of Corporate Governance What are the core principles of corporate governance? 1 Fairness All shareholders should receive equal consideration by the directors and management with a sense of justice and avoidance of bias or vested interests. Responsibility Directors should carry out their duties with honesty, probity, and integrity. Accountability Directors should be held accountable for their decisions and account to shareholders by submitting themselves to appropriate scrutiny. Transparency Directors must make clear to the providers of capital and other key stakeholders why every material decision was made. Comply or Explain Approach What is the "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. Principle of Proportionality The Principle of Proportionality is considered in the application of corporate governance. What does this mean? It means that boards or companies are allowed flexibility in establishing their corporate governance arrangements. Larger companies and financial institutions would generally be expected to follow most of the Code's provisions. Smaller companies may decide that the costs of some of the provisions outweigh the benefits, or are less relevant in their case. Corporate Governance Framework/Standards OECD Principle What is the G20/OECD Principles of Corporate Governance? The G20/OECD Principles of Corporate Governance provide a globally recognized benchmark for good corporate governance that would help to build an environment of trust, transparency and accountability necessary for fostering long-term investment, financial stability and business integrity. The Principles identify the building blocks for a sound corporate governance framework and offer practical guidance for implementation at a national level. EcTCAD What are the G20/OECD Principles of Corporate Governance? Ensuring the basis for an effective corporate governance framework The corporate governance framework should promote transparent and fair markets, and the efficient allocation of resources. It should be consistent with the rule of law and support effective supervision and enforcement. The rights and equitable treatment of shareholders and key ownership functions The corporate governance framework should protect and facilitate the exercise of shareholders' rights and 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. Institutional investors, stock markets, and other intermediaries The corporate governance framework should provide sound incentives throughout the investment chain and provide for stock markets to function in any way that contributes to good corporate governance. The role of stakeholders in corporate governance The corporate governance framework should recognize the rights of stockholders 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. 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. The responsibilities of the board 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. ASEAN Corporate Governance Scorecard What is the ASEAN Corporate Governance Scorecard? The ASEAN Corporate Governance Scorecard is an initiative of the ASEAN Capital Markets Forum (ACMF) and is tool to assess the corporate governance compliance of ASEAN publicly-listed companies based on publicly available information. It is benchmarked against internationally recognized best practices. Six ASEAN countries participate in this initiative, namely: Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam. II. AREAS OF CORPORATE GOVERNANCE A. BOARD'S GOVERNANCE RESPONSIBILITIES ESTABLISHING A COMPETENT BOARD What is a competent Board? A competent Board is composed of directors with a collective working knowledge, experience or expertise that is relevant to the company's industry/sector. (Recommendation 1.1) HSAcaE It has an appropriate mix of competence and expertise and that its members remain qualified for their positions individually and collectively. (Recommendation 1.1) Is composed of a majority of non-executive directors who possess the necessary qualifications. (Recommendation 1.2) It is headed by a competent and qualified Chairperson. (Recommendation 2.3) Who are the corporate officers who assist the Board in performing its functions? Corporate Secretary and Compliance Officer It is recommended that the Corporate Secretary and Compliance Officer should be separate individuals. Both should not be members of the Board of Directors and should annually attend a training on corporate governance. Why is training recommended to establish a competent board? Training is recommended to promote effective board performance and continuing qualification of the directors in carrying-out their duties and responsibilities. (Recommendation 1.3) What type of training is recommended and how many hours? Orientation program for first time directors in any corporation to ensure that new members are appropriately apprised of their duties and responsibilities, before beginning their directorships (at least 8 hours). (Recommendation 1.3) Annual continuing training program on any relevant matter to make certain that the directors are continuously informed of the developments in the business and regulatory environments, including emerging risks relevant to the company (at least 4 hours). (Recommendation 1.3) What is a board diversity policy and why is it necessary in a competent board? A board diversity policy is a policy that ensures that the board is composed of individuals of different gender, background, age, skills, competence, knowledge or experience, among others. Having a board diversity policy is a move to avoid groupthink and ensure that optimal decision making is achieved. (Recommendation 1.4) ESTABLISHING CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD What are the roles and responsibilities of the Board? To act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the company and all shareholders/members. (Recommendation 2.1) To 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 2.2) To ensure and adopt an effective succession planning program for directors, key officers and management. (Recommendation 2.4) To align the remuneration of key officers and board members with the long-term interests of the company/organization. (Recommendation 2.5) To develop a policy on board nomination and election. (Recommendation 2.5) To ensure proper implementation of the policy and system governing related party transactions (RPTs) and other unusual or infrequently occurring transactions. (Recommendation 2.7) Responsible for approving the selection and assessing the performance of the Management led by the Chief Executive Officer (CEO) or his/her equivalent, and control functions led by their respective heads (Chief Risk Officer, Chief Compliance Officer, and Chief Audit Executive, as applicable). (Recommendation 2.8) To establish an effective performance management framework. (Recommendation 2.9) To oversee that an appropriate internal control system is in place. (Recommendation 2.10) To oversee that a sound enterprise risk management (ERM) framework is in place. (Recommendation 2.11) What is a Board Charter? The Board Charter is a document which clearly defines the power, authority, roles and accountabilities of the directors in carrying out their fiduciary duties. The Board Charter should serve as a guide to the directors in the performance of their functions and should be publicly available and posted on the company's website. ESTABLISHING BOARD COMMITTEES Why do companies need Board Committees? The Board should establish board committees that focus on specific board functions to aid in the optimal performance of its roles and responsibilities. (Recommendation 3.1) What are the recommended Board Committees forALL companies? Audit Committee Purpose: To enhance its oversight capability over the company's financial reporting, internal control system, internal and external audit processes, and compliance with applicable laws and regulations and to review all material related party transactions. (Recommendation 3.2) AcICHD Composition: Under SEC Memorandum Circular No. 8, Series of 2018, n it is mandatory that all members of the Audit Committee must be directors. It is further recommended that the Committee be composed of at least three appropriately qualified non-executive directors, the majority of whom, including the Chairman, should be independent. All of 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. Corporate Governance Committee Purpose: To assist the Board in the performance of its corporate governance responsibilities, including the functions that were formerly assigned to a Nomination and Remuneration Committee. (Recommendation 3.3) Composition: It should be composed of at least three directors, all of whom should be independent, including the Chairman. What are the recommended Board Committee based on Proportionality Principle? Board Risk Oversight Committee (particularly recommended for issuers of debt securities and for companies with a high risk profile) Purpose: To oversee the proper implementation of the company's Enterprise Risk Management system. (Recommendation 3.4) Composition: It should be composed of at least three directors, the majority of whom should be independent, 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. Related Party Transaction (RPT) Committee (particularly recommended for conglomerates and universal/commercial banks) Purpose: To review all material related party transactions of the company. Composition: It should be composed of at least three non-executive directors, two of whom should be independent, including the Chairman. What is a Board Committee Charter? Board Committee Charter is a document which clearly defines the power, authority roles and accountabilities of each committee. TAIaHE FOSTERING COMMITMENT How can Directors show their commitment to the Company? 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. Directors should attend actively participate in all board meetings, Committee meetings and shareholders' meetings, except for what justifiable causes? Illness, death in the immediate family, serious accident or other unforeseen or fortuitous events. What is expected of directors for board and committee meetings? Directors should review meeting materials and if called for, ask the necessary questions and seek clarifications and explanations. Where should the attendance record of directors be disclosed? The company should include its Annual Corporate Governance Report the attendance record of the company's directors for the previous year. What is the effect of the absence of a director in more than fifty percent (50%) of all regular and special meetings of the Board during his/her incumbency? This is a ground for disqualification of the director in the succeeding election unless the absence is due to illness, death in the immediate family, serious accident or other unforeseen or fortuitous events. What is the recommended number of directorships that a non-executive director can hold? For publicly-listed companies: maximum of five (5) publicly listed companies. For public companies and registered issuers: maximum of ten (10) public companies and/or registered issuers. However, the maximum shall be five (5) public companies and/or registered issuers if the director also sits in at least three (3) publicly listed companies. Why is there a recommended maximum number of directorships for non-executive directors? To ensure that there is sufficient time to fully prepare for meetings, challenge Management's proposals/views, and oversee the long-term strategy of the company. Should a director notify the Board where he/she is an incumbent director before accepting a directorship in another company? Yes, it is recommended that a director notify the Board where he/she is an incumbent director before accepting a directorship in another company. This is for the company to be able to assess if the director's responsibilities and commitment to the company will be affected and if the director can still adequately provide what is expected of him/her. cDHAES REINFORCING BOARD INDEPENDENCE How many independent director/s should a publicly listed company, public company or registered issuer have? Under Section 38 of the Securities Regulation Code (SRC), at least two (2) or twenty percent (20%) of the Board should be independent directors. However, it is recommended that at least three (3) or one third (1/3) of the board should be independent. This is in recognition that more independent directors lead to more objective decision-making, particularly in conflict of interest situations. What are the grounds for disqualification for independent directors provided under the Code of Corporate Governance for Publicly-Listed Companies and Code of Corporate Governance for Public Companies and Registered Issuers? a. Is not a director or officer of the covered company or of its related companies or any of its substantial shareholders, except when the same shall be an independent director of any of the foregoing; b. Has not been a director of the covered company or of its related companies or any of its substantial shareholders within the last two (2) years; c. Does not own more than two percent (2%) of the shares of the covered company and/or its related companies or any of its substantial shareholders; d. Is not related to any director, officer or substantial shareholders of the covered company, any of its related companies or any of its substantial shareholders. For this purpose, relatives include spouse, parent, child, brother, sister, and the spouse of such child, brother or sister; TCAScE e. Is not acting as a nominee or representative of any director or substantial shareholder of the covered company, and/or any of its related companies and/or any of its substantial shareholders pursuant to a Deed of Trust or under any contract or arrangement; f. Has not been employed in any executive capacity by the covered company, any of its related companies and/or by any of its substantial shareholders within the last two (2) years; g. Is not retained, either personally or through his firm or any similar entity, as professional adviser, by that covered company, any of its related companies and/or any of its substantial shareholders, within the last two (2) years; h. Has not engaged within the last two (2) years and does not engage in any transaction with the covered company and/or with any of its related companies and/or with any of its substantial shareholders, whether by himself and/or with other persons and/or through a firm of which he is a partner and/or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arm's length and are immaterial; i. Has been convicted by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of this Code, committed within five (5) years prior to the date of his election; j. Is not a securities broker-dealer of listed companies and registered issuers of securities. "Securities broker-dealer" refers to any person holding any office of trust and responsibility in a broker-dealer firm, which includes, among others a director, officer, principal stockholder, nominee of the firm to the Exchange, an associated person or salesman, and an authorized clerk of the broker or dealer; and k. Has not been appointed in the covered company, its subsidiaries, associates, affiliates or related companies as Chairman "Emeritus", " Ex-Officio " Directors/Officers or Members of any Advisory Board, or otherwise appointed in a capacity to assist the Board in the performance of its duties and responsibilities within one (1) year immediately preceding his election. What are referred to in the term "related companies"? a. The covered entity's holding/parent company; b. The covered entity's subsidiaries; and c. The subsidiaries of the covered entity's holding/parent company. What is a substantial shareholder? A person who is directly or indirectly the beneficial owner of more than ten percent (10%) of any class of its equity security. What is the recommended term limit for independent directors? The independent directors should serve for a maximum cumulative term of nine (9) years. What happens after an independent director has served for nine (9) cumulative years? The independent director should be perpetually barred from re-election as independent director in the same company, but may continue to qualify for nomination and election as a non-independent director. Is this recommendation absolute? No. In the instance that a company wants to retain an independent director who has served for nine (9) years, the Board should provide meritorious justification/s and seek shareholders' approval during the annual shareholders' meeting. cTDaEH When is the reckoning point of the nine (9)-year term limit? Reckoning of the cumulative nine (9)-year term limit is from 2012, in connection with SEC Memorandum Circular No. 9, Series of 2011. Should the positions of Chairman of the Board and Chief Executive Officer be held by separate individuals? It is recommended that the positions of Chairman of the Board and Chief Executive Officer be held by separate individuals to avoid conflict or a split board and foster an appropriate balance of power, increased accountability and better capacity for independent decision-making. Chairman of the Board is head of the board of directors while the Chief Executive Officer is the head of management. The board of directors exercise oversight over management and here lies the conflict of one person holding both positions. It is also recommended that the division of responsibilities between the Chairman and CEO be clearly defined and delineated and disclosed in the Board Charter. If a director has any material interest in the transaction affecting the corporation, should he/she abstain from taking part in the deliberations for the same? Yes, the director shall abstain from participating in a meeting when related party transactions, self-dealings or any transactions or matters on which he/she has a material interest are taken up. This ensures that he/she has no influence over the outcome of the deliberations. Is it good practice for the non-executive directors (NEDs) to have separate periodic meetings with the external auditor and heads of the internal audit, compliance and risk functions without any executive directors present? Yes, this is good practice. This ensures that proper checks and balances are in place within the corporation. It is the role of the NEDs to satisfy themselves on the integrity of the corporation's internal control and effectiveness of the risk management systems. ASSESSING BOARD PERFORMANCE How is the board's effectiveness measured? The best measure of the board's effectiveness is through an assessment process. What types of assessment should be conducted? Annual self-assessment of its performance, including the performance of the Chairman, individual members and committees. Why is it important for an assessment to be conducted? Board assessment helps the directors to thoroughly review their performance and understand their roles and responsibilities. What should be included in the system for assessment? At the minimum, the criteria and process to determine the performance of the Board, individual directors and committees. cSaATC The system should allow for a feedback mechanism from the shareholders. Which committee should oversee the assessment process? Corporate Governance Committee STRENGTHENING BOARD ETHICS How can the board strengthen board ethics? 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 be properly disseminated to the Board, senior management and employees. The Code should be disclosed and made publicly available through the company website. The Board should ensure the proper and efficient implementation and monitoring of compliance with the Code and internal policies. How can the Board ensure the proper and efficient implementation and monitoring of compliance with the Code and internal policies? To ensure proper compliance with the Code, the board should ensure that there is efficient communication channels, which aid and encourage employees, customers, suppliers and creditors to raise concerns on potential unethical/unlawful behavior without fear of retribution. Communication and awareness campaign, including proper orientation and continuous training of the directors, senior management and employees. B. DISCLOSURE AND TRANSPARENCY ENHANCE COMPANY DISCLOSURE POLICIES AND PROCEDURES How do companies enhance their disclosures to promote transparency in the conduct of their business? Establish internal corporate disclosure policies and procedures that are practical and in accordance and regulatory expectations. (Recommendation 8.1) Establish a policy requiring all directors and officers to disclose/report to the company any dealings in the company's shares within five business days. (Recommendation 8.2) Fully disclose all relevant and material information on individual board directors and key executives to evaluate their experience and qualifications, and assess any potential conflicts of interest that might affect their judgment. (Recommendation 8.3) Establish and fully disclose policies and procedures for setting Board and executive remuneration, as well as the level and mix of the same in the Manual on Corporate Governance. (Recommendation 8.4) cHDAIS Establish and fully disclose policies governing Related Party Transactions (RPTs) and other unusual or infrequently occurring transactions in their Manual on Corporate Governance. (Recommendation 8.5) Fully disclose material and significant RPTs reviewed and approved during the year in the Annual Corporate Governance Report. (Recommendation 8.5) 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. (Recommendation 8.6) Adopt a Manual on Corporate Governance which should contain the company's corporate governance policies, programs and procedures. (Recommendation 8.7) STRENGTHENING EXTERNAL AUDITOR'S INDEPENDENCE AND IMPROVING AUDIT QUALITY How do companies strengthen External Auditor's independence to improve audit quality? Establish a robust process for approving and recommending the appointment, reappointment and removal of the external auditor as well as their audit fees. (Recommendation 9.1) o Per SEC Memorandum Circular No. 8, Series of 2018 , all publicly-listed companies (PLCs) shall seek shareholders' approval on any change/s in the company's external auditor. o 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. The Audit Committee should exercise 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. (Recommendation 9.2) 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. (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. (Recommendation 9.3) INCREASE FOCUS ON NON-FINANCIAL AND SUSTAINABILITY REPORTING Why do companies need to disclose non-financial information? As external pressures including resource scarcity, globalization, and access to information continue to increase, the way corporations respond to sustainability challenges in addition to financial challenges determines their long-term viability and competitiveness. (Recommendation 10.1) What non-financial information do companies need to disclose? Companies should disclose to all shareholders and other stakeholders the company's strategic (long-term goals) and operational objectives (short-term goals) as well as impacts of a wide range of sustainability issues, with emphasis on the management of environmental, economic, social and governance (EESG) issues of its business which underpin sustainability. PROMOTE A COMPREHENSIVE AND COST-EFFICIENT ACCESS TO RELEVANT INFORMATION Why do companies need to maintain a comprehensive and cost-efficient communication channel? The company should maintain a comprehensive and cost-efficient communication channel for disseminating relevant information. This channel is crucial for an informed decision-making by investors, stakeholders and other interested users. ISHCcT What are the recommended communication channels? Company website To ensure a comprehensive, cost-efficient, transparent and timely manner of disseminating relevant information to the public. A company website that is easily accessible and user-friendly with a dedicated section for corporate governance is considered practical and cost-efficient way of communication. It can provide timely and up-to-date information relevant to investors' decision-making, as well as to other interested stakeholders. (Recommendation 11.1) Annual Corporate Governance Report The Annual Corporate Governance Report (ACGR) is intended to be a comprehensive report containing all of the company's pertinent corporate governance information. (Recommendation 11.2) C. INTERNAL CONTROL AND RISK MANAGEMENT FRAMEWORK STRENGTHENING INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS Why is there a need to strengthen internal control and risk management system? 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 system. (Recommendation 12.1) How do companies strengthen their internal control and Risk Management System? The company's internal control system should include activities, such as, management oversight and control culture; risk recognition and assessment; control activities; information and communication; monitoring activities and correcting deficiencies. (Recommendation 12.1) DHITCc The company's enterprise risk management framework should include activities, such as, the identification, sourcing, measurement, evaluation, mitigation and monitoring of risk. (Recommendation 12.1) The company must have a separate internal audit function to monitor and guide the implementation of company's internal control processes and procedures. (Recommendation 12.2) Subject to its size, risk profile and complexity of operations, the company should have a separate risk management function to identify, assess and monitor key risk exposures. (Recommendation 12.3) Subject to a company's size, risk profile and complexity of operations, the company should have a qualified Chief Audit Executive (CAE) who shall oversee and responsible for the internal audit activity of the organization and must be appointed by the Board. (Recommendation 12.4) Subject its size, risk profile and complexity of operations, the company should have a Chief Risk Officer (CRO) to manage its Risk Management System. (Recommendation 12.5) D. CULTIVATING A SYNERGIC RELATION WITH SHAREHOLDERS/MEMBERS PROMOTING SHAREHOLDER/MEMBER RIGHTS What are the basic shareholder's rights? Pre-emptive rights; Right to dividend; Right to vote; o The company is encouraged to fully and promptly disclose all information regarding the experience and background of the candidates to enable the shareholders to study and conduct their own background check as to the candidates' qualification and credibility. Right to nominate candidates to the Board of Directors; and o All shareholders must be given the opportunity to nominate candidates to the Board of Directors in accordance with the existing laws. Right to propose the holding of meetings and to include agenda items ahead of the scheduled Annual and Special Shareholders' Meeting; o To prevent the abuse of this right, companies may require that the proposal be made by shareholders holding a specified percentage of shares or voting rights. o On the other hand, to ensure that minority shareholders are not effectively prevented from exercising this right, the degree of ownership concentration is considered in determining the threshold. (Recommendation 13.1) What mechanism should companies put in place to protect shareholders? Alternative Dispute Resolution 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. Putting in place proper safeguards ensures suitable remedies for the infringement of shareholders' rights and prevents excessive litigation. How should the company 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 13.2) cEaSHC By making the result of the votes taken during the most recent Annual or Special Shareholders' Meeting publicly available the next working day. (Recommendation 13.3) By making 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 13.3) The company should establish an Investor Relations Office (IRO) to ensure constant engagement with its shareholders. The IRO should be present at every shareholders' meeting. (Recommendation 13.5) E. DUTIES TO STAKEHOLDERS RESPECTING RIGHTS OF STAKEHOLDERS AND EFFECTIVE REDRESS FOR VIOLATION OF STAKEHOLDER'S RIGHTS How can companies respect the rights of their stakeholders? The Board should identify the company's various stakeholders and promote cooperation between them and the company in creating wealth, growth and sustainability. The Board should establish clear policies and programs to provide a mechanism on the fair treatment and protection of stakeholders. Who are referred to as "stakeholders"? Stakeholders in corporate governance include, but are not limited to, customers, employees, suppliers, shareholders, investors, creditors, the community the company operates in, society, the government, regulators, competitors, external auditors, etc. How can companies encourage stakeholders to communicate with the company and obtain redress for the violation of their rights? By maintaining open and easy communication with its stakeholders which can be done through stakeholder engagement touchpoints in company such as the Investor Relations Office, Office of the Corporate Secretary. Customer Relations Office and Corporate Communications Group. IAETDc ENCOURAGING EMPLOYEES' PARTICIPATION How can the board encourage employees' participation? 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. The Board should set the tone and make a stand against corrupt practices by adopting an anti-corruption policy and program in its Code of Conduct. The board should establish a suitable framework for whistleblowing that allows employees to freely communicate their concerns about illegal or unethical practices without fear of retaliation. What are examples of policies and programs that encourage employees' participation? Policies and programs on (1) health, safety and welfare of employees; (2) training and development of employees; and (3) reward/compensation for employees . Anti-corruption program that encourages employees to report corrupt practices and outlines procedures on how to combat, resist and stop these corrupt practices. What is a suitable whistleblowing framework? A suitable whistleblowing framework sets up the procedures and safe-harbors for complaints of employees, either personally or through their representative bodies, concerning illegal and unethical behavior. One essential aspect of the framework is the inclusion of safeguards to secure the confidentiality of the informer and to ensure protection from retaliation. Further, part of the framework is granting individuals or representative bodies confidential direct access to either an independent director or a unit designed to deal with whistleblowing concerns. ENCOURAGING SUSTAINABILITYAND SOCIAL RESPONSIBILITY How can companies encourage sustainability and social responsibility? 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. 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. What is meant by sustainability or sustainable development? Sustainable development means that the company not only complies with existing regulations but makes sure that it takes into consideration economic, environmental, social and governance issues and concerns. SaCIDT Footnotes 1. Sullivan, John, Wilson, Andrew and Nadgrodkiewicz, Anna. The Role of Corporate Governance in Fighting Corruption , 2013. n Note from the Publisher: Written as SEC Memorandum No. 8, Series of 2018 in the original document.