Silence is the language of God, all else is poor translation. Rumi
Idea Transcript
2.
THE LAW AND PRACTICE ON:
PHILIPPINE CORPORATE GOVERNANCE BY
CESAR L. VILLANUEVA, BSC, LLB, CPA, LLM, DJS, FAICD, FICD
2009
EDITION
B 370274
Published & Distributed by HOLY ANGEL UNIVERSITY Holy Angel Avenue, Angeles City Philippines
TABLE OF CONTENTS Page I.
INTRODUCTION
2
1.
2
VARIOUS THEORIES ON CORPORATE GOVERNANCE
a.
b. 2.
II.
Doctrine of Maximization of Shareholder Value versus Theory on Corporate Social Responsibility (CSR) Narrower CSR Focus: THE STAKEHOLDERS THEORY ...
3
10
PREVAILING PRINCIPLE UNDER THE CORPORATION C O D E ...
14
FORMAL ADOPTION OF THE STAKEHOLDER THEORY IN PHILIPPINE JURISDICTION
23
1.
HISTORICAL BACKGROUND AND RECENT DEVELOPMENTS...
23
2.
CORPORATE GOVERNANCE BACKGROUND, CONCEPTS AND DEFINITIONS
31
INTRODUCTION OF THE STAKEHOLDER THEORY INTO THE PHILIPPINE LEGAL SYSTEM
33
3.
a.
Paradigm Shift: Adoption of the Theory for Covered Companies
Stakeholder 33
b.
The Stakeholders in the Banking Industry
35
c.
The Stakeholders in Public Companies
39
d. Stakeholders in the Insurance Industry
47
e.
Common Law Duty of Directors to Corporate Creditors under the Trust Fund Doctrine
50
Other Areas in Corporate Law Where Stakeholdership Principles Have Evolve
54
g. Corporate Responsibility in the Realm of Corporate Tort or Negligence
56
f.
XI
TABLE OF CONTENTS
Page m.
STATUTORY AND COMMON LAW BACKDROP FOR PHILIPPINE CORPORATE GOVERNANCE
59
1.
THE "CORPORATE PACKAGE"
59
2.
POWER OF BOARD DIRECTLY VESTED BY LAW: DOCTRINE
3.
IV.
OF CENTRALIZED MANAGEMENT
60
THE BUSINESS JUDGMENT RULE
70
a. Rationale for Business Judgment Rule
70
b. c.
72
Coverage of Business Judgment Rule General Rule Is that Directors and Officers Cannot Be Held Personally Liable for Corporate Acts and Contract
73
PARADIGM SHIFT IN DUTIES AND RESPONSIBILITIES FOR DIRECTORS AND OFFICERS IN COVERED COMPANIES
78
a. Perceived Role of the Board of Directors under the Corporation Code
79
EVOLVING A MORE RESPONSIVE AND ACCOUNTABLE FACADE TO THE BUSINESS JUDGMENT RULE FOR COVERED COMPANIES
82
a. Jurisprudential Shift to Characterize Industries as "Vested with Public Interest"
82
b. Formal Statutory Recognition that Banks Owe Fiduciary Duties in their Dealings with the Public ...
86
1.
c.
IC Code Declares the Insurance Industry as Vested with Public Interest
91
"Public Interest" Considerations for Public Companies
93
EXACTING DUTIES AND RESPONSIBILITIES LEAD TO EXACTING AND EXPANDED LIABILITIES
95
d.
1.1.
Xll
TABLE OF CONTENTS
Page a. General Responsibilities of the Board of Directors
97
b. Specific Duties and Responsibilities of the Board of Directors
100
Table I. DUTIES AND RESPONSIBILITIES OF BOARDS OF DIRECTORS.
101
c. Specific Duties and Responsibilities of Every Director
104
Table II. DUTIES AND RESPONSIBILITIES OF INDIVIDUAL DIRECTORS
V.
105
d. Legal Implications of the Structuring of the Agency Codes
109
EVOLVING THE POWERS OF THE BOARD OF DIRECTORS OF COVERED COMPANIES
113
1.
OPERATING PARADIGM OF "GOOD CORPORATE GOVERNANCE" UNDER THE CORPORATION CODE
a. Board Composition: Must Be of Optimum Size
113
114
b. Board's Composition, Manner of Election, Qualifications and Disqualifications, Must Be Based on Statutory Law Provisions or Upon Provisions of the Articles of Incorporation and/or By-Laws 115
2. .
c. Power to Discipline and Remove Directors Is Vested with the Stockholders
119
d. Directors Are Not Generally Entitled to Remunerations '
122
GAUGING THE AGENCY CODES' INNOVATIVE PROVISIONS AGAINST THE CORPORATION CODE'S PRINCIPLES ON CORPORATE GOVERNANCE
125
a. Hierarchical Placement of the Agency Codes Visa-vis the Corporation Code 125
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TABLE OF CONTENTS
Page b. Agency Code Provisions on Composition of the Board of Directors, and Qualifications/Disqualifications of Directors
126
c. On the Composition of the Board of Directors
127
1. Composition of the Board 2. Multiple Board Seats d. VI.
127 ..:...
128
Qualifications of the Directors of Covered Companies
132
COMMITMENT TO CORPORATE GOVERNANCE ...
136
VII. ADMINISTRATIVE SANCTION
136
e. Disqualifications of Directors of Covered Companies Table III. QUALIFICATIONS
AND
DISQUALIFICA-
TIONS FOR DIRECTOR.
f.
Agency Codes on Remunerations of Directors
Vni. INDEPENDENT DIRECTORS AND BOARD OFFICERS 1.
2.
137
DEFINING THE ROLE OF INDEPENDENT DIRECTORS
138
147 154 154
a. Cumulative Voting System as the Means to Provide Board Accountability under the Corporation Code
154
b. SRC Sets-Up System of Independent Directors
156
c. Issues Relating to the Independent Directors System
160
AGENCY CODES PROVISIONS ON INDEPENDENT DIRECTORS
165
a. Definition and Expected Role of Independent Directors in Covered Companies
165
b.
168
Composition of the Board xiv
TABLE OF CONTENTS
Page c.
3.
DC.
Rules on Nomination, Election, and Termination of Independent Directors
169
d. Distinct Duties and Responsibilities Placed on Independent Directors
172
BOARD OFFICERS
176
a.
Chairman of the Board
.":
178
b.
Corporate Secretary
182
c.
Other Board Officers
186
EPILOGUE
187 APPENDIX
ROLE AND RESPONSIBILITIES OF THE CORPORATE SECRETARY
193
ANNEXES ANNEX A—SEC MEMORANDUM CIRCULAR NO. 02 Series of 2002
211
ANNEX A-l—SEC MEMORANDUM CIRCULAR NO. 16, Series of 2002 (Guidelines on the Nomination and Election of Independent Directors)
235
ANNEX B—BSP NANCE
242
CIRCULARS
ON CORPORATE
GOVER-
ANNEX C—INSURANCE COMMISSION CODE ON CORPORATE GOVERNANCE PRINCIPLES AND LEADING PRACTICES