On October 10, 2019, the Securities and Exchange Commission Philippines released its Draft Code of Corporate Governance for Public Companies and Registered Issuers. The Draft Code is meant to update the existing corporate governance code, which has been in effect from 2017.
The Draft Code maintains significant portions of the existing code, although there are some distinct changes, such as to lower the independence threshold from at least three independent directors down to two independent directors, or at least one-third of the board being independent, whichever is higher. Additionally, the independence provisions for the corporate governance and/or nomination and remuneration committees have decreased from 100% independence to majority independent.
In our submission, Glass Lewis highlights areas where the Draft Code could make improvements to Filipino corporate governance practices, to be closer to the corporate governance practices of other capital markets in Southeast and South Asia. They include:
- Adopting a comply or explain an alternative approach to compliance instead of simply relying on a comply or explain to compliance.
- Improving disclosure concerning board diversity, such as to include a board skills matrix to highlight the skills a board’s directors possess. Additionally, we encourage targets relating to board gender diversity.
- For related party transactions, having a market-wide approach to determining materiality of transactions instead of preserving a board’s ability to determine whether a transaction is material, as that can lead to the continued, potentially conflicted approach of directors essentially self-regulating on related party transactions.
- Encouraging the audit committee be 100% independent, along with the corporate governance and/or nomination and remuneration committees. We also believe clearer guidance should be provided to companies on the establishment of risk management committees.
- Preserving a higher threshold to board independence, while encouraging the Philippines to adopt regional approaches to board independence by having a 50% or majority independent board when the board chair is not independent.
- Increasing lookback periods for independent directors from two to at least three years, or five years in instances of former employment.
- Improvements in disclosure for corporate governance practices, along with environmental, economic, social and governance matters, while preserving a 28-day notice period for general meetings.
You can download our submission to the consultation below. For more information, contact info@glasslewis.com