CENTRAL AZUCARERA DE TARLAC

MANUAL ON CORPORATE GOVERNANCE

(Revised in Compliance with SEC Memorandum Circular No. 19, Series of 2016)

The Board of Directors and Management of Central Azucarera de Tarlac hereby commit themselves to the principles and best practices contained in this Manual, and acknowledge that the same may guide the attainment of their corporate goals.

OBJECTIVE

This Manual shall institutionalize the principles of good corporate governance in the entire organization.

The Board of Directors and Management, employees and shareholders, believe that corporate governance is a necessary component of what constitutes sound strategic business management and will therefore undertake every effort necessary to create awareness within the organization as soon as possible.

Definition of Terms.

 

Corporate Governance – the framework of rules, systems and processes in the Company that governs the performance of the Board of Directors and Management of their respective duties and responsibilities to stockholders and other stakeholders which include, among others, customers, employees, suppliers, financiers, government and community in which it operates. It is 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.

Board of Directors – the governing body elected by the stockholders that exercises the corporate powers of the Company, conducts all its business and controls its properties.

Management – a group of executives given the authority by the Board of Directors to implement the policies it has laid down in the conduct of the business of the Company.

Independent director – a person who is independent of management and the controlling shareholder, and is free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director.

Executive director – a director who has executive responsibility of day-to-day operations of a part or the whole of the organization.

Non-executive director – a director who has no executive responsibility and does not perform any work related to the operations of the Company.

Conglomerate – a group of corporations that has diversified business activities in varied industries, whereby the operations of such businesses are controlled and managed by a parent corporate entity.

Internal control –  a process designed and effected by the board of directors, senior management, and all levels of personnel to provide reasonable assurance on the achievement of objectives through efficient and effective operations; reliable, complete and timely financial and management information; and compliance with applicable laws, regulations, and the organization’s policies and procedures.

Enterprise Risk Management – a process, effected by an entity’s Board of Directors, management and other personnel, applied in strategy setting and across the enterprise that is designed to identify potential events that may affect the entity, manage risks to be within its risk appetite, and provide reasonable assurance regarding the achievement of entity objectives.^[1]

Related Party – shall cover the company’s subsidiaries, as well as affiliates and any party (including their subsidiaries, affiliates and special purpose entities), that the company exerts direct or indirect control over or that exerts direct or indirect control over the company; the company’s directors; officers; shareholders and related interests (DOSRI), and their close family members, as well as corresponding persons in affiliated companies. This shall also include such other person or juridical entity whose interest may pose a potential conflict with the interest of the company.

 

Related Party Transactions – a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged. It shall be interpreted broadly to include not only transactions that are entered into with related parties, but also outstanding transactions that are entered into with an unrelated party that subsequently becomes a related party.

Stakeholders – any individual, organization or society at large who can either affect and/or be affected by the company’s strategies, policies, business decisions and operations, in general. This includes, among others, customers, creditors, employees, suppliers, investors, as well as the government and community in which it operates.

I. BOARD’S GOVERNANCE RESPONSIBILITIES

1. Establishing a Competent Board

The company shall be headed by a competent, working board to foster the long-term success of the Company, and to sustain its competitiveness and profitability in a manner consistent with its corporate objectives and the long-term best interests of its shareholders and other stakeholders.

• Composition of the Board of Directors

 

The Board shall be composed of at least five (5), but not more than fifteen (15), members who are elected by the stockholders who shall discharge their duties for a term of one (1) year or until their successor shall have been elected and shall have qualified.

The Board shall be composed of directors with a collective working knowledge, experience or expertise that is relevant to the company’s industry/sector. The Board shall always ensure that it has an appropriate mix of competence and expertise and that its members remain qualified for their positions individually and collectively, to enable it to fulfill its roles and responsibilities and respond to the needs of the organization based on the evolving business environment and strategic direction.

• Non-Executive Directors

The Board shall be composed of a majority of non-executive directors who possess the necessary qualifications to effectively participate and help secure objective, independent judgment on corporate affairs and to substantiate proper checks and balances.

• Training

 

The Company shall provide an eight-hour orientation program for first-time directors covering SEC-mandated topics on corporate governance and an introduction to the company’s business, Articles of Incorporation, and Code of Conduct.

The Company shall also provide a four-hour relevant annual continuing training for all directors aim to promote effective board performance and continuing qualification of the directors in carrying-out their duties and responsibilities. The topics will include topics on corporate governance matters relevant to the company, including audit, internal controls, risk management, sustainability and strategy.

• Board Diversity

 

The Company believes in the principle of board diversity  as a tool of corporate governance.  To respond to its current needs and evolving business environment and strategic direction, the Company shall endeavor to diversity the composition of its Board,  which includes diversity on, among others, gender, age, ethnicity, culture, skills, competence and knowledge.

• Corporate Secretary

 

The Board must be assisted by a Corporate Secretary who shall be a separate individual from the Compliance Officer. The Corporate Secretary shall not be a member of the Board of Directors and shall annually attend a training on corporate governance. The Corporate Secretary shall be a citizen and a resident of the Philippines.

The Corporate Secretary is primarily responsible to the Company and its shareholders, and not to the Chairman or Chief Executive Officer of the Company and has, among others, the following duties and responsibilities:

 

• Assists the Board and the board committees in the conduct of their meetings, including preparing an annual schedule of Board and committee meetings and the annual board calendar, and assisting the chairs of the Board and its committees to set agendas for those meetings;

• Keeps safe and preserves the integrity of the minutes of the meetings of the Board and its committees, as well as other official records of the Company;

• Keeps abreast on relevant laws, regulations, all governance issuances, relevant industry developments and operations of the Company, and advises the Board and the Chairman on all relevant issues as they arise;

• Works fairly and objectively with the Board, Management and stockholders and contributes to the flow of information between the Board and management, the Board and its committees, and the Board and its stakeholders, including shareholders;

• Advises on the establishment of board committees and their terms of reference;

• Issues notice of all meetings;

• Informs members of the Board, in accordance with the by-laws, of the agenda of their meetings at least five (5) working days in advance, and ensures that the members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval;

• Attends all Board meetings, except when justifiable causes, such as illness, death in the immediate family and serious accidents, prevent him/her from doing so;

• Performs required administrative functions;

• Oversees the drafting of the by-laws and ensures that they conform with regulatory requirements; and

• Performs such other duties and responsibilities as may be provided by the SEC.

• Compliance Officer

The Board shall appoint a Compliance Officer, with a position of adequate stature and authority in the Company. The Compliance Officer shall not be a member of the Board of Directors and shall annually attend a training on corporate governance.

The Compliance Officer is a member of the company’s management team in charge of the compliance function and is primarily liable to the Company and its shareholders, and not to the Chairman or Chief Executive Officer of the company. The Compliance Officer has, among others, the following duties and responsibilities:

• Ensures proper onboarding of new directors (i.e., orientation on the company’s business, charter, articles of incorporation and by-laws, among others);

• Monitors, reviews, evaluates and ensures the compliance by the Company, its officers and directors with the relevant laws, this Code, rules and regulations and all governance issuances of regulatory agencies;

• Reports the matter to the Board if violations are found and recommends the imposition of appropriate disciplinary action;

• Ensures the integrity and accuracy of all documentary submissions to regulators;

• Appears before the SEC when summoned in relation to compliance with this Code;

• Collaborates with other departments to properly address compliance issues, which may be subject to investigation;

• Identifies possible areas of compliance issues and works towards the resolution of the same;

2. Establishing Clear Roles and Responsibilities of the Board

The fiduciary roles, responsibilities and accountability of the Board as provided under the law, the company’s articles and by-laws, and other legal pronouncements and guidelines shall be clearly made known to all directors as well as to shareholders and other stakeholders.

• Duties and Responsibilities

• The Board members shall 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. There are two key elements of the fiduciary duty of board members: the duty of care and the duty of loyalty. The duty of care requires board members to act on a fully informed basis, in good faith, with due diligence and care. The duty of loyalty is also of central importance; the board member shall act in the interest of the company and all its shareholders, and not those of the controlling company of the group or any other stakeholder.

• The Board shall 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. The Board shall 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.

• The Board shall adopt an effective succession planning program for directors, key officers and management to ensure growth and a continued increase in the shareholders’ value. This shall include a policy on the retirement age for directors and key officers as part of management succession and to promote dynamism in the Company.

• The Board shall align the remuneration of key officers and board members with the long-term interests of the company. In doing so, it shall formulate and adopt a policy specifying the relationship between remuneration and performance. Further, no director shall participate in discussions or deliberations involving his own remuneration.

• The Board shall have the overall responsibility in ensuring that there is a group-wide policy and system governing related party transactions (RPTs) and other unusual or infrequently occurring transactions, particularly those which pass certain thresholds of materiality. The policy shall include the appropriate review and approval of material or significant RPTs, which guarantee fairness and transparency of the transactions. The policy shall encompass all entities within the group, taking into account their size, structure, risk profile and complexity of operations.

• The Board shall be primarily responsible for approving the selection and assessing the performance of the Management led by the Chief Executive Officer (CEO), and control functions led by their respective heads (Chief Risk Officer, Chief Compliance Officer, and Chief Audit Executive).

• The Board shall establish an effective performance management framework that will ensure that the Management, including the Chief Executive Officer, and personnel’s performance is at par with the standards set by the Board and Senior Management.

• The Board shall oversee that an appropriate internal control system is in place, including setting up a mechanism for monitoring and managing potential conflicts of interest of Management, board members, and shareholders. The Board shall also approve the Internal Audit Charter.

• The Board shall oversee that a sound enterprise risk management (ERM) framework is in place to effectively identify, monitor, assess and manage key business risks. The risk management framework shall guide the Board in identifying units/business lines and enterprise-level risk exposures, as well as the effectiveness of risk management strategies.

• The Board shall have a Board Charter that formalizes and clearly states its roles, responsibilities and accountabilities in carrying out its fiduciary duties. The Board Charter shall serve as a guide to the directors in the performance of their functions and shall be publicly available and posted on the company’s website.

• Chairman of the Board

The Board shall be headed by a competent Chairman. The Chairman of the Board shall preside at all meetings of the Board of Directors and of the stockholders. He shall be the Chief Executive Officer of the Corporation and shall have supervision of all business affairs of the Corporation.  He shall present to the Board of Directors and stockholders the balance sheets, statement of accounts and reports  of the Company and  shall see to it that the resolutions of the  Directors are duly executed and carried out and  shall perform all such other duties as are incidental to the office or are  properly required of him by the  Board of Director.[2]

The duties and responsibilities of the Chairman include, among others, the following:

• Makes certain that the meeting agenda focuses on strategic matters, including the overall risk appetite of the Company, considering the developments in the business and regulatory environments, key governance concerns, and contentious issues that will significantly affect operations;

• Guarantees that the Board receives accurate, timely, relevant, insightful, concise, and clear information to enable it to make sound decisions;

• Facilitates discussions on key issues by fostering an environment conducive for constructive debate and leveraging on the skills and expertise of individual directors;

• Ensures that the Board sufficiently challenges and inquires on reports submitted and representations made by Management;

• Assures the availability of proper orientation for first-time directors and continuing training opportunities for all directors; and

• Makes sure that performance of the Board is evaluated at least once a year and discussed/followed up on.

• Nomination and Election of Directors

• All nominations for the election of Directors by the stockholders shall be submitted in writing to the Corporate Governance Committee at least thirty (30) business days before the scheduled date of the Annual Stockholders’ Meeting.[3] The stockholders who are entitled to vote may vote such number of shares for as many persons as there are Directors to be elected, multiplied by the number of shares, or under the same principle the stockholder may distribute his votes among as many candidates as he believes convenient so long as the number of votes cast by him shall not be more than the number of shares owned by him multiplied by the number of Directors to be elected.

• The Corporate Governance Committee shall ensure that the nominees possess the necessary qualifications and none of the disqualifications provided for by existing laws, rules & regulations, Company’s By-Laws and this Manual. The qualifications and disqualifications shall be continuously monitored.

• The election of the Directors shall be done by ballots[4], or by viva voce, if requested by a stockholder.

• The Company may engaged the services of professional search firms or external sources when searching for candidates to the Board.

 

• Qualifications of Directors

 

A director of the Company must possess the following qualifications:

• Ownership of at least twenty (20) shares, which shall be registered in the books of the Company. An independent director must own at least one (1) share of the capital stock of the Company;[5]

• College education  or  equivalent academic  degree;

• Practical understanding of the  business  of the  Company;

• Membership in good  standing  in relevant  industry, business or professional  organizations;

• Previous business experience;

• Possession of knowledge, skills, experience, and particularly in the case of non-executive directors, independence of mind given their responsibilities to the Board and in light of the entity’s business and risk profile;

• A record of integrity and good repute;

• Sufficient time to carry out their responsibilities;

• Have the ability to promote a smooth interaction between board members; and

• Such other qualifications as may be required by existing laws, rules, regulations and those prescribed by the Board.

• Permanent Disqualifications of Directors

The following shall be grounds for the permanent disqualification of a director:

• Any person convicted by final judgment or order by a competent judicial or administrative body of any crime that: (a) involves the purchase or sale of securities, as defined in the Securities Regulation Code; (b) arises out of the person’s conduct as an underwriter, broker, dealer, investment adviser, principal, distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker; or (c) arises out of his fiduciary relationship with a bank, quasi-bank, trust company, investment house or as an affiliated person of any of them;

• Any person who, by reason of misconduct, after hearing, is permanently enjoined by a final judgment or order of the SEC, Bangko Sentral ng Pilipinas (BSP) or any court or administrative body of competent jurisdiction from: (a) acting as underwriter, broker, dealer, investment adviser, principal distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker; (b) acting as director or officer of a bank, quasi-bank, trust company, investment house, or investment company; (c) engaging in or continuing any conduct or practice in any of the capacities mentioned in sub-paragraphs (a) and (b) above, or willfully violating the laws that govern securities and banking activities.

The disqualification shall also apply if (a) such person is the subject of an order of the SEC, BSP or any court or administrative body denying, revoking or suspending any registration, license or permit issued to him under the Corporation Code, Securities Regulation Code or any other law administered by the SEC or BSP, or under any rule or regulation issued by the Commission or BSP; (b) such person has otherwise been restrained to engage in any activity involving securities and banking; or (c) such person is the subject of an effective order of a self-regulatory organization suspending or expelling him from membership, participation or association with a member or participant of the organization;

• Any person convicted by final judgment or order by a court, or competent administrative body of an offense involving moral turpitude, fraud, embezzlement, theft, estafa, counterfeiting, misappropriation, forgery, bribery, false affirmation, perjury or other fraudulent acts;

• Any person who has been adjudged by final judgment or order of the SEC, BSP, court, or competent administrative body to have willfully violated, or willfully aided, abetted, counseled, induced or procured the violation of any provision of the Corporation Code, Securities Regulation Code or any other law, rule, regulation or order administered by the SEC or BSP;

• Any person judicially declared as insolvent;

• Any person found guilty by final judgment or order of a foreign court or equivalent financial regulatory authority of acts, violations or misconduct similar to any of the acts, violations or misconduct enumerated previously;

• Conviction by final judgment of an offense punishable by imprisonment for more than six years, or a violation of the Corporation Code committed within five years prior to the date of his election or appointment;

• Any person who is engaged in any business or activity which competes with or is antagonistic to that of the Company or any of its subsidiaries and affiliates. Without limiting the generality of the foregoing, a person shall be deemed to be so engaged:

• If he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of any corporation (other than one in which the Company owns at least 30% of the capital stock) engaged in a business or activity which the Board, by at least two-thirds vote of the directors present constituting a quorum, determines to be competitive or antagonistic to that of the Company or its subsidiaries and affiliates; or

• If he is “an officer, manager or controlling person of, or the owner (either of record or beneficially) of 10% or more of any outstanding class of shares of any other corporation or entity engaged in any line of business of the Company or that of its subsidiaries and affiliates and in the judgment of the Board, by at least two-thirds vote of the directors present constituting a quorum, the laws against combinations in restraint of trade shall be violated by such person’s membership in the Board of Directors; or

• If the Board, in the exercise of its judgment in good faith, determines by at least two thirds vote of the directors present constituting a quorum that he is the nominee of any person set forth in (a) or (b).

The term “subsidiary” as used in this Section is defined as a corporation or entity in which Company directly or indirectly owns, controls or has the power to vote at least majority of the shares or interests therein.

The term “affiliate” as used in this Section is defined as a corporation or entity in which Central Azucarera de Tarlac directly or indirectly owns, controls or has the power to vote at least ten percent (10%) but not more than fifty percent (50%) of the shares or interests therein.

In determining whether or not a person is engaged in a business or activity which competes with or is antagonistic to that of the Company or any of its subsidiaries and affiliates, or if he is a controlling person, beneficial owner, or the nominee of another, or if he suffers from the foregoing disqualifications, the Board may take into account such factors as business, professional and family relationships.[6]

• Other grounds as the SEC may provide.

• Temporary Disqualifications of Directors

A temporarily  disqualified  director  shall, within sixty (60) business  days  from such disqualification, take  the appropriate action to remedy or correct  the  disqualification. If he fails or refuses to do so for  unjustified reasons, the  disqualification shall become permanent.

The Board may provide for a temporary disqualification of a director based on any of the following grounds:

• Absence in more than fifty percent (50%) of all regular and special meetings of the Board during his incumbency, or any 12-month period during the said incumbency, unless the absence is due to illness, death in the immediate family or serious accident. The disqualification shall apply for purposes of the succeeding election;

• Dismissal or termination for cause as director of any publicly-listed company, public company, registered issuer of securities and holder of a secondary license from the Commission. The disqualification shall be in effect until he has cleared himself from any involvement in the cause that gave rise to his dismissal or termination;

• If the beneficial equity ownership of an independent director in the Company or its subsidiaries and affiliates exceeds two percent (2%) of its subscribed capital stock. The disqualification from being elected as an independent director is lifted if the limit is later complied with; and

• If any of the judgments or orders cited in the grounds for permanent disqualification has not yet become final.

3. Establishing Board Committees

Board committees shall be set up to the extent possible to support the effective performance of the Board’s functions, particularly with respect to audit, risk management, related party transactions, and other key corporate governance concerns, such as nomination and remuneration. The composition, functions and responsibilities of all committees established shall take into consideration the Company’s size, risk profile, complexity of operations, among others. The respective charter of the committees shall be made publicly available.

• Audit Committee

 

The Board shall establish an Audit Committee 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.

• Composition

The Audit Committee shall be composed of at least three (3) appropriately qualified non-executive directors. The Chairman of the Audit Committee must be an independent director and shall not be the chairman of the Board of Directors  or any board committees. All of the members of the committee must have relevant background, knowledge, skills, and/or experience in the areas of accounting, auditing and finance.

• Duties and Responsibilities

The Audit Committee shall be primarily responsible for overseeing the senior management in establishing and maintaining an adequate, effective and efficient internal control framework. The Audit Committee shall ensure that systems and processes are designed to provide assurance in areas including reporting, monitoring compliance with laws, regulations and internal policies, efficiency and effectiveness of operations, and safeguarding of assets. It has the following duties and responsibilities, among others:

• Recommends the approval the Internal Audit Charter (IA Charter), which formally defines the role of Internal Audit and the audit plan as well as oversees the implementation of the IA Charter;

• Through the Internal Audit (IA) Department, monitors and evaluates the adequacy and effectiveness of the Company’s internal control system, integrity of financial reporting, and security of physical and information assets. Well-designed internal control procedures and processes that will provide a system of checks and balances shall be in place in order to (a) safeguard the company’s resources and ensure their effective utilization, (b) prevent occurrence of fraud and other irregularities, (c) protect the accuracy and reliability of the company’s financial data, and (d) ensure compliance with applicable laws and regulations;

• Oversees the Internal Audit Department, and recommends the appointment and/or grounds for approval of an internal audit head or Chief Audit Executive (CAE). The Audit Committee shall also approves the terms and conditions for outsourcing internal audit services;

• Establishes and identifies the reporting line of the Internal Auditor to enable him to properly fulfill his duties and responsibilities. For this purpose, he shall directly report to the Audit Committee;

• Reviews and monitors Management’s responsiveness to the Internal Auditor’s findings and recommendations;

• Prior to the commencement of the audit, discusses with the External Auditor the nature, scope and expenses of the audit, and ensures the proper coordination if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts;

• Evaluates and determines the non-audit work, if any, of the External Auditor, and periodically reviews the non-audit fees paid to the External Auditor in relation to the total fees paid to him and to the Company’s overall consultancy expenses. The committee shall disallow any non-audit work that will conflict with his duties as an External Auditor or may pose a threat to his independence^[7]. The non-audit work, if allowed, shall be disclosed in the Company’s Annual Report and Annual Corporate Governance Report;

• Reviews and approves the Interim and Annual Financial Statements before their submission to the Board, with particular focus on the following matters:
  • Any change/s in accounting policies and practices
  • Areas where a significant amount of judgment has been exercised
  • Significant adjustments resulting from the audit
  • Going concern assumptions
  • Compliance with accounting standards
  • Compliance with tax, legal and regulatory requirements

• Reviews the disposition of the recommendations in the External Auditor’s management letter;

• Performs oversight functions over the Company’s Internal and External Auditors. It ensures the independence of Internal and External Auditors, and that both auditors are given unrestricted access to all records, properties and personnel to enable them to perform their respective audit functions;

• Coordinates, monitors and facilitates compliance with laws, rules and regulations;

• Recommends to the Board the appointment, reappointment, removal and fees of the External Auditor, duly accredited by the Commission, who undertakes an independent audit of the Company, and provides an objective assurance on the manner by which the financial statements shall be prepared and presented to the stockholders;

• Performs the functions of Board Risk Oversight Committee and/or Related Party Transactions Committee;

• Meets with the Board at least every quarter without the presence of the CEO or other management team members, and periodically meets with the head of the internal audit; and

• Such other duties and responsibilities assigned to the committee by the Board.

• Corporate Governance Committee

The Board shall establish a Corporate Governance Committee that shall assist the Board in the performance of its corporate governance responsibilities, including the functions that were formerly assigned to a Nomination and Remuneration Committee. It shall be composed of at least three members, all of whom shall be independent directors, including the Chairman.

• Composition

The Corporate Governance Committee shall be composed of at least three (3)  appropriately qualified directors, majority  of whom shall be independent directors, including the Chairman.

• Duties and Responsibilities

The Corporate Governance Committee shall be responsible in ensuring compliance with and proper observance of corporate governance principles and practices. It has the following duties and functions, among others:

• Oversees the implementation of the corporate governance framework and periodically reviews the said framework to ensure that it remains appropriate in light of material changes to the Company’s size, complexity and business strategy, as well as its business and regulatory environments;

• Oversees the periodic performance evaluation of the Board and its committees as well as executive management, and conducts an annual self-evaluation of its performance;

• Ensures that the results of the Board evaluation are shared, discussed, and that concrete action plans are developed and implemented to address the identified areas for improvement;

• Recommends continuing education/training programs for directors, assignment of tasks/projects to board committees, succession plan for the board members and senior officers, and remuneration packages for corporate and individual performance;

• Adopts corporate governance policies and ensures that these are reviewed and updated regularly, and consistently implemented in form and substance;

• Proposes and plans relevant trainings for the members of the Board;

• Determines the nomination and election process for the company’s directors and has the special duty of defining the general profile of board members that the company may need and ensuring appropriate knowledge, competencies and expertise that complement the existing skills of the Board; and

• Establishes a formal and transparent procedure to develop a policy for determining the remuneration of directors and officers that is consistent with the Company’s culture and strategy as well as the business environment in which it operates.

• Other Committees

The Board may establish such other committees as it may deem fit, taking into careful consideration the company’s size, risk profile and complexity of operations, among other factors.

4. Fostering Commitment in the Board

The directors shall devote the time and attention necessary to properly and effectively perform their duties and responsibilities, including sufficient time to be familiar with the Company’s business.

• The directors shall attend and actively participate in all meetings of the Board, Committees, and Shareholders in person or through tele-/videoconferencing conducted in accordance with the rules and regulations of the Commission, except when justifiable causes, such as, illness, death in the immediate family and serious accidents, prevent them from doing so.

• In Board and Committee meetings, the director shall review meeting materials and if called for, ask the necessary questions or seek clarifications and explanations.

• The absence of a director in more than fifty percent (50%) of all regular and special meetings of the Board during his/her incumbency is a ground for disqualification in the succeeding election, unless the absence is due to illness, death in the immediate family, serious accident or other unforeseen or fortuitous events.

• The non-executive directors of the Board shall concurrently serve as directors to a maximum of five publicly listed companies to ensure that they have sufficient time to fully prepare for meetings, challenge Management’s proposals/views, and oversee the long-term strategy of the company.

• A director shall notify the Board where he/she is an incumbent director before accepting a directorship in another company.

5. Reinforcing Board Independence

The board shall endeavor to exercise an objective and independent judgment on all corporate affairs

• A director with a material interest in any transaction affecting the Company shall abstain from taking part in the deliberations for the same.

 

• Independent Directors

The Board shall have at least two (2) Independent Directors or such Independent Directors as shall constitute at least twenty percent (20%) of the members of the Board of Directors, whichever is lesser.[8]

• The Board shall ensure that its independent directors possess the necessary qualifications and none of the disqualifications for an independent director to hold the position. An Independent Director refers to a person who, ideally:

• Is not, or has not been a senior officer or employee of the covered company unless there has been a change in the controlling ownership of the company;

• Is not, and has not been in the three years immediately preceding the election, a director of the covered company; a director, officer, employee of the covered company’s subsidiaries, associates, affiliates or related companies; or a director, officer, employee of the covered company’s substantial shareholders and its related companies;

• 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 three years immediately preceding his election;

• Is not an owner of more than two percent (2%) of the outstanding shares of the covered company, its subsidiaries, associates, affiliates or related companies;

• Is not a relative of a director, officer, or substantial shareholder of the covered company or any of its related companies or of any of its substantial shareholders. For this purpose, relatives include spouse, parent, child, brother, sister and the spouse of such child, brother or sister;

• Is not acting as a nominee or representative of any director of the covered company or any of its related companies;

• 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;

• Is not retained, either in his personal capacity or through a firm, as a professional adviser, auditor, consultant, agent or counsel of the covered company, any of its related companies or substantial shareholder, or is otherwise independent of Management and free from any business or other relationship within the three years immediately preceding the date of his election;

• Does not engage or has not engaged, whether by himself or with other persons or through a firm of which he is a partner, director or substantial shareholder, in any transaction with the covered company or any of its related companies or substantial shareholders, other than such transactions that are conducted at arm’s length and could not materially interfere with or influence the exercise of his independent judgment;

• Is not affiliated with any non-profit organization that receives significant funding from the covered company or any of its related companies or substantial shareholders; and

• Is not employed as an executive officer of another company where any of the covered company’s executives serve as directors.

Related companies, as used in this section, refer to (a) the covered entity’s holding/parent company; (b) its subsidiaries; and (c) subsidiaries of its holding/parent company.

• Term of Independent Director

The Board’s independent directors shall serve for a maximum cumulative term of nine (9) years. After which, the independent director shall be perpetually barred from reelection as such in the same company, but may continue to qualify for nomination and election as a non-independent director. In the instance that a company wants to retain an independent director who has served for nine years, the Board shall provide meritorious justification/s and seek shareholders’ approval during the annual shareholders’ meeting.

• Chief Executive Officer

The CEO has the following roles and responsibilities, among others:

• Determines the Company’s strategic direction and formulates and implements its strategic plan on the direction of the business;

• Communicates and implements the Company’s vision, mission, values and overall strategy and promotes any organization or stakeholder change in relation to the same;

• Oversees the operations of the Company and manages human and financial resources in accordance with the strategic plan;

• Has a good working knowledge of the Company’s industry and market and keeps up-to-date with its core business purpose;

• Directs, evaluates and guides the work of the key officers of the Company;

• Manages the Company’s resources prudently and ensures a proper balance of the same;

• Provides the Board with timely information and interfaces between the Board and the employees;

• Builds the corporate culture and motivates the employees of the Company; and

• Serves as the link between internal operations and external stakeholders.

• Lead Director

The Board may, whenever practicable, designate a lead director among the independent directors if the Chairman of the Board is not independent, including a situation where the positions of the Chairman of the Board and Chief Executive Officer are held by one person.  The functions of the lead director include, among others, the following:

• Serves as an intermediary between the Chairman and the other directors when necessary;

• Convenes and chairs meetings of the non-executive directors; and

• Contributes to the performance evaluation of the Chairman, as required

6. Assessing Board Performance

The Board shall regularly carry out evaluations to appraise its performance as a body, and assess whether it possesses the right mix of backgrounds and competencies.

• The Board shall conduct an annual self-assessment of its performance, including the performance of the Chairman, individual members and committees. Every three years, the assessment may be supported by an external facilitator.

• The Board shall have in place a system that provides, at the minimum, criteria and process to determine the performance of the Board, the individual directors, committees and such system shall allow for a feedback mechanism from the shareholders.

7. Strengthening Board Ethics

• The Board shall 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 shall be properly disseminated to the Board, senior management and employees. It shall also be disclosed and made available to the public through the company website.

• The Board shall ensure the proper and efficient implementation and monitoring of compliance with the Code of Business Conduct and Ethics and internal policies.

II. DISCLOSURE AND TRANSPARENCY

 

8. Enhancing Company Disclosure Policies and Procedures

The Company shall establish corporate disclosure policies and procedures that are practical and in accordance with best practices and regulatory expectations.

• The Board shall establish corporate disclosure policies and procedures to ensure a comprehensive, accurate, reliable and timely report to shareholders and other stakeholders that gives a fair and complete picture of a company’s financial condition, results and business operations.

• All directors and officers shall disclose/report to the Company any dealings in the Company’s shares within three (3) business days.

• The Board shall 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.

• The company shall provide a clear disclosure of its policies and procedure for setting Board and executive remuneration, as well as the level and mix of the same in the Annual Corporate Governance Report. The Company shall also disclose the remuneration on an individual basis, including termination and retirement provisions

• The Company shall comply with the prescribed laws, rules and regulations relative to transactions involving related parties. The material or significant RPTs reviewed and approved during the year shall be disclosed in the Annual Corporate Governance Report.

• The Company shall 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. Moreover, the Board of the offeree company shall appoint an independent party to evaluate the fairness of the transaction price on the acquisition or disposal of assets.

• The Company’s corporate governance policies, programs and procedures shall be appended to this Manual on Corporate Governance, which shall be submitted to the regulators and posted on the company’s website.

9. Strengthening the External Auditor’s Independence and Improving Audit Quality

 

The Company shall establish standards for the appropriate selection of an external auditor, and exercise effective oversight of the same to strengthen the external auditor’s independence and enhance audit quality.

• The Audit Committee shall have a robust process for approving and recommending the appointment, reappointment, removal, and fees of the external auditor. The appointment, reappointment, removal, and fees of the external auditor shall be recommended by the Audit Committee, approved by the Board and ratified by the shareholders. For removal of the external auditor, the reasons for removal or change shall be disclosed to the regulators and the public through the company website and required disclosures.

• The Audit Committee Charter shall include the Audit Committee’s responsibility on assessing the integrity and independence of external auditors and exercising 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. The Charter shall also contain the Audit Committee’s responsibility on reviewing and monitoring the external auditor’s suitability and effectiveness on an annual basis.

• The company shall disclose the nature of non-audit services performed by its external auditor in the Annual Report to deal with the potential conflict of interest. The Audit Committee shall determine 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.

10. Increasing Focus on Non-Financial Sustainability Reporting

The company shall ensure that the material and reportable non-financial and sustainability issues are disclosed.

• The Board shall have a clear and focused policy on the disclosure of non-financial information, with emphasis on the management of economic, environmental, social and governance (EESG) issues of its business, which underpin sustainability. The Company shall adopt a globally recognized standard/framework in reporting sustainability and non-financial issues.

11. Promoting a Comprehensive and Cost-Efficient Access to Relevant Information

The company shall maintain a comprehensive and cost-efficient communication channel for disseminating relevant information. The company shall include media and analysts’ briefings as channels of communication to ensure the timely and accurate dissemination of public, material and relevant information to its shareholders and other investors.

III. INTERNAL CONTROL SYSTEM AND ENTERPRISE RISK MANAGEMENT FRAMEWORK

12. Strengthening the Internal Control System and Enterprise Risk Management Framework

The company shall have a strong and effective internal control system and enterprise risk management framework to ensure the integrity, transparency and proper governance in the conduct of its affairs.

• The Company shall have an adequate and effective internal control system and an enterprise risk management framework in the conduct of its business, taking into account its size, risk profile and complexity of operations.

• The Company shall have in place an independent internal audit function that provides an independent and objective assurance, and consulting services designed to add value and improve the company’s operations. The internal audit activity may be a fully resourced activity housed within the organization or may be outsourced to qualified independent third party service providers. The following are the functions of the internal audit, among others:

• Provides an independent risk-based assurance service to the Board, Audit Committee and Management, focusing on reviewing the effectiveness of the governance and control processes in (1) promoting the right values and ethics, (2) ensuring effective performance management and accounting in the organization, (3) communicating risk and control information, and (4) coordinating the activities and information among the Board, external and internal auditors, and Management;

• Performs regular and special audit as contained in the annual audit plan and/or based on the company’s risk assessment;

• Performs consulting and advisory services related to governance and control as appropriate for the organization;

• Performs compliance audit of relevant laws, rules and regulations, contractual obligations and other commitments, which could have a significant impact on the organization;

• Reviews, audits and assesses the efficiency and effectiveness of the internal control system of all areas of the company;

• Evaluates operations or programs to ascertain whether results are consistent with established objectives and goals, and whether the operations or programs are being carried out as planned;

• Evaluates specific operations at the request of the Board or Management, as appropriate; and

• Monitors and evaluates governance processes.

• The Board may appoint a qualified Chief Audit Executive (CAE) subject to the company’s size, risk profile and complexity of operations. . The CAE shall oversee and be responsible for the internal audit activity of the organization, including that portion that is outsourced to a third party service provider. In case of a fully outsourced internal audit activity, a qualified independent executive or senior management personnel shall be assigned the responsibility for managing the fully outsourced internal audit activity. The following are the responsibilities of the CAE, among others:

• Periodically reviews the internal audit charter and presents it to senior management and the Board Audit Committee for approval;

• Establishes a risk-based internal audit plan, including policies and procedures, to determine the priorities of the internal audit activity, consistent with the organization’s goals;

• Communicates the internal audit activity’s plans, resource requirements and impact of resource limitations, as well as significant interim changes, to senior management and the Audit Committee for review and approval;

• Spearheads the performance of the internal audit activity to ensure it adds value to the organization;

• Reports periodically to the Audit Committee on the internal audit activity’s performance relative to its plan; and

• The company shall have a Chief Risk Officer (CRO), who is the ultimate champion of Enterprise Risk Management (ERM) and has adequate authority, stature, resources and support to fulfill his/her responsibilities, subject to a company’s size, risk profile and complexity of operations. The CRO has the following functions, among others:

• Supervises the entire ERM process and spearheads the development, implementation, maintenance and continuous improvement of ERM processes and documentation;

• Communicates the top risks and the status of implementation of risk management strategies and action plans to the Board;

• Collaborates with the CEO in updating and making recommendations to the Board;

• Suggests ERM policies and related guidance, as may be needed; and

• Provides insights on the following:

• Risk management processes are performing as intended;
• Risk measures reported are continuously reviewed by risk owners for effectiveness; and
• Established risk policies and procedures are being complied with

 

IV. CULTIVATING A SYNERGIC RELATIONSHIP WITH SHAREHOLDERS

13. Promoting Shareholder Rights

The company shall treat all shareholders fairly and equitably, and also recognize, protect and facilitate the exercise of their rights.

• It is the duty of the Board to promote the rights of the stockholders, remove impediments to the exercise of those rights and provide an adequate avenue for them to seek timely redress for breach of their rights. Shareholders’ rights relate to the following, among others:

• Pre-emptive rights;
• Dividend policies;
• Right to propose the holding of meetings and to include agenda items ahead of the scheduled Annual and Special Shareholders’ Meeting;
• Right to nominate candidates to the Board of Directors;
• Nomination process; and
• Voting procedures that would govern the Annual and Special Shareholders’ Meeting.

• The Board shall 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.

• The Board shall encourage active shareholder participation by making the result of the votes taken during the most recent Annual or Special Shareholders’ Meeting publicly available the next working day. In addition, the Minutes of the Annual and Special Shareholders’ Meeting shall be available on the company website within five business days from the end of the meeting.

• The Board shall make available, at the option of a shareholder, an alternative dispute mechanism to resolve intra-corporate disputes in an amicable and effective manner.

• The Board shall establish an Investor Relations Office (IRO) to ensure constant engagement with its shareholders. The IRO shall be present at every shareholders’ meeting.

V. DUTIES TO STAKEHOLDERS

 

14. Respecting Rights of Stakeholders and Effective Redress for Violation of Stakeholders’ Rights

The rights of stakeholders established by law, by contractual relations and through voluntary commitments shall be respected. Where stakeholders’ rights and/or interests are at stake, stakeholders shall have the opportunity to obtain prompt effective redress for the violation of their rights.

• The Board shall identify the company’s various stakeholders and promote cooperation between them and the company in creating wealth, growth and sustainability.

• The Board shall establish clear policies and programs to provide a mechanism on the fair treatment and protection of stakeholders.

• The Board shall adopt a transparent framework and process that allow stakeholders to communicate with the company and to obtain redress for the violation of their rights.

15. Encouraging Employees’ Participation

A mechanism for employee participation shall be developed to create a symbiotic environment, realize the company’s goals and participate in its corporate governance processes.

• The Board shall establish policies, programs and procedures that encourage employees to actively participate in the realization of the company’s goals and in its governance. The policies, programs and procedure may focus on, among others, the following: (1) health, safety and welfare; (2) training and development; and (3) reward/compensation for employees.

• The Board shall set the tone and make a stand against corrupt practices by adopting an anti-corruption policy and program in its Code of Conduct. Further, the Board shall disseminate the policy and program to employees across the organization through trainings to embed them in the company’s culture.

• The Board shall establish a suitable framework for whistleblowing that allows employees to freely communicate their concerns about illegal or unethical practices, without fear of retaliation and to have direct access to an independent member of the Board or a unit created to handle whistleblowing concerns.

16. Encouraging Sustainability and Social Responsibility

 

The company shall be socially responsible in all its dealings with the communities where it operates. It shall 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 shall 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.

APPROVED by the Board of Directors during the Regular Meeting held on 03 May 2017 at Makati City.

_______________________________ MARTIN IGNACIO P. LORENZO Chairman of the Board
____________________________ FERNANDO C COJUANGCO Director	__________________________ MARCO P. LORENZO Director
___________________________ FERNAN VICTOR P. LUKBAN Director	__________________________ VIGOR D. MENDOZA II Director
__________________________ RENATO B. PADILLA Independent Director	__________________________ BENJAMIN I. ESPIRITU Independent Director

[1] Committee of Sponsoring Organizations of the Treadway Commission (COSO Framework)

[2] Section 2, Article IV of the Amended By-Laws

[3] Section 7, Article II of the Amended By-Laws

[4] Section 6, Article II of the Amended By-Laws

[5] Section 1, Article III of the Amended By-Laws

[6] Section 3, Article III of the Amended By-Laws

[7] As defined under the Code of Ethics for Professional Accountants

[8] Section 1, Article III of the Amended By-Laws