CORPORATE

GOVERNANCE IN THE
PHILIPPINE SETTING
Archie D. Guevarra, CPA
February 26, 2019
• Points of Discussion
• Legal theory of Philippine Corporate Law
• Corporate Social Responsibility within the
Philippine Corporate Governance System
• Jurisprudence on Philippine Corporate
Governance
• Some of the Salient Corporate Governance
Provisions under the Revised Corporation
Code
Philippine Corporate Law as a direct transplant of American
Corporate Law which is a product of a common law system
operating within a hybrid legal system.

LEGAL THEORY OF PHILIPPINE

CORPORATE LAW
Corporation Code vis-à-vis Civil Code
• The high regard to the Civil Code cannot also be accorded with
Corporation Code.
• The Civil Code embodies the “timeless truths” since it goes into the
very essence of man and woman and their relationship.
• The Corporation Code is meant to be a collection of accepted
practices and customs of businessmen regarding the corporate
vehicle.

LEGAL THEORY OF PHILIPPINE

CORPORATE LAW
Three (3) views from which to judge the proper role of the
corporation
• State
• Businessmen and investors
• Society

LEGAL THEORY OF PHILIPPINE

CORPORATE LAW
Moving towards the stakeholder theory
• Bangko Sentral ng Pilipinas
• Securities and Exchange Commission
• Insurance Commission

CORPORATE SOCIAL RESPONSIBILITY WITHIN

THE PHILIPPINE CORPORATE GOVERNANCE
SYSTEM
Assessment of the State of CSR in Philippine Jurisdiction:
• Re-affirmation of the primary role of the Board of Directors (BOD)
• Mixing up of principle based and rules based approach
• Qualifications of directors
• Empowerment of the BOD
• Protection of Minority shareholders

CORPORATE SOCIAL RESPONSIBILITY WITHIN

THE PHILIPPINE CORPORATE GOVERNANCE
SYSTEM
SEC Advisory: March 30, 2015
Recommended best practices
1. Chairman and CEO should be separate individuals;
2. Chairman should not have been company’s CEO in the last 3 years;
3. Independent and non-executive director should not hold more than 5 concurrent board seats in Publicly Listed Companies;
4. At least one (1) female independent director;
5. Notice of Annual Stockholders Meeting should be released 28 days before the meeting;
6. Audited financial statements should be released within 60 days from end of fiscal year;
7. Nominating committee entirely independent directors;
8. Use of professional firms or external sources in search for candidates to BOD
9. Separate board level for Risk Committee
10. Independent non-executive directors should make up at least 50% of the board
11. Term limit of 9 years for independent directors
12. Reporting framework should be consistent with Global Reporting Initiative and International Integrated Reporting Council

CORPORATE SOCIAL RESPONSIBILITY WITHIN

THE PHILIPPINE CORPORATE GOVERNANCE
SYSTEM
Prime White Cement Corp. vs. Intermediate Appellate Court
A director of a corporation holds a position of trust and as such, he owes a
duty of loyalty to his corporation. In case his interests conflict with those of
the corporation, he cannot sacrifice the latter to his own advantage and
benefit. As corporate managers, directors are committed to seek the
maximum amount of profits for the corporation.

Montelibano vs. Bacolod-Murcia Milling Co., Inc.

Whether or not a valid and binding resolution passed by the board of
directors, will cause losses or decrease the profits of the corporation, may
not be reviewed by the courts.

JURISPRUDENCE ON PHILIPPINE
CORPORATE GOVERNANCE
Board of Liquidators vs Kalaw
Where similar acts have been approved by the directors as a matter of
general practice, custom, and policy, the general manager may bind the
company without formal authorization of the board of directors.

Pirovano, et al. vs. De la Rama Steamship Co.

The ratification by the stockholders of an ultra vires act which is not illegal
cures the infirmity of the corporate act and makes it perfectly valid and
enforceable, specially so if it is not merely executory but executed and
consummated and no creditors are prejudiced thereby

JURISPRUDENCE ON PHILIPPINE
CORPORATE GOVERNANCE
Boman Environmental Dev't. Corp. vs. Court of Appeals
The requirement of unrestricted retained earnings to cover the shares is based
on the trust fund doctrine which means that the capital stock, property and
other assets of a corporation are regarded as equity in trust for the payment of
corporate creditors.

Professional Services, Inc. vs. Court of Appeals

The corporate negligence doctrine imposes several duties on a hospital: (1) to
use reasonable care in the maintenance of safe and adequate facilities and
equipment; (2) to select and retain only competent physicians; (3) to oversee as
to patient care all persons who practice medicine within its walls; and (4) to
formulate, adopt, and enforce adequate rules and policies to ensure quality
care for its patients.

JURISPRUDENCE ON PHILIPPINE
CORPORATE GOVERNANCE
• Election of independent directors which must constitute at least 20% of
the board for corporations vested with public interest; (Sec. 22)
• Additional criteria for disqualifications (Sec. 26)
• Inclusion of SEC’s right to remove directors or trustees; (Sec. 27)
• Prohibition of directors/trustees in their participation on the determination
of their per diem/compensation (Sec. 29)
• Annual report of the total compensation of each directors/trustees (Sec.
29)
• Creation of special committees of temporary or permanent in nature
(Sec. 34)

SOME OF THE SALIENT CORPORATE

GOVERNANCE PROVISIONS UNDER THE
REVISED CORPORATION CODE