Reconstitution of the SEC as the lead agency to advance CG reform in the private enterprise sector
Ohen we consider that the old company code operated under the universally accepted principle of “maximizing shareholder value”, it was not surprising that the Security and Exchange Commission (SEC) set out to pursue corporate governance reforms. companies (CG) according to the principle of “non-penalty”. approach” in the original CG Code, since it introduced what was then the minority school of thought, “stakeholder theory”, and invoked the “State policy to actively promote corporate governance reforms”. aiming to increase investor confidence, develop the capital market and help achieve sustained high growth for the business sector and the economy. The CG reforms under the old Companies Code were really an experiment in adding stakeholder theory to the well-established doctrine of maximizing shareholder value statutorily enshrined in the old Companies Code.
The Revised Companies Code adopted many of the CG reforms undertaken by the SEC through its various CG codes and publications, and established the SEC as the lead agency for advancing the reform movement in the private corporate sector. , in particular for public companies and other companies. whose companies are vested with public interests.
Like its counterpart in the public enterprise sector, namely the GOCC Governance Commission (GCG), the SEC, under the Revised Companies Code, was reconstituted as “the principal regulatory, control and oversight, empowered to formulate, implement and coordinate policies aimed at ensuring good corporate governance for the private business sector”, through the following sections:
(a) SECTION 22: Grants the SEC the power to:
(i) Classify companies as invested in the public interest, after considering relevant factors that are relevant to the objective and purpose of requiring the election of an independent director, such as the scope of the minority interest, type of financial products or securities issued or offered to investors, public interests involved in the nature of business operations and other similar factors; and,
(ii) Issue rules and regulations governing qualification, disqualifications, voting requirements, term limits and term limits, maximum number of board members of independent directors and other requirements that the SEC will prescribe “to reinforce their independence and align with international best practices”. ”;
(b) SECTION 26: Expressly acknowledges the authority of the SEC to provide additional qualifications or other disqualifications for directors, trustees andFicers under the aegis that the SEC is the “primary regulatory agency” in the promotion of good GC or as a sanction in its administrative procedures;
(c) SECTION 49: Expressly recognizes the power of the SEC to require that other matters be reported by the board of directors to shareholders or members at the regular meeting “in the interest of good governance corporate governance and the protection of minority shareholders”;
(d) SECTIONS 154-156: Granting the SEC powers to investigate and prosecute an alleged violation of the RCCP, or a rule, regulation or order of the SEC itself, with full authority to administer oaths, issue subpoenas for witnesses and documents, and issue cease and desist orders;
(e) SECTION 157: Grants the SEC the power to hold, after due notice and hearing, in contempt and to impose administrative penalties on any person who, without cause, fails or refuses to comply with any legal order, decision, or subpoena issued by the SEC;
(f) SECTION 158: Grants the SEC authority to impose, after due notice and hearing, any of the following administrative penalties for violations of any provision of the RCCP, rules or regulations, or of one of the SEC orders, as follows:
(i) Imposing a Ifranging from 5,000 to 2 million pesos and no more than 1,000 pesos for each day of continued violation, but in no case exceeding 2 million pesos;
(ii) Issue a permanent cease and desist order;
(iii) Suspension or revocation of the certificate of incorporation; and
(iv) Dissolution of the company and forfeiture of its assets under the conditions of Title XIV of the RCCP;
(g) SECTION 178: Grants the SEC “all company visitation powers,” which include reviewing and inspecting records, regulating and supervising activities, enforcing compliance, and imposition of sanctions in accordance with the Code;
(h) SECTION 179: Includes the following among the powers, duties and jurisdiction of the SEC under the Revised Companies Code, as well:
(i) Impose penalties for violations of the RCCP, its rules of application and the orders of the SEC;
(ii) Promote CG and the protection of minority investors, through, inter alia, the promulgation of rules and regulations consistent with international best practices;
(iii) prescribing the number of independent directors and the minimum criteria for determining a director’s independence;
(iv) Imposing or recommending new modes by which a shareholder, member, director or trustee may attend meetings or vote, to the extent that technology permits, taking into account the size of the company, the number shareholders or members, structure and other factors consistent with the fundamental right of corporate suffrage; and,
(v) Formulate and enforce standards, guidelines, policies, rules and regulations to implement the provisions of the RCCP.
In addition, the SEC is granted jurisdictional or quasi-judicial powers to adjudicate summarily on the following CG issues, most of which did not appear in the former Companies Code, as follows:
(a) SECTION 17: Where the Company fails to comply with the SEC’s order to cease and desist from using an unauthorized name, the SEC may hold the Company and its directors liable orIfcensors in contempt and/or hold them administratively, civilly and/or criminally liable under the RCCP and other applicable laws, and/or revoke the company’s registration.
(b) SECTION 25: With respect to the election of directors or trustees andIfcer, grants the SEC the power to:
(i) Order summarily that an election be held if there has been a failure to elect directors or trustees within the prescribed time or to postpone the election dates;
(ii) Issue such orders as may be appropriate, including orders directing the publication of a notice setting out the time and place of the election, the president-elect and the date or dates of record for the determination of shareholders or members entitled to vote.
(c) ARTICLE 27.- In the event of disqualificationIfed director or trustees, granting the SEC —
(i) The power to, motu owner or upon verified complaint, and after due notice and hearing, order the removal of an elected director or trustee notwithstanding disqualificationIfcation, or whose disqualification arose or is discovered following an election;
(ii) The removal of a disqualified director is without prejudice to any other sanctions that the SEC may impose on members of the Board of Directors who, having knowledge of the disqualification, have not removed such director or trustee;
(d) SECTION 73.- Within five days of receiving a report from an aggrieved party who has been denied the right of inspection and/or reproduction, the SEC shall conduct a summary investigation and issue an order directing inspection or reproduction of the requested document. recordings.
The SEC has certainly been given “awesome powers” to promote good CG. The propensity with which the SEC invokes its impressive regulatory, quasi-legislative and quasi-judicial powers under the Revised Companies Code vis-à-vis the “comply or explain” approach championed in its 2015 CG Blueprint, will have certainly a big impact on as part of the continued GC reform in the private enterprise sector of the Philippines.
As a preliminary, it may be noted that under the aegis of the Revised Companies Code, the SEC, under the chairmanship of Emilio B. Aquino, published in November 2019, the CG Code for Public Companies and Public Issuers, which retained the same framework as the CG Code for PLCs, including its “comply or explain” approach.
This article reflects the personal opinion of the author and does not reflect the official position of the Philippine Management Association or MAP.
Atti. Cesar L. Villanueva is co-chair for governance of the MAP committee on ESG, president of the Institute of Corporate Directors (ICD), first chair of the GOCC Governance Commission (GCG), former dean of the law school Ateneo and founding partner of Law Firms Villanueva Gabionza & Dy.