The Monetary Board (MB) approved the amendments to the BSP corporate governance guidelines raising the bar on the expectations from the board of directors and risk management systems of its supervised financial institutions (BSFIs).
The policy change, which is anchored on the fundamental principle that the tone of good governance should come from the top, sets out enhanced requirements on the membership composition of the board. This is aimed at ensuring that the board of directors is comprised of a collective mix of individuals who possess the expertise and competence to effectively manage the financial institution. The amendments also aim to promote an environment that fosters critical exchange of views and exercise of objective judgment.
The approved policy requires non-executive directors, who shall include independent directors, to comprise majority of the board. Moreover, the prescribed number of independent directors was increased from 20 percent to one-third of the members of the board, or 2 directors, whichever is higher. On the other hand, consistent with the proportionality principle, the MB retained the existing requirement for simple rural banks to have only one independent director. The policy further provides that an independent director may only serve as such for a maximum cumulative term of nine (9) years and that a non-executive director may concurrently serve as director in a maximum of five (5) publicly listed companies.
Also, to promote independence of the board from management and to support an environment where the board can sufficiently challenge the actions of those involved in operations, the new policy provides that the positions of Chairperson and Chief Executive Officer shall not be held by one (1) person. In exceptional cases when the Chairperson and the CEO is held by one (1) person as approved by the MB, a lead independent director shall be appointed.
Overall, the BSP expects the members of the board to promote a culture of good governance by adopting policies and displaying practices that maintain a balance between rewarding effective and efficient performance and upholding consistent adherence with the values of the organization. In this respect, duties and responsibilities of the board of directors were streamlined highlighting accountabilities in five (5) key areas specifically related to: (a) shaping the corporate culture and values; (b) setting out objectives and strategies and oversight on Management’s implementation thereof; (c) appointing key members of senior management and control functions; (d) overseeing the corporate governance framework; and (e) adopting a robust risk governance framework.
The MB likewise defined the supervisory expectations and minimum prudential requirements on risk governance and compliance functions. The policy provides a framework for risk governance that integrates the principles set out in other risk-related issuances of the BSP under one umbrella. It likewise covers principles on risk data aggregation and risk reporting. Further, the guidelines provide the role of the board of directors in establishing a dynamic and responsive compliance risk management system, and emphasize the shared responsibility of all personnel, officers, and the board in managing business risk.
The amendments to the corporate governance guidelines are aimed at promoting prudence and greater accountability in line with the implementation of continuing reforms in the financial sector. The approved standards are at par with international standards and are likewise aligned with the Securities and Exchange Commission’s (SEC) Code of Corporate Governance for Publicly-Listed Companies. This is part of the commitment of the financial sector supervisors to enhance corporate governance practices in the country.