The Securities and Exchange Commission (SEC) will soon require public companies and registered issuers to submit an Annual Corporate Governance Report (ACGR), as part of efforts to develop a strong corporate governance culture in the country.
Under the proposed guidelines released for public comment on June 25, public companies and registered issuers will have to report their compliance or noncompliance with SEC Memorandum Circular No. 24, series of 2019, or the Code of Corporate Governance for such corporations.
As defined under the Code, public companies are those with assets of at least P50 million and having 200 or more shareholders holding at least 100 shares each of equity securities.
Registered issuers, meanwhile, refer to companies, which issue proprietary and/or non-proprietary shares or certificates; equity securities offered to the public but are not listed in an exchange; or debt securities offered to the public and required to be registered with the SEC, whether or not listed in an exchange.
The Code promotes 16 principles across different corporate governance subjects, namely: board’s governance responsibilities, disclosure and transparency, internal control and risk management frameworks, cultivating a synergic relationship with shareholders/members, and duties to stakeholders.
The Code adopts a comply-or-explain approach to allow companies flexibility in establishing their corporate governance practices, in line with the principle of proportionality.
While not required to comply with the corporate governance principles, public companies and registered issuers must state in their ACGR whether they comply with the Code’s provisions, identify any areas of non-compliance, and explain the reasons for non-compliance.
Under the proposed guidelines, public companies and registered issuers will have to submit their ACGR using the proposed SEC Form-ACGR on or before May 30 while they qualify as such. For the period covering January to December 2021, the ACGR must be submitted on or before May 30, 2022.
The ACGR shall cover all relevant information from January to December of the given year regardless of registration date. However, for their first submission, companies may indicate that they are “newly registered” in the explanation portion of the ACGR.
Public companies and registered issuers will be required to submit three copies of the fully accomplished form to the SEC main office or the nearest extension office. At least one copy must be duly notarized and bear the original and manual signatures of the company’s chairman of the board, chief executive officer or president, all independent directors, compliance officer, and corporate secretary.
Aside from the ACGR, newly registered public companies and registered issuers must file their Manual on Corporate Governance with the Commission, in accordance with SEC Memorandum Circular No. 24, series of 2019, and SEC Memorandum Circular No. 19, series of 2020.
Public companies and registered issuers, which are listed on the Philippine Stock Exchange, are excluded from the new guidelines. The Commission required publicly listed companies to submit their ACGR earlier through SEC Memorandum Circular No. 15, series of 2017.
Once the new guidelines take effect, public companies and registered issuers will no longer have to comply with Sections 15 and 16 of SEC Memorandum Circular No. 3, series of 2007, or the Amendments of Reportorial Requirements, for the covered period, January to December 2021.
Section 15 of the 2007 memorandum circular mandates the submission of a certificate of compliance with the Manual of Corporate Governance for covered entities, including registered issuers, while Section 16 provides for the submission of a certificate of attendance of directors in board meetings for covered companies, including registered issuers.
Late or non-submission of the ACGR could lead to a basic penalty of P20,000 plus a monthly penalty of P2,000. Incomplete disclosures, such as those with no explanation provided and no alternative practices to achieve overall principle, will lead to a penalty of P10,000 and a monthly penalty of P1,000.
Meanwhile, public companies and registered issuers that will commit misrepresentation or provide misinformation in their ACGR will be subject to a penalty of P50,000 and a monthly penalty of P5,000. Those with incomplete or incorrect signatories will be fined for P5,000 plus P500 monthly.
The public may access the draft Memorandum Circular on Annual Corporate Governance Report for Public Companies and Registered issuers on the SEC website. All interested parties have until July 9, 2021 to submit their comments and inputs, using the template provided, through email at [email protected]. (SEC) – jlo
