The most profound effects of the Revised Corporation Code in the pursuit of corporate governance (CG) reforms in the private corporate sector may be grouped into three areas, namely:
First, the granting of statutory foundation to the CG principles and best-practices championed by the Securities and Exchange Commission (SEC) in the private corporate sector, highlighted by the formal recognition of “corporations vested with public interest.”
Second, the reconstitution of the SEC as the primary regulatory agency to evolve the CG reforms through the expansion and institutionalization of the SEC’s power to impose administrative sanctions for any violation of the provisions of the Revised Corporation Code, and any rules or regulations issued pursuant thereto, and expressly making it separate and distinct from its power to cite in contempt for violation of any of its orders.
Third is what we term as the “over-criminalization of corporate governance practice” effected by retaining the general criminal sanction for any violation of the provisions of the Revised Corporation Code which is not specifically penalized, while providing for several criminal penalties for various broad and specific malpractices in CG, separate and distinct from the imposition of administrative sanctions by the SEC, and without prejudice to the penalties imposed on the same infraction that may be punishable under other laws, such as the Securities Regulation Code.
The paper undertakes an evaluation of the extent by which the CG principles and best-practices championed by the SEC have been grafted into the Revised Corporation Code of the Philippines (RCCP). In particular, it analyzes the effects of the new administrative sanctions that may now be imposed by the SEC and the criminal penalties that are imposed for CG infractions and felonies now expressly provided under the RCCP.
The paper also assesses the heightened fiduciary duties of competency, transparency, accountability and responsibility, and the newly minted duty to maintain and disclose corporate records, imposed on directors, trustees, and officers of corporations vested with public interests. In particular, it evaluates the means to avoid the landmines that have in effect been planted in what is now the rough CG terrain laid-out under the RCCP.
Finally, the work evaluates the institutional framework that is being adopted by the SEC in pursuing CG reforms in the Philippine corporate sector under what we term as the “overly-criminalized corporate governance provisions of the Revised Corporation Code.”
In order to better appreciate the profound effects of the CG reforms undertaken within the provisions of the RCCP, it would be very useful to revisit how the SEC approached CG reforms under the aegis of the old Corporation Code.
‘CAPTIVATING THE MINDS AND HEARTS’ AS THE PRIMARY BASIS OF CG REFORMS
When the first formal code of CG for publicly held companies (PHCs) was issued by the SEC in April 2002, it contained no penal provision other than an administrative sanction for failure of a covered PHC to file with the SEC its manual of CG. More significantly, the original CG Code introduced the Stakeholder Theory as the centerpiece of the CG reforms within the PHCs sector, thus: “Corporate Governance refers to a system whereby shareholders, creditors and other stakeholders of a corporation ensure that management enhances the value of the corporation as it competes in an increasingly global marketplace.”
The “no-sanction approach” taken by the SEC under the original CG Code stood in stark contrast to the contemporary CG circulars issued by the Bangko Sentral ng Pilipinas (BSP) that provided for distinct sets of administrative penalties for offending banks, their directors and officers. The philosophical stance taken…