Manual on Corporate Governance
UNIONBANK OF THE PHILIPPINES (the “Bank”or “UBP”) and its wholly owned subsidiaries understand that it is paramount that they set the kind of corporate governance needed in the attainment of their corporate goals. The aim of this Revised Manual on Corporate Governance (the “Manual”) is to institutionalize the principles of good corporate governance and set the duties owed by the Board of Directors and management to the individual companies.
This Manual is our adaptation of the Corporation Code of the Philippines, Manual of Regulations for Banks and for Non-bank Financial Institutions, Securities Regulation Code and other related literatures.
The Board of Directors and Management of the Bankand its subsidiaries hereby commit themselves to the principles of good governance as set in this Manual.
- COMPOSITION OF THE BOARD
There shall be at least five (5), and a maximum of fifteen (15) members of the Board of Directors of the Bank. In case of the Bank, which is publicly listed, two (2) of the members shall be independent directors. In case of unlisted subsidiaries, no independent directors shall be required.
Directors shall include:
1.1. Directors who are named as such in the articles of incorporation;
1.2. Directors duly elected in subsequent meetings of the stockholders; and
1.3. Those elected to fill vacancies in the Board of Directors.
- Independent Director
An independent director shall mean anyperson who –
2.1. Is not or has not been an officer or employee of the Bank, its subsidiaries or affiliates or related interests during the past three (3) years counted from the date of his election;
2.2. Is not a director or officer of the related companies of theBank’s majority stockholder;
2.3. Is not a majority shareholder of the Bank, any of its related companies, or of its majority shareholder;
2.4. Is not a relative within the fourth degree of consanguinity or affinity, legitimate or common-law of any director, officer or majority shareholder of the Bank, or any of its related companies;
2.5. Is not acting as a nominee or representative of any director or substantial shareholder of the bank any of its related companies or any of its substantial shareholders; and
2.6. Is free from any business or other relationship with the institution or any of its major stockholders which could materially interfere with the exercise of his judgment, i.e., has not engaged and does not engage in any transaction with the Bank, any of its related companies or any of its substantial shareholders, whether by himself or with other persons or through a firm of which he is a partner or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arms length and could not materially interfere or influence with the exercise of his judgments.
- Holder of at least one (1) share of stock of the corporation;
- He shall be at least a college graduate or have sufficient experience in managing the business to substitute for such formal education;
- He must have attended a special seminar for board of directors conducted or accredited by the Bangko Sentral. Incumbent directors as well as those who will be elected after the approval of Circular No. 296 must attend said seminar within a period of six (6) months from the date of this circular or from the date of their election, as the case may be;
- He shall be at least twenty-five (25)years old or the minimum age requirement for Directors by Bangko Sentral;
- He must be fit and proper for the position of a director of the bank or subsidiary corporation, as the case may be under the terms and conditions required by Bangko Sentral. In determining whether a person is fit and proper for the position of a director, the following matters must be considered:
- diligence; and
- He shall be assiduous.
Without prejudice to specific provisions of law prescribing disqualifications for directors, the following are disqualified from becoming directors:
- Any person finally convicted judicially of an offense involving moral turpitude or fraudulent act or transgressions;
- Any person finally found by the Securities and Exchange Commission (hereinafter referred to as “SEC” or “Commission”)or a court or other administrative body to have willfully violated, or willfully aided, abetted, counseled, induced or procured the violation of, any provision of the Securities Regulation Code, the CorporationCode, or any other law administered by the Commission or Bangko Sentral ng Pilipinas, or any rule, regulation or order of the Commission or Bangko Sentral ng Pilipinas;
- Any person judicially declared to be insolvent, spendthrift or incapacitated to contract;
- Any person finally found guilty by a foreign court or equivalent financial regulatory authority of acts, violations or misconduct similar to any of the acts, violations or misconduct listed in the foregoing paragraphs;
- Conviction by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of the Corporation Code, committed within five (5) years prior to the date of his election or appointment; and
- Directors, officers or employees of closed banks/quasi-banks/trust entities who were responsible for such institution’s closure as determined by the Monetary Board.
(disqualified for a specific/indefinite period of time)
- Refusal to fully disclose the extent of his business interest as required under the Securities Regulation Code and its Implementing Rules and Regulations, other provision of law or of a circular, memorandum or rule or regulation of the BSP. This disqualification shall be in effect as long as his refusal persists;
- Absence or non-participation for whatever reason/s for more than fifty percent (50%) of all meetings, both regular and special, of the Board of Directors during his incumbency, or any twelve (12) month period during said incumbency. This disqualification applies for purposes of the succeeding election
- Dismissal/termination from directorship in another listed bank for cause. This disqualification shall be in effect until he has cleared himself of any involvement in the alleged irregularity;
- Persons who are delinquent in the payment of their obligations as defined hereunder:
- Delinquency in the payment of obligations means that an obligation of the Director with the Bank or any of its subsidiaries, or at least two obligations with other banks/financial institution, under different credit lines or loan contracts, are past due pursuant to Secs. X306 of the Manual of Regulationsfor Banks, and Sec. 4308Q of the Manual of Regulations for Non-Bank Financial Institutions ;
- Obligations shall include all borrowings from a Bank obtained by:
- A director for his own account or as the representative or agent of others or where he/she acts as a guarantor, indorser, or surety for loans from such financial institutions;
- The spouse or child under the parental authority of the director;
- Any person whose borrowings or loan proceeds were credited to the account of, or used for the benefit of a director;
- A partnership of which a director or his/her spouse is the managing partner or a general partner owning a controlling interest in the partnership; and
- A corporation, association or firm wholly-owned or majority of the capital of which is owned by any or a group of persons mentioned in the foregoing Items (i),(ii) and (iv);
This disqualification shall be in effect as long as the delinquency
- Persons convicted for offenses involving dishonesty, breach of trust or violation of banking laws but whose conviction has not yet become final and executory;
- Directors and officers of closed banks/quasi-banks/trust entities pending their clearance by the Monetary Board;
- Directors disqualified for failure to observe/discharge their duties and responsibilities prescribed under existing regulations. This disqualification applies until the lapse of the specific period of disqualification or upon approval by the Monetary Board on recommendation by the appropriate supervising and examining department of such directors’ election/reelection;
- Directors who failed to attend the special seminar for board of directors required under item 3 of subsecs. X141.2/4141Q.2. This disqualification applies until the director concerned had attended such seminar;
- Persons dismissed/terminated from employment for cause.This disqualification shall be in effect until they have cleared themselves of involvement in the alleged irregularity;
- Persons with derogatory records with the National Bureau of Investigation (NBI), court, police, interpol and monetary authority (central bank) of other countries (for foreign directors and officers) involving violation of any law, rule or regulation of the Government or any of its instrumentalities adversely affecting the integrity and/or ability to discharge the duties of the Bank. Thisdisqualification applies until they have cleared themselves of involvement in the alleged irregularity;
- Being under preventive suspension by UBP or any of its subsidiaries;
- If the independent director becomes an officer or employee of UBP or any of its subsidiaries, he shall be automatically disqualified from being an independent director;and
- Conviction that has yet become final referred to in the grounds for the
disqualification of directors.
Directors elected or appointed without possessing the qualifications above-mentioned or possessing any of the disqualifications as enumerated herein, shall vacate their respective positions immediately.
- RESPONSIBILITIES, DUTIES AND FUNCTIONS OF THE BOARD
Compliance with the principles of good corporate governance shall start with the Board of Directors.
It shall be the responsibility of each Board to foster the long-term success of the Bank and secure its sustained competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercise in the best interest of the Bank, their shareholders and other stakeholders. Each Board shall conduct themselves with utmost honesty and integrity in the discharge of its duties, functions and responsibilities.
General Responsibility. A director’s office is based on trust and confidence. He shall act in a manner characterized by transparency, accountability and fairness.
Specific Duties and Functions. To insure a high standard of best practice for the Bank, its wholly owned subsidiaries and their stakeholders, each Board of shall:
- Install a process of selection to ensure a mix of competent directors and officers;
- Determine each corporations’ purpose, their visions and missions and strategies to carry out their objectives;
- Ensure that the Bank complies with all relevant laws, regulations and codes of best business practices;
- Identify the corporations’ major and other stakeholders and formulate a clear policy on communicating or relating with them through an effective investor relations program;
- Adopt a system of internal checks and balances;
- Identify key risk areas and key performance indicators and monitor these factors with due diligence;
- Properly discharge Board functions by meeting regularly. Independent views during Board meetings shall be given due consideration and all such meetings shall be duly minuted;
- Keep Board authority within the powers of the institution as prescribed in the Articles of Incorporation, By-Laws and in existing laws, rules and regulations;
- Formulate and implementpolicies and procedures that would ensure the integrity and transparency of related party transactions; and
- Establish and maintain an alternative dispute resolution system in the Bank that can amicably settle conflicts or differences between the corporation and its stockholders, and the corporation and third parties, including the regulatory authorities.
- DUTIES AND RESPONSIBILITIES OF A DIRECTOR
A director shall have the following duties and responsibilities:
- To conduct fair business transaction with the corporation and to ensure that personal interest does not bias Board decisions;
- To devote time and attention necessary to properly discharge his duties and responsibilities;
- To act judiciously;
- To exercise independent judgment;
- To have a working knowledge of the statutory and regulatory requirements affecting the corporation he is representing, including the contents of its Articles of Incorporation and By-Laws, the requirements of the Commission, and where applicable, the requirements of other regulatory agencies;
- To observe confidentiality;and
- To ensure the continuing soundness, effectiveness and adequacy of the corporation control environment.
- THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER
The Chairman shall preside at all meetings of the stockholders and of the Board of Directors.
The duties and responsibilities of the Chairman may include, among others, the
- Ensure that the meetings of the Board are held in accordance with the by-laws or as the Chairman may deem necessary;
- Supervise the preparation of the agenda of the meeting in coordination with the Corporate Secretary, taking into consideration the suggestions of the CEO, Management and the directors;
- Maintain qualitative and timely lines of communication and information between the Board and Management;
- Ensure that the Board is properly organized, effective and meet its duties and responsibilities, including those relating to corporate governance matters;
- Facilitate the operations and deliberations of the Board and the fulfillment of the Board’s role and responsibilities under its mandate;
- Work with the CEO to ensure management strategies, plans and performance presented to the Board;
- To lead the Board in determining that the Bank has an effective senior management team;
- Ensure that the views of shareholders are communicated to the Board; and
- Ensure that the Bank abides by its by-laws and established policies.
The Chief Executive Officer (CEO) shall be responsible for thegeneral supervision, administration and management of the business of the Bank.
The CEO shall have, among others, the following duties and responsibilities:
- Develop and recommend strategic plans to the Board that ensure the Bank’s profitable growth and achievement of its business objectives;
- Successfully implement the strategic plans approved by the Board;
- Review and report regularly to the Board on the Bank’s overall progress against its business and financial plans and objectives;
- Ensure effective disclosure control, internal controls and management information systems are in place;
- Manage and oversee the required disclosure and other communications between the Corporation, shareholders, stakeholders and the public;
- Ensure that the Bank maintains high standards of ethics, corporate citizenship and social responsibility; and
- Such other duties and responsibilities as may be imposed on the CEO by the Board of Director
The positions of Chairman and CEO may be unified and held by one person. In such a case, proper checks and balances shall be laid down to ensure that the Board gets the benefit of independent views and perspectives.
- BOARD COMMITTEES
To aid in complying with the principles of good corporate governance, the Board of the Bank shall constitute Committees as may be applicable.
- Executive Committee
There shall be an Executive Committee consisting of seven (7) directors to be designated by the Board of Directors. The Executive Committee shall have and exercise such functions and powers which are reserved for the Board during intervals between meetings of the Board of Directors, except the power to initiate reversals of, or departure from fundamental policies, procedures and guidelines prescribed by the Board of Directors, and such other restrictions as the Board may determine, including the limitation of their functions to those which are recommendatory or advisory; provided that all matters passed and acted upon by the Executive Committee shall be reported to the Board of Directors and be subject to revision or alterations by the Board of Directors provided that no rights or third persons are affected thereby.
- Corporate Governance Committee
The Corporate Governance Committee shall assist the Board of Directors in fulfilling its Corporate Governance Responsibilities. The Committee shall serve as the primary resource for the Board to study, evaluate and make recommendations about the structure, charter, policies and practices of the Board and its committees and to address issuesof corporate governance. It shall review and evaluate the qualifications of all persons nominated to the board as well as those nominated to other positions requiring appointment by the Board of Directors.
The Corporate Governance Committee shall be composed of at least six (6) members of the Board of Directors, two (2) of whom shall be independent directors, and one (1) of whomshall be from the Bank’s Senior Management. It shall act for and in behalf of the Bank and wholly owned subsidiaries.
2.1 Duties and Functions:
- The Committee shall be responsible for ensuring the Board’s effectiveness and due observance of corporate governance principles and guidelines. It shall oversee the periodic performance evaluation of the Board and its Committees and Executive Management, and shall also conduct an annual self-evaluation of its performance. The Committee shall also decide whether or not a Director is able to and has been adequately carrying out his/her duties as director bearing in mind the director’s contribution and performance (e.g., competence, candor, attendance, preparedness and participation). Internal guidelines shall be adopted that address the competing time commitments that are faced when directors serve on multiple boards.
- The Committee shall make recommendations to the Board regarding the continuing education of directors, assignment to board committees, succession plan for the board members and senior officers, and their remuneration commensurate with corporate and individual performance.
- The Committee shall also decide the manner by which the Board’s performance may be evaluated and propose an objective performance criteria approved by the Board. Such performance indicators shall address how the Board has enhanced long term shareholders’ value.
In pursuance of its functions, the Nominations Committee and Compensation and Remuneration Committee are reconstituted to function as sub-committees of the Corporate Governance Committee.
2.2.1. Nominations Sub-Committee
There shall be a Nominations Sub-Committee consisting of at least three (3) voting members of the Board of Directors, one of whom is an independent director, and one (1) non-voting member who is the Human Resources Director. It shall promulgate the guidelines or criteria to govern the conduct of the nomination. The same shall be properly disclosed in the Bank’s information or proxy statement or such other reports required to be submitted to the Commission. It shall act for and in behalf of the Bank and wholly owned subsidiaries.
Duties and Functions:
- The Nominations Sub-Committee shall pre-screen the qualifications and prepare a final list of all candidates for the Board of Directors and the key officers of the Bank, and put in place a screening policies and parameters to enable it to effectively review the qualifications of the nominees for independent director/s in accordance with the qualifications and disqualifications set forth in this Manual.
- After the nomination, the Nominations Sub-Committee shall prepare a Final List of candidates which shall contain all the information about all the nominees for independent directors, as required by law and shall be made available to the appropriate government agency in-charge of monitoring compliance and to all stockholders through the filing and distribution of the Information Statement, in accordance with law, or in such other reports the Bank is required to submit to the appropriate government agency. The name of the person or group of persons who recommended the nomination of the independent director shall be identified in such report including any relationship with the nominee. Only nominees whose names appear on the Final List of Candidates shall be eligible for election as Independent Director/s. No other nominations shall be entertained after the Final List of Candidates shall have been prepared. No further nominations shall be entertained or allowed on the floor during the actual stockholders’/memberships’ meeting;
- In consultation with the executive or management committee/s, re-define the role duties and responsibilities of the Chief Executive Officer by integrating the dynamic requirements of the business as a going concern and future expansionary prospects within the realm of good corporate governance at all times.
- The Nomination Committee shall consider the following guidelines in recommending to the Board, a maximum number of directorships for the individual members of the Board:
- Age and physical capacity of thedirector;
- His experience;
- His field of specialization;
- The nature of the business of the corporation which he is a director;
- The number of his other directorships/active memberships and officerships in other bank or organization;
- His performance as member of the Union Bank Board of Directors; and
- vii. Possible conflict of interest.
The guiding principle shall be that the maximum number of directorship or officership for a particular director shall be limited by his ability to perform his duties diligently.
The Chief Executive Officer and other executive directors shall submit themselves to a low indicative limit on membership in other corporate Boards. The same low limit shall apply to independent, non-executive directors who serve as full-time executives in other companies.In any case, the capacity of directors to serve with diligence shall not be compromised.
- The Nomination Committee shall oversee the implementation of programs for identifying, retaining and developing critical officers and the succession plan for various units in the organization.
2.2.2 Compensation and Remuneration Sub-Committee
The Compensation and Remuneration Sub-Committee shall be composed of at least three (3) members, one of whom shall be an independent director. It is tasked to assist the Corporate Governance Committee and the Board of Directors by recommending and overseeing the implementation of a program of salaries and benefits for Directors and Senior Management that would attract the best talents to help the bank accomplish its objectives.
By periodically benchmarking with practices/offers of other leading financial institutions, the Sub-Committee shall monitor adequacy, effectiveness and consistency of compensation program vis-à-vis corporatephilosophy and strategy.
Duties and Functions:
- Based on the needs of the business to attract the best talents to help it accomplish its objectives and guided by periodic benchmarking with practices/offers of other leading financial institutions, the Compensation and Remuneration Sub-Committee shall recommend and oversee implementation of the program of salaries and benefits for Directors and senior management; the sub-committee shall monitor adequacy, effectiveness and consistency of compensation program vis-à-vis corporate philosophy and strategy.
- Establish a format and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of corporate officers and directors, and provide oversight over remuneration of senior management and other key personnel ensuring that compensation is consistent with our corporate culture, strategy and control environment.
- Designate amount of remuneration, which shall be in a sufficient level to attract and retain directors and officers who are needed to run each corporation successfully.
- Establish a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of individual directors, if any, and officers.
- Develop a form on Full Business Interest Disclosure as part of the pre-employment requirements for all incoming officers, which among others compel all officers to declare under the penalty of perjury all their existing business interests or shareholdings that may directly or indirectly conflict in their performance of duties once hired.
- Disallow any director to decide his or her own remuneration.
- Provide in the Bank’s annual reports, information and proxy statements a clear, concise and understandable disclosure of compensation of its executive officers for the previous fiscal year and the ensuing year.
- Review (if any) of the existing Human Resources Development of Personnel Handbook, to strengthen provisions on conflict of interest, salaries and benefits policies, promotion and career advancement directives and compliance of personnel concerned with all statutory requirements that must be periodically met in their respective posts.
- Or in the absence of such Personnel Handbook, cause the development of such, covering the same parameters of governance stated above.
- Risk Management Committee
There shall be a Risk Management Committee consisting of at least three (3) members of the Board of Directors who shall possess a range of expertise as well as knowledge of the institution’s risk exposures to be able to develop appropriate strategies for preventing losses and minimizing the impact of losses when they occur. It shall oversee the system of limits to discretionary authority that the Board delegates to management, ensure that the system remains effective, that the limits are observed and that immediate corrective actions are taken whenever limits are breached. It shall act for and in behalf of the Bank and its wholly owned subsidiaries.
The Risk Management Committee shall have a written charter that defines the duties and responsibilities of its members. The charter shall be approved by the Board of Directors and reviewed and refined periodically.
3.1. Duties and Responsibilities:
The Risk Management Committee shall:
- Be responsible for the development and oversight of the Bank’s risk management program;
- Posses a range of expertise as well as adequate knowledge of the institution’s risk exposures to be able to develop appropriate strategies for preventing losses and minimizing the impact of losses when they occur;
- Oversee the system of limits to discretionary authority that the Board delegates to management, ensure that the system remains effective, that the limits are observed and that the immediate corrective actions are taken whenever limits are breached;
- Identify and evaluate exposures, assess the probability of each risk becoming reality and shall estimate its possible effect and cost. Priority areas of concern are those risks that are most likely to occur and are costly when they happen;
- Develop a written plan defining the strategies for managing and controlling the major risks. It shall identify practical strategies to reduce the chance of harm and failure or minimize losses if the risk becomes real;
- Implement the Risk Management Plan. It shall communicate the risk management plan and loss control procedures to effected parties. The Committee shall conduct regular discussions on the institution’s current risk exposure based on regular management reports and direct concerned units or offices on how to reduce these risks; and
- Review and revise the plan as needed. The Committee shall evaluate the risk management plan to ensure its continued relevance, comprehensiveness and effectiveness. It shall revisit strategies, look for emerging or changing exposures, and keep abreast of developments that affect the likelihood of harm or loss. The Committee shall report regularly to the Board of Directors the entity’s over-all risk exposure, actions taken to reduce the risks, and recommend further actions or plans as necessary.
- Audit Committee
The Audit Committee shall be composed of at least three (3) members of the Board of Directors, at least two (2) of whom shall be independent directors, including the Chairman, preferably with accounting, auditing, or related financial management expertise or experience.
The Audit Committee shall provide oversight of the institution’s financial reporting and control and internal and external audit functions. It shall be responsible for the setting-up of the internal audit department and for the appointment of the internal auditor as well as the independent external auditor who shall both report directly to the Audit Committee. It shall monitor and evaluate the adequacy and effectiveness of the internal control system.
The Audit Committee shall act for and in behalf of both the Bank and its wholly owned subsidiaries.
4.1. Duties and Responsibilities:
- Check all financial reports against its compliance with both the internal financial management handbook and pertinent accounting standards, including regulatory requirements.
- Perform oversight financial management functions specifically in the areas of managing credit, market, liquidity, operational, legal and other risks of the Bank, and its wholly owned subsidiaries, and crisis management.
- Pre-approve all audit plans, scope and frequency one (1) month before the conduct of external audit.
- Perform direct interface functionswith the internal and external auditors.
- Elevate to international standards the accounting and auditing processes, practices and methodologies, and develop the following in relation to this reform:
- A definitive timetable within which the accounting system of the Bank will be 100% International Accounting Standard (IAS) compliant.
- An accountability statement that will specifically identify officers and/or personnel directly responsible for the accomplishment of such task.
- Develop a transparent financial management system that will ensure the integrity of internal control activities throughout the Bank and its subsidiaries through a step-by-step procedures and policies handbook that will be used by the entire organization.
- Trust Committee
There shall be a Trust Committee composed of five (5) members: (a) three (3) Directors who are appointed by the Board of Directors on a regular rotation basis and who are not operating officers of the Corporation; (b) the President; and (c) the Trust Officer. No member of the Audit Committee shall be concurrently designated as a member of the Trust Committee.
The Board of Directors shall duly note in the minutes the Trust
Committee members and designate the Chairman of the Committee who shall be one of the three (3) directors referred to in letter (a) above.
5.1 Powers and Duties of the Trust Committee
The Trust Committee shall act within the sphere of authority as may be provided in the Bank’s By-laws and/or as may be delegated by the Board of Directors such as, but not limited to the following:
- The acceptance and closing of trust and other fiduciary accounts;
- The initial review of assets placed under trustee’s of fiduciary’s custody;
- The investment, reinvestment and disposition of funds or property;
- The review and approval of transactions between trust and/or fiduciary accounts; and
- The review of trust and other fiduciary accounts at least once every twelve (12) months to determine the advisability of retaining or disposing of the trust or fiduciary assets, and/or whether the account is being managed in accordance with the instrument creating the trust or other fiduciary relationship.
- Market Risk Committee
The Market Risk Committee shall be composed of the Chairman of the Board of Directors of the Bank, the President and three other members of the Board. The Committee shall set policies and standards for market risk identification and analysis measurement, monitoring and control.
6.1 Duties and Responsibilities:
- Set policies and guidelines for the measurement, management and reporting of market risk. Ensures that the market risk management process satisfies corporate policy.
- Review the Treasury Portfolio (including contingent accounts) on a monthly or regular basis and recommends valuation reserves, as necessary.
- Review and endorses Treasury Risk Limits for Board approval.
- Endorses Treasury-Related Product Programs and Manuals for approval of the Board of Directors.
- Approve models and systems used to calculate market risk.
- Promote the continuous development of market risk programs and infrastructure, understanding this to be an evolutionary and dynamic process.
- Ensure that Business Units provide for ongoing review and validation of the adequacy and soundness of market risk policies, assumptions and practices.
- Create and promotes a risk culture that requires and encourages the highest standards of ethical behavior by risk managers and risk-taking personnel.
- Encourage the professional development and training of management and staff in market risk management, risk control, and risk-taking activities.
- Monitor the sensitivity of the Bank’s financial condition to the effects of market volatility and adverse price changes of the Bank’s portfolio of financial instruments, and oversees the Bank’s liquidity position through the Bank’s Assets and Liability Committee (“ALCO”).
- Operations Risk Management Committee
The Operations Risk Management Committee shall be composed of three members of the Board of Directors of the Bank and two members from Senior Management. It is responsible for reviewing risk management policies and practices relating to operational risk, including those that affect branches, internet banking, central processing services and treasury operations.
7.1 Roles and Responsibilities:
- Assess the adequacy of the Bank’s policies, procedures, organization and resources for preventing, or limiting the damage from unexpected loss due to deficiencies in information systems; business, operational and management processes; employee skills and supervision; equipment; and internal controls.
- Report results of periodic or special risk assessments conducted in various businesses and operating units of the Bank, to proactively uncover operational risks that can result to actual loss or damage to the Bank.
- Summarize results of internal audits, BSP examinations, and investigation of administrative cases that highlight trends indicative of present or emerging exposures to specific operational risks.
- Perform risk assessment of major information systems to be implemented in the Bank.
- Review regulatory compliance issues, whether currently existing, or anticipated to arise as a result of new laws or regulations.
- Review and endorse the Bank’s Business Continuity Plan, strategies, and resources
- Executive Committee
- THE CORPORATE SECRETARY
The Corporate Secretary is an officer of the Bank and/or its subsidiaries and perfection in performance and no surprises are expected of him. Likewise, his loyalty to the mission, vision and specific business objectives of the corporate entity come with his duties.
The Corporate Secretary shall be a Filipino citizen.
Considering his varied functions and duties, he must possess administrative and interpersonal skills, and if he is not the general counsel, then he must have some legal skills. He must also have some financial and accounting skills.
Duties and Responsibilities:
Gather and analyze all documents, records and other information essential to the conduct of his duties and responsibilities to the Bank, and its subsidiaries, as the case may be.
As to agenda, get a complete schedule thereof at least for the current year and put the Board on notice before every meeting.
Assist the Board in making business judgment in good faith and in the performance of their responsibilities and obligations.
Attend all Board meetings and maintain record of the same.
Submit to the Commission, at the end of every fiscal year, an annual certification as to the attendance of the directors during Board meetings.
- COMPLIANCE OFFICER
- To insure adherence to corporate governance principles and best practices, the Chairman of the Board shall designate a Compliance Officer who shall act as such for both the Bank as well as its wholly owned subsidiaries. He shall hold the position of a Vice President or its equivalent. He shall have direct reporting responsibilities to the Chairman of the Boards of the Bank and its subsidiaries.
- The appointment of the compliance officer shall be immediately disclosed to the Commission on SEC Form 17-C. All correspondence relative to his functions as such shall be addressed to said Officer.
Duties and Responsibilities
- Monitor compliance with the provisions and requirements of this Manual;
- Appear before the SEC upon summon on similar matters that need to be clarified by the same;
- Determine violation/s of the Manual and recommend penalty for violation thereof for further review and approval of the Board;
- Issue a certification every January 30th of the year on the extent of
the Bank’s and subsidiaries’ compliance with this Manual for the completed year, explaining the reason/s of the latter’s deviation from the same; and
- Identify, monitor and control compliance risks.
Management is the body given the authority by the Board to implement the policies it has laid down in the conduct of the business of the Bank and its Subsidiaries.
Management is primarily accountable to the Board for the operations of the Bank and its Subsidiaries. It shall provide all members of the Board with accurate and timely information that would enable the Board to comply with its responsibilities.
Management should formulate, under the supervision of the Audit Committee, the rulesand procedures on financial reporting and internal control in accordance with the following guidelines:
- The extent of its responsibility in the preparation of the financial statements of the Bank and its subsidiaries, with the corresponding delineation of the responsibilities that pertain to the external auditor, should be clearly explained;
- Explain an effective system of internal control that will ensure the integrity of financial reports and protection of the assets of the Bank and its Subsidiaries should be maintained;
- On the basis of the approved audit plans, internal audit examinations should cover, at the minimum, the evaluation of the adequacy and effectiveness of controls that cover the corporation’s governance, operations and information systems, including the reliability and integrity of financial and operational information, effectiveness and efficiency of operations, protection of assets, and compliance with contracts, laws, rules and regulations.
- EXTERNAL AUDITOR
- An external auditor shall enable an environment of good corporate governance as reflected in the financial records and reports of the Bank, and its subsidiaries. Upon approval by the stockholders, the authority to appoint the Bank’s external auditor shall be delegatedto the Board of Directors. The Board shall consult the Audit Committee in appointing external auditors. In case of resignation, removal or termination of engagement of the external auditor, the Board shall, as soon as practicable, select and appoint a replacement.The external auditor of UBP shall also be the external auditor for its wholly owned subsidiaries.
- The reason/s for the resignation, dismissal or cessation from service and the date thereof of an external auditor shall be reported in the Bank’s annual and current reports (i.e. SEC Form 17-A, SEC Form 17-Q) to the SEC. Said report shall include a discussion of any disagreement between said former external auditor and the corporation on any matter of accountingprinciples or practices, financial disclosures or audit procedureswhich they failed to resolve satisfactorily.
- The external auditor of the Bank shall not, at the same time, provide the internal audit services to the corporation. Non-audit work may be given to the external auditor, providedit does not conflict with his duties as an independent auditor, or does not pose a threat to his independence.
- The Bank’s external auditor shall be rotated or the handling partner shall be changed every five (5) years or as required by law.
- If an external auditor believes that the statements made in the Bank’s annual report, information statement or any report filed with the Commission or any regulatory body during the period of his engagement is incorrect or incomplete, he shall give his comments or views on the matter in the said reports.
- INTERNAL AUDITOR
- The Bank shall have in place an independent internal audit function which shall be performed by an Internal Auditor or a group of Internal Auditors, through which the Board of the Bankand its subsidiaries, their respective senior management, and stockholders shall be provided with reasonable assurance that its key organizational and procedural controls are effective, appropriate, and complied with.
- The Internal Auditor shall report to the Audit Committee.
- The minimum internal control mechanisms for management’s operational responsibility shall center on the CEO, being ultimately accountable for the company’s organizational and procedural controls.
- The scope and particulars of a system of effective organizational and procedural controls shall be based on the following factors: The nature and complexity of business and the business culture; the volume, size and complexity of transactions; the degree of risk; the degree of centralization and delegation of authority; the extent and effectiveness of information technology; and the extent of regulatory compliance.
- INVESTORS’ RIGHTS AND PROTECTION
The Bank recognizes that the most cogent proof of good corporate governance is that which is visible to the eyes of its investors. Therefore the following provisions are issued for the guidance of all internal and external parties concerned, as governance covenant between the Bank and all its investors:
- Rights of Shareholders/Investors/Minority Interests
The Board shall be committed to respect the following rights of the stockholders:
1.1. Voting Right
- Shareholders shall have the right to elect, remove and replace directors and vote on certain corporate acts in accordance with the Bank Code.
- Cumulative voting shall be used in the election of directors.
- A director shall not be removed without cause if it will deny minority shareholders representation in the Board.
All stockholders shall havepre-emptive rights, unless the same is denied in the articles of incorporation or an amendment thereto. They shall have the right to subscribe to the capital stock of the Bank. The Articles of Incorporation shall lay down the specific rights and powers of shareholders with respect to the particular shares they hold, all of which shall be protected by law so long as they shall not be in conflict with the Bank Code.
1.3. Power of Inspection
All shareholders shall be allowed to inspect corporate books andrecords including minutes of Board meetings and stock registries in accordance with the Bank Code and shall be furnished with annual reports, including financial statements, without cost or restrictions.
1.4. Right to Information
- The Shareholders shall be provided, upon request, with periodic reports which disclose personal and professional information about the directors and officers and certain other matters such as their holdings of the Bank’s shares dealings, with the company, relationships among directors and key officers, and the aggregate compensation of directors and officers.
- The minority shareholders shall be granted the right to propose the holding of a meeting, and the right to propose items in the agenda of the meeting, provided the items are for legitimate business purposes
- The minority shareholders shall have access to nay and all information relating to matters for which the management is accountable for and to those relating to matters for which the management shall include such information and, if not included, then the minority shareholders shall be allowed to propose to include such matters in the agenda of stockholders’ meeting, being within the definition of “legitimate purposes”.
- Shareholders shall havethe right to receive dividends subject to the discretion of the Board.
- The Bank shall be compelled to declare dividends when its retained earnings shall be in excess of 100% of its paid-in capital stock, except: a) when justified by definite corporate expansion projects or programs approved by the Board or b) when the Bank is prohibited under any loan agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its consent, and such consent has not been secured; or c) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the Bank, such as when there is a need for special reserve for probable
1.6. Appraisal Right
The shareholder’s shallhave appraisal right or the right to dissent and demand payment of the fair value of their shares in the manner provided for under Section 82 of the CorporationCode of the Philippines, under any of the following circumstances:
- In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence;
- In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the CorporationCodeof the Philippines; and
- In case of merger or consolidation.
- Rights of Shareholders/Investors/Minority Interests
- DUTY TO PROMOTE SHAREHOLDERS’ RIGHTS
It shall be the duty of the directors to promote shareholder rights, remove impediments to the exercise of shareholders’ right and allow possibilities to seek redress for violation of their rights. They shall encourage the exercise of shareholder’s voting rights and the solution of collective action problems through appropriate mechanisms. They shall be instrumental in removing excessive costs and other administrative or practical impediments to shareholders participating in meetings and/or voting in person. The directors shall pave the way for the electronic filing and distribution of shareholder information necessary to make informed decisions subject to legal constraints.
The Bank recognizes that related-party transactions and other similar situations may present a risk of conflict of interest and/or improper valuation, or a perception thereof.
Directors, officers, and employees owe a fiduciary duty to the Bank and must therefore avoid any actual or apparent conflict of interest with it.
The Bank has therefore adopted pertinent regulations and policies of the Bangko Sentral, the SEC and other regulatory agencies in connection with conflict of interest and related party transactions.
- Conflict of Interest
- A conflict of interest exists when the personal, business or other related interest of a director, officer or employee adversely interfere in any way, or could reasonably be perceived to adversely interfere, with that of the Bank.
- A director, officer or employee of the Bank should not use his position to profit or gain some benefit or advantage for himself and/or his related interests to the detriment of the Bank. He should avoid situations that may compromise his impartiality.
- It is mandatory for all incoming directors and officers of the Bank to disclose under oath, as part of their pre-appointment/pre-employment requirements, a schedule of existing business establishments where they and their related parties have equity interests.
- All employees of the Bank shall, pursuant to Bank’s Code of Conduct, declare annually that he has not been involved in any circumstance constituting a conflict of interest. If an employee is unsure if a circumstance that he finds himself in involves a conflict of interest, he shall disclose this to his supervisor, who may consult the appropriate Management unit to assist in resolution. The provisions of the Codeof Conduct on conflict of interest shall also be applicable and are hereby adopted as an integral part of this Manual.
- If an actual or potential conflict of interest arises on the part of a director, officer or employee, he is mandated to fully and immediately disclose the same and should not participate in the decision-making process relating to the transaction.
- A director or officer who has a continuing material conflict of interest should seriously consider resigning from his position. A conflict of interest shall be considered material if the director’s or officer’s or employee’s personal or business interest is antagonistic to that of the corporation, or stands to acquire or gain financial advantage at the expense of the corporation.
- Where a director, by virtue of his office, acquires for himself a business opportunity which should belong to the Bank or its subsidiaries, thereby obtaining profits to the prejudice of the latter, he must account to the latter for all such profits by refunding the same, unless his act has been ratified by a vote of the stockholders owning or representing at least two-thirds (2/3) of the outstanding capital stock. This provision shall be applicable, notwithstanding the fact that the director risked his own funds in the venture.
- Related Party Transactions
- Related party transactions shall mean any transactions between and among the Bank and its joint ventures, subsidiaries, associates, affiliates, major stockholders, officers and directors, including theirspouses, or relatives within the first degree of consanguinity or affinity, or by legal adoption, and of interlocking director relationships by members of the Board.
- In the ordinary course of business, the Bank may have loans, deposits and other transactions with its certain directors, officers, stockholders and related interests (DOSRI). These transactions shall all be dealt with pursuant to the Bank’s Procedural Guidelines for Monitoring Related Party Transactions, duly approved by the Board of Directors.
- It is the policy of the Bank to ensure that related party transactions are all entered into on arm’s length standard. These transactions shall only be made and entered into substantially on the same terms and conditions as transactions with other individuals and businesses of comparable risks. These transactions shall likewise go through the same process applicable to ordinary or unrelated party transactions as set forth in the Bank’s Purchasing Guidelines.
- In addition to the existing policies of the Bank and other applicable rules and regulations, the following provisions of the Corporation Code shall also apply:
A contract of the Bank with one or more of its directors or officers is voidable, at the option of the Bank, unless all the following conditions are present:
- That the presence of such director in the board meeting in which the contract was approved was not necessary to constitute a quorum for such meeting;
- That the vote of such director was not necessary for the approval of the contract;
- That the contract is fair and reasonable under the circumstances; and
- That in case of an officer, the contract has been previously authorized by the Board of Directors.
Where any of the first two conditions set forth in the preceding paragraph is absent, in the case of a contract with a director, such contract may be ratified by the vote of the stockholders representing at leasttwo-thirds (2/3) of the outstanding capital stock in a meeting called for the purpose; provided, that full disclosure of the adverse interest of the director involved is made at such meeting; provided, however, that the contract is fair and reasonable under the circumstances.
- To ensure the integrity and transparency of related transactions, all material transactions shall be reported under the applicable accounting rules, and other rules and regulations of the Bangko Sentral and the SEC.
The Bank shall continue to build harmonious relationship with its stockholders and other parties with whom it may have obligations or contract with. It shall continue to promote mutual respect among the parties, including regulatory bodies, to avoid any conflict or controversy with them.
In case of conflict or controversy between the parties, the Bank recognizes that the same may be settled through alternative dispute resolution than traditional and tedious court action. The Bank thus adheres to appropriate alternative dispute resolution system for early settlement of conflicts with said parties.
Alternative Dispute Resolution means any process for resolving a conflict or controversy other than by adjudication of a presiding judge of a court or an officer of a government agency.
- The Bank and its stockholders:
The Bank and its stockholders shall attempt in good faith to resolve any conflict that may arise between them relating to their rights and responsibilities provided in the Articles of Incorporation, By-Laws and this Manual, before resorting to court action.
The Bank and its stockholders may opt to settle their conflicts through direct negotiation between them, without the intervention of a third party. If the parties believe that negotiation is not an efficient alternative mode of resolving their dispute, or it does not produce results satisfactory to them, they may opt for other modes of alternative dispute resolution which may include, among others, mediation and arbitration.
If either party believes that the conflict or controversy is not suitable for any alternative resolution mechanisms or if such other mechanisms do not produce results satisfactory to the parties, either party may proceed to court action.
- The Bank and Other Parties
In the event of a conflict or controversy between the Bank and another party, including regulatory bodies, which also adheres and agrees to resort to alternative dispute resolution, the Bank undertakes to explore with that other party the resolution of their conflict through negotiation or other alternative mechanism, as agreed upon, before pursuing court action.
If either party believes that the conflict or controversy is not suitable for alternative resolution mechanisms or if such mechanisms do not produce results satisfactory to the parties, either party may proceed to court action.
- This Manual shall be available for inspection by any stockholder of the Bank at reasonable hours on business days.
- All directors, executives, division and department heads are tasked to ensure the thorough dissemination of this Manual to all employees and related third parties, and to likewise enjoin compliance in the process.
- An adequate number of printed copies of this Manual must be reproduced under the supervision of HRD, with a minimum of at least one (1) hard copy of the Manual per department.
- If necessary, funds shall be allocated by the CFO or its equivalent officer for the purpose of conducting an orientation program or workshop to operationalize this Manual.
- A director shall, before assuming as such, be required to attend a seminar on corporate governance which shall be conducted by a duly recognized private or government institute.
- The reports or disclosures required under this Manual shall be prepared and submitted to the Commission by the responsible Committee or officer through the Bank’s Compliance Officer. Some of the reports or disclosures are applicable only to UBP, being a publicly listed company. The non-listed subsidiaries shall not be required to prepare such reports or disclosures;
- All material information, i.e., anything that could potentially affect share price, shall be publicly disclosed. Such information shall include earnings results, acquisition or disposal of assets, board changes, related party transactions, shareholdings of directors and changes to ownership.
- Other information that shall always be disclosed includes remuneration (including stock options) of all directors and senior management corporate strategy, and off balance sheet transactions.
- All disclosed information shall be released via the approved stock exchange procedure for Bank announcements as well as through the annual report.
- The Board shall commit at all times to fully disclose material information dealings. It shall cause the filing of all required information for the interest of the stakeholders.
- Each Committee, as may be created, shall report regularly to the Board of Directors.
- The Compliance Officer shall establish an evaluation system to determine and measure compliance with this Manual. Any violation thereof shall subject the responsible officer or employee to the penalty provided under Article9 of this Manual.
- The establishment of such evaluation system, including the features thereof, shall be disclosed in the Bank’s annual report (SEC Form 17-A) or in such form of report that is applicable to the Bank. The adoption of such performance evaluation system must be covered by a Board approval.
- This Manual shall be subject to quarterly review unless thesame frequency is amended by the Board of UBP.
- All business processes and practices being performed within any department or business unit of UBP and its subsidiaries that are not consistent with any portion of this manual shall be revoked unless upgraded to the compliant extent.
- To strictly observe and implement the provisions of this manual, the following penalties shall be imposed, after notice and hearing, on the Bank’s directors, officers, staff, subsidiaries and affiliates and their respective directors, officers and staff in case of violation of any of the provision of this Manual:
- In case of first violation, the subject person shall be reprimanded.
- Suspension from office shallbe imposed in case of second violation.
The duration of the suspension shall depend on the gravity of the violation.
- For third violation, the maximum penalty of removal from office shall be imposed.
- The commission of a third violation of this manual by any member of the board of the Bank or its subsidiaries and affiliates shall be a sufficient cause for removal from directorship.
- The Compliance Officer shall be responsible for determining violation/s through notice and hearing and shall recommend to the Chairman of the Board the imposable penalty for such violation, for further review and approval of the Board.
- Pursuant to SEC Memorandum Circular No. 2, Series of 2002 issued on 5 April 2002, the Bank and its subsidiaries adopted their own Manual of Corporate Governance on 20 August 2002, which was subsequently updated on 26 October 2007.
This Revised Manual of Corporate Governance is hereby adopted pursuant to SEC Memorandum Circular No. 6, Series of 2009 issued on 22 June 2009 and shall supersede the old Manual.
- The Bank’s wholly owned subsidiaries adopt this Manual only in so far as it may be applicable to them. Certain provisions are only applicable to Union Bank, it being a bank and a listed company.
- All doubts or questions that may arise in the interpretation or application of this Manual shall be resolved in favor of promoting transparency, accountability and fairness to stakeholders of the Bank and its subsidiaries.
- Approval of the Board of Directors of the Bank and its Subsidiaries