GOVERNANCE FRAMEWORK

STATE OWNERSHIP AND OPERATIONS

THE "GOCC GOVERNANCE ACT OF 2011" (R.A. NO. 10149)


Government-Owned or -Controlled Corporations (GOCCs) have long been part of the government machinery for delivering services to the general public.
In 1988, President Corazon Aquino issued Administrative Order No. 59 clarifying that the main engine of national growth is the private sector, and that GOCCs should not compete with the private sector and should only address market failures in vital industries that are either natural monopolies or are not adequately served by the private sector. However, there was no single government agency focused on the active exercise of the State’s ownership rights in GOCCs, leading to abuses, mismanagement, and mediocre or poor performance. To address these challenges, one of President Benigno S. Aquino III’s first laws was R.A. No. 10149. Principally authored by Senator Franklin M. Drilon, the landmark law provided the legal infrastructure for the active exercise of the State’s ownership rights and created the Governance Commission for GOCCs (GCG) as the central policy-making and regulatory body mandated to safeguard the State’s ownership rights and ensure that the operations of GOCCs are transparent and responsive to the needs of the public. Towards this end, it empowered the Governance Commission to: Oversee the selection and nomination of directors/trustees and maintain the quality of Board Governance; Institutionalize transparency, accountability, financial viability and responsiveness in corporate performance; Rationalize the Sector through streamlining, reorganization, merger, as well as recommending to the President of the Philippines the privatization or abolition of a GOCC; Establish compensation standards to ensure reasonable and competitive remuneration schemes that attract and retain the right talent


Republic Act No. 10149

OWNERSHIP AND OPERATIONS MANUAL


The Ownership and Operations Manual institutionalizes the State Ownership Policy of recognizing the private sector as the main engine for inclusive growth and economic development, and consequently GOCCs must be used judiciously in addressing market failures and avoid engaging in activities purely for profit. The policy also mandates the clear separation between the regulatory functions and commercial activities of GOCCs in order to maintain a level playing field in the market.
Pursuant to the thrust for the active exercise of the State’s ownership rights, the State as owner is represented - Primarily by the President of the Philippines; By the Governance Commission in the specific powers entrusted to it under the R.A. No. 10149 (i.e., selection and nomination of board members, performance governance, sector rationalization, compensation standards). By the Governing Boards, who are primarily and directly accountable to the State for the corporate governance and performance of GOCCs. The Manual also sets out the policy framework for limiting the use of GOCCs for non-commercial programs. Generally, non-commercial programs should be undertaken by National Government Agencies (NGAs). If GOCCs will be engaged for non-commercial programs, it must be based on well-thought out feasibility studies and pursued through the “Project Implementation Mode,” pursued and accounted for separately from the primary purpose and operations of the GOCC.


GCG MC No. 2012-06 - Ownership and Operations Manual

CODE OF CORPORATE GOVERNANCE


The CODE OF CORPORATE GOVERNANCE establishes the structure of powers and responsibilities within a GOCC.
Being vested by law with all corporate powers, the Governing Board - and not Management - is primarily responsible and directly accountable to the State for the operations and performance of the GOCC. Consequently, the Governing Board must set the strategy, provide policy directions, and provide an independent check on Management. It shall select the CEO from among its ranks and employ only Officers who are fit and proper. The Board must also constitute the specialized committees required under the Code for the efficient management of time and the proper understanding and resolution of all issues (e.g. Executive Committee, Audit Committee, Risk Management Committee). The Code also establishes the corporate social responsibility (CSR) principles inherent in GOCCs, and mandates the Board to identify and formally recognize the GOCC's major stakeholders, the nature hierarchy of their interests, and a system for their conflicting interests. The CEO, as Head of Management, stands as the center of decision-making for the day-to-day affairs of the GOCC, and is primarily accountable to the Board for implementing the infrastructure for the GOCC's success as set by the Board. Elected annually by the members of the Board from among its ranks, the CEO is subject to the disciplinary powers of the Board and may be removed for cause. Management must provide all members of the Board with a balanced and understandable account of the GOCC's performance, position and prospects on a monthly basis.


GCG MC No. 2012-07 - Code of Corporate Governance

FIT AND PROPER RULE


As part of its mandate to oversee the selection and nomination of directors/trustees and maintain the quality of Board Governance in GOCCs, the Governance Commission crafted the FIT AND PROPER RULE.
The Rule establishes the required qualifications and competencies for individuals to be considered as nominees to the Governing Board of a GOCC, such as a college degree and five (5) years relevant experience, and also requires attendance on a special seminar of public corporate governance. It also states the disqualifications that may permanently or temporarily disqualify an individual from being considered as a nominee, such as having been convicted of a crime, possessing derogatory records, or having a conflict of interest. The Rule also establishes the Highest Standards Principle such that if other laws or regulations impose higher or additional standards for a particular sector (e.g. issuances of Bangko Sentral ng Pilipinas in the case of government financial institutions), these rules will also apply in determining the eligibility of an individual to be considered as a nominee.


GCG MC No. 2012-05 - Fit and Proper Rule

PERFORMANCE EVALUATION SYSTEM (PES)


The PERFORMANCE EVALUATION SYSTEM (PES) and the PERFORMANCE-BASED BONUS/INCENTIVE GUIDELINES provide the framework for transforming GOCCs into strategic and performance-driven corporations anchored on good corporate governance. The system adopts the Balanced Scorecard framework for monitoring and evaluating the strategic performance of GOCCs on quality of services, financial management, operations, and human capital.
Through the PES, the Board of Directors/Trustees of each GOCCs annually undergo Performance Agreement Negotiations with the Governance Commission to set their organizational targets based on their mandates and long-term vision for the GOCC’s contribution to national development. The PES also incentivizes good governance by requiring the proper disclosure through the GOCCs’ websites of financial statements, procurement activities, board and executive compensation, and other requirements for public accountability. It also requires GOCCs to satisfy the payments due to the Government such as taxes and dividends, and to submit concrete and time-bound action plans for addressing Audit Observations or Disallowances from the Commission on Audit. It also requires GOCCs to adopt their own Manual of Corporate Governance to operationalize within their organizations the corporate governance standards set by the Governance Commission, such as their own No Gift Policy.


GCG MC No. 2013-02 (Re-Issued) - Performance Evaluation System (PES) for the GOCC Sector

CORPORATE GOVERNANCE SCORECARD (CGS) FOR GOCCs


The Corporate Governance Scorecard (CGS) for GOCCs aims to annually assess the Corporate Governance performance of GOCCs under GCG using a methodology benchmarked against the Principles of Corporate Governance of the Organisation for Economic Co-operation and Development (OECD) and the ASEAN Corporate Governance Scorecard.
The CGS assesses each GOCC’s governance policies and practices on Stakeholder Relationships, Disclosure and Transparency, and Responsibilities of the Board. Further it identifies the strengths and weaknesses of the corporate governance practices of GOCCs compared to existing corporate governance provisions. The CGS works together with the PES in improving the transparency of GOCCs’ corporate governance initiatives and practices.

COMPENSATION AND POSITION CLASSIFICATION SYSTEM (CPCS)


The Compensation and Position Classification System (CPCS) standardizes compensation in GOCCs and makes it competitive with the private sector doing comparable work in order to enable GOCCs to attract, retain, and motivate a corps of competent civil servants.
The CPCS brings all GOCCs into a common compensation framework limited to four basic types, namely: (a) basic salary; (b) standard allowances and benefits; (c) Specific Purpose Allowance that depends on the job; and (d) Variable Pay or Performance-Based Bonus (PBB). For better transparency, the bulk of compensation has been reflected in the basic salary, and the number of allowances have been streamlined to 5 types. The CPCS also increases the pressure on GOCCs to meet the performance targets negotiated with GCG as a significant portion of compensation has been allocated to the PBB. The CPCS, approved through Executive Order No. 203 s. 2016, was the result of a comprehensive analysis of the total compensation in 80 GOCCs and benchmarked with the total compensation data from 240 comparable companies and/or over 6,000 jobs in the private sector. The study was conducted through Towers Watson, an internationally renowned human resources consulting firm.

OTHER POLICIES

MAJOR DEVELOPMENT PROJECTS OF GOCCs


The Governance Commission issued GCG M.C. No. 2018-02 to amend policies that will guide the GOCCs to a simplified and efficient implementation of their respective major development projects. While GCG M.C. No. 2018-02 was issued to effectively streamline the process of implementing Major Development Projects and Major Contracts of GOCCs, it emphasizes that all agreements shall not be grossly disadvantageous to the government and that GOCCs shall comply with existing laws, rules and regulations, regardless of covered land area and/or period of the contract.


GCG MC No. 2013-02 - Revocation of GCG Memorandum Circular No. 2013-03 (Re-Issued) - Coordination and Alignment of Major Development Projects of the GOCC Sector

NO GIFT POLICY


In line with the principle that public office is a public trust, the Governance Commission required all GOCCs to come up with a No Gift Policy to instill the practice of unbiased professionalism in the performance of responsibilities without expectation of reward. Accordingly, Officers and Employees in the GOCC Sector are duty-bound to not accept nor solicit any gift or favor whether directly or indirectly.

This policy was first implemented with the Officers and Employees of the Governance Commission in line with its governance philosophy of "regulation by example."


GCG MC No. 2012-12 - No Gift Policy of the GCG

PERFORMANCE EVALUATION OF DIRECTORS (PED)


The PERFORMANCE EVALUATION OF DIRECTORS (PED) provides the process for measuring the performance of Appointive Directors to determine who can still be considered for reappointment each year. Appointive Directors are evaluated based on corporate performance, peer review, and their attendance at Board meetings. Under R.A. No. 10149, an Appointive Director must receive a performance rating of at least "above average" to be eligible for re-appointment in the succeeding year.


GCG MC No. 2014-03 - Performance Evaluation of Directors (PED)

WHISTLEBLOWING POLICY FOR THE GOCC SECTOR


Through the Whistleblowing Policy, any concerned individual can report, provide information, and even testify on matters involving actions or omissions of the Appointive Directors, Officers, and Employees of GOCCs that are illegal, unethical, or completely disadvantageous to the GOCCs and/or the Government. The policy guarantees the protection of the Whistleblower against retaliation, the confidentiality of information coming from the Whistleblowing Report, and, if requested, the anonymity of the Whistleblower.

A Whistleblower can report such actions through the following channels: (a) GCG Whistleblowing Web Portal: http://whistleblowing.gcg.gov.ph/ (b) GCG's website: http://gcg.gov.ph/ (c) Face-to-face meetings: with GCG officers and Employees (d) E-mail: feedback@gcg.gov.ph (e) Mail: 3/F Citibank Center, 8741 Paseo De Roxas, Makati City, Philippines 1226 (f) Telephone: (632) 328 2030 to 33 (g) Fax: (632) 328 2030 to 33 This Policy also applies to the Chairman, Commissioners, Officers, and Employees of GCG.


GCG MC No. 2014-04 - Whistleblowing Policy for the GOCC Sector

INTEGRATED CORPORATE REPORTING SYSTEM (ICRS)


The INTEGRATED CORPORATE REPORTING SYSTEM (ICRS) is created to serve as the central source of relevant information on GOCCs not only for GCG but also for various concerned agencies, the media, and the general public.

The ICRS is intended to enhance the transparency and disclosure policies under R.A. No. 10149 on the operations, finances, and management of GOCCs, while amplifying the Governance Commission's regulatory capacity through the use of business analytics technology. The ICRS also serves to simplify various reportorial requirements of the GOCCs.


GCG MC No. 2014-02 - Policies and Guidelines on the Integrated Corporate Reporting System (ICRS) for the GOCC Sector