Bangko Sentral-supervised financial institutions will have to shake up their boards and senior management under new governance guidelines approved by the Monetary Board.
“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 Bangko Sentral ng Pilipinas (BSP) said on Tuesday.
It said the amendments also aim to “promote an environment that fosters critical exchange of views and exercise of objective judgment.:
In particular, non-executive directors, which include independent directors, should comprise the majority of the board.
The number of independent directors was increased from 20 percent to one-third of the board or two directors, whichever is higher.
Simple rural banks, however, will be allowed to have only one independent director.
Independent directors can only serve a maximum cumulative term of nine years and a non-executive director can concurrently serve as director in a maximum of five publicly listed companies.
The new policy also provides that the positions of chairperson and chief executive officer cannot be held by a single individual. In exceptional cases where the Monetary Board approves that one person holds both posts, a lead independent director has to be appointed.
The BSP said this would promote the board’s independence from management and support an environment where the board can sufficiently challenge the actions of those involved in operations.
“Overall, the monetary authority 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,” it added.
Duties and responsibilities of the board of directors were streamlined, the BSP said, to highlight accountabilities in five key areas specifically related to shaping corporate culture and values, setting out objectives and strategies and oversight on management’s implementation of these, appointing key members of senior management and control functions, overseeing the corporate governance framework, and adopting a robust risk governance framework.
The Monetary Board also 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,” it said.
“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,” it added.