Making GOCCs relevant

After more than a year of absence, we are back with a blog on new laws passed by Congress. With the impeachment proceedings of the old Chief Justice over and done with, it is time for Congress to focus on making new laws. But, before we write on new laws passed by Congress, it may be worthwhile looking back at one important legislation last year– Republic Act No. 10149 or the “GOCC Governance Act of 2011” enacted by Congress on June 6, 2011

In recent years, there have been various reports about high-ranking officers of government owned and controlled corporations (GOCCs) being charged with graft for misappropriation of government resources, dispensation of bloated salaries, unauthorized purchase of assets, and abuse of power.

In a move to try to address these ills, the GOCC Governance Act of 2011 was passed to provide greater transparency, periodic disclosure and evaluation of operations and finances, creation of appropriate remuneration schemes, and clear separation between the regulatory and proprietary activities of GOCCs.

The Act actually also applies to Government Instrumentalities with Corporate Powers/Government Corporate Entities, which are instrumentalities or agencies of the government that are neither corporations nor agencies integrated within the departmental framework but are vested by law with special functions or jurisdiction, and government financial institutions and their subsidiaries. The Act however does not cover the Bangko Sentral ng Pilipinas, state universities and colleges, cooperatives, local water districts, economic zone authorities and research institutions (Sec. 4).

A. Creation of the GCG

The Act creates the Governance Commission for GOCCs (GCG) within the Office of the President. The GCG, which is composed of five members–a Chairman with the rank of Cabinet Secretary, two members with the rank of Undersecretary (to be appointed by the President), and the Secretaries of the Department of Budget and Management and the Department of Finance (as ex officio members) (Sec. 6), is tasked with the following duties:

1. GOCC Evaluation – creating performance evaluation systems, conducting periodic examination, and identifying GOCCs for reorganization, merger, abolition or privatization (in consultation with the department or agency to which the GOCC is attached), and preparing a semi-annual progress report for submission to the President and Congress (Sec. 5 (a));

2. GOCC Streamlining – implementing the reorganization, merger, abolition or privatization of the GOCCs (Sec. 5 (a));

3. GOCC Classification – classifying GOCCs into the following categories: (a) Developmental/Social Corporations; (b) Proprietary Commercial Corporations; (c) Government Financial, Investment and Trust Institutions; (d) Corporations with Regulatory Functions; and (e) Others (Sec. 5 (b));

4. GOCC Manual – creating an ownership and operations manual and government corporate standards governing GOCCs, which shall be no less rigorous than those required by the Philippine Stock Exchange, the Securities and Exchange Commission, Bangko Sentral ng Pilipinas, as the case may be, and consistent with the Medium-Term Philippine Development Plan issued by the National Economic and Development Authority (NEDA) (Sec. 5(c));

5. GOCC Accountability – recommending to the Board of Directors or Trustees of the GOCCs the suspension of their member/s who participated (by commission or omission) in the approval of an act giving rise to a violation or non-compliance with the GOCC manual (Sec. 5(d));

6. GOCC Nomination – identifying necessary skills and qualifications required for Appointive Directors and recommending to the President a shortlist of suitable and qualified candidates for Appointive Directors (Sec.5(e));

7. GOCC Compensation – conducting studies, developing and recommending to the President a competitive compensation and remuneration system (i.e. the Compensation and Position Classification System), that would attract and retain talent, and at the same time allow the GOCCs to be financially sound and sustainable (e.g. disallowance of retirement benefits to directors and trustees of GOCCs) (Sec. 5(h) and 8); and

8. GOCC Adviser and Coordinator – providing technical advice and assistance to the government agencies to which the GOCCs are attached in setting performance objectives and targets, monitoring GOCCs performance vis-a-vis established objectives and targets, and ensuring GOCCs’ operation are aligned and consistent with the national development policies and programs (Sec. 5 (i)).

B. Board of Directors, CEO and Officers of GOCC

To try to weed out inept political appointees, the GCG shall now apply its Fit and Proper Rule in determining who are qualified to become members of the Board, CEO and officers of GOCCs, review the qualifications and disqualifications of individuals appointed as officers, directors or elected CEO of the GOCC and shall disqualify those found unfit (Sec. 15).

In determining whether an individual is fit and proper to hold the position of an officer, director or CEO of the GOCCs, due regard shall be given to one’s integrity, experience, education, training and competence (Sec. 16).

The Act also prescribes that term of office of all Appointive Directors shall be limited to one year, unless sooner removed for cause. An Appointive Director may be nominated by the GCG for reappointment by the President only if he/she obtains a performance score of above average or higher in the immediately preceding year of tenure based on the performance criteria for Appointive Directors (Sec. 17).

As fiduciaries of the State, members of the Board of Directors/Trustees and the officers of GOCCs have been given by the Act the legal obligation and duty to always act in the best interest of the GOCC, with utmost good faith and exercise extraordinary diligence in all its dealings with the property and monies of the GOCC (e.g. avoid conflicts of interest and declare an interest they may have in any particular matter before the Board) (Sec. 19 and 21).

Moreover, except for the per diem received for the actual attendance in board meetings and the reimbursement for actual and reasonable expenses, all profits and/or benefits including, but not limited to, the share in the profits, incentives of members of the Board or officers in excess of what is authorized by the GCG, stock options, dividends and other similar offers or grants from corporations where the GOCC is a stockholder or investor, and any benefit from the performance of members of the Board or officers of their duties, are to be held in trust by such member of the Board or officer for the exclusive benefit of the GOCC (Sec. 20).

Upon the determination of the Commission on Audit that properties or monies belonging to a GOCC are in the possession of a member of the Board or officer without authority, or that profits are earned by the member of the Board or officer in violation of the fiduciary duty, or the aggregate per diems, allowances and incentives received are in excess of the limits provided under the Act, the member of the Board or officer shall return the same to the GOCC. Failure to make the restitution within 30 days after written demand is punishable with an imprisonment of one year and a fine equivalent to twice the amount to be restituted, and in the discretion of the court, disqualification to hold public office (Sec. 24).

C. Full Disclosure

In the spirit of public accountability and right of the public to receive public information, the Act likewise promotes complete disclosure through the medium of GOCCs’ websites that are now required to show the following information:

(a) latest annual audited financial and performance report within 30 days from receipt of such report;

(b) audited financial statements in the immediate past five years;

(c) quarterly, annual reports and trial balance;

(d) current corporate operating budget;

(e) complete compensation package of all the board members and officers, including travel, representation, transportation and any other form of expenses or allowances;

(f) local and foreign borrowings;

(g) performance scorecards and strategy maps;

(h) government subsidies and net lending;

(i) all borrowings guaranteed by the government; and

(j) such other information or report the GCG may require (Sec. 25).

D. Creation and Acquisition of a GOCC

Maybe learning from the past misdeed of a former GOCC officer who is reported to have acquired a thrift bank in excess of his authority, the Act now also makes stringent requirements for government agencies seeking to establish a GOCC, a subsidiary or affiliate corporation, or purchase or acquire controlling interests in another corporation. Accordingly, they are now required to submit their proposal to the GCG for its review and recommendation to the President (for his/her approval). The SEC shall not register the articles of incorporation and by-laws of a proposed GOCC or subsidiary of affiliate, unless the application for registration is accompanied by an endorsement from the GCG stating that the President has approved the same (Sec. 27 and 28.).

Conclusion

The Act was well drafted and easily understandable. It seems to cover opportunities for the abuse of GOCCs by unscrupulous government officials. Nonetheless, the best way to implement the thrust of the Act is to constantly remind our President to remain steadfast in not bestowing Appointive Director positions in GOCCs as gifts to supporters or allies of his/her government, and for us to remain vigilant by taking advantage of the information now readily available to us that would indicate abuse or impropriety by those tasked with running GOCCs.

 (Ronald P. de Vera co-authored this article with Ricky Ongkiko.)

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