Fiduciary Duties of Directors and Officers
- Directors/Trustees and Officers are fiduciaries with an obligation to act in the GOCC's best interest with utmost good faith.
- Fiduciary duties include: loyalty, diligence, transparency (disclosing conflicts of interest), competence, and ensuring qualified management.
- Extraordinary diligence is required, akin to the caution exercised by a very cautious person.
Obligation and Authority to Provide DOLI
- GOCCs must provide Directors and Officers with necessary support and Directors and Officers Liability Insurance (DOLI).
- DOLI enables the GOCC and its fiduciaries to pursue duties by protecting against claims from actions in good faith.
- The GOCC Governance Code mandates providing staff support and obtaining DOLI consistent with legal procurement and insurance laws.
Definition and Scope of DOLI
- DOLI indemnifies GOCCs, Directors/Trustees, and Officers against suits arising from their official capacities.
- Premiums for DOLI are valid expenses charged to the GOCC's budget.
- GOCCs may self-insure by establishing a Directors and Officers Liability Fund (DOLF) subject to feasibility studies and audit rules.
Eligible Directors, Trustees, and Officers for DOLI
- Both appointive and ex officio Directors/Trustees, including their alternates, are covered.
- Officers include Board Officers (Chairman, Vice-Chairman, Corporate Secretary) and Executive Officers (CEO, senior management with equivalent rank).
Types and Beneficiaries of DOLI Coverage
- DOLI coverage may protect the GOCC itself or the Directors/Trustees and Officers as beneficiaries.
- Coverage reimbursing the GOCC for losses caused by breach of fiduciary duty or fraud is legitimate.
- Coverage reimbursing Directors/Officers personally for such breaches or fraud is not a valid expense and is prohibited.
Proper and Improper DOLI Coverage
- Proper coverage includes litigation costs arising from good faith actions defending disciplinary or legal claims.
- Improper coverage includes indemnity for fraud, gross negligence, or breaches causing harm to stakeholders.
- DOLI must not serve as insurance for Directors/Officers against personal liability for malfeasance or misfeasance.
Legal and Ethical Rationale Against Improper Coverage
- Public officials must adhere to ethical standards, prioritizing public interest and responsible use of government resources.
- DOLI premiums covering breaches of fiduciary duties or fraud are not allowable GOCC expenses.
Reimbursement Mechanism Guidelines
- Reimbursement for litigation costs should only cover legitimate expenses where fiduciary duties were not breached.
- Advances during litigation may be provided as personal loans to officers pending final judgment.
- If exonerated, advances are settled; if found liable, officers repay the loans.
- Each GOCC must adopt a reimbursement scheme preserving public accountability.
Directors/Trustees and Officers Liability Fund (DOLF)
- A DOLF may be established when traditional insurance coverage is impractical or cost prohibitive.
- Fund contributions come from the GOCC budget and are held in a trust with a Government Financing Institution (GFI).
- The Trust Instrument must mirror DOLI coverage provisions or cover deductible items.
- A reputable risk agency must conduct feasibility studies; guidelines to cover fund governance are required.
- The Governing Board has discretion to choose DOLI, DOLF, or a combination for optimal coverage.
Summary of Legal References and Authoritative Basis
- The provisions are anchored principally in Republic Act No. 10149 (GOCC Governance Act) and related issuances.
- Coverage must comply with procurement laws, GSIS law, and insurance regulations.
- Ethical and fiduciary standards are reinforced by the Code of Conduct and Ethical Standards for Public Officials and Employees (R.A. No. 6713).