GOCC Goverce Act of 2011 Overview

Key definitions for governance

Section 3(a) defines “Affiliate” as a corporation where 50% or less of the outstanding capital stock is owned or controlled (directly or indirectly) by the GOCC.
Section 3(b) defines an “Appointive Director” and distinguishes it for (1) chartered GOCCs (non ex officio Board/Trustee members), (2) nonchartered GOCCs (State-nominated directors to the extent of the State’s percentage shareholdings), and (3) subsidiaries and affiliates (GOCC-nominated directors to the extent of the GOCC’s shareholdings).
Section 3(c) defines “Board of Directors/Trustees” or “Board” as the governing body exercising corporate powers of a GOCC.
Section 3(d) defines “Breakthrough Results” as achievement of corporate goals or other performance indicators determined by the GOCC or its supervising department.
Section 3(f) defines “Chartered GOCC” as a GOCC, including Government Financial Institutions, created and vested with functions by a special law.
Section 3(g) defines “Chief Executive Officer (CEO)” as the highest-ranking corporate executive (President or General Manager, Chairman, or Administrator depending on the GOCC).
Section 3(l) defines “Government Corporate Governance Standards” as principles and a system prescribed by the Governance Commission for Government-Owned or -Controlled Corporations (GCG) to generate long-term economic value and guide management value-enhancement for shareholders, creditors, and stakeholders.
Section 3(o) defines “Government-Owned or -Controlled Corporation (GOCC)” as any agency organized as a stock or nonstock corporation, vested with functions relating to public needs, owned by the Government of the Republic of the Philippines directly or through its instrumentalities (at least a majority of outstanding capital stock in stock corporations); it also states that, for purposes of the Act, “GOCC” includes GICP/GCE and GFIs.
Section 3(p) defines “Nonchartered GOCC” as a GOCC organized and operating under Batas Pambansa Bilang 68 (the Corporation Code of the Philippines).
Section 3(t) defines “Performance Evaluation System” as appraising accomplishments of GOCCs in a fiscal year based on performance criteria, targets, and weights.
Section 3(u) defines “Performance Scorecard” as a governance and management tool that forms part of performance evaluation and consists of measures, targets, and initiatives for breakthrough results through effective and efficient monitoring and coordination of strategic objectives.
Section 3(w) defines “Related Corporation” as a subsidiary or affiliate of a GOCC.
Section 3(z) defines “Subsidiary” as a corporation where at least a majority of outstanding capital stock is owned or controlled (directly or indirectly, through one or more intermediaries) by the GOCC.

Coverage of GOCC governance rules

Section 4 applies the Act to all GOCCs, GICPs/GCEs, and government financial institutions, including their subsidiaries.
Section 4 excludes the Bangko Sentral ng Pilipinas, state universities and colleges, cooperatives, local water districts, economic zone authorities, and research institutions.
Section 4 provides that in economic zone authorities and research institutions, the President appoints one-third (1/3) of the board members from the list submitted by the GCG.

Creation and powers of the GCG

Section 5 creates a central advisory, monitoring, and oversight body named the Governance Commission for Government-Owned or -Controlled Corporations (GCG), attached to the Office of the President.
Section 5 empowers the GCG to evaluate GOCC performance and determine relevance, including whether a GOCC should be reorganized, merged, streamlined, abolished, or privatized, in consultation with the department or agency to which the GOCC is attached.
Section 5(a) lists standards guiding the GCG, including: functions no longer relevant or consistent with national development policy; unnecessary duplication/overlap; failure to produce desired outcomes or lack of cost efficiency and inadequate social/physical/economic returns versus inputs; dormancy/nonoperation; activity best carried out by private sector; and need for consolidation under a holding company.
Section 5(a) requires implementation/recommendation after a best-interest determination: the GCG implements reorganization/merger/streamlining unless directed otherwise by the President; it recommends abolition/privatization to the President, and upon approval, implements it unless the President designates another implementing agency.
Section 5(b) requires the GCG to classify GOCCs into: (1) Developmental/Social Corporations; (2) Proprietary Commercial Corporations; (3) Government Financial, Investment and Trust Institutions; (4) Corporations with Regulatory Functions; and (5) other categories it may establish.
Section 5(c) requires the GCG, within 180 days from its constitution, to adopt an ownership and operations manual and government corporate standards for GOCC governance consistent with the Medium-Term Philippine Development Plan issued by NEDA.
Section 5(c) requires the ownership manual to include specified governance elements such as objectives of state ownership; roles of national government and attached government agencies; monitoring guidelines (including Strategy Maps, Charter Statements, Performance Commitments, and related mechanisms); disclosure and transparency requirements; code of ethics; board committees/oversight bodies; an integrated corporate reporting system; statement of social responsibilities; and other matters the GCG deems proper.
Section 5(d) authorizes, without prejudice to administrative/criminal charges, the GCG to recommend suspension of Board/Trustee members who participated by commission or omission in approving acts causing violation or noncompliance with the ownership manual, for a period determined based on the nature and extent of damage; during suspension, the director/trustee is not entitled to any emolument.
Section 5(e) requires the GCG to identify necessary skills and qualifications for Appointive Directors and to recommend to the President a shortlist of suitable, qualified candidates, in addition to qualifications under each GOCC’s charter and bylaws (for GOCCs without original charters).
Section 5(f) requires the GCG to establish performance evaluation systems, including performance scorecards, applicable to all GOCCs generally and by classification.
Section 5(g) requires periodic study, examination, evaluation, and assessment of GOCC performance; it empowers the GCG to receive, and in appropriate cases require reports on operations and management, including management of assets and finances.
Section 5(h) requires compensation studies and the development/recommendation to the President of a competitive compensation and remuneration system that attracts and retains talent while maintaining financial soundness and sustainability.
Section 5(i) requires technical advice and assistance to attached government agencies on setting performance objectives and targets and monitoring GOCC performance against those objectives and targets.
Section 5(j) requires coordination and monitoring of GOCC operations for alignment with national development policies and programs, and mandates quarterly meetings to: review strategy maps and performance scorecards; review and assess existing performance-related policies including board/compensation and recommend revisions/actions; and prepare performance reports for submission to the President.
Section 5(k) requires the GCG to prepare and submit to the President and Congress: (1) a semi-annual progress report; and (2) an annual report prepared within 120 days from the close of the year on GOCC performance.
Section 5(l) requires the GCG to review GOCC functions and, where regulatory and commercial functions conflict, recommend to the President—after consultation with the attached government agency—the privatization of commercial operations, transfer of regulatory functions to the appropriate agency, or other action to ensure non-conflict.
Section 5 requires that in performing specified functions (including subsections (a), (c), (e), (f), (g), (h), and (l)) and other reviews, the GCG shall engage the participation of the Secretary or highest-ranking official of the relevant agency/department.

GCG composition and chairman powers

Section 6 provides the GCG is composed of five (5) members.
Section 6 provides the Chairman (rank of Cabinet Secretary) and two (2) members with rank of Undersecretary are appointed by the President.
Section 6 provides the Secretaries of the Department of Budget and Management and the Department of Finance sit as ex officio members.
Section 7 vests management of the GCG in the Chairman.
Section 7 requires the Chairman to preside over GCG meetings and to direct and manage day-to-day affairs and business.
Section 7 requires the Chairman, with the approval of the GCG, to determine staffing pattern and number of personnel and define duties/responsibilities.
Section 7 requires the Chairman, with approval of the GCG, to appoint, remove, suspend, or discipline employees of the GCG for cause.
Section 7 allows the GCG to delegate additional duties to the Chairman from time to time.

Compensation, positions, and salary rules

Section 8 requires the GCG to develop a Compensation and Position Classification System after conducting a compensation study.
Section 8 applies the system to all GOCC officers and employees, whether under the Salary Standardization Law or exempt therefrom, and provides that it consists of classes of positions grouped into categories determined by the GCG, subject to approval of the President.
Section 9 requires position titles and salary grades to be allocated according to an index prepared by the GCG and approved by the President.
Section 9(a) mandates just and equitable wages and equal pay for work of equal value, with pay differences based on verifiable classification factors and due regard to financial capability.
Section 9(b) mandates that basic compensation be comparable with the private sector for comparable work, comply with prevailing minimum wage laws, remain at a reasonable level considering GOCC operating budget and existing compensation/classification laws, including Joint Resolution No. 4, Series of 2009.
Section 9(c) requires periodic review of GOCC compensation rates, considering performance, overall national economic contribution, and possible erosion in purchasing power due to inflation and other factors.
Section 9 mandates that no GOCC is exempt from coverage of the compensation and position classification system developed by the GCG under this Act, despite any law to the contrary.
Section 10 allows the GCG to recommend incentives for certain position titles based on good performance, but no incentives may be granted unless the GOCC has fully paid all taxes it is liable for and has declared and paid all dividends required under its charter or other laws.
Section 11 mandates non-diminution: the approved compensation system applies to all positions (full or part-time, existing or later created), but no diminution is allowed in authorized salaries as of December 31, 2010 of incumbent GOCC employees, including those exempt under Republic Act No. 6758, upon implementation.

Board duties, qualifications, and conduct

Section 12 applies duties, obligations, responsibilities, and standards of care in this Chapter to all Board/Trustee members and Officers of GOCCs and subsidiaries, including government-appointed directors in affiliate corporations, as additional to charter/bylaw powers and functions.
Section 13 requires maintaining the present number of directors/trustees provided in each GOCC charter.
Section 14 allows ex officio board members to designate alternates who are next-in-rank officials, and their acts are considered the acts of their principals.
Section 15 mandates that an Appointive Director is appointed by the President from a shortlist prepared by the GCG.
Section 15 requires the GCG to formulate rules and criteria for selection and nomination and to create search committees to achieve the same.
Section 15 requires nominees in the shortlist submitted by the GCG to meet the Fit and Proper Rule and other GCG-determined qualifications considering each GOCC’s unique requirements.
Section 15 requires the shortlist to exceed by at least 50% the number of directors/trustees to be appointed; if the President does not appoint any nominee, the President must request additional nominees from the GCG.
Section 16 mandates that all Board members, the CEO, and other officers (including appointive directors in subsidiaries and affiliate corporations) meet the Fit and Proper Rule, determined by the GCG in consultation/coordination with relevant government agencies and approved by the President.
Section 16 requires the GCG, subject to President approval, to prescribe, pass upon, and review qualifications and disqualifications of individuals appointed as officers/directors/elected CEO and to disqualify those found unfit, in coordination with relevant government agencies.
Section 16 mandates that determining fitness and propriety must give due regard to integrity, experience, education, training, and competence.
Section 17 provides that appointive directors have a one (1) year term, unless sooner removed for cause, and continue holding office until a successor is appointed.
Section 17 mandates reappointment only if a performance score is above average or its equivalent or higher in the immediately preceding year of tenure based on performance criteria for appointive directors.
Section 17 requires filling vacancies only for the unexpired term of the predecessor, following the appointment manner under Section 15.
Section 17 grants a transitory tenure rule for incumbent CEOs and appointive board members: they serve until June 30, 2011, unless sooner replaced by the President, and they continue until successors are appointed.
Section 18 requires the CEO (or highest-ranking officer under the charter) to be elected annually by the Board from among its ranks, subjects the CEO to Board disciplinary powers, and allows removal by the Board for cause.
Section 19 declares fiduciary duties: Board and officers must always act in the best interest of the GOCC with utmost good faith regarding GOCC property and monies.
Section 19 requires Board members and officers to: (a) act with utmost and undivided loyalty; (b) act with due care, extraordinary diligence, skill, and good faith; (c) avoid conflicts of interest and declare interests before the Board; (d) apply sound business principles for financial soundness; and (e) elect/employ only fit and proper officers.
Section 19 requires restitution under Section 24 for any profits or benefits acquired or received by a Board member or officer from self-benefit in violation of fiduciary duty, including use of GOCC property for personal benefit, commissions on contracts from GOCC assets, or taking advantage of corporate opportunities, and it applies regardless of whether the person risked personal funds.
Section 20 mandates that, except for per diems for actual attendance, reimbursement for actual and reasonable expenses, and incentives authorized by the GCG, realized and unrealized profits/benefits—including excess board/officer incentives beyond GCG authorization, stock options, dividends, and other grants from corporations where the GOCC is a stockholder/investor—must be held in trust by the Board member/officer exclusively for the GOCC.
Section 21 requires extraordinary diligence in conducting business and dealing with GOCC properties, requiring utmost diligence of every cautious person with due regard to all circumstances.
Section 22 authorizes the Board to discipline the CEO or order removal from office by majority vote of Board members who actually took part in investigation and deliberation, subject to existing civil service laws, rules, and regulations.
Section 23 requires that charter terms notwithstanding, compensation, per diems, allowances, and incentives of Board members be determined by the GCG using Executive Order No. 24 dated February 10, 2011 as reference.
Section 23 prohibits Board directors/trustees from being entitled to retirement benefits “as such directors/trustees.”
Section 23 provides that for GOCCs organized solely for social welfare and the common good without regard to profit, the President determines the total yearly per diems and incentives in aggregate for Board members based on achievement of performance targets, upon GCG recommendation.

Restitution and criminal exposure

Section 24 requires restitution when COA determines and reports that GOCC properties or monies are possessed without authority by a Board member/officer, or that profits are earned in violation of fiduciary duty, or when the aggregate per diems/allowances/incentives received in a year exceed the limits under the Act.
Section 24 requires the affected Board member/officer to return the properties/monies to the GOCC.
Section 24 provides that failure to make restitution within 30 days after written demand, after trial and final judgment, results in imprisonment of one (1) year and a fine equivalent to twice the amount to be restituted.
Section 24 provides that, at the court’s discretion, the offender may be disqualified to hold public office.

Disclosure and audit requirements

Section 25 requires every GOCC to maintain a website and post information for unrestricted public access.
Section 25(a) requires posting the latest annual audited financial and performance report within 30 days from receipt of the report.
Section 25(b) requires posting audited financial statements in the immediate past five (5) years.
Section 25(c) requires posting quarterly and annual reports and trial balance.
Section 25(d) requires posting the current corporate operating budget.
Section 25(e) requires posting the complete compensation package of all board members and officers, including travel, representation, transportation, and other forms of expenses or allowances.
Section 25(f) requires posting local and foreign borrowings.
Section 25(g) requires posting performance scorecards and strategy maps.
Section 25(h) requires posting government subsidies and net lending.
Section 25(i) requires posting all borrowings guaranteed by the government.
Section 25(j) authorizes the GCG to require other information or reports for posting.
Section 26(a) mandates that the 30 GOCCs with the highest total assets are subject to periodic special audit by COA.
Section 26(a) requires the periodic audit to determine at minimum whether accounting records are complete and in accordance with generally accepted accounting practices and standards, and whether statements fairly and comprehensively present financial position and results of financial operations.
Section 26(b) authorizes, for GCG function performance, the GCG Chairman to direct a special COA audit of any other GOCC for any specific purpose or when authorized by law, or to direct an audit by independent auditors.

Creation, registration, and acquisition rules

Section 27 requires a government agency seeking to establish a GOCC or a related corporation under the Corporation Code to submit a proposal to the GCG for review and recommendation to the President for approval before registration with the Securities and Exchange Commission (SEC).
Section 27 prohibits the SEC from registering articles of incorporation and bylaws of a proposed GOCC or related corporation unless the registration application is accompanied by an endorsement from the GCG stating that the President has approved it.
Section 28 requires a government agency seeking to purchase a corporation or acquire controlling interest to submit its proposal to the GCG for review and approval of the President.

Funding, suppletory rules, transition, repeal

Section 29 provides PHP 10,000,000.00 for initial operation of the GCG shall come from the Contingent Fund of the President, and subsequent funding is provided through the annual General Appropriations Act.
Section 30 provides that the Corporation Code of the Philippines and GOCC charters apply suppletorily insofar as they are not inconsistent with the Act.
Section 31 provides a transitory transfer of privatization work: the Privatization Council and the Privatization and Management Office created under Executive Order No. 323, Series of 2000 continue and finish privatization of GOCCs identified by that Council and approved for privatization by the President prior to effectivity of the Act.
Section 31 requires that privatization of GOCCs remaining unfinished at the end of every two (2) years after effectivity is automatically transferred to the GCG, which continues privatization.
Section 32 provides a repealing/modification clause revoking, repealing, or modifying inconsistent provisions of GOCC charters under existing laws and all other inconsistent laws, executive orders (including Executive Order No. 323, Series of 2000), administrative orders, rules, regulations, decrees, and other issuances or parts thereof.
Section 33 provides separability: if any provision is declared unconstitutional, the validity of the other provisions is not affected.

Effectivity rule

Section 43 provides that the Act takes effect after 15 days following its publication in the Official Gazette or in two newspapers of general circulation.
June 06, 2011 is the approval date of the Act by the President.
The Act is identified as Republic Act No. 10149 and is enacted June 06, 2011, based on a consolidation of Senate Bill No. 2640 and House Bill No. 4067.