COMPLIANCE WITH LEADING PRACTICES ON CORPORATE GOVERNANCE

Board of Directors

The Company prides itself with its Board of Directors (the "Board"), composed of highly competent individuals who are well-recognized in their respective fields and in the business community. The Board provides a clear vision towards the formulation of sound corporate strategies, and oversees the systemization, improvement and upholding of transparency in governance. The Board provides guidance in achieving fairness and accountability in all major dealings of the Company, with the objective of protecting the interests of its stakeholders.

In this connection, the Board fulfils certain key functions, including: reviewing and guiding corporate strategy, major plans of action, risk policy, annual budgets and business plans, setting performance objectives, monitoring implementation and corporate performance, and overseeing and approving major capital expenditures, acquisitions and divestitures, monitoring the effectiveness of our governance practices and making changes as needed, selecting, compensating, monitoring and, when necessary, replacing key executives and overseeing succession planning, aligning key executive and board remuneration with the longer term interests of the Company and its stakeholders, ensuring a formal and transparent board nomination and election process, and monitoring and managing potential conflicts of interest of management, board members, shareholders and stakeholders, including misuse of corporate assets and abuse in related party transactions.

 

 

Board Composition

The Board has eleven (11) members who are elected by the stockholders during the annual stockholders’ meeting ("ASM"). The Board should have at least three (3) independent directors, or such number as to constitute at least one-third of the member of the Board, whichever is higher.

All nominations to the Board are undertaken in accordance with the Manual of Corporate Governance (the "Manual"), By-laws, the Charter of the Board, and the existing rules and regulations. Upon receipt of all nominations, the Nomination Committee convenes to evaluate the qualifications of nominees for election to the Board. In evaluating the nominations, the Nomination Committee adheres to the criteria for selection and the qualifications and disqualifications of directors set forth in the Manual, the Charter of the Board, the Charter of the Board Committees, the Securities Regulations Code (SRC), and those under existing laws, rules, and regulations. After deliberation, the Nomination Committee and the Board issue a resolution endorsing the election of the qualified nominees at the ASM. The members of the Board so elected at the ASM hold office for one year, and until their successors have been elected and qualified in accordance with the Bylaws. The elected members of the Board are mandated to oversee the management of the Company, and, in the performance of their duties, must exercise their best and unbiased judgment to protect and promote the interest of the Company and its stakeholders.

The inputs and opinions of each Director are valued, it is ensured that a Director shall not be discriminated upon by reason of gender, age, ethnicity, political, religious, or cultural beliefs. Towards this end, the Board has adopted a policy of diversity in gender, age, and ethnicity, as well as religious, political, or cultural background. Through this policy, the Board encourages the shareholders to nominate and select individuals who will promote diversity in the membership of the Board.

Moreover, the Board ensures a formal and transparent board nomination and election process.

Principles and Procedures for Submission and Evaluation of Nominations and Endorsement for Election of Candidates to the Board of Directors

Manila Water encourages the selection of a mix of competent directors, each of whom can add value and contribute independent judgment to the formulation of sound corporate strategies and policies.

Moreover, the Board ensures a formal and transparent board nomination and election process. Towards this end, the following procedure and principles are observed in the nomination of candidates for election to the Board:

1. Every stockholder, including the minority and noncontrolling, has a right to submit nominations for election to the Board.
   
   All nominations to the Board, whether for first time nominees or repeat nominees, or for independent directors, shall be submitted to the Nomination Committee, through the Office of the Corporate Secretary, at least thirty (30) working days before the date of the ASM. The stockholders, in making their nominations, or the Company, may make use of professional search firms or external sources of candidates when searching for candidates to the Board.
2. Process of Endorsing Nominations
   1. The Nomination Committee shall hold a meeting for the specific purpose of determining whether the nominees to the Board have all the qualifications and none of the disqualifications specified in the Revised Corporation Code of the Philippines, the Manual, the Charter of the Board, the SRC Rules, and the applicable laws, rules and regulations.

   2. The Nomination Committee shall evaluate each and every nomination and for this purpose, may even make an inquiry with their professional networks and outside references.

      The Nomination Committee undertakes the process of identifying the quality of directors aligned with our strategic directions. Towards this end, the Nomination Committee shall confirm that all nominees for election have all the qualifications and none of the disqualifications to become directors, and that they have the competence and professional background that will enable them to perform their duties as directors of a highly regulated business as that of Manila Water.

      If the ground for disqualification of a nominated director becomes known prior to the scheduled ASM, the nominated director shall not be endorsed for election at the stockholders’ meeting except when such disqualification is temporary and the same is cured or remedied prior to the scheduled stockholders' meeting.

      A director with temporary disqualification may still be endorsed by the Nomination Committee for election at the ASM subject to the sixty (60) day curing period if the ground for temporary disqualification is capable of being cured. However, if the    disqualification becomes permanent after endorsement by the Nomination Committee and before the ASM, the nominee shall be given the discretion to refuse his nomination. If the nominee is thereafter elected, or the disqualification becomes permanent during his term of office, the aforesaid director may be removed subject to the provisions of  procedures under Section 2.4.2 of the Charter of the Board.
   3. After evaluation of the qualification’s disqualifications of the nominees, the Nomination Committee shall issue a resolution whether endorsing or not the nominees for election to the Board.
   4. If a nominee is not endorsed for election by reason of a disqualification, the resolution of the Nomination Committee should clearly specify the grounds relied upon for disqualification.

3. Election of Directors

   The directors of the Company shall be elected by majority vote at the annual meeting of the stockholders at which a quorum is present. At each election for directors, every stockholder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or by distributing such votes on the same principle among any number of candidates.

 

QUALIFICATIONS AND DISQUALIFICATIONS OF DIRECTORS

General Qualifications of Directors

A nominee to the Board must have the following General Qualifications:

Ownership of at least one (1) share of the capital stock of the Company.

1. At least twenty-one (21) years of age.
2. A college degree or its equivalent or adequate competence and understanding of the fundamentals of doing business or sufficient experience and competence in managing a business to substitute for such formal education.
3. Possesses integrity, probity and shall be diligent and assiduous in the performance of his functions.
4. Other relevant qualifications, such as membership in good standing in business, professional organizations, or relevant industry.
5. Non-executive directors should possess such qualifications and stature that would enable them to effectively participate in the deliberations of the Board.

Specific Qualifications of Directors

In addition to the General Qualifications, the following specific qualifications shall be required, if applicable:

1. Non-executive directors shall possess such qualifications and stature to effectively participate and help secure objective, independent judgement on corporate affairs and to substantiate proper checks and balances.
2. Directors who are members of Board Committees shall have such additional qualifications necessary to effectively discharge the functions of the relevant Board Committee. c) At least one of the independent directors must have accounting expertise (accounting qualification or experience).
3. At least one non-executive director must have prior working experience in the sector that Manila Water is operating in.
4. Independent directors must have all requisite qualifications for independence under Securities and Exchange Commission (SEC) Memorandum Circular No. 16, Series of 2002.
5. Officers, executives, and employees of the Company may be elected as directors but cannot and shall not be characterized as independent directors.
6. If a director elected or appointed as an independent director becomes an officer, employee or consultant of the Company, the Company shall forthwith cease to consider him as an independent director.
7. If the beneficial ownership of an independent director in the Company or its related corporations shall exceed two percent (2%) of the subscribed capital stock of such corporation, the Company shall forthwith cease to consider him as an independent director, except when the independent director takes the appropriate action to remedy or correct the disqualification within sixty (60) days from the occurrence of the ground, in which case, he may still be considered an independent director.

 

Permanent Disqualifications

A nominee to the Board with the following disqualifications shall never be nominated, or if nominated and elected, shall be removed from office:

1. Any person who has been finally convicted by a competent judicial or administrative body of the following: (i) any crime involving the purchase or sale of securities as defined in the SRC, e.g. proprietary or non-proprietary membership certificate, commodity futures contract, or interest in a common trust fund, pre-need plan, pension plan or life plan; (ii) any crime arising out of the person's conduct as an underwriter, broker, dealer, investment corporation, investment adviser, principal distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker; or, (iii) any crime arising out of his fiduciary relationship with a bank, quasibank, trust Company, investment house or as an affiliated person of any of them;
2. Any person who, by reason of any misconduct, after hearing or trial, is permanently or temporarily enjoined by order, judgment or decree of the SEC or any court or other administrative body of competent jurisdiction from: (i) acting as an underwriter, broker, dealer, investment adviser, principal distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or a floor broker; (ii) acting as a director or officer of a bank, quasibank, trust Company, investment house, investment Company or an affiliated person of any of them; (iii) engaging in or continuing any conduct or practice in connection with any such activity or willfully violating laws governing securities, and banking activities.
   
   Such disqualification shall also apply when such person is currently subject to an effective order of the SEC or any court or other administrative body refusing, revoking or suspending any registration, license or permit issued under the Corporation Code of the Philippines, SRC, or any other law administered by the SEC or Bangko Sentral ng Pilipinas (BSP), or under any rule or regulation promulgated by the SEC or BSP, or otherwise restrained to engage in any activity involving securities and banking. Such person is also disqualified when he is currently subject to an effective order of a self-regulatory organization suspending or expelling him from membership or participation or from association with a member or participant of the organization;
3. Any person finally convicted judicially or administratively of an offense involving moral turpitude or fraudulent acts or transgressions such as, but not limited to, embezzlement, theft, estafa, counterfeiting, misappropriation, forgery, bribery, false affirmation or perjury;
4. Any person finally found by the SEC or a court or other administrative body to have willfully violated, or willfully aided, abetted, counseled, induced or procured the violation of any provision of the SRC, the Revised Corporation Code of the Philippines, or any other law administered by the SEC, or any rule, regulation or order of the SEC or the BSP;
5. Any person judicially declared to be insolvent;
6. Any person finally found guilty by a foreign court or equivalent financial regulatory authority of acts, violations, or misconduct similar to any of the acts, violations or misconduct listed in the foregoing paragraphs;
7. Any person convicted by final and executory judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of the Revised Corporation Code of the Philippines, committed within five (5) years prior to the date of his election or appointment; and,
8. No person shall qualify or be eligible for nomination or election to the Board if he is engaged in any business which competes with or is antagonistic to that of the Company. Without limiting the generality of the foregoing, a person shall be deemed to be so engaged –
   1. If he is an officer, manager or controlling person of, or the owner (either of record or beneficially) of ten percent (10%) or more of any outstanding class of shares of, any corporation (other than one in which the Company owns at least thirty percent [30%] of the capital stock) engaged in a business which the Board, by at least three-fourths (3/4) vote, determines to be competitive or antagonistic to that of the Company, or
   2. If he is an officer, manager or controlling person, or the owner (either of record or beneficially) of ten percent (10%) or more of any outstanding class of shares of any other corporation or entity engaged in any line of business of the Company, or when in the judgment of the Board, by at least three-fourths (3/4) vote, deems that the laws against combinations in restraint of trade shall be violated by such person's membership in the Board; or
   3. If the Board, in the exercise of its judgment in good faith, determines by at least threefourths (3/4) vote that he is the nominee of any person set forth in (i) or (ii).
      

      In determining whether or not a person is a controlling person, beneficial owner, or the nominee of another, the Board may take into account such factors as business and family relations.

9. Other grounds as the SEC may prescribe

Temporary Disqualifications

The following shall constitute grounds for temporary disqualifications of directors:

1. Refusal to fully disclose the extent of his business interest as well as refusal to comply with all other disclosure requirements under the SRC and its Implementing Rules and Regulations. This disqualification shall be in effect as long as his refusal persists.
2. Absence or non-participation in more than Fifty Percent (50%) of all meetings, both regular and special, of the Board during his incumbency, or any twelve (12) month period during said incumbency unless such absence was due to illness, death in the immediate family or serious accident. This disqualification applies for purposes of the succeeding election.
3. Dismissal or termination from directorship of any publicly listed Company, public Company, registered issuer of securities and holder of a secondary license from the SEC. This disqualification shall be in effect until he has cleared himself of any involvement in the cause that gave rise to his dismissal or termination.
4. Being under preventive suspension by the Company for any reason.
5. If the beneficial equity ownership of an independent director in the corporation or its subsidiaries and affiliates exceed two percent (2%) of its subscribed capital stock. The disqualification from being elected as an independent director is lifted if the limit is later complied with.
6. Conviction that has not yet become final referred to in the grounds for disqualification of directors.

A finding of existence of temporary disqualification shall be at the discretion of the Board and shall require a resolution of a majority of the Board. A director shall have sixty (60) days upon the occurrence of any ground for temporary disqualification to remedy or correct the same otherwise, the disqualification shall become permanent.

 

Roles and Responsibilities of the Board

The Corporate Governance Manual provides that “The Board should have a Board Charter that formalizes and clearly states its roles, responsibilities and accountabilities in carrying out its fiduciary duties. The Board Charter should serve as a guide to the directors in the performance of their functions and should be publicly available and posted on the Company’s website”. The Charter of the Board implements the aforesaid provision of the Manual.

Article I, Section 1.4 of the Company’s Corporate Governance Manual outlines the governance responsibilities of the Board.

1. The Board members shall act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the Company and all shareholders;
2. The Board shall oversee the development of and approve the Company’s business objectives and strategy, and monitor their implementation, in order to sustain the Company’s long-term viability and strength;
3. The Board shall be responsible for ensuring and adopting an effective succession planning program for directors, key officers, and management to ensure growth and a continued increase in the shareholders’ value. This includes adopting a policy on the retirement age for directors and key officers as part of management succession and to promote dynamism in the Company.
4. The Board should align the remuneration of key officers and board members with the long-term interests of the Company. In doing so, it should formulate and adopt a policy specifying the relationship between remuneration and performance. Further, no Director should participate in discussions or deliberations involving his own remuneration.
5. The Board should have the overall responsibility in ensuring that there is a groupwide policy and system governing related party transactions (RPTs) and other unusual or infrequently occurring transactions, particularly those which pass certain thresholds of materiality. The policy should include the appropriate review and approval of material or significant RPTs, which guarantee fairness and transparency of the transactions. The policy should encompass all entities within the Group, taking into account their size, structure, risk profile and complexity of operations.
6. The Board should be primarily responsible for approving the selection and assessing the performance of the Management led by the Chief Executive Officer (CEO), and control functions led by their respective heads (Chief Risk Officer, Chief Compliance Officer, and Chief Audit Executive).
7. The Board should ensure the establishment of an effective performance management framework that will ensure that the Management, including the Chief Executive Officer, and personnel’s performance is at par with the standards set by the Board and Senior Management.
8. The Board should oversee that an appropriate internal control system is in place, including setting up a mechanism for monitoring and managing potential conflicts of interest of Management, board members, and shareholders. The Board should also approve the Internal Audit Charter.
9. The Board should oversee that a sound enterprise risk management (ERM) framework is in place to effectively identify, monitor, assess and manage key business risks. The risk management framework should guide the Board in identifying units/business lines and enterprise-level risk exposures, as well as the effectiveness of risk management strategies.
10. The Board should adopt a Code of Business Conduct and Ethics, which would provide standards for professional and ethical behavior, as well as articulate acceptable and unacceptable conduct and practices in internal and external dealings. The Code should be properly disseminated to the Board, senior management, and employees. It should also be disclosed and made available to the public through the Company website.

Aside from these, Section 3.1. of the Charter of the Board also lists the following powers of the Board:

1. The Board should ensure the integrity of the Company’s accounting and financial reporting systems, including the independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards.
2. The Board shall ensure a formal, transparent board nomination and election process.
3. The Board shall monitor the effectiveness of the Company’s governance practices and make changes as needed.
4. The Board shall oversee the process of disclosure and communications
5. The Board shall regularly review, at least annually, the mission and vision of the Company and shall revise the same, as may be necessary, in accordance with the strategic directors of the Company.

 

INDEPENDENT DIRECTORS

In compliance with the requirements of the law, the Company's Manual, and the rules and regulations of the SEC, the Company has four (4) independent directors as members of the Board.

Under the Charter of the Board, Independence is defined as, with respect to any person, the absence of any restrictions or limitations or freedom from any interests or relationships that would interfere with the exercise of impartial and objective judgment in carrying out the responsibilities of that person.

Under the Manual, a director is considered independent if he holds no interests or relationships with the Company that may hinder his independence from the Company or its management which would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. More importantly, the Company also subscribes to the requirements of independence under existing laws, rules and regulations the SEC Memorandum Circular No. 16, Series of 2002. Hence, the Company ensures that its independent directors have all the qualifications and none of the disqualifications specified in the said SEC Memorandum Circular.

Board Committees

The Board is supported by several committees, namely: Executive Committee, Audit Committee, Corporate Governance Committee, Board Risk Oversight Committee, Related Party Transactions Committee, Nomination Committee, Talent and Remuneration Committee, and the Committee of Inspectors of Ballots and Proxies. These Board Committees are required to report to the Board a summary of the actions taken on matters submitted to them for consideration at the next meeting of the Board. Each of the Board Committees has its own charter that provides guidance on the manner by which its members and the committees should exercise their functions and mandates.

The Executive Committee

The Executive Committee is composed of five (5) directors, with 1 member as Chairman of the Executive Committee. The Executive Committee acts by majority vote of all its members and is authorized to act and shall act on matters within the competence of the Board, except those with respect to:

1. the approval of any action for which shareholders' approval is also required;
2. the filling of vacancies in the Board;
3. the amendment or repeal of the By-laws or the adoption of new By-laws;
4. the amendment or repeal of any resolution of the Board, which by its express terms is not so amendable or repealable;
5. the distribution of cash dividends to shareholders;
6. the exercise of powers delegated by the Board exclusively to other committees, if any.

The Executive Committee meets as needed and performs such other functions as may be properly delegated to it by the Board. The Executive Committee held nine (9) meetings in 2020.

The Audit Committee

The Audit Committee is composed of four (4) nonexecutive directors (majority of whom are independent) and is required to be chaired by an independent director. The Audit Committee provides the check and balance mechanism and is expected to bring positive results in supervising and supporting the management of the Company. It is responsible for ensuring the development of, compliance with, and periodic review of financial reporting policies and practices of the Company.

The Audit Committee also recommends and/or concurs to the appointment, replacement, re-assignment and removal or dismissal of the Company’s external auditors and the Chief Audit Executive to ensure that the external and internal auditors will function and operate independently of the management as required of their function.

All members of the Audit Committee are required to possess adequate understanding of accounting and auditing principles in general and of the Company’s financial management systems and environment, in particular. Mr. Jaime C. Laya, an independent director and a member of the Audit Committee, is a Certified Public Accountant. The Audit Committee meets at least every quarter and before the quarterly Board meetings and when needed. The Committee held four (4) regular meetings and two (2) special meetings in 2020.

The Corporate Governance Committee

The Corporate Governance (CG) Committee is composed of three (3) independent directors including the Chairman. The CG Committee is tasked with ensuring compliance with and proper observance of corporate governance principles and practices, and has the following duties and functions, among other functions as may be delegated by the Board from time to time:

1. oversees the implementation of the corporate governance framework and periodically reviews the said framework to ensure that it remains appropriate in light of material changes to the Company’s size, complexity, and business strategy, as well as its business and regulatory environments;
2. Oversees the periodic performance evaluation of the Board and its committees as well as executive management, and conducts an annual selfevaluation of its performance;
3. ensures that the results of the Board evaluation are shared, discussed, and that concrete action plans are developed and implemented to address the identified areas for improvement;
4. recommends continuing education and training programs for directors, and assignment of tasks/ projects to Board committees;
5. adopts corporate governance policies and ensures that these are reviewed and updated regularly, and consistently implemented in form and substance; and
6. Proposes and plans relevant trainings for the members of the Board.

Additional duties and responsibilities of the Committee are set forth in its charter. The Compliance Officer, in coordination with the Corporate Secretary, shall support the Committee in the performance of its functions. The Corporate Governance Committee held two (2) meetings in 2020.

The Board Risk Oversight Committee

The Board Risk Oversight Committee (BROC) is composed of four (4) members, majority of whom are independent directors, and is required to be chaired by an independent director. The chairman should not be the chairman of the Board or of any other committee. The Board Risk Oversight Committee was established separately from the Audit Committee in order to further enhance governance on risk matters and align with the best practices in risk management and supported by the Enterprise Risk Management Department in the performance of its functions.

This committee is tasked to provide assistance in fulfilling the Board's oversight responsibilities in relation to risk governance in Manila Water, which includes ensuring that the Management maintains a sound and responsive risk management system across the organization; promote an open discussion regarding risks faced by the Company, as well as risks faced by its subsidiaries that may have potential impact on the Company's operations, and ensure that risk awareness culture is pervasive throughout the organization.

This committee is also responsible for ensuring that an overall set of risk management policies and procedures exist for the Company; reviews the Company's risk governance structure and the adequacy of the Company's risk management framework/process; reviews and endorses to the Board changes or amendments to the Enterprise Risk Management (ERM) Policy; performs oversight functions specifically in the areas of managing strategic, financial, compliance, regulatory, operational and other risks of the Company, and crisis management. In coordination with the Audit Committee, ensures that the Company's internal audit work plan is aligned with risk management activities and that the internal control system considers all risks identified in the risk assessment process.

The Board Risk Oversight Committee held four (4) meetings in 2020. Beginning in 2020, the BROC is expected to meet every quarter as compared to the semiannual frequency in previous years.

The Related Party Transactions Committee

The Related Party Transactions Committee (RPT) Committee is composed of three (3) non-executive directors [two (2) of whom shall be independent directors] and chaired by an independent director. As of December 31, 2020, the RPT Committee is composed of 3 independent directors.

This committee is primarily tasked with the duty of enforcing and implementing the Related Party Transactions Policy of the Company. The Committee also ensures that material RPT shall have terms and conditions that are fair and equitable to the Company; the approval, award, processing and payment of RPT shall follow the same procedures as the other transactions and contracts of the Company, and therefore, no unusual privilege or special treatment shall be afforded a Related Party; and in case of doubt on the nature of a transaction subject of investigation or review pursuant to the RPT Policy, the Office of the Compliance Officer, in consultation with the RPT Committee, shall determine whether the transaction or relationship constitutes a RPT, and whether the same shall be pursued taking into consideration the cost and benefit to the Company.

On October 28, 2019, the Related Party Transactions Committee approved the amendments to the Company’s Policy on Related Party Transactions in order to comply with the provisions of the Rules on Material Party Transactions for Publicly Listed Companies of the SEC. The amendments to the Company’s Policy were ratified by the Board of Directors during its Regular Meeting on November 26, 2019. The RPT Committee met once in 2020.

The Nomination Committee

The Nomination Committee is composed of at least three (3) directors, majority of whom are independent directors, and under its Charter is required to be chaired by an independent director.

This committee is tasked to install and maintain an evaluation process to ensure that all directors to be nominated to the Board during the annual stockholders' meeting have all the qualifications and none of the disqualifications stated in the Manual, the Charter of the Board and the Committees, and under existing laws and regulations undertakes the process of identifying the quality of directors consistent with the Company's strategic directions, and to ensure that the directors have the competence and professional background that will enable them to perform their duties as directors of Manila Water. For this reason, the Committee shall not endorse a nominee for appointment by the Board unless it has determined that all nominees have all the qualifications and none of the disqualifications for the position.

The Nomination Committee is also responsible for evaluating the qualifications of all officers nominated to positions in the Company which are appointed, or required to be appointed, by the Board and provides guidance and advice as necessary for the appointment of persons nominated to other positions. It also reviews and revises if necessary, the succession plans for members of the Board and officers with ranks from Group Directors to the President and CEO.

The Nomination Committee also provides and assessment of the Board’s effectiveness in directing the process of renewing and replacing Board members and in appointing officers or advisors. It also develops, and updates as necessary and recommend to the Board policies for considering nominees for directors, officers, or advisors. The Nomination Committee met three (3) times in 2020.

The Talent and Remuneration Committee

The Talent and Remuneration Committee is composed of at least three (3) members, a majority of whom are independent directors, and under its Charter is required to be chaired by an independent director. As of December 31, 2020, the Committee is composed of four (4) members, three (3) of whom are independent directors.

The Committee is tasked with the duty to determine and approve all matters and policies relating to the remuneration and benefits of the Company's directors and key officers; to establish a formal and transparent procedure for developing a policy on remuneration of directors and officers to ensure that their compensation is consistent with the Company’s culture, strategy and the business environment in which it operates; to determine and approve all matters relating to the remuneration and benefits of the Board and the Company's officers; to evaluate and recommend for Board approval the pertinent guidelines on executive compensation, including nonmonetary remuneration; and to periodically review and evaluate the policy on remuneration in order that it be in a sufficient level to attract and retain directors and officers of the Company.

The Talent and Remuneration Committee continuously evaluates and recommends for Board approval, pertinent guidelines and policies on executive and employee compensation, including non-monetary remuneration.

On November 14, 2019, the Talent and Remuneration Committee approved the addition of the following in its scope of powers, duties and responsibilities: a) total rewards, merit increases, salary, and retirement and benefits plan, b) senior management and executive promotions, c) overall succession landscape, d) tracking of key talents, e) talent management and risk updates. The amendments were ratified by the Board of Directors during its regular meeting held on November 26, 2019. The Talent and Remuneration Committee held four (4) meetings in 2020.

The Committee of Inspectors of Ballots and Proxies

Membership consists of the Chief Audit Executive as Chairman, and the Chief Legal Officer (or Head of the Legal and Corporate Governance Department) and a representative of the external auditor of the Company as members.

This committee is mandated to validate proxies issued by the stockholders and to determine if the same are in accordance with existing laws, rules, and regulations prior to the annual stockholders' meeting. This committee also serves as the default inspector of ballots and tabulator of votes during the annual stockholders' meeting, and as such, is required to coordinate closely with the Office of the Corporate Secretary and the independent validator of votes appointed for the purpose. The Committee met twice in 2020.

Corporate Orientation and Corporate Governance Trainings for Directors

The members of the Board are required to regularly attend seminars and conferences to continuously update themselves on the developments in policy, regulations, and standards on good corporate governance. Under the Company's Manual, the members of the Board are also provided with such resources, trainings, and continuing education to enable each member to actively, independently, and judiciously participate in Board and Committee meetings.

Newly elected members of the Board undergo orientation programs for them to have a working knowledge of the statutory and regulatory requirements affecting the Company. They are also required to keep abreast with industry developments and business trends in order that they may promote the Company's competitiveness and sustainability. Attendance in a corporate governance seminar conducted by a duly recognized private or governmental institution is also a mandatory requirement prior to their assumption of office and during their term of office.

The Company also provides general access to training courses to its directors as a matter of continuous professional education as well as to enhance their skills as directors and keep them updated in their knowledge and understanding of the Company’s business. The Board and Board Committees are also allowed to hire independent legal counsel, accountants, or other consultants to advise them when necessary.

At every board meeting, directors are provided with a management update on the operational and financial status of, and other relevant matters, about the Company to ensure that the directors are continuously informed of new developments and the performance of the Company.

Upon assumption of office, a director appointed for the first time undergoes a corporate orientation program conducted by the Office of the Corporate Secretary. The corporate orientation program includes modules on the operations of the Company, as well as relevant contracts of the Company. The orientation also covers existing policies, rules and regulations of the Company. The curriculum of the orientation program may be revised as often as necessary to include other relevant subjects and matters relating to the Company. In addition to the corporate orientation program for new directors, the Office of the Corporate Secretary informs the Board of any updates on the matters covered by the orientation program. The corporate orientation program and updates are usually given during the regular meetings of the Board.

These programs notwithstanding, Manila Water encourages its directors to attend external trainings, courses or continuing professional education programs on corporate governance. The Directors are required to inform the Office of the Corporate Secretary of the trainings or courses attended for record and disclosure purposes.

 

Corporate Governance Programs Attended by the Board of Directors in 2020

 

Board Meetings

Under the Charter of the Board, the Board institutionalized a policy of holding at least six (6) meetings in a year. These include the organizational meeting of the Board which is held immediately after the annual stockholders' meeting. Under the By-laws, special meetings may be called by the Chairman, Vice Chairman, President or at the instance of a majority of the members of the Board.

To promote transparency, the Board has a policy of requiring the presence of at least one independent director in all its meetings. In the past years, the Board has not conducted a meeting without the presence of at least one independent director.

Under the Manual, a director’s absence, or non-participation, for whatever reason in more than fifty percent (50%) of all Board meetings, both regular and special, in a year is a ground for temporary disqualification in the succeeding election.

Attendance of Directors in Board Meetings

 In 2020, a total of eleven (11) meetings were held by the Board (exclusive of the Annual Stockholders’ Meeting), as follows:

1. Special Board Meeting held on January 31, 2020
2. Regular Board Meeting held on February 20, 2020
3. Organizational Board Meeting held on April 17, 2020
4. Regular Board Meeting held on May 13, 2020
5. Non-Executive Directors’ Meeting held on June 11, 2020
6. Regular Board Meeting held on August 10, 2020
7. Regular Board Meeting held on October 5, 2020
8. Special Board Meeting held on November 17, 2020
9. Regular Board Meeting held on November 24, 2020
10. Non-Executive Directors’ Meeting held on November 24, 2020
11. Special Board Meeting held on December 18, 2020

Mr. Jose Rene Gregory D. Almendras, the Company’s President and Chief Executive Director, is an Executive Director and was not a party to the meeting of the Non-Executive Directors held on June 11, 2020 and November 24, 2020.

During the 2020 Annual Stockholders’ Meeting held on April 17, 2020, and conducted virtually via https://asm.ayala.com/MWC2020, the Chairman of the Board of Directors, President and CEO of the Company, and the Chairman of the Audit Committee along with the other directors and executive officers of the Company, were in attendance. Their attendance was duly recorded in the minutes of the said meeting.

Quorum in Board Meetings

Under the Charter of the Board, at least two-thirds (2/3) of the members of Board (as fixed in the Articles of Incorporation) shall constitute a quorum for the transaction of corporate business, and every decision of at least a majority of the directors present at a meeting at which there is a quorum shall be valid as a corporate act, except when a higher quorum is required in contracts binding on the Company.

In the absence of a quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum is obtained.

Board Remuneration

The Board determines a level of remuneration for directors that shall be sufficient to attract and retain directors and compensate them for attendance at meetings of the Board and Board Committees and their performance of numerous responsibilities of a Board member. The Remuneration Committee is responsible for recommending to the Board the fees and other compensation for directors. In fulfilling this duty, the Remuneration Committee is guided by the objective of ensuring that the proposed fees should fairly compensate the directors for the work required consistent with the Company's size and industry.

In a special meeting held on April 11, 2011, the Board approved an increase in the Board remuneration. The approved remuneration for each member of the Board consists of PhP500,000.00 as a fixed annual retainer fee, PhP200,000.00 for each meeting of the Board actually attended, and PhP50,000.00 for each Committee meeting actually attended. This Board remuneration structure was approved by the stockholders in its annual stockholders' meeting held on April 11, 2011 and has not been modified since then. In the same annual meeting, the stockholders approved the amendment of the By- laws, giving the Board of Directors the authority to determine the amount, form, and structure of the fees and other compensation of the directors.

 

Corporate Governance Programs Attended by the Board of Directors in 2020

 

 

 

 

 

 

 

1 Mr. Ablaza served as the Vice-Chairman of the Executive Committee from 01 January 2020 to 16 April 2020
2 Mr. Francia became the Vice-Chairman of the Executive Committee on 17 April 2020 after he was elected as a director.
3 Although not a member of the Audit Committee, Ms. Nuesa attended one of the Special Audit Committee Meetings held last year.

 

Vision, Mission and Corporate Objectives

To ensure good governance of the Company, the Board is mandated under the Manual to formulate strategic objectives, key policies, and procedures for the management of the Company. Furthermore, the Board has established the mechanism for monitoring and evaluating the performance of the Management, especially that of the President and CEO. Under its Charter, the Board is enjoined to periodically review the vision, mission, corporate strategic objectives, and key policies of the Company to sustain the Company’s market competitiveness and enhance shareholder value. Accordingly, in its regular meeting held on November 20, 2018, the Board has confirmed the following mission and vision of the Company, as representative of its strategic and corporate objectives:

Vision

Our vision is to become a leader in the provision of water, used water and environmental services which will empower people, protect the environment and enhance sustainable development.

Mission

Our mission is to create an exceptional customer experience in the provision of sustainable solutions vital to health and life.

Core Values

• Care (Malasakit)
• Excellence (Kahusayan)
• Resilience (Katatagan)
• Collaboration (Bayanihan)
• Integrity (Katapatan)

The Company’s new set of core values was presented to the Talent and Remuneration Committee on October 28, 2020.

Annual Board Evaluation

The Board has an annual evaluation process that is required to be accomplished by the directors, which enables an informed and objective assessment of the following:

1. Board and Board Committee processes and meetings;
2. Compliance with the responsibilities and functions of the Board and Board Committees;
3. Board-Management relationship;
4. Board Member self-evaluation; and
5. Evaluation of the performance of the President and CEO and Senior Management

This evaluation enables the Board and the Management to determine areas that need improvement on the very scope and criteria of the evaluation process. It also allows the Board to explain their respective ratings and to provide their own comments on the matters discussed in the evaluation. The scope and criteria for the Board Evaluation Process is contained in the Charter of the Board of Directors. The Charter of the Board is available for download at the Company’s website.

In addition to the annual Board evaluation process, the Audit Committee adopted SEC Memorandum Circular No. 4 Series of 2012 on the Guidelines for the Assessment of the Performance of Audit Committees of Companies Listed on the Philippine Stock Exchange which took effect on June 30, 2012. Pursuant to this, an annual evaluation is also being conducted to assess the performance of the Audit Committee.

Part I. Board and Board Committee Processes and Meetings

Criteria	Rating	Explanation/Comments/Suggestions
Adequacy, frequency, duration and scheduling of Board and Committee meetings per year
Attendance to the Board and Committee meetings
Adequacy of materials for meetings of the Board and the Committees
Content and quality of materials for meetings of the Board and the Committees
Quality of presentations to the Board and the Committees
Quality and adequacy of discussions and deliberations during Board and Committee meetings
Preparedness of the directors for the Board and Committee meetings
Appropriateness of delegation of business to the respective Board Committees
Adequate information to the Board of Committee acts and approvals

Part II. Compliance with the Responsibilities and Functions of the Board and Board Committees

Criteria	Rating	Explanation/Comments/Suggestions
Adequate information to the Board or Committee acts and approvals
Effectiveness of the Board and the Committees in monitoring of management’s implementation of corporate strategy
Effectiveness of the Board and the Committees in monitoring the operational and financial performance of the Company
Effectiveness of the Board and the Committees in handling crisis situation
Commitment of the Board and the Committees to good corporate governance practices
Consideration by the Board and the Committees of the interest of the minority shareholders

Part lll. Board-Management Relationship

Criteria	Rating	Explanation/Comments/Suggestions
Existence of open lines of communication and constructive interaction between directors and the management of the Company
Clear understanding of the delineation between the roles of the Board and the Committees and the key officers/management
Support of the Board and the Committees to the management

Part IV. Board Member Self-Evaluation

Criteria	Rating	Explanation/Comments/Suggestions
Exercise of independent judgment in that a director views each problem/situation objectively and supports plans and ideas which such director believes are beneficial to the Company
Avoidance of any situation where a director may be placed in a conflict of interest
Inclination to disclose any conflict of Interest
Prompt and complete attendance in Board and Committee meetings
Preparedness on the topics to be discussed on Board and Committee meetings
Active and objective participation in the Board and Committee discussions
Working knowledge on the statutory and regulatory requirements affecting the Company
Promotion and support on good corporate governance practices

Part V. Evaluation of President and Chief Executive Officer

Criteria	Rating	Explanation/Comments/Suggestions
Possession by the President and Chief Executive Officer (CEO) of the qualifications to effectively discharge the functions of the office
Ability of the President/CEO to achieve Key Result Areas and Performance of the President/CEO against clear, measurable, and documented objectives

Part VI. Evaluation of the Chairman of the Board

Criteria	Rating	Explanation/Comments/Suggestions
Possession by the Chairman of the competence and qualifications to effectively discharge the functions of the office
Performance by the Chairman of his functions under the laws, By-Laws, the Charter of the Board, the Manual of Corporate Governance, or under the resolutions adopted by the Board.
Ability of the Chairman to lead and motivate the Board

These annual evaluation processes are facilitated by the Office of the Corporate Secretary in coordination with the Corporate Governance Committee.

Office of the Corporate Secretary

The Corporate Secretary ensures that the Board and the Management follow internal and external rules and regulations and facilitates clear communications between the Board and Management. More importantly, the Company recognizes the mandate of the Office in championing the compliance of the Board and the Company with good corporate governance practices and policies. For this purpose, the Office of the Corporate Secretary, under its Charter, is mandated to coordinate with the Office of the Compliance Officer with regard to the formulation and implementation of the corporate governance practices of the Company, especially those relevant to and affecting the Board. This is to ensure that sound corporate governance practices are embedded across the entire organization.

The Management

The Management is primarily responsible for the operations of the Company. As part of its accountability, the Management is required to provide the Board with adequate, regular, and timely information on the operations and affairs of the Company.

The roles of the Chairman, and the President and CEO were made separate to ensure an appropriate balance of authority, increased accountability, and greater capacity of the Board for independent decision- making.

The Manual requires the Company to disclose the relationship between the Chairman, and the President and CEO, if any, in its annual report to the SEC. The Chairman of the Board, Fernando Zobel de Ayala, and the President and CEO of the Company, Jose Rene Gregory D. Almendras, are not related to each other.

Succession Planning

The Board, with the assistance of the Remuneration Committee, the Nomination Committee, and the Company’s Corporate Human Resources Group, has adopted a professional development program for employees, officers, and senior management. Through competency management, the Company has put in place a process to determine the skills necessary for particular positions in the Company and identifies key talents for purposes of succession. The Company’s Corporate Human Resources Group has developed a Talent Master Plan to determine the optimal organizational structuring, recruitment strategies, performance evaluation methodologies, total rewards management, and career development. These are all geared to attract, retain, and engage the Company’s employees, officers, and senior management, and to cultivate them to become the Company’s future business leaders. 

The development of a leadership talent pool is crucial to the success of Manila Water in the future. Hence, it is one of the top strategic priorities of the Company. For the succession of the top key management positions, the Company has formed an Acceleration Pool composed of selected high potential key talents within the organization.

Talents identified to be part of the Acceleration Pool undergo the following: 

1. Assessment that gauges a talent’s business driver readiness and leadership competencies;
2. Creation of an Individual Development Plan that outlines possible developmental areas and stretched assignments; and
3. Coaching and mentoring sessions with the Management Committee.

The Management Committee is composed of the top key executives of the Company from the President and CEO to those occupying positions equivalent to Vice Presidents.

The Compliance Officer

In accordance with the Manual, and in order to ensure adherence to the principles and best practices in corporate governance, the Board appoints a Compliance Officer whose primary role is to operationalize the Manual and monitor overall compliance with its provisions and requirements.

Moreover, the Compliance Officer is tasked with the duty to communicate with the SEC on matters relating to the Company’s compliance with the Manual and the clarification of matters required by the said Commission. Together with his primary function, the Compliance Officer is also tasked to oversee the implementation of the Company’s Code of Business Conduct and Ethics and the Related Party Transactions Policy.

The Corporate Governance Office

The Enterprise Corporate and Contract Advisory Services Department, (the “Department”) which is under the Legal and Corporate Governance Group is the unit tasked to formulate and implement the initiatives and policies on good corporate governance. The Department, on matters of corporate governance, reports directly to the Compliance Officer under the supervision of the Corporate Governance Committee. The Department has been active in the continuous conduct of orientation to all Manila Water employees and business partners on the Company’s governance policies, particularly on matters contained in the Manual and the Code of Business Conduct and Ethics, such as transparency, whistle blower policy, honesty and fair dealing, and prompt and adequate disclosure of material information, among other policies.

Among the mandates of the Department is the continuous identification of gaps and challenges on corporate governance practices across the organization. This allows the Department to propose improvements on the Company’s policies based on international corporate governance standards.

Finally, the Department, in coordination with the Office of the Corporate Secretary, also provides timely updates to the Board and the Management on the current and best practices on corporate governance in the industry and globally.

The Internal Audit

The Internal Audit (IA) team conducts an independent, objective assurance and consulting activity designed to add value and improve the organization’s operations. It helps the organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. The activities of IA are governed by a separate Internal Audit Charter approved by the Audit Committee and the Board.

The IA reports to and supports the Audit Committee in the effective discharge of the Committee’s oversight roles and responsibilities. The IA consists of talents and professionals who are either a Certified Public Accountant, Certified Internal Auditor, Certified Information Systems Auditor, Certified Internal Control Auditor, Certified Forensic Accountant, Civil Engineer, Electrical Engineer, or a mix thereof.

IA prepares a risk-based internal audit plan (Audit Plan) approved by the Audit Committee annually, which is reassessed quarterly to consider emerging risks. The Audit Committee reviews and approves the Audit Plan and all deviations therefrom and ensures that internal audit examinations cover the evaluation of adequacy and effectiveness of controls encompassing the company’s governance, operations, and information systems; reliability and integrity of financial and operational information; safeguarding of assets; and compliance with laws, rules, and regulations.

The IA conducts its activities guided by the Institute of Internal Auditors’ (IIA) Professional Practices Framework consisting of the International Standards for the Professional Practice of Internal Auditing (Standards), the Definition of Internal Auditing and the Code of Ethics. In December 2017, the external auditing firm Punongbayan & Araullo conducted an independent validation of the internal audit function’s Quality Assessment Review and concurred that the internal audit activity “Generally Conforms” to the International Professional Practice Framework (IPPF) and its mandatory elements namely: (1) Core Principles for the Professional Practice of Internal Auditing; (2) Definition of Internal Auditing; (3) Code of Ethics; and, (4) International Standards for the Professional Practice of Internal Auditing (Standards). The rating is considered the highest possible rating per IIA methodology. The Standards require that the external assessment be conducted at least once every five (5) years.

The Chief Risk Officer

The Chief Risk Officer (CRO) oversees the entire risk management function and leads the development, implementation, maintenance, and continuous improvement of Enterprise Risk Management (ERM) program, processes, and tools. The CRO is the Vice Chairman of the Risk Management Executive Committee (RMEC). It leads the Enterprise Risk Management (ERM) Department in facilitating the ERM process and in collecting and analyzing key business risk information for reporting to the RMEC and to the Board Risk Oversight Committee (BROC).

The Chief Sustainability Officer

The Chief Sustainability Officer (CSO) ensures that the Company manifests in an authentic manner the commitments it made under its Sustainability Policy and Framework, with focus on the following areas: helping build communities, protecting the environment, safeguarding health and safety, contributing to local and national economies, and developing employees. The CSO monitors environmental, economic, social and governance performance in accordance with prevailing frameworks such as GRI, IIRC, SASB and the UN SDGs, and identifies sustainability-related risks and issues which are discussed at the Board level and communicated to relevant stakeholders.

The CSO also leads new sustainability initiatives, usually as incubated projects with cross functional teams, which eventually are turned over to the natural owners within the organization, depending on the sustainability/ Environmental, Social and Corporate Governance (ESG) aspect. It also ensures that business strategy and growth initiatives take into account corresponding environmental and social impacts.

The Corporate Governance Manual

Manila Water is dedicated to observing the highest standards of corporate governance in order to serve the best interests of it is stakeholders, including the investing public. The Board, the Management, the employees, and shareholders of the Company believe that sound and effective leadership is fundamental to its continued success and stability. These principles and practices enable the Company to create and sustain increased value for all the shareholders.

The corporate governance policy of Manila Water is primarily contained in its Manual of Corporate Governance (the “Manual”). The Company’s corporate governance framework is based on the principles of accountability, fairness and transparency, and sustainability. The Manual is available for download at the Company’s website.

The Manual contains the governance principles that the Company applies in all its undertakings and supplements Manila Water’s Articles of Incorporation and By-laws, Code of Business Conduct and Ethics and other related Company policies. The Manual instituted the policies on:

1. the Board of Directors’, the Board Committees’ and management’s roles, functions and responsibilities in relation to good governance;
2. the institution of training for the Board of Directors, executive directors and employees;
3. evaluation of the Board and Management’s performance;
4. the enhanced roles of the Corporate Secretary and Audit Committee in corporate governance;
5. general guidelines on related party transactions; and
6. conflict of interest and prompt and adequate disclosures.

Manila Water is in full compliance with the code of corporate governance and all disclosure rules of the Philippines Stock Exchange and the Securities and Exchange Commission.

As a key policy, the members of the Board and key executives of the Company are required to disclose to the Board any material interest, whether direct or indirect, that they may have in any transaction or matter that directly affects the Company. The Company commits, at all times, to adequately and timely disclose all material information that could potentially affect Manila Water’s share price and such other information that are required to be disclosed pursuant to the Securities Regulations Code (SRC) and its and its Implementing Rules and Regulations (IRR) and other relevant laws. This information includes, but is not limited to, results of earnings, acquisition or disposal of significant assets, off-balance sheet transactions, changes in Board membership, as well as, changes in shareholdings of majority shareholders, directors and officers, and related party transactions. The Company also discloses its corporate governance practices, corporate events calendar, and other material information on its website in a timely manner.

The directors are required to comply with all disclosure requirements of the Manual and the SRC and its IRR, and to voluntarily disclose any conflict of interest, whether actual or potential, upon its occurrence. The disclosure of any conflict of interest, including related party transactions, is required to be made fully and immediately. In cases where related party transactions exist, it is the Company’s policy that complete information on such transaction be immediately disclosed, and, if a director or officer is involved, the director or officer concerned shall not be allowed to participate in the decision-making process. The policy also mandates that a director who has a continuing conflict of interest of a material nature shall be required to resign, or if the Board deems appropriate, be removed as a member of the Board.

The Company’s Manual is continuously being revised in accordance with the directives and issuances of the SEC and to comply with the highest standards of corporate governance. The latest revision to the Manual was approved and ratified by the Board on August 10, 2020.

Related Party Transactions

To further instill the Company’s policies on related party transactions, the Board adopted the Policy on Related Party Transactions (the “RPT Policy”). The RPT Policy confirms that the Company and its subsidiaries shall enter into any related party transactions solely in the ordinary course of business, on ordinary commercial terms, and on the basis of arm’s length arrangements, which shall be subject to appropriate corporate approvals and actions of the Company or the related parties, as the case may be. 

Any related party transactions entered into by the Company or its affiliates shall be in accordance with applicable law, rules and regulations, and the RPT Policy. Related party transactions entered into by the Company with one or more of its directors or officers are voidable at the option of the Company, unless the transaction is deemed fair and reasonable under the circumstances and at arm’s length, and the procedure for the procurement and approval for similar transactions was strictly complied with.

The RPT Policy provides for the process of approving related party transactions, as well as the implications for violations. In addition, the RPT Policy prohibits related party transactions involving loans and/or financial assistance to a director and loans and or financial assistance to members of the Management, except when allowed pursuant to an established Company benefit or plan. Under the RPT Policy, the approval of the Related Party Transactions Committee is required for material related party transactions.

On November 26, 2019, the Board approved the amendments Company’s Policy on Related Party Transactions in order to comply with the provisions of the Rules on Material Related Party Transactions for Publicly Listed Companies of the SEC. The amendments updated the definition of Company-Recognized Material Related Party Transactions, SEC-Defined Materiality Threshold, Related Party Registry, Related Party Transactions, Related Parties, Affiliate, Associate, Substantial Shareholder, and Significant Influence.

The Code of Business Conduct and Ethics

The Company’s commitment to the highest standards of ethics, good governance, competence and integrity was institutionalized through the Code of Business Conduct and Ethics (the “Code”). The Code sets forth the standards for professional and ethical behavior, as well as articulate acceptable and unacceptable conduct and practices in internal and external dealings of the Company. The Code should be properly disseminated to the Board, senior management and employees, and should also be disclosed and made available to the public through the Company website.

The Code addresses the issues and relationships between and among the Company’s directors, officers and employees, and its customers, suppliers, business partners, government offices and other stakeholders. The Code includes policies on: Honesty and Fair Dealing; Conflict of Interest; Corporate Entertainment and Gifts; Insider Trading; Disclosure; Creditor Rights; Anti-Corruption; and Anti-Sexual Harassment.

Honesty and Fair Dealing

The core principle of the Company is to conduct business honestly and fairly with its investors, suppliers, contractors, service providers, customers and employees and other third parties. Directors, Officers and employees shall act honestly, ethically and comply with all applicable laws, rules and regulations and protect the name and reputation of the Company.

Directors, Officers and employees shall not engage in any unfair dealing practices, such as taking advantage of anyone through abuse of confidential information, manipulation, concealment, or misrepresentation or other similar acts. Officers and employees involved in the procurement process for services, materials, supplies, and equipment shall strictly comply with the Company’s Procurement Policy. The Procurement Policy is an integral part of this Code. Directors, Officers and employees are required to immediately report all suspected or actual fraudulent or dishonest acts to the Board, in case of directors, and to the immediate supervisor or to the Office of the Compliance Officer in case of officers and employees. The Company shall promptly identify and investigate any suspected fraudulent or dishonest acts. Without prejudice to applicable administrative sanctions, the Company may pursue civil and/or criminal actions against directors, officers and employees as may be warranted.

The Implementing Guidelines on the Reporting of Fraudulent or Dishonest Acts are contained in the Whistle Blower Policy of the Company.

Reporting of Fraudulent or Dishonest Acts (Whistle Blower Policy)

The Whistle Blower Policy provides for procedures to be followed to encourage all covered persons to report fraudulent or dishonest acts in order to protect the good name and reputation of the Company, and in the process, discourage the commitment of such acts.

Directors, officers, employees and third parties are required to immediately report all suspected or actual fraudulent or dishonest acts to the Board in case of directors, and to the immediate supervisor or to the Office of the Compliance Officer in case of officers, employees and third parties. The Company shall promptly identify and investigate any suspected fraudulent or dishonest acts.

Without prejudice to applicable administrative sanctions, the Company may pursue civil and/or criminal actions against directors, officers, employees and third parties as may be warranted.

To ensure protection of the reporter from any form of retaliation or discrimination, the identity of the person making the report and the contents of the report shall be kept confidential to the extent legally permissible.

Conflict of Interest

The policy prohibits conflict of interest situations involving all directors, officers, employees and their relatives up to the fourth degree of consanguinity and/or affinity, including common law relationships.

Under the policy, a conflict of interest arises when a director, an officer or employee appears to have a direct or indirect personal or financial interest in any transaction, which may deter or influence him from acting in the best interest of the Company. It is not required that there be an actual conflict; it is only required that there could be perceived conflict by an impartial observer.

All contracts/arrangements by directors, officers and employees, and their relatives that violates this policy on conflict of interest shall be terminated immediately and correspondingly reported to the Office of the Compliance Officer, for appropriate action under the Code.

Corporate Entertainment and/or Gifts

The Company’s policy regarding Corporate Entertainment and/or Gifts prohibits all officers and employees from accepting corporate entertainment/gifts from suppliers, contractors and other business partners, which can be viewed as influencing the manner by which an officer or employee may discharge his duties.

Insider Trading

The Company’s Insider Trading Policy prohibits directors, officers and confidential employees from trading in Manila Water shares five (5) days before and two (2) days after the release of quarterly and annual financial statements; and two (2) days after the disclosure of any material information other than those disclosed through quarterly and annual financial results. 

All Directors, Key Officers, employees, consultants, advisers of the Company, and members of the immediate families of directors and key officers (the “Covered Persons”) who are living in the same household as the directors and key officers who have direct or indirect knowledge, from time to time, of material facts or changes in the affairs of the Company, which have not been disclosed to the public, including any information likely to affect the market price of the Company’s shares, shall:

1. Not trade in the Company’s securities directly or indirectly; and
2. Not communicate, directly or indirectly, such material non-public information to any person until the material non-public information is disseminated to the public and two (2) trading days have lapsed from the disclosure thereof to allow the market to absorb such information.

Directors and officers who may be covered by the reporting requirements of the SEC and the Philippine Stock Exchange (PSE) in respect of their shareholding in the Company or any changes thereof, are required to report their dealings in Company shares within three (3) business days after the transaction. Likewise, all other Covered Persons shall likewise report to the Office of the Compliance Officer within ten (10) calendar days from the end of each quarter their trades with Company’s securities during such quarter. All Directors, Officers, and employees are required to report their trades on a quarterly basis to the Office of the Compliance Officer within fifteen (15) days from the end of the quarter.

In alignment with the law, the definition of material nonpublic information has been amended.

Disclosure

The disclosure policy encourages prompt and adequate disclosure of all material facts or changes in the affairs of the Company, including any information likely to affect the market price of the Company’s shares.

Creditor Rights

The policy regarding Creditor Rights institutionalizes the Company’s adherence to its loan covenants and agreements for the protection of the rights of the creditors of the Company. No distribution or disposal of assets of the Company shall be made except: when allowed by the law; or by decrease of capital stock; or upon lawful dissolution and after payment of all its debts and liabilities; when allowed by the material agreements of the Company, but without prejudice to vested rights.

Anti-Corruption

The Anti-Corruption Policy strictly prohibits giving and facilitating of payments to any private or government officials or employees, their agents or intermediaries, in order to expedite or secure performance of any governmental action, or to gain any perceived or actual favor or advantage from any private or government entities. The Company must ensure that it and its directors, officers and employees fully comply with the laws governing bribes, unlawful payments and other corrupt practices. Anti-Sexual Harassment This policy is included in the Code of Conduct and Discipline. Said policy recognizes the Company’s protection of the dignity of its human resources, stakeholders, and customers. All forms of sexual harassment shall be dealt with appropriately and in accordance with the applicable and all relevant laws, rules and regulations.

Diversity in Board Membership

Promotes equality among the members of the Board regardless of gender, age, ethnicity, or political, religious or cultural beliefs.

Procurement Policies

The objectives of the Procurement Policies are to promote transparency in the procurement process, and to afford vendors equal access to business opportunity with Manila Water, with the end view of enhancing vendor participation and protecting the interest of Manila Water. Officers and employees of the Company involved in the procurement process for services, materials, supplies and equipment for Manila Water are required to strictly comply with its Procurement Policies.

The Procurement Policies of the Company are downloadable at the Company website.

The Vendors’ Code of Conduct

The Vendors’ Code of Conduct sets out the rules that will guide Manila Water’s vendors in the performance of their obligations and/or transacting business with Manila Water, thus avoiding acts contrary to standards, policies, laws and morals. As business partners of Manila Water, its vendors are expected to act with utmost integrity, efficiency, and competence in performing awarded contracts and/ or delivering ordered products. Moreover, they should demonstrate a strong sense of responsibility for public safety and interest that will ultimately promote and protect the good name of Manila Water. The Vendors’ Code of Conduct is deemed incorporated in the contracts of Manila Water with its suppliers, vendors and contractors.

A copy of the Vendor’s Code of Conduct is downloadable at the Company website.

The Enterprise Risk Management Policy

Manila Water has established an Enterprise Risk Management (ERM) Program which aims to use a globally accepted approach in managing imminent and emerging risks in its internal and external operating environments. Under the ERM Program, Manila Water shall appropriately respond to risks and manage them in order to increase shareholder value and enhance its competitive advantage.

In order to bolster the risk oversight and management functions relating to strategic, financial, operational, compliance, legal and other risks of the Company, the Board, on August 11, 2015, approved the establishment of a separate Board Risk Oversight Committee (BROC). Subsequently, on November 26, 2015, the Board approved the Charter of the BROC, which transferred the risk oversight and management functions to the BROC from the Audit Committee.

Safety, Health and Welfare Policy

Manila Water is committed to achieving customer satisfaction, upholding environmental sustainability, and ensuring safety, preservation of life and health of its employees and all stakeholders. To achieve these objectives, it is the policy of Manila Water to:

• Continuously assess, implement and improve its processes and business conduct by adopting best practices and keeping abreast with the latest innovations to ensure reliability and efficiency of its operations;
• Ensure full compliance with relevant laws and standards in pollution prevention and environmental sustainability, safety and health protection, as well as applicable regulatory standards and customer requirements related to the quality of its products and services;
• Build a strong culture committed to customer satisfaction, environmental protection, health and safety through education, training and awareness at all levels of the organization that will empower its employees, contractors, suppliers and stakeholders;
• Actively promote the conservation and optimal use of precious resources by constantly creating and improving existing programs aimed at pollution prevention, waste minimization, resource conservation and environmental sustainability;
• Systematically manage and control its health and safety risks through effective risk assessment processes; and
• Regularly revisit, improve, develop and maintain its Quality, Environment, Health and Safety management system to ensure its effectiveness and relevance to the changing needs of the Company to drive continuous improvement in operations, quality, environmental, health and safety performances.

Stockholder Rights

It is the duty of the directors to promote shareholders rights, remove impediments to the exercise of shareholders rights and provide effective redress for violation of their rights.

Right to Notice of Meetings and Right to Attend Meetings

To promote transparency and goodwill, it is a Company policy to encourage the attendance of all its stockholders, including minority and non-controlling, and institutional investors, at the stockholders’ meeting of the Company. The Board should encourage active shareholder participation by sending the Notice of Annual and Special Shareholders’ Meeting with sufficient and relevant information at least twenty-eight (28) days before the scheduled meeting. 

Unless otherwise provided by law or the By-laws, stockholders as of Record Date constituting at least a majority of the outstanding voting capital stock of the Company is necessary to constitute a quorum. The stockholders may be present in person or represented by proxy. 

Right to Appoint a Proxy

The stockholders shall be apprised ahead of time of their right to appoint a proxy if they cannot attend their meetings in person. Subject to the requirements of the By-laws, the exercise of that right shall not be unduly restricted and any reasonable doubt about the validity of a proxy should be resolved in the stockholders’ favor.

Right to Propose the Holding of and to Attend Meetings

The Manual provides that the minority shareholders shall have the right to propose the holding of a meeting as well as the right to propose items in the agenda of the meeting, provided that the items proposed are for legitimate business purposes. 

Right to Make Nominations to the Board of Directors

Every stockholder, including non-controlling, has a right to submit a nomination for election to the Board. The stockholders, in making their nominations, or the Company, are encouraged to make use of professional search firms or external sources of candidates when searching for candidates to the Board.

Voting Right and Right to Participate at Stockholders Meetings

1. In all items for approval, each share of stock entitles its registered owner as of the record date to one vote. The Company has two classes of shares, common and participating preferred shares. Both classes of shares have equal voting rights.
2. Voting shall be by poll and the Company shall provide the mechanism to implement the same at every stockholders’ meeting.
3. Under the Company’s By-laws, the affirmative vote of stockholders as of the record date constituting at least a majority of the outstanding voting capital stock of the Company is necessary to approve matters requiring stockholders’ action, unless otherwise provided for under existing laws, with the exception of the following corporate acts and measures which must be ratified and/ or approved by the stockholders representing or constituting at least two thirds (2/3) of the outstanding capital stock of the Company:
   1. Amendment of the Articles of Incorporation;
   2. Adoption and/ or amendment of the Bylaws (unless the power to amend By-laws have been delegated to the Board by the stockholders);
   3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
   4. Incurring, creating or increasing bonded indebtedness; Increase or decrease of capital stock;
   5. Merger or consolidation of the Company with another Company; Investment of corporate funds in another corporation or business for any purpose other than the primary purpose for which it was organized; and
   6. Dissolution of the Company, among others.
4. For the election for directors, every stockholder shall have the right to vote, in person or by proxy, the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or by distributing such votes on the same principle among any number of candidates.
5. The stockholders shall also have an opportunity during the stockholders’ meeting to ask questions and raise their issues relevant to the agenda items. The minutes of the meeting record the shareholder questions and corresponding answers given by the directors and officers of the Company.
6. The Board should encourage active shareholder participation by making the result of the votes taken during the most recent Annual or Special Shareholders’ Meeting publicly available the next working day. In addition, the Minutes of the Annual and Special Shareholders’ Meeting should be available on the Company website within five (5) business days from the end of the meeting. The draft minutes of the 2020 Annual Stockholders Meeting was posted on the Company’s website on April 24, 2020.

Dividend Rights

The Company continues its practice of offering its shareholders an equitable share of the Company’s profits. In 2013, the Board of Directors confirmed its dividend payout policy which entitles holders of common shares and participating preferred shares to annual cash dividends equivalent to 35 percent of the prior year’s net income payable at least semiannually, on such dates as may be determined by the Board of Directors, subject to applicable rules and regulations on record dates and payment dates. The participating preferred shares participate in the earnings at a rate of 1/10 of the dividends paid to a common share. As a matter of policy, payment dates of dividends declared are fixed within thirty (30) days from date of declaration. 

Pre-Emptive Right

All stockholders have pre-emptive rights or the right to subscribe to new shares of the Company, unless there is a specific denial of this right in the Articles of Incorporation or an amendment thereto. They shall have the right to subscribe to the capital stock of the Company. The Articles of Incorporation may provide the specific rights and powers of shareholders with respect to the particular shares they hold, all of which are protected by law so long as they are not in conflict with the Revised Corporation Code.

Right to Information and Inspection

In addition to regular posting and disclosure of material information at the Company website, a shareholder shall be provided with periodic reports regarding the performance of the Company upon written request for a legitimate purpose. Shareholders shall be allowed to inspect corporate books and records including minutes of Board meetings and stock registries in accordance with the Revised Corporation Code and shall be provided an annual report, including financial statements, without cost or restrictions.

Appraisal Right

In accordance with the Corporation Code, shareholders may exercise appraisal right under the following circumstances:

1. In case any amendment to the Articles of Incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence;
2. In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Corporate Code; and iii. In case of merger or consolidation.

Quorum and Voting Procedures at the Stockholders Meetings

Unless otherwise provided by law or the By-laws, stockholders as of Record Date constituting at least a majority of the outstanding voting capital stock of the Company is necessary to constitute a quorum. The stockholders may be present in person or represented by proxy. The affirmative vote of stockholders constituting at least a majority of the outstanding voting capital stock of the Company is necessary to approve matters requiring stockholders' action. However, the following corporate acts and measures must be ratified and/or approved by the stockholders representing or constituting at least two thirds (2/3) of the outstanding capital stock of the Company:

1. Amendment of the Articles of Incorporation;
2. Adoption and/or amendment of the By-laws;
3. Sale, lease, exchange, mortgage, pledge or other disposition of all or substantially all of the corporate property;
4. Incurring, creating or increasing bonded indebtedness;
5. Increase or decrease of capital stock;
6. Merger or consolidation of the Company with another company;
7. Investment of corporate funds in another corporation or business for any purpose other than the primary purpose for which it was organized;
8. Dissolution of the Company

In all items for approval, each share of stock entitles its registered owner as of the record date to one vote.

For the election for directors, every stockholder shall have the right to vote the number of shares owned by him for as many persons as there are directors to be elected, or to cumulate his votes by giving one candidate as many votes as the number of such directors multiplied by the number of his shares shall equal, or to distribute such votes on the same principle among as many candidates as he shall see fit.

Voting will be by poll. Stockholders may opt for manual or electronic voting either in person or by proxy. For manual voting, each stockholder will be given a ballot upon registration to enable the stockholder to vote in writing per item in the agenda. For electronic voting, there will be computer stations placed outside the Ballroom where stockholders may cast their votes electronically. Both the paper ballot and computer platform for electronic voting will contain the proposed resolutions for consideration by the stockholders and each proposed resolution will be shown on screens in front of stockholders as the same is taken up at the meeting. Stockholders may cast their vote anytime during the meeting.

In addition, a stockholder may vote electronically in absentia using the online web address provided by the Company subject to validation purposes. A stockholder voting electronically in absentia shall be deemed present for purposes of quorum.

All votes will be counted and tabulated by the Office of the Corporate Secretary and the Committee of Inspectors of Ballots and Proxies. The results of voting will be validated by SGV & Co., the independent party appointed for the purpose.

For the election of the eleven (11) members of the Board of Directors, the eleven (11) nominees receiving the highest number of votes will be declared elected as directors of the Company. However, if there are only eleven (11) nominees, all nominees shall be declared elected upon approval of motion.

Public Ownership

The Company is compliant with the requirement of the PSE on minimum public ownership with 55.87% of its shares subscribed and owned by the public as of December 31, 2020. In compliance with the requirements of the PSE, the Company regularly and timely discloses its public ownership report and immediately makes a public disclosure of any change thereon.

 

Summary of Legal and Beneficial Ownership of the Board, Key Officers and Major Shareholders

* Includes shares held through PCD Nominee Corporation (21,409,000 shares) and Michigan Holdings, Inc. (1,00,000), a wholly owned subsidiary of Ayala Corporation

 

Corporate Governance Recognition and Awards

The Company’s commitment to uphold the highest standards of good corporate governance has again been confirmed and recognized through the prestigious awards it has received. On February 19, 2021, the Company received a 3-star arrow recognition from the Institute of Corporate Directors for its performance rating against the 2019 ASEAN Corporate Governance Scorecard. The Company also received the same recognition for its rating against the 2018 ASEAN Corporate Governance Scorecard. In 2018, it was also named as one of ASEAN’s Top 50 Publicly Listed Companies on Corporate Governance at the 2018 ASEAN Corporate Governance Awards, Top 10 Philippine Publicly Listed Companies, and Top 5 Industry Sector by the Institute of Corporate Directors, and Platinum Awardee for Excellence in Environmental, Social and Governance Practices by the Asset.

Company Website

In the pursuit of the Company’s thrust to continuously improve awareness of best practices in the conduct of its business and operations especially in corporate governance across the organization, including dealings with its business partners and customers, Manila Water constantly updates its website, www.manilawater.com with a section dedicated to corporate governance and investor relations.

The Corporate Governance section of the website contains all disclosures made by the Company to the PSE and SEC, as well as its Manual, the Code, the Charters of the Board and its Committees, the various corporate governance policies and other matters and information of relevance to the stockholders and all stakeholders. The Company discloses its corporate governance practices, corporate events calendar, and other material information on its website in a timely manner.

The Investor Relations section houses all information that may be required by the investors, shareholders and stakeholders. The site has been enhanced to be user-friendly and is accessible to the public at all times.

Independent Public Accountants

The principal accountants and external auditors of the Company is SyCip Gorres Velayo & Co. (SGV), a member practice of Ernst & Young Global (EY). SGV is the leading and largest professional services firm in the Philippines that offers integrated solutions drawn from diverse and deep competencies in assurance, tax, consulting, and strategy and advisory services. 

SGV provides independent assurance on financial and nonfinancial information to meet regulatory and other stakeholder requirements utilizing world-class business-process-based methodologies and supporting tools. SGV utilizes an audit methodology and documentation approach which is risk-based and focuses on the drivers of the business, the associated risks, and the potential effects on financial statements accounts.

The same accounting firm is being recommended for reelection at the meeting for a remuneration of Php2.40 million, exclusive of VAT and out-of-pocket expenses. The agreement with SGV covers the annual audit of the Company.

Representatives of SGV for the current year and for the most recently completed fiscal year are expected to be present at the annual stockholders’ meeting. They will have the opportunity to make a statement if they desire to do so and are expected to be available to respond to appropriate questions.

Pursuant to Revised Securities Regulation Code (SRC) Rule 68, Part I (3) (B) (iv), the Company has engaged SGV as its external auditor. Ms. Djole S. Garcia has been the partnerin-charge since 2018.

(a) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

SGV has been the external auditor of the Company since 1997 and continues to perform the same services for the Company up to the present date. The Company has had no disagreements with SGV on accounting and financial disclosures.

(b) Audit and Audit-Related Fees

The Company’s Audit Committee reviews and approves the scope of audit work of the external auditor and the amount of audit fees for a given year. The amount of audit fees will then be presented to the stockholders for approval in the annual meeting. The scope of and payment of services rendered by the external auditor other than the audit of financial statements are also subject to review and approval by the Audit Committee.

 The aggregate fees billed by SGV are shown below with the comparative figures for 2020:

1 Includes proxy validation, validation of ASM votes, Loan Compliance Report (2019 only) and training (2019 only).
2 The Audit Committee (formerly the Audit and Governance Committee) is composed of the following: Oscar S. Reyes (Chairman and independent director), Jose L. Cuisia Jr. (Independent Director), Jaime C. Laya (Independent Director), and Gerardo C. Ablaza, Jr.