Appointment of GOCC directors

With the recent enactment of the GOCC Governance Act of 2011 (Republic Act 10149), it looks like the merry ways of the fat cats in government-owned and -controlled corporations are over.

Aimed at promoting financial viability and fiscal discipline in GOCCs, the law created the Governance Commission for Government-Owned or
-Controlled Corporations (GCG) to perform advisory, monitoring and oversight functions over GOCCs.

The GCG shall have five members, namely, a chair with the rank of cabinet secretary, two members with the rank of undersecretary, and the heads of the Department of Budget and Management and Department of Finance as ex officio members.

As overall GOCC supervisor, the GCG will, among others, evaluate the performance and determine the relevance of GOCCs, identify the necessary skills and qualifications of their directors, prepare operations manuals, and monitor their operations.

With the broad grant of supervisory authority, including the power to recommend to the president the taking of critical corporate actions, the GCG will have a virtual life-and-death hold over GOCCs and their executives.

Selection

Like the procedure followed by the Judicial and Bar Council, appointive directors of GOCCs shall be chosen by the president from a short list submitted by the GCG.

Only nominees who meet the Fit and Proper Rule, or the standard for determining whether the prospective appointee is fit and proper to hold a GOCC position, which includes integrity, experience, education, training and competence, shall be included in the list.

To give the president a wide array of choice, the law requires that the list shall exceed by at least 50 percent the number of directors to be appointed. If the president does not see fit to appoint any of the nominees, he can ask for additional nominees.

Whether or not this list will be made public or open for public comments will depend on the rules that the CGC is required to formulate upon its organization.

Once appointed, a director can only serve for one year unless earlier removed for cause. This one-year term stands even if the charter or law creating the GOCC concerned provides for a longer period.
Anticipating that the shortening of the director’s term could raise “security of tenure” issues, the law expressly repealed the provisions in the affected GOCCs’ charters that fixed the term of their directors.

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The categorical repeal is meant to send a strong message about the legislature’s intent on the matter, which our courts are obliged to respect based on the legal dictum that no man-made law is etched in stone or beyond repeal.

For incumbent GOCC directors and executives, regardless of who appointed them, their stay is even more tenuous—they can hold office only up to June 30, 2011, unless sooner replaced by President Aquino.

To prevent disruption in the operation of the GOCCs, however, they shall remain in office until their successors are duly appointed.

Although a one-year appointment may look like a “foot on the door,” there is no assurance of reappointment when that period expires.

The law states that a director may be nominated by the GCG for reappointment by the president only if he “obtains a performance score of above average or its equivalent or higher in the immediately preceding year of tenure” as director based on the performance criteria for GOCC directors.

Simply stated, any director who wants to stay on the job has to prove that he is an asset to the GOCC or has exceeded the accomplishment targets that the GOCC has set for the board or individual directors.
While in office, directors must always act in the best interests of the GOCC and perform their duties and responsibilities with due care, extraordinary diligence, skill and good faith.

Fiduciary

They should avoid conflicts of interest and declare any interest they may have in any particular matter before the board. And because they are chosen for their expertise, they are called upon to apply sound business principles to ensure the financial soundness of their GOCC.

For their efforts, the directors shall be entitled to per diems for actual attendance in board meetings, reimbursement for actual and reasonable expenses incurred, and incentives, as may be authorized by the GCG.

Taking a leaf from reports of scandalous allowances allocated by GOCC directors to themselves and self-serving deals of GOCC officials with private companies where they sat as directors, the law hammered out strict rules for conflict of interest situations.

If a GOCC director receives benefits in excess of that authorized by the GCG from profit sharing, incentives to directors or officers, stock options, dividends and other similar offers or grants from corporations where the GOCC is a stockholder or investor, those benefits shall be held in trust for the exclusive benefit of the GOCC represented.

A similar fiduciary obligation arises if any benefit arises from the performance of directors or officers of a corporation acting on behalf of the GOCC in dealing with the latter’s properties, investments in other corporations, management of subsidiaries and other interests.

To further ensure that appointment in GOCCs should be viewed as public service, not a money-making venture, the law requires the restitution to the GOCC of any benefit or profit gained from the acquisition of shares in corporations where the GOCC has an interest or where GOCC’s properties were used for that purpose.

The same rule applies if the profits or benefits result from receipt of commission on contracts covering GOCC assets or from corporate opportunities that belong to the GOCC.

All told, to merit an appointment as GOCC director, the aspirant should have the loyalty of Job, patriotism of Jose Rizal, business acumen of Warren Buffett, honesty of Abraham Lincoln and detachment from material things of St. Francis of Assisi!

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