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Foreword As we continue developing business in the Philippines, it is important to remember that there are economic headwinds facing us and prospects to look forward to. Yet despite all of these challenges, there are also reasons for optimism on our horizon. In celebration for Women’s month, Ms. Monette Iturralde-Hamlin, a fellow of ICD, stated in her article that with more women directors at the table, boards will benefit from a greater diversity of experiences, points of view, skills, and strategies. First appeared in The Red Circle on March 31, 2023. Written by Ms. Monette Iturralde-Hamlin, president and founder of TeamAsia. You can visit the article by clicking The Red Circle ( On Headwinds and Prospects for the Philippines and Having More Women at the Table) or through this link.

Directors’ Duties and Responsibilities and Disclosure Obligations under Philippine Law on Climate Change Risks April 27, 2023 Climate change, as a constant looming risk over human life, has resounded a dire call for action – to make great leaps in global conservation efforts. Despite the international initiatives, practices, and contingencies put into action throughout the years, the U.N.’s Intergovernmental Panel on Climate Change’s (IPCC’s) report highlights the continuously growing global risk. In light of this, the Commonwealth Climate and Law Initiative (CCLI) published an opinion in the context of directors’ duties and financial risks. The event held on April 27, 2023, in Fairmont Hotel, served as a platform to launch the opinion piece and spur discussions on climate change risk consideration in operations. As cited by Securities and Exchange Commission (SEC) Commissioner Mc Jill Bryant Fernandez in his Keynote Address, the increasing emergency would subject the country to greater risks. The Philippines is currently one of the more susceptible countries to natural disasters. Without action, climate risks in the form of hazards, financial risks, and external pressures would reshape the market and skew the country’s economic position. Atty. Alex Cooper from Commonwealth Climate and Law Initiative (CCLI) further emphasized this notion and its correlation to directors’ duties. The published position paper of the UK-based organization held the opinion that as directors with authority, they hold the responsibility to mitigate business-centered climate change risks. It was urged to factor climate risk into its operations and risk management strategies. Part of a director’s priorities are minimizing risks, and safeguarding share prices. Through climate change, businesses face financial, legal, and litigation-related risks – all of which are considered the responsibilities of the board. With the aid of the International Financial Reporting Standards (IFRS) Foundation and SEC, sustainability-related disclosures are being incorporated into relevant regulations and standards. In time, the compliances will lower the risks businesses face, and open the opportunity for increasing share prices. With an environmentally friendly reputation and lesser investor risks, it is less likely for prices to drop. With reminders of the COP26 agreement in 2021 and the Paris Agreement and 2015, directors are encouraged to incorporate sustainable measures through their corporate social responsibility (CSR) projects and operational practices. To view the legal opinion published by the CCLI by scanning the QR code below or through this link.

Securities and Exchange Commission (SEC) ● [MEMORANDUM CIRCULAR NO. 11] Rules on Sustainable and Responsible Investment Funds This circular aims to provide the requirements and standards for becoming a Sustainable and Responsible Investing (SRI) Fund. The circular's 16 sections highlight the rules' applicability, prerequisites for becoming an SRI Fund, disclosure requirements, website disclosures, monitoring process, reportorial requirements, annual and quarterly reports, additional requirements for ESG-related investments by non-SRIs, administrative sanctions, and the rule's effectiveness. Date Issued: January 03, 2023 Source: https://www.sec.gov.ph/mc-2022/sec-mc-no-11-series-of-2022rules-on-sustainable-and-responsible-investment-funds/ ● [MEMORANDUM CIRCULAR NO. 8] Guidelines on Arbitration of Intra-Corporate Disputes for Corporations The Commission announced the guidelines on the arbitration of intra-corporate disputes for corporations to clarify the principles for adopting Section 181 of Republic Act No. 11232, also known as the Revised Corporation Code of the Philippines ("RCC"). Based on this, these regulations were developed and put into effect by memorandum circular no. 8. This Circular is divided into 21 sections that cover general provisions, the composition of the arbitral tribunal and appointment process, disclosures by and challenges to arbitrators, and other conditions like when the exemption will be granted, the applicability of other rules, the clause's separability, and the circular's effectiveness. Date Issued: September 19, 2022 Source: https://www.sec.gov.ph/mc-2022/mc-no-08-s-of-2022/ Governance Commission for GOCCs ● [MEMORANDUM CIRCULAR NO. 2023-01] Performance Evaluation System (PES) for the GOCC Sector This circular aims to ensure a transparent and responsive GOCC sector for the Filipino people by using the Performance Evaluation System (PES). The Performance Scorecard will evaluate the performance of GOCC and determine whether they will be granted benefits such as Performance-Based Bonus (PBB) and Performance-Based Incentives (PBl). Appointive Directors being eligible for reappointment, and whether GOCC should be reorganized, merged, streamlined, abolished, or privatized. Date Issued: January 19, 2023 Source: https://gcg.gov.ph/files/FzfnTXAZjTTKEbCDGaqg.pdf Bangko Sentral ng Pilipinas (BSP) ● [CIRCULAR NO. 1160] Regulations on Financial Consumer Protection to Implement Republic Act No. 11765, otherwise known as the "Financial Products and Services Consumer Protection Act" The FCP Framework, which applies to all financial products or services, created, developed, provided, or marketed by institutions under the supervision of the Bangko Sentral-Supervised Institutions (BSls), has been modified throughout Part Ten of the Manual of Regulations for Banks (MORB) and Manual of Regulations for Nonbank Financial Institutions (MORN BFI). In support of this, BSIs are obliged to establish a Financial Consumer Protection Assistance Mechanism (FCPAM), which serves as an effective internal complaints-handling unit, and a Consumer Protection Risk Management System (CPRMS) integrated into their enterprise-wide risk management processes and risk governance structure. The Senior Management of BSls and the Board of Directors (Board) should establish the tools to identify, assess, monitor, and mitigate Financial Consumer Protection (FCP) risks inherent in their activities in compliance with the Standards and all other relevant laws, rules, and regulations. Date Issued: November 28, 2022 Source: https://www.bsp.gov.ph/Regulations/Issuances/2022/1160.pdf

(Official Banner of Open AI: Chat GPTNavigating AI Ethics for a Responsible Future Session Edited by: Rolyn May Galvez and Kevien Anthony Cunanan) In 2022 with the introduction of Chat GPT, AI was seen as an innovative tool that the public had access to. The computational powers of AI and its almost instant responses given by AI tools, provided enhanced productivity and versatility. Prior to 2022, some of the noteworthy AI tools that we have used are: Virtual Personal Assistants like Apple’s Siri, or Google’s own Google Assistant; Recommendation Engines that are the algorithms used by companies like Netflix, Lazada, and Shopee to analyze user data and behavior and make personalized recommendations for movies, TV shows, and products; and many more. As artificial intelligence advances at a rapid pace, it is becoming increasingly important to consider the ethical implications of this technology; that being said, on the 18th of April this year, 2023; the Institute of Corporate Directors held a hybrid seminar regarding the Ethics of using Artificial Intelligence held at Discovery Primea located in Makati City and also via Zoom Call featuring Dr. Rafaelita "Fita" M. Aldaba, Undersecretary of the Department of Trade and Industry's Competitiveness Innovation Group, Dr. Erika Fille Legara, Aboitiz Chair in Data Science at the Asian Institute of Management, Mr. Henry R. Aguda, FICD, Senior Executive Vice President and Chief Technology Operations Officer of Union Bank Philippines, Dr. Benito "Ben" Teehankee, a professor of Business and Ethics at De La Salle University, Dr. Peter Sy who is an Associate Professor in the Department of Philosophy at University of the Philippines, Diliman Campus, and Dr. Christopher P. Monterola, a professor Aboitiz Chair in Data Science Head, in Aboitiz School of Innovation, Technology, and Entrepreneurship at the Asian Institute of Management. The discussion was moderated by Mr. Ricardo N. Jacinto, FICD, Chairman of SBS Philippine Corporation. In this article, we will explore the four key aspects introduced in the said seminar (1) The Ethical Problems of AI. The integration of artificial intelligence (AI) into our daily lives highlights the urgent need to address the ethical challenges that arise with its use. These challenges involve bias, privacy, accountability, and transparency. Ethical considerations are crucial to guarantee that AI is employed in a manner that's equitable, just, and responsible. A striking incident occurred during the seminar when Dr. Teehankee disclosed that his writing class had nearly all students submit AI-generated essays, which poses a dilemma that shakes the foundation of the educational system. Another glaring issue is the recent events of a giant technology company leaking information to AI systems without their full knowledge of it, resulting in leakage of sensitive company information. (2) Responsible Development for Utilization of AI. Ethical considerations for AI have the potential to impact various sectors, including healthcare, finance, and criminal justice. Ethical guidelines and regulations can ensure that AI is used in a way that promotes equity, safety, and well-being for all individuals. (3) Limitations of AI. In the seminar, Dr. Legara performed a live demonstration showcasing the limitations and inaccuracies of information displayed by ChatGPT when using AI prompts. Despite the fluidity of responses, the accuracy of information provided did not even reach 50%. While ChatGPT may give confident responses to user prompts, it's essential to note that users should always be mindful of the accuracy of the information provided. Furthermore, reports have surfaced regarding ChatGPT's tendency to provide incorrect responses and even offer references that are unattainable or potentially fabricated. (4) Future of AI Ethics. To navigate AI ethics for a responsible future, it is imperative to establish clear ethical guidelines and regulations for the development and deployment of AI systems. This requires collaboration between policymakers, industry leaders, and experts in various fields. Additionally, it is crucial to invest in research and development to ensure that AI is designed with ethical considerations in mind. To conclude, Chat GPT's capabilities are boundless, depending on the quality of prompts and the gravity of information available in its database. Nevertheless, it is crucial to take into account its limitations, particularly the ethical issues associated with its use. Chat GPT has a tendency to produce fabricated information, mainly due to its limited sources, and lacks a definitive way of providing a validated source. Another issue it poses is its impact on education. However, as AI continues to evolve and obtain a way of validating information, it may be applied to the workforce to accomplish tasks that are otherwise time consuming but necessary. With Chat GPT's prompt-response system, such tasks may take less than a minute. Even in writing this article, which usually takes hours of work, Chat GPT could produce it in seconds. It begs the question: was this article even made with the use of AI? The following are the questions that participants had during the commencement of the event. Open AI: ChatGPT Questions and Answers Question 1 ● (Question) David Hardoon, Aboitiz Data Innovation Pte Ltd: What is the potential impact, thinking of it, when dealing with very complex generative thoughts? Example is trip recommendation (google maps), imagine everyone asking for the same location and getting the same info/recommendation. Are we realizing this potential implication of giving us all the same recommendation, same use, and same perspective? ● (Answer) Dr. Benito "Ben" Teehankee: Well, I think the way it was explained is a stochastic thing, it will never give you exactly the same so that's the first point. Because it really has a random element inside which actually causes the hallucination (inaccurate or fabricated information). But, be that as it may, I think the average thing it will say will tend to converge and you're right, which is why I tell my students the only way to create value is if you don't sound like a chatbot. Because if all chatbots say the same thing there's nothing to differentiate individual talent, right? and it will begin to shepherd us into a standard way of thinking. We in Universities will really rebel against that very thought so I think the key here is to understand what is the underlying engine and to know that it is just really making a statistical prediction based on averages. I suppose one way of thinking about it is like a blender, if you put all those fruits together you blend them and after a while, they begin to taste the same right? But you know that you can add your own personal flavor there and the key is to hold on to humanity and just use it as a tool because it is actually what it is. But the problem is, it is really under regulated now. Remember when electricity was invented, the power generation was started in the 19th century, they had regulation less than 3-5 years when power generation is up. For now, software engineers are really not here to us, specifically, professional ethical code, and this is a real crisis and is up to the managers of the businesses to tell to its people inside we're setting up AI infrastructure within the company. The government will say the setup is a common regulatory framework so we can really get the benefits of this and not become all of these "carbon copies" of what AI generates. I called it the McDonald’s Decision of output. Remember when Jollibee is the only local burger chain that you know competed well against McDonalds, so we can do it, we can be unique because we are Filipinos after all. Question 2 ● (Question) Ma. Aurora Geotina-Garcia, Mageo Consulting, Inc.: How do you protect Intellectual property? How does it impact intellectual property? Is there such a thing now something you own? ● (Answer) Dr. Peter Sy: there are a lot of current case launches against Mijourney, for instance, there’s an outright violation of their photo stock. But then, you can look up intellectual property in terms of protection vs. management lens and many of the companies are on the protection side which is I think rather a reactive way of dealing with intellectual property. The more proactive ways to really manage your intellectual property, despite the violation, you still create values out of those properties and maximize its use to your intended audience. So, I think that’s one of the ways. The way forward is to see how much can be appropriated by the creators themselves, even those artists have been complaining about, you know, human art vs. Machine art, which can be called beautiful. But this is no competition when you privilege certain creators and certain ways of doing art that you get the most of what they do. ● (Question) Ma. Aurora Geotina-Garcia: Bands and such, which could actually be generated from ChatGPT, it is not really original. It’s really going to be a challenge for their regulators, to really determine who owns what, right? ● (Answer) Dr. Benito "Ben" Teehankee: Yes doctor, which is why I wanted to emphasize what Dr. Erica said earlier. You have to look up the entire value chain of what AI is generated and it starts with the data. So, companies using AI, you better check where the data is coming from otherwise you expose yourself to eventual regulatory risks because the laws will catch up after a while it will be illegal to be using, as we saw with the data privacy setting, right? I mean for the longest time direct marketers calling me, even in the 90s and I was asking them “where did you get my number?” but there was no law, so I couldn’t sue them, but now you will be sued and we have learned that now that AI regulations will catch up. So, let's make sure that the value chain is clean, the data you have the right to use and so on. But, you’re right. In the short term the ones who make the properties will be victimized because the laws will be late in catching up. That’s why we're talking about the conscience of ethics, which usually has something to happen for the laws to catch up otherwise it will be too little too late. Question 3 ● (Question) Patrick Parungao, UST Global Inc.: One of the phrases that caught my attention is “AI being a multiplier”, and I think right now not only in ChatGPT but AI in general has really been plugged into platforms like social media and the like. These have actually been used to actually change certain political views and being a developing country, specifically in the Philippines, I think has a lot of impact to sway certain societies and we talk about biases and the like. So, from an ethical perspective maybe to those working in the government agencies, how can we actually start picking off an ethical framework in the LGU’s or government levels so we can avoid certain manipulations like cases form Cambridge analytica on how they influence certain decisions. Because I think from the point of view of view that would allow corporations to now really use it as a tipping point to really push it all the way to the grassroots (basic) level. ● (Answer) Henry R. Aguda: To me, they cannot regulate what they do not know. So, the first thing they should do is to try to figure this out. Interact with the private sector, there’s a lot of experience in the academe I mean organizations like MAP & ICD. To me, my advice to the government agencies is to learn it if you want to regulate it effectively and if you don’t understand what it is and how it can be used. Now, just to add to the multiplier effect also allows you to be more productive as a company, in our case, we use ChatGPT, mindful of all of those do’s and don’ts and pitfalls, as code generators. We ask for a certain product in banking to generate code and you can even specify if it was JAVA or Python and it is so neat. We use the base code and then you just customize and modify it and then you run it to your cybersecurity organization. If we had not done that, we would have armed an army of several programmers to write the codes. I’m partnered with David so he knows very well how we maximize every data component we gather in our organization and with an ethical lens we run it through an AI engine, not the ChatGPT but another one. But, see the private sectors are years ahead compared to the government in terms of understanding it. So, they just have to interface with LGU's, the national agencies, and government corporations. Question 4 ● (Question) Alexander Corpuz, Xurpas Inc.: I think the reason why we still have jobs is we still need to validate whatever ChatGPT puts out there and I guess I wanted to understand the geeky side of whether there’s stopping the version of ChatGPT from citing authorities and sources of its information like a footnote or a book. ● (Answer) Dr. Peter Sy: Yes, it already does when you prompt. You can be specific but still it is prone to hallucinations, you know it cites erroneous info. So, I think the ball part is pretty good already. It can already shepherd like generating outlines, for instance, I made a contract for authors based on Delaware laws and the ChatGPT creates how to check if the lawyers are perfect. So, in that regard, your job is threatened. ● (Answer) Dr. Benito "Ben" Teehankee: I think it is more important to distinguish large language models which is what we’re talking about now with other systems used to correct its limitations. So, when we speak of an AI, the LLM component is just a small piece of it. But by definition, LLM will always hallucinate, because remember there are stochastic, there are autoregressive, they just make a prediction based on what they’ve seen before. But what they’re doing is what we call reinforcement learning so humans spell it, don’t say that or see it this way or in the case of ChatGPT it will show you a source which is extremely important. But, just like Erica said, ChatGPT always gets my background incorrect and it is 90% false and I’ve been waiting for it to because it is not true that it learns the data in ChaGPT ended in September 2021. It learns within the dialogue, but when you restart it's like it never learns it’s like a child that keeps having amnesia. So that there are some notions about it that we need to correct about it, that’s why I like the talks of our two Data scientists here because they’re saying that LLM’s really have those inherent limitations we need to augment it with other things, and the most important augmentation is common sense. Let’s not project into it that it will never be had, it will never have, and it cannot have, but there are other systems that we can use to compliment it and augment it. Question 5 ● (Question) Armand Camacho, Independent Management Consultant: In America, our banks have been sued because they are using AI generated results that are biased against minorities. In self-driving cars, there are a lot of accidents here, because the car can’t recognize a barrier or a jaywalker. Now, if we start using this in businesses, you know investing hundreds or millions of dollars in businesses is scary isn't it? It is creating a new profession we call Algorithmic auditors. In my conversion with Erica, the Philippines may take 5-10 years to produce trained algorithmic monitors, in the meantime, what could the businesses and the government do to make private businesses feel comfortable with using AI if don’t have these algorithmic monitors to look up whether or not the AI models are correct or the millions of training data are correct. If you don’t have enough algorithmic monitors, what do we do? ● (Answer) Dr. Erika Fille Legara: For the meantime, this is a good first step not to flatter ICD & MAP. But we do need to start talking about this and we do need experts, we cannot let just anyone. I wouldn’t say it if someone says they're a (data) scientist and knows how these things work because you can now get data scientist skills if you go online, right? I’ve done an interview recently with another data scientist who said that he implemented neural networks but then I asked him a question of what is an activation function and he couldn’t answer, that was a serious problem. I think as a first step is to have this kind of forum, exchanging best practices while the government is catching up and while we don’t yet have algorithmic auditors, where Chris and I are actually in that space and we’re helping some companies already. But yes, you don’t need some ethics officers yet anyway but at least have people or a committee to start thinking about this, that’s why ICD & MAP is here. ● (Question) Armand Camacho: I attended a presentation from Stanford researchers and professors, and the result of the model is that 60%-70% accuracy rate, is that a little bit lower? ● (Answer) Dr. Erika Fille Legara: It would depend on what system you’re looking into. let say, if you have 10 different categories to choose from, random is 1/10, right? There it is what we call the proportional chance criterion, where we have to be better on that one. So, it is really on a case-to-case basis and that’s really why we need experts to be able to say that this is a good metric and even among the different measures, someone has to decide that this is the right measure. For example, recidivism, right? That is a classic example looking at a person determining the sentence, sometimes they use proxy-metric such as the propensity that this person would do crime, is that a good metric to determine the sentence? So, the metric, sir Armand is one and also depending really on your use case like number of samples you have or categories you have before you can ultimately say that this is good or bad. But, it is a very good question. Chris and I have seen this many times that even data scientists don't know this rule of thumb on how to determine a good model from a not so good model. Question 6 ● (Question) Kevin Vosotros, Trinity Insurance and Reinsurance Brokers Inc.: How can MSMEs, who don't have deep pockets, take advantage of ChatGPT and AI? ● (Answer) Dr. Christopher P. Monterola: Well, ChatGPT is quite cheap. But in general, how can they take advantage of AI is probably the question and this is exactly the point of the national AI roadmap where Erica and I crafted for DTI with other stakeholders. Our idea is to have a national AI center which will be a one stop shop for MSMEs, whatever AI application they have. We want that AI center to house the best, the brightest, data scientists that we have in the country and we will be able to scale up this particular component and in fact Henry lends to give us millions of dollars to set up this private center. Because, this is the most important component and I think David also mentioned that we need to invest in regulation on this component. For example, in the problem of David, there is a very strong Regulatory committee and it is possible for us to make sure that this AI will direct the traffic in a manner that the global commuters will be able to minimize their transport and actually this is one of the things that we have done when we were in Singapore, to help the regulators who are using ways, the government can partner with ways so that can be minimize the spread of traffic.

A Study on Board Diversity at Philippine Publicly-Listed Companies Objectives, Methodology and Scope. This report aims to provide relevant data on board diversity of Philippine publicly-listed companies (PLCs) for the years 2019, 2020 and 2021. Diversity, as defined by the ICD in the Philippines, is the inclusion of more than one gender, age group, business expertise and experience, and other relevant attributes in the composition of a corporation’s board. In advocating for board diversity, ICD contends that diversity in the boardroom promotes the inclusion of different perspectives and ideas, mitigates against “group think,” improves oversight, and promotes informed decision-making and governance. Good corporate governance has been shown to correlate directly with corporate profitability and growth. Government and regulators require it. Companies of all sizes need it. This 2022 study is a result of an independent review of all active PLCs registered with the Philippine Securities Exchange Commission (SEC) numbering 271, 270, and 271 companies as of December 31, 2019, 2020, and 2021, respectively. In 2021, there were actually 16 newly listed companies but at same time 15 existing PLCs were suspended. Appropriate statistical tools and analyses were used to determine (if any) relationships between various local PLC’s board attributes and their respective company Return on Equity (ROE). The PLCs’ company data as well as their respective board composition from the years 2019 to 2021 were used to determine significant relationships between the ROE of a company (considered the dependent variable in the study) versus some “independent variables”, from the perspective of the company and the individual directors of the company. Published corporate information were collected from the Philippine Stock Exchange (PSE) Edge portal, such as company data and director data including expertise. Statistical testing was conducted on six combinations, macro-level (company), and micro-level (board director) and over a span of three years (2019, 2020, and 2021). The entire analysis of this study involved relating the factors / independent variables with ROE, which resulted in many non-rejections of the null hypothesis that the variables do not have a significant relationship. FINDINGS ON PLC’s PERFORMANCE Average Return on Equity (ROE) by Sector On average, the "ETF-Equity", "Financials”, and “Small/Medium & Emerging Boards” sectors exhibited better and positive ROE compared to the other sectors in 2019 and 2020. However, in 2021, only the “Small/Medium & Emerging Boards” sector remained on top of the list. Belonging to these sectors was also found to have statistical significance with ROE. In 2020, the "Industrial" sector was badly hit by the pandemic posting a negative average ROE of 58% compared to a positive ROE of almost 2% in 2019. However, they were able to bounce back in 2021 with a positive ROE of 11%. Meanwhile, the "Property" sector bounced back from an ROE of negative 19.7% in 2019 to a positive ROE of 6.5% in 2020, and 9.31% in 2021. "Holding Firms" reduced their losses posting ROE of negative 76.6% in 2019, to negative 13.8% in 2020, and to negative 2.23% in 2021. Of the total 271 PLCs in 2021, 45 or 17% are "Holding Firms", of which 15 of the 45 have subsidiaries or associated companies that are also listed. Analysis by Director: Gender Diversity Overall, the actual average ratio of female and male directors for all PLCs is 17:83 in 2019, 18:82 in 2020, and 19:81 in 2021. Approximately additional 8, 20 and 30 female directors in PLCs were elected in 2019, 2020 and 2021, respectively. The results of the statistical tests indicated that in 2020 and 2021, the presence of women directors in boards had a significant relationship with ROE, which was not evident in 2019. Analysis by Director: Age and Tenure Diversity For this factor, age refers to the chronological age of the director while tenure refers to the length of time the individual occupied the position of director reckoned from the date of his/her first appointment to the board of a company. The results of the statistical tests indicate that the higher the mean board director age within a company, the higher the company's ROE. Based on the results for all three years, it was noted that: a) age and ROE are significantly and directly related; and b) director's tenure in the board is not a significant predictor of ROE. Analysis by Director: Diversity in Board Director's Expertise For this analysis, the expertise considered includes business management, finance, legal, banking domain, technology, and other specialized fields. For 2019, companies whose board directors had more expertise in business management showed significant influence in the company's ROE. In 2020, with the effects of the global pandemic, companies whose board members have expertise in finance and those who do not necessarily have expertise in business management exhibited better ROE performance. The same holds for 2021, though with Business Management only. INSIGHTS FROM THE STUDY Given the limitations of the study as presented under the "Methodology" section of this report, the committee drew some key findings that reflect the landscape of board diversity in the country during the three-year period covered. During the 2020 pandemic and the imposition of various lockdown measures, director’s gender showed significant relationship with ROE. In particular, companies with female directors outperformed companies purely held by male directors in terms of ROE. It must be noted though, that this does not apply to before (2019) and after (2021) the pandemic lockdown. When it comes to expertise, the companies that performed significantly better than their respective counterparts are those that have non-executive directors, and directors who are experts in Business Management (2019 and 2021), and Finance (2020). Board directors’ seniority in age and presumably in business knowledge and experience positively influenced ROE. The higher the mean board director age within a company, the higher the company's ROE. Tenure or length of service in the company is not a predictor of ROE. Related companies, i.e., businesses operating within a group of companies, have an advantage. The actual female directors' ratio vs. male directors is higher for related companies compared to that of non-related companies both in 2019 and 2020. Likewise, the overall directors' age profile of related companies for the same period is higher compared to non-related companies. This invites the attention of ICD to the non-related companies, which account for 70% of the Philippine PLCs as targets for its corporate governance advocacies. CONCLUSION Based on the results of this study, board diversity impacts business performance. Three items warrant attention: 1. The emerging significant role of women in the board, especially in improving the ROE of the business entity. 2. Expanding the composition of directors with expertise in business management and finance to boost the business’ bottom line. 3. Harnessing the knowledge and experience of directors senior in age regardless of tenure with the company, at the same time providing a plan for succession from the younger directors. See attached PDF file to see the report.

The Institute of Corporate Directors Philippines (ICD) led by its Chairman, Atty. Cesar L. Villanueva, and CEO, Dr. Carlos Jose P. Gatmaitan presented its 2022 assessment of the corporate governance performance of the Philippine insurance industry to the Insurance Commission last March 15, 2023. Present in the meeting are Insurance Commissioner Dennis Funa, Legal Services Group Deputy Commissioner Randy Serrano, Anti-Money Laundering and Corporate Governance Division Officer-in-Charge Atty. Joana Michelle De Ocampo, and other officers. Ms. Perez, ICD’s Director for Corporate Governance Advocacy, reported that the insurance industry scored 55.13 points in this year’s assessment, an improvement of 3.27 points from the previous year’s performance. She also reported that the assessment observed improvements in some areas of corporate governance like the Role of Stakeholders in CG and Disclosure and Transparency, however, more effort must be exerted to raise the performance of the insurance industry at par with the banking sector and the publicly listed companies, both sectors are in the Philippine Financial Sector Forum with the insurance industry. Results also revealed that several companies still lack corporate governance related disclosure and information on their website. To increase awareness and stir action, the Insurance Commission will be sharing the report with their regulated companies and vowed to collaborate with its stakeholders. Chairman Villanueva reassured the Insurance Commission of ICD’s support on their initiatives to improve the corporate governance of the industry. In relation to this, ICD will hold learning session on May 18, 2023 for insurance companies on how to adopt the globally-recommended CG practices being espoused by the ASEAN Corporate Governance Scorecard (ACGS), the tool adopted by the Insurance Commission to assess the corporate governance practices of their regulated entities. Please see the attached report (PDF) for more details.

ESG Monitoring and Goals Tracking: Integrating ESG in Everyday Operations official banner (edited by: Rolyn May Galvez) In a world where environmental concerns are becoming more and more prevalent, it is crucial to incorporate sustainability into an organization’s everyday operations, not only to ensure transparency of reports but also to determine how they can find the right tools and processes to aid in monitoring and tracking ESG goals. With this in mind, the Institute of Corporate Directors in collaboration with Azeus Systems Philippines Limited held a very informative and timely virtual event called 'ESG Monitoring and Goals Tracking: Integrating ESG in Everyday Operations', on March 30, 2023, as part of the Distinguished Corporate Governance Speaker Series (DCGSS) with Convene ESG, facilitated by Mr. Juan Gabriel Tomas IV, Mr. Lau Shih Hor, and Mr. Carmelo Alcala, and moderated by Ms. Katherine Pamintuan. Dr. Carlos Jose P. Gatmaitan, Chief Executive Officer of the Institute of Corporate Directors (ICD), introduced this event as the first installment of the Distinguished Corporate Governance Speaker Series for this year. According to him, ESG is an effective tool for success that provides long-term value to stakeholders and ensures sustained future growth for companies who are striving to lessen their negative environmental effects and create a more sustainable business. Mr. Juan Gabriel Tomas, Chief Risk Officer at RCBC, provided valuable insights about the motivations and drivers of regular ESG performance monitoring and shared the regulatory context, which is regarded to be the most important driver of all. In addition, he also talked about RCBC's ESG journey over the years and indicated how the performance standards are the pillars of the sustainability programs of the IFC. He also presented the RCBC's sustainability portfolio for the year 2022 and the different reporting framework that encourages management and supervisory oversight of sustainability risk. In line with his discussion on RCBC’s ESG journey, he also pointed out at the end of his presentation the achievement of RCBC in which they were able to cover 16 of the 17 UN SDGs with a positive outlook on continuous achievement and sharing of experiences. Additionally, Mr. Carmelo Alcala, Compliance and Risk Officer and Data Protection Officer at Scrubbed Inc. discussed effective governance over ESG reporting and stated that ESG initiatives are typically delegated into teams and handled separately from the rest of the business, which reflects the poll responses to the question ‘Who owns the ESG reporting function and responsibilities in your organization?’, to which participants actively responded. He also highlighted essential actions that organizations can take in order to start embedding ESG in their operations, as well as the formal policies and processes for sustainability reporting. Mr. Lau Shih Hor, CEO of Elixir Technology, provided helpful insights about tools and support to aid sustainability reporting. He guided the participants to answer a poll regarding the primary tools they use, and the majority of them answered email and Excel. Mr. Lau Shih Hor also shared useful information about the topics of data integration, technological solutions, and consultants, where he emphasized that the tools should be designed for the change and mixed data type. To conclude, a panel discussion was held afterward to get insights from the speakers and answer questions from the participants in the event. The webinar ended with powerful closing remarks from Mr. Jerry Chua, where it was made very clear that sustainability should not be done as mere compliance, but rather should be taken seriously by organizations by implementing ESG into their daily operations. KEY TAKEAWAYS: ● The five key actions to take as specified by Mr. Alcala, (1) conducting a materiality assessment, (2) implementing appropriate board oversight, (3) integrating ESG topics into the enterprise risk management process, (4) integrating ESG matters into the overall company strategy, and (5) implementing effective internal control ● There is no one size fits all approach to establishing governance over ESG reporting. ● The drivers of regular monitoring of ESG performance consist of external and internal drivers. For the external drivers, given are; 1) BSP Sustainable Finance Regulations and 2) SEC Sustainability Reporting Policy. On the other hand, the internal drivers are; 1) Commitment to Responsible Lending and Sustainable Finance, 2) Call to Climate Action, and 3) Advocacy to Raise Awareness. ● When it comes to the tools and support that the company needs in terms of the data for sustainability management, look for flexibility and adaptability in mixed data handling, full coverage of sustainability management, and assurance readiness.

Introduction The Institute of Corporate Directors (ICD) is a not-for-profit organization that promotes the adoption of good corporate governance to produce enduring returns and enhanced shareholder value that encourage investment. Socially conscious investors use the Environmental, Social, and Governance or the ESG framework as moral guidelines to assess potential investments. As such, here are the ESG performance highlight in the Philippines. Summary Among the 268 PLCs, the number of reviewed sustainability reports increased from 73 in 2019 to 118 in 2020. In addition, over 90% of PLCs had already submitted sustainability reports to the SEC by October 2021, well ahead of the mandatory deadline in 2023. From 2019 to 2020, there was a 2% increase in PLCs sustainability reports using the SEC template. 53% of these PLCs included sustainability information in their annual reports, 8% in their integrated report, and 52% published stand-alone sustainability reports. Furthermore, 75% of PLCs linked their report to UN-SDG. Companies typically use the SDGs and GRI as frameworks and standards for reporting on sustainability, with TCFD coming in third. Since the COVID-19 pandemic, 90% of investors have given more thought to the ESG performance of corporations when formulating investment plans and making decisions. Based on a company's outstanding ESG, 86% of investors felt it is more likely for them to invest now.

Philippine Economic Outlook Headwinds, Policy Responses and Prospects - March 30, 2023 Mr. Amando Tetangco, Jr. Honorary Fellow and Former BSP Governor Official banner (edited by: Angela Mae Juan) The COVID-19 pandemic generated one of the most significant economic shocks in recent years. It presented itself as one of the country's biggest challenges, which impacts the economy – leading to business closures and employment losses. Compared to the 2008 Global Financial Crisis, the pandemic's impact on the Philippine economy is more severe. The COVID-19 pandemic's distinctive economic disruptions prompted the government and central bank to take exceptional fiscal and monetary policy actions. It is mentioned that the government launched the Four-Pillar Socioeconomic strategy to combat COVID-19. Specifically Pillar 1, as a support for vulnerable groups in case of emergency; Pillar 2, marshaling resources against COVID-19; Pillar 3, monetary responses to keep the economy afloat, and lastly; Pillar 4, a program to create jobs and support growth. Additionally, congress passed a bill, the "Bayanihan to Heal as One Act" (Bayanihan I and II), designed to boost the Philippine economy's resilience and expedite recovery. The Banko Sentral ng Pilipinas (BSP) also responded to the COVID-19 pandemic using extraordinary liquidity measures. In order to relieve liquidity constraints and prevent the domestic economy from suffering long-term damage, the BSP used monetary instruments. Particularly "provisional advances, remittance of dividends to the national government, and purchases of government securities in the secondary market" as stated by Mr. Tetangco. In light of the pandemic and increasing inflation, the BSP tightened monetary policies. As of April 2022, the BSP provided the financial system with around PHP2.2 trillion in liquidity, equivalent to 11.2% of the nominal GDP in 2021. These liquidity measures kept the economy moving, which in turn helped mitigate the effects of the COVID-19 pandemic. Furthermore, due to economic contractions and increased spending during the pandemic, the country showed a slightly higher debt-to-GDP ratio as compared to other ASEAN countries, reaching 60.9% at the end of 2022. While the trend in the exchange rate in the Philippines aligns with those of other nations. Inflation expectations play a significant role in monetary policy. In the Philippines, inflation expectations have increased due to persistently high inflation. The 2022 inflation average is at 5.8%, which exceeded the government target range of 2 to 4 percent. The Philippines along with other nations, reported an inflation expectation of above-target range. Anticipated inflation rate is within the target range of 2 to 4 percent in the fourth quarter of 2023 and to stabilize during the following year. Thus, the BSP will continue to prioritize re-establishing price stability and modifying monetary conditions as needed. In terms of recent bank failures, the BSP stated that the "Philippine banking system remains safe and sound." The country demonstrates resilience in the face of the pandemic and will remain strong in the face of ongoing market volatility in the global market. While the COVID-19 pandemic's effect is more intense than the 2008 Financial Crisis, resulting in negative GDP growth and a sharpest contraction of 16.9%. Due to the "whole-of-government" approach, quarantine, and vaccination measures, the country shows a rebound starting from Q2 of 2021. The macroeconomic assumptions of the Development Budget Coordination Committee (DBCC) show a prospect of 6 to 7 percent growth of real GDP for this year, while inflation in 2023 will be, on average, 6%. Crude oil price is expected to decrease as the demand begins to soften. To conclude, Mr. Amando Tetangco, Jr., as honorary fellow and former BSP Governor, highlights the current expectations in the economy for 2023 in the Philippines. It is mentioned that policy measures made during the previous crisis serve as the cornerstones of a more robust financial system and offer valuable lessons that helped resolve issues throughout the following crises. Although the post-pandemic recovery is progressing, in terms of GDP growth, the Philippine economy performed strongly in 2022 and continues to exhibit bright prospects. However, there are still several issues to be addressed and many uncertainties and instabilities in the near future. BSP cautioned to pay attention to economic headwinds.

Introduction The Institute of Corporate Directors (ICD) is a not-for-profit organization founded in 1999 to promote the improvement of corporate governance standards in the country as well as professionalize the practice of corporate directorship. In furthering our advocacies, we believe that it is necessary to promote enhanced diversity on boards and in particular, gender diversity. In recognition of Women's Month of March, we present this to generate awareness on gender diversity in the boardroom. Summary Number of Board of Directors 2019-2021 There is a decrease in male directors and increase of female directors each year, slowly closing the gap in gender disparity. Men are decreasing on an average of 1% from the total number of directors. On the other hand, women are increasing by 1% on average. Note: Percentages on the infographic are rounded up. Number of Chairpersons 2019-2021 Both genders were consistent where there is an average of 93% of males and 7% of females as Chairpersons. Number of Independent Directors 2019-2021 More women directors are entering the boardroom as Independent Directors, whereas less men directors are classified as Independent Directors. Men are decreasing by 1%, and Women are increasing by the same percentage. Note: Percentages on the infographic are rounded up. Female Directors in Industries 2019-2021 The Financial Industry dominates with an average of 21.2% of Female Directors. Followed by Holding Firms with 18.8% and Industrial with 18.6%. Conclusion With the growing awareness and support of women issues, women are empowered to strive for leadership positions. Qualified women are now becoming Directors, and advancing as Independent Directors in Industries: Financial, Holding Firms and Industrial. Although the gap as Chairpersons is static, other statistics highlight efforts to create a gender balance. All information are taken from PSE EDGE portal.

By: Tony Cailao, FICD Opinion Foreword The following article written by Tony Cailao was published on March 13, 2023, before the cascading events unfolding in the present. With his experience and knowledge, he gave his view and prediction of the future of Silicon Valley Bank (SVB) and its implications for the U.S. Market. Some of which came true in the time between the article’s first publication and its repost into the Institute of Corporate Directors (ICD) website. Read further to get his sense of the current affairs and see how his predictions have played out. The Silicon Valley Bank collapse is more than a bank failure. Allow us to share this article on the systematic downfall and its profound effects, written by ICD Fellow Tony Cailao: The Silicon Valley Bank (SVB) Saga: Too Small to Fail Tony Cailao, FICD Santa Clara (San Francisco)-based SVB, with $209B asset footings, 16th largest in the USA, was closed March 10, 2023 by the California Department of Financial Protection & Innovation and the Federal Deposit Insurance Corporation (FDIC) was named receiver. Photo by Mariia Shalabaieva on Unsplash For years, SVB’s financial position had been inconspicuously deteriorating, until it became evident just two days before it was closed when it unsuccessfully tried to raise $2.5 B capital to cover withdrawals, at which point the FDIC, federal supervisory body for deposits, declared that SVB has failed. Genesis: SVB head office is strategically located near San Jose where Silicon Valley, the cradle of tech companies and start ups is situated. As such, it is the dominant provider of venture capital loans for early stage, high growth companies. It was the go-to lender of start ups, a unique market segment other banks are disinclined to lend to—as startups have poor obligor risk ratings, hardly any collateral assets, and it required specialized origination skills in prospecting start ups, and more besides. As the newbies’ business flourished, so did SVB. With their strong cash flows—more sources than uses of funds – huge surpluses were deposited with SVB, eventually ballooning its deposit base from $40B to $190B in 2021. Unable to find other borrowers in its target market, SVB’s loan ($60B) to deposit ratio was a miserable 32%! With some $130B funds in dead storage, the bank started to deploy its idle funds in non-loan investments, i.e. bonds and Treasuries— which occurred at a time that the Fed’s (Jerome Powell) top priority was to stave off US inflation, which rose from 1.4% in 2020 to 6.6% in 2022. As the year 2022 opened, SVB’s bond investments reached $130B. Powell’s main tool in taming inflation was interest tightening, i.e. monetary policy increasing interest rates which makes credit more expensive, and reduces consumption and investment and – in turn – works to lower inflation as firms adjust prices. Unabated inflation led to an aggressive and frequent tightening, yet Powell and his team were cautious in pursuing a “soft landing” – restrained inflation, yet avoiding recession. Photo by Jack Prichett on Unsplash ‘Yan na! Darkness sets in, overshadowing the stars: interest rates skyrocketed from 1.5% in 2017, trebled to 4.75%, and counting. This upended the boom in venture capital business while causing bond prices to nosedive (whose mark-to-market prices moves inversely to interest rate increases), leaving SVB pitifully exposed, since it purchased the bonds at their peak prices. As venture capital funding withered, SVB’s clients resorted to draw on what was then their surplus funds deposited with SVB. This reduced SVB’s deposits to unviable levels, i.e. unable to service withdrawals, forcing it to monetize its bond portfolio at lower prices, culminating to a $1.8B loss. This is what triggered its failed $2.5B capital raising I mentioned in the preface of this piece, causing the bank into receivership. SVB’s predicament is not unique. Under the current environment, most notably, the tightening of interest rates coupled with an unusually low loan to deposit ratio, leading to investing idle funds in bonds – all the other banks are invariably in the same rabbit hole. Every bank, whether it’s lending to tech startups like SVB or funding other sectors, is facing many of the same structural pressures, albeit the severity of issues are in disparate degrees – it is like everyone is escaping a shipwreck in the same leaky lifeboat and fighting over who gets out first. (Note: This serves as a cautionary take to all banks). Photo by Hal Gatewood on Unsplash Meanwhile, SVB’s customers’ deposits are at risk. FDIC, which protects banks’ clients deposits through its insurance, limits its cover to $250,000 per depositor. Individually, SVD’s customers, sadly, have more than $250k per account. As it happens, more than 90% of SVD’s deposits are uninsured. This spooks the depositing public, and by extension, all the other banks. As the global financial markets watches this with bated breath, the scale, breadth and depth of the SVB situation has introduced the risk of a collapse of an entire financial system or an entire market system’s instability – potentially catastrophic, which could possibly bankrupt or bring down the entire system, especially so the failure of a single entity, i.e. SVB, can cause a cascading system failure. In the peculiar argot of risk management wonks: Systemic Risk! A Fed-led intervention is the only manifestation – protecting and assuring the resiliency of the system – that could tranquilize an otherwise agitated market. Like a denouement of Tom Clancy thriller, the federal government has started to intervene, with the end view to calming down the market. Among others, the low lying fruit is, it is looking for an institution that will buy SVB. My sense is, if the Fed, FDIC specifically, did not intervene, the tense mood would potentially bring the market to the periphery of the September 15, 2008 financial meltdown and trigger a global contagion. My view: the market after all the noise and rumblings, will come to its senses, discounting a prevailing systemic risk, and finally calm down, albeit would still remain vigilant. Sana tama ako… Be well y’all. Antonio M. Cailao 13 March 2023 Pssst: I’m taking a position in my view. We will probably know tomorrow, Monday if I’m right. FDIC receivership is an intervention, to my mind, tantamount to a bail out. With the world already experiencing a lot of turmoil, the USA will not allow another exacerbation, even if it entails bailing out a small bank ( which is undoubtedly a failed, closed bank) and risk all sorts of morale hazard, let alone, triggering a nasty chain reaction domestically and internationally. That there is no contagion and meltdown a la subprime debacle is the victory lap of the fed. What’s good for the gander is good for the goose. If I’m wrong and fall flat on my pretty face on Monday, it’s a consolation that this is probably a good read. At least it’s better than going to your dentist. Bonne nuit. Disclaimer The information in the article represents the view and opinion of the author and does not reflect the position of the Institute. The publication of the article is not an endorsement by the Institute nor its affiliates. The content provided by the author is of their opinion and is not intended to malign any religion, ethnic group, club, organization, company, or individual. About the Author Antonio Cailao’s international banker career straddled more than 30 years and four continents, living and working in Hong Kong, Korea, Venezuela, Vietnam and Singapore; and in the Philippines where he commenced his banking career in Citibank Manila in 1973 as an Executive Trainee. His main businesses included local, regional and international corporate banking, investment banking, global trade, cash management and e-commerce. His career highlights included being instrumental in the establishment of the Consumer Banking and Electronic Banking businesses in Citibank Manila, Asian regional trade and cash management, rationalization of world corporate businesses in both Asia and Latin America, established Citibank presence and branches in Vietnam, and Asia Regional Head of Pan-Asian Corporations’ business in all of Asia, initiated e-commerce business in a US bank in Singapore and the rehabilitation of a local bank in Manila. Back in Manila, he re-invented himself as an energy person as Chairman of the world’s second largest geothermal company, President and CEO of Philippine National Oil Company, established a renewable energy corporation, he led the privatization of PNOC EDC and Petron, both the largest privatization transactions in the country at that time. His past board memberships include RCBC Savings Bank, PNOC-Energy Development Corporation, PNOC, Goodyear Tire and Rubber Company, Philippine Mining and Development Corporation, Philippine Bayanihan Society (Singapore), Gulf Oil Philippines, Inc, Board Observer in Energy Development Corporation and Petron. Currently Independent Director in Petron Malaysia Refining and Marketing Berhad (Malaysia). Board Adviser of Bank of Commerce. His volunteer work included parish church charity work in Seoul, Korea, established skills training for Filipino overseas workers in Singapore, micro financing training to farmers in southern Luzon, tree planting in Rizal province and relief goods donation and distribution in various disaster areas. In his college days in UP, he established AIESEC in the Philippines, an international youth non profit organization that provides leadership development, international internship and volunteer experience, and in 2011, was inducted in the AIESEC Hall of Fame during its international congress in Nairobi, Kenya. In 2001, he was on the very first batch of Ten Most Outstanding Alumni Award of UP College of Business Administration. His education were business college and masters degree from the University of the Philippines and Executive Management Courses in Columbia University. He is a Fellow and Teaching Faculty of the Institute of Corporate Directors. He was also keynote speaker and panelist on energy and petroleum in various major Oil and Gas councils and organizations in Asia and Europe. Tony loves to read, golf, swim and travel.

In the article, ‘Breaking the Bias on Women Investors’, evidence showed that women have the traits that make them great investors such as their discipline in saving more, diligence in research which translate to taking risks responsibly, and the traits that women naturally carry, such as being nurturing, patience, and empathy. With that being said, it is no surprise that there has been a significant rise of women leading the financial services industry. In celebration of Women’s Month of March, this article will help you understand how women are continuously breaking the bias by learning where they are in the industry, what makes them good leaders, and what’s the next step in achieving gender equity, not only in Finance, but in the general scope of business. First published in PhilStar Global on March 16, 2023. Authored by Ma. Aurora “Boots” D. Geotina Garcia, Vice-Chair & President of the Institute of Corporate Directors’ Board of Trustees. You can view the article through this link.