Corporate Governance

Strategic Object

Aboitiz Corporate Governance Guiding Principles

The Aboitiz governance structure is underpinned by our core values of integrity, teamwork, innovation, and responsibility. These values guide the Group in meeting our day-to-day business as usual challenges and in balancing the interests of our various stakeholders. The inspired Group purpose, the core values, and leadership dimensions create the totality of the Aboitiz corporate culture. More importantly, these values and fundamental beliefs constitute the strong foundation for the organization’s corporate governance structure.

In 2016, the AEV and AboitizPower Boards reviewed and updated our Code of Ethics and Business Conduct, Whistleblowing Policy and the Manual on Corporate Governance. The Boards also studied and approved a new Related Party Transaction Policy and a Related Party Transaction Committee. The Board Risk & Reputation Committee and the Board Audit Committee embedded regular assurance procedures for the Aboitiz risk universe. The Aboitiz Group continued the practice of risk- based audits across all business units. These are intended to preserve and protect the rights of shareholders, to ensure shareholders’ equitable treatment by the companies, to enhance stakeholder value, to promote continuous improvement of stakeholders’ engagement, and to make timely and responsive corporate disclosures balanced with the requirements for confidentiality in a competitive business environment.

Selection of Directors

The Board Corporate Governance Committee, acting as nomination committee and in accordance with the existing Guidelines for the Nomination and Election of Directors, oversee the selection of candidates for directors of AEV and AboitizPower.

The selection process involves the nomination of directors by both controlling shareholders and minority shareholders who actively participate in the nomination and election. For the 2016-2017 term, minority shareholders actively nominated the independent directors. The Board Corporate Governance Committee oversees the nomination process.

The criteria for selection of independent directors include not only their expertise and professional backgrounds, but also their track records for being independent minded, their strategic thinking, and their understanding of the drivers of our Group’s businesses. The Board Corporate Governance Committee believes that this contributes to the successful execution of our vision as a conglomerate doing business in our specific industries. The Committee, sitting in its capacity as a Nominations and Compensation Committee, then approves the nomination by shareholders of executive and independent directors for endorsement to the shareholders at the annual shareholders’ meeting.

Shareholders Right to Vote

All shareholders have the right to cast their votes in the election of directors for the Board of Directors. Directors are elected at the annual shareholders’ meeting in person by the shareholder or by way of a shareholder’s proxy. The Aboitiz Proxy Validation Committee validated all proxies prior to the 2016 Annual Stockholders Meeting. Voting at the 2016 Annual Stockholders Meeting was done through an electronic platform and the results were immediately disclosed to the assembly within a few minutes of the completion of the voting. The 2017 Annual Stockholders Meeting follows the same procedure and adopts the same controls.

Responsibilities of the Board

Our Boards of Directors are fully engaged Boards composed of highly regarded professionals. The directors lend their broad experience and expertise to the Board and the Management team in all relevant matters affecting the Aboitiz Group. AEV and AboitizPower are continually reviewing the roles and responsibilities of their Boards to assess the propriety and value of existing and proposed Board and Board Committee protocols, systems and policies. All directors have been carefully selected and nominated based on their credentials as well as their ability to contribute and share their expertise in all relevant matters affecting the business units of AEV and AboitizPower.

The existing company policies of AEV and AboitizPower, such as those found in the By-Laws, the Manual on Corporate Governance, the Code of Ethics and Business Conduct, Board protocols, other Board secretariat guidelines, and the Aboitiz Information Management System protocols, ensure excellence in the performance of the directors’ roles and responsibilities.

In 2016, the Independent Directors of both AEV and AboitizPower worked closely with the internal audit teams in the performance of their functions as members of the Board Audit Committee, the Board Corporate Governance Committee, the Board Risk and Reputation Committee and of course, as members of the Board.

Our directors were quite engaged in Board work and very focused on their responsibilities as directors. They actively participated at regular and special meetings, either in person or through the use of video and teleconferencing. They were diligent in the performance of their duties.

To broaden the directors’ depth of knowledge and industry competence, AEV and AboitizPower organized seminars, lectures and orientations on highly technical topics unique to or relevant to the Aboitiz Group’s businesses. These include discussions on changing regulatory oversight of the energy market and their impact on AboitizPower, analysis and review of Aboitiz risk maturity index results up to 2016, top residual risks of the Aboitiz Group, cyber risks, political and country risks and the World Economic Forum Global Risks. They participated in the in-house mandatory corporate governance seminar, Philippine economic briefings, and a review of the Aboitiz Group’s strategic objectives and identified business strategies.

AEV and AboitizPower each have three Board committees that assist the Board in its oversight responsibility over the Aboitiz business units – the Board Corporate Governance Committee, the Board Risk and Reputation Management Committee, and the Board Audit Committee. Three Independent Directors sit on the Board Corporate Governance and Board Audit Committees, comprising a majority of the membership of these Board Committees. In the Board Risk and Reputation Management Committee, while not constituting the majority of the committee membership, two Independent Directors sit on the respective Board Committees.

On February 21, 2017, The Board Corporate Governance Committee approved a new Related Party Transaction (RPT) Policy, the creation of a Related Party Transaction (RPT) Committee and an RPT Committee Charter. The RPT Committee will be composed entirely of Independent Directors.

Rights of Shareholders

The rights of shareholders are unequivocally recognized in the AEV and AboitizPower By-laws, Code of Ethics and Business Conduct, and the Manual on Corporate Governance. The policy statements found in these documents reflect the commitment of AEV and AboitizPower to ensure the protection of shareholder interests and concerns, as well as the free exercise of these rights. These include the rights to receive notices and attend shareholders’ meetings, to participate and vote in meetings on the basis of the one-share one-vote policy, to cumulate their votes, to inspect corporate books and records, to vote in person, in absentia or by proxy, to receive dividends, to nominate and elect directors to the Board, and to ratify corporate action, among others.

The Aboitiz Group believes that the rights and interests of shareholders are aligned to that of the controlling shareholders, not only in terms of returns on their investments, but also in the sustainability of the businesses. AEV and AboitizPower take exceptional efforts to ensure that shareholders receive timely public information affecting the businesses they have invested in, and that everyone receives their dividends in accordance with the established dividend policy.

The commitment of AEV and AboitizPower to its shareholders’ rights may be shown in a well-defined and disclosed dividend policy, the regular holding of the annual shareholders’ meetings, and the timely and accurate disclosures with the Securities and Exchange Commission, the Philippine Stock Exchange, the Philippine Dealing Exchange, the scheduled annual investor relations roadshows and analysts briefing, and corporate governance communications. The Board Secretariat of AEV and AboitizPower liaise with and provide directions to the companies’ stock transfer agent to ensure a prompt or immediate resolution of shareholders’ queries and requests brought to its attention. The Board Secretariat strictly follows Board protocols and procedures certified under ISO 9001: 2015 for effectiveness of Board and shareholders’ commitments.

Equitable Treatment of Shareholders and Fair Dealings for All Shareholders

All shareholders, regardless of the amount of their shareholdings, are given the right to participate in company decision-making, pursuant to the one-share one-vote policy of AEV and AboitizPower. As a matter of policy and practice, to ensure that directors, officers, and even majority shareholders do not take advantage of their position of knowledge in AEV and AboitizPower, related party transactions and amounts are fully disclosed in the Audited Financial Statements and the Notes. AEV and AboitizPower also strictly enforce the General Trading Policy of Company Securities, and also enforce and implement the Policies against Insider Trading and trading blackout rules. The Board Secretariat is committed to vigilantly ensuring compliance with these rules by all team leaders and team members who are privy to sensitive transactions and information.

The Boards encourage active shareholder participation by sending, at least 28 days before the shareholders’ meeting, the notice of shareholders’ meetings and all agenda items to be discussed and decided upon during the meetings. No new agenda items are taken up during the meeting. For the guidance of shareholders, the rationale of agenda items subject to shareholder approval are disclosed in the notices of shareholders’ meetings.

As long as shareholders provide their contact details, AEV and AboitizPower send out notices to all shareholders of record for all annual shareholders’ meeting, as well as provide them with copies of the Information Statement, the Annual Report, and the Aboitiz integrated annual report. At the shareholders’ meeting, the Board of Directors, the chief executive officer (CEO), chief financial officer, the independent auditors, the stock transfer agent, and other key officers of AEV and AboitizPower attend and make themselves accessible and available to answer any questions that shareholders and investors may raise. Questions from shareholders on the floor are always encouraged by the Chairman and the CEO.

The Code of Ethics and Business Conduct of AEV and AboitizPower embodies our commitment to the principles of fair dealings with our stakeholders. The Code provides an ethical compass for the day-to-day activities in the Company. The Code of Ethics and Business Conduct, recently amended in 2016, clearly articulates our commitment to the compliance with laws and regulations; to the equitable treatment of stakeholders; to fair dealings with stakeholders; to the protection of corporate assets and interests, including conflict of interest; to the proper handling of proprietary and confidential information; to making truthful disclosures of material information; to transparency in the best interests of shareholders and the public; and to our commitment to sustainable business practices.

AEV and AboitizPower strictly enforce the Code of Ethics and Business Conduct, as an integral element of the corporate culture. The Code applies to all directors, officers and employees. This provides assurance to shareholders and other stakeholders.

Role of Stakeholders

The business model of AEV and AboitizPower is anchored on the sustainable growth of the Group’s businesses and the full engagement of our stakeholders. The key stakeholders include team leaders and team members who work toward achieving business strategies; the host communities of the companies and business units; the local government units that support and host the Group’s businesses; the regulators of the businesses; the customers whom they serve; and the environment that sustains growth. (See Stakeholder Engagement Timeline at www.aboitiz.com)

The Group recognizes that corporate governance principles revolve around relationships between and among these stakeholders and the Group’s goals. Together, they contribute to the successful pursuit of business goals. AEV and AboitizPower corporate governance practices include policies and procedures that promote awareness and observance of stakeholders’ rights at the company level. Indeed, stakeholder engagement is one of the strategic pillars and part of the Aboitiz corporate culture.

Social Development + Environmental Stewardship for Sustainability

The Group launched its Sustainability Policy in 2013, in the belief that all stakeholders must be treated with fairness and that corporate social responsibility is an integral part of doing business. In 2014, AboitizPower continued to implement this policy and as an initiative for the year, jointly launched the BetterWorld campaign to encourage all stakeholders to adopt this policy for sustainability. In 2015, the Group explored a wholistic approach to corporate governance integrating the concept of Creation of Shared Value. (See Sustainability Report at www.aboitiz.com). Through the Aboitiz Foundation, Inc. (Aboitiz Foundation) the Aboitiz Group is pursuing concrete projects to fulfill eight out of the 17 Global Goals for Sustainable Development, namely: No Poverty, Zero Hunger, Good Health & Well Being, Quality Education; Responsible Production & Consumption; Climate Change; Life Below Water; and Life on Land.

Our Group is especially proud of our track record in corporate social responsibility. AEV and AboitizPower, through their business units and through the Aboitiz Foundation, have consistently pursued and supported long standing CSR commitments and partnerships.

Over the past 10 years, the Group has invested P4.5 billion in CSR programs. These CSR programs are focused on education, enterprise development, disaster response and recovery, sustainable communities, energy efficiency, ecological biodiversity, climate change and other environmental regeneration. For 2016, the Aboitiz Foundation budgeted around P450 million for its CSR projects. These projects were funded by AEV and AboitizPower business units. (See Aboitiz Foundation Report on its website).

Disclosure and Transparency

The Boards and Management of AEV and AboitizPower believe that a commitment to proper disclosure and transparency of the businesses elicit the trust and confidence of stakeholders. The Aboitiz Group puts a high premium on its reputation and works at keeping this well-earned trust of stakeholders gained over the years.

Pursuant to the Group’s commitment to transparency and accountability, AEV and AboitizPower continue to improve and update the corporate governance pages on our websites (www.aboitiz.com) and (www.aboitizpower.com). These web pages contain company information. The corporate websites make available to the public copies of the annual corporate governance reports, annual reports, company disclosures and investor reports, organizational information, Board and Board Committees membership, policies such as the Manual on Corporate Governance, Code of Ethics and Business Conduct, minutes of the Annual Stockholders’ Meetings, Investor Relations information, and other information relevant to stakeholders. The websites serve as a resource center for stakeholders and the public.

The Board Secretariat for AEV and AboitizPower is also fully committed to ensuring full and accurate disclosures of information to shareholders, to the general public, and all other stakeholders.

Statutory and Regulatory Compliance

AEV and AboitizPower are committed to legal and regulatory compliance and overall good corporate governance practices. In 2016, there was no deviation from or violation of the rules under the Manual on Corporate Governance, other company governance and compliance policies, and protocols.

2016 Awards

AEV and AboitizPower, along with subsidiaries and affiliates, have been consistently recognized in local and international surveys, assessments, and governance scorecards, as among the Philippines’ best-managed companies.

As in previous years’ PSE Bell Awards, AEV was cited for its good corporate governance and AboitizPower received the Bell Award for Excellence in Corporate Governance. AboitizPower was also recognized in 2016 as Overall Best Managed Power Company in Asia by FinanceAsia. Both companies scored very high in the 2016 round of the ASEAN Corporate Governance Scorecard (ACGS) for publicly listed companies in the Philippines. The ACGS is reviewed by the Institute of Corporate Directors in partnership with the SEC.

Awards are mere validation or recognition of our corporate governance practices. These are not the “whys” of what we do every day. At the heart of our governance culture is the mindfulness that if the one thing we do “doesn’t advance both our business and the community”, then it serves no other purpose. It will not be the Aboitiz way.