Ayala Corporation

1) Board of Directors

 

(a) Composition of the Board

Complete the table with information on the Board of Directors:

The following are the directors of the Corporation, classified in accordance with the Revised Code of Corporate Governance and SEC Memorandum Circular No. 16, series of 2002:

 

Ms. Antonette S. Valdez is a minority stockholder of the Company.

Profiles of our Board of Directors:

Jaime Augusto Zobel de Ayala, Filipino, 58, Director of Ayala Corporation since May 1987. He is the Chairman and CEO of Ayala Corporation since April 2006. He holds the following positions in publicly listed companies: Chairman of Globe Telecom, Inc., Integrated Micro-Electronics, Inc. and Bank of the Philippine Islands; and Vice Chairman of Ayala Land, Inc. and Manila Water Company, Inc. He is also the Chairman of AC Education, Inc., Ayala Retirement Fund Holdings, Inc., AC Industrial Technology Holdings, Inc., AC Ventures Holding Corp., AC Infrastructure Holdings Corporation and Asiacom Philippines, Inc.; Co-Chairman of Ayala Foundation, Inc. and Ayala Group Club, Inc.; Director of Alabang Commercial Corporation, Ayala International Pte. Ltd., AC Energy, Inc., Ayala Healthcare Holdings, Inc., Light Rail Manila Holdings, Inc. and AG Holdings Limited; Chairman of Harvard Business School Asia-Pacific Advisory Board and Endeavor Philippines; and member of the Harvard Global Advisory Council, Mitsubishi Corporation International Advisory Committee, JP Morgan International Council, Global Board of Advisors of the Council on Foreign Relations, Asia Society International Council, University of Tokyo Global Advisory Board, Singapore Management University Board of Trustees, and Eisenhower Fellowships Board of Trustees. He was the Philippine Representative to the Asia Pacific Economic Cooperation (APEC) Business Advisory Council from 2010 to December 2015. In 2007, he received the Harvard Business School Alumni Achievement Award, the school’s highest recognition. He was a recipient of the Presidential Medal of Merit in 2009 for enhancing the prestige and honor of the Philippines both at home and abroad. In 2010, he was bestowed the Philippine Legion of Honor, with rank of Grand Commander, by the President of the Philippines in recognition of his outstanding public service. In 2015, he received the Order of Mabini, with rank of Commander, for his vital contributions during the Philippines’ hosting of the Asia Pacific Economic Cooperation (APEC) Summit. In 2017, he was recognized as a United Nations SDG Pioneer for his work in sustainable business strategy and operations. He graduated with B.A. in Economics (Cum Laude) at Harvard College in 1981 and obtained an MBA at the Harvard Graduate School of Business Administration in 1987.

Fernando Zobel de Ayala, Filipino, 58, Director of Ayala Corporation since May 1994. He is the President and Chief Operating Officer of Ayala Corporation since April 2006. He holds the following positions in publicly listed companies: Chairman of Ayala Land, Inc. and Manila Water Company, Inc.; and Director of Bank of The Philippine Islands, Globe Telecom, Inc. and Integrated Micro-Electronics, Inc.; and Independent Director of Pilipinas Shell Petroleum Corporation. He is the Chairman of AC International Finance Ltd., Liontide Holdings, Inc., AC Energy, Inc., Ayala Healthcare Holdings, Inc., Automobile Central Enterprise, Inc., Alabang Commercial Corporation, Accendo Commercial Corp. and Hero Foundation, Inc.; Co-Chairman of Ayala Foundation, Inc. and Ayala Group Club, Inc.; Vice-Chairman of ALI Eton Property Development Corporation, Aurora Properties Incorporated, Vesta Property Holdings, Inc., Ceci Realty Inc., Fort Bonifacio Development Corporation, Bonifacio Land Corporation, Emerging City Holdings, Inc., Columbus Holdings, Inc., Berkshires Holdings, Inc. and Bonifacio Art Foundation, Inc.; Director of LiveIt Investments, Ltd., AG Holdings Ltd., AC Infrastructure Holdings Corporation, Asiacom Philippines, Inc., Ayala Retirement Fund Holdings, Inc., AC Education, Inc. and AC Ventures Holding Corp., Honda Cars Philippines, Inc., Isuzu Philippines Corporation, and Manila Peninsula; Member of the Philippine-Singapore Business Council, INSEAD East Asia Council, World Presidents’ Organization; and Chief Executives Organization; Chairman of Habitat for Humanity’s Asia-Pacific Capital Campaign Steering Committee; and Member of the Board of Trustees of Caritas Manila, Pilipinas Shell Foundation, and the National Museum. He graduated with B.A. Liberal Arts at Harvard College in 1982 and holds a CIM from INSEAD, France.

Delfin L. Lazaro, Filipino, 71, Non-Executive Director of Ayala Corporation since January 2007. He holds the following positions in publicly listed companies: Director of Ayala Land, Inc., Integrated Micro-Electronics, Inc., Manila Water Company, Inc., and Globe Telecom, Inc. His other significant positions include: Chairman of Atlas Fertilizer & Chemicals Inc., Chairman and President of A.C.S.T. Business Holdings, Inc.; Vice Chairman and President of Asiacom Philippines, Inc.; Director of AC Industrial Technology Holdings, Inc., AYC Holdings, Ltd.., Purefoods International Limited and Probe Productions, Inc. He graduated with BS Metallurgical Engineering at the University of the Philippines in 1967 and took his MBA (with Distinction) at Harvard Graduate School of Business in 1971

Keiichi Matsunaga, Japanese, 53, has been a Director of Ayala Corporation since April 2017. He is the General Manager of Mitsubishi Corporation Manila Branch. Currently, he is also the Chairman of International Elevator & Equipment Inc.; President of MC Diamond Realty Investment Phils., MC Oranbo Investment, MC Cavite Holdings, Inc., FMT Kalayaan, Inc.; and Director of Century City Development II Corporation (CCDC II), Isuzu Philippines Corporation, Kepco Ilijan Corporation, Trans World Agro-Products Corp., Japanese Chamber of Commerce & Industry of the Philippines (JCCIPI) and The Japanese Association Manila, Inc. (JAMI). He is not a director of any publicly listed company in the Philippines other than Ayala Corporation. He entered Mitsubishi Corporation after graduating from the Faculty of Law at Waseda University in 1988 and has since held various leadership positions.

Xavier P. Loinaz, Filipino, 73, Independent Director of Ayala Corporation since April 2009 and Lead Independent Director since April 21, 2017. He is also an Independent Director of Bank of the Philippine Islands, a publicly listed company. He also holds the following positions: Independent Director of BPI Family Savings Bank, Inc., and BPI/MS Insurance Corporation; Trustee of E. Zobel Foundation; and Chairman of Alay Kapwa Kilusan Pangkalusugan and XPL Manitou Properties, Inc.; and Vice Chairman of XPL MTJL Properties, Inc. He was formerly the President of the Bank of the Philippine Islands (BPI) from 1982 to 2004. He was also the President of Bankers Association of the Philippines from 1989 to 1991. He graduated with an AB Economics degree at Ateneo de Manila University in 1963 and took his MBA-Finance at Wharton School, University of Pennsylvania in 1965.

Ramon R. del Rosario, Jr., Filipino, 72, Independent Director of Ayala Corporation since April 2010. He holds the following positions in publicly listed companies: President and Chief Executive Officer of Phinma Corporation; Chairman of Trans-Asia Petroleum Corporation; and Vice Chairman of PHINMA Energy Corp. (formerly TransAsia Oil and Energy Development Corporation). He is the President and Chief Executive Officer of Philippine 7 Investment Management, Inc.; Chairman of Araullo University, University of Iloilo, University of Pangasinan, Cagayan de Oro College, Southwestern University, United Pulp and Paper Co., Inc., Microtel Inns and Suites (Pilipinas), Inc., Microtel Development Corp., Trans-Asia Power Generation Corporation, Trans-Asia Renewable Energy Corp., CIP II Power Corp., One Subic Power Generation Corp., Fuld & Co., Inc., Fuld & Co (Philippines), Inc. and Paramount Building Management & Services Corp.; Vice-Chairman of Phinma Foundation and Phinma Property Holdings Corp., director of Union Galvasteel Corp. and other PHINMA-managed companies; Chairman of The National Museum of the Philippines, Ramon Magsaysay Award Foundation and Philippine Business for Education; Vice-Chairman of Caritas Manila; and Trustee of De La Salle University and Philippine Business for Social Progress (PBSP).. He is a trustee and former chairman of the Makati Business Club. Mr. del Rosario graduated from De La Salle College in 1967 with a degree in BSC-Accounting and AB Social Sciences Magna cum Laude and from Harvard Business School in 1969 for his Master in Business Administration. He has managed Phinma since 2002 and brings with him a wealth of experience in leading a diversified conglomerate.

Antonio Jose U. Periquet, Filipino, 56, Independent Director of Ayala Corporation since September 2010. He is the chairman of BPI Asset Management and Trust Corporation, the Campden Hill Group and Campden Hill Advisors, Inc. He also sits as an independent director of the Bank of the Philippine Islands, ABS-CBN Corporation, DMCI Holdings, The Max's Group of Companies, The Philippine Seven Corporation and the Albizia ASEAN Tenggara Fund. Mr. Periquet is a trustee of Lyceum of the Philippines University and a member of the Dean's Global Advisory Council at the University of Virginia's Darden School of Business. He graduated with an AB Economics degree at Ateneo de Manila University in 1982 and took his Masters of Science in Economics at the Oxford University, UK in 1988 and Masters in Business Administration at University of Virginia, USA in 1990.

 

Corporate Governance Policy that the Board of Directors has Adopted 
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 those rights. The directors shall encourage the exercise of shareholders’ voting rights and the resolution of collective action problems through appropriate mechanisms. They shall be instrumental in reducing or eliminating costs and other administrative or practical impediments to shareholders participating in meetings and/or voting in person. The directors shall pave the way for the electronic filing and distribution of shareholders information necessary to make informed decisions subject to legal constraints.

As mandated by the Board Charter, the Board of Directors establishes the vision, strategies, key policies, and procedures of the company, and the mechanisms to monitor, evaluate, and improve management performance. The Board leads the review of the company’s vision and mission every year, revisits the group's corporate strategy and monitors its implementation. In 2015, the Board reviewed a refreshed vision statement of the company. As a result, the company adopted a new vision statement that is available in the company website and appended to the company’s Manual of Corporate Governance.

The Board also reviews and ensures the adequacy of internal control mechanisms and risk management process for good governance, and the proper implementation of the company’s Code of Conduct and Ethics. The Board also promotes and enhances shareholders’ rights.

Frequency of Review and Approval of the Vision and Mission Statements by the Board of Directors The Board reviews and approves the vision and mission at least once a year, as part of the review and approval of the Company’s strategy as recommended by Management. The Board and Management also revisit the Company’s vision and mission as part of the budget review process.

On September 22, 2015, the Board reviewed the mission and vision statements of the Company. As the result of that review, the Company adopted the following new vision statement that has been published in the Company website and appended to the Company’s Revised Manual of Corporate Governance.

VISION STATEMENT:

We will be the most relevant, innovative, and enduring Philippine-based business group, enabling shared value and prosperity for the many markets and stakeholders we serve.

The following is the Company’s mission statement:

Ayala Corporation, a holding company with a diverse business portfolio, has a legacy of pioneering the future. Founded in 1834, it has achieved its position of leadership by being values driven, goals oriented, and stakeholder focused. Anchored on values of integrity, long-term vision, empowering leadership, and commitment to national development, we fulfill our mission to ensure long-term profitability, increase shareholder value, provide career opportunities, and create synergies as we build mutually beneficial partnerships and alliances with those who share our philosophy and values. With entrepreneurial strength, we continue to create a future that nurtures to fruition our business endeavors and personal aspirations.

In 2017, the Board has reviewed and affirmed the appropriateness of the vision and mission statement of the company.

 

(d) Directorship in Other Companies

(i) Directorship in the Company’s Group²

Identify, as and if applicable, the members of the company’s Board of Directors who hold the office of director in other companies within its Group:

 

* The Company has no power to elect a majority of the members of the board of directors of South Luzon Thermal Energy Corporation.

(ii) Directorship in Other Listed Companies Identify, as and if applicable, the members of the company’s Board of Directors who are also directors of publicly-listed companies outside of its Group:

 

(iii) Relationship within the Company and its Group

Provide details, as and if applicable, of any relation among the members of the Board of Directors, which links them to significant shareholders in the company and/or in its group:

 

Limit on the number of board seats in other companies

 The Corporation ensure that adequate time and attention is given to the fulfillment of the directors of their duties. The independent directors and non-executive directors hold no more than five board seats in publicly-listed companies and executive directors hold no more than two board seats in listed companies outside the Corporation’s group. In the implementation of this policy, the Board may consider several directorships in related companies or companies in the same industry as one. (Charter of the Board of Directors, Section 3.4)

(e) Shareholding in the Company

Complete the following table on the members of the company’s Board of Directors who directly and indirectly own shares in the company:

 

2) Chairman and CEO

(a) Do different persons assume the role of Chairman of the Board of Directors and CEO? If no, describe the checks and balances laid down to ensure that the Board gets the benefit of independent views.

                                                        Yes  [     ]                                    No [  X  ]

Identify the Chair and CEO:

 

Among the checks and balances laid down to ensure that the Board gets the benefit of independent views are:

(1) the powers and responsibilities of the Chairman and of the CEO are specified and separate in the By-laws;

(2) only two of the seven directors are executive directors and the powers and responsibilities of directors are clearly delineated from the powers and responsibilities of management; and

(3) three of the seven directors are independent directors.

(b) Roles, Accountabilities and Deliverables

Define and clarify the roles, accountabilities and deliverables of the Chairman and CEO.

 

3) Explain how the board of directors plan for the succession of the CEO/Managing Director/President and the top key management positions?

The Nomination Committee of the Board conducts a review and evaluation of the qualifications of all persons nominated to positions in the Corporation which require appointment by the Board. In conducting its review, the Committee shall consider the following factors:

a) Duties and responsibilities of the position/s under consideration;

b) For the nominees:

(i) level of knowledge on the Corporation’s business;

(ii) potential to assume greater responsibility in the organization;

(iii) ability, integrity and expertise; and

(iv) results of previous performance assessments.

The Committee’s review of the management succession plan shall also take into account relevant human resource policies of the Corporation and its vision, mission and overall corporate strategy. (Charter of the Nomination Committee, Section 4)

The Board approves the succession plans for the CEO/Managing Director/President and the top key management positions based on the recommendations of the Committee and other factors that the Board may deem proper and relevant. (Charter of the Board of Directors, Section 6.1 (t), and Annex B)

 

4) Other Executive, Non-Executive and Independent Directors

Does the company have a policy of ensuring diversity of experience and background of directors in the board? Please explain.

Policy of ensuring diversity of experience and background of directors in the board

The Board shall be composed of members who possess the necessary knowledge, skills and experience required to properly perform the duties of the Board.

The Board shall encourage the selection of a mix of competent directors, each of whom can add value and independent judgment in the formulation of sound corporate strategies and policies. Careful attention must be given to ensure that there is independence and diversity, and appropriate representation of women in the Board to the greatest extent possible. (Charter of the Board of Directors, Section 2.2)

Does it ensure that at least one non-executive director has an experience in the sector or industry the company belongs to? Please explain.

Yes. Mr. Keiichi Matsunaga, an Non-Executive Director of the Corporation, is the General Manager of Mitsubishi Corporation-Manila Branch. Mitsubishi Corporation is also a holding company. Mr. del Rosario, an Independent Director of the Corporation, has been the President and CEO of Phinma, Corporation, a holding company, for at least ten years.

Define and clarify the roles, accountabilities and deliverables of the Executive, Non-Executive and Independent Directors:

 

Company’s definition of "independence" and describe the company’s compliance to the definition.

The Corporation adheres to both Philippine law and the rules of the Securities and Exchange Commission and of the Philippine Stock Exchange. (the “Philippine Requirements”) and the standards set by the Association of Southeast Asian Nations (ASEAN) for the strengthening of the ASEAN capital market development and integration for the establishment of an ASEAN Economic Community (the “ASEAN Standards”) in the determination of independent directors. In line with this, the Corporation has adopted the following definition of independent directors:

Independent directors under the Philippine Requirements shall, apart from their fees and shareholdings, hold no interests or relationships with the Corporation that may hinder their independence from the Corporation, Management or shareholders which could or could reasonably be perceived to, materially interfere with the exercise of independent judgment in carrying out the responsibilities of a director. For this purpose, each independent director submits to the Corporate Secretary a letter of confirmation stating that he holds no interest affiliated with the Corporation, the Management or controlling stockholder at the time of his election or re-election.

On the other hand, independent directors under the ASEAN standards shall also possess the qualifications and none of the disqualifications for independent directors under the Philippine Requirements provided and except that, when relevant in the application of the qualifications and disqualifications, a “substantial stockholder” shall mean a stockholder who possesses the power to direct or govern, directly or indirectly, the financial and operating policies of the Corporation so as to obtain benefits from its activities. (Charter of the Board of Directors, Section 2.4 and Annex A)

Term limit for independent directors

The independent directors of the Corporation, considered as such in accordance with SEC Memorandum Circular No. 16, series of 2002, can serve for five (5) consecutive years, provided that service for the period of at least six (6) months shall be equivalent to one (1) year, regardless of the manner by which the independent director position was relinquished or terminated. After completion of the five-year service period, an independent director shall be ineligible for election as such in the Corporation unless the independent director has undergone a “cooling off” period of two (2) years, provided, that during such period, the independent director concerned has not engaged in any activity that under existing rules of the SEC disqualifies a person from being elected as independent director of the Corporation. An independent director re-elected as such in the Corporation after the “cooling off” period can serve for another four (4) consecutive years under the conditions mentioned above. After serving as independent director for nine (9) years, the independent director shall be perpetually barred from being elected as such in the Corporation, without prejudice to being elected as independent director in other companies outside of the business conglomerate, where applicable, under the same conditions provided for in the rules and regulations of the Securities and Exchange Commission. (Charter of the Board of Directors, Sections 4.6 - 4.8)

 

5) Changes in the Board of Directors (Executive, Non-Executive and Independent Directors)

(a) Resignation/Death/Removal

Indicate any changes in the composition of the Board of Directors that happened during the period:

None

(b) Selection/Appointment, Re-election, Disqualification, Removal, Reinstatement and Suspension

Directors shall hold office for a term of one (1) year, more or less, immediately upon their election and until their successors shall have been elected and qualified in accordance with the Company By-Laws and applicable rules.

In case any vacancy or vacancies should occur on the Board of Directors other than removal or expiration of term, due to death, resignation or other causes, the remaining Directors, if still consisting a quorum, may fill said vacancies by election from among the stockholders and the stockholders so elected shall act as members of said Board until the new Board of Directors is elected.

 

Voting Result of the last Annual General Meeting

*Percentage out of the total outstanding shares

6) Orientation and Education Program

(a) Disclose details of the company’s orientation program for new directors, if any.

The Corporate Secretary briefs each new director of the By-laws and Manual of Corporate Governance, the schedule of regular meetings of the Board and Board committees, their rights, including access to information and advice, and the procedure and processes for the provision of information to them.

The Office of Corporate Strategy and the Chief Finance Officer give each new director a briefing of existing and planned investments, current strategic directions, budgets and internal controls and processes.

Prior to assuming office, each director is required to attend a seminar on corporate governance conducted by a duly recognized private or government institution.

In-house training and external courses attended by Directors and Senior Management3 for the past three (3) years:

• Ayala-LEAP (Ayala Leadership Acceleration Program)
• EAGLE (Emerging Ayala Group Leaders Program)
• The Leadership Circle (integrated within Ayala-LEAP and EAGLE)
• LEAP Alumni Learning Series (presentations by visiting professors and practitioners in the fields of customer centricity, strategy, leadership, etc.)  
• Executive Coaching
• Ayala Group Corporate Governance Summit
• Corporate Governance and Risk Management for Banks
• Ayala Group Corporate Governance Summit held on 18 February 2015
• Corporate Governance Seminar by SGV on December 8, 2015
• Ayala Corporation Corporate Governance and Risk Management Summit held on 8 March 2016
• CFA Phils Financial Modeling & Valuation, March 14-15, 2016
• Corporate Governance Seminar by SGV on April 11, 2016
• ECOP BOSH Certificate, May & August 2016
• Strategic Risk Forum, May 17, 2016, Singapore
• Project Management Institute – Project Management Fundamentals, June 20-24, 2016
• Certified Knowledge Manager, June 20 – 24, 2016, Virginia USA
• BSI Audit Training, June 20-24,2016, Singapore
• CINO Summit, June 28-July 1, 2016
• IIA International Conference, July 17-20, 2016, NYC, USA
• CIO Summit, July 24-27, 2016, Bhutan
• ECC International HR Metrics & Analytics, August 2-3, 2016
• SEC Corporate Governance Forum on August 3, 2016
• Harvard Comparative Tax Policy on August 15-26, 2016 at Boston MA, USA
• Tourism Security Conference, August 24-25, 2016, Singapore
• ECC International Crisis Communication Planner, September 1-2, 2016
• Customer Experience Management Summit, September 6-7, 2016, Singapore
• Distinguished Corporate Governance Speaker Series on October 7, 2016 by the ICD
• Corporate Governance Seminar by SGV on December 9, 2016
• Strategic Negotiations Program on January 9 to 13, 2017
• Corporate Governance Seminar by SGV on February 27, 2017
• Financial Modeling and Valuation on March 13 to 14, 2017
• Distinguished Corporate Governance Speaker Series on May 10, 2017 by the ICD
• Risk Financing & Transfer Solutions on May 18, 2017 by Asia Risk Management Institute
• Employee Benefits Asia on May 18-19, 2017, Singapore
• Rapid Earthquake Damage Assessment System Training on June 5-10, 2017
• Integrated Learning on Innovation on  June 21-22, 2017 by IXL Center
• HPE Philippines Executive Summit on July 5-7, 2017
• Understanding Corporate University on July 7, 2017
• Risk Based Auditing: A Value Add Proposition on July 21-22, 2017
• IIA International Conference on July 23-26, 2017, Australia
• Flexible Work Arrangements in PH on July 26, 2017 by PMAP
• Corporate Governance Seminar by SGV on July 26, 2017
• Level-Up Leadership on July 27-28, 2017 by Francis Kong
• BCM5000 ISO 22301 BCMS Expert Implementer on July 31 – August 4, 2017, Singapore
• Ayala Corporate Governance and Risk Management Summit on August 11, 2017
• The Accidental Project Manager on August 11-12, 18-19, 2017
• Moody's Analytics Intro to Derivatives on August 16-17, 2017
• Strategic Leadership Communication on August 30 – September 1, 2017
• Aon Risk Symposium on September 4-6, 2017
• Data Privacy Learning Session on September 5, 2017
• Cultivating a Thriving Workforce in an Era of Disruption on September 21-22, 2017
• UN Global Compact Leaders Summit on September 23-24, 2017, USA
• Microsoft Envision: Digital Transformation on September 25-27, 2017
• Corporate Governance Conference on September 26, 2017
• Leadership for Social and Economic Renewal on September 29-30, 2017 by the Center of Asia Leadership
• People Management Association of the Philippines Conference on October 11-12, 2017
• Innovations in Library Tech, Communications Resources and Services on October 11-13, 2017
• Advance Cash Flow Management and Working Capital Optimization on October 16-17, 207
• Moody's Advanced Financial Statement Analysis on October 16-18, 2017, Hong Kong
• Adversity Quotient/GRIT Workshop on October 20, 2017
• Formulating and Manualizing Policies and Procedures on October 23, 2017
• Certificate in the Foundations of Organization Development on October 23-27, 2017
• Risk LEADERS Masterclass on October 30 – November 1, 2017
• Simplified Strategic Planning on November 2-3, 2017
• Ayala HR Summit on November 7, 2017
• Transformation in an Era of Disruption on November 9, 2017
• Pan-Asia Risk and Insurance Management Association on November 14-15, 2017
• Knowledge Management Asia Conference on November 15-16, Hong Kong
• Advanced Certificate for Executive Personal Assistants on November 20-24, 2017, Singapore
• Ayala Innovation Conference on November 22, 2017
• SEC 2017 Annual Disclosure Seminar on November 27, 2017
• Corporate Governance Seminar by SGV on December 6, 2017
• Conference on Intellectual Capital and Knowledge Management on December 7-8, 2017, Hong Kong
• Treasury Operations Certificate Program on December 7-9, 14-16, 2017
• Distinguished Corporate Governance Speaker Series on February 13, 2018 by the ICD

(c) Continuing education programs for directors: programs and seminars and roundtables attended during the year.

The directors of the Corporation, in their own capacity or as sponsored by the Corporation, attend education programs, seminars, and roundtable discussions on corporate governance with service providers that are duly accredited by the SEC.

 

 

 

 

 

 

 

 

 

   CODE OF CONDUCT AND ETHICS

  Company’s policies on the following business conduct or ethics affecting directors, senior management and employees:

 

 

            Dissemination of the Code of Conduct and Ethics to all directors, senior management and employees 

All employees have copies of the Code of Conduct and Ethics. Part of the on-boarding program of all newly hired employees is the orientation on the Code of Conduct and Ethics to keep them informed in the same manner that the existing employees, as well as the directors, chairman, and senior management, are aware and informed. They are provided with the Code of Conduct and Ethics handbook.

           Implementation and monitoring of compliance with the Code of Conduct and Ethics

The Strategic Human Resources has the specific task of implementing and monitoring compliance with the provisions of the Code. It is responsible for:

• ensuring that the contents of the Code are communicated to all existing and new directors, officers and employees, and requiring each to sign an acknowledgment receipt that he/she has read and understood the same and agrees to abide with the standards and norms set forth therein;
• making the Code available on the company intranet for ease of access;
• requiring all directors, officers and employees to declare annually that they have complied with the Code, specifically on the provisions of conflict of interest and insider trading;
• investigating reported violations of the Code and impose sanctions for violations determined after investigation;
• reviewing and continuously updating the Code; and
• drafting and promulgating the Implementing Rules for the effective implementation of the Code, subject to the approval of the President and CEO.

Management is also responsible for enforcing and monitoring compliance with the Code within their respective area of jurisdiction and taking or implementing disciplinary action after proper investigation.

All directors, officers and employees have the duty to report non-compliance with the Code and its Implementing Rules that may come to their knowledge and attention, in accordance with the relevant company rules and procedures.

Any violation shall be dealt with in accordance with the procedures provided in the Implementing Rules, the Corporation’s Human Resources Manual of Policies and Procedures, the Employee Handbook and other existing company policies and proper observance of the requirements of due process. This shall be without prejudice to the filing of any legal action against the party concerned under existing laws.

           

           Related Party Transactions

           Policies and Procedures

The Company’s Related Party Transactions (RPT) policy was revised, approved and was in effect in December 2014. It was further improved and strengthen on June 24, 2016.

It is the policy of Ayala Corporation that related party transactions between the Corporation and related parties shall be subject to review and approval to ensure that they are at arm’s length, the terms are fair, and they will inure to the best interest of the Corporation and its shareholders.

Related party transactions shall be disclosed, reviewed and approved in accordance with the policy consistent with the principles of transparency and fairness.

The policy also defines related party as a person or entity that is related to the entity that is preparing its financial statements, also referred to as the reporting entity.

• A person or a close member of that person’s family is related to a reporting entity if that person has control or joint control over the reporting entity; has significant influence over the reporting entity; or is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.
• An entity is related to a reporting entity if any of the following conditions applies:
  • The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others)
  • One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member)
  • Both entities are joint ventures of the same third party.
  • One entity is a joint venture of a third entity and the other entity is an associate of the third party
  • The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity.
  • The entity is controlled or jointly controlled by a person of the reporting entity
  • A person of the reporting entity has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
  • The entity, or any member of a group of which it is a part, provides key management personnel service to the reporting entity or to the parent of the reporting entity.

Material/significant related party transactions shall be reviewed by the Risk Management and Related Party Transactions Committee, endorsed to the Board of Directors for approval and presented to the stockholders for ratification, the threshold of which is set to whichever is lower of PhP50,000,000.000 or 5% of total assets of either party.

The Board shall approve a material/significant RPT before its commencement. If not identified beforehand, the material/significant RPT must be subsequently reviewed by the Committee and ratified by the Board or the same may be discontinued, rescinded or modified to make it acceptable for ratification.

The Committee considers the following factors in the review of the RPTs:

• The terms of the transaction;
• The aggregate value of the transaction;
• Whether the terms of the transaction are no less favorable than those generally available to nonrelated parties under the same or similar circumstances;
• The extent of Related Party’s interest in the transaction;
• Purpose and timing of the transaction;
• Whether the transaction would present an improper conflict of interest or special risks or contingencies for the Corporation, or the related party taking into account the size of the transaction and the overall financial position of the Related Party; and
• Any material information or other factors the Committee deems relevant.

The Group Risk Management Unit monitors RPTs for approval of the Risk Management and Related Party Transactions Committee while the Controllership Unit ensures that RPTs are properly disclosed in the Corporation’s financial statements, and other applicable fillings in accordance with the relevant rules and issuances of the Securities and Exchange Commission and other regulatory bodies.

Conflict of Interest

Directors/Officers and 5% or more Shareholders

Mechanism laid down to detect, determine and resolve any possible conflict of interest between the company and/or its group and their directors, officers and significant shareholders.

 

  Family, Commercial and Contractual Relations

Shareholders’ agreements that may impact on the control, ownership and strategic direction of the company:

(c) Indicate any shareholder agreements that may impact on the control, ownership and strategic direction of the company:

 

Alternative Dispute Resolution adopted by the company for the last three (3) years in amicably settling conflicts or differences between the corporation and its stockholders, and the corporation and third parties, including regulatory authorities:

 

 

 

 

 

 

1) Are Board of Directors’ meetings scheduled before or at the beginning of the year?

Yes. At the beginning of the year, the Office of the Corporate Secretary sends to the directors, though email, the schedule of board meetings for the year as follows:

January 19, 2017

March 10, 2017

April 21, 2017 (Organizational Board Meeting)

The members of the Board of Directors, upon their election on the April 21, 2017 Annual Stockholders’ Meeting, set the dates of the Board meetings for the ensuing year 2017 to 2018, as follows:

June 22, 2017

September 13, 2017

December 1, 2017

January 19, 2018

March 9, 2018
 

2) Attendance of Directors

*Meetings in 2016 and during the incumbency of the director.
**Replaced by Mr. Keiichi Matsunaga on April 21, 2017.

3) Do non-executive directors have a separate meeting during the year without the presence of any executive? If yes, how many times?

Yes. The Non-Executive and Independent Directors of the Company held a meeting without the presence of any Executive on April 21, 2017.

 

4) Is the minimum quorum requirement for Board decisions set at two-thirds of board members? Please explain.

Yes. Two-thirds (2/3) of the number of directors as fixed in the articles of incorporation constitute a quorum for the transaction of corporate business.

 

5) Access to Information

a.) How many days in advance are board papers5 for board of directors meetings provided to the board?

The board materials for the board of directors’ meetings are being distributed to the directors at least five business days before the meeting.

b.) Do board members have independent access to Management and the Corporate Secretary?

Yes, board members are free to contact the General Counsel and Corporate Secretary, and any of the management team to discuss issues or matters that need clarification in the discharge of their duties as members of the Corporation’s board of directors

(c) State the policy of the role of the company secretary. Does such role include assisting the Chairman in preparing the board agenda, facilitating training of directors, keeping directors updated regarding any relevant statutory and regulatory changes, etc?

The Corporate Secretary of the Corporation has the following functions:

(a) Serve as an adviser to the directors on their responsibilities and obligations;

(b) Keep the minutes of meetings of the stockholders, the Board of Directors, the Executive Committee, and all other committees in a book or books kept for that purpose, and shall furnish copies thereof to the Chairman, the President and other members of the Board as appropriate;

(c) Keep in safe custody the seal of the Corporation and affix it to any instrument requiring the same;

(d) Have charge of the stock certificate book and such other books and papers as the Board may direct;

(e) Attend to the giving and serving of notices of Board and shareholder meetings;

(f) Be fully informed and be part of the scheduling process of other activities of the Board;

(g) Prepare an annual schedule of board meetings and the regular agendas of meetings, and put the Board on notice of such agenda at every meeting;

(h) Oversee the adequate flow of information to the Board prior to meetings;

(i) Ensure fulfillment of disclosure requirements of the Securities and Exchange Commission and the Philippine Stock Exchange.

Yes, the role of the Corporate Secretary includes assisting the Chairman in preparing the board agenda, facilitating training of directors, keeping directors updated regarding any relevant statutory and regulatory changes, etc.

(d) Is the company secretary trained in legal, accountancy or company secretarial practices? Please explain should
the answer be in the negative.

Yes. The Corporate Secretary possesses organizational and interpersonal skills, and the legal skills of a chief
legal officer. He also has financial and accounting knowledge.

(e) Committee Procedures

Disclose whether there is a procedure that Directors can avail of to enable them to get information necessary
to be able to prepare in advance for the meetings of different committees:
 

                                                              Yes [ X ]                                                                 No [   ]

6) External Advice

Indicate whether or not a procedure exists whereby directors can receive external advice and, if so, provide details:

The General Counsel and Corporate Secretary of the Company attends to the directors’ concerns. When necessary, the General Counsel and Corporate Secretary may recommend to the directors to seek for an advice from third parties.

7) Change/s in existing policies

Indicate, if applicable, any change/s introduced by the Board of Directors (during its most recent term) on existing policies that may have an effect on the business of the company and the reason/s for the change:

 

1) Remuneration Process

Disclose the process used for determining the remuneration of the CEO and the four (4) most highly compensated management officers:

2) Remuneration Policy and Structure for Executive and Non-Executive Directors

Disclose the company’s policy on remuneration and the structure of its compensation package. Explain how the compensation of Executive and Non-Executive Directors is calculated.

Do stockholders have the opportunity to approve the decision on total remuneration (fees, allowances, benefits-inkind and other emoluments) of board of directors? Provide details for the last three (3) years.

Yes. At its Annual Stockholders’ Meeting on April 18, 2011, the stockholders of the Corporation approved the increase in the compensation of the non-executive directors of the Company. On the same meeting, the stockholders granted the sole authority to determine the amount, form and structure of the fees and other compensation of the directors to the Board of Directors.

In the exercise of the delegated power and authority, the Board of Directors, at its meeting on April 21, 2017, approved the new directors’ fees, as follows:

                                             *deemed approved by the stockholders

The rationale for such increase in compensation is to recognize the invaluable services rendered by the directors of the Corporation in successfully governing the business of the Corporation.

3) Aggregate Remuneration

Complete the following table on the aggregate remuneration accrued during the most recent year:

 

4) Stock Rights, Options and Warrants

(a) Board of Directors

Complete the following table, on the members of the company’s Board of Directors who own or are entitled to stock rights, options or warrants over the company’s shares:

*Grants given during his employment in the Company.

No rights and warrants were given to directors with their position as director of the company. Non-executive and Independent Directors do not receive any compensation as director other than the retainer fee and per diem as set forth above.

(b) Amendments of Incentive Programs

Indicate any amendments and discontinuation of any incentive programs introduced, including the criteria used in the creation of the program. Disclose whether these are subject to approval during the Annual Stockholders’ Meeting:

5) Remuneration of Management

Identify the five (5) members of management who are not at the same time executive directors and indicate the total remuneration received during the financial year:

 

1) Number of Members, Functions and Responsibilities

Provide details on the number of members of each committee, its functions, key responsibilities and the power/authority delegated to it by the Board:

* Officers of the company who are not members of the company’s Board of Directors.

2) Committee Members

(a) Executive Committee

*The was no actual meeting held in 2016. The actions of the Executive Committee were taken by written consent (electronic or digital format) by majority of the members of the Committee.

**Replaced by Keiichi Matsunaga on April 21, 1017.

(b) Audit Committee

* In 2016

** The Audit Committee also had a joint meeting with the Risk and Related Party Transactions Committee on March 3, 2016. It also passed a resolution on the appointment of the audit engagement partner starting calendar year 2016 on March 30, 2016.

***Replaced by Keiichi Matsunaga on April 21, 2017.

Disclose the profile or qualifications of the Audit Committee members.

Xavier P. Loinaz, Filipino, 73, Independent Director of Ayala Corporation since April 2009. He is also an Independent Director of Bank of the Philippine Islands, a publicly listed company. He also holds the following positions: Independent Director of BPI Family Savings Bank, Inc., and BPI/MS Insurance Corporation; Trustee of E. Zobel Foundation; and Chairman of Alay Kapwa Kilusan Pangkalusugan and XPL Manitou Properties, Inc.; and Vice Chairman of XPL MTJL Properties, Inc. He was formerly the President of the Bank of the Philippine Islands (BPI) from 1982 to 2004. He was also the President of Bankers Association of the Philippines from 1989 to 1991. He graduated with an AB Economics degree at Ateneo de Manila University in 1963 and took his MBAFinance at Wharton School, University of Pennsylvania in 1965.

Keiichi Matsunaga, Japanese, 53, Independent Director of Ayala Corporation starting April 2017 is the General Manager of Mitsubishi Corporation Manila Branch. Currently, he is also a member of the Board of Directors at MC Diamond Realty Investment Phils., MC Oranbo Investment, MC Cavite Holdings, Inc., FMT Kalayaan, Inc., Isuzu Philippines Corporation, Imasen Philippines Manufacturing, Kepco Ilijan Corporation and Robinsons Convenience Stores Inc. (MiniStop). He is not a director of any publicly listed company in the Philippines other than Ayala Corporation. He entered Mitsubishi Corporation after graduating from the Faculty of Law at Waseda University in 1988 and has since held various leadership positions. .

Ramon R. del Rosario, Jr., Filipino, 72, Independent Director of Ayala Corporation since April 2010. He holds the following positions in publicly listed companies: President and Chief Executive Officer of Phinma Corporation; Chairman of Trans-Asia Petroleum Corporation; and Vice Chairman of PHINMA Energy Corp (formerly TransAsia Oil and Energy Development Corporation). He is the President and Chief Executive Officer of Philippine Investment Management, Inc.; Chairman of Araullo University, University of Iloilo, University of Pangasinan, Cagayan de Oro College, Southwestern University, United Pulp and Paper Co., Inc., Microtel Inns and Suites (Pilipinas), Inc., Microtel Development Corp., Trans-Asia Power Generation Corporation, Trans-Asia Renewable Energy Corp., CIP II Power Corp.,One Subic Power Generation Corp., Fuld & Co., Inc., Fuld & Co (Philippines), Inc. and Paramount Building Management & Services Corp.; Vice-Chairman of Phinma Foundation and Phinma Property Holdings Corp., director of Union Galvasteel Corp. and other PHINMA-managed companies; Chairman of The National Museum of the Philippines, the Makati Business Club, Philippine Business for Education, the Philippines-US Business Council, and the Integrity Initiative; Vice-Chairman of Caritas Manila and Ramon Magsaysay Award Foundation; and Trustee of De La Salle University. Mr. del Rosario graduated from De La Salle College in 1967 with a degree in BSC-Accounting and AB Social Sciences Magna cum Laude and from 38 Harvard Business School in 1969 for his Master in Business Administration. He has managed Phinma since 2002 and brings with him a wealth of experience in leading a diversified conglomerate.

Describe the Audit Committee’s responsibility relative to the external auditor.

1. Review the performance and recommend the appointment, retention or discharge of the Independent Auditors, including the fixing of their remuneration to the Board of Directors. In case of resignation or cessation from service of an independent auditor, ensure that there is a process for reporting in the annual and current reports the reason for cessation from service, and the date thereof, of an independent auditor. A preliminary copy of the said report shall be given by the corporation to the independent auditor before its submission.
2. Ensure the rotation of the lead engagement partner at least once every five (5) years and consider whether there should be a regular rotation of the audit firm itself.
3. Review and pre-approve the Independent Auditor's plans and ascertain the basis for their risk assessment and financial statement materiality, including the scope and frequency of the audit. In this regard, the Committee shall discuss with the Independent Auditors, before the audit commences, the nature and scope of the audit, and ensure cooperation when more than one professional service firm is needed.
4. Monitor the coordination of efforts between the external and internal auditors. The Committee shall ensure that the internal and external auditors act independently from each other.
5. Review of the reports of the Independent Auditors, where applicable, and ensure that management is taking appropriate corrective actions in a timely manner, including addressing control, governance, and compliance issues.
6. Conduct a separate meeting in executive session, with the external auditors to discuss any matter that the committee or auditors believe should be discussed privately, including the results of the audit, year-end financial statements, the quality of management, financial and accounting controls.
7. Review and approve the proportion of audit versus non-audit work both in relation to their significance to the auditor and in relation to the Corporation's year-end financial statements, and total expenditure on consultancy, to ensure that non-audit work will not be in conflict with the audit functions of the independent auditor. The amount of both audit and non-audit work of independent auditors shall be disclosed in the annual report.
8. Ensure that the independent auditor has unrestricted access to all records, properties and personnel to enable performance of the required audit.
9. Review with the independent auditor any problems or difficulties, including any restrictions on the scope of the independent auditor's activities or on access to requested information and any significant disagreements with management. The review may also include discussion of any proposed accounting adjustments that were "passed' or not recorded.
10. Review of the independent auditor's evaluation of internal accounting controls. Independent auditors shall provide feedback to the Audit Committee on their observations of internal control weaknesses arising from statutory financial audits. Independent auditors should highlight findings which are disputed by Management or where Management has not agreed to implement remedial actions that would rectify the identified weaknesses.

(c) Nomination Committee

*In 2016

**Until April 2016.

***Elected on April 15, 2016.

(d) Personnel and Compensation Committee

* In 2016

**Replaced by Keiichi Matsunaga on April 21, 2017.

(e) Others Provide the same information on all other committees constituted by the Board of Directors:

Finance Committee

* Actual meetings in 2016 and during incumbency of the directors.

Note: Nine out of the 17 meetings of the Committee were via electronic/digital means. In 2016, the committee passed 11 resolutions and the corresponding per diem were paid to the non-executive and independent directors.

Committee of Inspectors of Proxies and Ballots

* In 2016

Risk Management and Related Party Transactions Committee

* In 2016

**Replaced by Keiichi Matsunaga on April 21, 1017.

3) Changes in Committee Members

Indicate any changes in committee membership that occurred during the year and the reason for the changes:

4) Work Done and Issues Addressed

Describe the work done by each committee and the significant issues addressed during the year.

5) Committee Program

Provide a list of programs that each committee plans to undertake to address relevant issues in the improvement or enforcement of effective governance for the coming year.

 

1) Disclose the following:

(a) Overall risk management philosophy of the company

Risk Management: An Act of Balancing Risk and Reward

Risk Management at Ayala is all about balancing risk and reward, science and art, process and people. We aim to ensure that our risk management system has the right architecture, strategy, and process. We revisit these three key factors yearly to ensure that we not only minimize downside risks but also seize performance optimization.

Institutionalized in 2002, the Company has adopted an integrated enterprise risk management (ERM) framework that is continuously being enhanced and improved as conventional risk management may not be enough to achieve the Corporation's objectives.

Under the supervision of the Chief Risk Officer (CRO), the Group Risk Management & Sustainability Unit patterns Ayala’s risk governance after the concept of a risk intelligent enterprise – an organization where risk governance is at the apex of the system, serving as the unifying factor for all of the organization’s risk management efforts and integrating nine fundamental principles related to the responsibilities of the Board, senior management and business unit leaders.

• Similar to a risk intelligent enterprise, the risk management at Ayala starts from the top. The Board of Directors of Ayala is provided appropriate transparency and visibility into the organization’s and the group’s risk management practices.
• Through the Risk Management and Related Party Transactions Committee, the Board of Directors ensures that an effective risk management process is in place and that its risk appetite remains relevant to achieve its set goals.
• The CRO, being the advocate for the company and the group, is charged with the primary responsibility for designing, implementing and maintaining an effective risk program. The Group Risk Management 48 & Sustainability Unit supports the CRO by designing activities that enhance the risk intelligent culture within the organization and within the group, formulating risk management strategies, developing tools and techniques for risk assessment, and monitoring and reporting on key and emerging risks. It also convenes the ERM Council, a group comprising the risk officers of all business units across the Ayala Group, for risk framework alignment, continuous risk process improvement, and other groupwide projects. On a semi-annual basis, the ERM Council provides the top risks of their respective organization to the Group Risk Management & Sustainability Unit for the information of the CRO, as well as for reporting to the Risk Management and Related Party Transactions Committee.
• The management committees also provide support to the CRO by ensuring the existence of a structure at the operating level that will communicate and monitor key and emerging risks. They also ensure that risks are discussed during project and investment meetings.

As risk owners, the business unit leaders are responsible for managing the risks they face in the day-to-day operations within the established risk framework. They have the responsibility to identify, measure, monitor, control and report on risks to the management. Finally, the Internal Audit Unit provides an independent assurance on the adequacy, effectiveness, and efficiency of the risk management process.

(b) A statement that the directors have reviewed the effectiveness of the risk management system and commenting on the adequacy thereof

As set forth in its Charter approved by the Board of Directors, the Risk Management and Related Party Transactions Committee has reviewed and assessed the adequacy and the effectiveness of the Corporation's enterprise risk management process.

• The Committee had reviewed related party transactions policy and the business continuity management policy.
• Thru the Chief Risk Officer, as supported by the Group Risk Management Unit, the Committee had ascertained that an effective risk management process was in place. The results of the bow-tie analysis in the previous year were revisited and updated. Moreover, with the objective of embedding a risk-aware culture, the risk universe was mapped to the five vision pillars of the Corporation to better assess how its risk exposures may impact the achievement of business objectives. Risk management has also been institutionalized as a KRA of all employees, emphasizing that everyone has a role in the risk management process.
• The Committee had also noted the Management’ support as the Managing Directors made themselves available to discuss their risk strategies and to respond to queries raised by the Committee.

(c) Period covered by the review;

For the year ended December 31, 2016

(d) How often the risk management system is reviewed and the directors’ criteria for assessing its effectiveness

In addition to the regular reports of the CRO thru the Group Risk Management Unit, the Corporation engaged AON Risk Solutions to execute a group-wide risk management maturity index in 2015. The Aon Risk Maturity Index (RMI) is designed to capture and assess an organization’s risk management practices, and provide participants with immediate feedback in the form of a Risk Maturity Rating and actionable steps for improvement. AON has partnered with the Wharton School of the University of Pennsylvania to develop the Index and conduct joint research on the relationships between risk management practices and actual performance. The AON Risk Maturity Index contains questions on risk management processes, corporate governance and risk understanding. The questions are based upon the ten characteristics of advanced risk management maturity:

• Board level understanding of and commitment to risk management as a critical factor fir decision making and for driving value;
• A senior level executive who drives and facilitates key risk management processes and development;
• Transparency of risk communication;
• A risk culture that encourages full engagement and accountability at all levels of the organization;
• Identification of existing and emerging risks using internal and external data and information
• Participation of key stakeholders in risk management strategy development and policy setting
• Formal collection and incorporation of operational and financial risk information into decision making and governance processes;
• Integration of risk management insights into human capital processes to drive sustainable business performance;
• Use of sophisticated quantification methods to understand risk and demonstrate added value through risk management;
• A move from focusing on risk avoidance and mitigation to leveraging risk and risk management options that extract;

Because of this study, the ERM roadmap was revised to address the potential areas for improvement. Hence, in 2016, two major studies, i.e. risk tolerance and insurance optimization studies, were carried out to address gaps in risk transfer strategy and advance the maturity level.

The next RMI will be carried out in 2018.

(e) Where no review was conducted during the year, an explanation why not.

According to best practice, the assessment of the maturity of the risk management process is done every two to three years.

2) Risk Policy

(a) Company

Give a general description of the company’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

(b) Group

Give a general description of the Group’s risk management policy, setting out and assessing the risk/s covered by the system (ranked according to priority), along with the objective behind the policy for each kind of risk:

Since the Corporation is one of the most diversified conglomerates in the country with leadership positions inreal estate, financial services, telecommunications, and a broad range of investments in water, electronics manufacturing, automotive, business process outsourcing, education, healthcare, power generation and transport infrastructure, the following are the common risks across the Group:

 

(c) Minority Shareholders

Indicate the principal risk of the exercise of controlling shareholders’ voting power.

 

3) Control System Set Up

(a) Company

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the company:

 

(b) Group

Briefly describe the control systems set up to assess, manage and control the main issue/s faced by the company:

(c) Committee

Identify the committee or any other body of corporate governance in charge of laying down and supervising these control mechanisms, and give details of its functions:

 

1) Internal Control System

Disclose the following information pertaining to the internal control system of the company:

(a) Explain how the internal control system is defined for the company;

Internal Control System is the framework under which internal controls are developed and implemented (alone or in concert with other policies or procedures) to manage and control a particular risk or business activity, or combination of risks or business activities, to which the corporation is exposed. To be effective, the internal control system needs to adapt to changing business and operating environments, mitigate risks to acceptable levels, and support sound decision-making and governance of the organization. Internal control effected by the company’s board of directors, management, and all employees, is designed to provide reasonable assurance regarding the achievement of the company’s objectives.

Everyone in the organization has responsibility for internal control. Management owns the internal control system and is responsible for establishing sound internal control policies and procedures. Management is accountable to the Board of Directors who provides governance, guidance, and oversight. Internal auditors play an important role in evaluating the effectiveness of control systems, and contribute to ongoing effectiveness by providing recommendations.

(b) A statement that the directors have reviewed the effectiveness of the internal control system and whether they consider them effective and adequate;

The Board of Directors, through the Audit Committee and the Risk Management and Related Party Transactions Committee, has reviewed the internal control system of the Company based on the assessments completed and reported by the internal and external auditors. The Board found the internal control system to be effective.

The statement of the directors on the effectiveness of the company’s internal control system is embodied in the Report of the Audit Committee to the Board of Directors which is will be part of the company’s 2016 Annual Report which will be distributed during the 2017 Annual Stockholders’ Meeting of the Company.

(c) Period covered by the review;

For the year ended December 31, 2016.

(d) How often internal controls are reviewed and the directors’ criteria for assessing the effectiveness of the internal control system; and

Management reviews the adequacy and effectiveness of internal controls continuously throughout the year as part of its day-to-day function. Internal Audit assists management to attain company goals through independent risk-based planned reviews and evaluation of the effectiveness of controls.

The directors’ criteria for assessing the effectiveness of the internal control system include:

1. Control Environment-the tone of the top and ethical behavior culture in the company
2. Risk Assessment-the identification and analysis of relevant risks to the achievement of objectives, forming a basis for how the risks should be managed and provide reasonable assurance that risks are reduced to an acceptable level.
3. Information and Communication-systems or processes that support the identification, capture, and exchange of accurate and complete information.
4. Control Activities- policies and procedures, international standards and industry best practices to ensure compliance with laws, regulations, supervisory requirements, and relevant internal policies.
5. Monitoring-processes used to regularly assess the continuing quality of internal control and risk management activities.

(e) Where no review was conducted during the year, an explanation why not.

Not applicable. Review was conducted during the year.

2) Internal Audit

(a) Role, Scope and Internal Audit Function

Give a general description of the role, scope of internal audit work and other details of the internal audit function.

The Internal Audit Group governs its work in adherence to The Institute of Internal Auditors’ “Code of Ethics” and the Company’s Code of Conduct. The Internal Audit also conducts its activities in conformance with the International Standards for the Professional Practice of Internal Auditing (ISPPIA) of The Institute of Internal Auditors and guided by the COSO framework on internal control.

 

 

(b) Do the appointment and/or removal of the Internal Auditor or the accounting /auditing firm or corporation to which the internal audit function is outsourced require the approval of the audit committee?

As provided in the Audit Committee Charter and the Internal Audit Charter, the Audit Committee is responsible for the setting up of the Internal Audit Department, including the qualification criteria and appointment of the Chief Audit Executive. The Committee evaluates the performance of the Chief Audit Executive and the Internal Auditors taken as a whole. Moreover, the Committee having appointed the Chief Audit Executive, also approves his/her replacement, re-assignment, or dismissal. The Committee also reviews and approves any outsourcing of the internal audit function.

(c) Discuss the internal auditor’s reporting relationship with the audit committee. Does the internal auditor have direct and unfettered access to the board of directors and the audit committee and to all records, properties and personnel?

The Chief Audit Executive reports directly to the Board of Directors through the Audit Committee and has direct access to all members of the Audit Committee. The internal audit function as empowered by the Audit Committee Charter and the Internal Audit Charter has free access to all records, properties and personnel.

(d) Resignation, Re-assignment and Reasons

      Disclose any resignation/s or re-assignment of the internal audit staff (including those employed by the thirdparty auditing firm) and the reason/s for them.

 

(e) Progress against Plans, Issues, Findings and Examination Trends

      State the internal audit’s progress against plans, significant issues, significant findings and examination trends.

 

[The relationship among progress, plans, issues and findings should be viewed as an internal control review cycle which involves the following step-by-step activities:

1. Preparation of an audit plan inclusive of a timeline and milestones;
2. Conduct of examination based on the plan;
3. Evaluation of the progress in the implementation of the plan;
4. Documentation of issues and findings as a result of the examination;
5. Determination of the pervasive issues and findings (“examination trends”) based on single

______________________

⁶ “Issues” are compliance matters that arise from adopting different interpretations.

⁷ “Findings” are those with concrete basis under the company’s policies and rules.

                                year result and/or year-to-year results;

      f. Conduct of the foregoing procedures on a regular basis.]

­­­(f) Audit Control Policies and Procedures

Disclose all internal audit controls, policies and procedures that have been established by the company and the result of an assessment as to whether the established controls, policies and procedures have been implemented under the column “Implementation.”

 

(g) Mechanism and Safeguards

State the mechanism established by the company to safeguard the independence of the auditors, financial analysts, investment banks and rating agencies (example, restrictions on trading in the company’s shares and imposition of internal approval procedures for these transactions, limitation on the non-audit services that an external auditor may provide to the company):

 

(h) State the officers (preferably the Chairman and the CEO) who will have to attest to the company’s full compliance with the SEC Code of Corporate Governance. Such confirmation must state that all directors, officers and employees of the company have been given proper instruction on their respective duties as mandated by the Code and that internal mechanisms are in place to ensure that compliance.

On January 16, 2013, the Company submitted to the SEC the certification on the compliance with the revised manual of corporate governance for the year 2012. The certification was signed by the Company’s Compliance Officer and the President and COO.

On July 1, 2013, the Company has also submitted to the SEC the notarized Annual Corporate Governance Report for 2012 signed by the Chairman and CEO, the President and COO, and two independent directors of the Company.

On January 9, 2015, the Company submitted to the SEC the Consolidated Changes in the Annual Corporate Governance Report for 2014 that was reviewed and approved by the Board of Directors of the Company at their meeting on December 4, 2014.

On January 7, 2016, the Company submitted to the SEC the Consolidated Changes in the Annual Corporate Governance Report for 2015 that was reviewed and approved by the Board of Directors of the Company at their meeting on December 3, 2015.

1) Ownership Structure

(a) Holding 5% shareholding or more (as of March 31, 2017)

*of outstanding voting shares

Shareholdings of Officers as of June 10, 2017

All directors and officers from Managing Directors and above, and the Controllers, Chief Internal Auditor, Chief Risk Officer, Treasurer, Corporate Secretary and Assistant Corporate Secretary, shall report their trades to the Office of the Compliance Officer within three (3) business days from dealing with such securities. All other officers and employees shall likewise report to the Office of the Compliance Officer within ten (10) days from the end of each quarter their trades with Ayala securities during such quarter.

2) Does the Annual Report disclose the following:

Should the Annual Report not disclose any of the above, please indicate the reason for the non-disclosure.

Not applicable.

3) External Auditor’s fee

*inclusive of VAT

4) Medium of Communication

List down the mode/s of communication that the company is using for disseminating information. Ayala employs the following modes of communication for disseminating corporate developments and financial and operational results on a regular basis to its stakeholders:

a. Structured and unstructured corporate disclosures

b. Company website

c. Analysts’ briefings

d. Press releases

e. Press briefings

f. One-on-one meetings between company officers and analysts/institutional investors

g. Annual report

h. International and local investor conferences

i. International non-deal roadshows

j. Stockholders’ meeting

k. Conference calls

l. Email alerts

5) Date of release of audited financial report: March 17, 2016

6) Company Website

Does the company have a website disclosing up-to-date information about the following?

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

7) Disclosure of RPT

Below are the details of the Company’s Related Party Transactions which formed part of the Company’s December 2016 audited financial statements:

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence which include affiliates. Related parties may be individuals or corporate entities.

The Group, in its regular conduct of business, has entered into transactions with associates, joint ventures and other related parties principally consisting of advances, loans and reimbursement of expenses, purchase and sale of real estate properties, various guarantees, construction contracts, and development, management, underwriting, marketing and administrative service agreements. Sales and purchases of goods and services as well as other income and expense to and from related parties are made at normal commercial prices and terms.

The transactions and balances of accounts with related parties follow:

a. Transactions with BPI, an associate

i.  As of December 31, 2016 and 2015, the Group maintains current and savings account, money market placements and other short-term investments with BPI broken down as follows (amounts in thousands):

 

                                                                                                                                                       2016                        2015                                     

    Cash in banks                                                                                                                      4,227,508                 13,722,080

    Cash equivalents                                                                                                                19,751,912                42,852,439

    Short-term investments                                                                                                           405,523                   1,415,451

     Financial assets at FVPL                                                                                                        977,589                       288,229

From the Group’s placements and short-term investments with BPI, the Group has accrued interest receivable amounting to 23.1 million and 69.2 million as of December 31, 2016 and 2015, respectively. Cash in banks earns interest at 0.01% to 0.75% per annum. Cash equivalents earn interest from 1.2% to 2.8% per annum. Investment in FVPL are UITF which earns interest depending on the duration of time invested in the fund. Interest income earned amounted to 511.8 million in 2016, 650.4 million in 2015 and 586.5 million in 2014

The Group also has short-term and long-term debt payable to BPI amounting to 33.4 billion and 28.9 billion as of December 31, 2016 and 2015, respectively. These short-term and long-term debts are interest bearing with varying rates ranging from 3.92% to 4.70%, have various maturities starting 2016 and varying schedules of payments for interest. The Group has accrued interest payable pertaining to the outstanding balance of the short-term and long-term debt amounting to 78.3 million and 30.7 million as of December 31, 2016 and 2015, respectively. Interest expense incurred from the debt amounted to 1.0 billion in 2016, 250.3 million in 2015 and 402.7 million in 2014.

b. Outstanding balances of related party transactions follow (amounts in thousands):

                                                                                                                   Receivables                                                      Payable                            

                                                                                2016                                2015                                  2016                                2015                    

Associates:

BPI                                                                      653,923                              614,607                             142,412                             97,710

Isuzu Philippines Corporation (IPC)                   214,152                               75,645                               746,752                          254,574

Honda Cars Philippines, Inc.(HCP)                      94,760                               67,586                               724,967                          346,041

CDPEI                                                                     –                                   114,993                                     –                                     –

Milestone Group Pty, Ltd.                                       –                                      11,785                                     –                                     –

First Gen Northern Energy (FGNEC)                     –                                         5,531                                    –                                     –

Bonifacio Land Corp. (BLC)                                      374                                    –                                    211,893                            212,696                

                                                                            963,209                             890,147                            1,826,024                            911,021                

Joint ventures:​

Globe                                                                  350,666                             620,093                                 38,618                              62,202

Integreon                                                                  –                                  694,864                                     –                                        –

GNPower Dinginin Ltd. Co.                                      –                                  206,218                                     –                                        –

Lagoon Development Corporation

      (Lagoon)                                                           5,922                                  –                                           –                                   20,000                

                                                                            ​356,588                          1,521,175                                 38,618                             82,202                

Other related parties:

FBDC                                                                  455,170​                              38,207                             1,141,047​                             47,403

DGA NLREC B.V.                                                     –                                 685,900                                     –                                        –

Bestridge Investment Limited                                   –                                   90,591                                     –                                        –

Columbus Holdings, Inc. (Columbus)                       –                                       –                                     267,355                            267,355

      Others                                                           564,671                            146,404                                168,927                             64,464               

                                                                         1,019,841                            961,102                             1,577,329                           379,222               

                                                                         2,339,638                         3,441,971                             3,441,971                        1,372,445               

i. Receivable from BPI includes trade receivables on vehicles sold and financing dealer incentives by AITHI group and accrued interest receivables on short-term placements by the Group

ii. Receivable from Globe includes trade receivables on vehicles sold and project management and professional fees.

iii. Receivable from FBDC largely pertains to management fees which are included under “Other income.”

iv. Receivable from DGA NLREC BV in 2015 represents 25% of the US$58.3 million proceeds from AIHL’s sale of Luzon Wind shares, which is non-interest bearing. The Group collected the receivable in 2016.

v. Receivable from Integreon in 2015 pertains to convertible promissory notes with interest ranging from 9% to 12%

vi. Other outstanding balances of receivable from related parties at year-end pertain mostly to advances, including those for project development, and reimbursement of operating expenses. These also include receivables on sale of vehicles. In        addition, these also include a receivable, which is fully provided for with allowance, from a company undergoing process of dissolution. All these are unsecured, interest free, will be settled in cash and are due and demandable.

vii. Payable to Columbus and BLC represent non-interest bearing advances for stock redemption.

viii. Payable to IPC and HCP consist of purchased parts and accessories and vehicles that are trade in nature, interest-free, unsecured and are payable within 15 to 30 days.

ix. Payable to BPI includes interest payable on Group’s borrowings payable at various payments terms like monthly or quarterly and insurance premiums payable which are due in 30-60 days.

x. The other outstanding balances of payable to related parties at year-end consist of advances, including those for development costs and land acquisitions, and expenses incurred on utilities, professional services and other miscellaneous             services. In addition, these also include a receivable, which is fully provided for with allowance, from a company undergoing process of dissolution. All these are unsecured, interest-free, will be settled in cash and are due and demandable.

xi. Allowance for doubtful accounts on amounts due from related parties amounted to 208.1 million and 135.1 million as of December 31, 2016 and 2015, respectively. Provision for doubtful accounts amounted to (0.6 million), 0.3 million and 0.3       million in 2016, 2015 and 2014, respectively

xii. In 2014, Alveo acquired a 6,986 sq. m. property located along Valero St., Salcedo Vill., Makati City from BPI for 1,590.0 million, resulting into a gain of 700.0 million.

c. Receivables from officers and employees amounting to 1.1 billion and P1.1 billion as of December 31, 2016 and 2015 pertain to housing, car, salary and other loans granted to the Group’s officers and employees which are collectible through salary deduction, are interest bearing ranging from 6.0% to 13.5% per annum and have various maturity dates ranging from 2016 to 2026.

d. The fair value of the Group’s total investment in the BPI Fund amounted 1,529.1 million and 282.2 million, as of December 31, 2016 and 2015, respectively.

e. Revenue and expenses from related parties follow:

                                                                                Revenue                                                                                    Expenses                                                                

                                                                                2016                            2015                      2014                         2016                            2015                      2014       

                                                                                                                                                (In Thousands)

Associates:

BPI                                                                      757,791                        852,681                    558,814                    1,082,322                     264,997                427,263

Joint ventures:                  

Globe                                                                  236,299                          82,733                    101,381                       143,207                     120,172                124,563

Integreon                                                                  –                                45,716                      38,973                            –                                –                           –

Asiacom                                                                   –                                     191                           613                             –                                –                           –      

                                                                            994,090                        981,321                    699,781                    1,225,529                    385,169                 551,826 

Other Related:

Parties:

FBDC                                                                      –                                     –                          176,194                            –                               –                       155,099

Lagoon                                                                    –                                     –                            49,135                            –                               –                           1,315

6750 Ayala                                                              

Avenue                                                                    –                                      –                           17,697                            –                                –                            –

Others                                                                  26,936                             5,412                       25,981                         12,135                       5,075                        –      

                                                                             26,936                             5,412                     269,007                         12,135                       5,075                  156,414 

                                                                        1,021,026                         986,733                    699,781                     1,237,664                    390,244                 551,826 

Revenue recognized from related parties includes:

i. Leasing and project development and management services rendered by ALI Group.

ii. Water and sewerage services rendered by MWC.

iii. Automotive sales and repair services rendered by AITHI Group.

iv. Interest and miscellaneous income from cash deposits and money market placement as well as financing dealer incentive from BPI and other entities.

v. Others include various income such as interest and management fees.

Expenses recognized from related parties include:

i. Interest expense from short-term and long-term debt and credit card and other bank charges payable to BPI.

ii. Purchases of communications software and billings for mobile phone charges and internet connections with Globe.

iii. Building rental, leased lines, internet connections and ATM connections with Innove, subsidiary of Globe.

iv. Others include miscellaneous operating expenses such as professional and management services.

f. The Group’s Compensation of key management personnel by benefit type follows:

                                                                                2016                            2015                      2014                    

                                                                                                                         (In Thousands)

Short-term employee benefits                               1,709,872                 1,652,622                   1,369,942                   

Post-employment benefits (Note 27)                       156,923                    230,264                        69,079

Share-based payments (Note 28)​                             65,893                    125,641                         37,957            

                                                                             1,932,688                 2,008,527                    1,476,978             

1) Right to participate effectively in and vote in Annual/Special Stockholders’ Meetings

(a) Quorum

Give details on the quorum required to convene the Annual/Special Stockholders’ Meeting as set forth in its By-laws.

(b) System Used to Approve Corporate Acts

Explain the system used to approve corporate acts.

 

(c) Stockholders’ Rights

List any Stockholders’ Rights concerning Annual/Special Stockholders’ Meeting that differ from those laid down in the Corporation Code.

Dividends

Cash Dividend on Common Shares

Cash Dividend on Preferred B Series 1 Shares

 

 

Cash Dividend on Preferred B Series 2 Shares

 

 

 

Cash Dividend on Voting Preferred Shares

(d) Stockholders’ Participation

 

1. State, if any, the measures adopted to promote stockholder participation in the Annual/Special Stockholders’ Meeting, including the procedure on how stockholders and other parties interested may communicate directly with the Chairman of the Board, individual directors or board committees. Include in the discussion the steps the Board has taken to solicit and understand the views of the stockholders as well as procedures for putting forward proposals at stockholders’ meetings.

The agenda for the Annual Stockholders’ Meeting, the detailed Definitive Information Statement and the unbundled proxy form are distributed to the stockholders on record 15 business days prior to the meeting to enable the stockholders to study and understand every agenda item of the meeting. During the annual stockholders’ meeting, the Chairman of the Board encourages the stockholders to ask questions for each agenda or matters for approval during the meeting. The question and answer portion is documented in the minutes of the meeting.

2. State the company policy of asking shareholders to actively participate in corporate decisions regarding:

a. Amendments to the company's constitution

b. Authorization of additional shares

c. Transfer of all or substantially all assets, which in effect results in the sale of the company

The Company calls for a regular or special stockholders’ meeting to propose to the stockholders the actions listed above. The details of the proposed actions are presented in the Definitive Information Statement which is made available to the stockholders. During the meeting, the Company’s board and/or management present the proposed actions and encourage stockholders to ask questions. The affirmative vote of stockholders representing at least 2/3 of the issued and outstanding capital stock of the Company is required for the approval of the above items.

In cases of amendment of the Articles of Incorporation where written assent is allowed, a stockholder may deliver, in person or by mail, his vote directly to the Corporation.

3. Does the company observe a minimum of 21 business days for giving out of notices to the AGM where items to be resolved by shareholders are taken up?

a. Date of sending out notices:

On March 15, 2017, 25 business days from date of meeting, the Company distributed copies of detailed agenda of the Annual Stockholders’ Meeting to stockholders on record.

On March 24, 2017, 28 days from the date of meeting, the Company posted on its website the copy of the Definitive Information Statement and the unbundled proxy form of the Annual Stockholders’ Meeting to stockholders on record. And on March 29, 2017, 15 business days from date of meeting, the Company distributed the same to the stockholders on record.

b. Date of the Annual/Special Stockholders’ Meeting:

April 21, 2017

4. State, if any, questions and answers during the Annual/Special Stockholders’ Meeting.

Below are the questions and answers during the 2017 Annual Stockholders’ Meeting:

Q & A No. 1

Question: Referring to a particular investment made by BPI in a company which appeared to have performed badly, a stockholder asked what can be done for the Corporation to avoid similar situations.

Answer: The Chairman answered that there is always a component of risk in all investments, and failures will always be part and parcel of any portfolio but that the Corporation has consistently striven to have its successes exceed its failures to a significant degree, thereby providing a regular return on its capital. The Corporation’s Chief Financial Officer, Mr. Jose Teodoro K. Limcaoco, further explained that the Group has employed a policy of reviewing the value of its investments often and testing such investments for impairment. He assured Mr. Turner that BPI must have strategic reasons for holding on to the subject investment.​

Q & A No. 2

Question: The stockholder further asked about the Group’s risk management procedures.

Answer: The Chairman confirmed that while the Corporation has sound risk management processes in place, there will be instances when the investments do not work out. In such cases, there will be escape clauses in one form or another. What is important though is that the Corporation and the Group account for such investments and make the necessary adjustments.​

Q & A No. 3

Question: A stockholder asked if the Corporation has any plans to enter into the logistics business.

Answer: The Chairman responded that the Corporation is very interested in the logistics field and that the Zalora business could be a platform for the Corporation to build on in the logistics space.​

Q & A No. 4

Question: As a follow on Question No. 3, the stockholder inquired on when the Corporation expects Zalora to be profitable.

Answer: Mr. Limcaoco informed the stockholders that Zalora Philippines hopes to turn a profit by 2019, based on its business plan.​

Q& A No. 5

Question: As The same stockholder who asked questions 3 and 4 also asked if the Corporation has other ideas to bring production into the Philippines.

Answer: The Chairman answered in the affirmative and explained that it was the transformation taking place in the automotive industry where vehicle components are increasingly becoming electronic in nature as well as IMI’s status as a global player that instigated the Corporation’s decision to bring together its automotive and manufacturing interests and take on a more pro-active stance. The Chairman mentioned the Corporation’s belief that the Philippines has the potential to build up the manufacturing space in a robust way and KTM was just the first step. Mr. Arthur Tan confirmed that the Philippines has the potential to be a manufacturing hub because of regionalization and the transition toward hybrid manufacturing. This is why KTM decided to use IMI and Ayala as its base to serve the emerging market in ASEAN.​

Q& A No. 6

Question: As a follow up for question no. 5, the stockholder asked about the Corporation’s outlook on numbners for the first quarter of 2017.

Answer: The Chairman responded that the year is looking relatively positive if the BPI numbers for the first quarter of 2017 were to be used as a proxy for the numbers of the Corporation.

Q& A No. 7

Question: After making some initial comments on the annual report, including the weight thereof and the paper used, a stockholder posed a query concerning IMI and Tesla

Answer: Mr Tan disclosed that IMI has worked on projects with Tesla. He also clarified that Tesla is a car company that uses different components from different suppliers as a system and IMI works directly with the system supplier for Tesla, not directly with Tesla.

Q& A No. 8

Question: A stockholder inquired why there’s no female representation in the Company’s Board of Directors.

Answer: The Chairman partly attributed the absence of any female representation in the Board to the Board’s relatively small size.​

Q& A No. 9

Question: A stockholder requested for clarification on the Corporation’s Project Kasibulan.

Answer: Ms. Ma. Victoria A. Tan then addressed Mr. Go’s questions about Project Kasibulan – explaining that it is a comprehensive forest protection and rehabilitation program and assuring him that the trees being planted are native trees, specifically Dita trees.​

Q& A No. 10

Question: A stockholder asked for the reason behind the non-inclusion of “ratification of the acts of the Board and Management” in the agenda of the meeting.

Answer: Upon the Chairman’s request, the Corporate Secretary, explained that the decision to exclude such item was reached after the Securities and Exchange Commission demanded a complete list of all the acts and access to all the minutes of the meetings of the Board, its committees and management. In any event, the previous inclusion of such an item was not intended for legal compliance but was only meant to give the shareholders​ greater participation in the Corporation.​

Q& A No. 11

Question: A stockholder asked about the possibility of Ayala Corporation taking over Phinma Energy.

Answer: The President good-naturedly responded that the Corporation has been good friends and partners with the owner of Phinma Energy, Mr. Ramon R. Del Rosario, Jr. for many years and that they will continue to work together in that manner.​

Q& A No. 12

Question: A stockholder inquired on why the Ayala Group of companies have different external auditors and if it is possible to have only on external auditor for the entire group. He also inquired who audits the external auditor of the Corporation.

Answer: The Chairman explained that the other subsidiaries are doing a joint ventures with other groups and that they follow through the corporate governance principle. He further explained that the SGV is the primary auditor across the group. He also added that the Audit Committee reviews and assesses the performance of the external auditors.​

Q& A No. 13

Question: A stockholder inquired on the paper used for the production of annual reports.

Answer: The Chairman confirmed that the papers used for the production of the annual reports are completely recycled papers.​

Q& A No. 14

Question: A stockholder inquired about the presence franchise stores of Generika drugstores nationwide specifically in Makati City.

Answer: Mr. Paolo Maximo F. Borromeo explained that out of 670 Generika drugstores nationwide, 85% to 90% are franchise stores and that there is one franchise store in Makati City, specifically in Makati Cinema Square.​

Q& A No. 15

Question: A stockholder asked about recreation of some areas in Ayala Avenue.

Answer: The President confirmed that there is a great deal of re-development in Makati City which is being done gradually. The biggest development currently underway is One Ayala, which will be a transportation hub. The President informed Mr. Rivera that the Corporation is a major participant in constantly looking for ways of improving Makati.​

Q& A No. 16

Question: A stockholder inquired if the Corporation will have a project involving Philippine National Railways.

Answer: The Chairman explained that the government has not made any decision yet about the Philippine National Railway (PNR) project but that the Corporation would consider it when the parameters are in place.​

Q& A No. 17

Question: A stockholder asked about the Corporation’s involvement in the drug rehabilitation program of the Philippine government.

Answer: Mr. Ruel T. Maranan, President of Ayala Foundation, Inc. disclosed that there is an existing partnership with the local government of Marawi City and the Department of Interior and Local Government for the establishment of a community-based rehabilitation center in Marawi City (Project Siapen). Turn-over is targeted for the 2nd quarter of 2017. The Chairman added that the Group is looking for other potential projects, with announcements to be made in due time.​

 

5. Result of Annual/Special Stockholders’ Meeting’s Resolutions

6. Date of publishing of the result of the votes taken during the most recent AGM for all resolutions:

April 24, 2017

(a) Modifications State, if any, the modifications made in the Annual/Special Stockholders’ Meeting regulations during the most recent year and the reason for such modification:

(b) Stockholders’ Attendance

(i) Details of Attendance in the Annual/Special Stockholders’ Meeting Held:

(ii) Does the company appoint an independent party (inspectors) to count and/or validate the votes at the ASM/SSMs?

Yes. The company has engaged SyCip Gorres Velayo & Co. to validate the voting results of the company’s annual stockholders’ meeting since 2014.

(iii) Do the company’s common shares carry one vote for one share? If not, disclose and give reasons for any divergence to this standard. Where the company has more than one class of shares, describe the voting rights attached to each class of shares.

One vote per share for common and voting preferred shares. One vote per share for preferred “B” on matters where holders of non-voting shares are entitled to vote under Section 6 of the Corporation Code.

(c) Proxy Voting Policies

State the policies followed by the company regarding proxy voting in the Annual/Special Stockholders’ Meeting.

 

(d) Sending of Notices

State the company’s policies and procedure on the sending of notices of Annual/Special Stockholders’ Meeting.

(e) Definitive Information Statements and Management Report

 

(f) Does the Notice of Annual/Special Stockholders’ Meeting include the following:

Should any of the foregoing information be not disclosed, please indicate the reason thereto.

2) Treatment of Minority Stockholders

(a) State the company’s policies with respect to the treatment of minority stockholders.

(b) Do minority stockholders have a right to nominate candidates for board of directors?

Yes, the company’s Board Charter and the Charter of the Nomination Committee allows any stockholder, including minority stockholders, to nominate candidates for board of directors.

 

 

 

1) Discuss the company’s external and internal communications policies and how frequently they are reviewed. Disclose who reviews and approves major company announcements. Identify the committee with this responsibility, if it has been assigned to a committee.

Ayala’s external and internal communications programs are handled by both the Corporate Communications and Investor Relations units. Major company announcements are reviewed and approved by the Chairman and Chief Executive Officer, President and Chief Operating Officer, Audit Committee, Chief Finance Officer and Group Head of Corporate Strategy and Development, as applicable.

The company’s communication policies are reviewed in conjunction with enterprise risk management reviews or as needed or required.

2) Describe the company’s investor relations program including its communications strategy to promote effective communication with itsstockholders, other stakeholders and the public in general. Disclose the contact details (e.g. telephone, fax and email) of the officer responsible for investor relations.

3) What are the company’s rules and procedures governing the acquisition of corporate control in the capital markets, and extraordinary transactions such as mergers, and sales of substantial portions of corporate assets?

Company’s Rules and Procedures for Mergers and Acquisitions:

1.  Starts with Strategy and Planning where a potential transaction is assessed in the context of strategic goals of the Company, its subsidiaries and affiliates;
2. Once this is pre-cleared through the Investment Committee (IC), the transaction then goes to the second stage of evaluation and screening for a more detailed due diligence procedure. In this stage, a project lead, team members (from financial, technical, legal, commercial, environmental, etc.), steering committee members (preferably composed of business unit, finance and legal representatives) and external advisors are formed and engaged;
3. An inventory of risks with various risk levels / probability of occurrence and suggested risk mitigants are reported to the Steering Committee for evaluation, recommendation and discussion of risk levels, tolerance and mitigation strategies;
4. The key transaction risks and mitigation strategies identified along with the proposed offer, structure and authorized signatories are then subject to IC approval;
5. \When necessary, the proposal will also pass through the Finance Committee, Executive Committee and the Board of Directors;
6. Once approved, the final bid or offer is prepared and the binding terms of the definitive agreements are negotiated and discussed.
7. After signing, the transaction is then disclosed to the public.

Company’s Rules and Procedures for Divestments:

1. Starts with strategy and planning on the account of the portfolio review or business unit initiative in the context of strategic goals of Company, its subsidiaries and affiliates;
2. Approval of the Investment Committee is needed in order to determine initial position of whether to hold or sell;
3. Once pre-cleared, a project lead, team members (from financial, technical, legal, commercial, environmental, etc.), steering committee members (preferably composed of business unit, finance and legal representatives) and external advisors are formed and engaged;
4. Divestment plans (with identification of potential buyers and target selling price) are prepared;
5. Investment teaser is provided to the interested buyers and they are asked to sign an Non-Disclosure Agreement (NDA);
6. After signing the NDA/exclusivity agreement, buyers can then perform its own due diligence;
7. Offers are evaluated by the team and steering committee and presented to the IC (then Finance Committee/Executive Committee/Board of Directors, if necessary) for approval;
8. Once approved, the final bid or offer is prepared and the binding terms of the definitive agreements are negotiated and discussed;
9. After signing, the transaction is then disclosed to the public.

Name of the independent party the board of directors of the company appointed to evaluate the fairness of the transaction price.

The company engaged various accredited independent parties to issue fairness opinion reports for the Company’s mergers, acquisitions of assets and divestment transactions.

Discuss any initiative undertaken or proposed to be undertaken by the company.

The Group’s Corporate Social Responsibility is evolving. Just like any other corporation or organization, it all started in philanthropy and realized that the impact was not significant. Then it evolved to Corporate Social Responsibility where employees were encouraged to volunteer and reached more communities. However, the impact is still not significant. To create a material and relevant impact, the Group has embraced the creation of shared value process, two years ago. The Group use its resources and capabilities to innovate products, services and processes to address a societal challenges and create a socially-relevant business model and bring it to a scale. The Group has recently invested in education and healthcare, two areas where we can introduce innovative solutions in addressing the broader communities’ social challenges.

Below are some of the group’s initiatives:

 

 

Disclose the process followed and criteria used in assessing the annual performance of the board and its committees, individual director, and the CEO/President. The annual performance assessments of the Board of the Directors, Board Committees, Individual Directors and CEO/President were conducted for the year 2016 using the following process and criteria.

 

Discuss the internal policies on sanctions imposed for any violation or breach of the corporate governance manual involving directors, officers, management and employees After due notice and hearing, a director, officer or employee who violates the Manual of Corporate Governance of the company will be subjected to the following penalties: