What steps should our Philippine company take to enforce robust related-party transaction controls under Philippine corporate governance rules?

Hello:

Presuming this is within Philippine jurisdiction, the core challenge with related party transactions is that they cut straight through the heart of corporate governance. The goal is to avoid self dealing, protect minority shareholders, and ensure all transactions with directors, officers, shareholders, affiliates, and entities under common control are fair, transparent, and defensible under the Revised Corporation Code, SEC Memorandum Circular 10 series of 2019, and the Code of Corporate Governance. As the owner of Recososa Law Firm, with offices in Luzon, Visayas and Mindanao, I can walk your company through building a system that will actually stand in an SEC audit or a shareholder challenge.

Firstly, you need a.) a clear definition of who counts as a related party. This covers directors, key officers, spouses, relatives within the fourth civil degree, companies where they hold controlling interests, and beneficial owners. Many companies fail here because they rely on partial disclosures. You need a full written registry updated quarterly.

Secondly, you need b.) a documented process for identifying and evaluating every potential related party transaction. This means mandatory employee and director disclosures, internal red flag triggers, and an approval workflow. Under SEC MC 10, material RPTs require board approval with at least two thirds vote including a majority of the independent directors. If any director has an interest, they must abstain. There must also be a fairness assessment that shows the terms are comparable to arm’s length arrangements.

Thirdly, you need c.) specific documentation. The SEC requires a material RPT policy, a board approval record with minutes citing the director’s abstention, a fairness or third party valuation report when needed, a summary disclosure in the Annual Corporate Governance Report, and detailed disclosure in the General Information Sheet about beneficial ownership. Failure to document intent and deliberation is where companies typically get trapped.

Fourth, you need d.) proper disclosures to the SEC, stockholders and the public. Material RPTs must be disclosed within required timelines and included in the audited financial statements. If the transaction is large enough, or if you are a publicly listed company, you must also observe PSE disclosure standards.

Lastly, you need e.) real world implementation. This is where most companies break down. You need training for officers and accounting teams, standard forms for RPT review, mandatory pre screening before any contract is signed, a CFO and Corporate Secretary monitoring system, and aligned internal audit procedures that regularly test compliance. It also helps to implement a whistleblower mechanism specific to conflicts of interest.

Atty. Jofre, my opinion is that companies underestimate how aggressive the SEC has become on enforcement. If you want to ensure that your governance system is airtight, the best move is to have us map your current practices, correct gaps, and write a customized Related Party Transactions Manual that your board can formally adopt. From there, your yearly compliance cycle becomes easier and you stay on the safe side of regulatory standards.

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Sincerely,
ATTY. JOFRE B. RECOSOSA
Owner, Managing Partner
Recososa Law Firm

Hi,

Many Philippine companies continue to face governance challenges in managing related-party transactions (RPTs) because these transactions sit at the intersection of conflict-of-interest risk, minority-shareholder protection, and regulatory transparency. Under Philippine SEC corporate governance standards—particularly for publicly listed companies—RPTs are not prohibited, but they are treated as inherently sensitive and therefore subject to heightened scrutiny.

At the regulatory level, the framework distinguishes between ordinary RPTs and Material Related-Party Transactions (MRPTs). Transactions become “material” when they reach or exceed a significance threshold relative to the company’s total assets, or when multiple transactions with the same related party are aggregated over a defined period and cross that threshold. Once materiality is triggered, the transaction is expected to move beyond routine management approval and into independent board-level oversight.

The SEC’s governance approach is anchored on three core principles. First, arm’s-length dealing—the corporation must be able to demonstrate that the terms of the transaction are no less favorable than those available from an unrelated third party. Second, independent decision-making—directors or officers with a material interest in the transaction must fully disclose their interest and recuse themselves from deliberation and approval. Third, transparency—material RPTs are treated as investor-relevant matters that require timely and accurate disclosure, separate from ordinary financial statement reporting.

From a board perspective, regulators increasingly focus not only on whether approvals were obtained, but on whether the company has institutionalized RPT governance. This includes the existence of a clear RPT policy, defined approval thresholds, an empowered committee structure, and documentary support showing that potential abuse or preferential treatment was actively evaluated and mitigated. Weak processes, delayed disclosures, or unclear approval trails are common triggers for regulatory concern.

This overview is intended to frame the regulatory expectations at a high level. A deeper discussion would normally cover specific thresholds, approval mechanics, disclosure timelines, and practical implementation controls tailored to the company’s ownership structure and risk profile.

For further discussion or to schedule a meeting, you may contact:
Atty. Lillian Roque
Elepaño Roque Law Office