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