Corporate Governance | Right Choice Finance

RIGHT CHOICE LENDING CORPORATION

CORPORATE GOVERNANCE

OPERATING MANUAL

(February 2018)

The Board of Directors, Management, and Staff of RIGHT CHOICE LENDING CORPORATION (the “Company”) hereby commit themselves to the principles and the best practices contained in this Manual on Corporate Governance (the “Manual”), and acknowledge that the same may guide the attainment of the Company goals.

OBJECTIVE

This manual shall institutionalize the principles of good corporate governance in the entire organization.

The Board of Directors (the “Board) Management, and staff and shareholders, believe that good governance is a necessary component of what constitutes sound strategic business management and will therefore undertake every effort necessary to create awareness thereof within the organization.

RULES OF INTERPRETATION

All references to the masculine gender in the salient provisions of this Manual shall likewise cover the feminine gender.

All doubts or questions that may arise in the interpretation or application of this Manual shall be resolved in favor of promoting transparency, accountability, and fairness to the stakeholders and shareholders of the Company.

Definition of Terms

  1. Corporate Governance – the framework of rules, systems and processes in the corporation that governs the performance by the Board of Directors and Management of their respective duties and responsibilities to the stockholders;
  1. Board of Directors – the governing body elected by the stockholders that exercises the corporate powers of a corporation, conducts all its business and controls its properties;
  1. Exchange – an organized market place or facility that brings together buyers and sellers, and executes trades of securities and/or commodities;
  1. Management – the body given the authority by the Board of Directors to implement the policies it has laid down in the conduct of the business of the corporation;
  1. Independent director – a person who, apart from his fees and shareholdings, is independent of management and free from any business or other relationship which could, or could reasonably be perceived to, materially interfere with his exercise of independent judgment in carrying out his responsibilities as a director;
  1. Executive director – a director who is also the head of a department or unit of the corporation or performs any work related to its operation;
  1. Non-executive director – a director who is not the head of a department or unit of the

corporation nor performs any work related to its operation;

  1. Non-audit work – the other services offered by an external auditor to a corporation that are not directly related and relevant to its statutory audit functions, such as, accounting, payroll, bookkeeping, reconciliation, computer project management, data processing, or information technology outsourcing services, internal audit, and other services that may compromise the independence and objectivity of an external auditor;
  1. Internal control – the system established by the Board of Directors and Management for the accomplishment of the corporation’s objectives, the efficient operation of its business, the reliability of its financial reporting, and faithful compliance with applicable laws, regulations and internal rules;
  1. Internal control system – 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;
  1. Internal audit – an independent and objective assurance activity designed to add value to and improve the corporation’s operations, and help it accomplish its objectives by providing a systematic and disciplined approach in the evaluation and improvement of the effectiveness of risk management, control and governance processes;
  1. Internal audit department – a department or unit of the corporation and its consultants, if any, that provide independent and objective assurance services in order to add value to and improve the corporation’s operations;
  1. Internal Auditor – the highest position in the corporation responsible for internal audit If internal audit activities are performed by outside service providers, he is the person responsible for overseeing the service contract, the overall quality of these activities, and follow-up of engagement results.

The Board’s Governance Responsibilities

Compliance with the principals of good corporate governance shall start with the Board. It is the Board’s responsibility to foster the long-term success of the Corporation, and to sustain its competitiveness and profitability in a manner consistent with its corporate objective and the best interests of its stockholders and other stakeholders. The Board is primarily responsible for the governance of the corporation. Corollary to setting the policies for the accomplishment of the corporate objectives, it shall provide an independent check on Management.

  1. Composition of the Board

The Board shall be composed of five (5) members who shall be elected by the stockholders annually and shall hold office for one (1) year and until their successors are elected and qualified in accordance with the Corporation’s By-laws.

The Board shall endeavor to exercise an objective and independent judgement on all corporate affairs.

The Board shall have at least one (1) independent director, or such number as to constitute twenty percent (20%) of the members of the Board.

The membership of the Board may be a combination of executive and non-executive directors (which include independent directors) in order that no director or small group of directors can dominate the decision- making process.

The non-executive directors should possess such qualifications and stature that would enable them to effectively participate in the deliberations of the Board.

  1. Multiple Board Seats

A director shall exercise due discretion in accepting and holding directorships outside of the Corporation. The director shall notify the Board where he/she is an incumbent before accepting a directorship in another company.

  1. Chairperson of the Board

The Board shall be headed by a competent and qualified Chairperson.

The duties and responsibilities of the Chair in relation to the Board include, among others, the following:

  1. Ensure that the meetings of the Board are held in accordance with the by-laws;
  1. Supervise the preparation of the agenda of the meeting in coordination with the Corporate Secretary, taking into consideration the suggestions of the CEO, Management and the directors; and
  1. Maintain qualitative and timely lines of communication and information between the Board and
  1. Facilitates discussion on key issues by fostering an environment conducive for constructive debate and leveraging on the skills and expertise of individual directors.
  1. Makes sure the performance of the Board is evaluated at least once a year and discussed/follow up
  1. Qualifications of Directors

A director of the Corporation must possess the following qualifications:

  • College education or equivalent academic degree or have sufficient experience in managing the business to substitute for such formal education;
  • Practical understanding of the business of the corporation;
  • Proven to possess integrity, probity and assiduousness;
  • Ownership of at least one (1) share of stock of the Corporation; and
  • At least twenty-one (21) years of
  1. Disqualification of Directors
  1. Permanent Disqualification

The following shall be grounds for the permanent disqualification of a director:

  1. Any person convicted by final judgment or order by a competent judicial or administrative body of any crime that (a) involves the purchase or sale of securities, as defined in the Securities Regulation Code; (b) arises out of the person’s conduct as an underwriter, broker, dealer, investment adviser, principal, distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker; or (c) arises out of his fiduciary relationship with a bank, quasi-bank, trust company, investment house or as an affiliated person of any of them;
  1. Any person who, by reason of misconduct, after hearing, is permanently enjoined by a final judgment or order of the Commission or any court or administrative body of competent jurisdiction from: (a) acting as underwriter, broker, dealer, investment adviser, principal distributor, mutual fund dealer, futures commission merchant, commodity trading advisor, or floor broker; (b) acting as director or officer of a bank, quasi- bank, trust company, investment house, or investment company;
  1. engaging in or continuing any conduct or practice in any of the capacities mentioned in sub-paragraphs (1) and (2) above, or willfully violating the laws that govern securities and banking

The disqualification shall also apply if such person is currently the subject of an order of the Commission or any court or administrative body denying, revoking or suspending any registration, license or permit issued to him under the Corporation Code, Securities Regulation Code or any other law administered by the Commission or Bangko Sentral ng Pilipinas (BSP), or under any rule or regulation issued by the Commission or BSP, or has otherwise been restrained to engage in any activity involving securities and banking; or such person is currently the subject of an effective order of a self-regulatory

organization suspending or expelling him from membership, participation or association with a member or participant of the organization;

  • Any person convicted by final judgment or order by a court or competent administrative body of an offense involving moral turpitude, fraud, embezzlement, theft, estafa, counterfeiting, misappropriation, forgery, bribery, false affirmation, perjury or other fraudulent acts;
  • Any person who has been adjudged by final judgment or order of the Commission, court, or competent administrative body to have willfully violated, or willfully aided, abetted, counseled, induced or procured the violation of any provision of the Corporation Code, Securities Regulation Code or any other law administered by the Commission or BSP, or any of its rule, regulation or order;
  • Any person earlier elected as independent director who becomes an officer, employee or consultant of the same corporation;
  • Any person judicially declared as insolvent;
  • Any person found guilty by final judgment or order of a foreign court or equivalent financial regulatory authority of acts, violations or misconduct similar to any of the acts, violations or misconduct enumerated in sub-paragraphs (i) to (v) above;
  • Conviction by final judgment of an offense punishable by imprisonment for more than six (6) years, or a violation of the Corporation Code committed within five

(5) years prior to the date of his election or appointment.

2. Temporary Disqualification

The Board may provide for the temporary disqualification of a director for any of the following reasons:

  • Refusal to comply with the disclosure requirements of the Securities Regulation Code and its Implementing Rules and Regulations. The disqualification shall be in effect as long as the refusal
  • Absence in more than fifty (50) percent of all regular and special meetings of the Board during his incumbency, or any twelve (12) month period during the said incumbency, unless the absence is due to illness, death in the immediate family or serious accident. The disqualification shall apply for purposes of the succeeding
  • Dismissal or termination for cause as director of any corporation covered by this Code. The disqualification shall be in effect until he has cleared himself from any involvement in the cause that gave rise to his dismissal or
  • If the beneficial equity ownership of an independent director in the corporation

or its subsidiaries and affiliates exceeds two percent of its subscribed capital stock. The disqualification shall be lifted if the limit is later complied with.

  • If any of the judgments or orders cited in the grounds for permanent disqualification has not yet become

A temporarily disqualified director shall, within sixty (60) business days from such disqualification, take the appropriate action to remedy or correct the disqualification. If he fails or refuses to do so for unjustified reasons, the disqualification shall become permanent.

  1. Responsibilities, Duties and Functions of the Board
  1. General Responsibility

It is the Board’s responsibility to foster the long-term success of the corporation, and to sustain its competitiveness and profitability in a manner consistent with its corporate objectives and the best interests of its stockholders.

The Board should formulate the corporation’s vision, mission, strategic objectives, policies and procedures that shall guide its activities, including the means to effectively monitor Management’s performance.

  1. Duties and Functions

To ensure a high standard of best practice for the corporation and its stockholders, the Board should conduct itself with honesty and integrity in the performance of, among others, the following duties and functions:

  1. Implement a process for the selection of directors who can add value and contribute independent judgment to the formulation of sound corporate strategies and policies. Appoint competent, professional, honest and highly- motivated management officers. Adopt an effective succession planning program for
  1. Provide sound strategic policies and guidelines to the corporation on major capital expenditures. Establish programs that can sustain its long-term viability and strength. Periodically evaluate and monitor the implementation of such policies and strategies, including the business plans, operating budgets and Management’s overall
  1. Ensure the corporation’s faithful compliance with all applicable laws, regulations and best business
  1. Identify the sectors in the community in which the corporation operates or are directly affected by its operations, and formulate a clear policy of accurate, timely and effective communication with
  1. Adopt a system of check and balance within the Board. A regular review of the effectiveness of such system should be conducted to ensure the integrity of the decision-making and reporting processes at all There should be a continuing review of the corporation’s internal control system in order to maintain its adequacy and effectiveness.
  1. Identify key risk areas and performance indicators and monitor these factors with due diligence to enable the corporation to anticipate and prepare for possible threats to its operational and financial
  1. Formulate and implement policies and procedures that would ensure the integrity and transparency of related party transactions between and among the corporation and its parent company, joint ventures, subsidiaries, associates, affiliates, major stockholders, officers and directors, including their spouses, children and dependent siblings and parents, and of interlocking director relationships by members of the
  1. Constitute an Audit Committee and such other committees it deems necessary to assist the Board in the performance of its duties and responsibilities.
  1. Establish and maintain an alternative dispute resolution system in the corporation that can amicably settle conflicts or differences between the corporation and its stockholders, and the corporation and third parties, including the regulatory
  1. Meet at such times or frequency as may be needed. The minutes of such meetings should be duly Independent views during Board meetings should be encouraged and given due consideration.
  1. Keep the activities and decisions of the Board within its authority under the articles of incorporation and by-laws, and in accordance with existing laws, rules and
  1. Appoint a Compliance Officer who shall have the rank of at least vice president. In the absence of such appointment, the Corporate Secretary, preferably a lawyer, shall act as Compliance
  1. Specific Duties and Responsibilities of a Director

A director’s office is one of trust and confidence. A director should act in the best interest of the corporation in a manner characterized by transparency, accountability and fairness. He should also exercise leadership, prudence and integrity in directing the corporation towards sustained progress.

A director should observe the following norms of conduct:

  • Conduct fair business transactions with the corporation, and ensure that

his personal interest does not conflict with the interests of the corporation.

The basic principle to be observed is that a director should not use his position to profit or gain some benefit or advantage for himself and/or his related interests. He should avoid situations that may compromise his impartiality. If an actual or potential conflict of interest may arise on the part of a director, he should fully and immediately disclose it and should not participate in the decision-making process. A director who has a continuing material conflict of interest should seriously consider resigning from his position.

A conflict of interest shall be considered material if the director’s personal or business interest is antagonistic to that of the corporation, or stands to acquire or gain financial advantage at the expense of the corporation.

  • Devote the time and attention necessary to properly and effectively perform his duties and

A director should devote sufficient time to familiarize himself with the corporation’s business. He should be constantly aware of and knowledgeable with the corporation’s operations to enable him to meaningfully contribute to the Board’s work. He should attend and actively participate in Board and committee meetings, review meeting materials and, if called for, ask questions or seek explanation.

  • Act

Before deciding on any matter brought before the Board, a director should carefully evaluate the issues and, if necessary, make inquiries and request clarification.

  • Exercise independent

A director should view each problem or situation objectively. If a disagreement with other directors arises, he should carefully evaluate and explain his position. He should not be afraid to take an unpopular position. Corollarily, he should support plans and ideas that he thinks are beneficial to the corporation.

  • Have a working knowledge of the statutory and regulatory requirements that affect the corporation, including its articles of incorporation and by- laws, the rules and regulations of the Commission and, where applicable, the requirements of relevant regulatory

A director should also keep abreast with industry developments and business trends in order to promote the corporation’s competitiveness.

  • Observe

A director should keep secure and confidential all non-public information he may

acquire or learn by reason of his position as director. He should not reveal confidential information to unauthorized persons without the authority of the Board.

  1. Board Meetings and Quorum Requirement

The members of the Board should attend its regular and special meetings in person or through teleconferencing conducted in accordance with the rules and regulations of the By-laws.

Independent directors should always attend Board meetings. Unless otherwise provided in the by-laws, their absence shall not affect the quorum requirement. However, the Board may, to promote transparency, require the presence of at least one independent director in all its meetings.

  1. Remuneration of Directors and Officers

Directors shall not receive any compensation unless approved by the stockholders or provided in the Corporation’s By-laws. No director shall participate in the approval of his compensation. However, the Board may, from time to time, approve a reasonable per diem that a director may receive for attendance in Board and Board Committee meetings.

  1. Board Committees

The Board shall constitute the proper committees to assist it in good corporate governance.

  • The Audit Committee shall consist of at least three (3) directors, who shall preferably have accounting and finance backgrounds, one of whom shall be an independent director and another with audit experience. The chair of the Audit Committee should be an independent director. The committee shall have the following functions:
  1. Assist the Board in the performance of its oversight responsibility for the financial reporting process, system of internal control, audit process, and monitoring of compliance with applicable laws, rules and regulations;
  1. Provide oversight over Management’s activities in managing credit, market, liquidity, operational, legal and other risks of the corporation. This function shall include regular receipt from Management of information on risk exposures and risk management activities;
  1. Perform oversight functions over the corporation’s internal and external auditors. It should ensure that the internal and external auditors act independently from each other, and that both auditors are given unrestricted access to all records, properties and personnel to enable them to perform their respective audit functions;
  1. Review the annual internal audit plan to ensure its conformity with the objectives of the corporation. The plan shall include the audit scope, resources and budget necessary to implement it;
  1. Prior to the commencement of the audit, discuss with the external auditor the nature, scope and expenses of the audit, and ensure proper coordination if more than one audit firm is involved in the activity to secure proper coverage and minimize duplication of efforts;
  1. Organize an internal audit department, and consider the appointment of an independent internal auditor and the terms and conditions of its engagement and removal;
  1. Monitor and evaluate the adequacy and effectiveness of the corporation’s internal control system, including financial reporting control and information technology security;
  1. Review the reports submitted by the internal and external auditors;
  1. Review the quarterly, half-year and annual financial statements before their submission to the Board, with particular focus on the following matters:
    • Any change/s in accounting policies and practices
    • Major judgmental areas
    • Significant adjustments resulting from the audit
    • Going concern assumptions
    • Compliance with accounting standards
    • Compliance with tax, legal and regulatory
  1. Coordinate, monitor and facilitate compliance with laws, rules and regulations;
  1. Evaluate and determine the non-audit work, if any, of the external auditor, and review periodically the non-audit fees paid to the external auditor in relation to their significance to the total annual income of the external auditor and to the corporation’s overall consultancy expenses. The committee shall disallow any non-audit work that will conflict with his duties as an external auditor or may pose a threat to his independence. The non-audit work, if allowed, should be disclosed in the corporation’s annual report;
  1. Establish and identify the reporting line of the Internal Auditor to enable him to properly fulfill his duties and responsibilities. He shall functionally report directly to the Audit Committee.

The Audit Committee shall ensure that, in the performance of the work of the Internal Auditor, he shall be free from interference by outside parties.

  • The Board may also organize other committees as it deems necessary from time

to time to ensure the effective oversight of the Corporation.

  1. The Corporate Secretary

The Corporate Secretary, who shall be a Filipino citizen and a resident of the Philippines, is an officer of the corporation. He should -

  • Be responsible for the safekeeping and preservation of the integrity of the minutes of the meetings of the Board and its committees, as well as the other official records of the corporation;
  • Be loyal to the mission, vision and objectives of the corporation;
  • Work fairly and objectively with the Board, Management and stockholders;
  • Have appropriate administrative and interpersonal skills;
  • If he is not at the same time the corporation’s legal counsel, be aware of the laws, rules and regulations necessary in the performance of his duties and responsibilities;
  • Have a working knowledge of the operations of the corporation;
  • Inform the members of the Board, in accordance with the by- laws, of the agenda of their meetings and ensure that the members have before them accurate information that will enable them to arrive at intelligent decisions on matters that require their approval;
  • Attend all Board meetings, except when justifiable causes, such as, illness, death in the immediate family and serious accidents, prevent him from doing so;
  • Ensure that all Board procedures, rules and regulations are strictly followed by the members; and
  • If he is also the Compliance Officer, perform all the duties and responsibilities of the said officer as provided for in this
  1. The Compliance Officer

The Board shall appoint a Compliance Officer who shall report directly to the Chair of the Board. He shall perform the following duties:

  • Monitor compliance by the corporation with this Manual and the rules and regulations of regulatory agencies and, if any violations are found, report the matter to the Board and recommend the imposition of appropriate disciplinary action on the responsible parties and the adoption of measures to prevent a repetition of the violation;
  • Appear before the Commission when summoned in relation to compliance with this Manual; and
  • Issue a certification every April 30 th of the year on the extent of the corporation’s compliance with this Code for the completed year and, if there are any deviations, explain the reason for such

Adequate and Timely Information

To enable the members of the Board to properly fulfill their duties and responsibilities, Management should provide them with complete, adequate and timely information about the matters to be taken in their meetings.

Reliance on information volunteered by Management would not be sufficient in all circumstances and further inquiries may have to be made by a member of the Board to enable him to properly perform his duties and responsibilities. Members shall be given independent access to Management and the Corporate Secretary.

The information may include the background or explanation on matters brought before the Board, disclosures, budgets, forecasts and internal financial documents.

Accountability and Audit

  1. The Board is primarily accountable to the stockholders. It should provide them with a balanced and comprehensible assessment of the corporation’s performance, position and prospects on a quarterly basis, including interim and other reports that could adversely affect its business, as well as reports to regulators that are required by law. Thus, it is essential that Management provide all members of the Board with accurate and timely information that would enable the Board to comply with its responsibilities to the

Management will formulate, under the supervision of the Audit Committee, the rules and procedures on financial reporting and internal control in accordance with the following guidelines:

  • The extent of its responsibility in the preparation of the financial statements of the corporation, with the corresponding delineation of the responsibilities that pertain to the external auditor, shall be clearly explained;
  • An effective system of internal control that will ensure the integrity of the financial reports and protection of the assets of the corporation should be maintained;
  • On the basis of the approved audit plans, internal audit examinations should cover, at the minimum, the evaluation of the adequacy and effectiveness of controls that cover the corporation’s governance, operations and information systems, including the reliability and integrity of financial and operational information, effectiveness and efficiency of operations, protection of assets, and compliance with contracts, laws, rules and regulations;
  • The corporation should consistently comply with the financial reporting requirements of the Commission;
  • The external auditor should be rotated or changed every five (5) years or earlier, or the signing partner of the external auditing firm assigned to the corporation, should be changed with the same The Internal Auditor should submit to the Audit Committee and Management an annual report on the internal audit department’s activities, responsibilities and performance relative to the audit plans and strategies as approved by the Audit Committee. The annual report should include significant risk exposures, control issues and such other matters as may be needed or requested by the Board and Management. The Internal Auditor should certify that he conducts his activities in accordance with the International Standards on the Professional Practice of Internal Auditing. If he does not, he shall disclose to the Board and Management the reasons why he has not fully complied with the said standards.
  1. The Board, after consultations with the Audit Committee, shall recommend to the stockholders an external auditor duly accredited by the Commission who shall undertake an independent audit of the corporation, and shall provide an objective assurance on the manner by which the financial statements shall be prepared and presented to the stockholders. The external auditor shall not, at the same time, provide internal audit services to the corporation. Non-audit work may be given to the external auditor, provided it does not conflict with his duties as an independent auditor, or does not pose a threat to his

If the external auditor resigns, is dismissed or ceases to perform his services, the reason/s for and the date of effectivity of such action shall be reported in the corporation’s annual and current reports. The report shall include a discussion of any disagreement between him and the corporation on accounting principles or practices, financial disclosures or audit procedures which the former auditor and the corporation failed to resolve satisfactorily. A preliminary copy of the said report shall be given by the corporation to the external auditor before its submission.

If the external auditor believes that any statement made in an annual report, information

statement or any report filed with the Commission or any regulatory body during the period of his engagement is incorrect or incomplete, he shall give his comments or views on the matter in the said reports.

Stockholders’ Rights and Protection of Minority Stockholders’ Interests

  1. The Board shall respect the rights of the stockholders as provided for in the Corporation Code, namely:
  • Right to vote on all matters that require their consent or approval;
  • Pre-emptive right to all stock issuances of the corporation;
  • Right to inspect corporate books and records;
  • Right to information;
  • Right to dividends; and
  • Appraisal
  1. The Board will be transparent and fair in the conduct of the annual and special stockholders’ meetings of the corporation. The stockholders will be encouraged to personally attend such If they cannot attend, they should be apprised ahead of time of their right to appoint a proxy. Subject to the requirements of the by- laws, the exercise of that right shall not be unduly restricted and any doubt about the validity of a proxy should be resolved in the stockholder’s favor.

It is the duty of the Board to promote the rights of the stockholders, remove impediments to the exercise of those rights and provide an adequate avenue for them to seek timely redress for breach of their rights.

The Board will take the appropriate steps to remove excessive or unnecessary costs and other administrative impediments to the stockholders’ meaningful participation in meetings, whether in person or by proxy. Accurate and timely information should be made available to the stockholders to enable them to make a sound judgment on all matters brought to their attention for consideration or approval.

Although all stockholders should be treated equally or without discrimination, the Board should give minority stockholders the right to propose the holding of meetings and the items for discussion in the agenda that relate directly to the business of the corporation.

Disclosure and Transparency

The essence of corporate governance is transparency. The more transparent the internal workings of the corporation are, the more difficult it will be for Management and dominant stockholders to mismanage the corporation or misappropriate its assets.

It is therefore essential that all material information about the corporation which could adversely affect its viability or the interests of the stockholders should be timely disclosed. Such information should include, among others, earnings results, acquisition or disposition of assets, off balance sheet transactions, related party transactions, and direct and indirect remuneration of members of the Board and Management. All such information should be disclosed through the appropriate mechanisms.

Commitment to Good Corporate Governance

The Boad is committed to good corporate governance. This Manual embodies the rules of good corporate governance and shall be used as reference by the members of the Board and Management. The manual will be submitted to the Commission for its evaluation within one hundred eighty (180) business days from the date this Code becomes effective to enable the Commission to determine its compliance with this Code.

The manual shall be made available for inspection by any shareholder at reasonable hours on business days.

Effective Date

This Revise Manual on Corporate Governance was approved by the Board on 2 February 2018 and shall take effect on 2 February 2018.

Signed this 2nd day of February 2018 at Makati City, Philippines.